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Republic SUPREME Manila FIRST DIVISION of the Philippines COURT

G.R. No. 105188 January 23, 1998 MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, vs. A.U. VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO, respondents.

KAPUNAN, J.: In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which affirmed with modification the decision of the trial court; and 2) the Resolution dated 22 April 1992 of the same court, which denied petitioner's motion for reconsideration of the above decision. The antecedent facts of this case are as follows: Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent Pearroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against herein petitioner Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte. The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-infact of Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land, consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon City; that prior to the alleged sale, the said property, together with several other parcels of land likewise owned by Angela M. Butte, had been mortgaged by her to the Associated Banking Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title to the subject property had been released, Angela M. Butte passed away; that despite representations made by herein respondents to the bank to release the title to the property sold to respondent Pearroyo, the bank refused to release it unless and until all the mortgaged properties of the late Angela M. Butte were also redeemed; that in order to protect his rights and interests over the property, respondent Pearroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. P.E.-6118/T-28993, inscribed on 18 January 1997. The complaint further alleged that it was only upon the release of the title to the property, sometime in April 1977, that respondents Valencia and Pearroyo discovered that the mortgage rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as

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special administrator of the Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein petitioner had been collecting monthly rentals in the amount of P800.00 from the tenants of the property, knowing that said property had already been sold to private respondents on 15 June 1973; that despite repeated demands from said respondents, petitioner refused and failed to deliver the title to the property. Thereupon, respondents Valencia and Pearroyo filed a complaint for specific performance, praying that petitioner be ordered to deliver to respondent Pearroyo the title to the subject property (TCT 28993); to turn over to the latter the sum of P72,000.00 as accrued rentals as of April 1982, and the monthly rental of P800.00 until the property is delivered to respondent Pearroyo; to pay respondents the sum of P20,000.00 as attorney's fees; and to pay the costs of the suit. In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not state a cause of action; that the real property in interest was the Testate Estate of Angela M. Butte, which should have been joined as a party defendant; that the case amounted to a claim against the Estate of Angela M. Butte and should have been filed in Special Proceedings No. A-17910 before the Probate Court in Quezon City; and that, if as alleged in the complaint, the property had been assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said estate should be impleaded. Petitioner, likewise, claimed that he could not recall in detail the transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in his possession; that he could not be held personally liable as he signed the deed merely as attorney-in-fact of said Angela M. Butte. Finally, petitioner asseverated that as a result of the filing of the case, he was compelled to hire the services of counsel for a fee of P20,000.00 for which respondents should be held liable. Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making common cause with respondents Valencia and Pearroyo, respondent Jao alleged that the subject lot which had been sold to respondent Pearroyo through respondent Valencia was in turn sold to him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the amount of P5,000.00. He, therefore, prayed that judgment be rendered in favor of respondents, the latter in turn be ordered to execute in his favor the appropriate deed of conveyance covering the property in question and to turn over to him the rentals which aforesaid respondents sought to collect from petitioner Myron V. Papa. Respondent Jao, likewise, averred that as a result of petitioner's refusal to deliver the title to the property to respondents Valencia and Pearroyo, who in turn failed to deliver the said title to him, he suffered mental anguish and serious anxiety for which he sought payment of moral damages; and, additionally, the payment of attorney's fees and costs. For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos (respondent Reyes spouses, for short). He averred, among other's that the late Angela M. Butte was the owner of the subject property; that due to non-payment of real estate tax said property was sold at public auction the City Treasurer of Quezon City to the respondent Reyes spouses on 21 January 1980 for the sum of P14,000.00; that the one-year period of redemption had expired; that respondents Valencia and Pearroyo had sued petitioner Papa as administrator of the estate of Angela M. Butte, for the delivery of the title to the property; that the same aforenamed respondents had acknowledged that the price paid by them was insufficient, and that they were willing to add a reasonable amount or a minimum of P55,000.00 to the price upon delivery of the property, considering that the same was estimated to be worth P143,000.00; that petitioner was willing to reimburse respondents Reyes spouses whatever amount they might have paid for taxes and other charges, since the subject property was still registered in the name of the late Angela M.

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Butte; that it was inequitable to allow respondent Reyes spouses to acquire property estimated to be worth P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment be rendered canceling the tax sale to respondent Reyes spouses; restoring the subject property to him upon payment by him to said respondent Reyes spouses of the amount of P14,000.00, plus legal interest; and, ordering respondents Valencia and Pearroyo to pay him at least P55,000.00 plus everything they might have to pay the Reyes spouses in recovering the property. Respondent Reyes spouses in their Answer raised the defense of prescription of petitioner's right to redeem the property. At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary proof. On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads: WHEREUPON, judgment is hereby rendered as follows: 1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest of 12% thereon from January 21, 1980; 2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Pearroyo covering the property in question and to deliver peaceful possession and enjoyment of the said property to the said plaintiff, free from any liens and encumbrances; Should this not be possible, for any reason not attributable to defendant, said defendant is ordered to pay to plaintiff Felix Pearroyo the sum of P45,000.00 plus legal interest of 12% from June 15, 1973; 3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of absolute sale over the same property, upon the latter's payment to the former of the balance of the purchase price of P71,500.00; Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the sum of P5,000.00 plus legal interest of 12% from August 23, 1973; and 4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorney's fees and litigation expenses. SO ORDERED. 1 Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among others that the sale was never "consummated" as he did not encash the check (in the amount of P40,000.00) given by respondents Valencia and Pearroyo in payment of the full purchase price of the subject lot. He maintained that what said respondent had actually paid was only the amount of P5,000.00 (in cash) as earnest money. Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was dismissed because of failure to file their appellant's brief.

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On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial court's decision, thus: WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is MODIFIED, by ordering the defendant-appellant to deliver to plaintiff-appellees the owner's duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in question or, if the owner's duplicate certificate cannot be produced, to authorize the Register of Deeds to cancel it and issue a certificate of title in the name of Felix Pearroyo. In all other respects, the decision appealed from is AFFIRMED. Costs against defendant-appellant Myron C. Papa. SO ORDERED. 2 In affirming the trial court's decision, respondent court held that contrary to petitioner's claim that he did not encash the aforesaid check, and therefore, the sale was not consummated, there was no evidence at all that petitioner did not, in fact, encash said check. On the other hand, respondent Pearroyo testified in court that petitioner Papa had received the amount of P45,000.00 and issued receipts therefor. According to respondent court, the presumption is that the check was encashed, especially since the payment by check was not denied by defendant-appellant (herein petitioner) who, in his Answer, merely alleged that he "can no longer recall the transaction which is supposed to have happened 10 years ago." 3 On petitioner's claim that he cannot be held personally liable as he had acted merely as attorney-in-fact of the owner, Angela M. Butte, respondent court held that such contention is without merit. This action was not brought against him in his personal capacity, but in his capacity as the administrator of the Testate Estate of Angela M. Butte. 4 On petitioner's contention that the estate of Angela M. Butte should have been joined in the action as the real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of Court, the estate of Angela M. Butte does not have to be joined in the action. Likewise, the estate of Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the same Rules. For the fact is that Ramon Papa, Jr., or his estate, was not a party to the Deed of Absolute Sale, and it is basic law that contracts bind only those who are parties thereto. 5 Respondent court observed that the conditions under which the mortgage rights of the bank were assigned are not clear. In any case, any obligation which the estate of Angela M. Butte might have to the estate of Ramon Papa, Jr. is strictly between them. Respondents Valencia and Pearroyo are not bound by any such obligation. Petitioner filed a motion for reconsideration of the above decision, which motion was denied by respondent Court of Appeals. Hence, this petition wherein petitioner raises the following issues: I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE, AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE. II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT, ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN

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ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE. III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS CASE. 6 Petitioner argues that respondent Court of Appeals erred in concluding that alleged sale of the subject property had been consummated. He contends that such a conclusion is based on the erroneous presumption that the check (in the amount of P40,000.00) had been cashed, citing Art. 1249 of the Civil Code, which provides, in part, that payment by checks shall produce the effect of payment only when they have been cashed or when through the fault of the creditor they have been impaired. 7 Petitioner insists that he never cashed said check; and, such being the case, its delivery never produced the effect of payment. Petitioner, while admitting that he had issued receipts for the payments, asserts that said receipts, particularly the receipt of PCIB Check No. 761025 in the amount of P40,000.00, do not prove payment. He avers that there must be a showing that said check had been encashed. If, according to petitioner, the check had been encashed, respondent Pearroyo should have presented PCIB Check No. 761025 duly stamped received by the payee, or at least its microfilm copy. Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of respondents Valencia and Pearroyo, as evidenced by a letter addressed to him in which said respondents wrote, in part: . . . Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs. Angela M. Butte to pay you the aforementioned amount of P75,000.00 for the release and cancellation of subject property's mortgage. The money is with me and if it is alright with you, I would like to tender the payment as soon as possible. . . . 8 We find no merit in petitioner's arguments. It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of the subject lot. Petitioner himself admits having received said amounts, 9 and having issued receipts therefor. 10 Petitioner's assertion that he never encashed the aforesaid check is not substantiated and is at odds with his statement in his answer that "he can no longer recall the transaction which is supposed to have happened 10 years ago." After more than ten (10) years from the payment in party by cash and in part by check, the presumption is that the check had been encashed. As already stated, he even waived the presentation of oral evidence. Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay. While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it

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is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given. 11 It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury 12 unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its nopayment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. 13 Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale by delivering the payment of the purchase price, said respondents, therefore, had the right to compel petitioner to deliver to them the owner's duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in question. With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that the conditions under which said mortgage rights of the bank were assigned are not clear. Indeed, a perusal of the original records of the case would show that there is nothing there that could shed light on the transactions leading to the said assignment of rights; nor is there any evidence on record of the conditions under which said mortgage rights were assigned. What is certain is that despite the said assignment of mortgage rights, the title to the subject property has remained in the name of the late Angela M. Butte. 14 This much is admitted by petitioner himself in his answer to respondent's complaint as well as in the third-party complaint that petitioner filed against respondent-spouses Arsenio B. Reyes and Amanda Santos. 15 Assuming arquendo that the mortgage rights of the Associated Citizens Bank had been assigned to the estate of Ramon Papa, Jr., and granting that the assigned mortgage rights validly exists and constitute a lien on the property, the estate may file the appropriate action to enforce such lien. The cause of action for specific performance which respondents Valencia and Pearroyo have against petitioner is different from the cause of action which the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it has on the property by reason of its being an alleged assignee of the bank's rights of mortgage. Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the Rules of Court, an executor or administrator may sue or be sued without joining the party for whose benefit the action is presented or defended, thus: Sec. 3. Representative parties. A trustee of an express trust, a guardian, executor or administrator, or a party authorized by statute, may sue or be sued without joining the party for whose benefit the action is presented or defended; but the court may, at any stage of the proceedings, order such beneficiary to be made a party. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the principal except when the contract involves things belonging to the principal.
16

Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of the action can be had. Whatever prior and subsisting mortgage rights the estate of Ramon Papa, Jr. has over the property may still be enforced regardless of the change in ownership thereof. WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals, dated 27 January 1992 is AFFIRMED.

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SO ORDERED. Davide, Jr., Bellosillo and Vitug, JJ., concur. Republic SUPREME Manila SECOND DIVISION of the Philippines COURT

G.R. No. 123031 October 12, 1999 CEBU INTERNATIONAL FINANCE CORPORATION, vs. COURT OF APPEALS, VICENTE ALEGRE, respondents. QUISUMBING, J.: This petition for review on certiorari assails respondent appellate court's Decision, 1 dated December 8, 1995, in CA G.R. CV No. 44085, which affirmed the ruling of the Regional Trial Court of Makati, Branch 132. The dispositive portion of the trial court's decision reads: WHEREFORE, judgment is hereby rendered ordering defendant [herein petitioner] to pay plaintiff [herein private respondent]: (1) the principal sum of P514,390.94 with legal interest thereon computed from August 6, 1991 until fully paid; and (2) the costs of suit. SO ORDERED.
2

petitioner,

Based on the records, the following are the pertinent facts of the case: Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in money market operations. On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred thousand (P500,000.00) pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991. The note for five hundred sixteen thousand, two hundred thirty-eight pesos and sixty-seven centavos (P516,238.67) covered private respondent's placement plus interest at twenty and a half (20.5%) percent for thirty-two (32) days. On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for five hundred fourteen thousand, three hundred ninety pesos and ninety-four centavos (P514,390.94) in favor of the private respondent as proceeds of his matured investment plus interest. The CHECK was drawn from petitioner's current account number 0011-0803-59, maintained with the Bank of the Philippine Islands (BPI), main branch at Makati City.1wphi1.nt

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On June 17, 1991, private respondent's wife deposited the CHECK with Rizal Commercial Banking Corp. (RCBC), in Puerto Princesa, Palawan. BPI dishonored the CHECK with the annotation, that the "Check (is) Subject of an Investigation." BPI took custody of the CHECK pending an investigation of several counterfeit checks drawn against CIFC's aforestated checking account. BPI used the check to trace the perpetrators of the forgery. Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on several occasions, that he be paid in cash. CIFC refused the request, and instead instructed private respondent to wait for its ongoing bank reconciliation with BPI. Thereafter, private respondent, through counsel, made a formal demand for the payment of his money market placement. In turn, CIFC promised to replace the CHECK but required an impossible condition that the original must first be surrendered. On February 25, 1992, private respondent Alegre filed a complaint 3 for recovery of a sum of money against the petitioner with the Regional Trial Court of Makati (RTC-Makati), Branch 132. On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate civil action 4 for collection of a sum of money with the RTC-Makati, Branch 147. The collection suit alleged that BPI unlawfully deducted from CIFC's checking account, counterfeit checks amounting to one million, seven hundred twenty-four thousand, three hundred sixty-four pesos and fifty-eight centavos (P1,724,364.58). The action included the prayer to collect the amount of the CHECK paid to Vicente Alegre but dishonored by BPI. Meanwhile, in response to Alegre's complaint with RTC-Makati, Branch 132, CIFC filed a motion for leave of court to file a third-party complaint against BPI. BPI was impleaded by CIFC to enforce a right, for contribution and indemnity, with respect to Alegre's claim. CIFC asserted that the CHECK it issued in favor of Alegre was genuine, valid and sufficiently funded. On July 23, 1992, the trial court granted CIFC's motion. However, BPI moved to dismiss the third-party complaint on the ground of pendency of another action with RTC-Makati, Branch 147. Acting on the motion, the trial court dismissed the third-party complaint on November 4, 1992, after finding that the third party complaint filed by CIFC against BPI is similar to its ancillary claim against the bank, filed with RTC-Makati Branch 147. Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993, Vito Arieta, Bank Manager of BPI, testified that the bank, indeed, dishonored the CHECK, retained the original copy and forwarded only a certified true copy to RCBC. When Arieta was recalled on July 20, 1993, he testified that on July 16, 1993, BPI encashed and deducted the said amount from the account of CIFC, but the proceeds, as well as the CHECK remained in BPI's custody. The bank's move was in accordance with the Compromise Agreement 5 it entered with CIFC to end the litigation in RTC-Makati, Branch 147. The compromise agreement, which was submitted for the approval of the said court, provided that: 1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of P1,724,364.58 plus P20,000 litigation expenses as full and final settlement of all of plaintiff's claims as contained in the Amended Complaint dated September 10, 1992. The aforementioned amount shall be credited to plaintiff's current account No. 0011-0803-59 maintained at defendant's Main Branch upon execution of this Compromise Agreement.

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2. Thereupon, defendant shall debit the sum of P514,390.94 from the aforesaid current account representing payment/discharge of BPI Check No. 513397 payable to Vicente Alegre. 3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff cannot go after the defendant: otherwise stated, the defendant shall not be liable to the plaintiff. Plaintiff [CIFC] may however set-up the defense of payment/discharge stipulated in par. 2 above. 6 On July 27, 1993, BPI filed a separate collection suit 7 against Vicente Alegre with the RTCMakati, Branch 62. The complaint alleged that Vicente Alegre connived with certain Lina A. Pena and Lita A. Anda and forged several checks of BPI's client, CIFC. The total amount of counterfeit checks was P1,724,364.58. BPI prevented the encashment of some checks amounting to two hundred ninety five thousand, seven hundred seventy-five pesos and seven centavos (P295,775.07). BPI admitted that the CHECK, payable to Vicente Alegre for P514,390.94, was deducted from BPI's claim, hence, the balance of the loss incurred by BPI was nine hundred fourteen thousand, one hundred ninety-eight pesos and fifty-seven centavos (P914,198.57), plus costs of suit for twenty thousand (P20,000.00) pesos. The records are silent on the outcome of this case. On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre. CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the decision of the trial court. Hence this appeal,
8

in which petitioner interposes the following assignments of errors: 1. The Honorable Court of Appeals erred in affirming the finding of the Honorable Trial Court holding that petitioner was not discharged from the liability of paying the value of the subject check to private respondent after BPI has debited the value thereof against petitioner's current account. 2. The Honorable Court of Appeals erred in applying the provisions of paragraph 2 of Article 1249 of the Civil Code in the instant case. The applicable law being the Negotiable Instruments Law. 3. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's findings that the petitioner was guilty of negligence and delay in the performance of its obligation to the private respondent. 4. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's decision ordering petitioner to pay legal interest and the cost of suit.

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5. The Honorable Court of Appeals erred in affirming the Honorable Trial Court's dismissal of petitioner's third-party complaint against BPI. These issues may be synthesized into three: 1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE PRESENT CASE; 2. WHETHER OR NOT "BPI CHECK NO. 513397" WAS VALIDLY DISCHARGED; and 3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY COMPLAINT OF PETITIONER AGAINST BPI BY REASON OF LIS PENDENS WAS PROPER? On the first issue, petitioner contends that the provisions of the Negotiable Instruments Law (NIL) are the pertinent laws to govern its money market transaction with private respondent, and not paragraph 2 of Article 1249 of the Civil Code. Petitioner stresses that it had already been discharged from the liability of paying the value of the CHECK due to the following circumstances: 1) There was "ACCEPTANCE" of the subject check by BPI, the drawee bank, as defined under the Negotiable Instruments Law, and therefore, BPI, the drawee bank, became primarily liable for the payment of the check, and consequently, the drawer, herein petitioner, was discharged from its liability thereon; 2) Moreover, BPI, the drawee bank, DISHONORED the subject check; and, has not validly

3) The act of BPI, the drawee bank of debiting/deducting the value of the check from petitioner's account amounted to and/or constituted a discharge of the drawer's (petitioner's) liability under the instrument/subject check. 9 Petitioner cites Section 137 of the Negotiable Instruments Law, which states: Liability of drawee retaining or destroying bill Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery or such other period as the holder may allow, to return the bill accepted or non-accepted to the Holder, he will be deemed to have accepted the same. Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for the payment of the CHECK. Consequently, when BPI offset the value of CHECK against the losses from the forged checks allegedly committed by the private respondent, the check was deemed paid. Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly provides for the medium in the "payment of debts." It provides that:

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The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency, which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance. Considering the nature of a money market transaction, the above-quoted provision should be applied in the present controversy. As held in Perez vs. Court of Appeals , 10 a "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 man or dealer in open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer. 11 In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan. The private respondent accepted the CHECK, instead of requiring payment in money. Yet, when he presented it to RCBC for encashment, as early as June 17, 1991, the same was dishonored by non-acceptance, with BPI's annotation: "Check (is) subject of an investigation." These facts were testified to by BPI's manager. Under these circumstances, and after the notice of dishonor, 12 the holder has an immediate right of recourse against the drawer, 13 and consequently could immediately file an action for the recovery of the value of the check. In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. In the case of Philippine Airlines, Inc. vs. Court of Appeals, 14 this Court held: Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (citation omitted). A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3.) 15 Turning now to the second issue, when the bank deducted the amount of the CHECK from CIFC's current account, this did not ipso facto operate as a discharge or payment of the instrument. Although the value of the CHECK was deducted from the funds of CIFC, it was not delivered to the payee, Vicente Alegre. Instead, BPI offset the amount against the losses it incurred from forgeries of CIFC checks, allegedly committed by Alegre. The confiscation of the value of the check was agreed upon by CIFC and BPI. The parties intended to amicably settle the collection suit filed by CIFC with the RTC-Makati, Branch 147, by entering into a compromise agreement, which reads: xxx xxx xxx

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2. Thereupon, defendant shall debit the sum of P514,390.94 from the aforesaid current account representing payment/discharge of BPI Check No. 513397 payable to Vicente Alegre. 3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff cannot go after the defendant; otherwise stated, the defendant shall not be liable to the plaintiff. Plaintiff however (sic) set-up the defense of payment/discharge stipulated in par. 2 above. 16 A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. 17 It is an agreement between two or more persons who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the danger of losing. 18 The compromise agreement could not bind a party who did not sign the compromise agreement nor avail of its benefits. 19 Thus, the stipulations in the compromise agreement is unenforceable against Vicente Alegre, not a party thereto. His money could not be the subject of an agreement between CIFC and BPI. Although Alegre's money was in custody of the bank, the bank's possession of it was not in the concept of an owner. BPI cannot validly appropriate the money as its own. The codal admonition on this issue is clear: Art. 1317 No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A Contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. 20 BPI's confiscation of Alegre's money constitutes garnishment without the parties going through a valid proceeding in court. Garnishment is an attachment by means of which the plaintiff seeks to subject to his claim the property of the defendant in the hands of a third person or money owed to such third person or a garnishee to the defendant. 21 The garnishment procedure must be upon proper order of RTC-Makati, Branch 62, the court who had jurisdiction over the collection suit filed by BPI against Alegre. In effect, CIFC has not yet tendered a valid payment of its obligation to the private respondent. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same. 22 Tender of payment cannot be presumed by a mere inference from surrounding circumstances. With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the following requisites must concur: (a) identity of parties or at least such as to represent the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity in the two cases should

Page 13 of 1485
be such that the judgment which may be rendered in one would, regardless of which party is successful, amount to res judicata in the other. 23 The trial court's ruling as adopted by the respondent court states, thus: A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu International Finance Corporation vs. Bank of the Philippine Islands now pending before Branch 147 of this Court and the Third Party Complaint in the instant case would readily show that the parties are not only identical but also the cause of action being asserted, which is the recovery of the value of BPI Check No. 513397 is the same. In Civil Case No. 92-1940 and in the Third Party Complaint the rights asserted and relief prayed for, the reliefs being founded on the facts, are identical. xxx xxx xxx WHEREFORE, the motion to dismiss is granted and consequently, the Third Party Complaint is hereby ordered dismissed on ground of lis pendens. 24 We agree with the observation of the respondent court that, as between the third party claim filed by the petitioner against BPI in Civil Case No. 92-515 and petitioner's ancillary claim against the bank in Civil Case No. 92-1940, there is identity of parties as well as identity of rights asserted, and that any judgment that may be rendered in one case will amount to res judicata in another. The compromise agreement between CIFC and BPI, categorically provided that "In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff (CIFC) cannot go after the defendant (BPI); otherwise stated, the defendant shall not be liable to the plaintiff." 25 Clearly, this stipulation expressed that CIFC had already abandoned any further claim against BPI with respect to the value of BPI Check No. 513397. To ask this Court to allow BPI to be a party in the case at bar, would amount to res judicata and would violate terms of the compromise agreement between CIFC and BPI. The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implication from its terms should be deemed to have been included therein. 26 This holds true even if the agreement has not been judicially approved. 27 WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 44085 is AFFIRMED. Costs against petitioner.1wphi1.nt SO ORDERED. Mendoza and Buena, JJ., concur. Bellosillo, J., on official leave. EN BANC [G.R. No. 129064. November 29, 2000] JUAN A. RUEDA, JR., petitioner, vs. HONORABLE SANDIGANBAYAN and PEOPLE OF THE PHILIPPINES, respondents.

Page 14 of 1485
DECISION PARDO, J.: The Case The case is an appeal via certiorari from the decision of the Sandiganbayan i[1] finding petitioner Juan A. Rueda, Jr. guilty of malversation of public funds, and sentencing him to an indeterminate penalty of ten (10) years and one (1) day of prision mayor, as minimum, to seventeen (17) years, four (4) months and one (1) day of reclusion temporal, as maximum, to pay a fine of P107,299.02 with subsidiary imprisonment in case of insolvency, ii[2] and to suffer perpetual disqualification from holding any public office, and to pay the costs, and resolutioniii[3] denying reconsideration. The Charge On April 19, 1991, Special Prosecution Officer I Gregorio G. Pimentel, Jr., Office of the Ombudsman filed with the Sandiganbayan an information charging petitioner Juan A. Rueda, Jr., with malversation of public funds, defined and penalized under Article 217 of the Revised Penal Code, to wit: That on or about the period of February 8, 1989 to September 20, 1989, in Tigaon, Camarines Sur, Philippines, and within the jurisdiction of this Honorable Court, the abovenamed accused, a public officer, being then the Municipal Treasurer of Tigaon, Camarines Sur, and as such was accountable for all public funds collected and received by him by reason of the duties of his office, taking advantage of his official position and with grave abuse of confidence, did then and there, willfully, unlawfully and feloniously misappropriate, embezzle and convert to his own personal use and benefit the total sum of P107,299.02, Philippine Currency, to the damage and prejudice of the Philippine government in the amount aforesaid.iv[4] Upon arraignment on November 29, 1991, petitioner entered a plea of not guilty. v[5] Trial ensued. The facts, as found by the Sandiganbayan,vi[6] are as follows: At times material hereto, petitioner Rueda was the municipal treasurer of Tigaon, Camarines Sur. On September 20, 1989, a team of state auditors, headed by Amparo O. Albeus, conducted an audit examination of the accountabilities of petitioner Rueda as municipal treasurer of Tigaon, Camarines Sur, covering the period February 8, 1989 to September 20, 1989. As a result of the audit, it was assumed that petitioner had a cash shortage of P107,299.02 (Exh. A-2). The corresponding report of cash examination was thereafter accomplished. When confronted therewith, petitioner affixed his signature (Exh. A-1) on the certification on the dorsal portion of the report to the effect that his accountability for the funds of the municipal government of Tigaon, Camarines Sur was correctly stated. On October 3, 1989, the auditors sent a formal written demand to petitioner Rueda, requiring him to immediately produce the sum of P107,299.02, representing the shortage on his accountabilities as municipal treasurer of Tigaon, Camarines, Sur, and to explain in writing within seventy-two (72) hours why the shortage occurred (Exh. B). Notwithstanding receipt of the letter (Exh. B-1), petitioner failed to have the said amount forthcoming or to tender his written explanation why the shortage occurred.

Page 15 of 1485
In his defense, petitioner Rueda disclaimed any criminal liability on the ground that the assumed shortage was the result of unliquidated cash advances made by several municipal officials and employees of Tigaon, Camarines Sur, spanning the period covered by the audit as evidenced by various chits or vales (Exhs. 11-15), and expenses of the municipal government of Tigaon as evidenced by several disbursement vouchers (Exhs. 16, 17, 18, 20, 21, 25, 26, 27,28, 29 and 30). Petitioner Rueda declared that the municipal officials and employees took the cash advances from the cash collections of the municipal collectors before the cash collections, in the total amount of P41,234.71, were turned over to him as municipal treasurer. What they turned over to him were the chits and vales evidencing such cash advances. Although he never tolerated the practice and had verbally warned the municipal officials and employees from making those cash advances, they continued to do so.vii[7] Petitioner Rueda stressed that the cash advances were made with the consent of the municipal mayor, and had been the practice in the municipality of Tigaon long before he assumed office as municipal treasurer. He would later on deduct the cash advances made from their respective salaries in installment, and after they were paid, he would turn over the amount to the office of the municipal treasurer. With respect to the subject chits and vales, petitioner Rueda declared that after the same were paid, he turned over the amount to the office of the municipal treasurer who then credited those payments as restitution of the shortage on his total cash accountability. viii[8] Thus, the debtors themselves liquidated the cash advances and petitioners accountabilities had been fully restituted before the start of the preliminary investigation in the office of the Ombudsman. A day before the state auditors from the Commission on Audit conducted an audit examination of his cash accountabilities, the internal auditors from the provincial treasurers office conducted a similar examination. This group of internal auditors advised him not to bring the matter about vales or cash advances to the COA audit team because they would only disallow them for lack of supporting documents. This is the reason why he did not present the disbursement vouchers in the course of the audit conducted by the State Auditors on September 20, 1989. After the audit of September 20, 1989, petitioner Rueda began completing the supporting documents of those disbursement vouchers. Upon completion of those vales and chits as supporting documents, he submitted the same together with the disbursement vouchers to the in-charge-of office of the municipal treasurer, who credited the amounts reflected on those disbursement vouchers as restitution of the shortage on his total accountability. Consequently, petitioner Rueda stated that as of July 11, 1990, before the start of the preliminary investigation in the Office of the Ombudsman, all his financial accountabilities had been fully restituted. The cash advances, in the form of chits and vales amounting to P41,234.71, had been wholly paid or redeemed by their respective debtors. The disbursement vouchers of P53,700.00 representing various legitimate expenses of the municipality of Tigaon, Camarines Sur and the collection deposits in the amount of P12,384.06 were all liquidated. The in-charge-of office of the municipal treasurer of Tigaon, Camarines Sur issued eight official receipts, for various amounts received from petitioner Rueda, to wit: 1. Official Receipt No. 0382089 dated 12/14/89 for P65,000.00 2. Official Receipt No. 0129158 (O) dated 12/29/89 for P618.56

Page 16 of 1485
3. Official Receipt No. 0382090 (N) dated 1/08/90 for P6,000.00 4. Official Receipt No. 0382091 (N) dated 1/08/90 for P12,000.00 5. Official Receipt No. 0382095 (N) dated 4/02/90 for P15,000.00 6. Official Receipt No. 0382100 (N) dated 5/31/90 for P3,000.00 7. Official Receipt No. 4846890 (P) dated 7/09/90 for P666.40 8. Official Receipt No. 4833595 (P) dated 7/11/90 for P5,014.06 Total P107,299.02 A certification dated July 11, 1990, signed by Mr. Francisco N. Briguera, in-charge-of office of the municipal treasurer of Tigaon, Camarines Sur, and verified and found correct by Melanio C. Alarcon, state auditing examiner (Exh. 9), showed that petitioner Rueda had fully restituted the cash shortage discovered during the cash examination. As such, petitioner claimed innocence and therefore must be acquitted. ix[9] On March 19, 1996, the Sandiganbayan (Third Division) promulgated its decision finding petitioner Rueda guilty beyond reasonable doubt of malversation of public funds, defined and penalized under Article 217 (4) of the Revised Penal Code, the dispositive portion of which reads as follows: WHEREFORE, judgment is hereby rendered, finding the accused GUILTY beyond reasonable doubt, of the crime of Malversation of Public Funds, under paragraph 4 of Article 217 of the Revised Penal Code and considering the mitigating circumstance of full restitution of the amount malversed, and applying the Indeterminate Sentence Law, this Court hereby sentences the accused to suffer an indeterminate penalty of imprisonment for a period of TEN (10) YEARS and ONE (1) DAY of prision mayor, as minimum, to SEVENTEEN (17) YEARS, FOUR (4) MONTHS and ONE (1) DAY reclusion temporal , as maximum; to pay a fine of P107,299.02 with subsidiary imprisonment in case of insolvency, and to suffer perpetual special disqualification from holding any public office; and to pay the costs. SO ORDERED. Manila, Philippines, January 25, 1996.x[10] On March 29, 1996, petitioner filed with the Sandiganbayan a motion for reconsideration of the decision.xi[11] However, on May 07, 1997, the Sandiganbayan found the motion not meritorious and denied the same.xii[12] The Appeal Hence, this appeal.xiii[13] Issues

Page 17 of 1485
(1) Is petitioner liable for malversation of public funds due to a shortage of P107,299.02 which consisted of chits and vales evidencing cash advances from cash collections of the municipal collectors before these were turned over to petitioner municipal treasurer as part of his accountability? (2) Is he presumed to have put the missing public funds to his personal use or allowed others to take such funds when it is an admitted fact that the cash advances were given by the municipal collectors from their cash collections, not from funds in the custody of petitioner? Petitioner submits that the Sandiganbayan erred: (1) In finding that the rulings in Villacorta v. People, 145 SCRA 425 [1986] and Quizo v. Sandiganbayan, 149 SCRA 108 [1987] do no apply to the case at bar as they have been reversed by the pronouncement in Meneses v. Sandiganbayan, 232 SCRA 441 [1994] which relied on the ruling in Cabello v. Sandiganbayan, 197 SCRA 94 [1991]; (2) In rejecting petitioners submission that the evidence must be appreciated under the rulings in Villacorta and Quizo, as the events occurred when the prevailing doctrines were the rulings in Villacorta and Quizo; (3) In not finding that he succeeded to overthrow the prima facie evidence of conversion/misappropriation under Article 217 of the Revised Penal Code; (4) In rejecting petitioners explanation as regards the disbursement vouchers and collection deposits such that they do not make out a criminal offense.xiv[14] Actually, the issues really boil down to whether or not petitioner has incurred a shortage in his cash accountability as municipal treasurer of the municipality of Tigaon, Camarines Sur. The Courts Ruling We sustain petitioners submissions primarily because he did not take or misappropriate or through abandonment or negligence, permit any other person to take or malverse public funds or property in his custody for which he is accountable. He did not put public funds to his personal use. He was able to properly explain and account fully for his cash accountability of public funds upon demand by the auditors. The assumed shortage does not exist and in any event has been restituted in full. Generally, the factual findings of the Sandiganbayan are conclusive on the Court. However, there are established exceptions to that rule, such as, sans preclusion, when (1) the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the inference made is manifestly an error or founded on a mistake; (3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; and (5) the findings of fact are premised on the absence of evidence and are contradicted by evidence on record. xv [15] In these instances, this Court is bound to review the facts in order to avoid a miscarriage of justice.xvi[16] The instant case falls within such exceptions. Considering the evidence on record, we find that the Sandiganbayan convicted petitioner on probabilities and conjecture, not on hard facts duly established. xvii[17] We are thus justified to re-examine, as we do, the evidence.

Page 18 of 1485
After an assiduous scrutiny, we find petitioner not guilty of malversation of public finds. The Sandiganbayan found that petitioner admitted his accountability and failed to have duly forthcoming his cash shortage in the amount of P107,299.02 with which he is chargeable, and that he did not tender the required written explanation as to why the shortage was incurred. His failure to do so instantly created a prima facie evidence pursuant to the last paragraph of Article 217 of the Revised Penal Code that he had put such missing funds to personal use. We disagree. Petitioner did not admit any shortage. The mere fact that he signed the dorsal side of the report of cash examination is not an admission of shortage. His signature was only evidence that he received a copy of the report . Thus, it is incorrect to say that petitioner admitted his shortage when he signed the audit report prepared by the audit team.xviii[18] For one thing, he was made to sign it right away; for another, his signature only meant an acknowledgment that a demand from him to produce all his cash, money and paid vouchers had been made. It did not mean that he admitted any shortage. In fact, subsequent events showed that he had fully explained his accountability. Thus, he satisfactorily explained the shortage.xix[19] In other words, there was no direct evidence or proof that he put public funds to personal use. xx[20] When absence of funds was not due to personal use, the presumption is completely destroyed. xxi[21] The taking or conversion of public funds for personal use must be affirmatively proved. xxii[22] When there is no shortage, taking, appropriation, conversion or loss, there is no malversation.xxiii[23] The crime of malversation of public funds is defined and penalized as follows: ART. 217. Malversation of public funds or property - Presumption of malversation.- Any public officer who, by reason of the duties of his office, is accountable for public funds or property, shall appropriate the same, or shall take or misappropriate or shall consent, or through abandonment or negligence, shall permit any other person to take such public funds or property, wholly or partially, or shall otherwise be guilty of the misappropriation or malversation of such funds or property, xxx. xxx xxx xxx

The failure of the public officer to have duly forthcoming such public funds or property, upon demand by a duly authorized officer, shall be prima facie evidence that he has put such missing funds or property to personal use.xxiv[24] The elements of malversation, essential for the conviction of an accused, under the above penal provision are that: (a) the offender is a public officer; (b) he has the custody or control of funds or property by reason of the duties of his office; (c) the funds or property involved are public funds or property for which he is accountable; and (d) he has appropriated, taken or misappropriated, or has consented to, or through abandonment or negligence permitted, the taking by another person of, such funds or property.xxv[25]

Page 19 of 1485
The felony involves breach of public trust, and whether it is committed through dolo or culpa the law makes it punishable and prescribes a uniform penalty therefor. Even when the information charges willful malversation, conviction for malversation through negligence may still be adjudged if the evidence ultimately proves that mode of commission of the offense.xxvi[26] Concededly, the first three elements are present in this case. It is the last element, i.e., whether or not petitioner really has misappropriated public funds, where the instant petition focuses itself. In convicting petitioner, the Sandiganbayan cites the presumption in Article 217 of the Revised Penal Code that the failure of a public officer to have duly forthcoming any public funds with which he is chargeable, upon demand by any duly authorized officer, shall be prima facie evidence that he has put such missing funds or property to personal uses. The presumption is, of course, rebuttable. Accordingly, if the accused is able to present adequate evidence that can nullify any likelihood that he had put the funds or property to personal use, then that presumption would be at an end and the prima facie case is effectively negated. This Court has repeatedly said that when the absence of funds is not due to the personal use thereof by the accused , the presumption is completely destroyed; in fact, the presumption is deemed never to have existed at all. xxvii[27] The prosecution, upon whose burden was laden the task of establishing by proof beyond reasonable doubt that petitioner had committed the offense charged, mainly relied on the statutory presumption aforesaid and failed to present any substantial piece of evidence to indicate that petitioner had used the funds for personal gain. The evidence submitted, just to the contrary, would point out that not a centavo of the so-called missing funds was spent for personal use x x x.xxviii[28] In Salamera v. Sandiganbayan, xxix[29] we emphatically declared that the 4 th element requires that a public officer must take public funds, money or property, and misappropriate it to his own private use or benefit. There must be asportation of public funds or property, akin to the taking of anothers property in theft. The funds, money or property taken must be public funds or private funds impressed with public attributes or character for which the public officer is accountable. We are convinced that the evidence in this case has not proved beyond reasonable doubt that petitioner is guilty of malversation of public funds. We explain why. To begin with, there was no evidence of cash shortage. The letter of demand dated October 3, 1989 (Exh. B-1) to petitioner for him to produce immediately the missing funds in the total amount of P107,299.02 and to submit within seventy-two hours why the shortage occurred, states: x x x It was found that your cash was short of P107,229.02. This shortage was arrived at as follows: Accountability: Balance per audit as of Sept. 20, 1989 Certified correct by you. General Fund Infrastructure Fund Special Education P165,078.78 39,904.77

Page 20 of 1485
Fund Trust Fund Balgu Fund Credit to accountability: Cash and valid cash items produced by you and counted by us Shortage 28,398.29 10,983.84 33,128.60 P277,494.28

P170,195.26 P107,229.02xxx[30]

The auditors finding of a cash shortage is definitely wrong. In fact and under accounting principles, there is no cash shortage. The cash and other valid cash items were produced by petitioner and counted by the auditors in the total amount of P170,195.26. The amount is intact in cash. The assumed shortage of P107,229.02 represented vales, chits and disbursement vouchers considered as part of the general fund. This is an auditing error. It is a generally accepted auditing principle that cash means cash on hand or in bank. Standard text in accounting defines Cash as consisting of those items that serve as a medium of exchange and provide a basis for accounting measurement. To be reported as cash, an item must be readily available and not restricted for use in the payment of current obligations. A general guideline is whether an item is acceptable for deposit at face value by a bank or other financial institution. Items that are classified as cash include coin and currency on hand, and unrestricted funds available on deposit in a bank, which are often called demand deposits since they can be withdrawn upon demand. Petty cash funds or change funds and negotiable instruments, such as personal checks, travelers checks, cashiers checks, bank drafts, and money orders are also items commonly reported as cash. The total of these items plus undeposited coin and currency is sometimes called cash on hand. Interest-bearing accounts, or time deposits, also are usually classified as cash, even though a bank legally can demand prior notification before a withdrawal can be made. In practice, banks generally do not exercise this legal right. Deposits that are not immediately available due to withdrawal or other restrictions require separate classification as restricted cash or temporary investments. They are not cash.xxxi[31] In short, there was no shortage on petitioners cash accountability. Evidence of shortage is necessary before there could be any taking, appropriation, conversion, or loss of public funds that would amount to malversation. xxxii[32] The law requires that the shortage must be clearly established as a fact that over and above the funds found by the auditors in the actual possession of the accountable officers, there is an additional amount which could not be produced or accounted for at the time of audit. In this case, there was absolutely no shortage as to petitioners cash accountability. The auditors mistakenly included as cash items collectibles in the form of vales and chits and disbursement vouchers for legitimate expenses of the municipality. An accountable officer under Article 217 of the Revised Penal Code must receive money or property of the government which he is bound to account for . It is the nature of the duties of, not the nomenclature used for, or the relative significance of the title to, the position, which controls in that determination. xxxiii[33]

Page 21 of 1485
Based on this definition, to be held accountable the public officer must receive the money or property, and later fails to account for it. When a public officer is asked to account for the cash in his accountability, this necessarily means that he has to produce the cash in bills and coins and other cash items that he received. It does not include collectibles and receivables or even promissory notes. Petitioner Rueda did not receive the money (cash), which he was supposed to produce or account for at the time of the audit. xxxiv[34] In fact, the audit team found that sum of P170,195.26 intact in bills and notes. Nonetheless, the auditors declared a shortage because petitioner Rueda could not produce as cash items the collectibles and receivables in the form of chits and vales and disbursement vouchers for legitimate expenses of the municipality. This is an auditing error because the collectibles and receivables are not cash items. The money did not reach the hands of petitioner. Therefore, it is not part of his cash accountability. The amount of P107,299.02, was divided as follows: (1) P41,234.71 representing the chits and vales taken by the municipal officials and employees from the municipal collections prior to the remittance of these cash collections to petitioner; (2) P53,700.00 representing the legitimate expenses of the municipality subject to liquidation; and (3) P12,384.06 unsettled cash collections. With regard to the P41,234.71 cash advances, petitioner did not receive the cash nor gave the cash advances for they were taken from the cash collections of the municipal collectors before the cash collections were turned over to him. Q: The cash collections of the municipal collectors from which the chits and vales, from which the amount represented by the chits and vales are made by the municipal employees and officials, from the amount covered by those chits and vales were already turned over to you or not yet, when the chits and vales were made? A: They were not yet turned over to me, sir. The employees have their cash advances from the municipal collectors before their cash collections were turned over to me. So, I got only the chits or vales; the cash was not yet turned over to me. xxxv[35] Clearly, petitioner Rueda did not receive the above-mentioned amount at the time of the audit.xxxvi[36] In fact, no cash was ever given or turned over to petitioner. At any rate, the respective debtors, not the petitioner, wholly redeemed the cash advances and vales amounting to P41,234.71, to wit:xxxvii[37] Q: Where are now those chits and/or vales covering those cash advances? A: Those chits and vales were redeemed by the employees and then, some of them were redeemed by the employees and then, as I accumulated the amount, I turned it over, the cash, I turned it over to the In-Charge of Office and then, issued an official receipt for the amount and credited against my shortage as restitution. xxxviii[38] As heretofore stated, in Salamera vs. Sandiganbayan,xxxix[39] we ruled that one essential element of malversation is that a public officer must take public funds, money or property, and misappropriate it to his own private use or benefit. There must be asportation of public funds or property, akin to the taking of anothers property in theft. Hence, how can there be taking or misappropriation when the funds did not even reach the hands or custody of petitioner Rueda?

Page 22 of 1485
As regards the amount of P P53,700.00, these referred to legitimate expenses of the municipality. At the time of the audit, petitioner failed to present the vouchers for these legitimate expenses because they lacked documents in support of the vouchers, to wit: Q: You mentioned about these vouchers. What are these vouchers that you mentioned? A: May I refer to my list, Your Honor. AJ DEL ROSARIO: The witness may refresh his memory. WITNESS: These vouchers, there are 11 of them, from the Will Print, one voucher from the printing realty taxes, tax declaration, I mean; and, another two vouchers from the same Will Print, for printing also the Real Tax Declaration; third voucher is from Angel Bongulto, cash advance for Manila to get the law books and references from the Supreme Court for the RTC, Branch 30, at Tigaon, Cam. Sur; one voucher is for Kagawad Redito Clario, cash advance for seminar workshop for the municipal kagawad at Los Baos, Laguna; another voucher is for Orlando Asiado, cash advance for supporting the athletic uniform of the municipal team for the Summer Basketball Tournament; next voucher is for Hector Bongat, cash advance for constructing 50 pieces market stalls, and, next is Leo Cea, a cash advance for the summer basketball tournament referees; next voucher is for Mayor Eleonor Lelis, cash advance in going to Manila, with the INP Station Commander and 3 Patrolmen to get our Fire truck for the municipality; next voucher is for Leonida Peaflor, a cash advance for the terminal leave of her deceased husband, my assistant municipal treasurer, Domingo Peaflor; next voucher is for Arturo Pascua, cash advance for delivering sand and gravel for the cementing of a municipal street and the last is for Iigo Zape, cash advance for COLA. These were the unsubmitted vouchers, sir. Q: You said, you did not present these vouchers during the audit by the COA team because these lack supporting documents and you were advised by the internal audit team not to present them anymore because there will be, for sure, is lacking. [sic] Can you still recall what supporting documents were lacking to these vouchers, for which reason you did not present them, if you can still recall the supporting documents lacking? A: Some of them lacks the canvass paper; some of them were partially paid but also lacking supporting papers, sir.xl[40] After the audit, petitioner prepared the supporting documents that these vouchers lacked and turned them over to the in-charge-of office who replaced him, Mr. Francisco Briguera. xli [41] Petitioner satisfactorily explained the unsettled cash collection deposits in the amount of P12,384.06. This amount represented the cash collections of the market collectors, which had been turned over to the invoicing officer of the treasury, Mrs. Delicias Galvante. During the audit examination, this amount had been reflected as unaccounted because it lacked some requirements, such as the labor payroll. It was only after the audit examination that the invoicing officer turned over the labor payroll corresponding to the amount of P6,000.00. The remainder of the P12,384.06 was given as cash advances in the form of chits and vales, which had been taken from the collections, again, prior to its remittance to petitioner.

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Hence, petitioner satisfactorily explained the cash shortages found in his accountability at the time of the audit examination. No portion of his cash accountability has been malversed by him or put to his personal use.xlii[42] In Meneses vs. Sandiganbayan,xliii[43] the Court reiterated an earlier ruling in Cabello v. Sandiganbayan,xliv[44] that the practice of disbursing public funds under the vale system is not a meritorious defense in malversation cases. The grant of loans through the vale system is a clear case of an accountable officer consenting to the improper or unauthorized use of public funds by other persons, which is punishable by law. To tolerate such a practice is to give a license to every disbursing officer to conduct a lending operation with the use of public funds. However, the ruling in Cabello and Meneses cannot be applied to the case at bar. The circumstances obtaining in those cases are not present in the case at bar. An important moiety in the instant case is that petitioner did not grant the cash advances or vales to the municipal officials. They took the cash advances from the collections of the municipal collectors. However, they restored or liquidated the amounts prior to the conduct of preliminary investigation before the office of the Ombudsman. The liquidation was done, not by petitioner, but by the respective debtors. Liquidation simply means the settling of indebtedness.xlv[45] Liquidation does not necessarily signify payment, and to liquidate an account, can mean to ascertain the balance due, to whom it is due, and to whom it is payable; hence, an account that has been liquidated can also mean that the item has been made certain as to what, and how much, is deemed to be owing.xlvi[46] Neither can petitioner Rueda be considered guilty of passive malversation. He did not tolerate the practice of making cash advances by the municipal officials and employees. He warned them about the illegality of such practice. However, he was helpless about the situation because it was done with the consent of the municipal mayor. They were not indicted for malversation. Why? The prosecution did not explain. The Sandiganbayan did not even inquire. Instead of the cash collections being remitted to petitioner, pieces of paper called chits or vales were given as evidence of the cash advances. He never had the opportunity to disburse public funds under the vale system, for in the first place, the public funds were not turned over to him. Consequently, the prima facie evidence that public funds have been put to the personal use of petitioner has been obliterated by the fact that he did not receive the money as municipal treasurer. In Zambrano v. Sandiganbayan,xlvii[47] we said that if the accused did not receive the public funds, there was no malversation. In Diaz vs. Sandiganbayan,xlviii[48] we held that when the absence of funds is not due to the personal use thereof by the accused, the presumption is completely destroyed; in fact, the presumption is deemed never to have existed at all. In malversation, it is necessary to prove that the accused received public funds, and that he could not account for them and did not have them in his possession and that he could not give a reasonable excuse for the disappearance of the same. xlix[49] In this case, the prosecution failed to establish this important element of malversation. In fact, it did not really exist. Petitioner gave a reasonable and satisfactory explanation of his cash accountability of public funds that were duly liquidated. The Court must not reject arbitrarily an explanation consistent with the presumption of innocence.l[50]

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In Narciso v. Sandiganbayan,li[51] we said that where there is no evidence whatever that over and above the funds found by the auditors in his actual possession, Narciso had received the additional amount of P14,500.00, which he could no longer produce or account for at the time of the audit, there being no shortage, there has been no taking, appropriation, conversion, or loss of public funds; there is no malversation. We could very well be speaking of the case of petitioner Rueda. In our criminal justice system, the overriding consideration is not whether the court doubts the innocence of the accused but whether it entertains a reasonable doubt as to his guilt. This determinant, with the constitutional presumption of innocence which can be overthrown only by the strength of the prosecutions own evidence proving guilt beyond reasonable doubt, irresistibly dictate an exoneration in this case.lii[52] The evidence against petitioner is not enough to engender moral certainty of his guilt. This moral certainly is that which convinces and satisfies the conscience of those who are to act upon it.liii[53] Accordingly, the presumption of innocence which the Constitution guarantees the petitioner has remained untarnished in this case for want of proof to the contrary. It is safely entrenched in our jurisprudence that unless the prosecution discharges its burden to prove the guilt of an accused beyond reasonable doubt, the latter need not even offer evidence in his behalf.liv[54] The prosecution must overthrow the presumption of innocence with proof of guilt of the accused beyond reasonable doubt. The proof against him must survive the test of reason; the strongest suspicion must not be permitted to sway judgment. lv[55] Even if the defense is weak, the case against the accused must fail if the prosecution is even weaker, for the conviction of the accused must rest not on the weakness of the defense but on the strength of the prosecution.lvi[56] In order to convict an accused, the circumstances of the case must exclude all and each and every hypothesis consistent with his innocence.lvii[57] In conclusion, we find that the guilt of the petitioner has not been proved beyond reasonable doubt. The petitioner must be acquitted. Every accused is presumed innocent until the contrary is proved; that presumption is solemnly guaranteed by the Bill of Rights. The contrary requires proof beyond reasonable doubt, or that degree of proof, which produces conviction in an unprejudiced mind. Short of this, it is not only the right of the accused to be freed; it is even the constitutional duty of the court to acquit him. lviii[58] The Fallo WHEREFORE, the petition is GRANTED and the decision of respondent SANDIGANBAYAN promulgated on March 19, 1996 and the resolution adopted on May 7, 1997 are REVERSED and SET ASIDE. Petitioner JUAN A. RUEDA, JR. is hereby ACQUITTED on reasonable doubt of the charge of malversation of public funds, defined and penalized under Article 217 (4) of the Revised Penal Code. His bail bond is ordered cancelled. Costs de oficio. SO ORDERED.

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Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Buena, Gonzaga-Reyes, and Ynares-Santiago, JJ., concur. De Leon, Jr., No part. Ponente of Sandiganbayan decision. Republic SUPREME Manila SECOND DIVISION G.R. No. 132362 June 28, 2001 of the Philippines COURT

PIO BARRETTO REALTY DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, JUDGE PERFECTO A. S. LAGUIO, JR., RTC-Branch 18, Manila, and HONOR P. MOSLARES, respondents. BELLOSILLO, J.: This petition for review on certiorari assails the Decision dated 30 June 1997 of the Court of Appeals in CA-G.R. SP No. 33982, " Pio Barretto Realty Development Corporation v. Hon. Perfecto A. Laguio, et al.," which dismissed the special civil action for certiorari filed by petitioner, as well as its Resolution dated 14 January 1998 denying reconsideration. On 2 October 1984 respondent Honor P. Moslares instituted an action for annulment of sale with damages before the Regional Trial Court of Manila against the Testate Estate of Nicolai Drepin represented by its Judicial Administrator Atty. Tomas Trinidad and petitioner Pio Barretto Realty Development Corporation. Moslares alleged that the Deed of Sale over four (4) parcels of land of the Drepin Estate executed in favor of the Barretto Realty was null and void on the ground that the same parcels of land had already been sold to him by the deceased Nicolai Drepin. The case was docketed as Civil Case No. 84-27008 and raffled to respondent Judge Perfecto A. S. Laguio, Jr., RTC-Br. 18, Manila. On 2 May 1986 the parties, to settle the case, executed a Compromise Agreement pertinent portions of which are quoted hereunder 1. The Parties agree to sell the Estate, subject matter of the instant case, which is composed of the following real estate properties, to wit: a. Three (3) titled properties covered by TCT Nos. 50539, 50540 and 50541 1 of the Registry of Deeds for the Province of Rizal, with a total area of 80 hectares, more or less, and b. Untitled Property, subject matter of (a) Land Registration Case No. 1602 of the Regional Trial Court, Pasig, Metro Manila, with an area of 81 hectares, more or less, subject to the following situations and conditions, to wit: a. If plaintiff Honor P. Moslares x x x buys the property, he is under obligation, as follows:

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1. To reimburse and pay Defendant Pio Barretto Realty Development Corporation, represented by Anthony Que, its capital investment of Three Million Pesos (P3,000,000.00), Philippine Currency, and 2. To pay the Estate of Nicolai Drepin, represented by the Judicial Administrator, Atty. Tomas Trinidad, the sum of One Million Three Hundred Fifty Thousand (P1,350,000.00) Pesos, Philippine Currency b. If defendant Pio Barretto Realty Development Corporation, represented by Mr. Anthony Que x x x continue[s] to buy the property, it shall pay for the interests of plaintiff Honor P. Moslares: 1. The sum of One Million (P1,000.000.00) Pesos, Philippine Currency to plaintiff Honor P. Moslares personally and 2. Pay to the Estate of Nicolai Drepin, through the Judicial Administrator, Atty. Tomas Trinidad, the balance of the agreed purchase price subject to negotiation and verification of payments already made. 2. In the event that plaintiff Honor P. Moslares buys the Estate and pays in full the amount of Three Million (P3,000,000.00) Philippine Currency to defendant Pio Barretto Realty Development Corporation, and the full sum of One Million Three Hundred Fifty Thousand (P1,350,000.00) Pesos, Philippine Currency, to the Estate of Nicolai Drepin, through Atty. Tomas Trinidad, defendant Pio Barretto shall execute the corresponding Deed of Conveyance in favor of plaintiff Honor P. Moslares and deliver to him all the titles and pertinent papers to the Estate. IN WITNESS WHEREOF, the parties hereto hereby sign this Compromise Agreement at Manila, Philippines, this 2nd day of May 1986 xxxx xxxx xxxx On 24 July 1986 the trial court rendered a decision approving the Compromise Agreement.2 However, subsequent disagreements arose on the question of who bought the properties first. It must be noted that the Compromise Agreement merely gave Moslares and Barretto Realty options to buy the disputed lots thus implicitly recognizing that the one who paid first had priority in right. Moslares claimed that he bought the lots first on 15 January 1990 by delivering to Atty. Tomas Trinidad two (2) PBCom checks, one (1) in favor of Barretto Realty for P3 million, and the other, in favor of the Drepin Estate for P1.35 million. But petitioner Barretto Realty denied receiving the check. Instead, it claimed that it bought the properties on 7 March 1990 by tendering a Traders Royal Bank Manager's Check for P1million to Moslares, and a Far East Bank and Trust Company Cashier's Check for P1 million and a Traders Royal Bank Manager's Check for P350,000.00 to Atty. Tomas Trinidad as Judicial Administrator of the Estate. However, Moslares and Atty. Trinidad refused to accept the checks. Consequently, Barretto Realty filed a motion before the trial court alleging that it complied with its monetary obligations under the Compromise Agreement but that its offers of payment were refused, and prayed that a writ of execution be issued to compel Moslares and Atty. Trinidad to comply with the Compromise Agreement and that the latter be directed to turn over the owner's duplicate certificates of title over the lots.

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On 10 May 19903 Judge Laguio, Jr. ordered that "a writ of execution be issued for the enforcement of the decision of this Court for the parties to deposit with this Court, thru the City Treasurer's Office of Manila, their respective monetary obligations under the compromise agreement that had been executed by them x x x x" Reacting to the order, Atty. Trinidad for the Estate filed an urgent motion to hold the execution in abeyance on the ground that there was another case involving the issue of ownership over subject lots pending before the Regional Trial Court of Antipolo City. Moslares in turn filed a motion for reconsideration while Barretto Realty moved to amend the order since the lower court did not exactly grant what it prayed for. On 14 June 1990, ruling on the three (3) motions, Judge Laguio, Jr., issued his Order Considering Defendant Judicial Administrator's urgent motion to hold in abeyance x x x the plaintiff's motion for reconsideration, and the Defendant Pio Barretto Realty Development, Inc.'s opposition to both motions x x x this Court finds the two motions without merit and are accordingly, denied. As regards Pio Barretto Realty Development, Inc.'s ex-parte motion to amend order x x x the same is hereby granted and the deputy sheriff of this Court is allowed to deliver to the parties concerned thru their counsels the bank certified checks mentioned in par. 2 of the motion (underscoring ours).4 On 20 June 1990 Deputy Sheriff Apolonio L. Golfo of the RTC-Br. 18, Manila, implemented the order by personally delivering the checks issued by Barretto Realty in favor of Moslares and the Estate to Atty. Pedro S. Ravelo, counsel for Moslares, and to Atty. Tomas Trinidad, respectively, as recorded in a Sheriff's Return dated 25 June 1990. 5 However, on 17 September 1993, or more than three (3) years later, Moslares filed a Motion for Execution alleging that he bought the lots subject of the Compromise Agreement on 15 January 1990 and that he paid the amounts specified as payment therefor. He asked that Barretto Realty be directed to execute a deed of conveyance over subject lots in his favor. In a Supplement to his motion Moslares contended that the previous tender of the checks by Barretto Realty did not produce the effect of payment because checks, according to jurisprudence, were not legal tender. Respondent Judge granted Moslares' Motion for Execution. Consequently, on 8 November 1993 Barretto Realty was ordered to execute a deed of conveyance over the subject lots in favor of Moslares. Aggrieved, Barretto Realty moved for reconsideration alleging that respondent Judge could no longer grant Moslares' motion since the prior sale of subject lots in its favor had already been recognized when the court sheriff was directed to deliver, and did in fact deliver, the checks it issued in payment therefor to Moslares and Atty. Trinidad. On 7 December 1993 respondent Judge granted the motion of Barretto Realty for reconsideration and ruled Considering the motion for reconsideration and to quash writ of execution filed by defendant Pio Barretto Realty Corporation, Inc., dated 16 November 1993, together with the plaintiff's comment and/or opposition thereto, dated 18 November 1993, and the movant's reply to the opposition etc., dated 20 November 1993, this Court finds the motion well taken. The record shows that on 10 May 1990, a writ of execution

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was issued by this Court for the parties to deposit with the Court, thru the City Treasurer's Office of Manila, their respective monetary obligations under the compromise agreement that they had executed, and that it was only defendant Pio Barretto Realty Corporation Inc. that had complied therewith, per the return of this Court's deputy sheriff, Apolonio L. Golfo, dated June 25, 1990. Such being the case, Defendant Pio Barretto Realty Corporation Inc., is the absolute owner of the real properties in question and the issue on such ownership is now a closed matter. WHEREFORE, Defendant Pio Barretto Realty Corporation Inc.'s motion for reconsideration etc., dated November 16, 1993, is hereby granted; this Court's order, dated November 8, 1993, is reconsidered and set aside, and the writ of execution of the same date against Defendant Pio Barretto Realty Corporation Inc. is ordered quashed (underscoring ours).6 Within a reglementary period Moslares moved to reconsider insisting that Barretto Realty's payment by check was not valid because (a) the check was not delivered personally to him but to his counsel Atty. Pedro Ravelo, (b) the check was not encashed hence did not produce the effect of payment; and, (c) the check was not legal tender per judicial pronouncements. Barretto Realty opposed the motion, but to no avail. On 11 February 1994 respondent Judge granted the motion for reconsideration and set aside his Order of 7 December 1993. Judge Laguio ruled that Barretto Realty's payment through checks was not valid because "a check is not legal tender and it cannot produce the effect of payment until it is encashed x x x x the check in question has neither been negotiated nor encashed by the plaintiff." 7 At the same time, however, Moslares' alleged payment of P3,000,000.00 on 15 January 1990 intended for Barretto Realty but delivered to Atty. Tomas Trinidad was likewise decreed as not valid because the latter was not authorized to accept payment for Barretto Realty. Invoking interest of justice and equity, respondent Judge resolved to: (a) set aside its ruling contained in its order of 7 December 1993 that "(d)efendant Pio Barretto Realty Corporation, Inc., is the absolute owner of the property in question and the issue on such ownership is now a closed matter;" (b) order the plaintiff (should he desire to exercise his option to buy the real property in question) to pay defendant Pio Barretto Realty Corporation, Inc., the sum of P3,000,000.00 within five (5) days from notice thereof by way of reimbursement of the latter's capital investment; and, (c) order defendant Pio Barretto Realty Development Corporation, Inc., to pay the plaintiff (in the event the latter should fail to exercise his said option and the former would want to buy the real property in question) the sum of P1,000,000.00. But Moslares failed to exercise his option and pay the amount within the five (5)-day period granted him. Instead, he filed a Supplemental Motion to Pay praying that he be given additional seven (7) days within which to do so. Barretto Realty opposed and invoked par. 3 of the Order of 11 February 1994 granting it the option to buy the lots in the event that Moslares should fail to pay within the period given him. Barretto Realty prayed that the P1 million cashier's check still in Moslares' possession be considered as sufficient compliance with the pertinent provision of the court's order. Later, Barretto Realty offered to exchange the check with cash. When Moslares did not appear however at the designated time for payment on 10 March 1994 before the Branch Clerk of Court, Barretto Realty filed a motion for consignation praying that it be allowed to deposit the P1,000,000.00 payment with the cashier of the Office of the Clerk of Court. Respondent Judge however failed to act on the motion as he went on vacation leave. For reasons which do not clearly appear in the record, Judge Rosalio G. dela Rosa, Executive Judge of the RTC, Manila, acted on the motion and granted the prayer of Barretto Realty. 8

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Upon the return of respondent Judge Laguio from his vacation, petitioner Barretto Realty immediately filed a motion for his inhibition on the ground that he had already lost the cold neutrality of an impartial judge as evident from his "seesaw" orders in the case. On 28 March 1994 respondent Judge denied the motion for his inhibition. Moslares for his part moved for reconsideration of Executive Judge dela Rosa's Order of 10 March 1994. On 15 April 1994, in a Consolidated Order, respondent Judge Laguio set aside the questioned order of Executive Judge dela Rosa on the ground that the motion for consignation should have been referred to the pairing judge of Branch 18, Judge Zenaida Daguna of Branch 19. Respondent Judge further ruled that the questioned order was premature since there were pending motions, namely, Moslares' Supplemental Motion to Pay dated 1 March 1994, and Motion to Deposit dated 9 March 1994 which were both filed earlier than Barretto Realty's Motion for Consignation which however remained unresolved. Respondent Judge Laguio found Moslares' motions meritorious and granted them. Moslares was thus given a non-extendible grace period of three (3) days within which to pay the P3,000,000.00 to Barretto Realty. Moslares then deposited the amount with the Branch Clerk of Court of Br. 18 within two (2) days from receipt of the order of respondent Judge, and on 25 April 1994 filed a motion for the Clerk of Court to be authorized to execute the necessary deed of conveyance in his favor. On 2 May 1994 Barretto Realty filed a petition for certiorari and prohibition with prayer for a temporary restraining order and/or preliminary injunction with the Court of Appeals assailing the Orders of respondent Judge dated 28 March 1994 and 15 April 1994 on the ground that they were issued with grave abuse of discretion. Meanwhile, on 12 October 1994 or during the pendency of the petition, respondent Judge granted Moslares' motion and authorized the Clerk of Court to execute the deed of conveyance in his favor. The implementation of the order however was enjoined by the Court of Appeals on 9 December 1994 when it issued a writ of preliminary injunction barring the issuance of the writ until further orders from the court. In its Petition and Memorandum petitioner specifically alleged that respondent Judge's Orders of 8 November 1993,9 11 February 1994,10 15 April 1994,11 and 12 October 199412were all issued with grave abuse of discretion as the trial court had no more jurisdiction to issue such orders since the Compromise Agreement of 2 May 1986 which was the basis of the decision of 24 July 1986 had already been executed and implemented in its favor way back on 20 June 1990. Petitioner likewise contended that the Order of 28 March 199413denying petitioner's motion for inhibition was void because it did not state the legal basis thereof; that respondent Judge displayed obvious bias and prejudice when he issued "seesaw" orders? in the case; and, that the bias in favor of Moslares was apparent when respondent Judge granted the former another three (3)-day period within which to pay the P3 million notwithstanding the fact that Moslares failed to comply with the original five (5)-day period given him. With respect to Executive Judge dela Rosa's Order of 10 March 1994, petitioner contended that there was no rule of procedure prohibiting the Executive Judge from acting on an urgent motion even if the pairing judge of the judge to whom the case was raffled was present. The Court of Appeals dismissed the petition. It ruled that the denial by respondent Judge of the motion for his inhibition was not tainted with grave abuse of discretion correctible by certiorari. Aside from the fact that judges are given a wide latitude of discretion in determining whether to voluntarily recuse themselves from a case, which is not lightly

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interfered with, the appellate court however observed that the orders and resolutions issued by respondent Judge in the five (5) years he had been presiding over Civil Case No. 8427008 indicated that they were not uniformly issued in favor of one or the other party. As petitioner itself aptly described, respondent Judge's actuations in the case "seesawed" between the parties. On the matter of the validity of Judge dela Rosa's Order of 10 March 1994 granting petitioner's motion for consignation, the Court of Appeals ruled that the order was precipitate and unauthorized not only because the motion did not comply with the requisites for litigated motions but also because Judge dela Rosa had no judicial authority to act on the case. His duties as Executive Judge were purely administrative and did not include acting on a case assigned to another judge. With respect to the two (2) writs of execution, one dated 10 May 1990 in favor of petitioner, and the other dated 11 February 1994 in favor of respondent, the Court of Appeals ruled Lastly, anent the existence of two writs of execution, first one for petitioner and the second for Moslares which the former has repeatedly cited as capricious and whimsical exercise of judicial discretion by respondent Judge, the records reveal that on 10 May 1990 a writ of execution was issued in favor of the petitioner upon its motion. For reasons of its own, petitioner did not pursue its effective and fruitful implementation in accordance with the decision based on a compromise agreement, spelling out the respective monetary obligations of petitioner and Moslares. Hence, after the lapse of at least one year, Moslares filed a motion for execution of the same decision x x x x [I]t cannot be said that respondent Judge issued two conflicting orders sans any legal basis. What really happened was that the matter of the first order granting execution in favor of petitioner was repeatedly put at issue until the order of the court dated 11 February 1994 x x x x Observedly, the said order was never elevated by petitioner to the appellate courts. Instead, he agreed with it by filing a "Manifestation and Motion" on 01 March 1994 praying that the P1 Million Cashier's Check still in the possession of Moslares be considered compliance with paragraph 3 of that order x x x x On 14 January 1998 petitioner's motion for reconsideration was denied; hence, this petition. Petitioner contends that the Court of Appeals erred (a) in concluding that petitioner did not pursue the effective and fruitful implementation of the writ of execution dated 10 May 1990 in its favor, (b) in not setting aside Judge Laguio's Orders dated 11 February 1994, 15 April 1994 and 12 October 1994 as patent nullities, and, (c) in disregarding jurisprudence declaring that cashier's or manager's checks are deemed cash or as good as the money they represent. We grant the petition. Final and executory decisions, more so with those already executed, may no longer be amended except only to correct errors which are clerical in nature. They become the law of the case and are immutable and unalterable regardless of any claim of error or incorrectness.14 Amendments or alterations which substantially affect such judgments as well as the entire proceedings held for that purpose are null and void for lack of jurisdiction.15 The reason lies in the fact that public policy dictates that litigations must be terminated at some definite time and that the prevailing party should not be denied the fruits of his victory by some subterfuge devised by the losing party. 16 It is not disputed, and in fact borne by the records, that petitioner bought the disputed lots of the Drepin Estate subject matter of the Compromise Agreement ahead of Moslares and

Page 31 of 1485
that the checks issued in payment thereof were even personally delivered by the Deputy Sheriff of the RTC-Br. 18, Manila, upon Order of respondent Judge dated 14 June 1990 after tender was refused by Moslares and the Drepin Estate. Respondent Moslares never raised the invalidity of the payment through checks either through a motion for reconsideration or a timely appeal. Hence, with the complete execution and satisfaction of the Decision dated 24 July 1986 which approved the Compromise Agreement, Civil Case No. 84-27008 became closed and terminated leaving nothing else to be done by the trial court with respect thereto.17 As petitioner correctly contended, the Court of Appeals erred when it concluded that petitioner did not pursue the fruitful and effective implementation of the writ of execution in its favor. As already stated petitioner paid for the lots through the courtsanctioned procedure outlined above. There was no more need for the Drepin Estate, owner of the lots, to execute a deed of conveyance in petitioner's favor because it had already done so on 10 October 1980. In fact the disputed lots were already registered in petitioner's name under TCT Nos. 50539, 50540 and 50541 as a consequence thereof. That was also why in the penultimate paragraph of the Compromise Agreement it was provided that in the event respondent Moslares bought the lots ahead of petitioner Barretto Realty the latter, not the Drepin Estate, was to execute the corresponding deed of conveyance and deliver all the titles and pertinent papers to respondent Moslares. There was therefore nothing more to be done by way of fruitful and effective implementation. Clearly then respondent Judge Laguio no longer had any jurisdiction whatsoever to act on, much less grant, the motion for execution and supplement thereto filed by Moslares on 17 September 1993 or more than three (3) years later, claiming that he had already bought the lots. The fact that the check paid to him by Barretto Realty was never encashed should not be invoked against the latter. As already stated, Moslares never questioned the tender done three (3) years earlier. Besides, while delivery of a check produces the effect of payment only when it is encashed, the rule is otherwise if the debtor was prejudiced by the creditor's unreasonable delay in presentment. Acceptance of a check implies an undertaking of due diligence in presenting it for payment. If no such presentment was made, the drawer cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged.18 Considering the foregoing, respondent Judge Laguio's Order dated 8 November 1993 which granted private respondent's motion for execution thus nullifying the 1990 sale in favor of petitioner after he had in effect approved such sale in his Order of 14 June 1990 and after such order had already become final and executory, amounted to an oppressive exercise of judicial authority, a grave abuse of discretion amounting to lack of jurisdiction, for which reason, all further orders stemming therefrom are also null and void and without effect. 19 The principle of laches does not attach when the judgment is null and void for want of jurisdiction.20 The fact that petitioner invoked par. 3 of the Order of 11 February 1994 praying that its P1,000,000.00 check still in Moslares' possession be considered sufficient payment of the disputed lots, could not be cited against it. For one thing, petitioner from the very start had always consistently questioned and assailed the jurisdiction of the trial court to entertain respondent's motion for execution filed three (3) years after the case had in fact been executed. Secondly, estoppel being an equitable doctrine cannot be invoked to perpetuate an injustice.21 WHEREFORE, the questioned Decision and Resolution of the Court of Appeals dated 30 June 1997 and 14 January 1998, respectively, are REVERSED and SET ASIDE. The Order of respondent Judge Perfecto A. S. Laguio Jr. dated 11 February 1994 in Civil Case No. 8427008, setting aside his earlier ruling of 7 December 1993 which had declared petitioner Pio Barretto Realty Development Corporation as the absolute owner of the real properties in

Page 32 of 1485
question, and all subsequent proceedings culminating in the Order of 12 October 1994 authorizing the Clerk of Court, RTC-Manila, to execute a deed of conveyance over subject properties in favor of respondent Honor P. Moslares, are declared NULL and VOID for want of jurisdiction. Consequently, petitioner Pio Barretto Realty Development Corporation is declared the absolute owner of the disputed properties subject matter of the Compromise Agreement dated 2 May 1986 as fully implemented by the Deputy Sheriff, RTC-Br. 18, Manila, pursuant to the final and executory Order dated 14 June 1990 of its Presiding Judge Perfecto A. S. Laguio, Jr. SO ORDERED.1wphi1.nt Mendoza, Quisumbing, Buena, De leon, Jr., JJ., concur. THIRD DIVISION [G.R. No. 176664, July 21, 2008] BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. SPOUSES REYNALDO AND VICTORIA ROYECA, RESPONDENTS. DECISION NACHURA, J.: Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA) Decision [1] dated July 12, 2006, and Resolution [2] dated February 13, 2007, which dismissed its complaint for replevin and damages and granted the respondents' counterclaim for damages. The case stems from the following undisputed facts:

On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to Toyota Shaw, Inc. a Promissory Note [3] for P577,008.00 payable in 48 equal monthly installments of P12,021.00, with a maturity date of August 18, 1997. The Promissory Note provides for a penalty of 3% for every month or fraction of a month that an installment remains unpaid. To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage [4] in favor of Toyota over a certain motor vehicle, more particularly described as follows: Make and Type 1993 Toyota Corolla 1.3 XL Motor No. 2E-2649879 Serial No. EE100-9512571 Color D.B. Gray Met. Toyota, with notice to respondents, executed a Deed of Assignment [5] transferring all its rights, title, and interest in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC). Claiming that the respondents failed to pay four (4) monthly amortizations covering the period from May 18, 1997 to August 18, 1997, FEBTC sent a formal demand to respondents on March 14, 2000 asking for the payment thereof, plus penalty. [6] The respondents refused to pay on the ground that they had already paid their obligation to FEBTC.

Page 33 of 1485
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the respondents with the Metropolitan Trial Court (MeTC) of Manila praying for the delivery of the vehicle, with an alternative prayer for the payment of P48,084.00 plus interest and/or late payment charges at the rate of 36% per annum from May 18, 1997 until fully paid. The complaint likewise prayed for the payment of P24,462.73 as attorney's fees, liquidated damages, bonding fees and other expenses incurred in the seizure of the vehicle. The complaint was later amended to substitute BPI as plaintiff when it merged with and absorbed FEBTC.[7] In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto Financing Department of FEBTC eight (8) postdated checks in different amounts totaling P97,281.78. The Acknowledgment Receipt,[8] which they attached to the Answer, showed that FEBTC received the following checks: DATE 26 May 97 6 June 97 30 May 97 15 June 97 30 June 97 18 June 97 18 July 97 18 August 97 BANK Landbank Head Office FEBTC Shaw Blvd. " Landbank Head Office CHECK NO. #610945 #610946 #17A00-11550P #17A00-11549P #17A00-11551P #610947 #610948 #610949 AMOUNT P13,824.15 12,381.63 12,021.00 12,021.00 12,021.00 11,671.00 11,671.00 11,671.00

The respondents further averred that they did not receive any notice from the drawee banks or from FEBTC that these checks were dishonored. They explained that, considering this and the fact that the checks were issued three years ago, they believed in good faith that their obligation had already been fully paid. They alleged that the complaint is frivolous and plainly vexatious. They then prayed that they be awarded moral and exemplary damages, attorney's fees and costs of suit.[9] During trial, Mr. Vicente Magpusao testified that he had been connected with FEBTC since 1994 and had assumed the position of Account Analyst since its merger with BPI. He admitted that they had, in fact, received the eight checks from the respondents. However, two of these checks (Landbank Check No. 0610947 and FEBTC Check No. 17A00-11551P) amounting to P23,692.00 were dishonored. He recalled that the remaining two checks were not deposited anymore due to the previous dishonor of the two checks. He said that after deducting these payments, the total outstanding balance of the obligation was P48,084.00, which represented the last four monthly installments. On February 23, 2005, the MeTC dismissed the case and granted the respondents' counterclaim for damages, thus: WHEREFORE, judgment is hereby rendered dismissing the complaint for lack of cause of action, and on the counterclaim, plaintiff is ordered to indemnify the defendants as follows: a) b) c) d) The The The sum sum sum To of of of PhP30,000.00 PhP30,000.00 PhP20,000.00 pay as as as and and and by by costs by way of of of of moral damages; damages; fees; and suit.

way way

exemplary attorney's the

the

SO ORDERED.[10]

Page 34 of 1485
On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision and ordered the respondents to pay the amount claimed by the petitioner. The dispositive portion of its Decision[11] dated August 11, 2005 reads: WHEREFORE, premises considered, the Decision of the Metropolitan Trial Court, Branch 9 dated February 23, 2005 is REVERSED and a new one entered directing the defendantsappellees to pay the plaintiff-appellant, jointly and severally, 1. The sum of P48,084.00 plus interest and/or late payment charges thereon at the rate of 36% per annum from May 18, 1997 until fully paid; 2. The sum of P10,000.00 as attorney's fees; and 3. The costs of suit. SO ORDERED.[12] The RTC denied

the

respondents'

motion

for

reconsideration. [13]

The respondents elevated the case to the Court of Appeals (CA) through a petition for review. They succeeded in obtaining a favorable judgment when the CA set aside the RTC's Decision and reinstated the MeTC's Decision on July 12, 2006. [14] On February 13, 2007, the CA denied the petitioner's motion for reconsideration. [15] The issues submitted for resolution in this petition for review are as follows: I. II. III. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL PAYMENT OF THEIR OBLIGATION AS ONE OF THEIR AFFIRMATIVE DEFENSES. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES.[16]

The petitioner insists that the respondents did not sufficiently prove the alleged payment. It avers that, under the law and existing jurisprudence, delivery of checks does not constitute payment. It points out that this principle stands despite the fact that there was no notice of dishonor of the two checks and the demand to pay was made three years after default. On the other hand, the respondents postulate that they have established payment of the amount being claimed by the petitioner and, unless the petitioner proves that the checks have been dishonored, they should not be made liable to pay the obligation again. [17] The petition is partly meritorious.

In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence, or evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto. [18] Thus, the party, whether plaintiff or defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment. For the plaintiff, the burden to prove its positive assertions never parts. For the defendant, an affirmative defense is one which is not a denial of an essential ingredient in the plaintiff's cause of action, but one which, if established, will be a good defense i.e. an "avoidance" of the claim. [19] In Jimenez v. NLRC,[20] cited by both the RTC and the CA, the Court elucidated on who, between the plaintiff and defendant, has the burden to prove the affirmative defense of payment:

Page 35 of 1485
As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment. When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the creditor. Where the debtor introduces some evidence of payment, the burden of going forward with the evidence - as distinct from the general burden of proof - shifts to the creditor, who is then under a duty of producing some evidence to show non-payment.[21] In applying these principles, the CA and the RTC, however, arrived at different conclusions. While both agreed that the respondents had the burden of proof to establish payment, the two courts did not agree on whether the respondents were able to present sufficient evidence of payment -- enough to shift the burden of evidence to the petitioner. The RTC found that the respondents failed to discharge this burden because they did not introduce evidence of payment, considering that mere delivery of checks does not constitute payment. [22] On the other hand, the CA concluded that the respondents introduced sufficient evidence of payment, as opposed to the petitioner, which failed to produce evidence that the checks were in fact dishonored. It noted that the petitioner could have easily presented the dishonored checks or the advice of dishonor and required respondents to replace the dishonored checks but none was presented. Further, the CA remarked that it is absurd for a bank, such as petitioner, to demand payment of a failed amortization only after three years from the due date. The divergence in this conflict of opinions can be narrowed down to the issue of whether the Acknowledgment Receipt was sufficient proof of payment. As correctly observed by the RTC, this is only proof that respondents delivered eight checks in payment of the amount due. Apparently, this will not suffice to establish actual payment. Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. [23] Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.[24] To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks. Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim. [25] To stress, the obligation to prove that the checks were not dishonored, but were in fact encashed, fell upon the respondents who would benefit from such fact. That payment was effected through the eight checks was the respondents' affirmative allegation that they had to establish with legal certainty. If the petitioner were seeking to enforce liability upon the check, the burden to prove that a notice of dishonor was properly given would have

Page 36 of 1485
devolved upon it.[26] The fact is that the petitioner's cause of action was based on the original obligation as evidenced by the Promissory Note and the Chattel Mortgage, and not on the checks issued in payment thereof. Further, it should be noted that the petitioner, as payee, did not have a legal obligation to inform the respondents of the dishonor of the checks. A notice of dishonor is required only to preserve the right of the payee to recover on the check. It preserves the liability of the drawer and the indorsers on the check. Otherwise, if the payee fails to give notice to them, they are discharged from their liability thereon, and the payee is precluded from enforcing payment on the check. The respondents, therefore, cannot fault the petitioner for not notifying them of the non-payment of the checks because whatever rights were transgressed by such omission belonged only to the petitioner. In all, we find that the evidence at hand preponderates in favor of the petitioner. The petitioner's possession of the documents pertaining to the obligation strongly buttresses its claim that the obligation has not been extinguished. The creditor's possession of the evidence of debt is proof that the debt has not been discharged by payment. [27] A promissory note in the hands of the creditor is a proof of indebtedness rather than proof of payment. [28] In an action for replevin by a mortgagee, it is prima facie evidence that the promissory note has not been paid.[29] Likewise, an uncanceled mortgage in the possession of the mortgagee gives rise to the presumption that the mortgage debt is unpaid. [30] Finally, the respondents posit that the petitioner's claim is barred by laches since it has been three years since the checks were issued. We do not agree. Laches is a recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches cannot, as a rule, abate a collection suit filed within the prescriptive period mandated by the New Civil Code. [31] The petitioner's action was filed within the ten-year prescriptive period provided under Article 1144 of the New Civil Code. Hence, there is no room for the application of laches. Nonetheless, the Court cannot ignore what the respondents have consistently raised -- that they were not notified of the non-payment of the checks. Reasonable banking practice and prudence dictates that, when a check given to a creditor bank in payment of an obligation is dishonored, the bank should immediately return it to the debtor and demand its replacement or payment lest it causes any prejudice to the drawer. In light of this and the fact that the obligation has been partially paid, we deem it just and equitable to reduce the 3% per month penalty charge as stipulated in the Promissory Note to 12% per annum. [32] Although a court is not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit, as long as they contravene no law, morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with. [33] WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated July 12, 2006, and Resolution dated February 13, 2007, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court, dated August 11, 2005, is REINSTATED with the MODIFICATION that respondents are ordered to deliver the possession of the subject vehicle, or in the alternative, pay the petitioner P48,084.00 plus late penalty charges/interest thereon at the rate of 12% per annum from May 18, 1997 until fully paid. SO ORDERED.

Quisumbing, (Chairperson), Ynares-Santiago, Austria-Martinez, and Reyes, JJ., concur.

Page 37 of 1485

Republic of the Philippines Supreme Court Manila

SECOND DIVISION

EUMELIA R. MITRA, Petitioner,

G.R. NO. 191404 Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ.

- versus -

PEOPLE OF THE PHILIPPINES and FELICISIMO S. TARCELO, Respondents.

Promulgated: July 5, 2010

X --------------------------------------------------------------------------------------X

DECISION

MENDOZA, J.:

Page 38 of 1485
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the July 31, 2009 Decision1[1] and the February 11, 2010 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 31740. The subject decision and resolution affirmed the August 22, 2007 Decision of the Regional Trial Court, Branch 2, Batangas City (RTC) which, in turn, affirmed the May 21, 2007 Decision of the Municipal Trial Court in Cities, Branch 2, Batangas City (MTCC).

THE FACTS:

Petitioner Eumelia R. Mitra (Mitra) was the Treasurer, and Florencio L. Cabrera, Jr. (now deceased) was the President, of Lucky Nine Credit Corporation (LNCC), a corporation engaged in money lending activities.

Between 1996 and 1999, private respondent Felicisimo S. Tarcelo (Tarcelo) invested money in LNCC. As the usual practice in money placement transactions, Tarcelo was issued checks equivalent to the amounts he invested plus the interest on his investments. The following checks, signed by Mitra and Cabrera, were issued by LNCC to Tarcelo. 2[2]

Bank

Date Issued

Date of Check

Amount

Check No.

Security Bank

September 1998

15,

January 15, 1999

P 3,125.00

0000045804

-do-

September 15, 1998

January 15, 1999

125,000.0

0000045805

1 2

Page 39 of 1485

-do-

September 20, 1998

January 20, 1999

2,500.00

0000045809

-do-

September 20, 1998

January 20, 1999

100,000.00

0000045810

-do-

September 30, 1998

January 30, 1999

5,000.00

0000045814

-do-

September 30, 1998

January 30, 1999

200,000.00

0000045815

-do-

October 3, 1998

February 3, 1999

2,500.00

0000045875

-do-

October 3, 1998

February 3, 1999

100,000.00

0000045876

-do-

November 17, 1998

February17, 1999

5,000.00

0000046061

-do-

November 17, 1998

March 17, 1999

5,000.00

0000046062

-do-

November 17, 1998

March 17, 1999

200,000.00

0000046063

-do-

November 19, 1998

January 19, 1999

2,500.00

0000046065

-do-

November 19, 1998

February19, 1999

2,500.00

0000046066

-do-

November 19, 1998

March 19, 1999

2,500.00

0000046067

Page 40 of 1485

-do-

November 19, 1998

March 19, 1999

100,000.00

0000046068

-do-

November 20, 1998

January 20, 1999

10,000.00

0000046070

-do-

November 20, 1998

February 1999

20,

10,000.00

0000046071

-do-

November 20, 1998

March 20, 1999

10,000.00

0000046072

-do-

November 20, 1998

March 20, 1999

10,000.00

0000046073

-do-

November 30, 1998

January 30, 1999

2,500.00

0000046075

-do-

November 30, 1998

February 1999

28,

2,500.00

0000046076

-do-

November 30, 1998

March 30, 1999

2,500.00

0000046077

-do-

November 30, 1998

March 30, 1999

100,000.00

0000046078

When Tarcelo presented these checks for payment, they were dishonored for the reason account closed. Tarcelo made several oral demands on LNCC for the payment of these checks but he was frustrated. Constrained, in 2002, he caused the filing of seven informations for violation of Batas Pambansa Blg. 22 (BP 22) in the total amount of P925,000.00 with the MTCC in Batangas City.3[3]

Page 41 of 1485
After trial on the merits, the MTCC found Mitra and Cabrera guilty of the charges. The fallo of the May 21, 2007 MTCC Decision4[4] reads:

WHEREFORE, foregoing premises considered, the accused FLORENCIO I. CABRERA, JR., and EUMELIA R. MITRA are hereby found guilty of the offense of violation of Batas Pambansa Bilang 22 and are hereby ORDERED to respectively pay the following fines for each violation and with subsidiary imprisonment in all cases, in case of insolvency: 1. 2. 3. 4. 5. 6. 7. Criminal Criminal Criminal Criminal Criminal Criminal Criminal Case Case Case Case Case Case Case No. No. No. No. No. No. No. 43637 43640 43648 43700 43702 43704 43706 P200,000.00 P100,000.00 P100,000.00 P125,000.00 P200,000.00 P100,000.00 P100,000.00

Said accused, nevertheless, are adjudged civilly liable and are ordered to pay, in solidum, private complainant Felicisimo S. Tarcelo the amount of NINE HUNDRED TWENTY FIVE THOUSAND PESOS (P925,000.000). SO ORDERED.

Mitra and Cabrera appealed to the Batangas RTC contending that: they signed the seven checks in blank with no name of the payee, no amount stated and no date of maturity; they did not know when and to whom those checks would be issued; the seven checks were only among those in one or two booklets of checks they were made to sign at that time; and that they signed the checks so as not to delay the transactions of LNCC because they did not regularly hold office there.5[5]

The RTC affirmed the MTCC decision and later denied their motion for reconsideration. Meanwhile, Cabrera died. Mitra alone filed this petition for review 6[6] claiming, among others, that there was no proper service of the notice of dishonor on her. The Court of Appeals dismissed her petition for lack of merit.

4 5 6

Page 42 of 1485
Mitra is now before this Court on a petition for review and submits these issues:

1. WHETHER OR NOT THE ELEMENTS OF VIOLATION OF BATAS PAMBANSA BILANG 22 MUST BE PROVED BEYOND REASONABLE DOUBT AS AGAINST THE CORPORATION WHO OWNS THE CURRENT ACCOUNT WHERE THE SUBJECT CHECKS WERE DRAWN BEFORE LIABILITY ATTACHES TO THE SIGNATORIES. 2. WHETHER OR NOT THERE IS PROPER SERVICE OF NOTICE OF DISHONOR AND DEMAND TO PAY TO THE PETITIONER AND THE LATE FLORENCIO CABRERA, JR.

The Court denies the petition.

A check is a negotiable instrument that serves as a substitute for money and as a convenient form of payment in financial transactions and obligations. The use of checks as payment allows commercial and banking transactions to proceed without the actual handling of money, thus, doing away with the need to physically count bills and coins whenever payment is made. It permits commercial and banking transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged by unfunded checks that adversely affect confidence in our commercial and banking activities, and ultimately injure public interest.

BP 22 or the Bouncing Checks Law was enacted for the specific purpose of addressing the problem of the continued issuance and circulation of unfunded checks by irresponsible persons. To stem the harm caused by these bouncing checks to the community, BP 22 considers the mere act of issuing an unfunded check as an offense not only against property but also against public order. 7[7] The purpose of BP 22 in declaring the mere issuance of a bouncing check as malum prohibitum is to punish the offender in order to deter him and others from committing the offense, to isolate him from society, to

Page 43 of 1485
reform and rehabilitate him, and to maintain social order.8[8] The penalty is stiff. BP 22 imposes the penalty of imprisonment for at least 30 days or a fine of up to double the amount of the check or both imprisonment and fine.

Specifically, BP 22 provides:

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. The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act.

SECTION 2. Evidence of Knowledge of Insufficient Funds. The making, drawing and issuance of a check payment of which is refused by the drawee 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.

Page 44 of 1485
Mitra posits in this petition that before the signatory to a bouncing corporate check can be held liable, all the elements of the crime of violation of BP 22 must first be proven against the corporation. The corporation must first be declared to have committed the violation before the liability attaches to the signatories of the checks. 9[9]

The Court finds Itself unable to agree with Mitras posture. The third paragraph of Section 1 of BP 22 reads: "Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act." This provision recognizes the reality that a corporation can only act through its officers. Hence, its wording is unequivocal and mandatory that the person who actually signed the corporate check shall be held liable for a violation of BP 22. This provision does not contain any condition, qualification or limitation.

In the case of Llamado v. Court of Appeals,10[10] the Court ruled that the accused was liable on the unfunded corporate check which he signed as treasurer of the corporation. He could not invoke his lack of involvement in the negotiation for the transaction as a defense because BP 22 punishes the mere issuance of a bouncing check, not the purpose for which the check was issued or in consideration of the terms and conditions relating to its issuance. In this case, Mitra signed the LNCC checks as treasurer. Following Llamado, she must then be held liable for violating BP 22.

Another essential element of a violation of BP 22 is the drawers knowledge that he has insufficient funds or credit with the drawee bank to cover his check. Because this involves a state of mind that is difficult to establish, BP 22 creates the prima facie presumption that once the check is dishonored, the drawer of the check gains knowledge of the insufficiency, unless within five banking days from receipt of the notice of dishonor, the drawer pays the holder of the check or makes arrangements with the drawee bank for the payment of the check. The service of the notice of dishonor gives the drawer the opportunity to make good the check within those five days to avert his prosecution for violating BP 22.

9 10

Page 45 of 1485

Mitra alleges that there was no proper service on her of the notice of dishonor and, so, an essential element of the offense is missing. This contention raises a factual issue that is not proper for review. It is not the function of the Court to re-examine the finding of facts of the Court of Appeals. Our review is limited to errors of law and cannot touch errors of facts unless the petitioner shows that the trial court overlooked facts or circumstances that warrant a different disposition of the case11[11] or that the findings of fact have no basis on record. Hence, with respect to the issue of the propriety of service on Mitra of the notice of dishonor, the Court gives full faith and credit to the consistent findings of the MTCC, the RTC and the CA.

The defense postulated that there was no demand served upon the accused, said denial deserves scant consideration. Positive allegation of the prosecution that a demand letter was served upon the accused prevails over the denial made by the accused. Though, having denied that there was no demand letter served on April 10, 2000, however, the prosecution positively alleged and proved that the questioned demand letter was served upon the accused on April 10, 2000, that was at the time they were attending Court hearing before Branch I of this Court. In fact, the prosecution had submitted a Certification issued by the other Branch of this Court certifying the fact that the accused were present during the April 10, 2010 hearing. With such straightforward and categorical testimony of the witness, the Court believes that the prosecution has achieved what was dismally lacking in the three (3) cases of Betty King, Victor Ting and Caras evidence of the receipt by the accused of the demand letter sent to her. The Court accepts the prosecutions narrative that the accused refused to sign the same to evidence their receipt thereof. To require the prosecution to produce the signature of the accused on said demand letter would be imposing an undue hardship on it. As well, actual receipt acknowledgment is not and has never been required of the prosecution either by law or jurisprudence.12[12] [emphasis supplied]

With the notice of dishonor duly served and disregarded, there arose the presumption that Mitra and Cabrera knew that there were insufficient funds to cover the checks upon their presentment for payment. In fact, the account was already closed.

11 12

Page 46 of 1485

To reiterate the elements of a violation of BP 22 as contained in the above-quoted provision, a violation exists where:

1. a person makes or draws and issues a check to apply on account or for value; 2. the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the full payment of the check 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 reason, ordered the bank to stop payment.
13

[13]

There is no dispute that Mitra signed the checks and that the bank dishonored the checks because the account had been closed. Notice of dishonor was properly given, but Mitra failed to pay the checks or make arrangements for their payment within five days from notice. With all the above elements duly proven, Mitra cannot escape the civil and criminal liabilities that BP 22 imposes for its breach.14[14]

WHEREFORE, the July 31, 2009 Decision and the February 11, 2010 Resolution of the Court of Appeals in CA-G.R. CR No. 31740 are hereby AFFIRMED.

13 14

Page 47 of 1485

SO ORDERED. Republic of the Philippines Supreme Court Manila

THIRD DIVISION

DONNINA C. HALLEY, Petitioner,

G.R. No. 157549

Present:

CARPIO MORALES, Chairperson, BRION, -versusBERSAMIN, VILLARAMA, JR., and SERENO, JJ.

Promulgated: PRINTWELL, INC., Respondent. May 30, 2011

x-----------------------------------------------------------------------------------------x

Page 48 of 1485
DECISION

BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil may be lifted to avoid defrauding corporate creditors.

Weaffirm

with

modification

the

decisionpromulgated

on

August

14,

2002, 15

[1]whereby the Court of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC),16[2]ordering the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest.

Antecedents

The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987, 17[3]had an authorized capital stock of P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000 were initially subscribed, to wit:

Subscriber

No.

of

Total

Amount paid

15 16 17

Page 49 of 1485
shares 35,000 18,000 18,000 2,000 2,000 75,000 subscription P 350,000.00 P 180,000.00 P 180,000.00 P 20,000.00 P 20,000.00 P750,000.00

Donnina C. Halley Roberto V. Cabrera, Jr. Albert T. Yu Zenaida V. Yu Rizalino C. Vineza TOTAL

P87,500.00 P45,000.00 P45,000.00 P5,000.00 P5,000.00 P187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit, evidenced that BMPI byinvoices and delivery receipts totalingP316,342.76.Considering paidonlyP25,000.00,Printwell suedBMPIon

January 26, 1990 for the collection of the unpaid balance of P291,342.76 in the RTC.18[4]

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original stockholders and incorporators to recover on theirunpaid subscriptions, as follows:19[5]

Name Donnina C. Halley Roberto V. Cabrera, Jr. Albert T. Yu Zenaida V. Yu Rizalino C. Vieza TOTAL

Unpaid Shares P 262,500.00 P135,000.00 P135,000.00 P15,000.00 P15,000.00 P 562,500.00

18 19

Page 50 of 1485

The defendants filed a consolidated answer,20[6]averring that they all had paid their subscriptions in full; that BMPI had a separate personality from those of its stockholders; thatRizalino C. Vieza had assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on February 5, 1990.

To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit:

Receipt No. 217 218 220 221 222 223 227

Date November 1987 May 13, 1988 May 13, 1988 November 1987 November 1987 May 13, 1988 May 13, 1988

5,

Name Albert T. Yu Albert T. Yu Roberto V. Cabrera, Jr. Roberto V. Cabrera, Jr. Zenaida V. Yu Zenaida V. Yu Donnina C. Halley

Amount P 45,000.00 P 135,000.00 P 135,000.00 P 45,000.00 P 5,000.00

5, 5,

P 15,000.00 P 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:( a) an audit report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR);21[7](b) BMPIbalance sheet22[8] and income statement23[9]as of

20 21 22 23

Page 51 of 1485
December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped received by the BIR);24[10](d) journal vouchers;25[11](e) cash deposit slips;26[12] and(f)Bank of the Philippine Islands (BPI) savings account passbookin the name of BMPI. 27[13]

Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the defendants had used BMPIs corporate personality to evade payment and create injustice, viz:

The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation, is not worthy of consideration, because: a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made on May 13, 1988 amounting to P135,000.00, is covered by Official Receipt No. 218 (Exh. 2), whereas the alleged payment made earlier on November 5, 1987, amounting to P5,000.00, is covered by Official Receipt No. 222 (Exh. 3). This is cogent proof that said receipts were belatedly issued just to suit their theory since in the ordinary course of business, a receipt issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 has serial numbers (222) higher than those issued on a later date (May 13, 1988). The claim that since there was no call by the Board of Directors of defendant corporation for the payment of unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Since the individual defendants are members of the Board of Directors of defendantcorporation, it was within their exclusive power to prevent the fulfillment of the condition, by simply not making a call for the

b)

24 25 26 27

Page 52 of 1485
payment of the unpaid subscriptions. Their inaction should not work to their benefit and unjust enrichment at the expense of plaintiff. Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent that individual defendants merely used the corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).28[14] Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata, thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits A, A-1 to A-9), and, as appearing from the Articles of Incorporation, individual defendants have the following unpaid subscriptions: Names Unpaid Subscription Donnina C. Halley P262,500.00 Roberto V. Cabrera, Jr. 135.000.00 Albert T. Yu 135,000.00 Zenaida V. Yu 15,000.00 Rizalino V. Vineza 15,000.00 -------------------Total P562,500.00 and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil. 802). The liability of the individual stockholders in the instant case shall be pro-rated as follows: Names Amount Donnina C. Halley P149,955.65 Roberto V. Cabrera, Jr. 77,144.55 Albert T. Yu 77,144.55 Zenaida V. Yu 8,579.00 Rizalino V. Vineza 8,579.00 -----------------Total P321,342.7529[15]

28 29

Page 53 of 1485

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as principal, with interest thereon at 20% per annum, from date of default, until fully paid, plus P30,000.00 as attorneys fees, plus costs of suit. Defendants counterclaims are ordered dismissed for lack of merit. SO ORDERED.30[16]

Ruling of the CA

All the defendants, except BMPI, appealed.

Spouses Donnina and Simon Halley, andRizalinoVieza defined the following errors committed by the RTC, as follows:

I. THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION. II. ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTSSTOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

30

Page 54 of 1485

I. THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YUS EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM. II. THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.

Roberto V. Cabrera, Jr. argued:

I. IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO. II. IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEES CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the corporate personality would createan injustice becausePrintwell would thereby be at a loss against whom it would assert the right to collect, viz:

Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievements or perfection of monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members

Page 55 of 1485
or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals ( First Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate existence may be disregarded where the entity is formed or used for nonlegitimate purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613). In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which facts were never denied by appellants stockholders that they owe appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.31[17]

Further, the CA concurred with the RTC on theapplicability of the trust fund doctrine, under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus:

It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which creditors have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366). Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment of subscriptions of the stockholders, is where the creditors can claim monetary considerations for the satisfaction of their claims. If these funds which ought to be fully subscribed by the stockholders were not paid or remain an unpaid subscription of the corporation then the creditors have no other recourse to collect from the corporation of its liability. Such occurrence was evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid subscriptions, which left the creditors helpless in collecting their claim due to

31

Page 56 of 1485
insufficiency of funds of the corporation. Likewise, the claim of appellants that they already paid the unpaid subscriptions could not be given weight because said payment did not reflect in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the appellants stockholders. For it is a rule that a stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86). Moreover, a corporation has no power to release a subscription or its capital stock, without valuable consideration for such releases, and as against creditors, a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366).32[18]

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was incontrovertibly established by competent testimonial and documentary evidence, namely Exhibits 1, 2, 3 & 4, which were never disputed by appellee, clearly shows that they should not be held liable for payment of the said unpaid subscriptions of BMPI. The reliance is misplaced. We are hereby reproducing the contents of the above-mentioned exhibits, to wit: Exh: 1 YU Official Receipt No. 217 dated November 5, 1987 amounting to P45,000.00 allegedly representing the initial payment of subscriptions of stockholder Albert Yu. Exh: 2 YU Official Receipt No. 218 dated May 13, 1988 amounting to P135,000.00 allegedly representing full payment of balance of subscriptions of stockholder Albert Yu. (Record p. 352). Exh: 3 YU Official Receipt No. 222 dated November 5, 1987 amounting to P5,000.00 allegedly representing the initial payment of subscriptions of stockholder Zenaida Yu. Exh: 4 YU Official Receipt No. 223 dated May 13, 1988 amounting to P15,000.00 allegedly representing the full payment of balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).

32

Page 57 of 1485

Based on the above exhibits, we are in accord with the lower courts findings that the claim of the individual appellants that they fully paid their subscription to the defendant BMPI is not worthy of consideration, because, in the case of appellants SPS. YU, there is an inconsistency regarding the issuance of the official receipt since the alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear indication that said receipts were belatedly issued just to suit their claim that they have fully paid the unpaid subscriptions since in the ordinary course of business, a receipt is issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 had a serial number (222) higher than those issued on May 13, 1988 (218). And even assuming arguendo that the individual appellants have paid their unpaid subscriptions, still, it is very apparent that the veil of corporate fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of Appeals, 198 SCRA 211).33[19]

Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for our consideration and resolution, to wit:

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Page 58 of 1485
I. THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF RESPONDENTS MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION II. THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION III. THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of the Constitution 34[20] as well as in Section 1,Rule 36 of the Rules of Court,35[21]to the effect that a judgment or final order of a court should state clearly and distinctly the facts and the law on which it is based. The petitioner claims that the RTCs violation indicated that the RTC did not analyze the case before rendering its decision, thus denying her the opportunity to analyze the decision; andthat a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwells memorandum.She cites Francisco v. Permskul,36[22] in which the Court has stated that the reason underlying the constitutional requirement, that every decision should clearly and distinctly state the facts and the law on which it is based, is to inform the reader of how the court has reached its decision and thereby give the losing party an opportunity to study and analyze the decision and enable such party to appropriately assign the errors committed therein on appeal.

On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in determining the current list

34 35 36

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of unpaid subscriptions despite the articles of incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: ( a) the propriety of disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated them; and (b) the application of the trust fund doctrine.

Ruling

The petition for review fails.

I The RTC did not violate the Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is unfounded.

It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of the RTC copied verbatim the allegations of herein Respondents in its Memorandum before the said court, as if the Memorandum was the draft of the

Page 60 of 1485
Decision of the Regional Trial Court of Pasig, 37[23]but fails to specify either the portions allegedly lifted verbatim from the memorandum, or why she regards the decision as copied. The omission renders thepetition for review insufficient to support her contention, considering that the mere similarityin language or thought between Printwells memorandum and the trial courts decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim or copied from thememorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally viewa partys memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum. 38[24] This isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct determination of the controversy.Nor is there anything untoward in the congruence of ideas and views about the legal issues between himself and the party drafting the memorandum.The frequency of similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

We also do not agree with the petitioner that the RTCs manner of writing the decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears, considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA, indicating her thorough analysis ofthe decision of the RTC.

Our own readingof the trial courts decision persuasively shows that the RTC did comply with the requirements regarding the content and the manner of writing a decision

37 38

Page 61 of 1485
prescribed in the Constitution and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated the applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the plaintiff. In short, the reader was at once informed of the factual and legal reasons for the ultimate result.

II Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and ( b) to avoid multiplicity of suits.39[25]

The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its obligation to pay. Hence, she should not be personally liable.

We rule against the petitioners submission.

Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers,40[26]such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice. 41 [27]The corporate personality may be disregarded, and the individuals composing the

39 40 41

Page 62 of 1485
corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. 42[28] As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus,the courts always presume good faith, andfor that reason accord prime importance to the separate personality of the corporation, disregarding the corporate personality only after the wrongdoing is first clearly and convincingly established. 43[29]It thus behooves the courts to be careful in assessing the milieu where the piercing of the corporate veil shall be done.44[30]

Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell, her personal liability, together with that of her co-defendants, remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred, to wit: In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which facts were never denied by appellants stockholders that they owe(d) appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.45[31]

42 43 44 45

Page 63 of 1485

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay, and whether or not she induced Printwell to transact with BMPI were not gooddefensesin the suit.

III Unpaid creditor may satisfy its claim from unpaid subscriptions;stockholders must prove full payment oftheir subscriptions

Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the petitioner.

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements.

The petitioners argumentis devoid of substance.

The trust fund doctrineenunciates a

xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a trust fund only by

Page 64 of 1485
way of analogy or metaphor. As between the corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts. 46[32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,47 [33]was adopted in our jurisdiction in Philippine Trust Co. v. Rivera ,48[34]where thisCourt declared that:

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx49[35]

We clarify that the trust fund doctrine is not limited to reaching the stockholders unpaid subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts. 50[36]All assets and property belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole

46 47 48 49 50

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or in part,51[37] without a valuable consideration, 52[38] or fraudulently, to the prejudice of creditors.53[39]The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt. 54[40]To make out a prima facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid the par value of the stocks of the corporation. 55[41]

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still cannot sustain the petitioners defense of full payment of her subscription.

In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment.56[42]

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Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and theclient or thecustomer. 57[43]Althougha receipt is the best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also establishthe fact of payment. 58 [44]

The petitioners ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the law.

Paymentis defined as the delivery of money.59[45]Yet, because a check is not money and only substitutes for money, the delivery of a check does not operate as payment and does not discharge the obligation under a judgment. 60[46] The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed. 61[47]The following passage fromBank of Philippine Islands v. Royeca62[48]is enlightening:

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Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks. Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioners mere submission of the receipt issued in exchange of the check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial court about the identity of her drawee bank,63[49]and about whether the check was cleared and its amount paid to BMPI. 64 [50]In fact, she did not present the check itself.

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing on the issue of payment of the subscription because they did not by themselves prove payment. ITRsestablish ataxpayers liability for taxes or a taxpayers claim for refund. In the same manner, the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments.

63 64

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It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed, books and records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts and proceedings. 65 [51]Specifically, a stock and transfer book is necessary as a measure of precaution, expediency, and convenience because it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters.66[52]That she tendered no explanation why the stock and transfer book was not presented warrants the inference that the book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her subscription might have been a reliable evidence of full payment of the subscriptions, considering that under Section 65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof of the liabilities of the stockholders subscribing to BMPIs stocks, averring that the articles of incorporationdid not reflect the latest subscription status of BMPI.

Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation, the lower courts reliance on that document to determine whether the original subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full payment

65 66

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belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure or inability to satisfactorily prove their defense of full payment of the subscriptions.

To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPIs creditor,had a right to reachher unpaid subscription in satisfaction of its claim.

IV Liability of stockholders for corporate debts isup to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount of P149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need to modify the extent of the petitioners personal liability to Printwell. The prevailing rule is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription .67[53]In view ofthe petitioners unpaid subscription being worth P262,500.00, shewas liable up to that amount.

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Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the extent of the petitioners personal liability of P262,500.00) is fully paid.68[54]

Lastly, we find no basis togrant attorneys fees, the award for which must be supported by findings of fact and of law as provided under Article 2208 of the Civil Code69[55]incorporated in the body of decision of the trial court. The absence of the requisite findings from the RTC decision warrants the deletion of the attorneys fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.

Republic SUPREME Manila SECOND DIVISION

of

the

Philippines COURT

G.R. No. 123567 June 5, 1998

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PEOPLE OF THE PHILIPPINES, vs. ROBERTO TONGKO, accused-appellant. plaintiff-appellee,

PUNO, J.: This is an appeal by accused Roberto Tongko from the Decision of the RTC of Pasig City, Branch 156 finding him guilty of estafa under Article 315 (2) (d) of the Revised Penal Code. He was sentenced to suffer twenty seven (27) years of reclusion perpetua and to indemnify Carmelita v. Santos by way of actual damges in the sum of P100,000.00 and to pay the cost of suit. Accused was charged under the following Information: That on or about the 20th day of August, 1993, in the Municipality of Pasig, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, by means of deceit and false pretenses committed prior to or simultaneously with the commission of the fraudulent acts, did then and there willfully, unlawfully and feloniously make or draw and issue to one, Carmelita Santos to apply on account or for value, the check described below: BANK CHECK NO. DATE AMOUNT Phil. Amanah Bank 203729 12-20-93 P10,000.00 Phil. Amanah Bank 203730 12-20-93 10,000.00 Phil. Amanah Bank 203731 12-20-93 10,000.00 Phil. Amanah Bank 203732 12-20-93 10,000.00 Phil. Amanah Bank 203733 12-20-93 10,000.00 Phil. Amanah Bank 203737 12-20-93 10,000.00 Phil. Amanah Bank 203738 12-20-93 10,000.00 Phil. Amanah Bank 203739 12-20-93 10,000.00 Phil. Amanah Bank 203740 12-20-93 10,000.00 Phil. Amanah Bank 203741 12-20-93 10,000.00 said accused well knowing at the time of issue he did not have sufficient funds in or credit with the drawee bank for the payment in full of the face amount of such check upon presentment which check when presented for payment within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for the reason "Account Closed" and despite the lapse of three (3) banking days from receipt of notice that said check has been

Page 72 of 1485
dishonored, the accused failed to pay said payee the face amount of such check or to make arrangement for full payment thereof, to the damage and prejudice of said Carmelita Santos in the total amount of P100,000.00. CONTRARY TO LAW. Accused pled not quilty and underwent trial. The evidence for the prosecution shows that on September 21, 1990, accused opened savings and current account with Amanah Bank. 1 In the morning of August 20, 1993, Marites Bo-ot brought the accused to the office of Carmelita V. Santos at Room 504 Pacific Place, Pearl Drive, Ortigas Center, Pasig City to borrow money. 2 The accused asked for P50,000.00 to be paid not later than December 1993. 3 He assured Santos that his receivables would come in by November 1993. He persuaded Santos to give the loan by issuing five (5) check, each in the sum of P10,000.00, postdated December 20, 1993 and by signing a promissory note. 4 The promissory note was co-signed by Bo-ot. In the afternoon of the same date, the accused returned to Santos and borrowed an additional P50,000.00. Again, he issued five (5) checks, each worth P10,000.00 postdated December 20, 1993. He also signed a promissory note together with Bo-ot. 5 On September 14, 1993, Amanah Bank closed accused's current account for lack of funds. On October 19, 1993, accused himself requested for the closing of his savings account. 6 Santos did not present accused's checks to the drawee bank on their due date upon the request of accused himself. 7 Instead, the checks were presented on March 1, 1994 but were dishonored as accused's accounts had been closed. 8 Accused was informed that his checks had bounced. He promised to make good the checks. He failed to redeem his promise, hence, the case at bar. 9 The accused testified for himself. Nobody corroborated his testimony. He admitted the evidence of the prosecution but alleged that the postdated checks were issued a day or two after he signed the promissory notes. 10 Obviously, he was relying on the defense that the checks were in payment of a pre-existing obligation. As aforestated, the trial court convicted the accused. He appealed to this Court and changed his counsel. 11 He now contends: I THE TRIAL COURT ERRED IN HOLDING THAT THE ISSUANCE OF THE TEN (10) POSTDATED CHECKS (EXHS. "C" TO "L") BY THE ACCUSED-APPELLANT CONSTITUTED FRAUD WHICH INDUCED THE PRIVATE COMPLAINANT TO EXTEND THE LOANS. IT IS RESPECTFULLY SUBMITTED THAT THE INDUCEMENT WAS THE EXECUTION OF THE TWO (2) PROMISSORY NOTES AS WELL AS THE CO-SIGNING THEREOF BY MA. THERESA DEL ROSARIO BO-OT (WHO INTRODUCED ACCUSED-APPELLANT TO PRIVATE COMPLAINANT), IN A JOINT AND SEVERAL CAPACITY. II THE TRIAL COURT ERRED IN NOT HOLDING THAT THE POST-DATED CHECKS WERE IN PAYMENT OF PRE-EXISTING OBLIGATIONS.

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III THE TRIAL COURT ERRED IN FINDING THE ACCUSED-APPELLANT GUILTY OF ESTAFA AS CHARGED, AND IN IMPOSING A STIFF PRISON TERM OF 27 YEARS OF RECLUSION PERPETUA, A PENALTY "TOO HARSH AND OUT OF PROPORTION" AS TO BE VIOLATIVE OF THE CONSTITUTION. The appeal is without merit. Estafa, under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act. No. 4885, has the following elements: (1) postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; (2) lack of sufficiency of funds to cover the check; and (3) damage to the payee thereof. To avoid the first element, appellant contends that he was able to borrow P100,000.00 from Santos due to the promissory notes he co-signed with Bo-ot and not due to the postdated checks he issued. We reject this contention. Firstly, this contention was contrived only after appellant's conviction in the trial court. The records show that appellant did not raise this defense in the trial court. He cannot fault the trial court for failing to consider a defense which he never raised. Secondly, Santos is the best person who can testify on what induced her to lend P100,000.00 to the appellant. Santos categorically declared that it was the issuance of postdated checks which persuaded her to part with her money. We quote her testimony, viz.: 12 Q What happened to those checks you mentioned in the promissory note? A When presented to the bank they were all returned by the bank for reason, account closed. Q Before this was deposited to the bank when the accused came to your office and loaned money from you, what was his representation if any to you? A That his collection will come in by Nov. 1993 and also the checks issued to me will be definitely funded on the date that it will become due. Q Were you persuaded as a result of the statement of the accused that these checks will be good that you parted away the amount? A Yes, sir. There is likewise no merit to the submission of appellant that his postdated checks were in payment of a pre-existing obligation. Again, we note appellant's change of theory in foisting this argument. In the trial court, appellant testified that he issued the postdated checks, thru Bo-ot, a day or two after he obtained the P100,000.00 loan from Santos. 13 The falsity of the uncorroborated claim, however, is too obvious and the trial court correctly rejected it. The claim cannot succeed in light of Santos' testimony that the issuance of said checks persuaded her to grant the loans. A look at the two promissory notes will show that they bear the date August 20, 1993 and they referred to the postdated checks issued by the

Page 74 of 1485
appellant. There could be no reference to the postdated checks if they were issued a day or two after the loans. In this appeal, however, appellant offers the new thesis that since the checks were postdated December 1993, ergo, they were issued in payment of the P100,000.00 he got from Santos on August 20, 1993. The postdating of the checks to December 1993 simply means that on said date the checks would be properly funded. It does not mean that the checks should be deemed as issued only on December 1993. Lastly, appellant contends that the penalty of twenty seven (27) years of reclusion perpetua is too harsh and out of proportion to the crime he committed. He submits that his sentence violates section 19(1), Article III of the Constitution which prohibits the infliction of cruel, degrading or inhuman punishment. We are not persuaded. In People v. de la Cruz, 14 we held that ". . . the prohibition of cruel and unusual punishments is generally aimed at the form or character of the punishment rather than its severity in respect of duration or amount, and apply to punishments which never existed in America or which public sentiment has regarded as cruel or obsolete . . . for instance those inflicted at the whipping post, or in the pillory, burning at the stake, breaking on the wheel, disemboweling, and the like . . ." In People v. Estoista, 15 we further held: It takes more than merely being harsh, excessive, out of proportion, or severe for a penalty to be obnoxious to the Constitution. The fact that the punishment authorized by the statute is severe does not make it cruel and unusual. Expressed in other terms, it has been held that to come under the ban, the punishment must be "flagrantly and plainly oppressive," "wholly disproportionate to the nature of the offense as to shock the moral sense of the community." The legislature was not thoughtless in imposing severe penalties for violation of par. 2(d) of Article 315 of the Revised Penal Code. The history of the law will show that the severe penalties were intended to stop the upsurge of swindling by issuance of bouncing checks. It was felt that unless aborted, this kind of estafa ". . . would erode the people's confidence in the use of negotiable instruments as a medium of commercial transaction and consequently result in the retardation of trade and commerce and the undermining of the banking system of the country." 16 The Court cannot impugn the wisdom of Congress in setting this policy. IN VIEW WHEREOF, the Decision dated January 16, 1996 of the RTC of Pasig City, Br. 156 in Criminal Case No. 106614 convicting appellant is affirmed. Costs against appellant. SO ORDERED. Regalado, Mendoza and Martinez, JJ., concur. Melo, J., is on leave. Republic SUPREME Manila FIRST DIVISION of the Philippines COURT

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G.R. No. 126670 December 2, 1999 ERNESTO T. PACHECO and VIRGINIA O. PACHECO, petitioners, vs. HON. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

YNARES-SANTIAGO, J.: Petitioner spouses are engaged in the construction business. Complainant Romualdo Vicencio was a former Judge and his wife, Luz Vicencio, owns a pawnshop in Samar. On May 17, 1989, due to financial difficulties arising from the repeated delays in the payment of their receivables for the construction projects from the DPWH, 1 petitioners were constrained to obtain a loan of P10,000.00 from Mrs. Vicencio. The latter acceded. Instead of merely requiring a note of indebtedness, however, her husband Mr. Vicencio required petitioners to issue an undated check as evidence of the loan which allegedly will not be presented to the bank. Despite being informed by petitioners that their bank account no longer had any funds, Mrs. Vicencio insisted that issue the check, which according to her was only a formality. Thus, petitioner Virginia Pacheco issued on May 17, 1989 an undated RCBC 2 check with number CT 101756 for P10,000.00. However, she only received the amount of P9,000.00 as the 10% interest on the loan was already deducted. Mrs. Vicencio also required Virginia's husband, herein petitioner Ernesto Pacheco, to sign the check on the same understanding that the check is not to be encashed but merely intended as an evidence of indebtedness which cannot be negotiated. On June 14, 1989, Virginia obtained another loan of P50,000.00 from Mrs. Vicencio. She received only P35,000.00 as the previous loan of P10,000.00 as well as the 10% interest amounting to P5,000.00 on the new loan were deducted by the latter. With the payment of the previous debt, Virginia asked for the return of the first check (RCBC check no. 101756) but Mrs. Vicencio told her that her filing clerk was absent. Despite several demands for the return of the first check, Mrs. Vicencio told Virginia that they can no longer locate the folder containing that check. For the new loan, she also required Virginia to issue three (3) more checks in various amounts two checks for P20,000.00 each and the third check for P10,000.00. Petitioners were not amendable to these requirements, but Mrs. Vicencio insisted that they issue the same assuring them that the checks will not be presented to the banks but will merely serve as guarantee for the loan since there was no promissory note required of them. Due to her dire financial needs, Virginia issued three undated RCBC checks numbered 101783 and 101784 in the sum of P20,000.00 each and 101785 for P10,000.00, and again informed Mrs. Vicencio that the cheeks cannot be encashed as the same were not funded. Petitioner Ernesto also signed the three checks as required by Mrs. Vicencio on the same conditions as the first check. On June 20 and July 21, 1989, petitioner Virginia obtained two more loans, one for P10,000.00 and another for P15,000.00. Again she issued two more RCBC checks (No. 101768 for P10,000.00 and No. 101774 for P15,000.00) as required by Mrs. Vicencio with the same assurance that the checks shall not be presented for payment but shall stand only as evidence of indebtedness in lieu of the usual promissory note. All the checks were undated at the time petitioners handed them to Mrs. Vicencio. The six checks represent a total obligation of P85,000.00. However, since the loan of P10,000.00 under the first check was already paid when the amount thereof was deducted from the proceeds of the second loan, the remaining account was only P75,000.00. Of this amount,

Page 76 of 1485
petitioners were able to settle and pay in cash P60,000.00 in July 1989. Petitioners never had any transaction nor ever dealt with Mrs. Vicencio's husband, the complainant herein. When the remaining balance of P15,000.00 on the loans became due and demandable, petitioners were not able to pay despite demands to do so. On August 3, 1992, Mrs. Vicencio together with her husband and their daughter Lucille, went to petitioners' residence to persuade Virginia to place the date "August 15, 1992" on checks nos. 101756 and 101774, although said checks were respectively given undated to Mrs. Vicencio on May 17, 1989 and July 21, 1989. Check no. 101756 was required by Mrs. Vicencio to be dated as additional guarantee for the P15,000.00 unpaid balance allegedly under check no. 101774. Despite being informed by petitioner Virginia that their account with RCBC had been closed as early as August 17, 1989, Mrs. Vicencio and her daughter insisted that she place a date on the checks allegedly so that it will become evidence of their indebtedness. The former reluctantly wrote the date on the checks for fear that she might not be able to obtain future loans from Mrs. Vicencio. Later, petitioners were surprised to receive on August 29, 1992 a demand letter from Mrs. Vicencio's spouse informing them that the checks when presented for payment on August 25, 1992 were dishonored due to "Account Closed". Consequently, upon the complaint of Mrs., Vicencio's husband with whom petitioners never had any transaction, two informations for estafa, defined in Article 315 (2) (d) of the Revised Penal Code, were filed against them. The informations which were amended on April 1, 1993 alleged that petitioners "through fraud and false pretenses and in payment of a diamond ring (gold necklace)" issued checks which when presented for payment were dishonored due to account closed. 3 After entering a plea of not guilty during arraignment, petitioners were tried and sentenced to suffer imprisonment and ordered to indemnify the complainant in the total amount of P25,000.00. 4 On appeal, the Court of Appeals (CA) affirmed the decision of the court a quo. 5 Hence this petition. Estafa may be committed in several ways. One of these is by postdating a check or issuing a check in payment of an obligation, as provided in Article 315, paragraph 2(d) of the RPC, viz: Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: xxx xxx xxx 2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud: xxx xxx xxx (d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act. The essential elements in order to sustain a conviction under the above paragraph are:

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1. that the offender postdated or issued a check in payment of an payment obligation contracted at the time the check was issued; 2. that such postdating or issuing a check was done when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check; 3. deceit or damage to the payee thereof.
6

The first and third elements are not present in this case. A check has the character of negotiability and at the same time it constitutes an evidence of indebtedness. By mutual agreement of the parties, the negotiable character of a check may be waived and the instrument may be treated simply as proof of an obligation. There cannot be deceit on the part of the obligor, petitioners herein, because they agreed with the obligee at the time of the issuance and postdating of the checks that the same shall not be encashed or presented to the banks. As per assurance of the lender, the checks are nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note. By their own covenant, therefore, the checks became mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa. 7 Mrs. Vicencio could not have been deceived nor defrauded by petitioners in order to obtain the loans because she was informed that they no longer have funds in their RCBC accounts. In 1992, when the Vicencio family asked Virginia to place a date on the check, the latter again informed Mrs. Vicencio that their account with RCBC was already closed as early as August 1989. With the assurance, however, that the check will only stand as a firm evidence of indebtedness, Virginia placed a date on the check. Under these circumstances, Mrs. Vicencio cannot claim that she was deceived or defrauded by petitioners in obtaining the loan. In the absence of the essential element of deceit, 8 no estafa was committed by petitioners. Both courts below relied so much on the fact that Mrs. Vicencio's husband is a former Judge who knows the law. He should have known, then, that he need not even ask the petitioners to place a date on the check, because as holder of the check, he could have inserted the date pursuant to Section 13 of the Negotiable Instruments Law (NIL). 9 Moreover, as stated in Section 14 thereof, complainant, as the person in possession of the check, has prima facie authority to complete it by filling up the blanks therein. Besides, pursuant to Section 12 of the same law, a negotiable instrument is not rendered invalid by reason only that it is antedated or postdated. 10 Thus, the allegation of Mrs. Vicencio that the date to be placed by Virginia was necessary so as to make the check evidence of indebtedness is nothing but a ploy. Petitioners openly disclosed and never hid the fact that they no longer have funds in the bank as their bank account was already closed. Knowledge by the complainant that the drawer does not have sufficient funds in the bank at the time it was issued to him does not give rise to a case for estafa through bouncing checks. 11 Moreover, a check must be presented within a reasonable time from issue. 12 By current banking practice, a check becomes stale after more than six (6) months. In fact a check long overdue for more than two and one-half years is considered stale. 13 In this case, the checks were issued more than three years prior to their presentment. In his complaint, complainant alleged that petitioners bought jewelry from him and that he would not have parted with his jewelry had not petitioners issued the checks. The evidence on record, however, does not support the theory of the crime.

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There were six checks given by petitioners to Mrs. Vicencio but only two were presented for encashment. If all were issued in payment of the alleged jewelry, why were not all the checks presented? There was a deliberate choice of these two checks as the total amount reflected therein is equivalent to the amount due under the unpaid obligation. The other checks, on the other hand, could not be used as the amounts therein do not jibe with the amount of the unpaid balance. Following complainant's theory that he would not have sold the jewelries had not petitioners issued "postdated" checks, still no estafa can be imputed to petitioners. It is clear that the checks were not intended for encashment with the bank, but were delivered as mere security for the payment of the loan and under an agreement that the checks would be redeemed with cash as they fell due. Hence, the checks were not intended by the parties to be modes of payment but only as promissory notes. Since complainant and his wife were well aware of that fact, they cannot now complain there was deception on the part of petitioners. Awareness by the complainant of the fictitious nature of the pretense cannot give rise to estafa by means of deceit. 14 When the payee was informed by the by the drawer that the checks are not covered by adequate funds it does not give rise to bad faith or estafa. 15 Moreover, complainant's allegations that the two subject checks were issued in 1992 as payment for the jewelry he allegedly sold to petitioners is belied by the evidence on record. First, complainant is not engaged in the sale of jewelry. 16 Neither are petitioners. If the pieces of jewelry were important to complainant considering that they were with him for more than twenty-five years already, 17 he would not have easily parted with them in consideration for unfunded personal checks in favor of persons whose means of living or source of income were unknown to him. 18 Applicable here is the legal precept that persons are presumed to have taken care of their business. 19 Second, petitioners' bank account with RCBC was opened on March 26, 1987 and was closed on April 17, 1989, during the span of which they were issued 10 check booklets with the last booklet issued on April 6, 1984. This last booklet contains 50 checks consecutively numbered from 101751 to 101800. The two subject checks came from this booklet. All the checks in this booklet were issued in the year 1989 including the two subject checks, so that the complainants' theory that the jewelry were sold in 1992 cannot be believed. The rule that factual findings of the trial court bind this court is not absolute but admits of exceptions such as when the conclusion is a finding grounded on speculation, surmise, and conjecture and when the findings of the lower court is premised on the absence of evidence and is contradicted by the evidence on record. 20 Based on the foregoing discussions, this Court is constrained to depart from the general rule. Equally applicable is what ViceChancellor Van Fleet once said: 21 Evidence to be believed must not only proceed from the mouth of a credible witness but must be credible in itself such as the common experience and observation of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony, except its conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of judicial cognizance. Petitioners, however, are not without liability. An accused acquitted of a criminal charge may nevertheless be held civilly liable in the same case where the facts established by the evidence so warrant. 22 Based on the records, they still have an outstanding obligation of P15,000.00 in favor of Mrs. Vicencio. There was mention that the loan shall earn interests. However, an agreement as to payment of interest must be in writing, otherwise it cannot be valid, 23 although there was actual payment of interests by virtue of the advance deductions from the loan. Once the judgment becomes final and executory, the amount due is deemed

Page 79 of 1485
equivalent to a forbearance of credit during the interim period from the finality of judgment until full payment, in which case it shall earn legal interest at the rate of twelve per cent (12%) per annum pursuant to Central Bank (CB) Circular No. 416. 24 WHEREFORE, the assailed Decision is REVERSED and SET ASIDE. Petitioners are ACQUITTED of the charge of estafa but they are ORDERED to pay Mrs. Vicencio the amount of P15,000.00 without interest. However, from the time this judgment becomes final and executory, the amount due shall earn legal interest of twelve percent (12%) per annum until full payment. SO ORDERED. Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur. THIRD DIVISION

BENNY GO, Petitioner,

G.R. No. 159048

Present:

Panganiban, J., Chairman, - versus Sandoval-Gutierrez Corona, Carpio Morales, and Garcia, JJ

Promulgated: ELIODORO BACARON, Respondent. October 11, 2005

Page 80 of 1485
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- x

DECISION

PANGANIBAN, J.:

he present Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the following reasons: (1) the consideration has been proven to be unusually inadequate; (2) the supposed vendor has remained in possession of the T property even after the execution of the instrument; and (3) the alleged seller has continued to pay the real estate taxes on the property.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the October 17, 2002 Decision[2] and the May 20, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 67218. The assailed Decision disposed as follows:

WHEREFORE, premises considered, the Decision dated February 24, 2000 of the Regional Trial Court of Davao City, Branch 12, in Civil Case No. 25,101-97 is hereby REVERSED and SET ASIDE and a new one is hereby rendered ordering the reformation of the subject instrument, such that the same must be considered a mortgage contract and not a transfer of right. Costs against [petitioner].[4]

Page 81 of 1485

The assailed Resolution denied Reconsideration.

The Facts

The antecedents are narrated by the CA as follows:

As evidenced by the Transfer of Rights dated October 1, 1993, Eliodoro Bacaron conveyed a 15.3955-hectare parcel of land located in Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00. About a year thereafter, Bacaron, seeking to recover his property, went to Go to pay his alleged P20,000.00 loan but the latter refused to receive the same and to return his property saying that the transaction between the two of them was a sale and not a mortgage as claimed by Bacaron.

Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein respondent], filed a Complaint for Reformation of Instrument with Damages and prayer for the issuance of a writ of preliminary injunction, with the Regional Trial Court of Davao City, Branch 12, against the [petitioner] Benny Go, which case was docketed as Civil Case No. 25,101-97.

In his Complaint, [respondent] alleged that in the middle part of 1993, he suffered business reversals which prompted him, being in urgent need of funds, to borrow P20,000.00 from the [petitioner]. He however averred that prior to extending said loan to him, the [petitioner] required him to execute a document purporting to be a Transfer of Rights but was told that the same would only be a formality as he could redeem the unregistered land the moment he pays the loan. Admitting that he signed the instrument despite knowing that the same did not express the true intention of the parties agreement, i.e., that the transaction was a mere equitable mortgage, the [respondent] explained that he did so only because he was in a very tight financial situation and because he was assured by the [petitioner] that he could redeem his property. To support this claim, [respondent] stressed the fact that the consideration in the instrument was merely P20,000.00, which is grossly inadequate as the selling price of a 15-hectare land considering that, at that time, the market value of land in Davao City amounts to P100,000.00 per hectare. [Respondent]

Page 82 of 1485
narrated that a year thereafter, or in a middle part of 1994, he was able to raise the P20,000.00 and went to the [petitioner] to pay his loan but the latter refused to accept his payment, insisting that the transaction entered into by the parties was not an equitable mortgage, as the [respondent] insists, but a real transfer of right over the property. Because of said refusal, [respondent] continued, he was compelled to refer the matter to his lawyer in order to request the [petitioner] to accept his payment otherwise he would file the necessary action in court. Despite said formal demand by the [respondent], however, [petitioner] allegedly continued to refuse to recognize the equitable mortgage, prompting [respondent] to consign the P20,000.00 with the Clerk of Court of the RTC of Davao City, Branch 12. He thus insisted that it is [petitioner] who is dead wrong in not recognizing the equitable mortgage since, aside from the fact that the consideration was unusually inadequate, [respondent] allegedly remained in possession of the property. [Respondent] thus prayed for an award for moral damages, in view of the [petitioners] evident bad faith in refusing to recognize the equitable mortgage, and for attorneys fees as [petitioners] alleged stubbornness compelled him to engage the services of counsel. He likewise sought an award for exemplary damages to deter others from committing similar acts and at the same time asked the court to issue a writ of preliminary injunction and/or temporary restraining order to prevent [petitioner] from dispossessing [respondent] of the subject property or from disposing of the same in favor of third parties as these acts would certainly work injustice for and cause irreparable damage to the [respondent]. The prayer for the issuance of a restraining order was however denied by the court in an Order.

[Petitioner] filed his Answer on May 5, 1997, denying [respondents] claim that the transaction was only an equitable mortgage and not an actual transfer of right. He asserted that the truth of the matter was that when [respondent] suffered business reverses, his accounts with the [petitioner], as evidenced by postdated checks, cash vouchers and promissory notes, remained unpaid and his total indebtedness, exclusive of interests, amounted to P985,423.70. [Petitioner] further averred that, in order to avoid the filing of cases against him, [respondent] offered to pay his indebtedness through dacion en pago, giving the land in question as full payment thereof. In addition, he stressed that considering that the property is still untitled and the [respondent] bought the same from one Meliton Bacarro for only P50,000.00, it is most unreasonable for him to agree to accept said land in exchange for over a million pesos of indebtedness. He claimed though that he was only forced to do so when [respondent] told him that if he did not accept the offer, other creditors would grab the same.

By way of affirmative defenses, the [petitioner] pointed out that [respondent] has no cause of action against him as the [respondent] failed to comply with the essential requisites for an action for reformation of instrument. He moreover alleged that the [respondent] is in estoppel because, by his own admission, he signed the document knowing that the same did not express the true intention of the parties. Further, [petitioner] claimed that there was a valid transfer of the property herein since the consideration is not only the actual amount written in the instrument but it also includes the outstanding obligation of [respondent] to the [petitioner] amounting to almost P1 million.

Page 83 of 1485
As counterclaim, [petitioner] averred that, because of this baseless complaint, he suffered mental anguish, wounded feelings and besmirched reputation, entitling him to moral damages amounting to P20,000.00, and that in order to deter others from doing similar acts, exemplary damages amounting to P20,000.00 should likewise be awarded in his favor. [Petitioner] also prayed for attorneys fees and litigation expenses claiming that, because he was constrained to litigate, he was forced to hire the services of counsel.

xxx

xxx

xxx

Trial ensued and thereafter the trial court rendered its Decision dated February 24, 2000 dismissing the complaint while finding the [petitioners] counterclaim meritorious. In making said ruling, the lower court, citing Article 1350 (should be 1359) of the New Civil Code, found that [respondent] failed to establish the existence of all the requisites for an action for reformation by clear, convincing and competent evidence. Considering [respondents] own testimony that he read the document and fully understood the same, signing it without making any complaints to his lawyer, the trial court held that the evidence on record shows that the subject instrument had been freely and voluntarily entered into by the parties and that the same expresses the true intention of the parties. The court further noted that the [respondents] wife even signed the document and that the same had been duly acknowledged by the parties before a notary public as their true act and voluntary deed.

The trial court likewise observed that, contrary to [respondents] claim that the transaction was a mere mortgage of the property, the terms of the instrument are clear and unequivocable that the property subject of the document was sold, transferred, ceded and conveyed to the [petitioner] by way of absolute sale, and hence, no extrinsic aids are necessary to ascertain the intention of the parties as the same is determinable from the document itself. Moreover, said court emphasized that considering the fact that [respondent] is an educated person, having studied in an exclusive school like Ateneo de Davao, and an experienced businessman, he is presumed to have acted with due care and to have signed the instrument with full knowledge of its contents and import. [Respondents] claim that he merely borrowed money from the [petitioner] and mortgaged the property subject of litigation to guarantee said loan was thus found to be specious by the court, which found that the [respondent] was actually indebted to the [petitioner] for almost a million pesos and that the true consideration of the sale was in fact said outstanding obligation.

With respect to [respondents] alleged possession of the property and payment of real estate taxes, both of which were relied upon by the [respondent] to boost his assertion that the transaction was merely an equitable mortgage, the trial court said that his claim of possession is belied by the fact that the actual occupants of the property recognize that the [petitioner] owns the same and in fact said occupants prevented [respondents] wife from entering the premises. The court, noting that the [petitioner] also paid the realty taxes, was also of the opinion that [respondent] merely made such payments in order to lay the basis of his allegation that the contract was a mere equitable mortgage.

Page 84 of 1485

Accordingly, the court held that [respondent] is also not entitled to his other claims and that his unfounded action caused [petitioner] to an award for moral damages, in addition to the expenses he incurred in defending his cause, i.e. services of a lawyer and transportation and other expenses, which justifies an award for the reimbursement of his expenses and attorneys fees.[5]

Ruling of the Court of Appeals

Granting respondents appeal, the appellate court ruled that the Contract entered into by the parties should be deemed an equitable mortgage, because the consideration for the sale was grossly inadequate. By continuing to harvest the crops and supervise his workers, respondent remained in control of the property. True, upon the institution of this case, petitioner paid the required real estate taxes that were still in arrears. Respondent,

however paid the taxes for 1995, 1996 and 1997 -- the years between the dates when the alleged absolute sale was entered into on October 1, 1993, and when this case was instituted on March 5, 1997.[6]

Granting respondents prayer for reformation of the Contract, the CA ruled that the instrument failed to reflect the true intention of the parties because of petitioners inequitable conduct.[7]

Hence, this Petition.[8]

Page 85 of 1485

The Issues

Petitioner raises the following issues for this Courts consideration:

I.

Whether o[r] not the Court of Appeals erred in ruling that there was inadequate consideration.

II.

Whether o[r] not the Court of Appeals erred in ruling that the respondent remained in possession of the land in question.

III.

Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner.

IV.

Whether or not the Court of Appeals erred in ruling that reformation is proper.[9]

Page 86 of 1485

Simply put, these are the issues to be resolved: (1) whether the agreement entered into by the parties was one for equitable mortgage or for absolute sale; and (2) whether the grant of the relief of contract reformation was proper.

The Courts Ruling

The Petition has no merit.

First Issue: Equitable Mortgage

An equitable mortgage has been defined as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.[10]

Page 87 of 1485
The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the Civil Code as follows:

Art. 1602.

The contract shall be presumed to be an equitable

mortgage, in any of the following cases:

(1)

When the price of a sale with right to

repurchase is unusually inadequate; (2) lessee or otherwise; (3) When upon or after the expiration of the right to When the vendor remains in possession as

repurchase another instrument extending the period of redemption or granting a new period is executed; (4) the purchase price; (5) on the thing sold; (6) In any other case where it may be fairly inferred When the vendor binds himself to pay the taxes When the purchaser retains for himself a part of

that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

Page 88 of 1485
Furthermore, Article 1604 of the Civil Code provides that [t]he provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

In the present case, three of the instances enumerated in Article 1602 -- grossly inadequate consideration, possession of the property, and payment of realty taxes -attended the assailed transaction and thus showed that it was indeed an equitable mortgage.

Inadequate Consideration

Petitioner Go avers that the amount of P20,000 was not unusually inadequate. He explains that the present parties entered into a Dacion en Pago, whereby respondent conveyed the subject property as payment for his outstanding debts to petitioner -- debts supposedly amounting to P985,243.70.[11] To substantiate his claim, petitioner presented the checks that respondent had issued, as well as the latters testimony purportedly admitting the genuineness and due execution of the checks and the existence of the outstanding debts.[12] Petitioner Go contends that respondent failed to establish by

sufficient evidence that those debts had already been paid.[13] Petitioner relies on the trial courts finding that respondent knowingly and intentionally entered into a contract of sale, not an equitable mortgage.[14]

On the other hand, Respondent Bacaron argues that the value of the property at the time of the alleged sale was P120,000 per hectare, and that the indicated sale amount of

Page 89 of 1485
P20,000 was thus grossly iniquitous.[15] Allegedly, the previous cash advances secured from petitioners father had been settled, as evidenced by the fact that petitioner did not negotiate further or encash the checks; the latter could have done so, if the obligation was still extant.[16] Respondent points out that he paid for that obligation with the coprax he had previously delivered to the father.[17] Petitioner allegedly admitted this fact, though inadvertently, when he testified that respondent had already paid some of the latters previous cash advances.[18] Otherwise, petitioner would have then set off his own debt to respondent (amounting to P214,000) against the amount of almost one million pesos that the latter supposedly owed him.[19]

Checks have the character of negotiability. At the same time, they may constitute evidence of indebtedness.[20] Those presented by petitioner may indeed evince

respondents indebtedness to him in the amounts stated on the faces of those instruments. He, however, acknowledges (1) that respondent paid some of the obligations through the coprax delivered to petitioners father; and (2) that petitioner owed and subsequently paid respondent P214,000.[21]

The parties respective arguments show that the sum of P20,000, by itself, is inadequate to justify the purported absolute Transfer of Rights.[22] Petitioners claim that there was a dacion en pago is not reflected on the instrument executed by the parties. That claim, however, confirms the inadequacy of the P20,000 paid in consideration of the Transfer of Rights; hence, the Contract does not reflect the true intention of the parties. As to what their true intention was -- whether dacion en pago or equitable mortgage -- will have to be determined by some other means.

Possession

Page 90 of 1485

According to Article 1602(2) of the New Civil Code, one of the instances showing that a purported contract of sale is presumed to be an equitable mortgage is when the supposed vendor remains in possession of the property even after the conclusion of the transaction.

In general terms, possession is the holding of a thing or the enjoyment of a right, whether by material occupation or by the fact

Page 91 of 1485

that the right -- or, as in this case, the property -- is subjected to the will of the claimant.[23] In Director of Lands v. Heirs of Abaldonado, [24] the gathering of the products of and the act of planting on the land were held to constitute occupation, possession and cultivation.

In the present case, the witnesses of respondent swore that they had seen him gather fruits and coconuts on the property. Based on the cited case, the witnesses

testimonies sufficiently establish that even after the execution of the assailed Contract, respondent has remained in possession of the property. The testimonies proffered by

petitioners witnesses merely indicated that they were tenants of the property. Petitioner only informed them that he was the new owner of the property. This attempt at a factual presentation hardly signifies that he exercised possession over the property. As held by the appellate court, petitioners other witness (Redoa) was unconvincing, because he could not even say whether he resided within the premises.[25]

The factual findings of the trial court and the CA are conflicting and, hence, may be reviewed by this Court.[26] Normally, the findings of the trial court on the credibility of witnesses should be respected. Here, however, their demeanor while testifying is not at issue. What is disputed is the substance of their testimonies -- the facts to which they testified. Assuming that the witnesses of petitioner were indeed credible, their testimonies were insufficient to establish that he enjoyed possession over the property.

Payment of Realty Taxes

Page 92 of 1485

Finally, petitioner asserts that the trial courts finding that he paid the realty taxes should also be given corresponding weight.[27]

Respondent counters with the CAs findings that it was he who paid realty taxes on the property. The appellate court concluded that he had paid taxes for the years 1995, 1996 and 1997 within each of those years; hence, before the filing of the present controversy. In contrast, petitioner paid only the remaining taxes due on October 17, 1997, or after the case had been instituted. This fact allegedly proves that respondent has remained in possession of the property and continued to be its owner.[28] He argues that if he had really transferred ownership, he would have been foolish to continue paying for those taxes.[29]

On this point, we again rule for respondent.

Petitioner indeed paid the realty taxes on the property for the years 1980 to 1997. The records show that the payments were all simultaneously made only on October 31, 1997, evidently in the light of the Complaint respondent had filed before the trial court on March 5, 1997.[30] On the other hand, respondent continued to pay for the realty taxes due on the property for the years 1995, 1996 and 1997.[31]

That the parties intended to enter into an equitable mortgage is bolstered by respondents continued payment of the real property

Page 93 of 1485
taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached to ownership. Coupled with continuous possession of the property, it constitutes evidence of great weight that a person under whose name the realty taxes were declared has a valid and rightful claim over the land.[32]

That the parties intended to enter into an equitable mortgage is also shown by the fact that the seller was driven to obtain the loan at a time when he was in urgent need of money; and that he signed the Deed of Sale, despite knowing that it did not express the real intention of the parties.[33] In the present proceedings, the collapse of his business

prompted respondent to obtain the loan.[34] Petitioner himself admitted that at the time they entered into the alleged absolute sale, respondent had suffered from serious business reversals.[35]

Page 94 of 1485

Second Issue: Reformation of Instrument

Petitioner claims that the CA erred in granting the remedy of reformation of contracts. He avers that the failure of the instrument to express the parties true agreement was not due to his mistake; or to fraud, inequitable conduct, or accident.[36]

We rule for respondent.

Ultimately, it is the intention of the parties that determines whether a contract is one of sale or of mortgage.[37] In the present case, one of the parties to the contract raises as an issue the fact that their true intention or agreement is not reflected in the instrument. Under this circumstance, parol evidence becomes admissible and competent evidence to prove the true nature of the instrument.[38] Hence, unavailing is the assertion of petitioner that the interpretation of the terms of the Contract is unnecessary, and that the parties clearly agreed to execute an absolute deed of sale. His assertion does not hold, especially in the light of the provisions of Article 1604 of the Civil Code, under which even contracts purporting to be absolute sales are subject to the provisions of Article 1602.

Moreover, under Article 1605 of the New Civil Code, the supposed vendor may ask for the reformation of the instrument, should the case be among those mentioned in Articles 1602 and 1604. Because respondent has more than sufficiently established that the

Page 95 of 1485
assailed Contract is in fact an equitable mortgage rather than an absolute sale, he is allowed to avail himself of the remedy of reformation of contracts.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED.

SO ORDERED.

THIRD DIVISION

SPOUSES ANTONIO and LOLITA TAN, Petitioners,

G.R. No. 160892

Present:

PANGANIBAN, J., Chairman, SANDOVAL-GUTIERREZ,* CORONA, CARPIO MORALES, and - versus GARCIA, JJ.

Promulgated:

CARMELITO VILLAPAZ, Respondent. 2005

November 22,

xx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -xx

Page 96 of 1485

DECISION

CARPIO MORALES, J.:

From the January 25, 2001 decision[1] of the Court of Appeals reversing that of the Regional Trial Court (RTC) of Digos, Davao del Sur[2] which dismissed the complaint filed by herein respondent Carmelito Villapaz against herein petitioners-spouses Antonio Tony and Lolita Tan, the present Petition for Review on Certiorari[3] was lodged.

On February 6, 1992, respondent issued a Philippine Bank of Communications (PBCom) crossed check[4] in the amount of P250,000.00, payable to the order of petitioner Tony Tan. On even date, the check was deposited at the drawee bank, PBCom Davao City branch at Monteverde Avenue, to the account of petitioner Antonio Tan also at said bank.

The Malita, Davao del Sur Police, by letter of June 22, 1994,[5] issued an invitationrequest to petitioner Antonio Tan at his address at Malatibas Plaza, Lolitas Rendezvous, Bonifacio St., Davao City inviting him to appear before the Deputy Chief of Police Office on June 27, 1994 at 9:00 oclock in the morning in connection with the request of [herein respondent] Carmelito Villapaz, for conference of vital importance.

The invitation-request was received by petitioner Antonio Tan on June 22, 1994[6] but on the advice of his lawyer,[7] he did not show up at the Malita, Davao del Sur Police Office.

Page 97 of 1485

On November 7, 1994,[8] respondent filed before the Digos, Davao del Sur RTC a Complaint for sum of money against petitioners-spouses, alleging that, inter alia, on February 6, 1992, petitioners-spouses repaired to his place of business at Malita, Davao and obtained a loan of P250,000.00, hence, his issuance of the February 6, 1992 PBCom crossed check which loan was to be settled interest-free in six (6) months; on the maturity date of the loan or on August 6, 1992, petitioner Antonio Tan failed to settle the same, and despite repeated demands, petitioners never did, drawing him to file the complaint thru his counsel to whom he agreed to pay 30% of the loan as attorneys fees on a contingent basis and P1,000.00 per appearance fee; and on account of the willful refusal of petitioners to honor their obligation, he suffered moral damages in the amount of P50,000.00, among other things.

By their Answer,[9] petitioners, denying having gone to Malita and having obtained a loan from respondent, alleged that the check was issued by respondent in Davao City on February 6, 1992 in exchange for equivalent cash; they never received from respondent any demand for payment, be it verbal or written, respecting the alleged loan; since the alleged loan was one with a period payable in six months, it should have been expressly stipulated upon in writing by the parties but it was not, hence, the essential requisite for the validity and enforceability of a loan is wanting; and the check is inadmissible to prove the existence of a loan for P250,000.00.

By way of Compulsory Counterclaim, petitioners prayed for the award of damages and litigation expenses and attorneys fees.[10]

Crediting defendants-petitioners version, Branch 19 of the RTC, Digos, Davao del Sur, by Decision[11] of July 24, 1996, dismissed the Complaint and granted the Counterclaim, disposing as follows:

Page 98 of 1485
WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Ordering the dismissal of the complaint;

2.

On the counterclaim ordering the plaintiff Carmelito Villapaz to pay to defendants spouses Antonio and Lolita Tan:

a. b. c.

P100,000.00 as moral damages; P50,000.00 as exemplary damages; P30,000.00 as attorneys fees; and

3.

Plaintiff Carmelito Villapaz to pay the costs.

SO ORDERED. (Underscoring in the original)[12]

Respondent appealed to the Court of Appeals which, by Decision[13] of January 25, 2001, credited his version and accordingly reversed the trial courts decision in this wise:

Briefly stated, the lower Court gave four reasons for ruling out a loan, namely: (a) the defense of defendants-appellees that they did not go to plaintiff-appellants place on February 6, 1992, date the check was given to them; (b) defendants-appellees could not have borrowed money on that date because from January to March, 1992, they had an average daily deposit of P700,000 and on February 6, 1992, they had P1,211,400.64 in the bank, hence, they had surely no reason nor logic to borrow money from plaintiff-appellant; (c) the alleged loan was not reduced in writing and (d) the check could not be a competent evidence of loan. The four-fold reasoning cannot be sustained. They are faulty and do not accord either with law or ordinary conduct of men. For one thing, the first two given reasons partake more of alibi and speculation, hence, deserve scant consideration. For another, the last two miss the applicable provisions of law. The existence of a contract of loan cannot be denied merely because it is not reduced in writing . Surely, there can be a verbal

Page 99 of 1485
loan. Contracts are binding between the parties, whether oral or written. The law is explicit that contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. A loan (simple loan or mutuum) exists when a person receives a loan of money or any other fungible thing and acquires the ownership thereof. He is bound to pay to the creditor the equal amount of the same kind and quality. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, maybe in keeping with good faith, usage and law. The lower Court misplaced its reliance on Article 1358 of the Civil Code providing that to be enforceable, contracts where the amount involved exceed five hundred pesos, must appear in writing. Such requirement, it has been held, is only for convenience, not for validity. It bears emphasis that at the time plaintiff-appellant delivered the crossed-check to defendants-appellees, plaintiff-appellant had no account whatsoever with them. Defendants-appellees contention that they did not obtain any loan but merely exchanged the latters check for cash is not borne by any evidence. Notably, plaintiff-appellant and defendant-appellee Antonio Tan are compadres, one of them being a godfather to the others son. There is no established enmity between them such that plaintiff-appellant would be motivated to institute an unfounded action in court. Plaintiff-appellants sole purpose was to be paid back the loan he extended to defendantsappellees. Thus, a pertinent portion of his testimony on cross-examination discloses: ATTY. TAN (On Cross Examination): Q: Now, aside from this check that you issued, did you let the defendant sign a cash voucher? A: I did not require him any cash voucher or any written document because as I said we are close friends and I trusted him so I issued a check in his name Tony Tan. You said that the spouses Tan were in need of money on February 6, 1992. Why did you have to issue a cross-check? I issued a cross-check in order to be sure that he received the money from me so that he could not deny that he did not receive. (TSN of Villapaz dtd 7/25/95, p. 21)

Q: A:

Apart from their self-serving testimonies, there is no evidence or proof that defendants-appellees actually delivered to plaintiff-appellant the cash amount of P250,000.00 in exchange for the check. Defendantappellee Tan testified that he records his transactions if it involves a huge cash amount. But surprisingly in this case, he did not follow his usual practice. ATTY. CARPENTERO (On Cross-Examination):

Page 100 of 1485

Q: A: Q: A: Q: x x x you have noticed Carmelito Villapaz to have trusted and have full confidence in you during your business relationship, correct? All people have trust and confidence but whenever there is a transaction, it should be covered a (sic) proof. You mean you are a fellow who adheres that every transaction should be recorded? Yes, if the transaction involves a big amount,

But in this case of Carmelito Villapaz you noticed personally that he has trust and confidence in your person, correct? A: The truth is, if ever we have a transaction which involves P1,000.00 or P2,000.00, we need no document at all as proof, but because it is a big amount, it needs documents. (TSN of Tan dtd 5/9/96, pp. 12-13.

Plaintiff-appellant has a checking account with PBCom Bank. This is located within walking distance (300 meters) from defendants-appellees store. If plaintiff-appellant was in dire need of money, he could have personally withdrawn said money from his own account, since it was sufficiently funded. Defendant-appellee Antonio Tan himself testified that plaintiff-appellants check was sufficiently funded. It is well-nigh unlikely that the wife who was supposed to have delivered the money on such a short notice, produced, prepared and counted the money at home from Obrero, Davao City, then delivered it to plaintiff-appellant who was in the Golden Harvest Store at Sta Ana Avenue, Davao City. In contrast, PBCom Bank where plaintiff-appellant has his account is in the same vicinity of the store of Golden Harvest. Certainly, by way of exception to the general rule, the erroneous inferences in the factual finding of the trial Court cannot bind the appellate courts. The trial Court placed much emphasis on the daily and time deposit accounts of defendants-appellees. It is immaterial whether or not one is financially capable. A pauper may borrow money for survival; a prince may incur a loan for expansion.[14] (Emphasis supplied; underscoring in the original)

Thus, the Court of Appeals disposed:

WHEREFORE, the appealed judgment is hereby REVERSED and SET ASIDE. Defendants-appellees are ordered to pay plaintiff-appellant the

Page 101 of 1485

sum of P250,000.00 with 12% interest per annum from judicial demand or filing of the complaint in Court until fully paid.[15]

Hence, the present appeal by petitioners anchored on the following grounds:

I. The Honorable Court of Appeals erred in concluding that the transaction in dispute was a contract of loan and not a mere matter of check encashment as found by the trial court.

II. The Honorable Court likewise erred in reasoning that the trial court placed much emphasis on the daily and time deposits of herein petitioners to determine their financial capability. III. The Honorable Court failed to consider the wanton, reckless manner of respondent in attempting to enforce an obligation that does not even exist, thus justifying the award for moral and exemplary damages, as well as attorneys fees and costs of suit.[16] (Underscoring supplied)

Petitioners maintain that they did not secure a loan from respondent, insisting that they encashed in Davao City respondents February 6, 1992 crossed check; in the ordinary course of business, prudence dictates that a contract of loan must be in writing as in fact the New Civil Code provides that to be enforceable contracts where the amount involved exceed[s] P500.00 must appear in writing even a private one, hence, respondents selfserving claim does not suffice to prove the existence of a loan; respondents allegation that no memorandum in writing of the transaction was executed because he and they are kumpadres does not inspire belief for respondent, being a businessman himself, was with more reason expected to be more prudent; and the mere encashment of the check is not a contractual transaction such as a sale or a loan which ordinarily requires a receipt and that explains why they did not issue a receipt when they encashed the check of respondent.

Page 102 of 1485

Petitioners add that they could not have gone to Malita on February 6, 1992, as claimed by respondent, to obtain the alleged loan represented by the check because February 6, 1992 was the opening for business in Davao City of Golden Harvest of which petitioner Antonio Tan is treasurer and in-charge of the bodega, during which opening guests and well-wishers including respondent were entertained.

Petitioners furthermore maintain that they were financially stable on February 6, 1992 as shown by the entries of their bank passbook,[17] hence, there was no reason for them to go to a distant place like Malita to borrow money.

The petition fails.

By petitioner Antonio Tans account, respondent arrived at the Golden Harvest place of business at Davao City on February 6, 1992 at about 10:30 in the morning[18] and left before noon of the same day; respondent, however, returned to Golden Harvest shortly before 3:00 oclock in the afternoon of the same day upon which he informed him (petitioner Antonio Tan) that he needed to bring cash to Malita in the amount of P250,000.00 but time was running out and . . . he was so busy that was why he requested [him] to accommodate (sic) the said amount at 3:00 p.m.[19]

Page 103 of 1485

Still by petitioner Antonio Tans account, he thereupon inquire by telephone from his wife who was at their house whether she had P250,000.00 cash and as his wife replied she had, he asked her to bring the cash, as she did, to the Golden Harvest where she gave the amount of P250,000.00 to him (petitioner Antonio Tan); in the meantime, as respondent had left for a while but not before leaving the check, he (petitioner Antonio Tan) kept the P250,000.00 cash and gave the check to his wife who had it deposited on the same afternoon to his account at PBCom Monteverde branch after he received clearance from the bank manager, who knows him (petitioner Antonio Tan) very well, that respondents account at same branch of the bank was funded and the check could be deposited and credited to his (petitioner Antonio Tans) account that same afternoon; and when later that same afternoon respondent returned to the Golden Harvest, he turned over to him the P250,000.00 cash.

Petitioner Antonio Tans foregoing tale hardly inspires credence. For it is contrary to common experience. If indeed respondent, who came all the way from Malita to Davao City, arriving at petitioner Antonio Tans workplace at Golden Harvest at 10:30 in the morning, needed cash of P250,000.00, and the drawee bank PBCom Davao City, Monteverde branch where respondent maintained a current account could even be reached by foot from the Golden Harvest in just a few minutes (albeit by petitioner Antonio Tans own information respondent brought his truck with him),[20] it being about 300 meters away,[21] respondent could just have gone there and drew cash from his current account via over the counter transaction. After all, his account had sufficient funds. encash his check from petitioners. In other words, he did not have to

Even assuming that, as claimed by petitioner Antonio Tan, at the time respondent needed to have his check encashed, it was already close to 3:00 oclock in the afternoon, why could not have PBCom Monteverde branch also accommodated him and allow him to encash his check that same time when he, like petitioners, was also a client-depositor and the bank was still open for business?

Petitioners version was thus correctly denied credit by the appellate court.

Page 104 of 1485

That apart from the check no written proof of the grant of the loan was executed was credibly explained by respondent when he declared that petitioners son being his godson, he, out of trust and respect, believed that the crossed check sufficed to prove their transaction.

As for petitioners reliance on Art. 1358[22] of the Civil Code, the same is misplaced for the requirement that contracts where the amount involved exceeds P500.00 must appear in writing is only for convenience.[23]

At all events, a check, the entries of which are no doubt in writing, could prove a loan transaction.[24]

That petitioner Antonio Tan had, on February 6, 1992, an outstanding balance of more than P950,000.00 in his account at PBCom Monteverde branch where he was later to deposit respondents check did not rule out petitioners securing a loan. It is pure naivete to believe that if a businessman has such an outstanding balance in his bank account, he would have no need to borrow a lesser amount.

In fine, as petitioners side of the case is incredible as it is inconsistent with the principles by which men similarly situated are governed, whereas respondents claim that the proceeds of the check, which were admittedly received by petitioners, represented a loan[25] extended to petitioner Antonio Tan is credible, the preponderance of evidence inclines on respondent.

WHEREFORE, the present petition is DENIED.

Costs against petitioners.

Page 105 of 1485

SO ORDERED. THIRD [G.R. No. 160855, DIVISION April 16, 2008]

CONCEPCION CHUA GAW, Petitioner, vs. SUY BEN CHUA and FELISA CHUA, Respondents. DECISION NACHURA, J.: This is a Petition for Review on Certiorari from the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 66790 and Resolution [2] denying the motion for reconsideration. The assailed decision affirmed the ruling of the Regional Trial Court (RTC) in a Complaint for Sum of Money in favor of the plaintiff. The antecedents are as follows:

Spouses Chua Chin and Chan Chi were the founders of three business enterprises [3] namely: Hagonoy Lumber, Capitol Sawmill Corporation, and Columbia Wood Industries. The couple had seven children, namely, Santos Chua; Concepcion Chua; Suy Ben Chua; Chua Suy Phen; Chua Sioc Huan; Chua Suy Lu; and Julita Chua. On June 19, 1986, Chua Chin died, leaving his wife Chan Chi and his seven children as his only surviving heirs. At the time of Chua Chin's death, the net worth of Hagonoy Lumber was P415,487.20. [4] On December 8, 1986, his surviving heirs executed a Deed of Extra-Judicial Partition and Renunciation of Hereditary Rights in Favor of a Co-Heir [5] (Deed of Partition, for brevity), wherein the heirs settled their interest in Hagonoy Lumber as follows: one-half (1/2) thereof will pertain to the surviving spouse, Chan Chi, as her share in the conjugal partnership; and the other half, equivalent to P207,743.60, will be divided among Chan Chi and the seven children in equal pro indiviso shares equivalent to P25,967.00 each.[6] In said document, Chan Chi and the six children likewise agreed to voluntarily renounce and waive their shares over Hagonoy Lumber in favor of their co-heir, Chua Sioc Huan. In May 1988, petitioner Concepcion Chua Gaw and her husband, Antonio Gaw, asked respondent, Suy Ben Chua, to lend them P200,000.00 which they will use for the construction of their house in Marilao, Bulacan. The parties agreed that the loan will be payable within six (6) months without interest. [7] On June 7, 1988, respondent issued in their favor China Banking Corporation Check No. 240810 [8] for P200,000.00 which he delivered to the couple's house in Marilao, Bulacan. Antonio later encashed the check. On August 1, 1990, their sister, Chua Sioc Huan, executed a Deed of Sale over all her rights and interests in Hagonoy Lumber for a consideration of P255,000.00 in favor of respondent.
[9]

Meantime, the spouses Gaw failed to pay the amount they borrowed from respondent within the designated period. Respondent sent the couple a demand letter, [10] dated March 25, 1991, requesting them to settle their obligation with the warning that he will be constrained to take the appropriate legal action if they fail to do so.

Page 106 of 1485

Failing to heed his demand, respondent filed a Complaint for Sum of Money against the spouses Gaw with the RTC. The complaint alleged that on June 7, 1988, he extended a loan to the spouses Gaw for P200,000.00, payable within six months without interest, but despite several demands, the couple failed to pay their obligation. [11] In their Answer (with Compulsory Counterclaim), the spouses Gaw contended that the P200,000.00 was not a loan but petitioner's share in the profits of Hagonoy Lumber, one of her family's businesses. According to the spouses, when they transferred residence to Marilao, Bulacan, petitioner asked respondent for an accounting, and payment of her share in the profits, of Capital Sawmills Corporation, Columbia Wood Industries Corporation, and Hagonoy Lumber. They claimed that respondent persuaded petitioner to temporarily forego her demand as it would offend their mother who still wanted to remain in control of the family businesses. To insure that she will defer her demand, respondent allegedly gave her P200,000.00 as her share in the profits of Hagonoy Lumber. [12] In his Reply, respondent averred that the spouses Gaw did not demand from him an accounting of Capitol Sawmills Corporation, Columbia Wood Industries, and Hagonoy Lumber. He asserted that the spouses Gaw, in fact, have no right whatsoever in these businesses that would entitle them to an accounting thereof. Respondent insisted that the P200,000.00 was given to and accepted by them as a loan and not as their share in Hagonoy Lumber.[13] With leave of court, the spouses Gaw filed an Answer (with Amended Compulsory Counterclaim) wherein they insisted that petitioner, as one of the compulsory heirs, is entitled to one-sixth (1/6) of Hagonoy Lumber, which the respondent has arrogated to himself. They claimed that, despite repeated demands, respondent has failed and refused to account for the operations of Hagonoy Lumber and to deliver her share therein. They then prayed that respondent make an accounting of the operations of Hagonoy Lumber and to deliver to petitioner her one-sixth (1/6) share thereof, which was estimated to be worth not less than P500,000.00.[14] In his Answer to Amended Counterclaim, respondent explained that his sister, Chua Sioc Huan, became the sole owner of Hagonoy Lumber when the heirs executed the Deed of Partition on December 8, 1986. In turn, he became the sole owner of Hagonoy Lumber when he bought it from Chua Sioc Huan, as evidenced by the Deed of Sale dated August 1, 1990.
[15]

Defendants, in their reply,[16] countered that the documents on which plaintiff anchors his claim of ownership over Hagonoy Lumber were not true and valid agreements and do not express the real intention of the parties. They claimed that these documents are mere paper arrangements which were prepared only upon the advice of a counsel until all the heirs could reach and sign a final and binding agreement, which, up to such time, has not been executed by the heirs.[17] During trial, the spouses Gaw called the respondent to testify as adverse witness under Section 10, Rule 132. On direct examination, respondent testified that Hagonoy Lumber was the conjugal property of his parents Chua Chin and Chan Chi, who were both Chinese citizens. He narrated that, initially, his father leased the lots where Hagonoy Lumber is presently located from his godfather, Lu Pieng, and that his father constructed the twostorey concrete building standing thereon. According to respondent, when he was in high school, it was his father who managed the business but he and his other siblings were helping him. Later, his sister, Chua Sioc Huan, managed Hogonoy Lumber together with their other brothers and sisters. He stated that he also managed Hagonoy Lumber when he was in high school, but he stopped when he got married and found another job. He said that he now owns the lots where Hagonoy Lumber is operating. [18]

Page 107 of 1485

On cross-examination, respondent explained that he ceased to be a stockholder of Capitol Sawmill when he sold his shares of stock to the other stockholders on January 1, 1991. He further testified that Chua Sioc Huan acquired Hagonoy Lumber by virtue of a Deed of Partition, executed by the heirs of Chua Chin. He, in turn, became the owner of Hagonoy Lumber when he bought the same from Chua Sioc Huan through a Deed of Sale dated [19] August 1, 1990. On re-direct examination, respondent stated that he sold his shares of stock in Capitol Sawmill for P254,000.00, which payment he received in cash. He also paid the purchase price of P255,000.00 for Hagonoy Lumber in cash, which payment was not covered by a separate receipt as he merely delivered the same to Chua Sioc Huan at her house in Paso de Blas, Valenzuela. Although he maintains several accounts at Planters Bank, Paluwagan ng Bayan, and China Bank, the amount he paid to Chua Sioc Huan was not taken from any of them. He kept the amount in the house because he was engaged in rediscounting checks of [20] people from the public market. On December 10, 1998, Antonio Gaw died due to cardio vascular and respiratory failure. [21] On February 11, 2000, the RTC rendered a Decision in favor of the respondent, thus: WHEREFORE, in the light of all the foregoing, the Court hereby renders judgement ordering defendant Concepcion Chua Gaw to pay the [respondent] the following: 1. P200,000.00 representing the principal obligation with legal interest from judicial demand or the institution of the complaint on November 19, 1991; 2. The P50,000.00 is as hereby attorney's dismissed for being fees; devoid of and merit.

3. Costs of suit. defendants' counterclaim

SO ORDERED.[22] The RTC held that respondent is entitled to the payment of the amount of P200,000.00 with interest. It noted that respondent personally issued Check No. 240810 to petitioner and her husband upon their request to lend them the aforesaid amount. The trial court concluded that the P200,000.00 was a loan advanced by the respondent from his own funds and not remunerations for services rendered to Hagonoy Lumber nor petitioner's advance share in the profits of their parents' businesses. The trial court further held that the validity and due execution of the Deed of Partition and the Deed of Sale, evidencing transfer of ownership of Hagonoy Lumber from Chua Sioc Huan to respondent, was never impugned. Although respondent failed to produce the originals of the documents, petitioner judicially admitted the due execution of the Deed of Partition, and even acknowledged her signature thereon, thus constitutes an exception to the best evidence rule. As for the Deed of Sale, since the contents thereof have not been put in issue, the non-presentation of the original document is not fatal so as to affect its authenticity as well as the truth of its contents. Also, the parties to the documents themselves do not contest their validity. Ultimately, petitioner failed to establish her right to demand an accounting of the operations of Hagonoy Lumber nor the delivery of her 1/6 share therein. As for petitioner's claim that an accounting be done on Capitol Sawmill Corporation and Columbia Wood Industries, the trial court held that respondent is under no obligation to make such an accounting since he is not charged with operating these enterprises. [23] Aggrieved, petitioner appealed to the CA, alleging that the trial court erred (1) when it considered the amount of P200,000.00 as a loan obligation and not Concepcion's share in

Page 108 of 1485

the profits of Hagonoy Lumber; (2) when it considered as evidence for the defendant, plaintiff's testimony when he was called to testify as an adverse party under Section 10 (e), Rule 132 of the Rules of Court; and (3) when it considered admissible mere copies of the Deed of Partition and Deed of Sale to prove that respondent is now the owner of Hagonoy Lumber.[24] On May 23, 2003, the CA affirmed the Decision of the RTC. [25] The appellate court found baseless the petitioner's argument that the RTC should not have included respondent's testimony as part of petitioner's evidence. The CA noted that the petitioner went on a fishing expedition, the taking of respondent's testimony having taken up a total of eleven hearings, and upon failing to obtain favorable information from the respondent, she now disclaims the same. Moreover, the CA held that the petitioner failed to show that the inclusion of respondent's testimony in the statement of facts in the assailed decision unduly prejudiced her defense and counterclaims. In fact, the CA noted that the facts testified to by respondent were deducible from the totality of the evidence presented. The CA likewise found untenable petitioner's claim that Exhibits "H" (Deed of Sale) and Exhibit "I" (Deed of Partition) were merely temporary paper arrangements. The CA agreed with the RTC that the testimony of petitioner regarding the matter was uncorroborated -she should have presented the other heirs to attest to the truth of her allegation. Instead, petitioner admitted the due execution of the said documents. Since petitioner did not dispute the due execution and existence of Exhibits "H" and "I", there was no need to produce the originals of the documents in accordance with the best evidence rule. [26] On December 2, 2003, the CA denied the petitioner's motion for reconsideration for lack of merit.[27] Petitioner is before this Court in this petition for review on certiorari, raising the following errors: I. THAT ON THE PRELIMINARY IMPORTANT RELATED ISSUE, CLEAR AND PALPABLE LEGAL ERROR HAS BEEN COMMITTED IN THE APPLICATION AND LEGAL SIGNIFICANCE OF THE RULE ON EXAMINATION OF ADVERSE PARTY OR HOSTILE WITNESS UNDER SECTION 10 (d) AND (e) OF RULE 132, CAUSING SERIOUS DOUBT ON THE LOWER COURT'S APPEALED DECISION'S OBJECTIVITY, ANNEX "C".

II.

THAT ON THE IMPORTANT LEGAL ISSUE RELATIVE TO THE AFORESAID TWO OPPOSING CLAIMS OF RESPONDENT AND PETITIONER, CLEAR AND PALPABLE LEGAL ERROR HAS BEEN COMMITTED UNDER THE LOWER COURT'S DECISION ANNEX "C" AND THE QUESTIONED DECISION OF MAY 23, 2003 (ANNEX "A") AND THE RESOLUTION OF DECEMBER 2, 2003, (ANNEX "B") IN DEVIATING FROM AND DISREGARDING ESTABLISHED SUPREME COURT DECISIONS ENJOINING COURTS NOT TO OVERLOOK OR MISINTERPRET IMPORTANT FACTS AND CIRCUMSTANCES, SUPPORTED BY CLEAR AND CONVINCING EVIDENCE ON RECORD, AND WHICH ARE OF GREAT WEIGHT AND VALUE, WHICH WOULD CHANGE THE RESULT OF THE CASE AND ARRIVE AT A JUST, FAIR AND OBJECTIVE DECISION. (Citations omitted)

III.

THAT FINALLY, AS TO THE OTHER LEGAL IMPORTANT ISSUE RELATIVE TO CLAIM OR OWNERSHIP OF THE "Hagonoy Lumber" FAMILY BUSINESS, CLEAR AND PALPABLE LEGAL ERROR HAS BEEN COMMITTED ON THE REQUIREMENTS AND CORRECT APPLICATION OF THE "BEST EVIDENCE RULE" UNDER SECTION 3, RULE 130 OF THE REVISED RULES OF COURT.[28]

Page 109 of 1485

The petition is without merit.

Petitioner contends that her case was unduly prejudiced by the RTC's treatment of the respondent's testimony as adverse witness during cross-examination by his own counsel as part of her evidence. Petitioner argues that the adverse witness' testimony elicited during cross-examination should not be considered as evidence of the calling party. She contends that the examination of respondent as adverse witness did not make him her witness and she is not bound by his testimony, particularly during cross-examination by his own counsel. [29] In particular, the petitioner avers that the following testimony of the respondent as adverse witness should not be considered as her evidence: (11.a) That RESPONDENT-Appellee became owner of the "HAGONOY LUMBER" business when he bought the same from Chua Sioc Huan through a Deed of Sale dated August 1, 1990 (EXH.H); (11.b) That the "HAGONOY LUMBER," on the other hand, was acquired by the sister Chua Sioc Huan, by virtue of Extrajudicial Partition and Renunciation of Hereditary Rights in favor of a Co-Heir (EXH. I); (11.c) That the 3 lots on which the "HAGONOY LUMBER" business is located were acquired by Lu Pieng from the Santos family under the Deed of Absolute Sale (EXH. J); that Lu Pieng sold the Lots to Chua Suy Lu in 1976 (EXHS. K, L, & M.); that Chua Siok Huan eventually became owner of the 3 Lots; and in 1989 Chua Sioc Huan sold them to RESPONDENTAppellee (EXHS. Q and P); that after he acquired the 3 Lots, he has not sold them to anyone and he is the owner of the lots.[30] We do not agree that petitioner's case was prejudiced by the RTC's treatment of the respondent's testimony during cross-examination as her evidence. If there was an error committed by the RTC in ascribing to the petitioner the respondent's testimony as adverse witness during cross-examination by his own counsel, it constitute a harmless error which would not, in any way, change the result of the case. In the first place, the delineation of a piece of evidence as part of the evidence of one party or the other is only significant in determining whether the party on whose shoulders lies the burden of proof was able to meet the quantum of evidence needed to discharge the burden. In civil cases, that burden devolves upon the plaintiff who must establish her case by preponderance of evidence. The rule is that the plaintiff must rely on the strength of his own evidence and not upon the weakness of the defendant's evidence. Thus, it barely matters who with a piece of evidence is credited. In the end, the court will have to consider the entirety of the evidence presented by both parties. Preponderance of evidence is then determined by considering all the facts and circumstances of the case, culled from the evidence, regardless of who actually presented it.[31] That the witness is the adverse party does not necessarily mean that the calling party will not be bound by the former's testimony. The fact remains that it was at his instance that his adversary was put on the witness stand. Unlike an ordinary witness, the calling party may impeach an adverse witness in all respects as if he had been called by the adverse party, [32] except by evidence of his bad character. [33] Under a rule permitting the impeachment of an adverse witness, although the calling party does not vouch for the witness' veracity, he is nonetheless bound by his testimony if it is not contradicted or remains unrebutted. [34] A party who calls his adversary as a witness is, therefore, not bound by the latter's testimony only in the sense that he may contradict him by introducing other evidence to prove a state of facts contrary to what the witness testifies on. [35] A rule that provides that the party calling an adverse witness shall not be bound by his testimony does not mean that such testimony may not be given its proper weight, but merely that the calling party shall

Page 110 of 1485

not be precluded from rebutting his testimony or from impeaching him. [36] This, the petitioner failed to do. In the present case, the petitioner, by her own testimony, failed to discredit the respondent's testimony on how Hagonoy Lumber became his sole property. The petitioner admitted having signed the Deed of Partition but she insisted that the transfer of the property to Chua Siok Huan was only temporary. On cross-examination, she confessed that no other document was executed to indicate that the transfer of the business to Chua Siok Huan was a temporary arrangement. She declared that, after their mother died in 1993, she did not initiate any action concerning Hagonoy Lumber, and it was only in her counterclaim in the instant that, for the first time, she raised a claim over the business. Due process requires that in reaching a decision, a tribunal must consider the entire evidence presented.[37] All the parties to the case, therefore, are considered bound by the favorable or unfavorable effects resulting from the evidence. [38] As already mentioned, in arriving at a decision, the entirety of the evidence presented will be considered, regardless of the party who offered them in evidence. In this light, the more vital consideration is not whether a piece of evidence was properly attributed to one party, but whether it was accorded the apposite probative weight by the court. The testimony of an adverse witness is evidence in the case and should be given its proper weight, and such evidence becomes weightier if the other party fails to impeach the witness or contradict his testimony. Significantly, the RTC's finding that the P200,000.00 was given to the petitioner and her husband as a loan is supported by the evidence on record. Hence, we do not agree with the petitioner's contention that the RTC has overlooked certain facts of great weight and value in arriving at its decision. The RTC merely took into consideration evidence which it found to be more credible than the self-serving and uncorroborated testimony of the petitioner. At this juncture, we reiterate the well-entrenched doctrine that the findings of fact of the CA affirming those of the trial court are accorded great respect, even finality, by this Court. Only errors of law, not of fact, may be reviewed by this Court in petitions for review on certiorari under Rule 45.[39] A departure from the general rule may be warranted where the findings of fact of the CA are contrary to the findings and conclusions of the trial court, or when the same is unsupported by the evidence on record. [40] There is no reason to apply the exception in the instant case because the findings and conclusions of the CA are in full accord with those of the trial court. These findings are buttressed by the evidence on record. Moreover, the issues and errors alleged in this petition are substantially the very same questions of fact raised by petitioner in the appellate court. On the issue of whether the P200,000.00 was really a loan, it is well to remember that a check may be evidence of indebtedness. [41] A check, the entries of which are in writing, could prove a loan transaction.[42] It is pure naivet to insist that an entrepreneur who has several sources of income and has access to considerable bank credit, no longer has any reason to borrow any amount. The petitioner's allegation that the P200,000.00 was advance on her share in the profits of Hagonoy Lumber is implausible. It is true that Hagonoy Lumber was originally owned by the parents of petitioner and respondent. However, on December 8, 1986, the heirs freely renounced and waived in favor of their sister Chua Sioc Huan all their hereditary shares and interest therein, as shown by the Deed of Partition which the petitioner herself signed. By virtue of this deed, Chua Sioc Huan became the sole owner and proprietor of Hagonoy Lumber. Thus, when the respondent delivered the check for P200,000.00 to the petitioner on June 7, 1988, Chua Sioc Huan was already the sole owner of Hagonoy Lumber. At that time, both petitioner and respondent no longer had any interest in the business enterprise; neither had a right to demand a share in the profits of the business. Respondent became the

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sole owner of Hagonoy Lumber only after Chua Sioc Huan sold it to him on August 1, 1990. So, when the respondent delivered to the petitioner the P200,000.00 check on June 7, 1988, it could not have been given as an advance on petitioner's share in the business, because at that moment in time both of them had no participation, interest or share in Hagonoy Lumber. Even assuming, arguendo, that the check was an advance on the petitioner's share in the profits of the business, it was highly unlikely that the respondent would deliver a check drawn against his personal, and not against the business enterprise's account. It is also worthy to note that both the Deed of Partition and the Deed of Sale were acknowledged before a Notary Public. The notarization of a private document converts it into a public document, and makes it admissible in court without further proof of its authenticity. [43] It is entitled to full faith and credit upon its face. [44] A notarized document carries evidentiary weight as to its due execution, and documents acknowledged before a notary public have in their favor the presumption of regularity. Such a document must be given full force and effect absent a strong, complete and conclusive proof of its falsity or nullity on account of some flaws or defects recognized by law. [45] A public document executed and attested through the intervention of a notary public is, generally, evidence of the facts therein express in clear unequivocal manner. [46] Petitioner, however, maintains that the RTC erred in admitting in evidence a mere copy of the Deed of Partition and the Deed of Sale in violation of the best evidence rule. In addition, petitioner insists that the Deed of Sale was not the result of bona fide negotiations between a true seller and buyer. The "best evidence rule" as encapsulated in Rule 130, Section 3, [47] of the Revised Rules of Civil Procedure applies only when the content of such document is the subject of the inquiry. Where the issue is only as to whether such document was actually executed, or exists, or on the circumstances relevant to or surrounding its execution, the best evidence rule does not apply and testimonial evidence is admissible. Any other substitutionary evidence is likewise admissible without need to account for the original. [48] Moreover, production of the original may be dispensed with, in the trial court's discretion, whenever the opponent does not bona fide dispute the contents of the document and no other useful purpose will be served by requiring production.[49] Accordingly, we find that the best evidence rule is not applicable to the instant case. Here, there was no dispute as to the terms of either deed; hence, the RTC correctly admitted in evidence mere copies of the two deeds. The petitioner never even denied their due execution and admitted that she signed the Deed of Partition. [50] As for the Deed of Sale, petitioner had, in effect, admitted its genuineness and due execution when she failed to specifically deny it in the manner required by the rules. [51] The petitioner merely claimed that said documents do not express the true agreement and intention of the parties since they were only provisional paper arrangements made upon the advice of counsel. [52] Apparently, the petitioner does not contest the contents of these deeds but alleges that there was a contemporaneous agreement that the transfer of Hagonoy Lumber to Chua Sioc Huan was only temporary. An agreement or the contract between the parties is the formal expression of the parties' rights, duties and obligations. It is the best evidence of the intention of the parties. [53] The parties' intention is to be deciphered from the language used in the contract, not from the unilateral post facto assertions of one of the parties, or of third parties who are strangers to the contract.[54] Thus, when the terms of an agreement have been reduced to writing, it is deemed to contain all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.[55]

Page 112 of 1485

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 66790 dated May 23, 2003 and Resolution dated December 2, 2003 are AFFIRMED. SO ORDERED.

Ynares-Santiago, (Chairperson), Austria-Martinez, Chico-Nazario, and Reyes, JJ., concur. SECOND DIVISION

LAND BANK OF THE PHILIPPINES, Petitioner,

G.R. No. 184971

Present:

CARPIO, J., Chairperson, - versus BRION, DEL CASTILLO, ABAD, and PEREZ, JJ. MONETS EXPORT AND MANUFACTURING CORP., VICENTE V. TAGLE, SR. and MA. CONSUELO G. TAGLE, Respondents. April 19, 2010 Promulgated:

x --------------------------------------------------------------------------------------- x

DECISION

Page 113 of 1485

ABAD, J.:

This case is about the evidence required to prove how much a borrower still owes the bank when he has multiple loan accounts with it that had all fallen due.

The Facts and the Case

On June 25, 1981 petitioner Land Bank of the Philippines (Land Bank) and respondent Monets Export and Manufacturing Corporation (Monet) executed an Export Packing Credit Line Agreement (Agreement) under which the bank gave Monet a credit line of P250,000.00, secured by the proceeds of its export letters of credit, promissory notes, a continuing guaranty executed by respondent spouses Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle (the Tagles), and a third-party mortgage executed by one Pepita C. Mendigoria. Land Bank renewed and amended this credit line agreement several times until it reached a ceiling of P5 million.

Land Bank claims that by August 31, 1992 Monets obligation under the Agreement had swelled to P11,464,246.19. Since Monet failed to pay despite demands, the bank filed a collection suit against Monet and the Tagles before the Regional Trial Court (RTC) of Manila.70[1] In their answer, Monet and the Tagles claimed that Land Bank had refused to collect the US$33,434.00 receivables on Monets export letter of credit against Wishbone Trading Company of Hong Kong while making an unauthorized payment of US$38,768.40 on its import letter of credit to Beautilike (H.K.) Ltd. This damaged Monets business interests since it ran short of funds to carry on with its usual business. In other words, Land Bank mismanaged its clients affairs under the Agreement.

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After trial or on July 15, 1997 the RTC rendered a decision 71[2] that, among other things, recognized Monet and the Tagles obligations to Land Bank in the amount reflected in Exhibit 39, the banks Schedule of Amortization from its Loans and Discount Department, but sans any penalty. The RTC ordered petitioners to pay Land Bank the same.

On appeal to the Court of Appeals (CA), 72[3] the latter rendered judgment on October 9, 2003, affirming the RTC decision. 73[4] Land Bank filed a petition for review with this The Court74[5] and on March 10, 2005 the Court rendered a Decision75[6] that, among other things, remanded the case to the RTC for the reception of additional evidence. pertinent portion reads:

Insofar as the amount of indebtedness of the respondents [Monet and the Tagles] to the petitioner [Land Bank] is concerned, the October 9, 2003 decision and the January 20, 2004 resolution of the Court of Appeals in CA-G.R. CV No. 57436, are SET ASIDE. The case is hereby remanded to its court of origin, the Regional Trial Court of Manila, Branch 49, for the reception of additional evidence as may be needed to determine the actual amount of indebtedness of the respondents to the petitioner. x x x

In remanding the case, the Court noted that Exhibit 39, the Summary of Availment and Schedule of Amortization, on which both the RTC and the CA relied, covered only Monets debt of P2.5 million under Promissory Note P-981, a small amount compared to the P11,464,246.19 that Land Bank sought to collect from it. The records showed, however, that Monet executed not only one but several promissory notes in varying amounts in favor of the bank. Indeed, the bank submitted a Consolidated Statement of Account dated August 31, 1992 in support of its claim of P11,464,246.19 but both the RTC and the CA merely

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glossed over it. Land Bank also submitted a Summary of Availments and Payments from 1981 to 1989 that detailed the series of availments and payments Monet made.

The Court explained its reason for remanding the case for reception of additional evidence, thus:

Unfortunately, despite the pieces of evidence submitted by the parties, our review of the same is inconclusive in determining the total amount due to the petitioner. The petitioner had failed to establish the effect of Monets Exhibit 39 to its own Consolidated Statement of Account as of August 31, 1992, nor did the respondents categorically refute the said statement of account vis--vis its Exhibit 39. The interest of justice will best be served if this case be remanded to the court of origin for the purpose of determining the amount due to petitioner. The dearth in the records of sufficient evidence with which we can utilize in making a categorical ruling on the amount of indebtedness due to the petitioner constrains us to remand this case to the trial court with instructions to receive additional evidence as needed in order to fully thresh out the issue and establish the rights and obligations of the parties. From the amount ultimately determined by the trial court as the outstanding obligation of the respondents to the petitioner, will be deducted the award of opportunity losses granted to the respondents in the amount of US$15,000.00 payable in Philippine pesos at the official exchange rate when payment is to be made.76[7]

On remand, the RTC held one hearing on October 30, 2006, at which the lawyer of Land Bank told the court that, apart from what the bank already adduced in evidence, it had no additional documents to present. Based on this, the RTC issued an order on the same day,77[8] affirming its original decision of July 15, 1997. The pertinent portion of the order reads:

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At todays hearing of this case, the lawyer for Land Bank stated on record that he has no more documents to present. Therefore, the obligation of the defendants would be those stated in the schedule of amortization from the Loans & Discount Department of the Land Bank (Exhibit 39) as well as the interest mentioned therein, as provided in the Decision of this Court. From the said obligation shall be deducted in favor of the defendants the REDUCED amount of US$15,000.00 representing the award of opportunity losses, as determined by the Supreme Court, payable in Philippine Pesos at the official exchange rate when payment is to be made. 78[9]

In effect, the RTC stood by Exhibit 39 as the basis of its finding that Monet and the Tagles owed Land Bank only P2.5 million as opposed to the latters claim of P11,464,246.19. Effectively, the RTC reinstated the portion of its July 15, 1997 decision that the Court struck down with finality in G.R. 161865 as baseless for determining the amount due the bank.

Land Bank filed a motion for reconsideration, actually a motion to reopen the hearing, to enable it to adduce in evidence a Consolidated Billing Statement as of October 31, 2006 to show how much Monet and the Tagles still owed the bank. But the trial court denied the motion. Land Bank appealed the order to the CA 79[10] but the latter rendered a decision on May 30, 2008,80[11] affirming the RTC orders. 81[12] present petition by Land Bank. Land Bank moved for reconsideration, but the CA denied it in its October 10, 2008 resolution, 82[13] hence, the

Issue Presented

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The sole issue presented in this case is whether or not the RTC and the CA acted correctly in denying petitioner Land Banks motion to reopen the hearing to allow it to present the banks updated Consolidated Billing Statement as of October 31, 2006 that reflects respondents Monet and the Tagles remaining indebtedness to it.

The Courts Ruling

The CA conceded that the RTC needed to receive evidence that would enable it to establish Monets actual indebtedness to Land Bank in compliance with the Courts decision in G.R. 161865. But since Land Bank, which had the burden of proving the amount of that indebtedness, told the RTC, when it set the matter for hearing, that it had no further documentary evidence to present, it was but right for that court to issue its assailed order of October 30, 2006, which reiterated its original decision of July 15, 1997.

The CA also held that the RTC did right in denying Land Banks motion to reopen the hearing to allow it to present its Consolidated Billing Statement as of October 31, 2006 involving Monets loans. Such billing statement, said the CA, did not constitute sufficient evidence to prove Monets total indebtedness for the simple reason that this Court in G.R. 161865 regarded a prior Consolidated Statement of Account for 1992 insufficient for that purpose.

But what the RTC and the CA did not realize is that the original RTC decision of July 15, 1997 was an incomplete decision since it failed to resolve the main issue that the collection suit presented: how much Monet and the Tagles exactly owed Land Bank. As the Court noted in its decision in G.R. 161865, the evidence then on record showed that the credit line Land Bank extended to Monet began at P250,000.00 but, after several amendments, eventually rose up to P5 million. Monet availed itself of these credit lines by taking out various loans evidenced by individual promissory notes that had diverse terms of payment.

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As it happened, however, in its original decision, the RTC held that Monet still owed Land Bank only P2.5 million as reported in the banks Schedule of Amortization (Exhibit 39). But that schedule covered only one promissory note, Promissory Note P-981. Noting this, the Court rejected Exhibit 39 as basis for determining Monets total obligation, given that it undeniably took out more loans as evidenced by the other promissory notes it executed in favor of Land Bank.

And, although the bank presented at the trial its Consolidated Statement of Account for 1992 covering Monets loans, the Court needed to know how the balance of P2.5 million in Exhibit 39, dated April 29, 1991, which the RTC regarded as true and correct, impacted on that consolidated statement that the bank prepared a year later. The Court thus remanded the case so the RTC can receive evidence that would show, after reconciliation of all of Monets loan accounts, exactly how much more it owed Land Bank.

The CA of course places no value on the Consolidated Billing Statement that Land Bank would have adduced in evidence had the RTC granted its motion for reconsideration and reopened the hearing. Apparently, both courts believe that Land Bank needed to present in evidence all original documents evidencing every transaction between Land Bank and Monet to prove the current status of the latters loan accounts. But a bank statement, properly authenticated by a competent bank officer, can serve as evidence of the status of those accounts and what Monet and the Tagles still owe the bank. Under Section 43, Rule 13083[14] of the Rules of Court, entries prepared in the regular course of business are prima facie evidence of the truth of what they state. the net result of such transactions. The billing statement reconciles the transaction entries entered in the bank records in the regular course of business and shows

Entries in the course of business are accorded unusual reliability because their regularity and continuity are calculated to discipline record keepers in the habit of precision. If the entries are financial, the records are routinely balanced and audited. In actual

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experience, the whole of the business world function in reliance of such kind of records. 84 [15]

Parenthetically, consider a borrower who takes out a loan of P10,000.00 from a bank and executes a promissory note providing for interests, charges, and penalties and an undertaking to pay the loan in 10 monthly installments of P1,000.00. If he pays the first five months installments but defaults in the rest, how will the bank prove in court that the debtor still owes it P5,000.00 plus interest?

The bank will of course present the promissory note to establish the scope of the debtors primary obligations and a computation of interests, charges, and penalties based on its terms. It must then show by the entries in its record how much it had actually been paid. This will in turn establish how much the borrower still owes it. The bank does not have to present all the receipts of payment it issued to all its clients during the entire year, thousands of them, merely to establish the fact that only five of them, rather than ten, pertains to the borrower. The original documents need not be presented in evidence when it is numerous, cannot be examined in court without great loss of time, and the fact sought to be established from them is only the general result. 85[16]

Monet and the Tagles can of course dispute the banks billing statements by proof that the bank had exaggerated what was owed it and that Monet had made more payments than were reflected in those statements. They can do this by presenting evidence of those greater payments. Notably, Monet and the Tagles have consistently avoided stating in their letters to the bank how much they still owed it. But, ultimately, it is as much their obligation to prove this disputed point if they deny the banks statements of their loan accounts.

In reverting back to Exhibit 39, which covers just one of many promissory notes that Monet and the Tagles executed in favor of Land Bank, the RTC and the CA have shown an

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unjustified obstinacy and a lack of understanding of what the Court wanted done to clear up the issue of how much Monet and the Tagles still owed the bank. The bank lawyer who claimed that Land Bank had no further evidence to present during the hearing was of course in error and it probably warranted a dismissal of the banks claim for failure to prosecute. But the banks motion for reconsideration, asking for an opportunity to present evidence of the status of the loans, opened up a chance for the RTC to abide by what the Court required of it. It committed error, together with the CA, in ruling that a reopening of the hearing would serve no useful purpose.

WHEREFORE, the Court GRANTS the petition, SETS ASIDE the Court of Appeals decision in CA-G.R. CV 88782 dated May 30, 2008 and resolution dated October 10, 2008 and the Regional Trial Court order in Civil Case 93-64350 dated October 30, 2006, REMANDS the case to the same Regional Trial Court of Manila for the reception of such evidence as may be needed to determine the actual amount of indebtedness of respondents Monets Export and Manufacturing Corp. and the spouses Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle and adjudicate petitioner Land Bank of the Philippines claims as such evidence may warrant.

SO ORDERED. Republic of the Philippines Supreme Court Manila FIRST DIVISION EMILIA LIM, Petitioner, Present: - versus LEONARDO-DE CASTRO, G.R. No. 175851

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Acting Chairperson, BRION,* DEL CASTILLO, MINDANAO WINES & LIQUOR GALLERIA, a Single Proprietorship PERLAS-BERNABE,* JJ. Business Outfit Owned by Evelyn S. Valdevieso, Respondent. Promulgated: July 4, 2012 VILLARAMA, JR., and

x------------------------ -------------------------------------------x DECISION DEL CASTILLO, J.:

Acquittal from a crime does not necessarily mean absolution from civil liability. Despite her acquittal from the charges of violation of Batas Pambansa Bilang 22 (BP 22) or the Bouncing Checks Law, the lower courts still found petitioner Emilia Lim (Emilia) civilly liable and ordered her to pay the value of the bounced checks, a ruling which was upheld by the Court of Appeals (CA) in its June 30, 2006 Decision86[1] and November 9, 2006 Resolution87[2] in CA-G.R. SP No. 64897. In this Petition for Review on Certiorari, Emilia prays for the reversal and setting aside of the said rulings of the CA. She contends that since her acquittal was based on insuffiency of evidence, it should then follow that the civil aspect of the criminal cases filed against her be likewise dismissed. Hence, there is no basis for her adjudged civil liability.

Factual Antecedents

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Sales Invoice No. 171188[3] dated November 24, 1995, as well as Statement of Accounts No. 07689[4] indicate that respondent Mindanao Wines and Liquor Galleria (Mindanao Wines) delivered several cases of liquors to H & E Commercial owned by Emilia, for which the latter issued four Philippine National Bank (PNB) postdated checks worth P25,000.00 each. When two of these checks, particularly PNB Check Nos. 95145390[5] and 95145491[6] dated October 10, 1996 and October 20, 1996, respectively, bounced for the reasons ACCOUNT CLOSED and DRAWN AGAINST INSUFFICIENT FUNDS, Mindanao Wines, thru its proprietress Evelyn Valdevieso, demanded from H & E Commercial the payment of their value through two separate letters both dated November 18, 1996.92[7] When the demands went unheeded, Mindanao Wines filed before Branch 2 of the Municipal Trial Court in Cities (MTCC) of Davao City Criminal Case Nos. 68,309-B-98 and 68,310-B-98 against Emilia for violations of BP 22.93[8]

During trial, the prosecution presented its sole witness, Nieves Veloso (Nieves), accountant and officer-in-charge of Mindanao Wines. She testified that Emilia has been a customer of Mindanao Wines who purchased from it assorted liquors. In fact, Sales Invoice No. 1711 covered the orders made by Emilia from Mindanao Wines and these orders were delivered by the latters salesman Marcelino Bersaluna94[9] (Marcelino) to H & E Commercial in San Francisco, Agusan del Sur. For the same, Marcelino received the four PNB checks and accordingly endorsed them to Mindanao Wines. Out of these four PNB checks, two were already paid, i.e., one was collected while the other redeemed in court.95[10]

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With regard to the bounced PNB Check Nos. 951453 and 951454, Nieves claimed that upon her instructions Marcelino went to H & E Commercial more than 10 times to collect their value. But since his efforts were in vain, two demand letters were thus sent to Emilia which were duly received by her as the same were signed by the recipient of the letters.96[11] . On cross, Nieves admitted that she neither saw Emilia issue the checks nor accompanied Marcelino in delivering the orders to H & E Commercial or in collecting the unpaid checks. 97[12] Asked about the corresponding sales order covering Sales Invoice No. 1711, she acknowledged that the sales order was unsigned and explained that sales orders of customers are handled by the Credit and Collection Department of Mindanao Wines.98[13]

After the prosecution rested its case, Emilia filed a Demurrer to Evidence 99[14] claiming insufficiency of evidence. She asserted that not one of the elements of BP 22 was proven because the witness merely relied upon the reports of the salesman; that the purchases covered by Sales Invoice No. 1711 were unauthorized because the corresponding job order was unsigned; and that it was never established that the bank dishonored the checks or that she was even sent a notice of dishonor.

Ruling of the Municipal Trial Court in Cities

In its December 10, 1999 Order,100[15] the MTCC granted the Demurrer to Evidence. It ruled that while Emilia did issue the checks for value, the prosecution nevertheless miserably failed to prove one essential element that consummates the crime of BP 22, i.e., the fact of dishonor of the

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two subject checks. It noted that other than the checks, no bank representative testified about presentment and dishonor. Hence, the MTCC acquitted Emilia of the criminal charges. However, the MTCC still found her civilly liable because when she redeemed one of the checks during the pendency of the criminal cases, the MTCC considered the same as an acknowledgement on her part of her obligation with Mindanao Wines. Pertinent portions of the MTCC Order read:

The elements of B.P. Blg. 22 must concur before one can be convicted of this offense. Since one element is wanting, it is believed that the guilt of the accused has not been established beyond reasonable doubt. The Court, however, opines that the accused is civilly liable. There is evidence on record that an account was contracted. She should, therefore, pay. WHEREFORE, the demurrer to evidence is granted and these cases are ordered DISMISSED. Accused, however, is adjudged to pay complainant the total amounts of the 2 checks which is P50,000.00, with interest at the rate of 12% per annum to be computed from the date of notice which is November 18, 1996 until the amount is paid in full; to reimburse complainant of the expenses incurred in filing these cases in the amount of P1,245.00, and to pay attorneys fees of P10,000.00. SO ORDERED.101[16]

Ruling of the Regional Trial Court

Dissatisfied that her acquittal did not carry with it her exoneration from civil liability, Emilia appealed to the Regional Trial Court (RTC) of Davao City, Branch 13. Emilia contended that since the MTCC dismissed the criminal cases on the ground of insufficient evidence, the civil aspect of the criminal cases should likewise be automatically dismissed. She argued that the court may only award damages for the civil aspect of BP 22 if the criminal cases have been dismissed on reasonable doubt upon proof of preponderance of evidence.

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The RTC was not persuaded by Emilias contentions. The RTC clarified that the MTCC

dismissed the criminal cases based on reasonable doubt and not on insufficiency of evidence. And while the prosecution failed to prove criminal liability beyond reasonable doubt, Emilias indebtedness was nonetheless proven by preponderance of evidence, the quantum of evidence required to prove the same. Thus, the RTC declared in its January 5, 2001 Order102[17] that:

The prosecution however had established that the accused had issued the checks subject of these cases. The accused had impliedly admitted that she was the maker of the checks subject of [these] case[s] when she redeemed a third check from the complainant. In fact, the accused had never categorically denied having issued the checks subject of these cases. When the accused filed the Demurrer to Evidence, she had hypothetically admitted the evidence presented by the prosecution to be true, and this includes the allegation of the prosecution that the accused issued the checks subject of these cases for value.103[18]

Thus, it dismissed the appeal, viz:

WHEREFORE, in view of the foregoing, the appeal of the accused in these cases is hereby DISMISSED, and the decision appealed from is hereby AFFIRMED IN TOTO. SO ORDERED.104[19]

Ruling of the Court of Appeals

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Undeterred, Emilia filed before the CA a Petition for Review 105[20] still insisting that the MTCCs dismissal was based on insufficiency of evidence and that same pertains to both the criminal and civil aspects of BP 22. She reiterated that there was no basis for the civil award made by the MTCC since the prosecution failed to show evidence of her civil liability and that a court can only award civil liability in cases of acquittals based on reasonable doubt and not on insufficiency of evidence.

In its June 30, 2006 Decision, the CA emphasized that even if acquitted, an accused may still be held civilly liable if a) the acquittal was based on reasonable doubt or b) the court declared that the liability of the accused is only civil. Just like the RTC, the CA ruled that the dismissal of the criminal cases against Emilia was expressly based on reasonable doubt, hence, she is not free from civil liability because the same is not automatically extinguished by acquittal based on said ground. The CA further declared that even granting that her acquittal was for insufficiency of evidence, the same is still akin to a dismissal based on reasonable doubt.

Respecting the factual conclusions of the lower courts anent Emilias civil liability, the CA noted that Emilia had never denied issuing the subject checks for value which, in themselves constituted evidence of indebtedness. Moreover, she failed to refute the prosecutions evidence when she filed a Demurrer to Evidence. The CA therefore affirmed the assailed Order of the RTC except that it deleted the award of attorneys fees, thus:

WHEREFORE, premises considered, the assailed Order of the Regional Trial Court (RTC), Br. 13, Davao City, affirming in toto the Order of the Municipal Trial Court in Cities (MTCC), Br. 2, Davao City as to the civil liability of Emilia Lim, is hereby AFFIRMED with the sole modification that the award of attorneys fees in favor of the Respondent is DELETED. SO ORDERED. 106[21]

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On Motion for Reconsideration,107[22] Emilia asserted that by granting her Demurrer to Evidence based on insufficiency of evidence, the MTCC acknowledged that there is absolutely no case against her. She alleged that the preponderance of evidence required in determining civil liability does not apply to her as she never presented any evidence at all, implying that in such a determination, both parties should have presented their respective evidence for the purpose of ascertaining as to which of the evidence presented is superior. The CA, however, rejected the motion in its Resolution 108[23] dated November 9, 2006. It held that insufficiency does not mean the total absence of evidence, but that evidence is lacking of what is necessary or required to make out her case. The CA explained that the MTCC acquitted Emilia because the quantum of evidence required for a finding of guilt beyond reasonable doubt was insufficient to convict her of BP 22. However, the extinction of the civil aspect does not necessarily follow such acquittal. The CA also disregarded Emilias argument that a preponderance of evidence should be a comparison of evidence of the opposing parties as such interpretation would lead to absurdity because by simply refusing to present evidence, a defendant can then be easily absolved from a civil suit. Hence, this petition raising the following assignment of errors: 1) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE AWARD OF CIVIL LIABILITY IN FAVOR OF THE RESPONDENT AND AGAINST THE PETITIONER IS A NULLITY FOR LACK OF DUE PROCESS, APART FROM THE FACT THAT THE COMPLAINANT IS NOT A JURIDICAL PERSON OR IS NOT THE REAL PARTY IN INTEREST. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT BECAUSE THE GROUND FOR THE DISMISSAL WAS FOR INSUFFICIENCY OF EVIDENCE AND NOT ON REASONABLE DOUBT, THE DISMISSAL OF THE CRIMINAL CASES CARRIES WITH IT THE DISMISSAL OF THE CIVIL CASES DEEMED INSTITUTED THEREIN. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS APPLICATION OF THE CONCEPT OF PREPONDERANCE OF EVIDENCE. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THERE IS NO PIECE OF ADMISSIBLE EVIDENCE PRESENTED THAT MAY BE TAKEN INTO ACCOUNT TO PROVE CIVIL LIABILITY.109[24]

2)

3) 4)

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In sum, the core issue in this petition is whether the dismissal of Emilias BP 22 cases likewise includes the dismissal of their civil aspect.

Our Ruling

The petition lacks merit. Emilias allegations that she was denied due process and that Mindanao Wines is not the real party in interest do not merit our attention as these were never raised for resolution before the courts below. Emilia claims that she was deprived of due process when the courts below declared her civilly liable. In support of this, she cites Salazar v. People110[25] wherein it was held that a court cannot rule upon the civil aspect of the case should it grant a demurrer to evidence with leave of court since the accused is entitled to adduce controverting evidence on the civil liability. Emilia likewise contends that Mindanao Wines is not a juridical person, it being a single proprietorship only and thus, not the real party in interest in this case. We note, however, that Emilia had never invoked before the courts below the ruling in Salazar. Neither did she specify in her pleadings filed therein whether her demurrer was filed with or without leave of court. It is only now that Emilia is claiming that the same was filed with leave of court in an apparent attempt to conform the facts of this case with that in Salazar. The same goes true with regard to the questioned locus standi of Mindanao Wines. Emilia likewise did not raise in her pleadings filed with the RTC or the CA that the civil aspect is dismissible for lack of cause of action because Mindanao Wines is not a juridical person and thus not a real party in interest. In fact, the courts below all along considered Mindanao Wines as the plaintiff and the trial proceeded as such. Obviously, these new issues are mere afterthoughts. They were raised only for the first time in this petition for review on certiorari. Never were they presented before the RTC and the CA for resolution. To allow Emilia to wage a legal blitzkrieg and blindside Mindanao Wines is a violation of the latters due process rights:

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It is well-settled that no question will be entertained on appeal unless it has been raised in the proceedings below. Points of law, theories, issues and arguments not brought to the attention of the lower court, administrative agency or quasijudicial body, need not be considered by a reviewing court, as they cannot be raised for the first time at that late stage. Basic considerations of fairness and due process impel this rule. Any issue raised for the first time on appeal is barred by estoppel. 111 [26] For this reason, the said issues do not merit the Courts consideration. Notwithstanding her acquittal, Emilia is civilly liable. The extinction of the penal action does not carry with it the extinction of the civil liability where x x x the acquittal is based on reasonable doubt as only preponderance of evidence is required112[27] in civil cases. On this basis, Emilia insists that the MTCC dismissed the BP 22 cases against her not on the ground of reasonable doubt but on insufficiency of evidence. Hence, the civil liability should likewise be extinguished. Emilias Demurrer to Evidence, however, betrays this claim. Asserting insufficiency of evidence as a ground for granting said demurrer, Emilia herself argued therein that the prosecution has not proven [her] guilt beyond reasonable doubt.113[28] And in consonance with such assertion, the MTCC in its judgment expressly stated that her guilt was indeed not established beyond reasonable doubt, hence the acquittal.114[29] In any case, even if the Court treats the subject dismissal as one based on insufficiency of evidence as Emilia wants to put it, the same is still tantamount to a dismissal based on reasonable doubt. As may be recalled, the MTCC dismissed the criminal cases because one essential element of BP 22 was missing, i.e., the fact of the banks dishonor. The evidence was insufficient to prove said element of the crime as no proof of dishonor of the checks was presented by the prosecution. This, however, only means that the trial court cannot convict Emilia of the crime since the prosecution failed to prove her guilt beyond reasonable doubt, the quantum of evidence required in criminal cases. Conversely, the lack of such proof of dishonor does not mean that Emilia has no existing debt with Mindanao Wines, a civil aspect which is proven by another quantum of evidence, a mere preponderance of evidence.

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Emilia also avers that a courts determination of preponderance of evidence necessarily entails the presentation of evidence of both parties. She thus believes that she should have been first required to present evidence to dispute her civil liability before the lower courts could determine preponderance of evidence. We disagree. Preponderance of evidence is [defined as] the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term greater weight of the evidence or greater weight of the credible evidence. It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.115[30] Contrary to Emilias interpretation, a determination of this quantum of evidence does not need the presentation of evidence by both parties. As correctly reasoned out by the CA, Emilias interpretation is absurd as this will only encourage defendants to waive their presentation of evidence in order for them to be absolved from civil liability for lack of preponderance of evidence. Besides, Emilia should note that even when a respondent does not present evidence, a complainant in a civil case is nevertheless burdened to substantiate his or her claims by preponderance of evidence before a court may rule on the reliefs prayed for by the latter. Settled is the principle that parties must rely on the strength of their own evidence, not upon the weakness of the defense offered by their opponent.116[31] Lastly, we see no reason to disturb the ruling of the CA anent Emilias civil liability. As may be recalled, the CA affirmed the lower courts factual findings on the matter. Factual findings of the trial court, when affirmed by the CA, will not be disturbed.117[32] Also, [i]t is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of [Court], only questions of law may be raised by the parties and passed upon by this Court.118[33] Moreover, it is well to remember that a check may be evidence of indebtedness. A check, the entries of which are in writing, could prove a loan transaction.119[34] While Emilia is acquitted of violations of BP 22, she should nevertheless pay the debt she owes.

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WHEREFORE, the petition for review on certiorari is DENIED. The challenged June 30, 2006 Decision and November 9, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 64897 are hereby AFFIRMED in toto.

SO ORDERED. Republic of the Philippines Supreme Court Manila

THIRD DIVISION

GEMMA T. JACINTO, Petitioner,

G.R. No. 162540 Present: YNARES-SANTIAGO, J., Chairperson,

- versus -

CHICO-NAZARIO, VELASCO, JR., NACHURA, and PERALTA, JJ.

PEOPLE OF THE PHILIPPINES, Respondent.

Promulgated: July 13, 2009

x-----------------------------------------------------------------------------------------x

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DECISION

PERALTA, J.:

Before us is a petition for review on certiorari filed by petitioner Gemma T. Jacinto seeking the reversal of the Decision120[1] of the Court of Appeals (CA) in CA-G.R. CR No. 23761 dated December 16, 2003, affirming petitioner's conviction of the crime of Qualified Theft, and its Resolution121[2] dated March 5, 2004 denying petitioner's motion for reconsideration.

Petitioner, along with two other women, namely, Anita Busog de Valencia y Rivera and Jacqueline Capitle, was charged before the Regional Trial Court (RTC) of Caloocan City, Branch 131, with the crime of Qualified Theft, allegedly committed as follows:

That on or about and sometime in the month of July 1997, in Kalookan City, Metro Manila, and within the jurisdiction of this Honorable Court, the above-named accused, conspiring together and mutually helping one another, being then all employees of MEGA FOAM INTERNATIONAL INC., herein represented by JOSEPH DYHENGCO Y CO, and as such had free access inside the aforesaid establishment, with grave abuse of trust and confidence reposed upon them with intent to gain and without the knowledge and consent of the owner thereof, did then and there willfully, unlawfully and feloniously take, steal and deposited in their own account, Banco De Oro Check No. 0132649 dated July 14, 1997 in the sum of P10,000.00, representing payment made by customer Baby Aquino to the Mega Foam Int'l. Inc. to the damage and prejudice of the latter in the aforesaid stated amount of P10,000.00. CONTRARY TO LAW.122[3]

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The prosecution's evidence, which both the RTC and the CA found to be more credible, reveals the events that transpired to be as follows.

In the month of June 1997, Isabelita Aquino Milabo, also known as Baby Aquino, handed petitioner Banco De Oro (BDO) Check Number 0132649 postdated July 14, 1997 in the amount of P10,000.00. The check was payment for Baby Aquino's purchases from Mega Foam Int'l., Inc., and petitioner was then the collector of Mega Foam. Somehow, the check was deposited in the Land Bank account of Generoso Capitle, the husband of Jacqueline Capitle; the latter is the sister of petitioner and the former pricing, merchandising and inventory clerk of Mega Foam.

Meanwhile, Rowena Ricablanca, another employee of Mega Foam, received a phone call sometime in the middle of July from one of their customers, Jennifer Sanalila. instead of issuing the checks payable to CASH. The customer wanted to know if she could issue checks payable to the account of Mega Foam, Said customer had apparently been instructed by Jacqueline Capitle to make check payments to Mega Foam payable to CASH. Around that time, Ricablanca also received a phone call from an employee of Land Bank, Valenzuela Branch, who was looking for Generoso Capitle. The reason for the call was to inform Capitle that the subject BDO check deposited in his account had been dishonored.

Ricablanca then phoned accused Anita Valencia, a former employee/collector of Mega Foam, asking the latter to inform Jacqueline Capitle about the phone call from Land Bank regarding the bounced check. Ricablanca explained that she had to call and relay the message through Valencia, because the Capitles did not have a phone; but they could be reached through Valencia, a neighbor and former co-employee of Jacqueline Capitle at Mega Foam.

Page 134 of 1485

Valencia then told Ricablanca that the check came from Baby Aquino, and instructed Ricablanca to ask Baby Aquino to replace the check with cash. Valencia also told Ricablanca of a plan to take the cash and divide it equally into four: for herself, Ricablanca, petitioner Jacinto and Jacqueline Capitle. Ricablanca, upon the advise of Mega Foam's accountant, reported the matter to the owner of Mega Foam, Joseph Dyhengco.

Thereafter, Joseph Dyhengco talked to Baby Aquino and was able to confirm that the latter indeed handed petitioner a BDO check for P10,000.00 sometime in June 1997 as payment for her purchases from Mega Foam. 123[4] Baby Aquino further testified that, sometime in July 1997, petitioner also called her on the phone to tell her that the BDO check bounced.124[5] Verification from company records showed that petitioner never remitted the subject check to Mega Foam. However, Baby Aquino said that she had already paid Mega Foam P10,000.00 cash in August 1997 as replacement for the dishonored check. 125[6]

Generoso Capitle, presented as a hostile witness, admitted depositing the subject BDO check in his bank account, but explained that the check came into his possession when some unknown woman arrived at his house around the first week of July 1997 to have the check rediscounted. He parted with his cash in exchange for the check without even bothering to inquire into the identity of the woman or her address. When he was informed by the bank that the check bounced, he merely disregarded it as he didnt know where to find the woman who rediscounted the check.

Meanwhile, Dyhengco filed a Complaint with the National Bureau of Investigation (NBI) and worked out an entrapment operation with its agents. Ten pieces of P1,000.00 bills provided by Dyhengco were marked and dusted with fluorescent powder by the NBI. Thereafter, the bills were given to Ricablanca, who was tasked to pretend that she was going along with Valencia's plan.

123 124 125

Page 135 of 1485

On August 15, 2007, Ricablanca and petitioner met at the latter's house. Petitioner, who was then holding the bounced BDO check, handed over said check to Ricablanca. They originally intended to proceed to Baby Aquino's place to have the check replaced with cash, but the plan did not push through. However, they agreed to meet again on August 21, 2007.

On the agreed date, Ricablanca again went to petitioners house,

where she met

petitioner and Jacqueline Capitle. Petitioner, her husband, and Ricablanca went to the house of Anita Valencia; Jacqueline Capitle decided not to go with the group because she decided to go shopping. It was only petitioner, her husband, Ricablanca and Valencia who then Only Ricablanca alighted boarded petitioner's jeep and went on to Baby Aquino's factory.

from the jeep and entered the premises of Baby Aquino, pretending that she was getting cash from Baby Aquino. However, the cash she actually brought out from the premises was the P10,000.00 marked money previously given to her by Dyhengco. Ricablanca divided the money and upon returning to the jeep, gave P5,000.00 each to Valencia and petitioner. Thereafter, petitioner and Valencia were arrested by NBI agents, who had been watching the whole time.

Petitioner and Valencia were brought to the NBI office where the Forensic Chemist found fluorescent powder on the palmar and dorsal aspects of both of their hands. This showed that petitioner and Valencia handled the marked money. The NBI filed a criminal case for qualified theft against the two and one Jane Doe who was later identified as Jacqueline Capitle, the wife of Generoso Capitle.

The defense, on the other hand, denied having taken the subject check and presented the following scenario.

Petitioner admitted that she was a collector for Mega Foam until she resigned on June 30, 1997, but claimed that she had stopped collecting payments from Baby Aquino for quite

Page 136 of 1485

some time before her resignation from the company. She further testified that, on the day of the arrest, Ricablanca came to her mothers house, where she was staying at that time, and asked that she accompany her (Ricablanca) to Baby Aquino's house. Since petitioner was going for a pre-natal check-up at the Chinese General Hospital, Ricablanca decided to hitch a ride with the former and her husband in their jeep going to Baby Aquino's place in Caloocan City. She allegedly had no idea why Ricablanca asked them to wait in their jeep, which they parked outside the house of Baby Aquino, and was very surprised when Ricablanca placed the money on her lap and the NBI agents arrested them. Anita Valencia also admitted that she was the cashier of Mega Foam until she resigned on June 30, 1997. It was never part of her job to collect payments from customers. According to her, on the morning of August 21, 1997, Ricablanca called her up on the phone, asking if she (Valencia) could accompany her (Ricablanca) to the house of Baby Aquino. Valencia claims that she agreed to do so, despite her admission during cross-examination that she did not know where Baby Aquino resided, as she had never been to said house. They then met at the house of petitioner's mother, rode the jeep of petitioner and her husband, and proceeded to Baby Aquino's place. Ricablanca came out and, to her surprise, When they arrived at said place, After ten minutes, Ricablanca alighted, but requested them to wait for her in the jeep. asked, What is this? Then, the NBI agents arrested them.

Ricablanca gave her money and so she even

The trial of the three accused went its usual course and, on October 4, 1999, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the Court finds accused Gemma Tubale De Jacinto y Latosa, Anita Busog De Valencia y Rivera and Jacqueline Capitle GUILTY beyond reasonable doubt of the crime of QUALIFIED THEFT and each of them is hereby sentenced to suffer imprisonment of FIVE (5) YEARS, FIVE (5) MONTHS AND ELEVEN (11) DAYS, as minimum, to SIX (6) YEARS, EIGHT (8) MONTHS AND TWENTY (20) DAYS, as maximum. SO ORDERED.126[7]

126

Page 137 of 1485

The three appealed to the CA and, on December 16, 2003, a Decision was promulgated, the dispositive portion of which reads, thus:

IN VIEW OF THE FOREGOING , the decision of the trial court MODIFIED, in that: (a) the sentence against accused Gemma Jacinto stands; (b) the sentence against accused Anita Valencia is reduced to 4 months arresto mayor medium. (c) The accused Jacqueline Capitle is acquitted. SO ORDERED.

is

A Partial Motion for Reconsideration of the foregoing CA Decision was filed only for petitioner Gemma Tubale Jacinto, but the same was denied per Resolution dated March 5, 2004.

Hence, the present Petition for Review on Certiorari filed by petitioner alone, assailing the Decision and Resolution of the CA. The issues raised in the petition are as follows:

1. 2.

Whether or not petitioner can be convicted of a crime not charged in the information; Whether or not a worthless check can be the object of theft; and

3. Whether or not the prosecution has proved petitioner's guilt beyond reasonable doubt.127[8]

The petition deserves considerable thought.

127

Page 138 of 1485

The prosecution tried to establish the following pieces of evidence to constitute the elements of the crime of qualified theft defined under Article 308, in relation to Article 310, both of the Revised Penal Code: (1) the taking of personal property - as shown by the fact that petitioner, as collector for Mega Foam, did not remit the customer's check payment to her employer and, instead, appropriated it for herself; (2) said property belonged to another the check belonged to Baby Aquino, as it was her payment for purchases she made; (3) the taking was done with intent to gain this is presumed from the act of unlawful taking and further shown by the fact that the check was deposited to the bank account of petitioner's brother-in-law; (4) it was done without the owners consent petitioner hid the fact that she had received the check payment from her employer's customer by not remitting the check to the company; (5) it was accomplished without the use of violence or intimidation against persons, nor of force upon things the check was voluntarily handed to petitioner by the customer, as she was known to be a collector for the company; and (6) it was done with grave abuse of confidence petitioner is admittedly entrusted with the collection of payments from customers.

However, as may be gleaned from the aforementioned Articles of the Revised Penal Code, the personal property subject of the theft must have some value, as the intention of the accused is to gain from the thing stolen. This is further bolstered by Article 309, where the law provides that the penalty to be imposed on the accused is dependent on the value of the thing stolen.

In this case, petitioner unlawfully took the postdated check belonging to Mega Foam, but the same was apparently without value, as it was subsequently dishonored. Thus, the question arises on whether the crime of qualified theft was actually produced.

The Court must resolve the issue in the negative.

Page 139 of 1485

Intod v. Court of Appeals 128[9] is highly instructive and applicable to the present case. In Intod, the accused, intending to kill a person, peppered the latters bedroom with bullets, but since the intended victim was not home at the time, no harm came to him. The trial court and the CA held Intod guilty of attempted murder. But upon review by this Court, he was adjudged guilty only of an impossible crime as defined and penalized in paragraph 2, Article 4, in relation to Article 59, both of the Revised Penal Code, because of the factual impossibility of producing the crime. Pertinent portions of said provisions read as follows: Article 4(2). Criminal Responsibility. - Criminal responsibility shall be incurred: xxxx 2. By any person performing an act which would be an offense against persons or property, were it not for the inherent impossibility of its accomplishment or on account of the employment of inadequate to ineffectual means. (emphasis supplied)

Article 59. Penalty to be imposed in case of failure to commit the crime because the means employed or the aims sought are impossible . When the person intending to commit an offense has already performed the acts for the execution of the same but nevertheless the crime was not produced by reason of the fact that the act intended was by its nature one of impossible accomplishment or because the means employed by such person are essentially inadequate to produce the result desired by him, the court, having in mind the social danger and the degree of criminality shown by the offender, shall impose upon him the penalty of arresto mayor or a fine ranging from 200 to 500 pesos.

Thus, the requisites of an impossible crime are: (1) that the act performed would be an offense against persons or property; (2) that the act was done with evil intent; and (3) that its accomplishment was inherently impossible, or the means employed was either inadequate or ineffectual. The aspect of the inherent impossibility of accomplishing the intended crime under Article 4(2) of the Revised Penal Code was further explained by the Court in Intod129[10] in this wise:

128 129

Page 140 of 1485

Under this article, the act performed by the offender cannot produce an offense against persons or property because: (1) the commission of the offense is inherently impossible of accomplishment; or (2) the means employed is either (a) inadequate or (b) ineffectual. That the offense cannot be produced because the commission of the offense is inherently impossible of accomplishment is the focus of this petition. To be impossible under this clause, the act intended by the offender must be by its nature one impossible of accomplishment. There must be either (1) legal impossibility, or (2) physical impossibility of accomplishing the intended act in order to qualify the act as an impossible crime. Legal impossibility occurs where the intended acts, even if completed, would not amount to a crime. xxxx The impossibility of killing a person already dead falls in this category. On the other hand, factual impossibility occurs when extraneous circumstances unknown to the actor or beyond his control prevent the consummation of the intended crime. x x x 130[11]

In Intod, the Court went on to give an example of an offense that involved factual impossibility, i.e., a man puts his hand in the coat pocket of another with the intention to steal the latter's wallet, but gets nothing since the pocket is empty.

Herein petitioner's case is closely akin to the above example of factual impossibility given in Intod. In this case, petitioner performed all the acts to consummate the crime of qualified theft, which is a crime against property. Petitioner's evil intent cannot be denied, as the mere act of unlawfully taking the check meant for Mega Foam showed her intent to gain or be unjustly enriched. Were it not for the fact that the check bounced, she would have received the face value thereof, which was not rightfully hers. Therefore, it was only due to the extraneous circumstance of the check being unfunded, a fact unknown to petitioner at the time, that prevented the crime from being produced. The thing unlawfully taken by petitioner turned out to be absolutely worthless, because the check was eventually dishonored, and Mega Foam had received the cash to replace the value of said dishonored check.

130

Page 141 of 1485

The fact that petitioner was later entrapped receiving the P5,000.00 marked money, which she thought was the cash replacement for the dishonored check, is of no moment. The Court held in Valenzuela v. People131[12] that under the definition of theft in Article 308 of the Revised Penal Code, there is only one operative act of execution by the actor involved in theft the taking of personal property of another. Elucidating further, the Court held, thus:

x x x Parsing through the statutory definition of theft under Article 308, there is one apparent answer provided in the language of the law that theft is already produced upon the tak[ing of] personal property of another without the latters consent. xxxx x x x when is the crime of theft produced? There would be all but certain unanimity in the position that theft is produced when there is deprivation of personal property due to its taking by one with intent to gain. Viewed from that perspective, it is immaterial to the product of the felony that the offender, once having committed all the acts of execution for theft, is able or unable to freely dispose of the property stolen since the deprivation from the owner alone has already ensued from such acts of execution. x x x xxxx x x x we have, after all, held that unlawful taking, or apoderamiento, is deemed complete from the moment the offender gains possession of the thing, even if he has no opportunity to dispose of the same. x x x x x x Unlawful taking, which is the deprivation of ones personal property, is the element which produces the felony in its consummated stage. x x x 132[13]

From the above discussion, there can be no question that as of the time that petitioner took possession of the check meant for Mega Foam, she had performed all the acts to consummate the crime of theft, had it not been impossible of accomplishment in this case. The circumstance of petitioner receiving the P5,000.00 cash as supposed replacement for the dishonored check was no longer necessary for the consummation of the crime of qualified theft. Obviously, the plan to convince Baby Aquino to give cash as replacement for the check was hatched only after the check had been

131 132

Page 142 of 1485

dishonored by the drawee bank. continuation of the theft. Since the crime of theft is not a continuing offense,

petitioner's act of receiving the cash replacement should not be considered as a At most, the fact that petitioner was caught receiving the marked money was merely corroborating evidence to strengthen proof of her intent to gain.

Moreover, the fact that petitioner further planned to have the dishonored check replaced with cash by its issuer is a different and separate fraudulent scheme. Unfortunately, since said scheme was not included or covered by the allegations in the Information, the Court cannot pronounce judgment on the accused; otherwise, it would violate the due process clause of the Constitution. If at all, that fraudulent scheme could have been another possible source of criminal liability.

IN VIEW OF THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals, dated December 16, 2003, and its Resolution dated March 5, 2004, are MODIFIED. Petitioner Gemma T. Jacinto is found GUILTY of an IMPOSSIBLE CRIME as defined and penalized in Articles 4, paragraph 2, and 59 of the Revised Penal Code, respectively. Petitioner is sentenced to suffer the penalty of six (6) months of arrresto mayor, and to pay the costs.

SO ORDERED. Republic of the Philippines SUPREME COURT

Manila

THIRD DIVISION

Page 143 of 1485

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, Present: G.R. No. 193479

VELASCO, JR., J., Chairperson, PERALTA, - versus ABAD, MENDOZA, and PERLAS-BERNABE, JJ.

Promulgated: BERNARD G. MIRTO, Accused-Appellant. October 19, 2011

x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

The Case

Page 144 of 1485

This is an appeal from the Decision 133[1] dated August 24, 2009 of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 03444, which affirmed the March 24, 2008 Decision134[2] in Criminal Case Nos. 9034, 9115, 9117 and 9130 of the Regional Trial Court (RTC), Branch 5 in Tuguegarao City, Cagayan. The RTC found accused Bernard G. Mirto guilty beyond reasonable doubt of the crime of Qualified Theft.

133 134

Page 145 of 1485

The Facts

Seven Informations for Qualified Theft were filed against the accused, docketed as Criminal Case Nos. 9034, 9115, 9117, 9120, 9123, 9126, and 9130. The Informations similarly show how the offenses were allegedly committed, differing only as to the dates of the commission, the number of bags of cement involved, the particulars of the checks paid by the cement purchasers, the amounts involved, and the depositary accounts used by accused. The Information for Criminal Case No. 9034 indicted accused, thus:

The undersigned City Prosecutor of Tuguegarao City accuses BERNARD G. MIRTO of the crime of QUALIFIED THEFT, defined and penalized under Article 310, in relation to Articles 308 and 309 of the Revised Penal Code, committed as follows: That on June 21, 2001, in the City of Tuguegarao, Province of Cagayan and within the jurisdiction of this Honorable Court, said accused BERNARD G. MIRTO, being the Branch Manager of UCC-Isabela (Tuguegarao Area), with intent to gain but without violence against or intimidation of persons nor force upon things, did then and there willfully, unlawfully and feloniously, with grave abuse of confidence and without the consent and knowledge of complainant, UNION CEMENT CORPORATION, a duly organized Corporation operating under existing laws, represented by REYNALDO S. SANTOS, Assistant Vice President Marketing/North Luzon, whose business address is located at 5 th Floor Kalayaan Building, 164 Salcedo Street, Makati, Metro Manila, take, steal and deposit into his personal Security Bank & Trust Co. (Tuguegarao Branch) Account No. 0301261982001, the proceeds of 4,600 bags of Portland cement, owned by herein complainant-Corporation, paid to him by the Philippine Lumber located at Bonifacio Street, this City, in the form of Checks, namely: METROBANK CHECK NOS. 103214898 and 1032214896, for P67,000.00 & P241,200.00, respectively, in the total amount of P308,200.00, which accused is obligated to convey to the complainant-Union Cement Corporation represented by its Vice-President-Marketing, REYNALDO S. SANTOS, to its loss, damage and prejudice, in the aforesaid amount of THREE HUNDRED EIGHT THOUSAND TWO HUNDRED PESOS, (P308,200.00) Philippine Currency. Contrary to law.135[3]

To summarize, the seven Informations showed the following details:

135

Page 146 of 1485

Crimi nal Case

9034

Date of offen se June 21, 2001

Ceme nt bags

Purchaser/B uyers Philippine Lumber

4,600

9115

May 25, 2001

4,750 out of 5,850

Philippine Lumber

Check payment s MBTC 10321489 8 MBTC 10322148 96 MBTC 10302148 35 MBTC 10302148 33 MBTC 10302148 36 MBTC 10302148 34 MBTC 10302148 49 MBTC 10302148 48 MBTC 10302148 47 PNB 0015659 PNB 0015661 MBTC 11401717 26 [no details] [no details] MBTC

9117

May 22, 2001

9,950

Mapalo Trucking

9120

9123

June 6, 2001 June 22, 2001

900 out of 5,100 2,700 out of 7,100

Alonzo Trucking Mapalo Trucking

9126

June

1,800

Alonzo

Amou nt (PhP) 6 7,000.0 0 24 1,200.0 0 11 6,000.0 0 11 6,000.0 0 11 6,000.0 0 7 9,750.0 0 5 8,000.0 0 8 7,000.0 0 11 6,000.0 0 61 6,100.0 0 59 7,800.0 0 11 3,400.0 0 12 3,300.0 0 24 6,600.0 0 24

Checks deposited In SBTC 0301261982-001 SBTC 0301261982-001 SBTC 0301261982-001 SBTC 0301261982-001 SBTC 0301261982-001 SBTC 0301261982-001 MBTC 124-5 [Magno Lim] MBTC 124-5 [Magno Lim] MBTC 124-5 [Magno Lim] SBTC 0301261982-001 SBTC 0301261982-001 MBTC 124-5 [Magno Lim]

Total Amount (PhP)

308,2 00.00

688,7 50.00

1,213,9 00.00 113,4 00.00

[no details] [no details]

369,9 00.00 244,8

EPCIB

Page 147 of 1485

19, 2001 June 27, 2001 out of 7,100 11407173 1 DBP 00001553 48 4,800.0 0 6 8,500.0 0 71820-8 [Magno Lim] SBTC 0301261982-001

Trucking Rommeleens Enterprises

00.00 68,50 0.00

9130

500

Per records,136[4] the accused was branch manager of Union Cement Corporation (UCC) for the Tuguegarao City area. At the UCC office in Isabela, he shared an office room with Restituto P. Renolo, Branch Manager for the province. On June 29, 2001, at about noon, the accused confided to Renolo that he had misappropriated company funds. North Luzon Reynaldo S. Santos (AVP Santos). Renolo advised him to explain his misdeeds in writing to Assistant Vice-President and Head of UCC-

Later that day, at about 5:00 p.m., the accused told Renolo that he would be going to Tuguegarao City. Just before Renolo left the office, he saw on the accuseds table a piece of partly-folded paper, which turned out to be a handwritten letter of the accused to AVP Santos, in which he admitted taking company funds and enumerated the particular accounts and amounts involved. Renolo took the letter home, read it over the phone to AVP Santos at about 7:00 p.m., and faxed it to AVP Santos the following day.

AVP Santos, in turn, sent a copy of the letter to the top management of UCC, which then instructed the Group Internal Audit of the Phinma Group of Companies to conduct a special audit of the UCC-Tuguegarao City Branch. Antonio M. Dumalian, AVP and Head of the Group Internal Audit, organized the audit team composed of Onisimo Prado, as head, with Emmanuel R. Reamico, Adeodato M. Logronio, and Glenn Agustin, as members.

The audit team conducted the special audit of the UCC-Tuguegarao City Branch from July 3 to July 25, 2001. They interviewed several cement buyers/dealers, among them Wilma Invierno of Rommeleens Enterprises, Arthur Alonzo of Alonzo Trucking, Robert Cokee of Philippine Lumber, and Russel Morales of Mapalo Trucking. All four executed affidavits

136

Page 148 of 1485

attesting that UCC cement bags were sold directly to them instead of to dealers with credit lines and that, as payment, they issued Pay to Cash checks pursuant to the instruction of the accused.

AVP Santos and Dr. Francis Felizardo, Senior Vice-President (SVP) and Head of the Marketing Group of UCC, met with the accused at the UCC Sales Office in Poro Point, San Fernando City, La Union. In that meeting, the accused admitted misusing company money, but pleaded to them not to terminate him as he was willing to pay back the amount from his salary on installment. He also asked them not to file charges against him.

In a Report dated August 8, 2001, the Group Internal Audit confirmed the veracity of the June 29, 2001 handwritten admission letter of the accused and his July 20, 2001 Certification enumerating the names of the specific bank accounts, specific bank holders, and the banks wherein he had deposited the funds of UCC-Tuguegarao City Branch. 2001 amounted to PhP 6,572,750. It appeared that the total unremitted collections of the accused from May 25, 2001 to June 23,

UCC found that the accused gravely abused the trust and confidence reposed on him as Branch Manager and violated company policies, rules, and regulations. Specifically, he used the credit line of accredited dealers in favor of persons who either had no credit lines or had exhausted their credit lines. He diverted cement bags from the companys Norzagaray Plant or La Union Plant to truckers who would buy cement for profit. In these transactions, he instructed the customers that payments be made in the form of Pay to Cash checks, for which he did not issue any receipts. He did not remit the checks but these were either encashed or deposited to his personal bank account at Security Bank & Trust Co. (SBTC)-Tuguegarao City Branch with Account No. 0301-261982-001 or to the accounts of a certain Magno Lim at MetroBank and Equitable PCIBank, both in Tuguegarao City. Conchito Dayrit, Customer Service Officer and Representative of SBTC-Tuguegarao City, confirmed the findings of the UCC internal auditors through the accuseds Statement of Account showing the various checks deposited to his account, and which subsequently cleared.

Page 149 of 1485

Upon arraignment on August 6, 2002, the accused entered a plea of not guilty to the seven separate charges of qualified theft.137[5] Trial on the merits ensued.

The Ruling of the RTC

On March 24, 2008, the RTC rendered its Decision, acquitting the accused in Criminal Case Nos. 9120, 9123, and 9126, but finding him guilty beyond reasonable doubt of committing Qualified Theft in Criminal Case Nos. 9034, 9115, 9117, and 9130. dispositive portion reads: The

WHEREFORE, premises considered, the Court renders judgment thus:

1.

In Criminal Case No. 9034: finding the accused GUILTY BEYOND REASONABLE DOUBT of the crime of qualified theft; In Criminal Case No. 9115: finding the accused GUILTY BEYOND REASONABLE DOUBT of the crime of qualified theft; In Criminal Case No. 9117: finding the accused GUILTY BEYOND REASONABLE DOUBT of the crime of qualified theft; In Criminal Case No. 9120: finding the accused NOT GUILTY, as there is no showing how he profited from deposits he made to the account of Mr. Magno Lim; In Criminal Case No. 9123: finding the accused NOT GUILTY by reason of insufficiency of evidence; In Criminal Case No. 9126: finding the accused NOT GUILTY BEYOND REASONABLE DOUBT of the crime of qualified theft; In Criminal Case No. 9130: finding the accused GUILTY BEYOND REASONABLE DOUBT of the crime of qualified theft.

2.

3.

4.

5.

6.

7.

137

Page 150 of 1485

In view of the foregoing, in the imposition of the penalties upon the accused, this Court is guided by the following doctrinal pronouncement of the Supreme Court in People v. [Mercado], G.R. No. 143676, February 12, 2003:

Appellant asserts that the trial court erred in applying the proper penalty. As reasoned by appellant, the penalty for Qualified Theft under Article 310 of the Revised Penal Code is prision mayor in its minimum and medium periods, raised by two degrees. Hence, the penalty high by two degrees should be reclusion temporal in its medium and maximum periods and not reclusion perpetua as imposed by the trial court. Being a divisible penalty, the Indeterminate Sentence Law could then be applied.

On the other hand, [appellee] cites the cases of People v. Reynaldo Bago and People v. Cresencia C. Reyes to show that the trial court properly imposed the penalty of reclusion perpetua.

We agree with the appellee that the trial court imposed the proper penalty.

In accordance with the doctrine laid down in People v. Mercado, the accused is hereby sentenced to suffer the penalty of RECLUSION PERPETUA. Accused is ordered to restitute the private complainant the total amount of TWO MILLION TWO HUNDRED SEVENTY NINE THOUSAND THREE HUNDRED FIFTY PESOS (Php 2,279,350.00) covering the amount represented by the checks involved in these cases.

Set the promulgation of this Decision on 15 April 2008, at 8:30 oclock in the morning.

SO ORDERED.138[6]

138

Page 151 of 1485

In convicting the accused, the RTC relied on his admission when he testified on February 15, 2007 and his Memorandum of the fact of his having deposited the checks payments from UCC cement sales in his personal account with SBTC, Tuguegarao City Branch. Contrary to the accuseds argument, the RTC found that he did not hold his collections in trust for UCC, since he was never authorized by UCC to retain and deposit checks, as testified to by AVP Santos. Moreover, the RTC found fatal to accuseds defense his handwritten letter, dated June 29, 2001, addressed to AVP Santos, which reads in part, Sir, I regret to say that a total amount of PhP 6,380,650.00 was misused by me for various reasons,139[7] which the accused admitted to in open court during his testimony on February 15, 2007.

Aggrieved, accused appealed his conviction before the CA.

The Ruling of the CA

On August 24, 2009, the appellate court rendered the appealed decision, affirming the findings of the RTC and the conviction of accused-appellant. The fallo reads:

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Tuguegarao City, Cagayan, Branch 5, in Criminal Case Nos. 9034, 9115, 9117 and 9130, dated March 24, 2008 and promulgated on April 15, 2008, finding accused-appellant guilty beyond reasonable doubt of the crime of Qualified Theft is hereby AFFIRMED and UPHELD.

With costs against the accused-appellant.

SO ORDERED.140[8]

139 140

Page 152 of 1485

Accused-appellant argued that, first, the Informations indicting him for Qualified Theft did not adequately inform him of the nature of the offense charged against him; and second, he had juridical possession of the subject checks, not merely material possession; hence, the qualifying circumstance of grave abuse of confidence cannot be appreciated against him.

The CA, however, found that accused-appellant only had material possession of the checks and not juridical possession 141[9] as these checks payments were made to UCC by its customers and accused-appellant had no right or title to possess or retain them as against UCC. The fact that accused-appellant was obliged, as per company policy, to immediately turn over to UCC the payments he received from UCC customers was attested to by the prosecution witness, UCC Branch Manager Renolo. Thus, the CA concluded that there was neither a principal-agent relationship between UCC and accused-appellant nor was accusedappellant allowed to open a personal account where UCC funds would be deposited and held in trust for UCC.

Hence, We have this appeal.

The Office of the Solicitor General, representing the People of the Philippines, submitted a Manifestation and Motion, 142[10] opting not to file any supplemental brief, there being no new issues raised nor supervening events transpired. Accused-appellant manifested also not to file a supplemental brief. 143[11] Thus, in resolving the instant appeal, We consider the sole issue and arguments accused-appellant earlier raised in his Brief for the Accused-Appellant before the CA.

141 142 143

Page 153 of 1485

Accused-appellant raises the same sole assignment of error already passed upon and resolved by the CA, in that THE TRIAL COURT ERRED IN CONCLUDING THAT, BASED ON THE EVIDENCE, THE ACCUSED IS GUILTY OF QUALIFIED THEFT.144[12] The Courts Ruling

The appeal is bereft of merit.

Accused-appellant argues that the prosecution failed:

(a) (b) (c) (d) (e) (f)

To establish that he had material possession of the funds in question; To refute the authority given to him by UCC; To establish the element of taking under Art. 308 of the Revised Penal Code (RPC); To establish that the funds were taken without the consent and knowledge of UCC; To establish the element of personal property under Art. 308 of the RPC; and To establish, in sum, the ultimate facts constitutive of the crime of Qualified Theft under Art. 310, in relation to Art. 308, of the RPC.

For being closely related, We will discuss together the arguments thus raised.

Article 308 of the Revised Penal Code (RPC), which defines Theft, provides:

144

Page 154 of 1485

ART. 308. Who are liable for theft .Theft is committed by any person who, with intent to gain but without violence, against, or intimidation of persons nor force upon things, shall take personal property of another without the latters consent. Theft is likewise committed by: 1. Any person who, having found lost property, shall fail to deliver the same to the local authorities or to its owner; 2. Any person who, after having maliciously damaged the property of another, shall remove or make use of the fruits or objects of the damage caused by him; and 3. Any person who shall enter an enclosed estate or a field where trespass is forbidden or which belongs to another and without the consent of its owner, shall hunt or fish upon the same or shall gather fruits, cereals, or other forest or farm products. Thus, the elements of the crime of Theft are: (1) there was a taking of personal

property; (2) the property belongs to another; (3) the taking was without the consent of the owner; (4) the taking was done with intent to gain; and (5) the taking was accomplished without violence or intimidation against the person or force upon things. 145[13]

Theft is qualified under Art. 310 of the RPC, when it is, among others, committed with grave abuse of confidence, thus:

ART. 310. Qualified Theft.The crime of theft shall be punished by the penalties next higher by two degrees than those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

The elements of Qualified Theft committed with grave abuse of confidence are as follows:

145

Page 155 of 1485

1.

Taking of personal property;

2.

That the said property belongs to another;

3.

That the said taking be done with intent to gain;

4.

That it be done without the owners consent;

5.

That it be accomplished without the use of violence or intimidation against persons, nor of force upon things;

6. That it be done with grave abuse of confidence .146[14] (Emphasis supplied.)

All of the foregoing elements for Qualified Theft are present in this case.

First. The presence of the first and second elements is abundantly clear. There can be no quibble that the fund collections through checks paymentsall issued payable to cash are personal properties belonging to UCC. These funds through checks were paid by UCC clients for the deliveries of cement from UCC. One with the courts a quo, We will not belabor this point in the fifth argument raised by accused-appellant.

Second.

The third element is likewise abundantly clear.

The collected amounts

subject of the instant case belonged to UCC and not to accused-appellant. When accusedappellant received them in the form of Pay to Cash checks from UCC customers, he was

146

Page 156 of 1485

obliged to turn them over to UCC for he had no right to retain them. That he kept the

checks and deposited them in his account and in the accounts of Magno Lim knowing all the while that these checks and their proceeds were not his only proves the presence of unlawful taking.

As the trial court aptly pointed out, accused-appellants theory that he only kept the funds in trust for UCC with the elaborate explanation that once the checks cleared in his account then he remits them to UCC is completely incredulous. For one, accused-appellant has not adduced evidence that he indeed remitted the funds once the corresponding checks were cleared. For another, accused-appellant could not explain why he deposited some of the checks he collected in the accounts of Magno Lim in MetroBank (MBTC Account No. 1245) and Equitable PCIBank (EPCIB Account No. 71820-8). Moreover, accused-appellants contention of such alleged management practice 147[15] is unsupported by any evidence showing that prior to the events in mid-2001 there was indeed such a practice of depositing check collections and remitting the proceeds once the checks cleared.

Third. The element of intent to gain is amply established through the affidavit 148[16] of Wilma Invierno of Rommeleens Enterprises, one of UCCs customers, who confirmed that she had been sold cement bags instead of to dealers with credit lines and she was required by accused-appellant to issue pay to cash checks as payment. The affidavits of Arthur Alonzo149[17] of Alonzo Trucking, Robert Cokee 150[18] of Philippine Lumber, and Russel Morales151[19] of Mapalo Trucking similarly attested to the same type of sale and payment arrangement. In so doing, accused-appellant facilitated the collection of pay to cash checks which he deposited in his bank account and in the bank accounts of Magno Lim. Thus, the fourth element of intent to gain is duly proved.

147 148 149 150 151

Page 157 of 1485

Fourth. Equally clear and undisputed is the presence of the fifth element. Accusedappellant admitted having received these checks and depositing them in his personal account and in the accounts of Magno Lim. Thus, the element of taking was accomplished without the use of violence or intimidation against persons, nor of force upon things.

Fifth. That UCC never consented to accused-appellants depositing the checks he collected in his or other accounts is demonstrated by the immediate action UCC took upon being apprised of the misappropriation and accused-appellants confession letter. UCC lost no time in forming a special audit group from the Group Internal Audit of Phinma Group of Companies. The special audit group conducted an internal audit from July 3 to 25, 2001 and submitted a Special Audit Report152[20] dated August 8, 2001, showing that the total unremitted collections of accused-appellant from the period covering May 25, 2001 through June 23, 2001 amounted to PhP 6,572,750.

AVP Santos and UCC SVP and Head of Marketing Group Dr. Felizardo met with accused-appellant testified
153

who

admitted

misappropriating

company

funds.

AVP

Santos

[21] in open court on what transpired in that meeting and accused-appellants And with the findings of the auditors that not only did

verbal admission/confession.

accused-appellant unlawfully take UCC funds but he also committed the offense of violating company policies, rules, and regulations, UCC was compelled to file seven criminal complaints against accused-appellant. This swift and prompt action undertaken by UCC argues against the notion that it consented to accused-appellants act of depositing of check proceeds from company sales of cement products in his account or in the accounts of Magno Lim.

Sixth. That accused-appellant committed the crime with grave abuse of confidence is clear. As gathered from the nature of his position, accused-appellant was a credit and collection officer of UCC in the Cagayan-Isabela area. His position entailed a high degree of confidence, having access to funds collected from UCC clients. In People v. Sison,154[22]

152 153 154

Page 158 of 1485

involving a Branch Operation Officer of Philippine Commercial International Bank (PCIB), the Court upheld the appellants conviction of Qualified Theft, holding that the management of the PCIB reposed its trust and confidence in the appellant as its Luneta Branch Operation Officer, and it was this trust and confidence which he exploited to enrich himself to the damage and prejudice of PCIB x x x. 155[23] In People v. Mercado,156[24] involving a manager of a jewelry store, the Court likewise affirmed the appellants conviction of Qualified Theft through grave abuse of confidence.

In the instant case, it is clear how accused-appellant, as Branch Manager of UCC who was authorized to receive payments from UCC customers, gravely abused the trust and confidence reposed upon him by the management of UCC. Precisely, by using that trust and confidence, accused-appellant was able to perpetrate the theft of UCC funds to the grave prejudice of the latter. To repeat, the resulting report of UCCs internal audit showed that accused-appellant unlawfully took PhP 6,572,750 of UCCs funds.

The courts a quos finding that accused-appellant admitted misappropriating UCCs funds through the appropriation of the subject checks is buttressed by the testimonies of Renolo and Santos,157[25] who heard and understood accused-appellants extrajudicial confession. True enough, they were competent to testify as to the substance of what they heard from accused-appellanthis declaration expressly acknowledging his guilt to the offensethat may be given in evidence against him.158[26]

That he deposited most of the subject checks in his account was proved by accusedappellants statement of account with SBTC (Account No. 0301-261982-001) through the testimony of Conchito Dayrit, the Customer Service Officer and representative of SBTCTuguegarao City Branch.159[27]

155 156 157 158 159

Page 159 of 1485

Moreover, accused-appellant issued a written certification 160[28] dated July 20, 2001, attesting to the fact of the ownership of the bank accounts where he deposited the checks he collected from UCC clients, which reads:

07/20/01 To whom it may concern: This is to certify that to my knowledge, the owner of the following bank accounts are as follows: Bank account SBC TUG 0301261982001 MBTC TUG 124-5 EPCI TUG 71320-8 Owner B. G. Mirto Magno Lim Magno Lim

This certification is issued for whatever purpose it may serve. (Sgd.) Bernard G. Mirto 7/20/01 Signature over printed name date

Further, as can be amply gleaned from accused-appellants handwritten admission and duly borne out by the internal audit teams findings, he deliberately used a scheme to perpetrate the theft. This was aptly pointed out by the CA, which We reproduce for clarity:

UCC found that accused-appellant gravely abused the trust and confidence reposed on him as Branch Manager and violated company policies, rules and regulations. He did not remit collections from customers who paid Pay to Cash checks. He used the credit line of accredited dealers in favor of persons who did not have credit lines or other dealers who had exhausted their credit line . He diverted cement bags from Norzagaray Plant or La Union Plant to truckers who would buy cement for profit. In these transactions, he instructed dealers that check be made in the form of pay to cash . He did not issue them receipts. The checks were either encashed or deposited to accusedappellants personal account No. 0301-261982-001 at Security Bank

160

Page 160 of 1485

& Trust Co. (SBTC) Tuguegarao Branch or deposited to the accounts of a certain Mr. Magno Lim maintained at MetroBank and EquitablePCIBank, both located at Tuguegarao City .161[29] (Emphasis supplied.)

It is, thus, clear that accused-appellant committed Qualified Theft.

And as duly

pointed out above, even considering the absence of the handwritten extrajudicial admission of accused-appellant, there is more than sufficient evidence adduced by the prosecution to uphold his conviction. established the following: As aptly pointed out by the trial court, the prosecution has

1. 2.

That checks of various customers of UCC were written out as bearer instruments. Payments in cash were also made. These were received by the accused Mirto who deposited them in his personal account as well as in the account of Mr. Magno Lim.

3.

The monies represented by the checks and the case payments were consideration for bags of cement purchased from the UCC, the complainant-corporation.

4.

The accused Mirto was never authorized nor was it part of his duties as branch manager to deposit these proceeds in his account or in the account of Mr. Magno Lim.162[30]

Defense of Agency Unavailing

161 162

Page 161 of 1485

As his main defense, accused-appellant cites the testimonies of prosecution witnesses Restituto Renolo and Reynaldo Santos to impress upon the Court that he is an agent of UCC. And as an agent, so he claims, an implied trust is constituted by his juridical possession of UCC funds from the proceeds of cement sales:

ATTY. CARMELO Z. LASAM: Mr. Renolo, can you tell us the specific duties and responsibilities of your area sales managers?

RESTITUTO RENOLO: The duties and responsibilities of an area sales officer, we are in charge of the distribution of our products, cement and likewise its collection of its sales.163[31]

xxxx

ATTY. RAUL ORACION: Okay, now as Assistant Vice-President for Marketing and supervisor of all area sales offices and branch managers, could you tell the duties and responsibilities of the accused Bernard Mirto at that time?

REYNALDO SANTOS: x x x, also collect sales and for the cash for the collection of our sales.164[32]

To accused-appellant, he had authority to collect and accept payments from customers, and was constituted an agent of UCC. As collection agent of UCC, he asserts he can hold the collections in trust and in favor of UCC; and that he is a trustee of UCC and, therefore, has juridical possession over the collected funds. Consequently, accusedappellant maintains there was no unlawful taking, for such taking was with the knowledge and consent of UCC, thereby negating the elements of taking personal property and without the owners consent necessary in the crime of Qualified Theft.

163 164

Page 162 of 1485

This contention fails.

The duty to collect payments is imposed on accused-appellant because of his position as Branch Manager. Because of this employer-employee relationship, he cannot be considered an agent of UCC and is not covered by the Civil Code provisions on agency. Money received by an employee in behalf of his or her employer is considered to be only in the material possession of the employee.165[33]

The fact that accused-appellant had authority to accept payments from customers does not give him the license to take the payments and deposit them to his own account since juridical possession is not transferred to him. On the contrary, the testimony he cites only bolsters the fact that accused-appellant is an official of UCC and had the trust and the confidence of the latter and, therefore, could readily receive payments from customers for and in behalf of said company.

Proper Penalty

The trial court, as affirmed by the appellate court, sentenced accused-appellant to restitute UCC the aggregate amount of PhP 2,279,350, representing the amount of the checks involved here. The trial court also imposed the single penalty of reclusion perpetua. Apparently, the RTC erred in imposing said single penalty, and the CA erred in affirming it, considering that accused-appellant had been convicted on four (4) counts of qualified theft under Criminal Case Nos. 9034, 9115, 9117 and 9130. Consequently, accused-appellant should have been accordingly sentenced to imprisonment on four counts of qualified theft with the appropriate penalties for each count. Criminal Case No. 9034 is for PhP 308,200, Criminal Case No. 9115 is for PhP 688,750, Criminal Case No. 9117 is for PhP 1,213,900, and Criminal Case No. 9130 is for 68,500 for the aggregate amount of PhP 2,279,350.

Now to get the proper penalty for each count, We refer to People v. Mercado,166[34]

165

Page 163 of 1485

where We established that the appropriate penalty for Qualified Theft is reclusion perpetua based on Art. 310 of the RPC, which provides that [t]he crime of [qualified] theft shall be punished by the penalties next higher by two degrees than those respectively specified in [Art. 309] x x x. (Emphasis supplied.)

Applying the computation made in People v. Mercado to the present case to arrive at the correct penalties, We get the value of the property stolen as determined by the trial court, which are PhP 308,200, PhP 688,750, 309
167

PhP 1,213,900 and PhP 68,500. Based on Art.

[35] of the RPC, since the value of the items exceeds P22,000.00, the basic penalty is

prision mayor in its minimum and medium periods to be imposed in the maximum period, which is 8 years, 8 months and 1 day to 10 years of prision mayor.168[36]

And in order to determine the additional years of imprisonment, following People v. Mercado, We deduct PhP 22,000 from each amount and each difference should then be divided by PhP 10,000, disregarding any amount less than PhP 10,000. We now have 28 years, 66 years, 119 years and 4 years, respectively, that should be added to the basic penalty. But the imposable penalty for simple theft should not exceed a total of 20 years. Therefore, had accused-appellant committed simple theft, the penalty for each of Criminal Case Nos. 9034, 9115 and 9117 would be 20 years of reclusion temporal; while Criminal Case No. 9130 would be from 8 years, 8 months and 1 day of prision mayor, as minimum, to 14 years of reclusion temporal, as maximum, before the application of the Indeterminate Sentence Law. However, as the penalty for Qualified Theft is two degrees higher, the correct imposable penalty is reclusion perpetua for each count.

In fine, considering that accused-appellant is convicted of four (4) counts of Qualified Theft with corresponding four penalties of reclusion perpetua, Art. 70 of the RPC on successive service of sentences shall apply. Art. 70 pertinently provides that the maximum duration of the convicts sentence shall not be more than threefold the length of time corresponding to the most severe of the penalties imposed upon him. No other penalty

166 167 168

Page 164 of 1485

to which he may be liable shall be inflicted after the sum total of those imposed equals the said maximum period. Such maximum period shall in no case exceed forty years . Applying said rule, despite the four penalties of reclusion perpetua for four counts of Qualified Theft, accused-appellant shall suffer imprisonment for a period not exceeding 40 years.

WHEREFORE, the appeal is hereby DENIED. The appealed CA Decision dated August 24, 2009 in CA-G.R. CR-H.C. No. 03444 is AFFIRMED with MODIFICATION in that accused-appellant Bernard G. Mirto is convicted of four (4) counts of Qualified Theft and accordingly sentenced to serve four (4) penalties of reclusion perpetua. for a period not exceeding 40 years. But with the application of Art. 70 of the RPC, accused-appellant shall suffer the penalty of imprisonment

Costs against accused-appellant.

SO ORDERED. FIRST DIVISION

ANITA L. MIRANDA, Petitioner,

G.R. No. 176298

Present:

- versus -

CORONA, C.J., Chairperson, LEONARDO-DE CASTRO, BERSAMIN, DEL CASTILLO, and

Page 165 of 1485

VILLARAMA, JR., JJ.

THE PEOPLE OF THE PHILIPPINES, Respondent.

Promulgated:

January 25, 2012 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION

VILLARAMA, JR., J.:

Petitioner Anita L. Miranda appeals the January 11, 2007 Decision 1 of the Court of Appeals (CA) affirming the judgment2 of the Regional Trial Court (RTC) of Manila, Branch 20, convicting her of qualified theft. Petitioner was charged with qualified theft in an Information dated November 28, 2002. The Information reads: That in or about and during the period comprised between April 28, 1998 and May 2, 2002, inclusive, in the City of Manila, Philippines, the said accused, did then and there wilfully, unlawfully and feloniously, with intent of gain and without the knowledge and consent of the owner thereof, take, steal and carry away the total amount of P797,187.85 belonging to VIDEO CITY COMMERCIAL, INC. and VIVA VIDEOCITY, INC. represented by MIGUEL Q. SAMILLANO, in the following manner, to wit: by making herself the payee in forty-two pre-signed BPI Family Bank checks in the account of Video City Commercial and Jefferson Tan (the latter as franchise[e]) and encashing said checks in the total amount of P797,187.85, for her personal benefit, to the damage and prejudice of said owner in the aforesaid amount of P797,187.85, Philippine Currency. That the said accused acted with grave abuse of confidence, she being then employed as bookkeeper in the aforesaid firm and as such was privy to the

Page 166 of 1485

financial records and checks belonging to complainant and was actually entrusted with the said financial records, documents and checks and their transactions thereof in behalf of complainant. 3 Upon arraignment, petitioner pleaded not guilty. Trial thereafter ensued. Summarily, the prosecution proved the following facts: Video City Commercial, Inc. (VCCI) and Viva Video City, Inc. (Viva) were sister companies which managed a chain of stores known as Video City. These stores, some company-owned while others were operated in joint ventures with franchisees, were engaged in the sale and rental of video-related merchandises. During the period of April 28, 1998 to May 2, 2002, petitioner was the accounting clerk and bookkeeper of VCCI and Viva. One of her duties was to disburse checks for the accounts she handled. She was assigned to handle twelve (12) Video City store franchise accounts, including those of Tommy Uy, Wilma Cheng, Jefferson Tan and Sharon Cuneta. As regards the franchisee Jefferson Tan, who was out of the country most of the time, Tan pre-signed checks to cover the stores disbursements and entrusted them to petitioner. The pre-signed checks by Jefferson Tan were from a current account maintained jointly by VCCI and Jefferson Tan at BPI Family Bank, Sta. Mesa. There was also an existing agreement with the bank that any disbursement not exceeding P20,000.00 would require only Tans signature.4 Taking advantage of Tans constant absence from the country, petitioner was able to use Tans joint-venture bank account with VCCI as a clearing house for her unauthorized transfer of funds. Petitioner deposited VCCI checks coming from other franchisees accounts into the said bank account, and withdrew the funds by writing checks to her name using the checks pre-signed by Tan. It was only after petitioner went on maternity leave and her subsequent resignation from the company in May 2002 that an audit was conducted since she refused to turn over all the financial records in her possession. The audit was made on all the accounts handled by petitioner and it was discovered that she made unauthorized withdrawals and fund transfers amounting to P4,877,759.60.5 The prosecution, in proving that petitioner had unlawfully withdrawn P797,187.85 for her own benefit, presented as its witness Jose Laureola, the assistant manager/acting cashier of BPI Family Bank, Sta. Mesa Branch. Laureola presented a microfilm of the checks, the encashed checks and deposit slips. He also presented the bank statement of VCCI which showed the encashment of forty-two (42) checks from the account of VCCI and Jefferson Tan amounting to P797,187.85.6

Page 167 of 1485

In the face of the prosecutions evidence, petitioner chose not to present any evidence during trial. On October 7, 2005, the RTC found petitioner guilty beyond reasonable doubt of qualified theft. The RTC sentenced her to suffer the indeterminate penalty of eight (8) years and one (1) day of prision mayor, as minimum, to eighteen (18) years, two (2) months and twentyone (21) days of reclusion temporal, as maximum, and to pay VCCI P797,187.85 plus costs.7 The RTC found that the prosecution was able to establish that the checks deposited to the joint account of VCCI and Jefferson Tan at BPI Family Bank were unlawfully withdrawn by the petitioner without VCCIs consent. Petitioner took advantage of her position with VCCI and her access to the checks and its bank accounts. On appeal, the CA affirmed the decision of the RTC. The CA held that contrary to petitioners claim that the prosecution failed to show who was the absolute owner of the thing stolen, there was no doubt that the personal property taken by petitioner does not belong to her but to Jefferson Tan and his joint venture partner VCCI. Thus, petitioner was able to gain from taking other peoples property without their consent. More, she was able to perpetrate the crime due to her position in VCCI which gave her access to the joint venture account of VCCI and Jefferson Tan, both of whom reposed trust and confidence in her. She exploited said trust and confidence to their damage in the amount of P797,187.85. Undaunted, petitioner filed the instant petition for review on certiorari before this Court, raising the following issues: 1. WHETHER OR NOT THE ACCUSED IS GUILTY BEYOND REASONABLE DOUBT OF THE CRIME OF QUALIFIED THEFT. 1-a. WHETHER THE PHRASE X X X SHALL TAKE THE PERSONAL PROPERTY OF ANOTHER WITHOUT THE LATTER'S CONSENT X X X IN ARTICLE 308 OF THE REVISED PENAL CODE IN RELATION TO ARTICLE 310 OF THE SAME CODE WOULD REQUIRE AS AN ELEMENT OF QUALIFIED THEFT AN ESTABLISHED PROOF OF OWNERSHIP OF THE PROPERTY ALLEGEDLY STOLEN? 1-b. WHETHER IT IS IMPERATIVE THAT THE DUE EXECUTION AND AUTHENTICITY OF THE ALLEGED SIGNATURES OF THE ACCUSED IN THE CHECKS BE FULLY ESTABLISHED AND IDENTIFIED AND IF NOT SO ESTABLISHED AND IDENTIFIED, THE SAME WOULD BE A FATAL FLAW IN THE EVIDENCE OF THE PROSECUTION WHICH INEVITABLY WOULD LEAD TO ACCUSEDS ACQUITTAL?

Page 168 of 1485

1-c. WHETHER THE FAILURE TO ESTABLISH AND AUTHENTICATE OR IDENTIFY THE SIGNATURES OF THE ACCUSED ANNIE MIRANDA AND JEFFERSON TAN CONSTITUTED A FATAL FLAW IN PROVING THAT THE ACCUSED AND JEFFERSON TAN WERE THE AUTHORS OF SAID SIGNATURES? 1-d. [WHETHER THE] CONCLUSION OF FACTS BY THE REGIONAL TRIAL COURT AND COURT OF APPEALS ARE NOT SUPPORTED BY EVIDENCE. 1-e. WHETHER THE CHECKS AND VOUCHERS PRESENTED AS EVIDENCE NOT IN THEIR ORIGINALS SHOULD HAVE BEEN DENIED ADMISSION BY THE COURT A QUO, THERE BEING NO SUFFICIENT FACTS ADDUCED TO JUSTIFY THE PRESENTATION OF XEROX COPIES OR SECONDARY EVIDENCE.8 Essentially, the issue for our resolution is whether the CA correctly affirmed petitioners conviction for qualified theft. Petitioner insists that she should not have been convicted of qualified theft as the prosecution failed to prove the private complainants absolute ownership of the thing stolen. Further, she maintains that Jefferson Tans signatures on the checks were not identified by any witness who is familiar with his signature. She likewise stresses that the checks and vouchers presented by the prosecution were not original copies and that no secondary evidence was presented in lieu of the former. The appeal lacks merit. A careful review of the records of this case and the parties submissions leads the Court to conclude that there exists no cogent reason to disturb the decision of the CA. We note that the arguments raised by petitioner in her petition are a mere rehash of her arguments raised before, and correctly resolved by, the CA. The elements of the crime of theft as provided for in Article 308 9 of the Revised Penal Code are as follows: (1) that there be taking of personal property; (2) that said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished without the use of violence against or intimidation of persons or force upon things. 10 Theft becomes qualified when any of the following circumstances under Article 310 11 is present: (1) the theft is committed by a domestic servant; (2) the theft is committed with grave abuse of confidence; (3) the property stolen is either a motor vehicle, mail matter or large cattle; (4) the property stolen consists of coconuts taken from the premises of a plantation; (5) the property stolen is fish taken from a fishpond or fishery; and (6) the property was taken on

Page 169 of 1485

the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance.12 Here, the prosecution was able to prove beyond reasonable doubt that the amount of P797,187.85 taken does not belong to petitioner but to VCCI and that petitioner took it without VCCIs consent and with grave abuse of confidence by taking advantage of her position as accountant and bookkeeper. The prosecutions evidence proved that petitioner was entrusted with checks payable to VCCI or Viva by virtue of her position as accountant and bookkeeper. She deposited the said checks to the joint account maintained by VCCI and Jefferson Tan, then withdrew a total of P797,187.85 from said joint account using the presigned checks, with her as the payee. In other words, the bank account was merely the instrument through which petitioner stole from her employer VCCI. We find no cogent reason to disturb the above findings of the trial court which were affirmed by the CA and fully supported by the evidence on record. Time and again, the Court has held that the facts found by the trial court, as affirmed in toto by the CA, are as a general rule, conclusive upon this Court 13 in the absence of any showing of grave abuse of discretion. In this case, none of the exceptions to the general rule on conclusiveness of said findings of facts are applicable.14 The Court gives weight and respect to the trial courts findings in criminal prosecution because the latter is in a better position to decide the question, having heard the witnesses in person and observed their deportment and manner of testifying during the trial. 15 Absent any showing that the lower courts overlooked substantial facts and circumstances, which if considered, would change the result of the case, this Court gives deference to the trial courts appreciation of the facts and of the credibility of witnesses. Moreover, we agree with the CA when it gave short shrift to petitioners argument that full ownership of the thing stolen needed to be established first before she could be convicted of qualified theft. As correctly held by the CA, the subject of the crime of theft is any personal property belonging to another. Hence, as long as the property taken does not belong to the accused who has a valid claim thereover, it is immaterial whether said offender stole it from the owner, a mere possessor, or even a thief of the property. 16 In any event, as stated above, the factual findings of the courts a quo as to the ownership of the amount petitioner stole is conclusive upon this Court, the finding being adequately supported by the evidence on record.

Page 170 of 1485

However, notwithstanding the correctness of the finding of petitioners guilt, a modification is called for as regards the imposable penalty. On the imposition of the correct penalty, People v. Mercado17 is instructive. Pursuant to said case, in the determination of the penalty for qualified theft, note is taken of the value of the property stolen, which is P797,187.85 in this case. Since the value exceeds P22,000.00, the basic penalty is prision mayor in its minimum and medium periods to be imposed in the maximum period, that is, eight (8) years, eight (8) months and one (1) day to ten (10) years of prision mayor. To determine the additional years of imprisonment to be added to the basic penalty, the amount of P22,000.00 is deducted from P797,187.85, which yields a remainder of P775,187.85. This amount is then divided by P10,000.00, disregarding any amount less than P10,000.00. The end result is that 77 years should be added to the basic penalty. However, the total imposable penalty for simple theft should not exceed 20 years. Thus, had petitioner committed simple theft, the penalty would be 20 years of reclusion temporal. As the penalty for qualified theft is two degrees higher, the trial court, as well as the appellate court, should have imposed the penalty of reclusion perpetua. WHEREFORE, the January 11, 2007 Decision of the Court of Appeals in CA-G.R. CR No. 29858 affirming the conviction of petitioner Anita L. Miranda for the crime of qualified theft is AFFIRMED with the MODIFICATION that the penalty is increased to reclusion perpetua. With costs against the petitioner. SO ORDERED. EN BANC

FRANCISCO C. TAGUINOD, Complainant,

A.M. No. P-09-2660

Present: CORONA, C.J.,

Page 171 of 1485

CARPIO, VELASCO, JR., LEONARDO-DE CASTRO, BRION, PERALTA, - versus - BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ, MENDOZA, SERENO, REYES, and PERLAS-BERNABE, JJ.

Deputy Sheriff ROLANDO TOMAS, Regional Trial Court, Branch 21, Santiago City, Respondent. November 29, 2011 Promulgated:

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECISION

PER CURIAM:

Page 172 of 1485

This administrative matter is an offshoot of our ruling in Taguinod v. Madrid,1 which, aside from holding the judge in the Regional Trial Court of Santiago City, Branch 21 (Branch 21), administratively liable for violating Section 2 of Presidential Decree No. 1079 2 (PD 1079) on the publication of judicial notices, also ordered the investigation of that courts deputy sheriff, respondent Rolando Tomas (respondent), for possible violation of Section 5 of PD 1079.

Complainant Francisco Taguinod (Taguinod), publisher and editor of City Star, a newspaper locally published in Santiago City, and another individual 3 initiated in Taguinod v. Madrid an administrative complaint against Branch 21s presiding judge, Fe Albano Madrid (Madrid), for irregularities in the allocation of judicial notices for publication by local publishers. In the course of the investigation by the Office of the Court Administrator (OCA), Taguinod presented documentary evidence showing receipt by respondent of sums of money from March to November 1996 in exchange for City Stars publication of judicial notices. At that time, City Star was not yet accredited by Branch 21. As respondent was not impleaded as party in Taguinod v. Madrid, the OCA recommended respondents separate investigation. We approved the recommendation, thus:

The Court finds merit in the OCAs recommendation to investigate Deputy Sheriff Tomas. The evidence presented by complainant Taguinod warrants such investigation for possible violation of Section 5 of PD 1079 which prohibits any court employee from directly or indirectly demand[ing] of or receiv[ing] from publishers, editor, media personnel or any other person money, commission or gifts of any kind in consideration of any publication x x x.4

In his comment to the charge, respondent readily admitted receiving payments from Taguinod in exchange for City Stars publication of judicial notices. By way of defense, respondent qualified that he never demanded any money from Taguinod:

[I]n the process of causing publication through the CITY STAR, Mr. Taguinod confided to me that he is giving discount in the form of rebates to person or persons coming in as patrons or clients. In my case, he gave it in checks. I wanted to refuse but he assured me it is SOP in their line of business. I want to stress and assert, therefore, that I never demanded any money or any rebate from Mr. Taguinod. x x x x 5

The OCA investigator6 found respondent liable for violating Section 5 of PD 1079 and Section 2,7 Canon 1 of the Code of Conduct for Court Personnel (Code of Conduct) and recommended respondents suspension from service for six months. Further, the investigator recommended the criminal investigation of respondent for possible violation of Republic Act No. 3019 (RA 3019).

Page 173 of 1485

In its evaluation of the investigators report, the OCA sustained the formers findings, taking into account respondents admission of receipt of kickbacks from Taguinod. As an alternative basis for respondents liability, the OCA cites Section 2(e), 8 Canon III of the Code of Conduct. The OCA recommends holding respondent liable for Grave Misconduct and Dishonesty for which he should be suspended from service for the period the investigator recommended, that is, six months.

We approve the OCAs recommendation finding respondent liable for grave misconduct and dishonesty. We reject, however, the OCAs recommended penalty and order respondents dismissal from service.

Section 5 of PD 1079, which provides -

No publishers, editor, media personnel or any other person shall directly or indirectly offer or give money, commission or gift of any kind to executive judges of the court of first instance or any court employee in consideration of the award of legal and judicial notices and similar announcements defined in section 1 hereof. Neither shall the latter directly or indirectly demand of or receive from the former money, commission or gifts of any kind in consideration of any publication herein referred to . (Italicization and underscoring supplied)

regulates the conduct of both the members of local media and lower court personnel on the awarding of judicial notices for publication. Just as the former are prohibited from offer[ing] or giv[ing] money, commission or gift of any kind to lower court judges and personnel for the privilege of publishing judicial notices, so are the latter barred from directly or indirectly demand[ing] of or receiv[ing] x x x money, commission or gifts of any kind for the same purpose. The scope of prohibition on the part of the court personnel is broad, covering both demand or receipt of pay-offs.

Here, the Court is spared from having to evaluate factual allegations on the question whether respondent, as deputy sheriff of Branch 21, violated Section 5 of PD 1079 because respondent admitted receiving pay-offs from Taguinod every time the City Star, the paper published by Taguinod, is awarded a judicial notice from Branch 21 for publication. Respondents admission corroborates the documentary evidence Taguinod presented consisting of photocopies of 10 checks Taguinod issued, payable to respondent or cash, for a total amount of P24,905.60 which respondent pocketed.

Page 174 of 1485

Respondents defense that he never demanded any money or any rebate from Taguinod does not spare him from liability. Section 5 not only prohibits local court personnel from demanding pay-offs, it also bars receipt of such pay-offs. Respondent will take himself out of the ambit of Section 5 only if he did neither.

By accepting pay-offs from Taguinod, respondent also violated Section 2(e), Canon III of the Code of Conduct, mandating that Court personnel shall not

Solicit or accept any gift, loan, gratuity, discount, favor, hospitality or service under circumstances from which it could reasonably be inferred that a major purpose of the donor is to influence the court personnel in performing official duties . (Emphasis supplied) From March to November, 1996 when City Star published judicial notices from Branch 21, for which respondent accepted 10 checks from Taguinod, respondent controlled the distribution of Branch 21s judicial notices among Santiago Citys publishers because Madrid delegated this task to respondent (in violation of Section 2 of PD 1079 requiring distribution of notices by raffle).9 It was in Taguinods interest, therefore, to give discounts to respondent to influence respondent to keep assigning judicial notices to City Star. The 10 checks Taguinod issued and respondent received speak volumes of this convenient, albeit unethical, arrangement. Section 2 (e), Canon III of the Code of Conduct was crafted precisely to punish court personnel who engage in such practices. Respondents violation of Section 5 of PD 1079 and Section 2(e), Canon III of the Code of Conduct constitutes grave misconduct or corrupt conduct in flagrant disregard of well-known legal rules.10 Respondent, who entered the judiciary in 1996, ought to know these provisions; his multiple transactions with Taguinod show flagrant disregard of their proscriptions.

The administrative offense of dishonesty connotes x x x untrustworthiness; lack of integrity; lack of honesty, probity or integrity in principle x x x. 11 We quote with approval the OCA investigators explanation to hold respondent liable for this offense

The acts committed by Sheriff Tomas were clearly acts of dishonesty. If he had been a little scrupulous, he should have given the discounts or rebates to the persons who paid the fees, the mortgagees and the other parties who had to have notices or processes published in accordance with the Rules. By keeping them for himself and thereby profiting from them, he had committed a clear case of dishonesty. 12

Page 175 of 1485

Indeed, respondent has no business receiving any amount, for whatever purpose, from Santiago Citys newspaper publishers for the publication of judicial notices from Branch 21. Basic notions of propriety should have alerted respondent of the inherently unethical nature of such transaction. Instead of refusing the pay-offs, he readily accepted them, tainting not only his public service record but also the image of the institution he serves.

PD 1079 is a special law providing penal sanctions for its violation. 13 On the other hand, Section 3(b) of RA 3019 punishes as corrupt the practice of public officers of -

Directly or indirectly requesting or receiving any gift, present, share, percentage, or benefit, for himself or for any other person, in connection with any contract or transaction between the Government and any other party, wherein the public officer in his official capacity has to intervene under the law. (Emphasis supplied)

The documentary evidence on record coupled with respondents admission warrant referral of this matter to the Santiago City Prosecutors office for the preliminary investigation of respondent for violation of these penal provisions. Under Section 52 of the Uniform Rules on Administrative Cases in the Civil Service (Uniform Rules),14 dishonesty and grave misconduct are classified as grave offenses meriting the penalty of dismissal from service.15 The OCA investigator, while adverting to this penalty, recommends the imposition on respondent of the lower penalty of suspension from service for six months. In the investigators view, respondents unhesitant[ing] and candid[] admi[ssion] of having received pay-offs from Taguinod is akin to a plea of guilty [in criminal proceedings] that could attenuate the penalty imposed. 16 The OCA agrees.17

The Court finds the recommendation unwarranted. In several cases, we imposed the penalty of dismissal from service against sheriffs found liable for grave misconduct and dishonesty, regardless of any admission18 or non-admission19 of incriminating facts. In a recent ruling finding a sheriff liable for dishonesty, the OCA itself rejected the investigating judges recommendation to merely suspend the respondent for six months, recommending instead the sheriffs dismissal.20 We sustained the OCAs recommendation and imposed the higher penalty.

Indeed, the rule in criminal proceedings treating confessions as mitigating circumstance 21 finds no rigorous application in administrative proceedings where the respondent, unlike the accused, stands to lose neither liberty nor property but a public trust to render service, a privilege burdened with numerous prohibitions such as those respondent violated. To treat

Page 176 of 1485

factual admissions of court personnel in disciplinary proceedings as standard basis to relax penalties not only renders nugatory the penalty structure carefully calibrated in the Uniform Rules but also provides incentive for erring employees to make strategic admissions calculated to spare them from receiving stiff penalties. The interest of maintaining a disciplined, ethical, and efficient corps of judicial employees militates against adopting such policy. Hence, we apply Section 52 of the Uniform Rules in its full rigor commensurate to respondents transgressions. By committing grave misconduct and dishonesty, respondent lamentably failed to live up to his position as an officer of the court, and x x x agent[] of the law.22 Let this ruling serve as a reminder to all court personnel to strictly adhere to the ethical rules binding judicial employees and render public service in the faithful discharge of their duties.

WHEREFORE, we FIND respondent Rolando Tomas, Deputy Sheriff, Regional Trial Court of Santiago City, Branch 21, GUILTY of Grave Misconduct and Dishonesty and DISMISS him from service with forfeiture of all retirement benefits, except his accrued leave credits, with prejudice to reemployment in any branch or instrumentality of the government, including government-owned or controlled corporations.

The Legal Office of the Office of the Court Administrator is DIRECTED to file with the City Prosecutor, Santiago City, the appropriate criminal complaints against respondent Rolando Tomas in connection with the criminal aspect of this case under Section 5 of Presidential Decree No. 1079 and Section 3(b) of Republic Act No. 3019. SO ORDERED. Republic of the Philippines Supreme Court Manila

THIRD DIVISION

WESTMONT INVESTMENT CORPORATION, Petitioner,

G.R. No. 194128

Present:

Page 177 of 1485

PERALTA, J., Acting Chairperson, ABAD, - versus MENDOZA, SERENO, and PERLAS-BERNABE, JJ.

AMOS P. FRANCIA, JR., CECILIA ZAMORA, BENJAMIN FRANCIA, and PEARLBANK SECURITIES, INC., Respondents. December 7, 2011 Promulgated:

x --------------------------------------------------------------------------------------- x

DECISION

MENDOZA, J.:

* * *

Page 178 of 1485

At bench is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the (1) July 27, 2010 Decision 169[1] of the Court of Appeals (CA) in CA-G.R. CV No. 84725, which affirmed with modification the September 27, 2004 Decision 170[2] of the Regional Trial Court, Branch 56, Makati City (RTC) in Civil Case No. 01-507; and (2) its October 14, 2010 Resolution,171[3] which denied the motion for the reconsideration thereof.

THE FACTS:

On March 27, 2001, respondents Amos P. Francia, Jr., Cecilia Zamora and Benjamin Francia (the Francias) filed a Complaint for Collection of Sum of Money and Damages 172[4] arising from their investments against petitioner Westmont Investment Corporation (Wincorp) and respondent Pearlbank Securities Inc. (Pearlbank) before the RTC.

Wincorp and Pearlbank filed their separate motions to dismiss. 173[5] Both motions were anchored on the ground that the complaint of the Francias failed to state a cause of action. On July 16, 2001, after several exchanges of pleadings, the RTC issued an order 174[6] dismissing the motions to dismiss of Wincorp and Pearlbank for lack of merit.

169 170 171 172 173 174

Page 179 of 1485

Wincorp then filed its Answer,175[7] while Pearlbank filed its Answer with Counterclaim and Crossclaim (against Wincorp).176[8]

The case was set for pre-trial but before pre-trial conference could be held, Wincorp filed its Motion to Dismiss Crossclaim 177[9] of Pearlbank to which the latter filed an opposition.178[10] The RTC denied Wincorps motion to dismiss crossclaim. 179[11]

The pre-trial conference was later conducted after the parties had filed their respective pre-trial briefs. The parties agreed on the following stipulation of facts, as contained in the Pre-Trial Order180[12] issued by the RTC on April 17, 2002:

1. The personal and juridical circumstances of the parties meaning, the plaintiffs and both corporate defendants;

2. That plaintiffs caused the service of a demand letter on Pearl Bank on February 13, 2001 marked as Exhibit E;

3. Plaintiffs do not have personal knowledge as to whether or not Pearl Bank indeed borrowed the funds allegedly invested by the plaintiff from Wincorp; and

175 176 177 178 179 180

Page 180 of 1485

4. That the alleged confirmation advices which indicate Pearl Bank as alleged borrower of the funds allegedly invested by the plaintiffs in Wincorp do not bear the signature or acknowledgment of Pearl Bank. (Emphases supplied)

After several postponements requested by Wincorp, trial on the merits finally ensued. The gist of the testimony of Amos Francia, Jr. (Amos) is as follows:

1.

Sometime in 1999, he was enticed by Ms. Lalaine Alcaraz, the

bank manager of Westmont Bank, Meycauayan, Bulacan Branch, to make an investment with Wincorp, the banks financial investment arm, as it was offering interest rates that were 3% to 5% higher than regular bank interest rates. Due to the promise of a good return of investment, he was convinced to invest. He even invited his sister, Cecilia Zamora and his brother, Benjamin Francia, to join him. Eventually, they placed their investment in the amounts of 1,420,352.72 and 2,522,745.34 with Wincorp in consideration of a net interest rate of 11% over a 43-day spread. Thereafter, Wincorp, through Westmont Bank, issued Official Receipt Nos. 470844 181[13] and 470845,182[14] both dated January 27, 2000, evidencing the said transactions. 183[15]

2.

When the 43-day placement matured, the Francias wanted to

retire their investments but they were told that Wincorp had no funds. Instead, Wincorp rolled-over their placements and issued Confirmation Advices184[16] extending their placements for another 34 days. The said confirmation advices indicated the name of the borrower as Pearlbank. The maturity values were 1,435,108.61 and 2,548,953.86 with a due date of April 13, 2000.

181 182 183 184

Page 181 of 1485

3. On April 13, 2000, they again tried to get back the principal

amount they invested plus interest but, again, they were frustrated. 185[17]

4. futile.

Constrained,

they

demanded

from

Pearlbank 186[18]

their

investments. There were several attempts to settle the case, but all proved

After the testimony of Amos Francia, Jr., the Francias filed their Formal Offer of Evidence.187[19] Pearlbank filed its Comment/Objection, 188[20] while Wincorp did not file any comment or objection. After all the exhibits of the Francias were admitted for the purposes they were offered, the Francias rested their case.

Thereafter, the case was set for the presentation of the defense evidence of Wincorp. On March 7, 2003, three (3) days before the scheduled hearing, Wincorp filed a written motion to postpone the hearing on even date, as its witness, Antonio T. Ong, was unavailable because he had to attend a congressional hearing. Wincorps substitute witness, Atty. Nemesio Briones, was likewise unavailable due to a previous commitment in the Securities and Exchange Commission.

The RTC denied Wincorps Motion to Postpone and considered it to have waived its right to present evidence.189[21] The Motion for Reconsideration of Wincorp was likewise denied.190[22]

185 186 187 188 189

Page 182 of 1485

On August 14, 2003, Pearlbank filed its Demurrer to Evidence. 191[23] granted the same in its Order Wincorp was concerned.
192

The RTC

[24] dated January 12, 2004. Hence, the complaint against

Pearlbank was dismissed, while the case was considered submitted for decision insofar as

On September 27, 2004, the RTC rendered a decision 193[25] in favor of the Francias and held Wincorp solely liable to them. The dispositive portion thereof reads:

WHEREFORE, judgment is rendered ordering defendant Westmont Investment Corporation to pay the plaintiffs, the following amounts:

1.

3,984,062.47 representing the aggregate amount of investment placements made by plaintiffs, plus 11% per annum by way of stipulated interest, to be counted from 10 March 2000 until fully paid; and

2.

10% of the above-mentioned amount as and for attorneys fees and costs of suit.

SO ORDERED. Wincorp then filed a motion for reconsideration, but it was denied by the RTC in its Order
194

[26] dated November 10, 2004.

190 191 192 193 194

Page 183 of 1485

Not in conformity with the pronouncement of the RTC, Wincorp interposed an appeal with the CA, alleging the following arguments:

I. THE REGIONAL TRIAL COURT ERRED WHEN IT HELD THAT WINCORP AS AGENT OF PLAINTIFFS-APPELLEES WAS LIABLE TO THE LATTER NOTWITHSTANDING THE CLEAR WRITTEN AGREEMENT TO THE CONTRARY;

II. THE REGIONAL TRIAL COURT ALSO ERRED WHEN IT HELD THAT PEARLBANK, THE ACTUAL BORROWER AND RECIPIENT OF THE MONEY INVOLVED IS NOT LIABLE TO THE PLAINTIFFS-APPELLEES; and

III. THE REGIONAL TRIAL COURT ERRED IN DISMISSING ALL TOGETHER THE CROSS-CLAIM OF WINCORP AGAINST PEARLBANK.195[27]

The CA affirmed with modification the ruling of the RTC in its July 27, 2010 Decision, the decretal portion of which reads:

WHEREFORE, premises considered, the present Appeal is DENIED. The Decision dated 27 September 2004 of the Regional Trial Court, Branch 56, Makati City in Civil Case No. 01-507 is hereby AFFIRMED WITH MODIFICATION of the awards. Defendant-appellant Wincorp is hereby ordered to pay plaintiffs-appellees the amounts of 3,984,062.47 plus 11% per annum by way of stipulated interest to be computed from 13 April 2000 until fully paid and 100,000.00 as attorneys fees and cost of suit.

SO ORDERED.

The CA explained:

195

Page 184 of 1485

After a careful and judicious scrutiny of the records of the present case, together with the applicable laws and jurisprudence, this Court finds defendant-appellant Wincorp solely liable to pay the amount of 3,984,062.47 plus 11% interest per annum computed from 10 March 2000 to plaintiffsappellees.

Preliminarily, the Court will rule on the procedural issues raised to know what pieces of evidence will be considered in this appeal.

Section 34, Rule 132 of the Rules on Evidence states that:

The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified.

A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the purpose or purposes for which the proponent is presenting the evidence. On the other hand, this allows opposing parties to examine the evidence and object to its admissibility. Moreover, it facilitates review as the appellate court will not be required to review documents not previously scrutinized by the trial court. Evidence not formally offered during the trial can not be used for or against a party litigant. Neither may it be taken into account on appeal.

The rule on formal offer of evidence is not a trivial matter. Failure to make a formal offer within a considerable period of time shall be deemed a waiver to submit it. Consequently, any evidence that has not been offered shall be excluded and rejected.

Prescinding therefrom, the very glaring conclusion is that all the documents attached in the motion for reconsideration of the decision of the trial court and all the documents attached in the defendant-appellants brief filed by defendant-appellant Wincorp cannot be given any probative weight or credit for the sole reason that the said documents were not

Page 185 of 1485

formally offered as evidence in the trial court because to consider them at this stage will deny the other parties the right to rebut them.

The arguments of defendant-appellant Wincorp that the plaintiffsappellees made an erroneous offer of evidence as the documents were offered to prove what is contrary to its content and that they made a violation of the parol evidence rule do not hold water.

It is basic in the rule of evidence that objection to evidence must be made after the evidence is formally offered. In case of documentary evidence, offer is made after all the witnesses of the party making the offer have testified, specifying the purpose for which the evidence is being offered. It is only at this time, and not at any other, that objection to the documentary evidence may be made.

As to oral evidence, objection thereto must likewise be raised at the earliest possible time, that is, after the objectionable question is asked or after the answer is given if the objectionable issue becomes apparent only after the answer was given. xxx

In the case at bench, a perusal of the records shows that the plaintiffsappellees have sufficiently established their cause of action by preponderance of evidence. The fact that on 27 January 2000, plaintiffs-appellees placed their investment in the amounts of 1,420,352.72 and 2,522,754.34 with defendant-appellant Wincorp to earn a net interest at the rate of 11% over a 43-day period was distinctly proved by the testimony of plaintiff-appellee Amos Francia, Jr. and supported by Official Receipt Nos. 470844 and 470845 issued by defendant-appellant Wincorp through Westmont Bank. The facts that plaintiffs-appellees failed to get back their investment after 43 days and that their investment was rolled over for another 34 days were also established by their oral evidence and confirmed by the Confirmation Advices issued by defendant-appellant Wincorp, which indicate that their investment already amounted to 1,435,108.61 and 2,548,953.86 upon its maturity on 13 April 2000. Likewise, the fact that plaintiffs-appellees investment was not returned to them until this date by defendant-appellant Wincorp was proved by their evidence. To top it all, defendant-appellant Wincorp never negated these established facts because defendant-appellant Wincorps claim is that it received the money of plaintiffs-appellees but it merely acted as an agent of

Page 186 of 1485

plaintiffs-appellees and that the actual borrower of plaintiffs-appellees money is defendant-appellee PearlBank. Hence, defendant-appellant Wincorp alleges that it should be the latter who must be held liable to the plaintiffs-appellees.

However, the contract of agency and the fact that defendant-appellee PearlBank actually received their money were never proven. The records are bereft of any showing that defendant-appellee PearlBank is the actual borrower of the money invested by plaintiffs-appellees as defendant-appellant Wincorp never presented any evidence to prove the same.

Moreover, the trial court did not err in dismissing defendant-appellant Wincorps crossclaim as nothing in the records supports its claim. And such was solely due to defendant-appellant Wincorp because it failed to present any scintilla of evidence that would implicate defendant-appellee PearlBank to the transactions involved in this case. The fact that the name of defendantappellee PearlBank was printed in the Confirmation Advices as the actual borrower does not automatically makes defendant-appellee PearlBank liable to the plaintiffs-appellees as nothing therein shows that defendant-appellee PearlBank adhered or acknowledged that it is the actual borrower of the amount specified therein.

Clearly, the plaintiffs-appellees were able to establish their cause of action against defendant-appellant Wincorp, while the latter failed to establish its cause of action against defendant-appellee PearlBank.

Hence, in view of all the foregoing, the Court finds defendant-appellant Wincorp solely liable to pay the amount of 3,984,062.47 representing the matured value of the plaintiffs-appellees investment as of 13 April 2000 plus 11% interest per annum by way of stipulated interest counted from maturity date (13 April 2000).

As to the award of attorneys fees, this Court finds that the undeniable source of the present controversy is the failure of defendant-appellant Wincorp to return the principal amount and the interest of the investment money of plaintiffs-appellees, thus, the latter was forced to engage the services of their counsel to protect their right. It is elementary that when

Page 187 of 1485

attorneys fees is awarded, they are so adjudicated, because it is in the nature of actual damages suffered by the party to whom it is awarded, as he was constrained to engage the services of a counsel to represent him for the protection of his interest. Thus, although the award of attorneys fees to plaintiffs-appellees was warranted by the circumstances obtained in this case, this Court finds it equitable to reduce the same from 10% of the total award to a fixed amount of 100,000.00.196[28]

Wincorps Motion for Reconsideration was likewise denied by the CA in its October 14, 2010 Resolution.197[29]

Not in conformity, Wincorp seeks relief with this Court via this petition for review alleging that

PLAINTIFFS-RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST WINCORP AS THE EVIDENCE ON RECORD SHOWS THAT THE ACTUAL BENEFICIARY OF THE PROCEEDS OF THE LOAN TRANSACTIONS WAS PEARLBANK

SUBSTANTIAL JUSTICE DICTATES THAT THE EVIDENCE PROFERRED BY WINCORP SHOULD BE CONSIDERED TO DETERMINE WHO, AMONG THE PARTIES, ARE LIABLE TO PLAINTIFFS-RESPONDENTS198[30]

196 197 198

Page 188 of 1485

ISSUE

The core issue in this case is whether or not the CA is correct in finding Wincorp solely liable to pay the Francias the amount of 3,984,062.47 plus interest of 11% per annum.

Quite clearly, the case at bench presents a factual issue.

As a rule, a petition for review under Rule 45 of the Rules of Court covers only questions of law. Questions of fact are not reviewable and cannot be passed upon by this Court in the exercise of its power to review. The distinction between questions of law and questions of fact is established. A question of law exists when the doubt or difference centers on what the law is on a certain state of facts. A question of fact, on the other hand, exists if the doubt centers on the truth or falsity of the alleged facts. 199[31] This being so, the findings of fact of the CA are final and conclusive and this Court will not review them on appeal.

While it goes without saying that only questions of law can be raised in a petition for review on certiorari under Rule 45, the same admits of exceptions, namely: (1) when the findings are grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on misappreciation of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the same are contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; and (10) when the

199

Page 189 of 1485

findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.200[32]

The Court finds that no cogent reason exists in this case to deviate from the general rule.

Wincorp insists that the CA should have based its decision on the express terms, stipulations, and agreements provided for in the documents offered by the Francias as the legal relationship of the parties was clearly spelled out in the very documents introduced by them which indicated that it merely brokered the loan transaction between the Francias and Pearlbank.201[33]

Wincorp would want the Court to rule that there was a contract of agency between it and the Francias with the latter authorizing the former as their agent to lend money to Pearlbank. According to Wincorp, the two Confirmation Advices presented as evidence by the Francias and admitted by the court, were competent proof that the recipient of the loan proceeds was Pearlbank.202[34]

The Court is not persuaded.

In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with the latters consent. 203[35] It is said that the underlying principle of the contract of agency is to accomplish results by using the services of others to do a great variety of things. Its aim is to extend the personality of

200 201 202 203

Page 190 of 1485

the principal or the party for whom another acts and from whom he or she derives the authority to act. Its basis is representation. 204[36]

Significantly, the elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority. 205[37]

In this case, the principal-agent relationship between the Francias and Wincorp was not duly established by evidence. The records are bereft of any showing that Wincorp merely brokered the loan transactions between the Francias and Pearlbank and the latter was the actual recipient of the money invested by the former. Pearlbank did not authorize Wincorp to borrow money for it. Neither was there a ratification, expressly or impliedly, that it had authorized or consented to said transaction.

As to Pearlbank, records bear out that the Francias anchor their cause of action against it merely on the strength of the subject Confirmation Advices bearing the name PearlBank as the supposed borrower of their investments. Apparently, the Francias ran after Pearlbank only after learning that Wincorp was reportedly bankrupt. 206[38] The Francias were consistent in saying that they only dealt with Wincorp and not with Pearlbank. It bears noting that even in their Complaint and during the pre-trial conference, the Francias alleged that they did not have any personal knowledge if Pearlbank was indeed the recipient/beneficiary of their investments.

Although the subject Confirmation Advices indicate the name of Pearlbank as the purported borrower of the said investments, said documents do not bear the signature or acknowledgment of Pearlbank or any of its officers. This cannot prove the position of Wincorp that it was Pearlbank which received and benefited from the investments made

204 205 206

Page 191 of 1485

by the Francias. There was not even a promissory note validly and duly executed by Pearlbank which would in any way serve as evidence of the said borrowing.

Another significant point which would support the stand of Pearlbank that it was not the borrower of whatever funds supposedly invested by the Francias was the fact that it initiated, filed and pursued several cases against Wincorp, questioning, among others, the latters acts of naming it as borrower of funds from investors.207[39]

It bears stressing too that all the documents attached by Wincorp to its pleadings before the CA cannot be given any weight or evidentiary value for the sole reason that, as correctly observed by the CA, these documents were not formally offered as evidence in the trial court. To consider them now would deny the other parties the right to examine and rebut them. Section 34, Rule 132 of the Rules of Court provides:

Section 34. Offer of evidence The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified.

The offer of evidence is necessary because it is the duty of the court to rest its findings of fact and its judgment only and strictly upon the evidence offered by the parties. Unless and until admitted by the court in evidence for the purpose or purposes for which such document is offered, the same is merely a scrap of paper barren of probative weight.208[40]

The Court cannot, likewise, disturb the findings of the RTC and the CA as to the evidence presented by the Francias. It is elementary that objection to evidence must be made after evidence is formally offered. 209[41] It appears that Wincorp was given ample

207 208

Page 192 of 1485

opportunity to file its Comment/Objection to the formal offer of evidence of the Francias but it chose not to file any.

All told, the CA committed no reversible error in rendering the assailed July 27, 2010 Decision and in issuing the challenged October 14, 2010 Resolution.

WHEREFORE, the petition is DENIED.

SO ORDERED. Republic Supreme Manila of the Philippines Court

SECOND DIVISION

SAN MIGUEL CORPORATION, Petitioner,

G. R. No. 185522

Present:

CARPIO, J., Chairperson, BRION, - versus PEREZ, SERENO, and REYES, JJ.

209

Page 193 of 1485

Promulgated: HELEN T. KALALO, Respondent. June 13, 2012

x--------------------------------------------------x DECISION SERENO, J.:

This Rule 45 Petition assails the Decision210[1] and Resolution211[2] of the Court of Appeals (CA) in CA-G.R. CR No. 30473. The CA affirmed the Decision 212[3] and Order213[4] of the Regional Trial Court (RTC), Branch 45, Manila, in Crim. Cases Nos. 04-230278-84, which had in turn affirmed the Decision214[5] of the Metropolitan Trial Court (MeTC), Branch 11, Manila, in Crim. Case No. 372535-41. The MeTC acquitted respondent Helen T. Kalalo (Kalalo) of a violation of Batas Pambansa Bilang 22, or the Bouncing Checks Law, but ruled that she was civilly liable to petitioner San Miguel Corporation (SMC) for the amount of 71,009 representing the value of unpaid goods. 215[6]

210 211 212 213 214 215

Page 194 of 1485

As culled from the records, it appears that respondent Kalalo had been a dealer of beer products since 1998. She had a credit overdraft arrangement with petitioner SMC whereby, prior to the delivery of beer products, she would be required to issue two checks to petitioner: a blank check and a check to be filled up with an amount corresponding to the gross value of the goods delivered. At the end of the week, Kalalo and an agent of SMC would compute the actual amount due to the latter by deducting the value of the returned empty beer bottles and cases from the gross value of the goods delivered. Once they succeeded in determining the actual amount owed to SMC, that amount would be written on the blank check, and respondent would fund her account accordingly. 216[7]

In time, respondents business grew and the number of beer products delivered to her by SMC increased from 200 to 4,000 cases a week. Because of the increased volume of deliveries, it became very difficult for her to follow and keep track of the transactions. Thus, she requested regular statements of account from petitioner, but it failed to comply. 217[8]

In 2000, SMCs agent required Kalalo to issue several postdated checks to cope with the probable increase in orders during the busy Christmas season, without informing her of the breakdown of the balance. She complied with the request; but after making several cash payments and returning a number of empty beer bottles and cases, she noticed that she still owed petitioner a substantial amount. She then insisted that it provide her with a detailed statement of account, but it failed to do so. In order to protect her rights and to compel SMC to update her account, she ordered her bank to stop payment on the last seven checks she had issued to petitioner,218[9] the details of which are as follows:219[10]

Bank of the Philippine Islands (BPI) Check No. 0012825 0008250 0012801 0012802 0012826

Date

Amount

Sept. Sept. Sept. Sept. Sept.

16, 18, 25, 30, 30,

2000 2000 2000 2000 2000

62,200.00 190,000.00 190,000.00 208,162.00 62,200.00

216 217 218 219

Page 195 of 1485

0012823 0012824 TOTAL Sept. 30, 2000 Oct. 14, 2000 104,327.00 104,326.00 921,215.00

On 19 October 2000, instead of updating the account of respondent Kalalo, petitioner SMC sent her a demand letter for the value of the seven dishonored checks. 220[11]

On 5 December 2000, and in the face of constant threats made by the agents of SMC,
221

[12] respondents counsel wrote a letter (the Offer of Compromise) wherein Kalalo

acknowledge[d] the receipt of the statement of account demanding the payment of the sum of 816,689.00 and submitt[ed] a proposal by way of Compromise Agreement to settle the said obligation.222[13]

It appears, however, that SMC did not accept the proposal. On 9 March 2001, it filed a Complaint against respondent for violating the Bouncing Checks Law. 223[14]

In the meantime, Kalalo kept reiterating her demands that SMC update her account. During trial, and after the prosecution had rested its case, petitioner finally complied. After tallying all cash payments and funded checks and crediting all returned empty bottles and cases, the Statement of Account showed that the net balance of the amount owed to petitioner was 71,009.224[15] Respondent thereafter recanted her Offer of Compromise and stated that, at the time she had the letter prepared, she was being threatened by SMC agents with imprisonment, and that she did not know how much she actually owed petitioner.225[16]

220 221 222 223 224 225

Page 196 of 1485

After trial on the merits, the MeTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, these cases are hereby dismissed and the accused is hereby acquitted of all the charges against her. However, it appearing that she still owes the private complainant, the accused is hereby ordered to pay the amount of 71,009.00 to private complainant. 226[17]

As the right against double jeopardy prevented an appeal of the criminal aspect of the case, SMC appealed only the civil aspect of the MeTCs Decision to the RTC. Petitioner claimed that it was entitled to the larger amount of 921,215. 227[18] After the parties submitted their respective Memoranda, the RTC found no reversible error in the MeTCs Decision, dismissed the appeal of petitioner,228[19] and denied the latters Motion for Reconsideration.229[20]

Dissatisfied with the RTCs Decision, SMC filed with the CA a Rule 42 Petition for Review, which was eventually dismissed by the appellate court. 230[21] Petitioner moved for reconsideration, to no avail.231[22]

SMC thereafter filed this Rule 45 Petition before this Court. 232[23]

The Courts Ruling

We deny the instant Petition and uphold the assailed Decision and Resolution of the appellate court.

226 227 228 229 230 231 232

Page 197 of 1485

I The Offer of Compromise may not be considered as evidence against respondent Kalalo.

Petitioner argues that, in her Offer of Compromise, respondent unequivocally admitted her liability to private complainant-appellant duly assisted by her counsel. 233[24]

We quote in full Kalalos Offer of Compromise addressed to petitioner:

December 5, 2000 Mr. JOSELITO MANALO GENERAL MANAGER San Miguel Corporation Biglang Awa Street Caloocan City Dear Sir: My client, Ms. HELEN T. KALALO of No. 1055-A Dagupan Street, Tondo, Manila, hereby acknowledges the receipt of the Statement of Account demanding the payment of the sum of 816,689.00 representing her unpaid accounts. The reason why she was not able to pay her accounts on time is because she had great difficulty in collecting from the following wholesalers: 1) MRS. EVELYN R. MONTILLA/MINES & LYN General Merchandise 624 Chacon St., Tondo, Manila 413,444.50 amount of Pilsen, Red Horse and Grande Beers (full goods) 115,500.00 amount of empties. Mr. DANIEL TOMAS/ MRS. FORTUNE TOMAS Ladies and Rum Gen. Merchandizing (sic) 1501 N. Zamora St., Tondo, Manila 150,000.00 amount of full goods, Pilsen and Red Horse beers.

2)

She is respectfully submitting her proposal by way of Compromise Agreement to settle the said obligation: Advance payment for the empties: 11,500.00 Installment of 10,000.00 per month for the principal, then later on for the interest due.

233

Page 198 of 1485

Considering the economic crisis, she is hoping that her proposal merits your kind consideration and approval. Very respectfully yours, SGD Vicente G. Villamil Counsel for Helen T. Kalalo234[25]

Contrary to petitioners contention, the aforequoted letter does not contain an express acknowledgment of liability. At most, what respondent acknowledged was the receipt of the statement of account, not the existence of her liability to petitioner.

Furthermore, the fact that respondent made a compromise offer to petitioner SMC cannot be considered as an admission of liability. In Pentagon Steel Corporation v. Court of Appeals,235[26] we examined the reasons why compromise offers must not be considered as evidence against the offeror:

First, since the law favors the settlement of controversies out of court, a person is entitled to "buy his or her peace" without danger of being prejudiced in case his or her efforts fail; hence, any communication made toward that end will be regarded as privileged. Indeed, if every offer to buy peace could be used as evidence against a person who presents it, many settlements would be prevented and unnecessary litigation would result, since no prudent person would dare offer or entertain a compromise if his or her compromise position could be exploited as a confession of weakness. Second, offers for compromise are irrelevant because they are not intended as admissions by the parties making them. A true offer of compromise does not, in legal contemplation, involve an admission on the part of a defendant that he or she is legally liable, or on the part of a plaintiff, that his or her claim is groundless or even doubtful, since it is made with a view to avoid controversy and save the expense of litigation. It is the distinguishing mark of an offer of compromise that it is made tentatively, hypothetically, and in contemplation of mutual concessions. 236[27] (citations omitted)

234 235 236

Page 199 of 1485

Petitioner further argues that respondents Offer of Compromise may be received in evidence as an implied admission of guilt. 237[28] It quotes Rule 130, Section 27 of the Revised Rules on Evidence, which states:

Sec. 27. Offer of compromise not admissible. In civil cases, an offer of compromise is not an admission of any liability, and is not admissible in evidence against the offeror. In criminal cases, except those involving quasi-offenses (criminal negligence) or those allowed by law to be compromised, an offer of compromise by the accused may be received in evidence as an implied admission of guilt.

We do not agree. As correctly pointed out by respondent, the Offer of Compromise dated 5 December 2000 was made prior to the filing of the criminal complaint against her on 9 March 2001 for a violation of the Bouncing Checks Law. 238[29] The Offer of Compromise was clearly not made in the context of a criminal proceeding and, therefore, cannot be considered as an implied admission of guilt.

Finally, during the testimony of respondent and after her receipt of the Statement of Account from SMC, she recanted the contents of the Offer of Compromise. She explained that, at the time she had the letter prepared, the final amount owed to petitioner SMC was yet undetermined; and that she was constantly facing threats of imprisonment from petitioners agents.
239

[30] The trial courts and the CA gave weight to her justification, 240[31]

and we find no cogent reason to disturb their findings. We rule, therefore, that the Offer of Compromise may not be considered as evidence against respondent Kalalo, nor can it be the basis of her liability to petitioner in the amount of 921,215.

II SMC failed to prove that Kalalo is indebted to it in the amount of 921,215.

237 238 239 240

Page 200 of 1485

SMC claims that it is entitled to collect the amount of 921,215 representing the value of unpaid goods from respondent Kalalo. It argues that the MeTC erred in ruling that respondent was liable to it to the extent of only 71,009, because the Statement of Account does not reflect the transactions covered by the dishonored checks, as it only covers cash transactions.241[32]

We find, however, that aside from its bare assertions on appeal, SMC failed to present any evidence to prove that cash transactions were treated differently from check transactions. Respondent correctly argues that if the check transactions were covered by other statements of account, petitioner should have presented evidence of those transactions during the proceedings before the lower court.242[33]

In any event, we cannot allow SMC to recover the amount of 921,215 from respondent, as it failed to prove the existence of the purported indebtedness. The records are bereft of any evidence, other than the dishonored checks, establishing the existence of that obligation. Checks, however, are not issued merely for the payment of a preexisting obligation. They may likewise be issued as a guarantee for the performance of a future obligation. In this case, it was sufficiently established that the dishonored checks were issued merely to guarantee the performance of a future obligation; that is, the payment of the net value of the goods after the value of the empty bottles and beer cases returned to petitioner were deducted from the gross value of the goods delivered to respondent.

As to the amount of 71,009, both parties admit that the Statement of Account provided by SMC to respondent showed a liability of only 71,009. Respondent presented in evidence the Statement of Account, which petitioners witness confirmed to have come from SMCs accounting department.243[34]

We therefore rule that SMC failed to present enough evidence to prove Kalalos indebtedness to it in the amount of 921,215, but that respondents obligation to petitioner in the amount of 71,009 is unrebutted and supported by sufficient evidence.

241 242 243

Page 201 of 1485

WHEREFORE, premises considered, there being no reversible error committed by the appellate court, the instant Petition for Review is DENIED, and the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CR No. 30473 are hereby AFFIRMED.

SO ORDERED. Republic SUPREME Manila SECOND DIVISION of the Philippines COURT

G.R. No. 93397 March 3, 1997 TRADERS ROYAL BANK, petitioner, vs. COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION CENTRAL BANK of the PHILIPPINES, respondents.

and

TORRES, JR., J.: Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached Assignment 4 dated April 27, 1981. Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB). In the said petition, TRB stated that: 3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00);

Page 202 of 1485

4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal agent; 5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition; 6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981; 7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds; 8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered in the books of the respondent. And by means of said Detachment, Philfinance transferred and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner and, furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal agent." . . . 9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached Assignments (Annexes "B" and "D"), to the Securities Servicing Department of the respondent, and requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name of petitioner as absolute owner thereof; 10. Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing, the latest of which is hereto attached as Annex "E" and made an integral part hereof; 11. The express provisions governing the transfer of the CBCI were substantially complied with the petitioner's request for registration, to wit: "No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the registered owner hereof, in person or by his attorney duly authorized in writing, and similarly noted hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered holder thereof."

Page 203 of 1485

and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-quoted provision; 12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent; Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name. On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for Interpleader 6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation (Filriters), the registered owner of the subject CBCI as respondent. For its part, Filriters interjected as Special Defenses the following: 11. Respondent is the registered owner of CBCI No. 891; 12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an insurance company under the Insurance Code; 13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine and to the prejudice of policyholders and to all who have present or future claim against policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge or consent of the board of directors of Filriters, and without any clearance or authorization from the Insurance Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to Philfinance; xxx xxx xxx 14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom were holding the same positions in Philfinance), without any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders and all who have present or future claims against its policies, executed similar detached assignment forms transferring the CBCI to plaintiff; xxx xxx xxx 15. The detached assignment is patently void and inoperative because the assignment is without the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB Circular No. 769; 16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of Filriters and such null and void;

Page 204 of 1485

a) The assignment was executed without consideration and for that reason, the assignment is void from the beginning (Article 1409, Civil Code); b) The assignment was executed without any knowledge and consent of the board of directors of Filriters; c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the Insurance Code for its existence as an insurance company and the pursuit of its business operations. The assignment of the CBCI is illegal act in the sense of malum in se or malum prohibitum, for anyone to make, either as corporate or personal act; d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is immoral and against public policy; e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable result known to the officer who executed assignment. 17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment. a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to bearer but is a registered in the name of Filriters; b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as the absolute owner and that the value of the registered certificates shall be payable only to the registered owner; a sufficient notice to plaintiff that the assignments do not give them the registered owner's right as absolute owner of the CBCI's; c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered certificates are payable only to the registered owner (Article II, Section 1). 18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular transaction made in the usual of ordinary course of business; a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the Insurance Code and its assignment or transfer is expressly prohibited by law. There was no attempt to get any clearance or authorization from the Insurance Commissioner; b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its business; c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all or substantially all" of the assets of Filriters,

Page 205 of 1485

which requires the affirmative action of the stockholders (Section 40, Corporation [sic] Code. 7 In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The dispositive portion of the decision reads: ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank: (a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect; (b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation; (c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. The sum of P10,000 as attorney's fees; and (d) to pay the costs. SO ORDERED. 9 The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals likewise failed. The findings of the fact of the said court are hereby reproduced: The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its right and the title to CBCI No. D891. Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters. Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to

Page 206 of 1485

the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this Court on appeal. 11 In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having acquired the said certificate from Philfinance as a holder in due course, its possession of the same is thus free fro any defect of title of prior parties and from any defense available to prior parties among themselves, and it may thus, enforce payment of the instrument for the full amount thereof against all parties liable thereon. 12 In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable to Filriters, the registered owner, whose name was inscribed thereon, and that the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation. Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made without consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", which provided that any "assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing." Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was inexistent, having acquired the certificate through simulation. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing operations. Said the Court: In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated as the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778). In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank. WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant. SO ORDERED.
13

Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the two corporations have identical corporate officers, thus demanding the application of the doctrine or piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters. Thus, there is no merit

Page 207 of 1485

to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of consideration. Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031). The pertinent portions of the subject CBCI read: xxx xxx xxx The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS. xxx xxx xxx Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is properly understood as acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans. The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that: As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the registered owner hereof." Very clearly, the instrument is payable only to Filriters, the registered owner, whose name is inscribed thereon. It lacks the words of negotiability which should have served as an expression of consent that the instrument may be transferred by negotiation. 15 A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioner's submission that the same is a negotiable instrument, and that it is a holder in due course of the certificate. The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchtone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time. As held in Caltex (Philippines), Inc. v. Court of Appeals,
16

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstance in order to more perfectly understand the intent and meaning of the parties, yet as they have

Page 208 of 1485

constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said. Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. The pertinent question then is, was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank? The following are the appellate court's pronouncements on the matter: Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for "value received", there was really no consideration involved. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity. What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular No. 769, series of 1980, otherwise known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing. In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778). In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters and Philfinance, though separate corporate entities on paper, have used their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration by the Central Bank. Says the petitioner;

Page 209 of 1485

Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers, if the principle of piercing the veil of corporate entity were to be applied in this case, then TRB's payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has, that it never received any payment for that CBCI sold and that said CBCI was sold without its authority. xxx xxx xxx We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing operations, if it were to be consistent therewith, on the issued raised by TRB that there was a piercing a veil of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity was, in fact, pierced, and the payment by TRB to Philfinance should be construed as payment to Filriters. 17 We disagree with Petitioner. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. 18 Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine. The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained as to the other, there is nothing else which could lead the court under circumstance to disregard their corporate personalities. Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded, 19 in the absence of such grounds, the general rule must upheld. The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance. On its face the subject certificates states that it is registered in the name of Filriters. This should have put the petitioner on notice, and prompted it to inquire from Filriters as to

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Philfinance's title over the same or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate. The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus: TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at any office of the Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such registration no transfer thereof shall be valid unless made at said office (where the Certificates has been registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered owner thereof. The bank or any agency duly authorized by the Bank may deem and treat the bearer of this Certificate, or if this Certificate is registered as herein authorized, the person in whose name the same is registered as the absolute owner of this Certificate, for the purpose of receiving payment hereof, or on account hereof, and for all other purpose whether or not this Certificate shall be overdue. This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters. Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that: Sec. 3. Assignment of Registered Certificates. Assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this purpose, the transferee may be designated as the representative of the registered owner. Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not hold the corporation liable. 22 This is only fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. 23 The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for the same. This is fatal to the petitioner's cause, for then, Philfinance had no title over the

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subject certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully. Concededly, the subject CBCI reserves, which are required pointed out by Elias Garcia, given before the court on May was acquired by Filriters to form part of its legal and capital by law 24 to be maintained at a mandated level. This was Manager-in-Charge of respondent Filriters, in his testimony 30, 1986.

Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face value of P5000,000.00 subject of this case? A Yes, sir. Q Why do you know this? A Well, this was CBCI of the company sought to be examined by the Insurance Commission sometime in early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing. Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891 before 1981? A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of the company. Q Legal reserve for the purpose of what? A Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance Commission requires this reserve to be invested preferably in government securities or government binds. This is how this CBCI came to be purchased by the company. It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, the anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation, not without the approval of its Board of Directors, and the maintenance of the required reserve fund. Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank. ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is hereby AFFIRMED. SO ORDERED. Regalado, Romero and Mendoza, JJ., concur. Puno, J., took no part.

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Republic SUPREME Manila SECOND DIVISION G.R. No. 113236 March 5, 2001 petitioner, of the Philippines COURT

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, vs. COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents. QUISUMBING, J.:

This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CAG.R. CV No. 29546, which affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's complaint for damages. The facts of this case, adopted by the CA and based on findings by the trial court, are as follows: . . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central Bank of the Philippines, and among its activities, accepts savings and time deposits. Said defendant had as one of its client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining a special savings account with the defendant, the latter authorized and allowed withdrawals of funds therefrom through the medium of special withdrawal slips. These are supplied by the defendant to Fojas-Arca. In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products. On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, FojasArca purchased on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn, these were deposited by the plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. This singular circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips drawn upon the defendant would be equally sufficiently funded. Relying on such confidence and belief and as a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products. On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff the corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit: DATE June 15, 1978 WITHDRAWAL SLIP NO. 42127 AMOUNT P1,198,092.80

Page 213 of 1485

July 15, 1978 Aug. 15, 1978 Sep. 15, 1978

42128 42129 42130

940,190.00 880,000.00 981,500.00

These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it [sic] to the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips. Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the defendant in October 1978. Because of the absence for a long period coupled with the fact that defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded, and that it had received full value and payment of Fojas-Arca's credit purchased then outstanding at the time. On this basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products as per agreement (Exh. "B"). However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited plaintiff's account for the total sum of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant's gross negligence. On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction of the damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been constrained to file this complaint, thereby compelling plaintiff to incur litigation expenses and attorney's fees which amount are recoverable from the defendant. Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it was denied by defendant that the special withdrawal slips were honored and treated as if it were checks, the truth being that when the special withdrawal slips were received by defendant, it only verified whether or not the signatures therein were authentic, and whether or not the deposit level in the passbook concurred with the savings ledger, and whether or not the deposit is sufficient to cover the withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then plaintiff has to blame itself for being grossly negligent in treating the withdrawal slips as check when it is clearly stated therein that the withdrawal slips are non-negotiable; that defendant is not a privy to any of the transactions between Fojas-Arca and plaintiff for which reason defendant is not duty bound to notify nor give notice of anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an extension of usual bank courtesy to a prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).3

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Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant. Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was liable for damages under Article 2176 5 in relation to Articles 196 and 207 of the Civil Code. As noted by the CA, petitioner alleged the following tortious acts on the part of private respondent: 1) the acceptance and payment of the special withdrawal slips without the presentation of the depositor's passbook thereby giving the impression that the withdrawal slips are instruments payable upon presentment; 2) giving the special withdrawal slips the general appearance of checks; and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor two of the four special withdrawal slips. On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and affirmed the judgment of the trial court. According to the appellate court, respondent bank notified the depositor to present the passbook whenever it received a collection note from another bank, belying petitioner's claim that respondent bank was negligent in not requiring a passbook under the subject transaction. The appellate court also found that the special withdrawal slips in question were not purposely given the appearance of checks, contrary to petitioner's assertions, and thus should not have been mistaken for checks. Lastly, the appellate court ruled that the respondent bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for to do so would have been a violation of the law on the secrecy of bank deposits. Hence, the instant petition, alleging the following assignment of error: 25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or negligence regarding the dishonor, or in failing to give fair and timely advice of the dishonor, of the two intermediate LDB Slips and in failing to award damages to Firestone pursuant to Article 2176 of the New Civil Code. 8 The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips. The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from the former with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank. Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current account, then presented the slips for payment to respondent bank. It was at this point that the bone of contention arose. On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on deposit. That information came about six months from the time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from petitioner's account, causing the alleged pecuniary damage subject of petitioner's cause of action. At the outset, we note that petitioner admits that the withdrawal slips in question were nonnegotiable.9 Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case.10 Petitioner itself concedes this point. 11

Page 215 of 1485

Thus, respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving checks. In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had honored and paid the previous withdrawal slips, automatically credited petitioner's current account with the amount of the subject withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It presumed that the withdrawal slips were "good." It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. 12 The withdrawal slips in question lacked this character. A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only of a few hundred pesos or of millions of pesos. 13 The fact that the other withdrawal slips were honored and paid by respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care.14 In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates therein the current account number to which the deposit is to be credited, the name of the depositor or current account holder, the date of the deposit, and the amount of the deposit either in cash or in check.15 The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner. SO ORDERED. Bellosillo, Mendoza, Buena and De Leon, Jr., JJ ., concur. SECOND DIVISION [G.R. No. 136729. September 23 ,2003] ASTRO ELECTRONICS CORP. and PETER ROXAS, petitioner, vs. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, respondent. DECISION

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AUSTRIA-MARTINEZ, J.: Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision of the Court of Appeals in CA-G.R. CV No. 41274, 244[1] affirming the decision of the Regional Trial Court (Branch 147) of Makati, then Metro Manila, whereby petitioners Peter Roxas and Astro Electronics Corp. (Astro for brevity) were ordered to pay respondent Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee), jointly and severally, the amount of P3,621,187.52 with interests and costs. The antecedent facts are undisputed. Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by three promissory notes: PN NO. PFX-254 dated December 14, 1981 for P600,000.00, PN No. PFX-258 also dated December 14, 1981 for P400,000.00 and PN No. 15477 dated August 27, 1981 for P2,000,000.00. In each of these promissory notes, it appears that petitioner Roxas signed twice, as President of Astro and in his personal capacity.245[2] Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety.246[3] Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astros loan,247[4] subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro.248[5] As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of Makati. In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the same in blank and the phrases in his personal capacity and in his official capacity were fraudulently inserted without his knowledge. 249[6] After trial, the RTC rendered its decision in favor of Philguarantee with the following dispositive portion: WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the plaintiff and against the defendants Astro Electronics Corporation and Peter T. Roxas, ordering the then (sic) to pay, jointly and severally, the plaintiff the sum of P3,621.187.52 representing the total obligation of defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest at the stipulated rate of 16% per annum and stipulated

244 245 246 247 248 249

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penalty charges of 16% per annum computed from January 1, 1985 until the amount is fully paid. With costs. SO ORDERED.250[7] The trial court observed that if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should have signed only once in the promissory note.251[8] On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that Roxas failed to explain satisfactorily why he had to sign twice in the contract and therefore the presumption that private transactions have been fair and regular must be sustained. 252 [9] In the present petition, the principal issue to be resolved is whether or not Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded by the RTC. The answer is in the affirmative. Astros loan with Philtrust Bank is secured by three promissory notes. These promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in his personal capacity. In signing his name aside from being the President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers, 253[10] promising that they will pay to the order of the payee or any holder according to its tenor. 254[11] Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal. Unnoticed by both the trial court and the Court of Appeals, a closer examination of the signatures affixed by Roxas on the promissory notes, Exhibits A-4 and 3-A and B-4 and 4-A readily reveals that portions of his signatures covered portions of the typewritten words personal capacity indicating with certainty that the typewritten words were already existing at the time Roxas affixed his signatures thus demolishing his claim that the typewritten words were just inserted after he signed the promissory notes. If what he claims is true, then portions of the typewritten words would have covered portions of his signatures, and not vice versa.

250 251 252 253 254

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As to the third promissory note, Exhibit C-4 and 5-A, the copy submitted is not clear so that this Court could not discern the same observations on the notes, Exhibits A-4 and 3A and B-4 and 4-A. Nevertheless, the following discussions equally apply to all three promissory notes. The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order... 255[12] 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.256[13] Also, the phrase joint and several binds the makers 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. 257[14] Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro. Roxas claim that the phrases in his personal capacity and in his official capacity were inserted on the notes without his knowledge was correctly disregarded by the RTC and the Court of Appeals. It is not disputed that Roxas does not deny that he signed the notes twice. As aptly found by both the trial and appellate court, Roxas did not offer any explanation why he did so. It devolves upon him to overcome the presumptions that private transactions are presumed to be fair and regular 258[15] and that a person takes ordinary care of his concerns.259[16] Aside from his self-serving allegations, Roxas failed to prove the truth of such allegations. Thus, said presumptions prevail over his claims. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not equivalent to proof under our Rules of Court.260[17] Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that he will not sign document without first informing himself of its contents and consequences. Clearly, he knew the nature of the transactions and documents involved as he not only executed these notes on two different dates but he also executed, and again, signed twice, a continuing Surety ship Agreement notarized on July 31, 1981, wherein he guaranteed, jointly and severally with Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement even re-enforced his solidary liability Philtrust because as a surety, he bound himself jointly and severally with Astros obligation.261[18] Roxas cannot now avoid liability by hiding under the convenient excuse that he merely signed the notes in blank and the phrases in personal capacity and in his official capacity were fraudulently inserted without his knowledge.

255 256 257 258 259 260 261

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Lastly, Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of Philtrust to demand for and collect payment from both Roxas and Astro since it already paid the value of 70% of roxas and Astro Electronics Corp.s loan obligation. In compliance with its contract of Guarantee in favor of Philtrust. Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights.262[19] It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. 263[20] Instances of legal subrogation are those provided in Article 1302 of the Civil Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the parties.264[21] Roxas acquiescence is not necessary for subrogation to take place because the instant case is one of the legal subrogation that occurs by operation of law, and without need of the debtors knowledge.265[22] Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against Roxas and Astro because the guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.266[23] WHEREFORE, finding no error with the decision of the Court of Appeals dated December 10, 1998, the same is hereby AFFIRMED in toto. SO ORDERED. Bellosillo, (Chairman), Callejo, Sr., and Tinga, JJ., concur. Quisumbing, J., in the result.

FIRST DIVISION [G.R. No. 154127. December 8, 2003] ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent. DECISION PANGANIBAN, J.:

262 263 264 265 266

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Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by the complete incompatibility between the old and the new agreements. Petitioner herein fails to show either requirement convincingly; hence, the summary judgment holding him liable as a joint and solidary debtor stands. The Case Before us is a Petition for Review267[1] under Rule 45 of the Rules of Court, seeking to nullify the November 26, 2001 Decision268[2] and the June 26, 2002 Resolution 269[3] of the Court of Appeals (CA) in CA-GR CV No. 60521. The appellate court disposed as follows: UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it pertains to [Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the modification that the award for attorneys fees and cost of suit is DELETED. The portion of the judgment that pertains to x x x Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the case against x x x Eduardo de Jesus is REMANDED to the court of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas evidence against x x x Eduardo de Jesus.270[4] The challenged Reconsideration. The Antecedents The antecedents of the case are narrated by the CA as follows: This case started out as a complaint for sum of money and damages by x x x [Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from [respondent]; that, on the same day, [they] executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month; that the loan has long been overdue and, despite repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that, by reason of the[ir] unjustified refusal, [respondent] was compelled to engage the services of counsel to whom he agreed to pay 25% of the sum to be recovered from [petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to the complaint were the promissory note above-mentioned and a demand letter, dated 02 May 1997, by [respondent] addressed to [petitioner and de Jesus]. Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under the promissory note because he signed it merely as an accommodation party for x x x de Jesus; and, alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had been paid by x x x de Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and [respondents] acceptance thereof novated or superseded the note. Resolution, on the other hand, denied petitioners Motion for

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[Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan remained unpaid for the reason that the check issued by x x x de Jesus bounced, and that [Petitioner] Garcias answer was not even accompanied by a certificate of nonforum shopping. Annexed to the reply were the face of the check and the reverse side thereof. For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed P400,000.00 loan, he received only P360,000.00, the P40,000.00 having been advance interest thereon for two months, that is, for January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was made when [respondents] daughter, one Nits Llamas-Quijencio, received from the Central Police District Command at Bicutan, Taguig, Metro Manila (where x x x de Jesus worked), the sum of P40,000.00, representing the peso equivalent of his accumulated leave credits, another P40,000.00 as advance interest, and still another P40,000.00 as interest for the months of March and April 1997; that he had difficulty in paying the loan and had asked [respondent] for an extension of time; that [respondent] acted in bad faith in instituting the case, [respondent] having agreed to accept the benefits he (de Jesus) would receive for his retirement, but [respondent] nonetheless filed the instant case while his retirement was being processed; and that, in defense of his rights, he agreed to pay his counsel P20,000.00 [as] attorneys fees, plus P1,000.00 for every court appearance. During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that he would no [longer] present evidence. Given this development, the trial court gave [respondent] permission to present his evidence ex parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial court directed [respondent] to file a motion for judgment on the pleadings, and for [Petitioner] Garcia to file his comment or opposition thereto. Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting his defense to a judgment on the pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the pleadings, withdrawing in the process his previous motion. Thereunder, he asserted that [petitioners and de Jesus] solidary liability under the promissory note cannot be any clearer, and that the check issued by de Jesus did not discharge the loan since the check bounced. 271[5] On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows: WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of [respondent] and against [petitioner and De Jesus], who are hereby ordered to pay, jointly and severally, the [respondent] the following sums, to wit: 1) P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23, 1997 until the same shall have been fully paid, less the amount of P120,000.00 representing interests already paid by x x x de Jesus; 2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of [c]ourt appearance, and;

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3) Cost of this suit.272[6]

Ruling of the Court of Appeals The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus. According to the appellate court, his Answer raised genuinely contentious issues. Moreover, he was still required to present his evidence ex parte. Thus, respondent was not ipso facto entitled to the RTC judgment, even though De Jesus had been declared in default. The case against the latter was therefore remanded by the CA to the trial court for the ex parte reception of the formers evidence. As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to raise even a single genuine issue regarding any material fact. The appellate court ruled that no novation -- express or implied -- had taken place when respondent accepted the check from De Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by petitioner and De Jesus. Respondents acceptance of the check did not serve to make De Jesus the sole debtor because, first, the obligation incurred by him and petitioner was joint and several; and, second, the check -- which had been intended to extinguish the obligation -- bounced upon its presentment. Hence, this Petition.273[7] Issues Petitioner submits the following issues for our consideration: I Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the instant case as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan obligation he obtained from x x x Respondent Dionisio Llamas, as clearly evidenced by: a) Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400,000.00 in favor of Respondent Llamas, although the check subsequently bounced[;] Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x x x de Jesus or [the superseding of] the promissory note; x x x de Jesus having paid interests on the loan in the total amount of P120,000.00; The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial difficulties, he be given an extension of time

b)

c)

d)

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to pay his loan obligation and that his retirement benefits from the Philippine National Police will answer for said obligation. II Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of petitioner that he was merely an accommodation party, despite the fact that the promissory note provided for a joint and solidary liability, should have been given weight and credence considering that subsequent events showed that the principal obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing circumstances showing his assumption of sole liability over the loan obligation. III Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent Llamas, despite the fact that there are genuine issues of fact, which the Honorable Court of Appeals itself admitted in its Decision, which call for the presentation of evidence in a full-blown trial.274[8] Simply put, the issues are the following: 1) whether there was novation of the obligation; 2) whether the defense that petitioner was only an accommodation party had any basis; and 3) whether the judgment against him -- be it a judgment on the pleadings or a summary judgment -- was proper. The Courts Ruling The Petition has no merit. First Issue: Novation Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that novation took place, either through the substitution of De Jesus as sole debtor or the replacement of the promissory note by the check. Alternatively, the former argues that the original obligation was extinguished when the latter, who was his co-obligor, paid the loan with the check. The fallacy of the second (alternative) argument is all too apparent. The check could not have extinguished the obligation, because it bounced upon presentment. By law, 275[9] the delivery of a check produces the effect of payment only when it is encashed. We now come to the main issue of whether novation took place. Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. 276[10] Article 1293 of the Civil Code defines novation as follows:

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Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the initiative for the change does not come from -- and may even be made without the knowledge of -- the debtor, since it consists of a third persons assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent of these three persons are necessary.277[11] Both modes of substitution by the debtor require the consent of the creditor.278[12] Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement.279[13] Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal novation. 280[14] For novation to take place, the following requisites must concur: 1) 2) 3) 4) There must be a previous valid obligation. The parties concerned must agree to a new contract. The old contract must be extinguished. There must be a valid new contract.281[15]

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point. 282[16] The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence.283[17] Applying the foregoing to the instant case, we hold that no novation took place.

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The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or that the check would take the place of the note. There is no incompatibility between the promissory note and the check. As the CA correctly observed, the check had been issued precisely to answer for the obligation. On the one hand, the note evidences the loan obligation; and on the other, the check answers for it. Verily, the two can stand together. Neither could the payment of interests -- which, in petitioners view, also constitutes novation284[18] -- change the terms and conditions of the obligation. Such payment was already provided for in the promissory note and, like the check, was totally in accord with the terms thereof. Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation.285[19] Well-settled is the rule that novation is never presumed.286[20] Consequently, that which arises from a purported change in the person of the debtor must be clear and express. 287[21] It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary undertaking of De Jesus. The CA aptly held: x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the nature of the obligation being solidary due to the fact that the promissory note expressly declared that the liability of appellants thereunder is joint and [solidary.] Reason: under the law, a creditor may demand payment or performance from one of the solidary debtors or some or all of them simultaneously, and payment made by one of them extinguishes the obligation. It therefore follows that in case the creditor fails to collect from one of the solidary debtors, he may still proceed against the other or others. x x x 288[22] Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor expressly consent to the substitution of a new debtor. 289[23] Since novation implies a waiver of the right the creditor had before the novation, such waiver must be express. 290

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[24] It cannot be supposed, without clear proof, that the present respondent has done away with his right to exact fulfillment from either of the solidary debtors. 291[25] More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint and solidary obligor of the P400,000 loan; thus, he can be released from it only upon its extinguishment. Respondents acceptance of his check did not change the person of the debtor, because a joint and solidary obligor is required to pay the entirety of the obligation. It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. 292[26] It is up to the former to determine against whom to enforce collection. 293[27] Having made himself jointly and severally liable with De Jesus, petitioner is therefore liable 294[28] for the entire obligation.295 [29] Second Issue: Accommodation Party Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as such, he was released as obligor when respondent agreed to extend the term of the obligation. This reasoning is misplaced, because the note herein is not a negotiable instrument. The note reads: PROMISSORY NOTE P400,000.00 RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS, Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City, with interest at the rate of 5% per month or fraction thereof. It is understood that our liability under this loan is jointly and severally [sic]. Done at Quezon City, Metro Manila this 23rd day of December, 1996.296[30] By its terms, the note was made payable to a specific person rather than to bearer or to order297[31] -- a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and

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defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the parties.298[32] The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL. Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety -- the accommodation party being the surety.299[33] It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning. The liability is immediate and direct.300[34] Third Issue: Propriety of Summary Judgment or Judgment on the Pleadings The next issue illustrates the usual confusion between a judgment on the pleadings and a summary judgment. Under Section 3 of Rule 35 of the Rules of Court, a summary judgment may be rendered after a summary hearing if the pleadings, supporting affidavits, depositions and admissions on file show that (1) except as to the amount of damages, there is no genuine issue regarding any material fact; and (2) the moving party is entitled to a judgment as a matter of law. A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings raise only a legal, not a genuine, issue regarding any material fact. 301 [35] Consequently, facts are asserted in the complaint regarding which there is yet no admission, disavowal or qualification; or specific denials or affirmative defenses are set forth in the answer, but the issues are fictitious as shown by the pleadings, depositions or admissions.302[36] A summary judgment may be applied for by either a claimant or a defending party.303[37] On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is proper when an answer fails to render an issue or otherwise admits the material allegations of the adverse partys pleading. The essential question is whether there are issues generated by the pleadings. 304[38] A judgment on the pleadings may be sought only

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by a claimant, who is the party seeking to recover upon a claim, counterclaim or cross-claim; or to obtain a declaratory relief. 305[39] Apropos thereto, it must be stressed that the trial courts judgment against petitioner was correctly treated by the appellate court as a summary judgment, rather than as a judgment on the pleadings. His Answer 306[40] apparently raised several issues -- that he signed the promissory note allegedly as a mere accommodation party, and that the obligation was extinguished by either payment or novation. However, these are not factual issues requiring trial. We quote with approval the CAs observations: Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the documents submitted by [respondent] nevertheless clearly showed that the issues so tendered were not valid issues. Firstly, Garcias claim that he was merely an accommodation party is belied by the promissory note that he signed. Nothing in the note indicates that he was only an accommodation party as he claimed to be. Quite the contrary, the promissory note bears the statement: It is understood that our liability under this loan is jointly and severally [sic]. Secondly, his claim that his co-defendant de Jesus already paid the loan by means of a check collapses in view of the dishonor thereof as shown at the dorsal side of said check.307[41] From the records, it also appears that petitioner himself moved to submit the case for judgment on the basis of the pleadings and documents. In a written Manifestation, 308[42] he stated that judgment on the pleadings may now be rendered without further evidence, considering the allegations and admissions of the parties.309[43] In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had issued against petitioner. WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED. Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 146717 November 22, 2004 of the Philippines COURT

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TRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION, respondents.

DECISION

TINGA, J.: Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in international trade. A creation of commerce and businessmen, the letter of credit is also unique in the number of parties involved and its supranational character. Petitioner has appealed from the Decision 1 of the Court of Appeals in CA-G.R. SP No. 61901 entitled "Transfield Philippines, Inc. v. Hon. Oscar Pimentel, et al.," promulgated on 31 January 2001.2 On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey Contract 3 whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project.4 The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself. 5 Further, in case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract. 6 To secure performance of petitioner's obligation on or before the target completion date, or such time for completion as may be determined by the parties' agreement, petitioner opened in favor of LHC two (2) standby letters of credit both dated 20 March 2000 (hereinafter referred to as "the Securities"), to wit: Standby Letter of Credit No. E001126/8400 with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank)7 and Standby Letter of Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC)8 each in the amount of US$8,988,907.00.9 In the course of the construction of the project, petitioner sought various EOT to complete the Project. The extensions were requested allegedly due to several factors which prevented the completion of the Project on target date, such as force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between the parties which culminated in the instant petition. The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC) on 1 June 1999. 10 This was followed by another

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Request for Arbitration, this time filed by petitioner before the International Chamber of Commerce (ICC)11 on 3 November 2000. In both arbitration proceedings, the common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date. Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey Contract,12 petitionerin two separate letters13 both dated 10 August 2000advised respondent banks of the arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the performance of its obligations. Asserting that LHC had no right to call on the Securities until the resolution of disputes before the arbitral tribunals, petitioner warned respondent banks that any transfer, release, or disposition of the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable for liquidated damages. As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.214 of the Turnkey Contract, it failed to comply with its obligation to complete the Project. Despite the letters of petitioner, however, both banks informed petitioner that they would pay on the Securities if and when LHC calls on them. 15 LHC asserted that additional extension of time would not be warranted; accordingly it declared petitioner in default/delay in the performance of its obligations under the Turnkey Contract and demanded from petitioner the payment of US$75,000.00 for each day of delay beginning 28 June 2000 until actual completion of the Project pursuant to Clause 8.7.1 of the Turnkey Contract. At the same time, LHC served notice that it would call on the securities for the payment of liquidated damages for the delay.16 On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining order and writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court (RTC) of Makati. 17 Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. The RTC issued a seventy-two (72)-hour temporary restraining order on the same day. The case was docketed as Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati. After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending the temporary restraining order for a period of seventeen (17) days or until 26 November 2000.18 The RTC, in its Order19 dated 24 November 2000, denied petitioner's application for a writ of preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of "independent contract" in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. It debunked petitioner's contention that the principle of "independent contract" could be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the Securities. The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the required certification of its claims. Dissatisfied with the trial court's denial of its application for a writ of preliminary injunction, petitioner elevated the case to the Court of Appeals via a Petition for Certiorari under Rule

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65, with prayer for the issuance of a temporary restraining order and writ of preliminary injunction.20 Petitioner submitted to the appellate court that LHC's call on the Securities was premature considering that the issue of its default had not yet been resolved with finality by the CIAC and/or the ICC. It asserted that until the fact of delay could be established, LHC had no right to draw on the Securities for liquidated damages. Refuting petitioner's contentions, LHC claimed that petitioner had no right to restrain its call on and use of the Securities as payment for liquidated damages. It averred that the Securities are independent of the main contract between them as shown on the face of the two Standby Letters of Credit which both provide that the banks have no responsibility to investigate the authenticity or accuracy of the certificates or the declarant's capacity or entitlement to so certify. In its Resolution dated 28 November 2000, the Court of Appeals issued a temporary restraining order, enjoining LHC from calling on the Securities or any renewals or substitutes thereof and ordering respondent banks to cease and desist from transferring, paying or in any manner disposing of the Securities. However, the appellate court failed to act on the application for preliminary injunction until the temporary restraining order expired on 27 January 2001. Immediately thereafter, representatives of LHC trooped to ANZ Bank and withdrew the total amount of US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00. On 2 February 2001, the appellate court dismissed the petition for certiorari. The appellate court expressed conformity with the trial court's decision that LHC could call on the Securities pursuant to the first principle in credit law that the credit itself is independent of the underlying transaction and that as long as the beneficiary complied with the credit, it was of no moment that he had not complied with the underlying contract. Further, the appellate court held that even assuming that the trial court's denial of petitioner's application for a writ of preliminary injunction was erroneous, it constituted only an error of judgment which is not correctible by certiorari, unlike error of jurisdiction. Undaunted, petitioner filed the instant Petition for Review raising the following issues for resolution: WHETHER THE "INDEPENDENCE PRINCIPLE" ON LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY THEREOF WHERE THE BENEFICIARY'S CALL THEREON IS WRONGFUL OR FRAUDULENT. WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE RESOLUTION OF PETITIONER'S AND LHC'S DISPUTES BY THE APPROPRIATE TRIBUNAL. WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE AMOUNTS DUE UNDER THE SECURITIES DESPITE BEING NOTIFIED THAT LHC'S CALL THEREON IS WRONGFUL. WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN THE EVENT THAT: A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND SECURITY BANK ARE ALLOWED TO RELEASE, THE REMAINING BALANCE OF THE SECURITIES PRIOR TO THE RESOLUTION OF THE DISPUTES BETWEEN PETITIONER AND LHC.

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B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE SECURITIES.21 Petitioner contends that the courts below improperly relied on the "independence principle" on letters of credit when this case falls squarely within the "fraud exception rule." Respondent LHC deliberately misrepresented the supposed existence of delay despite its knowledge that the issue was still pending arbitration, petitioner continues. Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant to the principle against unjust enrichment and that, under the premises, injunction was the appropriate remedy obtainable from the competent local courts. On 25 August 2003, petitioner filed a Supplement to the Petition 22 and Supplemental Memorandum,23 alleging that in the course of the proceedings in the ICC Arbitration, a number of documentary and testimonial evidence came out through the use of different modes of discovery available in the ICC Arbitration. It contends that after the filing of the petition facts and admissions were discovered which demonstrate that LHC knowingly misrepresented that petitioner had incurred delays notwithstanding its knowledge and admission that delays were excused under the Turnkey Contractto be able to draw against the Securities. Reiterating that fraud constitutes an exception to the independence principle, petitioner urges that this warrants a ruling from this Court that the call on the Securities was wrongful, as well as contrary to law and basic principles of equity. It avers that it would suffer grave irreparable damage if LHC would be allowed to use the proceeds of the Securities and not ordered to return the amounts it had wrongfully drawn thereon. In its Manifestation dated 8 September 2003, 24 LHC contends that the supplemental pleadings filed by petitioner present erroneous and misleading information which would change petitioner's theory on appeal. In yet another Manifestation dated 12 April 2004, 25 petitioner alleges that on 18 February 2004, the ICC handed down its Third Partial Award, declaring that LHC wrongfully drew upon the Securities and that petitioner was entitled to the return of the sums wrongfully taken by LHC for liquidated damages. LHC filed a Counter-Manifestation dated 29 June 2004, 26 stating that petitioner's Manifestation dated 12 April 2004 enlarges the scope of its Petition for Review of the 31 January 2001 Decision of the Court of Appeals. LHC notes that the Petition for Review essentially dealt only with the issue of whether injunction could issue to restrain the beneficiary of an irrevocable letter of credit from drawing thereon. It adds that petitioner has filed two other proceedings, to wit: (1) ICC Case No. 11264/TE/MW, entitled "Transfield Philippines Inc. v. Luzon Hydro Corporation," in which the parties made claims and counterclaims arising from petitioner's performance/misperformance of its obligations as contractor for LHC; and (2) Civil Case No. 04-332, entitled "Transfield Philippines, Inc. v. Luzon Hydro Corporation" before Branch 56 of the RTC of Makati, which is an action to enforce and obtain execution of the ICC's partial award mentioned in petitioner's Manifestation of 12 April 2004. In its Comment to petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum, LHC stresses that the question of whether the funds it drew on the subject letters of credit should be returned is outside the issue in this appeal. At any rate, LHC adds that the action to enforce the ICC's partial award is now fully within the Makati RTC's jurisdiction in Civil Case No. 04-332. LHC asserts that petitioner is engaged in forum-

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shopping by keeping this appeal and at the same time seeking the suit for enforcement of the arbitral award before the Makati court. Respondent SBC in its Memorandum, dated 10 March 2003 27 contends that the Court of Appeals correctly dismissed the petition for certiorari. Invoking the independence principle, SBC argues that it was under no obligation to look into the validity or accuracy of the certification submitted by respondent LHC or into the latter's capacity or entitlement to so certify. It adds that the act sought to be enjoined by petitioner was already fait accompli and the present petition would no longer serve any remedial purpose. In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March 2003 28 posits that its actions could not be regarded as unjustified in view of the prevailing independence principle under which it had no obligation to ascertain the truth of LHC's allegations that petitioner defaulted in its obligations. Moreover, it points out that since the Standby Letter of Credit No. E001126/8400 had been fully drawn, petitioner's prayer for preliminary injunction had been rendered moot and academic. At the core of the present controversy is the applicability of the "independence principle" and "fraud exception rule" in letters of credit. Thus, a discussion of the nature and use of letters of credit, also referred to simply as "credits," would provide a better perspective of the case. The letter of credit evolved as a mercantile specialty, and the only way to understand all its facets is to recognize that it is an entity unto itself. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the minds are lacking, yet strict compliance with its terms is an enforceable right. Nor is it a third-party beneficiary contract, because the issuer must honor drafts drawn against a letter regardless of problems subsequently arising in the underlying contract. Since the bank's customer cannot draw on the letter, it does not function as an assignment by the customer to the beneficiary. Nor, if properly used, is it a contract of suretyship or guarantee, because it entails a primary liability following a default. Finally, it is not in itself a negotiable instrument, because it is not payable to order or bearer and is generally conditional, yet the draft presented under it is often negotiable. 29 In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. 30 The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract for the sale of goods. However, credits are also used in non-sale settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known as standby credits.31 There are three significant differences between commercial and standby credits. First, commercial credits involve the payment of money under a contract of sale. Such credits become payable upon the presentation by the seller-beneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable upon certification of a party's nonperformance of the agreement. The documents that accompany the beneficiary's draft tend to show that the applicant has not performed. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. The beneficiary of the standby credit must certify that his obligor has not performed the contract.32

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By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee. 33 A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto. 34 Since letters of credit have gained general acceptability in international trade transactions, the ICC has published from time to time updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize practices in the letter of credit area. The vast majority of letters of credit incorporate the UCP. 35 First published in 1933, the UCP for Documentary Credits has undergone several revisions, the latest of which was in 1993. 36 In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc., 37 this Court ruled that the observance of the UCP is justified by Article 2 of the Code of Commerce which provides that in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by usages and customs generally observed. More recently, in Bank of America, NT & SA v. Court of Appeals, 38 this Court ruled that there being no specific provisions which govern the legal complexities arising from transactions involving letters of credit, not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of the UCP is undeniable. Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. A beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank. Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.39 The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit.40 Can the beneficiary invoke the independence principle?

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Petitioner insists that the independence principle does not apply to the instant case and assuming it is so, it is a defense available only to respondent banks. LHC, on the other hand, contends that it would be contrary to common sense to deny the benefit of an independent contract to the very party for whom the benefit is intended. As beneficiary of the letter of credit, LHC asserts it is entitled to invoke the principle. As discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are presented and the conditions of the credit are complied with.41 Precisely, the independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the principle's nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating contract. In brief, the letter of credit is separate and distinct from the underlying transaction. Given the nature of letters of credit, petitioner's argumentthat it is only the issuing bank that may invoke the independence principle on letters of creditdoes not impress this Court. To say that the independence principle may only be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in commercial transactions. As it is, the independence doctrine works to the benefit of both the issuing bank and the beneficiary. Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. With the letter of credit from the issuing bank, the party who applied for and obtained it may confidently present the letter of credit to the beneficiary as a security to convince the beneficiary to enter into the business transaction. On the other hand, the other party to the business transaction, i.e., the beneficiary of the letter of credit, can be rest assured of being empowered to call on the letter of credit as a security in case the commercial transaction does not push through, or the applicant fails to perform his part of the transaction. It is for this reason that the party who is entitled to the proceeds of the letter of credit is appropriately called "beneficiary." Petitioner's argument that any dispute must first be resolved by the parties, whether through negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere guarantee. Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. In other words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would be no practical and beneficial use for letters of credit in commercial transactions. Professor John F. Dolan, the noted authority on letters of credit, sheds more light on the issue: The standby credit is an attractive commercial device for many of the same reasons that commercial credits are attractive. Essentially, these credits are inexpensive and efficient. Often they replace surety contracts, which tend to generate higher costs than credits do and are usually triggered by a factual determination rather than by the examination of documents.

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Because parties and courts should not confuse the different functions of the surety contract on the one hand and the standby credit on the other, the distinction between surety contracts and credits merits some reflection. The two commercial devices share a common purpose. Both ensure against the obligor's nonperformance. They function, however, in distinctly different ways. Traditionally, upon the obligor's default, the surety undertakes to complete the obligor's performance, usually by hiring someone to complete that performance. Surety contracts, then, often involve costs of determining whether the obligor defaulted (a matter over which the surety and the beneficiary often litigate) plus the cost of performance. The benefit of the surety contract to the beneficiary is obvious. He knows that the surety, often an insurance company, is a strong financial institution that will perform if the obligor does not. The beneficiary also should understand that such performance must await the sometimes lengthy and costly determination that the obligor has defaulted. In addition, the surety's performance takes time. The standby credit has different expectations. He reasonably expects that he will receive cash in the event of nonperformance, that he will receive it promptly, and that he will receive it before any litigation with the obligor (the applicant) over the nature of the applicant's performance takes place. The standby credit has this opposite effect of the surety contract: it reverses the financial burden of parties during litigation. In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary establishes the fact of the obligor's performance. The beneficiary may have to establish that fact in litigation. During the litigation, the surety holds the money and the beneficiary bears most of the cost of delay in performance. In the standby credit case, however, the beneficiary avoids that litigation burden and receives his money promptly upon presentation of the required documents. It may be that the applicant has, in fact, performed and that the beneficiary's presentation of those documents is not rightful. In that case, the applicant may sue the beneficiary in tort, in contract, or in breach of warranty; but, during the litigation to determine whether the applicant has in fact breached the obligation to perform, the beneficiary, not the applicant, holds the money. Parties that use a standby credit and courts construing such a credit should understand this allocation of burdens. There is a tendency in some quarters to overlook this distinction between surety contracts and standby credits and to reallocate burdens by permitting the obligor or the issuer to litigate the performance question before payment to the beneficiary. 42 While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to ask the bank to honor the credit by allowing him to draw thereon. The situation itself emasculates petitioner's posture that LHC cannot invoke the independence principle and highlights its puerility, more so in this case where the banks concerned were impleaded as parties by petitioner itself. Respondent banks had squarely raised the independence principle to justify their releases of the amounts due under the Securities. Owing to the nature and purpose of the standby letters of credit, this Court rules that the respondent banks were left with little or no alternative but to honor the credit and both of them in fact submitted that it was "ministerial" for them to honor the call for payment. 43

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Furthermore, LHC has a right rooted in the Contract to call on the Securities. The relevant provisions of the Contract read, thus: 4.2.1. In order to secure the performance of its obligations under this Contract, the Contractor at its cost shall on the Commencement Date provide security to the Employer in the form of two irrevocable and confirmed standby letters of credit (the "Securities"), each in the amount of US$8,988,907, issued and confirmed by banks or financial institutions acceptable to the Employer. Each of the Securities must be in form and substance acceptable to the Employer and may be provided on an annually renewable basis.44 8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay to the Employer by way of liquidated damages ("Liquidated Damages for Delay") the amount of US$75,000 for each and every day or part of a day that shall elapse between the Target Completion Date and the Completion Date, provided that Liquidated Damages for Delay payable by the Contractor shall in the aggregate not exceed 20% of the Contract Price. The Contractor shall pay Liquidated Damages for Delay for each day of the delay on the following day without need of demand from the Employer. 8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due, or to become due to the Contractor and/or by drawing on the Security."45 A contract once perfected, binds the parties not only to the fulfillment of what has been expressly stipulated but also to all the consequences which according to their nature, may be in keeping with good faith, usage, and law.46 A careful perusal of the Turnkey Contract reveals the intention of the parties to make the Securities answerable for the liquidated damages occasioned by any delay on the part of petitioner. The call upon the Securities, while not an exclusive remedy on the part of LHC, is certainly an alternative recourse available to it upon the happening of the contingency for which the Securities have been proffered. Thus, even without the use of the "independence principle," the Turnkey Contract itself bestows upon LHC the right to call on the Securities in the event of default. Next, petitioner invokes the "fraud exception" principle. It avers that LHC's call on the Securities is wrongful because it fraudulently misrepresented to ANZ Bank and SBC that there is already a breach in the Turnkey Contract knowing fully well that this is yet to be determined by the arbitral tribunals. It asserts that the "fraud exception" exists when the beneficiary, for the purpose of drawing on the credit, fraudulently presents to the confirming bank, documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. In such a situation, petitioner insists, injunction is recognized as a remedy available to it. Citing Dolan's treatise on letters of credit, petitioner argues that the independence principle is not without limits and it is important to fashion those limits in light of the principle's purpose, which is to serve the commercial function of the credit. If it does not serve those functions, application of the principle is not warranted, and the commonlaw principles of contract should apply. It is worthy of note that the propriety of LHC's call on the Securities is largely intertwined with the fact of default which is the self-same issue pending resolution before the arbitral tribunals. To be able to declare the call on the Securities wrongful or fraudulent, it is imperative to resolve, among others, whether petitioner was in fact guilty of delay in the

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performance of its obligation. Unfortunately for petitioner, this Court is not called upon to rule upon the issue of defaultsuch issue having been submitted by the parties to the jurisdiction of the arbitral tribunals pursuant to the terms embodied in their agreement. 47 Would injunction then be the proper remedy to restrain the alleged wrongful draws on the Securities? Most writers agree that fraud is an exception to the independence principle. Professor Dolan opines that the untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as fraud sufficient to support an injunction against payment. 48 The remedy for fraudulent abuse is an injunction. However, injunction should not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged.49 In its complaint for injunction before the trial court, petitioner alleged that it is entitled to a total extension of two hundred fifty-three (253) days which would move the target completion date. It argued that if its claims for extension would be found meritorious by the ICC, then LHC would not be entitled to any liquidated damages. 50 Generally, injunction is a preservative remedy for the protection of one's substantive right or interest; it is not a cause of action in itself but merely a provisional remedy, an adjunct to a main suit. The issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case, the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law. 51 Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right. 52 It must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.53 Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.54 In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHC's call on the Securities which would justify the issuance of preliminary injunction. By petitioner's own admission, the right of LHC to call on the Securities was contractually rooted and subject to the express stipulations in the Turnkey Contract. 55 Indeed, the Turnkey Contract is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default, as provided in Clause 4.2.5, in relation to Clause 8.7.2, thus: 4.2.5 The Employer shall give the Contractor seven days' notice of calling upon any of the Securities, stating the nature of the default for which the claim on any of the Securities is to be made, provided that no notice will be required if the Employer calls upon any of the Securities for the payment of Liquidated Damages for Delay or for failure by the Contractor to renew or extend the Securities within 14 days of their expiration in accordance with Clause 4.2.2.56

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8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due, or to become due, to the Contractor and/or by drawing on the Security.57 The pendency of the arbitration proceedings would not per se make LHC's draws on the Securities wrongful or fraudulent for there was nothing in the Contract which would indicate that the parties intended that all disputes regarding delay should first be settled through arbitration before LHC would be allowed to call upon the Securities. It is therefore premature and absurd to conclude that the draws on the Securities were outright fraudulent given the fact that the ICC and CIAC have not ruled with finality on the existence of default. Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court, did petitioner invoke the fraud exception rule as a ground to justify the issuance of an injunction.58 What petitioner did assert before the courts below was the fact that LHC's draws on the Securities would be premature and without basis in view of the pending disputes between them. Petitioner should not be allowed in this instance to bring into play the fraud exception rule to sustain its claim for the issuance of an injunctive relief. Matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court as they cannot be raised for the first time on appeal. 59 The lower courts could thus not be faulted for not applying the fraud exception rule not only because the existence of fraud was fundamentally interwoven with the issue of default still pending before the arbitral tribunals, but more so, because petitioner never raised it as an issue in its pleadings filed in the courts below. At any rate, petitioner utterly failed to show that it had a clear and unmistakable right to prevent LHC's call upon the Securities. Of course, prudence should have impelled LHC to await resolution of the pending issues before the arbitral tribunals prior to taking action to enforce the Securities. But, as earlier stated, the Turnkey Contract did not require LHC to do so and, therefore, it was merely enforcing its rights in accordance with the tenor thereof. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.60 More importantly, pursuant to the principle of autonomy of contracts embodied in Article 1306 of the Civil Code, 61 petitioner could have incorporated in its Contract with LHC, a proviso that only the final determination by the arbitral tribunals that default had occurred would justify the enforcement of the Securities. However, the fact is petitioner did not do so; hence, it would have to live with its inaction. With respect to the issue of whether the respondent banks were justified in releasing the amounts due under the Securities, this Court reiterates that pursuant to the independence principle the banks were under no obligation to determine the veracity of LHC's certification that default has occurred. Neither were they bound by petitioner's declaration that LHC's call thereon was wrongful. To repeat, respondent banks' undertaking was simply to pay once the required documents are presented by the beneficiary. At any rate, should petitioner finally prove in the pending arbitration proceedings that LHC's draws upon the Securities were wrongful due to the non-existence of the fact of default, its right to seek indemnification for damages it suffered would not normally be foreclosed pursuant to general principles of law. Moreover, in a Manifestation,62 dated 30 March 2001, LHC informed this Court that the subject letters of credit had been fully drawn. This fact alone would have been sufficient reason to dismiss the instant petition.

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Settled is the rule that injunction would not lie where the acts sought to be enjoined have already become fait accompli or an accomplished or consummated act. 63 In Ticzon v. Video Post Manila, Inc.64 this Court ruled that where the period within which the former employees were prohibited from engaging in or working for an enterprise that competed with their former employerthe very purpose of the preliminary injunction has expired, any declaration upholding the propriety of the writ would be entirely useless as there would be no actual case or controversy between the parties insofar as the preliminary injunction is concerned. In the instant case, the consummation of the act sought to be restrained had rendered the instant petition mootfor any declaration by this Court as to propriety or impropriety of the non-issuance of injunctive relief could have no practical effect on the existing controversy. 65 The other issues raised by petitioner particularly with respect to its right to recover the amounts wrongfully drawn on the Securities, according to it, could properly be threshed out in a separate proceeding. One final point. LHC has charged petitioner of forum-shopping. It raised the charge on two occasions. First, in its Counter-Manifestation dated 29 June 2004 66 LHC alleges that petitioner presented before this Court the same claim for money which it has filed in two other proceedings, to wit: ICC Case No. 11264/TE/MW and Civil Case No. 04-332 before the RTC of Makati. LHC argues that petitioner's acts constitutes forum-shopping which should be punished by the dismissal of the claim in both forums. Second, in its Comment to Petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum dated 8 October 2004, LHC alleges that by maintaining the present appeal and at the same time pursuing Civil Case No. 04-332wherein petitioner pressed for judgment on the issue of whether the funds LHC drew on the Securities should be returnedpetitioner resorted to forum-shopping. In both instances, however, petitioner has apparently opted not to respond to the charge. Forum-shopping is a very serious charge. It exists when a party repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending in, or already resolved adversely, by some other court.67 It may also consist in the act of a party against whom an adverse judgment has been rendered in one forum, of seeking another and possibly favorable opinion in another forum other than by appeal or special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court might look with favor upon the other party. 68 To determine whether a party violated the rule against forum-shopping, the test applied is whether the elements of litis pendentia are present or whether a final judgment in one case will amount to res judicata in another. 69 Forum-shopping constitutes improper conduct and may be punished with summary dismissal of the multiple petitions and direct contempt of court.70 Considering the seriousness of the charge of forum-shopping and the severity of the sanctions for its violation, the Court will refrain from making any definitive ruling on this issue until after petitioner has been given ample opportunity to respond to the charge. WHEREFORE, the instant petition is DENIED, with costs against petitioner. Petitioner is hereby required to answer the charge of forum-shopping within fifteen (15) days from notice. SO ORDERED.

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Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur. SECOND DIVISION [G.R. No. 154159. March 31, 2005] PEOPLE OF THE PHILIPPINES, appellee, vs. ALOMA REYES AND TRICHIA MAE REYES (AT LARGE), accused. ALOMA REYES, appellant. DECISION PUNO, J.: This is a direct appeal[1] from the Sentence[2] of the Regional Trial Court of Davao City, Branch 11, finding appellant Alamo Reyes guilty beyond reasonable doubt of estafa by postdating a bouncing check under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Presidential Decree No. 818, and sentencing her to an indeterminate penalty of six (6) years and one (1) day to twelve (12) years of prision mayor as minimum to thirty (30) years of reclusion perpetua as maximum.[3] Appellant claims that she issued the subject check in payment of a pre-existing obligation. Thus, her liability must be civil, not criminal. Private complainant Jules-Berne Alabastro counters that appellant, together with her daughter and co-accused Trichia Mae Reyes, issued him the check for rediscounting. He was allegedly lured to part with his money due to their seeming honest representations that the check was good and would never bounce. The following information dated May 26, 1999 was filed against the appellant and Trichia Mae Reyes: That sometime in February 1998, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, conspiring and confederating together, by means of false pretense and with intent to defraud, willfully, unlawfully and feloniously issued to JULES-BERNE I. ALABASTRO, Allied Bank, Toril Branch[,] Davao City Check No. 066815 A dated March 31, 1998 in the amount of P280,000.00 in payment of an obligation, which the accused was able to obtain by reason of and simultaneously with the issuance of the said check, that when said check was presented to the drawee bank for encashment, the same was dishonored for the reason ACCOUNT CLOSED and after having been notified by such dishonor said accused failed and refused to redeem said check despite repeated demands, to the damage and prejudice of the complainant in the aforesaid amount. CONTRARY TO LAW.[4] A Warrant[5] for their arrest was subsequently issued. However, only appellant was arrested. She posted a cash bond for her provisional liberty.[6] Her co-accused had flown to Australia before her arrest warrant could be served. She remains at large. Appellant pleaded not guilty upon arraignment.[7] Trial ensued. Danilo Go, acting Branch Head of Allied Bank, Toril Branch, Davao City, testified for the prosecution. He presented an account ledger card[8] dated December 31, 1997. The account ledger card contained the transaction records of Allied Bank NOW (Negotiable Order

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of Withdrawal) Account No. 1333-00033-8 under the name Aloma Reyes and Trichia Mae Reyes[9] which was opened on January 27, 1997 and closed on March 26, 1997.[10] He explained that a NOW Account is a savings account where the drawer may issue checks payable only to a specific payee. A NOW check cannot be issued payable to BEARER. Hence, it cannot be further negotiated. Go identified the subject check as a NOW check issued under appellants NOW Account. It was presented for payment with Allied Bank, the drawee bank of appellant, on April 2, 1998 but was returned to Metrobank, the depository bank of private complainant, on April 3, 1998 for the reason ACCOUNT CLOSED.[11] On cross-examination, Go explained the other entries in the account ledger card. He reiterated that appellant only had a two-month transaction with Allied Bank under the NOW Account. On re-direct examination, he identified another document[12] containing referral items. The document showed a list of NOW checks (the referral items) presented to Allied Bank for clearing after the NOW Account had been closed.[13] These referral items were not listed in the account ledger card which he previously presented because once an account is closed, no further entries are entered in the account ledger card. Private complainant Jules-Berne I. Alabastro was also presented by the prosecution. He testified that he was first introduced by Estrella Paulino to appellant and her daughter sometime in 1996 at his office in Davao City. The latter allegedly begged to have their personal checks discounted. Upon the assurance that their checks were good and considering that appellant and her sister used to be province mates of private complainants parents, he allegedly discounted more or less five or six checks. When asked to present the checks, he explained that he had returned the checks each time they bounce. Upon return, appellant replaced them with cash. He only had in his possession the subject check -- the only check that appellant has not replaced with cash.[14] He further testified that like the other checks which he previously discounted, he gave them cash for the subject check. When he deposited it to his account on its due date, it was dishonored by the drawee bank upon presentment for the reason ACCOUNT CLOSED.[15] He immediately notified appellant but the latter allegedly refused to replace it with cash. [16] He sent a demand letter by registered mail but appellant did not heed his demand. He thus filed the instant case. On cross-examination, private complainant recounted that when he met appellant in 1996, she applied for a loan. He had also previously discounted five or six checks of appellant at varying amounts on different occasions. He, however, said that he was not a moneylender; he helped his wife in the flower shop business. He also refused to disclose the source of the money he used in allegedly discounting the subject P280,000.00-check. He said the source was quite personal.[17] To strengthen his rediscounting theory, private complainant averred that the subject check was complete when it was issued to him: his name, the signatures of appellant and her daughter, the date, and the amount of the subject check were already written on the instrument. He denied that he was the one who filled in the date and the amount of the subject check.[18] The defense presented the sole testimony of appellant. She admitted that she started borrowing money from private complainant in 1996 when she was still engaged in the wholesale of softdrinks. Whenever she borrowed money, she replaced it with checks. However, she suffered business reverses and closed shop.

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To pay her outstanding obligations with private complainant, the latter allegedly made her issue, in one and the same occasion, sixteen (16) NOW checks as installment payments. The first installment payment was to start at P6,000.00; the succeeding fifteen payments were to be at P13,000.00 each. The last installment was to fall on March 31, 1998. Appellant explained that the subject check was one of the sixteen (16) checks. Four (4) of these checks were offered in evidence and marked as exhibits.[19] None of the checks was supposed to exceed the amount of P13,000.00. Hence, during her arrest, she was surprised to learn for the first time about the P280,000.00-check. She got confused that there were two (2) NOW checks dated March 31, 1998: the subject check (Check No. 066815) with the amount of P280,000.00, and the other check (Check No. 066816),[20] with the amount of P13,000.00.[21] On cross-examination, she said that she could not produce the other eleven (11) of the sixteen (16) checks. She admitted signing the checks with her daughter but maintained that the maximum amount she agreed to pay for her obligation was P13,000.00 per check. When asked about a P2,000.00[22] check she issued as recorded in her account ledger card, she said that she probably issued it when her business was still good.[23] She also claimed that she was not able to receive the demand letter sent to her home address. Most of the times, she was in the farm.[24] On re-direct examination, appellant claimed that it was private complainant who wrote the date and the amount in the subject check. She alleged that he was also the one who filled in the dates and the amounts on the other checks on exhibit. She allegedly authorized private complainant to fill in the blank entries for the dates and the amounts because she was grateful that the latter assented to the payment arrangement of P13,000.00 per installment. Furthermore, it was private complainant who would schedule the payment dates.[25] Appellants outstanding obligation was allegedly P232,000.00 when she delivered the instruments. She placed all sixteen (16) checks on the office table of private complainant. They were already signed by her and her daughter. Private complainant thereafter wrote the dates and the amounts. She did not examine the checks after private complainant filled in the dates and the amounts. She was also not aware if private complainant wrote P280,000.00 on the subject check. She allegedly only saw him write P13,000.00 on the checks.[26] On rebuttal, private complainant maintained that the subject check was complete when it was handed to him for rediscounting. He did not know who filled in the date and the amount. He countered that it was appellants and her daughters signatures that were missing. They signed the checks in his presence. He speculated that appellant probably needed a big amount for their softdrinks business at that time. When asked to explain why there were two checks similarly dated March 31, 1998, he merely stated that there was one check that bounced, Check No. 066815, in the amount of P280,000.00[,] dated March 31, 1998.[27] The court a quo convicted appellant upon finding that the prosecution had sufficiently proven the essential elements of estafa. Hence, this appeal. Appellant raises the following Assignment of Errors: I THE TRIAL COURT SERIOUSLY ERRED IN TREATING THE NOW INSTRUMENT AS A CHECK WITHIN THE MEANING OF ARTICLE 315 PARAGRAPH 2(D) OF THE REVISED PENAL CODE,

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CONSIDERING THAT IT IS A NON-NEGOTIABLE INSTRUMENT, THE SAME BEING PAYABLE ONLY TO THE PERSON SPECIFIED THEREIN AND CANNOT BE MADE PAYABLE TO BEARER OR CASH OR BE INDORSED TO A THIRD PERSON. II ASSUMING ARGUENDO THAT THE NOW INSTRUMENT IS A CHECK WITHIN THE AMBIT OF ARTICLE 315 PARAGRAPH 2(D) OF THE REVISED PENAL CODE, THE TRIAL COURT SERIOUSLY ERRED IN FINDING THAT FRAUD AND/OR DECEIT ATTENDED THE ISSUANCE OF THE NOW INSTRUMENT. FROM THE PROSECUTIONS AS WELL AS THE DEFENSES EVIDENCE GLARE (sic) THE FACT THAT: A. THE NOW INSTRUMENT, TOGETHER WITH THE OTHER NOW INSTRUMENTS, WAS ISSUED IN PAYMENT OF A PRE-EXISTING DEBT. THE NOW INSTRUMENT WAS A MERE EVIDENCE OF A LOAN OR SECURITY THEREOF SERVING THE SAME PURPOSE AS A PROMISSORY NOTE.

B.

III THE TRIAL COURT SERIOUSLY ERRED IN CONCLUDING THAT THE PROSECUTION SUFFICIENTLY PROVED THE ESSENTIAL ELEMENTS OF THE CRIME CHARGED. TO BE SURE, THE PROSECUTIONS EVIDENCE FELL SHORT OF THE DEGREE OF PROOF, THAT IS PROOF BEYOND REASONABLE DOUBT, REQUIRED BY LAW TO BE ESTABLISHED IN ORDER TO OVERCOME THE CONSTITUTIONALLY ENSHRINED PRESUMPTION OF INNOCENCE IN FAVOR OF ACCUSED-APPELLANT. VERILY: A. THE PROSECUTIONS EVIDENCE ARE SEVERELY THEMSELVES, INSUFFICIENT AND UNRELIABLE. FLAWED, AND, BY

B.

THE INCONSISTENCIES IN THE TESTIMONY OF THE DEFENSES LONE WITNESS ARE HARMLESS AND SHOULD NOT HAVE PREJUDICED THE DEFENSE IN LIGHT OF THE PRINCIPLE OF LAW THAT THE PROSECUTION MUST ESTABLISH THE GUILT OF THE ACCUSED BY THE STRENGTH OF ITS OWN EVIDENCE AND NOT ON THE WEAKNESS OF THE DEFENSES EVIDENCE OR LACK OF IT. THE PROSECUTIONS EVIDENCE DOES NOT FULFILL THE TEST OF MORAL CERTAINTY AND THEREFORE IS INSUFFICIENT TO SUPPORT A JUDGMENT OF CONVICTION.[28]

C.

We shall resolve the appeal by determining the pivotal issue: whether all the elements of estafa under Article 315, paragraph 2(d) of the Revised Penal Code were sufficiently established in the case at bar. Under Article 315, paragraph 2(d) of the Revised Penal Code, estafa is committed by any person who shall defraud another by false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud. It is committed with the following essential elements which must be proved to sustain a conviction: 1. postdating or issuance of a check in payment of an obligation contracted at the time the check was issued;

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2. lack of sufficiency of funds to cover the check; and 3. damage to the payee thereof.[29] Appellant avers that the subject check does not fall within the meaning of Section 185 of the Negotiable Instruments Law which defines a check as a bill of exchange drawn on a bank payable on demand. First, the NOW check is drawn against the savings, not the current account, of appellant. Second, it is payable only to a specific person or the payee and is not valid when made payable to BEARER or to CASH. [30] Appellant quotes the restriction written on the face of a NOW check: NOW shall be payable only to a specific person, natural or juridical. It is not valid when made payable to BEARER or to CASH or when [i]ndorsed by the payee to another person. Only the payee can encash this NOW with the drawee bank or deposit it in his account with the drawee bank or with any other bank. Appellant posits that this condition strips the subject check the character of negotiability. Hence, it is not a negotiable instrument under the Negotiable Instruments Law, and not the check contemplated in Criminal Law.[31] We disagree. Section X223 of the Manual of Regulations for Banks defines Negotiable Order of Withdrawal (NOW) Accounts as interest-bearing deposit accounts that combine the payable on demand feature of checks and the investment feature of savings accounts. The fact that a NOW check shall be payable only to a specific person, and not valid when made payable to BEARER or to CASH or when indorsed by the payee to another person, is inconsequential. The same restriction is produced when a check is crossed: only the payee named in the check may deposit it in his bank account. If a third person accepts a cross check and pays cash for its value despite the warning of the crossing, he cannot be considered in good faith and thus not a holder in due course. The purpose of the crossing is to ensure that the check will be encashed by the rightful payee only.[32] Yet, despite the restriction on the negotiability of cross checks, we held that they are negotiable instruments.[33] To be sure, negotiability is not the gravamen of the crime of estafa through bouncing checks. It is the fraud or deceit employed by the accused in issuing a worthless check that is penalized. Deceit, to constitute estafa, should be the efficient cause of defraudation. It must have been committed either prior or simultaneous with the defraudation complained of.[34] There must be concomitance: the issuance of a check should be the means to obtain money or property from the payee. Hence, a check issued in payment of a pre-existing obligation does not constitute estafa even if there is no fund in the bank to cover the amount of the check.[35] Appellant maintains that the subject check was one of the sixteen (16) checks she issued at once to private complainant in payment of a pre-existing obligation.[36] The court a quo however upheld private complainants theory that appellant issued him the subject check for rediscounting in February 1998, long after her account was closed on March 26, 1997. We reverse.

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While findings of fact of trial courts are accorded not only respect, but at times, finality, this rule admits of exceptions, as when there is a misappreciation of facts. The evidence on record debunks the rediscounting theory of private complainant. He did not part with his money out of the fraudulent assurances of appellant that the subject check was good and would never bounce. A careful examination of the records establishes that appellant issued him the subject check in payment of a pre-existing obligation. Both private complainant and appellant concur in their testimonies that they met sometime in 1996. Both parties also admit that at this point, appellant started borrowing money from private complainant. It cannot be denied that the subject check, like the four other NOW checks on exhibit, was issued and signed by the same persons and charged to the same NOW Account at Allied Bank. Private complainants theory that these checks were previously issued to him for rediscounting at different times is incredulous: Atty. ZamoraThe question is, how many checks were discounted for the accused. More or less 5 or 6 checks[?] x There were previous checks discounted but on different occasions.[37] xxx You said there were 5 or six checks discounted. You have list of those?

x WitnessAtty. Zamora-

Atty. Alabastro- Already answered. No list.[38] It puzzles the Court that after the NOW check dated August 31, 1997 bounced on September 3, 1997 for the reason ACCOUNT CLOSED, private complainant would still discount appellants checks in succession. It baffles us more that private complainant would discount a P280,000.00-check in February 1998 despite knowledge of the closure of appellants NOW Account. We held in Pacheco v. Court of Appeals[39] that there is no estafa through bouncing checks when it is shown that private complainant knew that the drawer did not have sufficient funds in the bank at the time the check was issued to him. Such knowledge negates the element of deceit and constitutes a defense in estafa through bouncing checks. In the case at bar, private complainant knew that appellant did not only have insufficient funds; he knew her NOW Account was closed at the time he allegedly discounted the subject check. This is proven by the following undisputed facts: First. Appellant presented four (4) NOW checks, each bearing the amount of P13,000.00, and respectively dated August 31, 1997, January 31, 1998, March 1, 1998 and March 31, 1998. The evidence on record shows that private complainant deposited the NOW check dated August 31, 1997 to his Metrobank account on September 1, 1997. On September 2, 1997, Metrobank returned the instrument to Allied Bank with the notation ACCOUNT CLOSED.

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Hence, as early as September 2, 1997, private complainant already knew that appellants NOW Account had been closed.[40] Second. Fatal to private complainants case are his own admissions as to when he received the subject check. In his Affidavit-Complaint[41] dated February 25, 1999, private complainant stated, viz.: x x x That sometime in Feb. 1998, a certain ALOMA REYES AND TRICHIA MAE REYES x x x came to me and begged to have their personal check discounted with earnest representations that their check was good check and would never bounce and because of their seeming honest representations I was lured to discount their check which is --ALLIED BANK CHECK NO. 066815-A DATED MAR. 31, 1998 AMOUNTING TO P280,000.00. They handed the check to me and I simultaneously gave them the money;[42] (emphasis supplied) In the Information filed, it was stated, viz.: That sometime in February 1998, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, conspiring and confederating together, by means of false pretense and with intent to defraud, willfully, unlawfully and feloniously issued to JULES-BERNE I. ALABASTRO, Allied Bank, Toril Branch[,] Davao City Check No. 066815 A dated March 31, 1998 in the amount of P280,000.00 x x x[43] (emphasis supplied) If the subject check was issued to him in February 1998, as he alleges, at that time he already knew that the NOW Account where the subject NOW check is charged was closed. The NOW checks on record are irrefragable pieces of evidence that private complainant knew the NOW Account was closed. In light of the established facts, private complainants rediscounting theory must fail. Appellant issued the subject check in payment of a pre-existing obligation. When the NOW Account was closed on March 26, 1997, private complainant already had in his possession the NOW check in question. It was one of the sixteen (16) NOW checks previously issued by private complainant before the closure of the NOW Account. No deceit or damage attended the transaction. There being none in the case at bar, there can be no estafa through bouncing checks. Despite the inconsistencies[44] in the testimony of appellant, these were minor and did not destroy her credibility nor shatter the theory of the defense. To be sure, the prosecution failed to prove the guilt of appellant beyond reasonable doubt. As a matter of right, the constitutional presumption of innocence of appellant must be favored regardless of the inconsistencies in her testimony or the weakness of her own defense. Appellant, however, is not without liability. An accused acquitted of estafa may be held civilly liable in the same case where the facts established by the evidence so warrant. In the case at bar, the records lack sufficient evidence to determine the amount of her remaining obligation.

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This Court is not a trier of facts and where the evidence on record is not sufficient to warrant a conclusion, the case should be remanded to the court a quo for reception of further evidence. IN VIEW WHEREOF, appellant Aloma Reyes is ACQUITTED of estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as amended. The assailed Sentence of the Regional Trial Court of Davao City, Branch 11, dated March 13, 2002 is REVERSED and SET ASIDE. The case is REMANDED to the court a quo for the determination of appellants civil liability. The Director of the Bureau of Corrections is DIRECTED to release her IMMEDIATELY unless she is being lawfully held for another offense. SO ORDERED. Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

Republic SUPREME Manila FIRST DIVISION G.R. No. 168486

of

the

Philippines COURT

June 27, 2006 Petitioner,

NOE S. ANDAYA, vs. PEOPLE OF THE PHILIPPINES, Respondent. DECISION YNARES-SANTIAGO, J.:

This is a petition for review on certiorari from the September 29, 2004 Decision 1 of the Court of Appeals in CA-G.R. CR No. 26556, affirming the January 29, 2002 Decision 2 of the Regional Trial Court, Branch 104 of Quezon City in Criminal Case No. 92-36145, convicting petitioner Noe S. Andaya of falsification of private document, and the April 26, 2005 Resolution 3 denying the motion for reconsideration. Complainant Armed Forces and Police Savings and Loan Association, Inc. (AFPSLAI) is a nonstock and non-profit association authorized to engage in savings and loan transactions. In 1986, petitioner Noe S. Andaya was elected as president and general manager of AFPSLAI. During his term, he sought to increase the capitalization of AFPSLAI to boost its lending capacity to its members. Consequently, on June 1, 1988, the Board of Trustees of AFPSLAI passed and approved Resolution No. RS-88-006-048 setting up a Finders Fee Program whereby any officer, member or employee, except investment counselors, of AFPSLAI who could solicit an investment of not less than P100,000.00 would be entitled to a finders fee equivalent to one percent of the amount solicited. In a letter4 dated September 1991, the Central Bank wrote Gen. Lisandro C. Abadia, then Chairman of the Board of Trustees, regarding the precarious financial position of AFPSLAI

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due to its alleged flawed management. As a result, Gen. Abadia requested the National Bureau of Investigation (NBI) to conduct an investigation on alleged irregularities in the operations of AFPSLAI which led to the filing of several criminal cases against petitioner, one of which is the instant case based on the alleged fraudulent implementation of the Finders Fee Program. On October 5, 1992, an information for estafa through falsification of commercial document was filed against petitioner, to wit: The undersigned accuses NOE S. ANDAYA of the crime of Estafa thru Falsification of Commercial Document, committed as follows: That on or about the 8th day of April, 1991 in Quezon City, Philippines, the above-named accused, with intent to gain, by means of deceit, false pretenses and falsification of commercial document, did then and there, wilfully, unlawfully and feloniously defraud the ARMED FORCES AND POLICE SAVINGS AND LOAN ASSOCIATION, INC., represented by its Chairman of the Board of Director[s], Gen. Lisandro C. Abadia, AFP, in the following manner, to wit: on the date and in the place aforementioned the said accused being then the President and General Manager of the Armed Forces and Police Savings and Loan Association, Inc., caused and approved the disbursement of the sum of P21,000.00, Philippine Currency, from the funds of the association, by then and there making it appear in Disbursement Voucher No. 58380 that said amount represented the 1% finders fee of one DIOSDADO J. GUILLAS [Guilas]; when in truth and in fact accused knew fully well that there was no such payment to be made by the association as finders fee; that by virtue of said falsification, said accused was able to encashed (sic) and received (sic) MBTC Check No. 583768 in the sum of P21,000.00, which amount once in his possession, misapplied, misappropriated and converted to his own personal use and benefit, to the damage and prejudice of the said offended party in the aforesaid sum of P21,000.00, Philippine Currency. CONTRARY TO LAW.5 (Emphasis supplied) The case was raffled to Branch 104 of the Regional Trial Court of Quezon City and docketed as Criminal Case No. 92-36145. On May 30, 1994, petitioner was arraigned 6 and pleaded not guilty to the charge, after which trial on the merits ensued. The prosecution presented two witnesses, namely, Diosdado Guilas and Judy Balangue. Guilas, a general clerk of AFPSLAIs Time Deposit Section, testified that on April 8, 1991, he was informed by Tini Gabriel and Julie Alabansa of the Treasury Department that there was a finders fee in the amount of P21,000.00 in his name. Subsequently, Judy Balangue, an investment clerk of the Time Deposit Section, told him that the finders fee was for petitioner. When Guilas went to petitioners office to inform him about the finders fee in his (Guilas) name, petitioner instructed him to collect the P21,000.00 and turn over the same to the latter. Guilas returned to the Treasury Department and signed Disbursement Voucher No. 583807 afterwhich he was issued Metrobank Check No. 683768 8 for P21,000.00. After encashing the check, he turned over the proceeds to petitioner. On cross-examination, Guilas admitted that there was no prohibition in placing the finders fee under the name of a person who did not actually solicit the investment. Balangue also testified that on April 3, 1991, petitioner instructed him to prepare Certificate of Capital Contribution Monthly No. 521789 in the name of Rosario Mercader for an investment in AFPSLAI in the amount of P2,100,000.00 and to inform Guilas that the finders fee for the aforesaid investment will be placed in the latters name. On cross-examination,

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Balangue confirmed that a P2,100,000.00 worth of investment from Rosario Mercader was deposited in AFPSLAI. He further acknowledged that the Finders Fee Program did not prohibit the placing of another persons name as payee of the finders fee. The defense presented three witnesses, namely, Emerita Arevalo, Ernesto Hernandez and petitioner. Arevalo, secretary of petitioner in AFPSLAI, explained that the finders fee was for the P2,100,000.00 investment solicited by Ernesto Hernandez from Rosario Mercader. The finders fee was placed in the name of Guilas upon request of Hernandez so that the same would not be reflected in his (Hernandezs) income tax return. She alleged that Guilas consented to the arrangement of placing the finders fee in his (Guilas) name. She also claimed that there was no prohibition in the Finders Fee Program regarding the substitution of the name of the solicitor as long as there was no double claim for the finders fee over the same investment. Hernandez, an associate member of AFPSLAI and vice president of Philippine Educational Trust Plan, Inc. (PETP Plans), testified that sometime in 1991, he was able to solicit from Rosario Mercader an investment of P2,100,000.00 in AFPSLAI. He also asked petitioner to place the finders fee in the name of one of his employees so that he (Hernandez) would not have to report a higher tax base in his income tax return. On April 8, 1991, petitioner handed to him the finders fee in the amount of P21,000.00. Petitioner denied all the charges against him. He claimed that the P21,000.00 finders fee was in fact payable by AFPSLAI because of the P2,100,000.00 investment of Rosario Mercader solicited by Ernesto Hernandez. He denied misappropriating the P21,000.00 finders fee for his personal benefit as the same was turned over to Ernesto Hernandez who was the true solicitor of the aforementioned investment. Since the finders fee was in fact owed by AFPSLAI, then no damage was done to the association. The finders fee was placed in the name of Guilas as requested by Hernandez in order to reduce the tax obligation of the latter. According to petitioner, Guilas consented to the whole setup. Petitioner also claimed that Hernandez was an associate member of AFPSLAI because his application for membership was approved by the membership committee and the Board of Trustees and was in fact issued an I.D. There was no prohibition under the rules and regulation of the Finders Fee Program regarding the substitution of the name of the solicitor with the name of another person. On cross-examination, petitioner claimed that he merely approved the substitution of the name of Hernandez with that of Guilas in the disbursement voucher upon the request of Hernandez. He brushed aside the imputation of condoning tax evasion by claiming that the issue in the instant proceedings was whether he defrauded AFPSLAI and not his alleged complicity in tax evasion. After the defense rested its case, the prosecution presented two rebuttal witnesses, namely, Ma. Victoria Maigue and Ma. Fe Moreno. Maigue, membership affairs office supervisor of AFPSLAI, testified that Hernandez was ineligible to become a member of AFPSLAI under sections 1 and 2 of Article II of the associations by-laws. However, she admitted that the application of Hernandez as member was approved by the membership committee. Moreno, legal officer of AFPSLAI at the time of her testimony on January 25, 2000, stated that there are eight criminal cases pending against the petitioner in various branches of the Regional Trial Court of Quezon City. In one case decided by Judge Bacalla of Branch 216,

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petitioner was convicted of estafa through falsification involving similar facts as the instant case. She further stated that Hernandez was not a member of AFPSLAI under sections 1 and 2 of Article II of the by-laws. On cross-examination, she admitted that the case decided by Judge Bacalla convicting petitioner was on appeal with the Court of Appeals. The defense dispensed with the presentation of Mercader in view of the stipulation of the prosecution on the fact that Mercader was a depositor of AFPSLAI and that she was convinced to invest in the association by Ernesto Hernandez. 10 On June 20, 2001, the trial court rendered a Decision 11 convicting petitioner of falsification of private document. On July 5, 2001, petitioner filed a motion for new trial. 12 In an Order13 dated December 20, 2001, the trial court ruled that the evidence submitted by petitioner in support of his motion was inadequate to conduct a new trial, however, in the interest of substantial justice, the case should still be reopened pursuant to Section 24, 14 Rule 119 of the Rules of Court in order to avoid a miscarriage of justice. Petitioner proceeded to submit documentary evidence consisting of the financial statements of AFPSLAI from 1996 to 1999 to show that AFPSLAI did not suffer any damage from the payment of the P21,000.00 finders fee. He likewise offered the testimony of Paterno Madet, senior vice president of AFPSLAI, who testified that he was personally aware that Rosario Mercader invested P2,100,000.00 in AFPSLAI; that Hernandez was a member of AFPSLAI and was the one who convinced Mercader to invest; that the finders fee was placed in the name of Guilas; that petitioner called him to grant the request of Hernandez for the finders fee to be placed in the name of one of the employees of AFPSLAI; that there was no policy which prohibits the placing of the name of the solicitor of the investment in the name of another person; that the substitution of the name of Hernandez with that of Guilas was approved by petitioner but he (Madet) was the one who approved the release of the disbursement voucher. On January 29, 2002, the trial court rendered the assailed Decision convicting petitioner of falsification of private document based on the following findings of fact: Hernandez solicited from Rosario Mercader an investment of P2,100,000.00 for AFPSLAI; Hernandez requested petitioner to place the finders fee in the name of another person; petitioner caused it to appear in the disbursement voucher that Guilas solicited the aforesaid investment; the voucher served as the basis for the issuance of the check for P21,000.00 representing the finders fee for the investment of Mercader; and Guilas encashed the check and turned over the money to petitioner who in turn gave it to Hernandez. The trial court ruled that all the elements of falsification of private document were present. First, petitioner caused it to appear in the disbursement voucher, a private document, that Guilas, instead of Hernandez, was entitled to a P21,000.00 finders fee. Second, the falsification of the voucher was done with criminal intent to cause damage to the government because it was meant to lower the tax base of Hernandez and, thus, evade payment of taxes on the finders fee. Petitioner moved for reconsideration but was denied by the trial court in an Order 15 dated May 13, 2002. On appeal, the Court of Appeals affirmed in toto the decision of the trial court and denied petitioners motion for reconsideration; hence, the instant petition challenging the validity of his conviction for the crime of falsification of private document. Preliminarily, petitioner contends that the Court of Appeals contradicted the ruling of the trial court. He claims that the Court of Appeals stated in certain portions of its decision that

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petitioner was guilty of estafa through falsification of commercial document whereas in the trial courts decision petitioner was convicted of falsification of private document. A close reading of the Court of Appeals decision shows that the alleged points of contradiction were the result of inadvertence in the drafting of the same. Read in its entirety, the decision of the Court of Appeals affirmed in toto the decision of the trial court and, necessarily, it affirmed the conviction of petitioner for the crime of falsification of private document and not of estafa through falsification of commercial document. In the main, petitioner implores this Court to review the pleadings he filed before the lower courts as well as the evidence on record on the belief that a review of the same will prove his innocence. However, he failed to specify what aspects of the factual and legal bases of his conviction should be reversed. Time honored is the principle that an appeal in a criminal case opens the whole action for review on any question including those not raised by the parties. 16 After a careful and thorough review of the records, we are convinced that petitioner should be acquitted based on reasonable doubt. The elements of falsification of private document under Article 172, paragraph 2 17 in relation to Article 17118 of the Revised Penal Code are: (1) the offender committed any of the acts of falsification under Article 171 which, in the case at bar, falls under paragraph 2 of Article 171, i.e., causing it to appear that persons have participated in any act or proceeding when they did not in fact so participate; (2) the falsification was committed on a private document; and (3) the falsification caused damage or was committed with intent to cause damage to a third party. Although the public prosecutor designated the offense charged in the information as estafa through falsification of commercial document, petitioner could be convicted of falsification of private document, had it been proper, under the well-settled rule that it is the allegations in the information that determines the nature of the offense and not the technical name given by the public prosecutor in the preamble of the information. We explained this principle in the case of U.S. v. Lim San19 in this wise: From a legal point of view, and in a very real sense, it is of no concern to the accused what is the technical name of the crime of which he stands charged. It in no way aids him in a defense on the merits. x x x That to which his attention should be directed, and in which he, above all things else, should be most interested, are the facts alleged. The real question is not did he commit a crime given in the law some technical and specific name, but did he perform the acts alleged in the body of the information in the manner therein set forth. x x x The real and important question to him is, "Did you perform the acts alleged in the manner alleged?" not, "Did you commit a crime named murder?" If he performed the acts alleged, in the manner stated, the law determines what the name of the crime is and fixes the penalty therefor. x x x If the accused performed the acts alleged in the manner alleged, then he ought to be punished and punished adequately, whatever may be the name of the crime which those acts constitute.20 The facts alleged in the information are sufficient to constitute the crime of falsification of private document. Specifically, the allegations in the information can be broken down into the three aforestated essential elements of this offense as follows: (1) petitioner caused it to appear in Disbursement Voucher No. 58380 that Diosdado Guillas was entitled to a finders fee from AFPSLAI in the amount of P21,000.00 when in truth and in fact no finders fee was

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due to him; (2) the falsification was committed on Disbursement Voucher No. 58380; and (3) the falsification caused damage to AFPSLAI in the amount of P21,000.00. The first element of the offense charged in the information was proven by the prosecution. The testimonies of the prosecution witnesses, namely, Diosdado Guilas and Judy Balangue, as well as the presentation of Disbursement Voucher No. 58380 established that petitioner caused the preparation of the voucher in the name of Guilas despite knowledge that Guilas was not entitled to the finders fee. Significantly, petitioner admitted his participation in falsifying the voucher when he testified that he authorized the release of the voucher in the name of Guilas upon the request of Ernesto Hernandez. While petitioner did not personally prepare the voucher, he could be considered a principal by induction, had his conviction been proper, since he was the president and general manager of AFPSLAI at the time so that his employees merely followed his instructions in preparing the falsified voucher. The second element of the offense charged in the information, i.e., the falsification was committed in Disbursement Voucher No. 58380, a private document, is likewise present. It appears that the public prosecutor erroneously characterized the disbursement voucher as a commercial document so that he designated the offense as estafa through falsification of commercial document in the preamble of the information. However, as correctly ruled by the trial court,21 the subject voucher is a private document only; it is not a commercial document because it is not a document used by merchants or businessmen to promote or facilitate trade or credit transactions22 nor is it defined and regulated by the Code of Commerce or other commercial law.23 Rather, it is a private document, which has been defined as a deed or instrument executed by a private person without the intervention of a public notary or of other person legally authorized, by which some disposition or agreement is proved, evidenced or set forth,24 because it acted as the authorization for the release of the P21,000.00 finders fee to Guilas and as the receipt evidencing the payment of this finders fee. While the first and second elements of the offense charged in the information were satisfactorily established by the prosecution, it is the third element which is decisive in the instant case. In the information, it was alleged that petitioner caused damage in the amount of P21,000.00 to AFPSLAI because he caused it to appear in the disbursement voucher that Diosdado Guilas was entitled to a P21,000.00 finders fee when in truth and in fact AFPSLAI owed no such sum to him. However, contrary to these allegations in the information, petitioner was able to prove that AFPSLAI owed a finders fee in the amount of P21,000.00 although not to Guilas but to Ernesto Hernandez. It was positively shown that Hernandez was able to solicit a P2,100,000.00 worth of investment for AFPSLAI from Rosario Mercader which entitled him to a finders fee equivalent to one percent of the amount solicited (i.e., P21,000.00) under the Finders Fee Program. The documentary evidence consisting of the Certificate of Capital Contribution Monthly No. 5217825 which was presented by the prosecution categorically stated that Rosario Mercader deposited P2,100,000.00 worth of investment in AFPSLAI. In fact, Rosario Mercader was no longer presented as a defense witness in view of the stipulation by the prosecution on the fact that Mercader was a depositor of AFPSLAI and that Hernandez was the one who convinced her to make such deposit. 26 Moreover, the defense showed that the disbursement voucher was merely placed in the name of Guilas upon the request of Hernandez so that he would have a lower tax base. Thus, after Guilas received the P21,000.00 from AFPSLAI, he gave the money to petitioner who in turn surrendered the amount to Hernandez. It was further established that Hernandez was an associate member of AFPSLAI and, thus, covered by the Finders Fee Program. The prosecution tried to cast doubt on the validity of

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Hernandezs membership in the association but it merely relied on the unsubstantiated claims of its two rebuttal witnesses, namely, Ma. Victoria Maigue, membership affairs office supervisor of AFPSLAI and Ma. Fe Moreno, legal officer of AFPSLAI, who claimed that Hernandez was disqualified from being an associate member under AFPSLAIs by-laws. However, except for a recital of certain provisions of the by-laws, they failed to support their claims with documentary evidence clearly showing that Hernandez was disqualified from being an associate member. Significantly, Maigue admitted on cross-examination that Hernandezs membership was approved by AFPSLAIs membership committee and was issued an AFPSLAI I.D. card. 27 Documentary evidence consisting of Hernandezs I.D. card as well as the oral testimonies of petitioner, Arevalo and Hernandez, and the admission of Maigue on cross-examination, support the claim of the defense that Hernandez was an associate member of AFPSLAI. Considering that Hernandez was able to solicit a P2,100,000.00 investment from Mercader, it follows that he was entitled to receive the finders fee in the amount of P21,000.00. AFPSLAI suffered no damage because it really owed the P21,000.00 finders fee to Hernandez albeit the sum was initially paid to Guilas and only later turned over to Hernandez. Clearly then, the third essential element of the offense as alleged in the information, i.e., the falsification caused damage to AFPSLAI in the amount of P21,000.00, was not proven by the prosecution. In all criminal prosecutions, the burden of proof is on the prosecution to establish the guilt of the accused beyond reasonable doubt. 28 It has the duty to prove each and every element of the crime charged in the information to warrant a finding of guilt for the said crime or for any other crime necessarily included therein. However, in the case at bar, the prosecution failed to prove the third essential element of the crime charged in the information. Thus, petitioner should be acquitted due to insufficiency of evidence. The trial court convicted petitioner of falsification of private document, while conceding that AFPSLAI suffered no damage, however, the court reasoned that the third essential element of falsification of private document was present because the falsification of the voucher was done with criminal intent to cause damage to the government considering that its purpose was to lower the tax base of Hernandez and, thus, allow him to evade payment of taxes on the finders fee. We find ourselves unable to agree with this ratiocination of the trial court because it violates the constitutional right29 of petitioner to be informed of the nature and cause of the accusation against him. As early as the 1904 case of U.S. v. Karelsen, 30 the rationale of this fundamental right of the accused was already explained in this wise: The object of this written accusation was First. To furnish the accused with such a description of the charge against him as will enable him to make his defense; and second, to avail himself of his conviction or acquittal for protection against a further prosecution for the same cause; and third, to inform the court of the facts alleged, so that it may decide whether they are sufficient in law to support a conviction, if one should be had. (United States vs. Cruikshank, 92 U.S. 542.) In order that this requirement may be satisfied, facts must be stated, not conclusions of law. Every crime is made up of certain acts and intent; these must be set forth in the complaint with reasonable particularity of time, place, names (plaintiff and defendant), and circumstances. In short, the complaint must contain a specific allegation of every fact and circumstances necessary to constitute the crime charged. 31 (Emphasis supplied)

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It is fundamental that every element constituting the offense must be alleged in the information. The main purpose of requiring the various elements of a crime to be set out in the information is to enable the accused to suitably prepare his defense because he is presumed to have no independent knowledge of the facts that constitute the offense. 32 The allegations of facts constituting the offense charged are substantial matters and an accuseds right to question his conviction based on facts not alleged in the information cannot be waived.33 No matter how conclusive and convincing the evidence of guilt may be, an accused cannot be convicted of any offense unless it is charged in the information on which he is tried or is necessarily included therein. 34 To convict him of a ground not alleged while he is concentrating his defense against the ground alleged would plainly be unfair and underhanded.35 The rule is that a variance between the allegation in the information and proof adduced during trial shall be fatal to the criminal case if it is material and prejudicial to the accused so much so that it affects his substantial rights. 36 Thus, in Alonto v. People,37 Dico v. Court of Appeals38 and Ongson v. People,39 we acquitted the accused for violation of Batas Pambansa Bilang 22 ("The Bouncing Checks Law") because there was a variance between the identity and date of issuance of the check alleged in the information and the check proved by the prosecution during trial: This Court notes, however, that under the third count, the information alleged that petitioner issued a check dated May 14, 1992 whereas the documentary evidence presented and duly marked as Exhibit "I" was BPI Check No. 831258 in the amount of P25,000 dated April 5, 1992. Prosecution witness Fernando Sardes confirmed petitioner's issuance of the three BPI checks (Exhibits "G," "H," and "I"), but categorically stated that the third check (BPI Check No. 831258) was dated May 14, 1992, which was contrary to that testified to by private complainant Violeta Tizon, i.e., BPI check No. 831258 dated April 5, 1992. In view of this variance, the conviction of petitioner on the third count (Criminal Case No. Q-93-41751) cannot be sustained. It is on this ground that petitioner's fourth assignment of error is tenable, in that the prosecution's exhibit, i.e., Exhibit "I" (BPI Check No. 831258 dated April 5, 1992 in the amount of P25,000) is excluded by the law and the rules on evidence. Since the identity of the check enters into the first essential element of the offense under Section 1 of B.P. 22, that is, that a person makes, draws or issues a check on account or for value, and the date thereof involves its second element, namely, that at the time of issue the maker, drawer or issuer knew that he or she did not have sufficient funds to cover the same, there is a violation of petitioner's constitutional right to be informed of the nature of the offense charged in view of the aforesaid variance, thereby rendering the conviction for the third count fatally defective.40 (Underscoring supplied) Similarly, in the case of Burgos v. Sandiganbayan, 41 we upheld the constitutional right of the accused to be informed of the accusation against him in a case involving a variance between the means of committing the violation of Section 3(e) of R.A. 3019 alleged in the information and the means found by the Sandiganbayan: Common and foremost among the issues raised by petitioners is the argument that the Sandiganbayan erred in convicting them on a finding of fact that was not alleged in the information. They contend that the information charged them with having allowed payment of P83,850 to Ricardo Castaeda despite being aware and knowing fully well that the surveying instruments were not actually repaired and rendered functional/operational. However, their conviction by the Sandiganbayan was based on the finding that the surveying instruments were not repaired in accordance with the specifications contained in the job orders. xxxx

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In criminal cases, where the life and liberty of the accused is at stake, due process requires that the accused be informed of the nature and cause of the accusation against him. An accused cannot be convicted of an offense unless it is clearly charged in the complaint or information. To convict him of an offense other than that charged in the complaint or information would be a violation of this constitutional right. The important end to be accomplished is to describe the act with sufficient certainty in order that the accused may be appraised of the nature of the charge against him and to avoid any possible surprise that may lead to injustice. Otherwise, the accused would be left in the unenviable state of speculating why he is made the object of a prosecution. xxxx There is no question that the manner of commission alleged in the information and the act the Sandiganbayan found to have been committed are both violations of Section 3(e) of R.A. 3019. Nonetheless, they are and remain two different means of execution and, even if reference to Section 3(e) of R.A. 3019 has been made in the information, appellants conviction should only be based on that which was charged, or included, in the information. Otherwise, there would be a violation of their constitutional right to be informed of the nature of the accusation against them. In Evangelista v. People, a judgment of conviction by the Sandiganbayan, for violation of Section 3(e) of the Anti-Graft and Corrupt Practices Act, was reversed by the Court on the ground that accused was made liable for acts different from those described in the information. The accused therein was convicted on the finding that she failed to identify with certainty in her certification the kinds of taxes paid by Tanduay Distillery, Inc., although the information charged her with falsifying said certificate. The Court said that, constitutionally, the accused has a right to be informed of the nature and cause of the accusation against her. To convict her of an offense other than that charged in the complaint or information would be a violation of this constitutional right. Contrary to the stand of the prosecution, the allegations contained in the information and the findings stated in the Sandiganbayan decision are not synonymous. This is clearly apparent from the mere fact that the defenses applicable for each one are different. To counter the allegations contained in the information, petitioners only had to prove that the instruments were repaired and rendered functional/operational. Under the findings stated in the Sandiganbayan decision, petitioners defense would have been to show not only that the instruments were repaired, but were repaired in accordance with the job order. xxxx This is not to say that petitioners cannot be convicted under the information charged. The information in itself is valid. It is only that the Sandiganbayan erred in convicting them for an act that was not alleged therein. x x x.42 (Underscoring supplied) As in the Burgos case, the information in the case at bar is valid, however, there is a variance between the allegation in the information and proof adduced during trial with respect to the third essential element of falsification of private document, i.e., the falsification caused damage or was committed with intent to cause damage to a third party. To reiterate, petitioner was charged in the information with causing damage to AFPSLAI in the amount of P21,000.00 because he caused it to appear in the disbursement voucher that Guilas was entitled to a P21,000.00 finders fee when in truth and in fact AFPSLAI owed no such amount to Guilas. However, he was convicted by the trial court of falsifying the voucher

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with criminal intent to cause damage to the government because the trial court found that petitioners acts were designed to lower the tax base of Hernandez and aid the latter in evading payment of taxes on the finders fee. We find this variance material and prejudicial to petitioner which, perforce, is fatal to his conviction in the instant case. By the clear and unequivocal terms of the information, the prosecution endeavored to prove that the falsification of the voucher by petitioner caused damage to AFPSLAI in the amount of P21,000.00 and not that the falsification of the voucher was done with intent to cause damage to the government. It is apparent that this variance not merely goes to the identity of the third party but, more importantly, to the nature and extent of the damage done to the third party. Needless to state, the defense applicable for each is different. More to the point, petitioner prepared his defense based precisely on the allegations in the information. A review of the records shows that petitioner concentrated on disproving that AFPSLAI suffered damage for this was the charge in the information which he had to refute to prove his innocence. As previously discussed, petitioner proved that AFPSLAI suffered no damage inasmuch as it really owed the finders fee in the amount of P21,000.00 to Hernandez but the same was placed in the name of Guilas upon Hernandezs request. If we were to convict petitioner now based on his intent to cause damage to the government, we would be riding roughshod over his constitutional right to be informed of the accusation because he was not forewarned that he was being prosecuted for intent to cause damage to the government. It would be simply unfair and underhanded to convict petitioner on this ground not alleged while he was concentrating his defense against the ground alleged. The surprise and injustice visited upon petitioner becomes more evident if we take into consideration that the prosecution never sought to establish that petitioners acts were done with intent to cause damage to the government in that it purportedly aided Hernandez in evading the payment of taxes on the finders fee. The Bureau of Internal Revenue was never made a party to this case. The income tax return of Hernandez was, likewise, never presented to show the extent, if any, of the actual damage to the government of the supposed under declaration of income by Hernandez. Actually, the prosecution never tried to establish actual damage, much less intent to cause damage, to the government in the form of lost income taxes. There was here no opportunity for petitioner to object to the evidence presented by the prosecution on the ground that the evidence did not conform to the allegations in the information for the simple reason that no such evidence was presented by the prosecution to begin with. Instead, what the trial court did was to deduce intent to cause damage to the government from the testimony of petitioner and his three other witnesses, namely, Arevalo, Hernandez and Madet, that the substitution of the names in the voucher was intended to lower the tax base of Hernandez to avoid payment of taxes on the finders fee. In other words, the trial court used part of the defense of petitioner in establishing the third essential element of the offense which was entirely different from that alleged in the information. Under these circumstances, petitioner obviously had no opportunity to defend himself with respect to the charge that he committed the acts with intent to cause damage to the government because this was part of his defense when he explained the reason for the substitution of the names in the voucher with the end goal of establishing that no actual damage was done to AFPSLAI. If we were to approve of the method employed by the trial court in convicting petitioner, then we would be sanctioning the surprise and injustice that the accuseds constitutional right to be informed of the nature and cause of the accusation against him precisely seeks to prevent. It would be plain denial of due process.

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In view of the foregoing, we rule that it was error to convict petitioner for acts which purportedly constituted the third essential element of the crime but which were entirely different from the acts alleged in the information because it violates in no uncertain terms petitioners constitutional right to be informed of the nature and cause of the accusation against him. No doubt tax evasion is a deplorable act because it deprives the government of much needed funds in delivering basic services to the people. However, the culpability of petitioner should have been established under the proper information and with an opportunity for him to adequately prepare his defense. It is worth mentioning that the public prosecutor has been apprised of petitioners defense in the counter-affidavit 43 that he filed before the NBI. He claimed there that AFPSLAI really owed the P21,000.00 finders fee not to Guilas but to Hernandez and that the finders fee was placed in the name of Guilas under a purported financial arrangement between petitioner and Guilas. Yet in his Resolution 44 dated September 14, 1992, the public prosecutor disregarded petitioners defense and proceeded to file the information based on the alleged damage that petitioner caused to AFPSLAI in the amount of P21,000.00 representing unwarranted payment of finders fee. 45 During the trial proper, the prosecution was again alerted to the fact that AFPSLAI suffered no actual damage and that the substitution of the names in the voucher was designed to aid Hernandez in evading the payment of taxes on the finders fee. This was shown by no less than the prosecutions own documentary evidence the Certificate of Capital Contribution Monthly No. 52178 in the amount of P2,100,000.00 issued to Rosario Mercader which was prepared and identified by the prosecution witness, Judy Balangue. Later on, the testimonies of the defense witnesses, Arevalo, Hernandez, Madet and petitioner, clearly set forth the reasons for the substitution of the names in the disbursement voucher. However, the prosecution did not take steps to seek the dismissal of the instant case and charge petitioner and his cohorts with the proper information before judgment by the trial court as expressly allowed under Section 19, 46 Rule 119 of the Rules of Court. 47 Instead, the prosecution proceeded to try petitioner under the original information even though he had an adequate defense against the offense charged in the information. Regrettably, these mistakes of the prosecution can only benefit petitioner. In closing, it is an opportune time to remind public prosecutors of their important duty to carefully study the evidence on record before filing the corresponding information in our courts of law and to be vigilant in identifying and rectifying errors made. Mistakes in filing the proper information and in the ensuing prosecution of the case serve only to frustrate the States interest in enforcing its criminal laws and adversely affect the administration of justice. WHEREFORE, the petition is GRANTED. The September 29, 2004 Decision and April 26, 2005 Resolution of the Court Appeals in CA-G.R. CR No. 26556 are REVERSED and SET ASIDE. Petitioner is ACQUITTED based on reasonable doubt. The Bail Bond is CANCELLED. SO ORDERED. Republic SUPREME Manila FIRST DIVISION G.R. No. 139857 September 15, 2006 of the Philippines COURT

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LEONILA BATULANON, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION YNARES-SANTIAGO, J.: This petition assails the October 30, 1998 Decision 1 of the Court of Appeals in CA-G.R. CR No. 15221, affirming with modification the April 15, 1993 Decision 2 of the Regional Trial Court of General Santos City, Branch 22 in Criminal Case Nos. 3453, 3625, 3626 and 3627, convicting Leonila Batulanon of estafa through falsification of commercial documents, and the July 29, 1999 Resolution3 denying the motion for reconsideration. Complainant Polomolok Credit Cooperative Incorporated (PCCI) employed Batulanon as its Cashier/Manager from May 1980 up to December 22, 1982. She was in charge of receiving deposits from and releasing loans to the member of the cooperative. During an audit conducted in December 1982, certain irregularities concerning the release of loans were discovered.4 Thereafter, four informations for estafa thru falsification of commercial documents were filed against Batulanon, to wit: Criminal Case No. 3625 That on or about the 2nd day of June, 1982 at Poblacion Municipality of Polomolok, Province of South Cotabato, Philippines, and within the jurisdiction of the Honorable Court said accused being then the manager-cashier of Polomolok Credit Cooperative, Inc., (PCCI), entrusted with the duty of managing the aff[a]irs of the cooperative, receiving payments to, and collections of, the same, and paying out loans to members, taking advantage of her position and with intent to prejudice and defraud the cooperative, did then and there willfully, unlawfully and feloniously falsify a commercial document, namely: Cash/Check Voucher No. 30-A of PCCI in the name of Erlinda Omadlao by then and there making an entry therein that the said Erlinda Omadlao was granted a loan of P4,160, Philippine Currency, and by signing on the appropriate line thereon the signature of Erlinda Omadlao showing that she received the loan, thus making it appear that the said Erlinda Omadlao was granted a loan and received the amount of P4,160 when in truth and in fact the said person was never granted a loan, never received the same, and never signed the cash/check voucher issued in her name, and in furtherance of her criminal intent and fraudulent design to defraud PCCI said accused did then and there release to herself the same and received the loan of P4,160 and thereafter misappropriate and convert to her own use and benefit the said amount, and despite demands, refused and still refuses to restitute the same, to the damage and prejudice of PCCI, in the aforementioned amount of P4,160, Philippine Currency.5 Criminal Case No. 3626 That on or about the 24th day of September, 1982 at Poblacion, Municipality of Polomolok, Province of South Cotabato, Philippines, and within the jurisdiction of the Honorable Court, said accused being then the manager-cashier of Polomolok Credit Cooperative, Inc. (PCCI), entrusted with the duty of managing the affairs of the petitioner,

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cooperative, receiving payments to, and collections of, the same, and paying out loans to members taking advantage of her position and with intent to prejudice and defraud the cooperative, did then and there willfully, unlawfully and feloniously falsify a commercial document, namely: Cash/Check Voucher No. 237 A of PCCI in the name of Gonafreda Oracion by then and there making an entry therein that the said Gonafreda Oracion was granted a loan of P4,000.00 and by signals on the appropriate line thereon the signature of Gonafreda Oracion showing that she received the loan, thus making it appear that the said Gonafreda Oracion was granted a loan, received the loan of P4,000.00 when in truth and in fact said person was never granted a loan, never received the same, and never signed the Cash/Check voucher issued in her name, and in furtherance of her criminal intent and fraudulent design to defraud PCCI said accused did then and there release to herself the same and received the amount of P4,000.00 and thereafter misappropriate and convert to her own use and benefit the said amount, and despite demands, refused and still refuses to restitute the same, to the damage and prejudice of PCCI, in the aforementioned amount of P4,000, Philippine Currency. CONTRARY TO LAW.6 Criminal Case No. 3453 That on or about the 10th day of October 1982 at Poblacion, Municipality of Polomolok, Province of South Cotabato, Philippines, and within the jurisdiction of the Honorable Court, the said accused being then the manager-cashier of Polomolok Credit Cooperative, Inc., (PCCI), entrusted with the duty of managing the affairs of the cooperative, receiving payments to, and collection of the same and paying out loans to members, taking advantage of her position and with intent to prejudice and defraud the cooperative, did then and there willfully, unlawfully and feloniously falsify a commercial document, namely: an Individual Deposits and Loan Ledger of one Ferlyn Arroyo with the PCCI by then and there entering on the appropriate column of the ledger the entry that the said Ferlyn Arroyo had a fixed deposit of P1,000.00 with the PCCI and was granted a loan in the amount of P3,500.00, thus making it appear that the said person made a fixed deposit on the aforesaid date with, and was granted a loan by the PCCI when in truth and in fact Ferlyn Arroyo never made such a deposit and was never granted loan and after the document was so falsified in the manner set forth, said accused did then and there again falsify the Cash/Check Voucher of the PCCI in the name of Ferlyn Arroyo by signing therein the signature of Ferlyn Arroyo, thus making it appear that the said Ferlyn Arroyo received the loan of P3,500, Philippine Currency, when in truth and in fact said Ferlyn Arroyo never received the loan, and in furtherance of her criminal intent and fraudulent design to defraud PCCI said accused did then and there release to herself the same, and received the amount of P3,500, and thereafter, did then and there, wilfully, unlawfully and feloniously misappropriate and convert to her own personal use and benefit the said amount, and despite demands, refused and still refuses to restitute the same, to the damage and prejudice of the PCCI in the aforementioned amount of P3,500, Philippine Currency. CONTRARY TO LAW.7 Criminal Case No. 3627 That on or about the 7th day of December, 1982 at Poblacion, Municipality of Polomolok, Province of South Cotabato, Philippines, and within the jurisdiction of the

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Honorable Court, the said accused being then the manager-cashier of Polomolok Credit Cooperative, Inc., (PCCI) entrusted with the duty of managing the affairs of the cooperative, receiving payments to, and collection of, the same and paying out loans to members, taking advantage of her position and with intent to prejudice and defraud the cooperative, did then and there willfully, unlawfully and feloniously falsify a commercial document, namely: an Individual Deposits and Loan Ledger of one Dennis Batulanon with the PCCI by then and there entering on the appropriate column of the ledger the entry that the said Dennis Batulanon had a fixed deposit of P2,000.00 with the PCCI and was granted a loan in the amount of P5,000.00 thus making it appear that the said person made fixed deposit on the aforesaid date with, and was granted a loan by the PCCI when in truth and in fact Dennis Batulanon never made such a deposit and was never granted loan and offer the document was so falsified in the manner set forth, said accused did then and there again falsify the Cash/Check Voucher No. 374 A of PCCI in the name of Dennis Batulanon by signing therein the signature of Dennis Batulanon, thus making it appear that the said Dennis Batulanon received the loan of P5,000.00 when in truth and in fact said Dennis Batulanon never received the loan and in furtherance of her criminal intent and fraudulent design to defraud PCCI said accused did then and there release to herself the same and receive the loan of P5,000, and thereafter, did then and there willfully, unlawfully and feloniously misappropriate and convert to her own personal use and benefit the said amount, and [despite] demands, refused and still refuses to restitute the same to the damage and prejudice of the PCCI in the aforementioned amount of P5,000, Philippine Currency. CONTRARY TO LAW.8 The cases were raffled to Branch 22 of the Regional Trial Court of General Santos City and docketed as Criminal Case Nos. 3453, 3625, 3626 and 3627. Batulanon pleaded not guilty to the charges, afterwhich a joint trial on the merits ensued. The prosecution presented Maria Theresa Medallo, Benedicto Gopio, Jr., and Bonifacio Jayoma as witnesses. Medallo, the posting clerk whose job was to assist Batulanon in the preparation of cash vouchers9 testified that on certain dates in 1982, Batulanon released four Cash Vouchers representing varying amounts to four different individuals as follows: On June 2, 1982, Cash Voucher No. 30A10 for P4,160.00 was released to Erlinda Omadlao; on September 24, 1982, Cash Voucher No. 237A11 for P4,000.00 was released to Gonafreda 12 Oracion; P3, 500.00 thru Cash Voucher No. 276A13 was released to Ferlyn Arroyo on October 16, 1982 and on December 7, 1982, P5,000.00 was released to Dennis Batulanon thru Cash Voucher No. 374A.14 Medallo testified that Omadlao, Oracion, and Dennis Batulanon were not eligible to apply for loan because they were not bona fide members of the cooperative. 15 Ferlyn Arroyo on the other hand, was a member of the cooperative but there was no proof that she applied for a loan with PCCI in 1982. She subsequently withdrew her membership in 1983. 16 Medallo stated that pursuant to the cooperative's by-laws, only bona fide members who must have a fixed deposit are eligible for loans.17 Medallo categorically stated that she saw Batulanon sign the names of Oracion and Arroyo in their respective cash vouchers and made it appear in the records that they were payees and

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recipients of the amount stated therein. 18 As to the signature of Omadlao in Cash Voucher No. 30A, she declared that the same was actually the handwriting of appellant. 19 Gopio, Jr. was a member of PCCI since 1975 and a member of its board of directors since 1979. He corroborated Medallo's testimony that Omadlao, Arroyo, Oracion and Dennis Batulanon are not members of PCCI. He stated that Oracion is Batulanon's sister-in-law while Dennis Batulanon is her son who was only 3 years old in 1982. He averred that membership in the cooperative is not open to minors.20 Jayoma was the Vice-Chairman of the PCCI Board of Directors in 1980 before becoming its Chairman in 1982 until 1983. He testified that the loans made to Oracion, Omadlao, Arroyo and Dennis Batulanon did not pass through the cooperative's Credit Committee and PCCI's Board of Directors for screening purposes. He claimed that Oracion's signature on Cash Voucher No. 237A is Batulanon's handwriting. 21 Jayoma also testified that among the four loans taken, only that in Arroyo's name was settled.22 The defense presented two witnesses, namely, Maria Theresa Medallo who was presented as a hostile witness and Batulanon. Medallo was subpoenaed by the trial court on behalf of the defense and was asked to bring with her the PCCI General Journal for the year 1982. After certifying that the said document reflected all the financial transactions of the cooperative for that year, she was asked to identify the entries in the Journal with respect to the vouchers in question. Medallo was able to identify only Cash Voucher No. 237A in the name of Gonafreda Oracion. She failed to identify the other vouchers because the Journal had missing pages and she was not the one who prepared the entries.23 Batulanon denied all the charges against her. She claimed that she did not sign the vouchers in the names of Omadlao, Oracion and Arroyo; that the same were signed by the loan applicants in her presence at the PCCI office after she personally released the money to them;24 that the three were members of the cooperative as shown by their individual deposits and the ledger; that the board of directors passed a resolution in August 1982 authorizing her to certify to the correctness of the entries in the vouchers; that it has become an accepted practice in the cooperative for her to release loans and dispense with the approval of Gopio Jr., in case of his absence; 25 that she signed the loan application and voucher of her son Dennis Batulanon because he was a minor but she clarified that she asked Gopio, Jr., to add his signature on the documents to avoid suspicion of irregularity; 26 that contrary to the testimony of Gopio, Jr., minors are eligible for membership in the cooperative provided they are children of regular members. Batulanon admitted that she took out a loan in her son's name because she is no longer qualified for another loan as she still has to pay off an existing loan; that she had started paying off her son's loan but the cooperative refused to accept her payments after the cases were filed in court. 27 She also declared that one automatically becomes a member when he deposits money with the cooperative. 28 When she was Cashier/Manager of PCCI from 1980 to 1982, the cooperative did not have by-laws yet.29 On rebuttal, Jayoma belied that PCCI had no by-laws from 1980-1982, because the cooperative had been registered since 1967.30 On April 15, 1993, the trial court rendered a Decision convicting Batulanon as follows:

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WHEREFORE, premises considered, finding the accused Leonila Batulanon guilty beyond reasonable doubt in all the above-entitled case, she is sentenced in each of the four cases to 4 months of ARRESTO MAYOR to 1 year and 2 months of PRISION CORRECTIONAL, to indemnify the PCCI in the total sum of P16,660.00 with legal interest from the institution of the complaints until fully paid, plus costs. SO ORDERED.31 The Court of Appeals affirmed with modification the decision of the trial court, thus: WHEREFORE, the decision appealed from is MODIFIED. Appellant LEONILA BATULANON is found guilty beyond reasonable doubt of Falsification of Private Documents under Par. 2, Article 172 of the Revised Penal Code; and is hereby sentenced to suffer the indeterminate penalty of six (6) months of arresto mayor maximum, AS MINIMUM, to four (4) years and two (2) months of prision correccional medium, AS MAXIMUM; to pay a fine of five thousand (P5,000.00) pesos; and to indemnify the Polomolok Cooperative Credit , Inc. the sum of thirteen thousand one hundred sixty (P13,160.00), plus legal interests from the filing of the complaints until fully paid, plus costs. SO ORDERED.32 The motion for reconsideration was denied, hence this petition. Batulanon argues that in any falsification case, the best witness is the person whose signature was allegedly forged, thus the prosecution should have presented Erlinda Omadlao, Gonafreda Oracion and Ferlyn Arroyo instead of relying on the testimony of an unreliable and biased witness such as Medallo. 33 She avers that the crime of falsification of private document requires as an element prejudice to a third person. She insists that PCCI has not been prejudiced by these loan transactions because these loans are accounts receivable by the cooperative.34 The petition lacks merit. Although the offense charged in the information is estafa through falsification of commercial document, appellant could be convicted of falsification of private document under the wellsettled rule that it is the allegations in the information that determines the nature of the offense and not the technical name given in the preamble of the information. In Andaya v. People,35 we held: From a legal point of view, and in a very real sense, it is of no concern to the accused what is the technical name of the crime of which he stands charged. It in no way aids him in a defense on the merits. x x x That to which his attention should be directed, and in which he, above all things else, should be most interested, are the facts alleged. The real question is not did he commit a crime given in the law some technical and specific name, but did he perform the acts alleged in the body of the information in the manner therein set forth. x x x The real and important question to him is, "Did you perform the acts alleged in the manner alleged?" not, "Did you commit a crime named murder?" If he performed the acts alleged, in the manner stated, the law determines what the name of the crime is and fixes the penalty therefor. x x x If the accused performed the acts alleged in the manner alleged, then he ought to be punished and punished adequately, whatever may be the name of the crime which those acts constitute.

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The elements of falsification of private document under Article 172, paragraph 2 36 of the Revised Penal Code are: (1) that the offender committed any of the acts of falsification, except those in paragraph 7, Article 171; (2) that the falsification was committed in any private document; and (3) that the falsification caused damage to a third party or at least the falsification was committed with intent to cause such damage.37 In Criminal Case Nos. 3625, 3626, and 3453, Batulanon's act 38 of falsification falls under paragraph 2 of Article 171, i.e., causing it to appear that persons have participated in any act or proceeding when they did not in fact so participate. This is because by signing the name of Omadlao, Oracion, and Arroyo in Cash Voucher Nos. 30A, 237A, and 267A, respectively, as payee of the amounts appearing in the corresponding cash vouchers, Batulanon made it appear that they obtained a loan and received its proceeds when they did not in fact secure said loan nor receive the amounts reflected in the cash vouchers. The prosecution established that Batulanon caused the preparation of the Cash Vouchers in the name of Omadlao and Oracion knowing that they are not PCCI members and not qualified for a loan from the cooperative. In the case of Arroyo, Batulanon was aware that while the former is a member, she did not apply for a loan with the cooperative. Medallo categorically declared that she saw Batulanon forge the signatures of Oracion and Arroyo in the vouchers and made it appear that the amounts stated therein were actually received by these persons. As to the signature of Arroyo, Medallo's credible testimony and her familiarity with the handwriting of Batulanon proved that it was indeed the latter who signed the name of Arroyo. Contrary to Batulanon's contention, the prosecution is not dutybound to present the persons whose signatures were forged as Medallo's eyewitness account of the incident was sufficient. Moreover, under Section 22, Rule 132 of the Rules of Court, the handwriting of a person may be proved by any witness who believes it to be the handwriting of such person because he has seen the person write, or has seen writing purporting to be his upon which the witness has acted or been charged, and has thus acquired knowledge of the handwriting of such person. Her insistence that Medallo is a biased witness is without basis. There is no evidence showing that Medallo was prompted by any ill motive. The claim that Batulanon's letter to the cooperative asking for a compromise was not an admission of guilt is untenable. Section 27, Rule 130 of the Rules of Court provides that in criminal cases, except those involving quasi-offenses or criminal negligence or those allowed by law to be compromised, an offer of compromise by the accused may be received in evidence as an implied admission of guilt. There is no merit in Batulanon's assertion that PCCI has not been prejudiced because the loan transactions are reflected in its books as accounts receivable. It has been established that PCCI only grants loans to its bona fide members with no subsisting loan. These alleged borrowers are not members of PCCI and neither are they eligible for a loan. Of the four accounts, only that in Ferlyn Arroyo's name was settled because her mother, Erlinda, agreed to settle the loan to avoid legal prosecution with the understanding however, that she will be reimbursed once the money is collected from Batulanon. 39 The Court of Appeals40 correctly ruled that the subject vouchers are private documents and not commercial documents because they are not documents used by merchants or businessmen to promote or facilitate trade or credit transactions 41 nor are they defined and regulated by the Code of Commerce or other commercial law. 42 Rather, they are private documents, which have been defined as deeds or instruments executed by a private person

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without the intervention of a public notary or of other person legally authorized, by which some disposition or agreement is proved, evidenced or set forth. 43 In all criminal prosecutions, the burden of proof is on the prosecution to establish the guilt of the accused beyond reasonable doubt. It has the duty to prove each and every element of the crime charged in the information to warrant a finding of guilt for the said crime or for any other crime necessarily included therein. 44 The prosecution in this case was able to discharge its burden completely. As there is no complex crime of estafa through falsification of private document, 45 it is important to ascertain whether the offender is to be charged with falsification of a private document or with estafa. If the falsification of a private document is committed as a means to commit estafa, the proper crime to be charged is falsification. If the estafa can be committed without the necessity of falsifying a document, the proper crime to be charged is estafa. Thus, in People v. Reyes,46 the accused made it appear in the time book of the Calamba Sugar Estate that a laborer, Ciriaco Sario, worked 21 days during the month of July, 1929, when in reality he had worked only 11 days, and then charged the offended party, the Calamba Sugar Estate, the wages of the laborer for 21 days. The accused misappropriated the wages during which the laborer did not work for which he was convicted of falsification of private document. In U.S. v. Infante,47 the accused changed the description of the pawned article on the face of the pawn ticket and made it appear that the article is of greatly superior value, and thereafter pawned the falsified ticket in another pawnshop for an amount largely in excess of the true value of the article pawned. He was found guilty of falsification of a private document. In U.S. v. Chan Tiao,48 the accused presented a document of guaranty purportedly signed by Ortigas Hermanos for the payment of P2,055.00 as the value of 150 sacks of sugar, and by means of said falsified documents, succeeded in obtaining the sacks of sugar, was held guilty of falsification of a private document. In view of the foregoing, we find that the Court of Appeals correctly held Batulanon guilty beyond reasonable doubt of Falsification of Private Documents in Criminal Case Nos. 3625, 3626 and 3453. Article 172 punishes the crime of Falsification of a Private Document with the penalty of prision correccional in its medium and maximum periods with a duration of two (2) years, four (4) months and one (1) day to six (6) years. There being no aggravating or mitigating circumstances, the penalty should be imposed in its medium period, which is three (3) years, six (6) months and twenty-one (21) days to four (4) years, nine (9) months and ten (10) days. Taking into consideration the Indeterminate Sentence Law, Batulanon is entitled to an indeterminate penalty the minimum of which must be within the range of arresto mayor in its maximum period to prision correccional in its minimum period, or four (4) months and one (1) day to two (2) years and four (4) months. 49 Thus, in Criminal Case Nos. 3625, 3626 and 3453, the Court of Appeals correctly imposed the penalty of six (6) months of arresto mayor, as minimum, to four (4) years and two (2) months of prision correccional, as maximum, which is within the range of the allowed imposable penalty. Since Batulanon's conviction was for 3 counts of falsification of private documents, she shall suffer the aforementioned penalties for each count of the offense charged. She is also ordered to indemnify PCCI the amount of P11,660.00 representing the aggregate amount of the 3 loans without deducting the amount of P3,500.00 paid by Ferlyn Arroyo's mother as the same was settled with the understanding that PCCI will reimburse the former once the money is recovered. The amount shall earn interest at the rate of 6% per annum from the

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filing of the complaints on November 28, 1994 until the finality of this judgment. From the time the decision becomes final and executory, the interest rate shall be 12% per annum until its satisfaction. However, in Criminal Case No. 3627, the crime committed by Batulanon is estafa and not falsification. Under Article 171 of the Revised Penal Code, the acts that may constitute falsification are the following: 1. Counterfeiting or imitating any handwriting, signature, or rubric; 2. Causing it to appear that persons have participated in any act or proceeding when they did not in fact so participate; 3. Attributing to persons who have participated in an act or proceeding statements other than those in fact made by them; 4. Making untruthful statements in a narration of facts; 5. Altering true dates; 6. Making any alteration or intercalation in a genuine document which changes its meaning; 7. Issuing in an authenticated form a document purporting to be a copy of an original document when no such original exists, or including in such copy a statement contrary to, or different from, that of the genuine original; or; 8. Intercalating any instrument or note relative to the issuance thereof in a protocol, registry, or official book. In Criminal Case No. 3627, the trial court convicted petitioner Batulanon for falsifying Dennis Batulanon's signature in the cash voucher based on the Information charging her of signing the name of her 3 year old son, Dennis. The records, however, reveal that in Cash Voucher No. 374A, petitioner Batulanon did not falsify the signature of Dennis. What she did was to sign: "by: lbatulanon" to indicate that she received the proceeds of the loan in behalf of Dennis. Said act does not fall under any of the modes of falsification under Article 171 because there in nothing untruthful about the fact that she used the name of Dennis and that as representative of the latter, obtained the proceeds of the loan from PCCI. The essence of falsification is the act of making untruthful or false statements, which is not attendant in this case. As to whether, such representation involves fraud which caused damage to PCCI is a different matter which will make her liable for estafa, but not for falsification. Hence, it was an error for the courts below to hold that petitioner Batulanon is also guilty of falsification of private document with respect to Criminal Case No. 3627 involving the cash voucher of Dennis.50 The elements of estafa through conversion or misappropriation under Art. 315 (1) (b) of the Revised Penal Code are: (1) that money, goods or other personal property is received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same;

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(2) that there be misappropriation or conversion of such money or property by the offender or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; (4) that there is a demand made by the offended party on the offender. (Note: The 4th element is not necessary when there is evidence of misappropriation of the goods by the defendant)51 Thus in the case of U.S. v. Sevilla,52 the Court convicted the appellant of estafa by misappropriation. The latter, a treasurer of the Manila Rail Road Company, took the sum of P8,330.00 out of the funds of the company and used it for personal purposes. He replaced said cash with his personal check of the same amount drawn on the Philippine National Bank (PNB), with instruction to his cashier not to deposit the same in the current account of the Manila Rail Road Company until the end of the month. When an audit was conducted, the check of appellant was discovered to have been carried in the accounts as part of the cash on hand. An inquiry with the PNB disclosed that he had only P125.66 in his account, although in the afternoon of the same day, he deposited in his account with the PNB sufficient sum to cover the check. In handing down a judgment of conviction, the Court explained that: Fraudulent intent in committing the conversion or diversion is very evidently not a necessary element of the form of estafa here discussed; the breach of confidence involved in the conversion or diversion of trust funds takes the place of fraudulent intent and is in itself sufficient. The reason for this is obvious: Grave as the offense is, comparatively few men misappropriate trust funds with the intention of defrauding the owner; in most cases the offender hopes to be able to restore the funds before the defalcation is discovered. x x x Applying the legal principles here stated to the facts of the case, we find all of the necessary elements of estafa x x x. That the money for which the appellant's checks were substituted was received by him for safe-keeping or administration, or both, can hardly be disputed. He was the responsible financial officer of the corporation and as such had immediate control of the current funds for the purposes of safe-keeping and was charged with the custody of the same. That he, in the exercise of such control and custody, was aided by subordinates cannot alter the case nor can the fact that one of the subordinates, the cashier, was a bonded employee who, if he had acted on his own responsibility, might also have misappropriated the same funds and thus have become guilty of estafa. Neither can there be any doubt that, in taking money for his personal use, from the funds entrusted to him for safekeeping and substituting his personal checks therefor with instructions that the checks were to be retained by the cashier for a certain period, the appellant misappropriated and diverted the funds for that period. The checks did not constitute cash and as long as they were retained by the appellant or remained under his personal control they were of no value to the corporation; he might as well have kept them in his pocket as to deliver them to his subordinate with instructions to retain them. xxxx But it is argued in the present case that it was not the intention of the accused to permanently misappropriate the funds to himself. As we have already stated, such

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intention rarely exists in cases of this nature and, as we have seen, it is not a necessary element of the crime. Though authorities have been cited who, at first sight, appear to hold that misappropriation of trust funds for short periods does not always amount to estafa, we are not disposed to extend this interpretation of the law to cases where officers of corporations convert corporate funds to their own use, especially where, as in this case, the corporation is of a quasi-public character. The statute is clear and makes no distinction between permanent misappropriations and temporary ones. We can see no reason in the present case why it should not be applied in its literal sense. The third element of the crime with which the appellant is charged is injury to another. The appellant's counsel argues that the only injury in this case is the loss of interest suffered by the Railroad Company during the period the funds were withheld by the appellant. It is, however, well settled by former adjudications of this court that the disturbance in property rights caused by the misappropriation, though only temporary, is in itself sufficient to constitute injury within the meaning of paragraph 5, supra. (U.S. vs. Goyenechea, 8 Phil., 117 U.S. vs. Malong, 36 Phil., 821.) 53 In the instant case, there is no doubt that as Cashier/Manager, Batulanon holds the money for administration and in trust for PCCI. Knowing that she is no longer qualified to obtain a loan, she fraudulently used the name of her son who is likewise disqualified to secure a loan from PCCI. Her misappropriation of the amount she obtained from the loan is also not disputed as she even admitted receiving the same for personal use. Although the amount received by Batulanon is reflected in the records as part of the receivables of PCCI, damage was still caused to the latter because the sum misappropriated by her could have been loaned by PCCI to qualified members, or used in other productive undertakings. At any rate, the disturbance in property rights caused by Batulaono's misappropriation is in itself sufficient to constitute injury within the meaning of Article 315. Considering that the amount misappropriated by Batulanon was P5,000.00, the applicable provision is paragraph (3) of Article 315 of the Revised Penal Code, which imposes the penalty of arresto mayor in its maximum period to prision correccional in its minimum period, where the amount defrauded is over P200.00 but does not exceed P6,000.00. There being no modifying circumstances, the penalty shall be imposed in its medium period. With the application of the Indeterminate Sentence Law, Batulaon is entitled to an indeterminate penalty of three (3) months of arresto mayor, as minimum, to one (1) year and eight (8) months of prision correccional, as maximum. WHEREFORE, the MODIFICATIONS: Decision appealed from is AFFIRMED with the following

(1) In Criminal Case Nos. 3625, 3626 and 3453, Leonila Batulanon is found GUILTY of three counts of falsification of private documents and is sentenced to suffer the penalty of six (6) months of arresto mayor, as minimum, to four (4) years and two (2) months of prision correccional, as maximum, for each count, and to indemnify complainant Polomolok Credit Cooperative Incorporated the amount of P11,660.00 with interest at the rate of 6% per annum from November 28, 1994 until finality of this judgment. The interest rate of 12% per annum shall be imposed from finality of this judgment until its satisfaction; and (2) In Criminal Case No. 3627, Leonila Batulanon is found GUILTY of estafa and is sentenced to suffer the penalty of three (3) months of arresto mayor, as minimum, to one (1) year and eight (8) months of prision correccional, as maximum. She is

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likewise ordered to indemnify Polomolok Credit Cooperative Incorporated the sum of P5,000.00 with interest at the rate of 6% per annum from November 28, 1994 until finality of this judgment. The interest rate of 12% per annum shall be imposed from finality of this judgment until its satisfaction. SO ORDERED. Panganiban, C.J., Austria-Martinez, Callejo, Sr., Chico-Nazario, J.J., concur. Republic of the Philippines Supreme Court Manila

SECOND DIVISION

PENTACAPITAL INVESTMENT CORPORATION, Petitioner,

G.R. No. 171736

- versus -

MAKILITO B. MAHINAY, Respondent. x--------------------------------------------------x

PENTACAPITAL INVESTMENT CORPORATION, Petitioner, G.R. No. 181482

Present:

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CARPIO, J., - versus Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ. MAKILITO B. MAHINAY, Respondent. Promulgated:

July 5, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

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Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court filed by petitioner Pentacapital Investment Corporation. In G.R. No. 171736, petitioner assails the Court of Appeals (CA) Decision 310[1] dated December 20, 2005 and Resolution311[2] dated March 1, 2006 in CA-G.R. SP No. 74851; while in G.R. No. 181482, it assails the CA Decision312[3] dated October 4, 2007 and Resolution313[4] dated January 21, 2008 in CA-G.R. CV No. 86939.

The Facts

Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based on two separate loans obtained by the latter, amounting to P1,520,000.00 and P416,800.00, or a total amount of P1,936,800.00. These loans were evidenced by two promissory notes314[5] dated February 23, 1996. Despite repeated demands, respondent failed to pay the loans, hence, the complaint. 315[6]

In his Answer with Compulsory Counterclaim, 316[7] respondent claimed that petitioner had no cause of action because the promissory notes on which its complaint was based were subject to a condition that did not occur. 317[8] While admitting that he indeed signed the promissory notes, he insisted that he never took out a loan and that the notes were not intended to be evidences of indebtedness. 318[9] By way of counterclaim, respondent prayed for the payment of moral and exemplary damages plus attorneys fees. 319[10]

310 311 312 313 314 315 316 317 318 319

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Respondent explained that he was the counsel of Ciudad Real Development Inc. (CRDI). In 1994, Pentacapital Realty Corporation (Pentacapital Realty) offered to buy parcels of land known as the Molino Properties, owned by CRDI, located in Molino, Bacoor, Cavite. The Molino Properties, with a total area of 127,708 square meters, were sold at P400.00 per sq m. As the Molino Properties were the subject of a pending case, Pentacapital Realty paid only the down payment amounting to P12,000,000.00. CRDI allegedly instructed Pentacapital Realty to pay the formers creditors, including respondent who thus received a check worth P1,715,156.90.320[11] It was further agreed that the balance would be payable upon the submission of an Entry of Judgment showing that the case involving the Molino Properties had been decided in favor of CRDI.321[12]

Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent had a charging lien equivalent to 20% of the total consideration of the sale in the amount of P10,277,040.00. Pending the submission of the Entry of Judgment and as a sign of good faith, respondent purportedly returned the P1,715,156.90 check to Pentacapital Realty. However, the Molino Properties continued to be haunted by the seemingly interminable court actions initiated by different parties which thus prevented respondent from collecting his commission.

On motion322[13] of respondent, the Regional Trial Court (RTC) allowed him to file a Third Party Complaint323[14] against CRDI, subject to the payment of docket fees.324[15]

320 321 322 323 324

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Admittedly, respondent earlier instituted an action for Specific Performance against Pentacapital Realty before the RTC of Cebu City, Branch 57, praying for the payment of his commission on the sale of the Molino Properties.325[16] In an Amended Complaint,326[17] respondent referred to the action he instituted as one of Preliminary Mandatory Injunction instead of Specific Performance. Acting on Pentacapital Realtys Motion to Dismiss, the RTC dismissed the case for lack of cause of action. 327[18] The dismissal became final and executory.

With the dismissal of the aforesaid case, respondent filed a Motion to Permit Supplemental Compulsory Counterclaim.328[19] In addition to the damages that respondent prayed for in his compulsory counterclaim, he sought the payment of his commission amounting to P10,316,640.00, plus interest at the rate of 16% per annum, as well as attorneys fees equivalent to 12% of his principal claim. 329[20] Respondent claimed that Pentacapital Realty is a 100% subsidiary of petitioner. Thus, although petitioner did not directly participate in the transaction between Pentacapital Realty, CRDI and respondent, the latters claim against petitioner was based on the doctrine of piercing the veil of corporate fiction. Simply stated, respondent alleged that petitioner and Pentacapital Realty are one and the same entity belonging to the Pentacapital Group of Companies. 330[21]

Over the opposition of petitioner, the RTC, in an Order 331[22] dated August 22, 2002, allowed the filing of the supplemental counterclaim. Aggrieved, petitioner sought recourse in the CA through a special

325 326 327 328 329 330 331

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civil action for certiorari, seeking to reverse and set aside the RTC Order. The case was docketed as CA-G.R. SP No. 74851. On December 20, 2005, the CA rendered the assailed Decision dismissing the petition.332[23] The appellate court sustained the allowance of the supplemental compulsory counterclaim based on the allegations in respondents pleading. The CA further concluded that there was a logical relationship between the claims of petitioner in its complaint and those of respondent in his supplemental compulsory counterclaim. The CA declared that it was inconsequential that respondent did not clearly allege the facts required to pierce the corporate separateness of petitioner and its subsidiary, the Pentacapital Realty.333[24]

Petitioner now comes before us in G.R. No. 171736, raising the following issues:

A. WHETHER RESPONDENT MAHINAY IS BARRED FROM ASSERTING THE CLAIM CONTAINED IN HIS SUPPLEMENTAL COMPULSORY COUNTERCLAIM ON THE GROUNDS OF (1) RES JUDICATA, (2) WILLFUL AND DELIBERATE FORUM SHOPPING, AND (3) FAILURE TO INTERPOSE SUCH CLAIM ON TIME PURSUANT TO SECTION 2 OF RULE 9 OF THE RULES OF COURT; B. WHETHER RESPONDENT MAHINAYS SUPPLEMENTAL COMPULSORY COUNTERCLAIM IS ACTUALLY A THIRD-PARTY COMPLAINT AGAINST PENTACAPITAL REALTY, THE INTRODUCTION OF WHICH REQUIRES THE PAYMENT OF THE NECESSARY DOCKET FEES; C. ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT IT IS PROPER TO PIERCE THE CORPORATE VEIL AND TO ALLOW RESPONDENT MAHINAY TO LODGE A SUPPLEMENTAL COMPULSORY COUNTERCLAIM AGAINST HEREIN PETITIONER PENTACAPITAL INVESTMENT FOR AN ALLEGED OBLIGATION OF ITS SUBSIDIARY, PENTACAPITAL REALTY, ON THE THEORY THAT THEY ARE ONE AND THE SAME COMPANY, WHETHER PENTACAPITAL REALTY SHOULD HAVE AT LEAST BEEN MADE A PARTY TO THE CASE AS RULED BY THIS HONORABLE COURT IN FILMERCO COMMERCIAL CO., INC. VS. INTERMEDIATE APPELLATE COURT; D.

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WHETHER RESPONDENT MAHINAY SHOULD BE ALLOWED TO PRESENT EVIDENCE ON HIS SO-CALLED SUPPLEMENTAL COMPULSORY COUNTERCLAIM INASMUCH AS (1) RESPONDENT MAHINAYS PLEADINGS ARE BEREFT OF ANY ALLEGATIONS TO BUTTRESS THE MERGING OF PENTACAPITAL REALTY AND PENTACAPITAL INVESTMENT INTO ONE ENTITY AND THE CONSEQUENT IMPUTATION ON THE LATTER OF THE FORMERS SUPPOSED LIABILITY ON RESPONDENT MAHINAYS SUPPLEMENTAL COMPULSORY COUNTERCLAIM, AND (2) THE INCIDENTS ALLEGEDLY PERTAINING TO, AND WHICH WOULD THEREBY SUPPORT, THE PIERCING OF CORPORATE VEIL ARE NOT EVIDENTIARY MATTERS MATERIAL TO THE PROCEEDINGS BEFORE THE COURT A QUO CONSIDERING THAT THE SAME ARE BEYOND THE SCOPE OF THE PLEADINGS; E. WHETHER THE DOCTRINE OF PIERCING THE CORPORATE VEIL MAY BE INVOKED AND APPLIED IN ORDER TO EVADE AN OBLIGATION AND FACILITATE PROCEDURAL WRONGDOING; AND F. WHETHER PETITIONER PENTACAPITAL INVESTMENT COMMITTED FORUM SHOPPING WHEN IT FILED THE PRESENT PETITION DURING THE PENDENCY OF THE MOTION FOR RECONSIDERATION IT FILED BEFORE THE COURT A QUO AND, SUBSEQUENTLY, OF THE APPEAL BEFORE THE COURT OF APPEALS TO QUESTION THE JUDGMENT OF THE COURT A QUO.334[25]

There being no writ of injunction or Temporary Restraining Order (TRO), the proceedings before the RTC continued and respondent was allowed to present his evidence on his supplemental compulsory counterclaim. After trial on the merits, the RTC rendered a decision335[26] dated March 20, 2006, the dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, plaintiffs complaint is hereby ordered dismissed for lack of merit. This court, instead, finds that defendant was able to prove by a clear preponderance of evidence his cause of action against plaintiff as to defendants compulsory and supplemental counterclaims. That, therefore, this court hereby orders the plaintiff to pay unto defendant the following sums, to wit: 1. P1,715,156.90 representing the amount plaintiff is obligated to pay defendant as provided for in the deed of sale and the supplemental agreement, plus interest at the rate of 16% per annum, to be computed from September 23, 1998 until the said amount shall have been fully paid;

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2.

Php 10,316,640.00 representing defendants share of the proceeds of the sale of the Molino property (defendants charging lien) plus interest at the rate of 16% per annum, to be computed from September 23, 1998 until the said amount shall have been fully paid;

3. Php 50,000.00 as attorneys fees based on quantum meruit; 4. Php 50,000.00 litigation expenses, plus costs of suit. This court finds it unnecessary to rule on the third party complaint, the relief prayed for therein being dependent on the possible award by this court of the relief of plaintiffs complaint. 336[27]

On appeal, the CA, in CA-G.R. CV No. 86939, affirmed in toto the above decision. The CA found no basis for petitioner to collect the amount demanded, there being no perfected contract of loan for lack of consideration. 337[28] As to respondents supplemental compulsory counterclaim, quoting the findings of the RTC, the appellate court held that respondent was able to prove by preponderance of evidence that it was the intent of Pentacapital Group of Companies and CRDI to give him P10,316,640.00 and P1,715,156.90.338[29] The CA likewise affirmed the award of interest at the rate of 16% per annum, plus damages. 339[30]

Unsatisfied, petitioner moved for reconsideration of the aforesaid Decision, but it was denied in a Resolution340[31] dated January 21, 2008. Hence, the present petition in G.R. No. 181482, anchored on the following arguments:

A. Considering that the inferences made in the present case are manifestly absurd, mistaken or impossible, and are even contrary to the admissions of respondent Mahinay, and inasmuch as the judgment is premised on a misapprehension of facts, this Honorable Court may validly take cognizance of the errors relative to the findings of fact of both the Honorable Court of Appeals and the court a quo. B.

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Respondent Mahinay is liable to petitioner PentaCapital Investment for the PhP1,936,800.00 loaned to him as well as for damages and attorneys fees. 1. The Honorable Court of Appeals erred in concluding that respondent Mahinay failed to receive the money he borrowed when there is not even any dispute as to the fact that respondent Mahinay did indeed receive the PhP1,936,800.00 from petitioner PentaCapital Investment. 2. The Promissory Notes executed by respondent Mahinay are valid instruments and are binding upon him. C. Petitioner PentaCapital Investment cannot be held liable on the supposed supplemental compulsory counterclaim of respondent Mahinay. 1. The findings of fact as well as the conclusions arrived at by the Court of Appeals in its decision were based on mistaken assumptions and on erroneous appreciation of the evidence on record. 2. There is no evidence on record to support the merging of PentaCapital Realty and petitioner PentaCapital Investment into one entity and the consequent imputation on the latter of the formers supposed liability on respondent Mahinays supplemental compulsory counterclaim. 3. Inasmuch as the claim of respondent Mahinay is supposedly against PentaCapital Realty, and considering that petitioner PentaCapital Investment is a separate, distinct entity from PentaCapital Realty, the latter should have been impleaded as it is an indispensable party. D. Assuming for the sake of pure argument that it is proper to disregard the corporate fiction and to consider herein petitioner PentaCapital Investment and its subsidiary, PentaCapital Realty, as one and the same entity, respondent Mahinays supplemental compulsory counterclaim must still necessarily fail. 1. The cause of action of respondent Mahinay, as contained in his supplemental compulsory counterclaim, is already barred by a prior judgment (res judicata). 2. Considering that the dismissal on the merits by the RTC Cebu of respondent Mahinays complaint against PentaCapital Realty for attorneys fees has attained finality, respondent

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Mahinay committed a willful act of forum shopping when he interposed the exact same claim in the proceedings a quo as a supposed supplemental compulsory counterclaim against what he claims to be one and the same company. 3. Respondent Mahinays supplemental compulsory counterclaim is actually a third party complaint against PentaCapital Realty; the filing thereof therefore requires the payment of the necessary docket fees. E. The doctrine of piercing the corporate veil is an equitable remedy which cannot and should not be invoked, much less applied, in order to evade an obligation and facilitate procedural wrongdoing. 341[32]

Simply put, the issues for resolution are: 1) whether the admission of respondents supplemental compulsory counterclaim is proper; 2) whether respondents counterclaim is barred by res judicata; and (3) whether petitioner is guilty of forum-shopping.

The Courts Ruling

Admission of Respondents Supplemental Compulsory Counterclaim

The pertinent provision of the Rules of Court is Section 6 of Rule 10, which reads:

Sec. 6. Supplemental pleadings. Upon motion of a party, the court may, upon reasonable notice and upon such terms as are just, permit him to serve a supplemental pleading setting forth transactions, occurrences or events which have happened since the date of the pleading sought to be

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supplemented. The adverse party may plead thereto within ten (10) days from notice of the order admitting the supplemental pleading.

As a general rule, leave will be granted to a party who desires to file a supplemental pleading that alleges any material fact which happened or came within the partys knowledge after the original pleading was filed, such being the office of a supplemental pleading. The application of the rule would ensure that the entire controversy might be settled in one action, avoid unnecessary repetition of effort and unwarranted expense of litigants, broaden the scope of the issues in an action owing to the light thrown on it by facts, events and occurrences which have accrued after the filing of the original pleading, and bring into record the facts enlarging or charging the kind of relief to which plaintiff is entitled. It is the policy of the law to grant relief as far as possible for wrongs complained of, growing out of the same transaction and thus put an end to litigation. 342[33]

In his Motion to Permit Supplemental Compulsory Counterclaim, respondent admitted that, in his Answer with Compulsory Counterclaim, he claimed that, as one of the corporations composing the Pentacapital Group of Companies, petitioner is liable to him for P10,316,640.00, representing 20% attorneys fees and share in the proceeds of the sale transaction between Pentacapital Realty and CRDI. In the same pleading, he further admitted that he did not include this amount in his compulsory counterclaim because he had earlier commenced another action for the collection of the same amount against Pentacapital Realty before the RTC of Cebu. With the dismissal of the RTC-Cebu case, there was no more legal impediment for respondent to file the supplemental counterclaim.

Moreover, in his Answer with Compulsory Counterclaim, respondent already alleged that he demanded from Pentacapital Group of Companies to which petitioner supposedly belongs, the payment of his 20% commission. This, in fact, was what prompted respondent to file a complaint before the RTC-Cebu for preliminary mandatory injunction for the release of the said amount.

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Given these premises, it is obvious that the alleged obligation of petitioner already existed and was known to respondent at the time of the filing of his Answer with Counterclaim. He should have demanded payment of his commission and share in the proceeds of the sale in that Answer with Compulsory Counterclaim, but he did not. He is, therefore, proscribed from incorporating the same and making such demand via a supplemental pleading. The supplemental pleading must be based on matters arising subsequent to the filing of the original pleading related to the claim or defense presented therein, and founded on the same cause of action. 343[34] Supplemental pleadings must state transactions, occurrences or events which took place since the time the pleading sought to be supplemented was filed.344[35]

Even on the merits of the case, for reasons that will be discussed below, respondents counterclaim is doomed to fail.

Petitioners Complaint

In its complaint for sum of money, petitioner prayed that respondent be ordered to pay his obligation amounting to P1,936,800.00 plus interest and penalty charges, and attorneys fees. This obligation was evidenced by two promissory notes executed by respondent. Respondent, however, denied liability on the ground that his obligation was subject to a condition that did not occur. He explained that the promissory notes were dependent upon the happening of a remote event that the parties tried to anticipate at the time they transacted with each other, and the event did not happen. 345[36] He further insisted that he did not receive the proceeds of the loan.

To ascertain whether or not respondent is bound by the promissory notes, it must be established that all the elements of a contract of loan are present. Like any other contract, a

343 344 345

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contract of loan is subject to the rules governing the requisites and validity of contracts in general. It is elementary in this jurisdiction that what determines the validity of a contract, in general, is the presence of the following elements: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.346[37]

In this case, respondent denied liability on the ground that the promissory notes lacked consideration as he did not receive the proceeds of the loan.

We cannot sustain his contention.

Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the debtor proves the contrary. 347[38] Moreover, under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of business has been followed; and (3) there was sufficient consideration for a contract. 348[39] A presumption may operate against an adversary who has not introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby, and which, if no proof to the contrary is presented and offered, will prevail. The burden of proof remains where it is, but by the presumption, the one who has that burden is relieved for the time being from introducing evidence in support of the averment, because the presumption stands in the place of evidence unless rebutted.349[40]

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In the present case, as proof of his claim of lack of consideration, respondent denied under oath that he owed petitioner a single centavo. He added that he did not apply for a loan and that when he signed the promissory notes, they were all blank forms and all the blank spaces were to be filled up only if the sale transaction over the subject properties would not push through because of a possible adverse decision in the civil cases involving them (the properties). He thus posits that since the sale pushed through, the promissory notes did not become effective.

Contrary to the conclusions of the RTC and the CA, we find such proof insufficient to overcome the presumption of consideration. The presumption that a contract has sufficient consideration cannot be overthrown by the bare, uncorroborated and self-serving assertion of respondent that it has no consideration. 350[41] The alleged lack of consideration must be shown by preponderance of evidence.351[42]

As it now appears, the promissory notes clearly stated that respondent promised to pay petitioner P1,520,000.00 and P416,800.00, plus interests and penalty charges, a year after their execution. Nowhere in the notes was it stated that they were subject to a condition. As correctly observed by petitioner, respondent is not only a lawyer but a law professor as well. He is, therefore, legally presumed not only to exercise vigilance over his concerns but, more importantly, to know the legal and binding effects of promissory notes and the intricacies involving the execution of negotiable instruments including the need to execute an agreement to document extraneous collateral conditions and/or agreements, if truly there were such.352[43] This militates against respondents claim that there was indeed such an agreement. Thus, the promissory notes should be accepted as they appear on their face.

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Respondents liability is not negated by the fact that he has uncollected commissions from the sale of the Molino properties. As the records of the case show, at the time of the execution of the promissory notes, the Molino properties were subject of various court actions commenced by different parties. Thus, the sale of the properties and, consequently, the payment of respondents commissions were put on hold. The non-payment of his commissions could very well be the reason why he obtained a loan from petitioner.

In Sierra v. Court of Appeals,353[44] we held that:

A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation.

Aside from the payment of the principal obligation of P1,936,800.00, the parties agreed that respondent pay interest at the rate of 25% from February 17, 1997 until fully paid. Such rate, however, is excessive and thus, void. Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. To be sure, courts may reduce the interest rate as reason and equity demand. 354[45] reasonable. In this case, 12% interest is

The promissory notes likewise required the payment of a penalty charge of 3% per month or 36% per annum. We find such rates unconscionable. This Court has recognized a penalty clause as an accessory obligation which the parties attach to a principal obligation for the purpose of ensuring the performance thereof by imposing on the debtor a special prestation (generally consisting of the payment of a sum of money) in case the obligation is

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not fulfilled or is irregularly or inadequately fulfilled. 355[46] However, a penalty charge of 3% per month is unconscionable;356[47] hence, we reduce it to 1% per month or 12% per annum, pursuant to Article 1229 of the Civil Code which states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. 357[48]

Lastly, respondent promised to pay 25% of his outstanding obligations as attorneys fees in case of non-payment thereof. Attorneys fees here are in the nature of liquidated damages. As long as said stipulation does not contravene law, morals, or public order, it is strictly binding upon respondent. Nonetheless, courts are empowered to reduce such rate if the same is iniquitous or unconscionable pursuant to the above-quoted provision. 358[49] This sentiment is echoed in Article 2227 of the Civil Code, to wit:

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

Hence, we reduce the stipulated attorneys fees from 25% to 10%. 359[50]

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Respondents Counterclaim and Supplemental Counterclaim

The RTC, affirmed by the CA, granted respondents counterclaims as it applied the doctrine of piercing the veil of corporate fiction. It is undisputed that the parties to the contract of sale of the subject properties are Pentacapital Realty as the buyer, CRDI as the seller, and respondent as the agent of CRDI. Respondent insisted, and the RTC and the CA agreed, that petitioner, as the parent company of Pentacapital Realty, was aware of the sale transaction, and that it was the former who paid the consideration of the sale. Hence, they concluded that the two corporations should be treated as one entity.

Petitioner assails the CA Decision sustaining the grant of respondents counterclaim and supplemental counterclaim on the following grounds: first, respondents claims are barred by res judicata, the same having been adjudicated with finality by the RTC-Cebu in Civil Case No. CEB-25032; second, piercing the veil of corporate fiction is without basis; third, the case is dismissible for failure to implead Pentacapital Realty as indispensable party; and last, respondents supplemental counterclaim is actually a third party complaint against Pentacapital Realty, the filing thereof requires the payment of the necessary docket fees.

Petitioners contentions are meritorious.

Res judicata means a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by judgment. It lays the rule that an existing final judgment or decree rendered on the merits, without fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit. 360[51]

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The requisites of res judicata are:

(1) (2)

The former judgment or order must be final; It must be a judgment on the merits;

(3) It must have been rendered by a court having jurisdiction over the subject matter and the parties; and (4) There must be between the first and second actions, identity of parties, subject matter, and cause of action.361[52]

These requisites are present in the instant case. It is undisputed that respondent instituted an action for Preliminary Mandatory Injunction against Pentacapital Realty, before the RTC of Cebu City, docketed as Civil Case No. CEB-25032. On motion of Pentacapital Realty, in an Order dated August 15, 2001, the court dismissed the complaint on two grounds: 1) non-payment of the correct filing fee considering that the complaint was actually a collection of sum of money although denominated as Preliminary Mandatory Injunction; and 2) lack of cause of action. The court treated the complaint as a collection suit because respondent was seeking the payment of his unpaid commission or share in the proceeds of the sale of the Molino Properties. Additionally, the RTC found that respondent had no cause of action against Pentacapital Realty, there being no privity of contract between them. Lastly, the court held that it was CRDI which agreed that 20% of the total consideration of the sale be paid and delivered to respondent. 362[53] Instead of assailing the said Order, respondent filed his supplemental compulsory counterclaim, demanding again the payment of his commission, this time, against petitioner in the instant case. The Order, therefore, became final and executory.

Respondents supplemental counterclaim against petitioner is anchored on the doctrine of piercing the veil of corporate fiction. Obviously, after the dismissal of complaint before the RTC-Cebu, he now proceeds his

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against petitioner, through a counterclaim, on the basis of the same cause of action. Thus, if we follow respondents contention that petitioner and Pentacapital Realty are one and the same entity, the latter being a subsidiary of the former, respondent is barred from instituting the present case based on the principle of bar by prior judgment. The RTC-Cebu already made a definitive conclusion that Pentacapital Realty is not a privy to the contract between respondent and CRDI. It also categorically stated that it was CRDI which agreed to pay respondents commission equivalent to 20% of the proceeds of the sale. With these findings, and considering that petitioners alleged liability stems from its supposed relation with Pentacapital Realty, logic dictates that the findings of the RTC-Cebu, which had become final and executory, should bind petitioner.

It is well-settled that when material facts or questions in issue in a former action were conclusively settled by a judgment rendered therein, such facts or questions constitute res judicata and may not again be litigated in a subsequent action between the same parties or their privies regardless of the form of the latter. 363[54] Absolute identity of parties is not required, and where a shared identity of interest is shown by the identity of the relief sought by one person in a prior case and the second person in a subsequent case, such was deemed sufficient.364[55] There is identity of parties not only when the parties in the cases are the same, but also between those in privity with them.

No other procedural law principle is indeed more settled than that once a judgment becomes final, it is no longer subject to change, revision, amendment, or reversal, except only for correction of clerical errors, or the making of nunc pro tunc entries which cause no prejudice to any party, or where the judgment itself is void. The underlying reason for the rule is two-fold: (1) to avoid delay in the administration of justice and thus make orderly the discharge of judicial business; and (2) to put judicial controversies to an end, at the risk of occasional errors, inasmuch as controversies cannot be allowed to drag on indefinitely and the rights and obligations of every litigant must not hang in suspense for an indefinite period of time.365[56]

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In view of the foregoing disquisitions, we find no necessity to discuss the other issues raised by petitioner.

Forum Shopping

For his part, respondent adopts the conclusions made by the RTC and the CA in granting his counterclaims. He adds that the petition should be dismissed on the ground of forum-shopping. He argues that petitioner is guilty of forum-shopping by filing the petition for review (G.R. No. 181482), assailing the CA Decision dated October 4, 2007, despite the pendency of G.R. No. 171736 assailing the CA Decision dated December 20, 2005.

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We do not agree with respondent.

Forum-shopping is the act of a litigant who repetitively availed of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues, either pending in or already resolved adversely by some other court, to increase his chances of obtaining a favorable decision if not in one court, then in another.366[57]

What is important in determining whether forum-shopping exists is the vexation caused the courts and parties-litigants by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or grant the same or substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issues.367[58]

Forum-shopping can be committed in three ways: (1) by filing multiple cases based on the same cause of action and with the same prayer, the previous case not having been resolved yet (where the ground for dismissal is litis pendentia); (2) by filing multiple cases based on the same cause of action and with the same prayer, the previous case having been finally resolved (where the ground for dismissal is res judicata); and (3) by filing multiple cases based on the same cause of action but with different prayers (splitting of causes of action, where the ground for dismissal is also either litis pendentia or res judicata).368[59]

More particularly, the elements of forum-shopping are: (a) identity of parties or at least such parties that represent the same interests in both actions; (b) identity of rights asserted and reliefs prayed for, the relief being founded on the same facts; (c) identity of the

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two preceding particulars, such that any judgment rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.369[60]

These elements are not present in this case. In G.R. No. 171736, petitioner assails the propriety of the admission of respondents supplemental compulsory counterclaim; while in G.R. No. 181482, petitioner assails the grant of respondents supplemental compulsory counterclaim. In other words, the first case originated from an interlocutory order of the RTC, while the second case is an appeal from the decision of the court on the merits of the case. There is, therefore, no forum-shopping for the simple reason that the petition and the appeal involve two different and distinct issues.

WHEREFORE, premises considered, the petitions are hereby GRANTED. The Decisions and Resolutions of the Court of Appeals dated December 20, 2005 and March 1, 2006, in CA-G.R. SP No. 74851, and October 4, 2007 and January 21, 2008, in CA-G.R. CV No. 86939, are REVERSED and SET ASIDE.

Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital Investment Corporation P1,936,800.00 plus 12% interest per annum, and charge, starting February 17, 1997. He 12% per annum penalty

is likewise ordered to pay 10% of his outstanding obligation as attorneys fees. pronouncement as to costs.

No

SO ORDERED.

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Republic SUPREME Manila SECOND DIVISION G.R. No. 102967 February 10, 2000 of the Philippines COURT

BIBIANO V. BAAS, JR., petitioner, vs. COURT OF APPEALS, AQUILINO T. LARIN, RODOLFO TUAZON AND PROCOPIO TALON, respondents. QUISUMBING, J.: For review is the Decision of the Court of Appeals in CA-C.R. CV No. 17251 promulgated on November 29, 1991. It affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 39, Manila, in Civil Case No. 82-12107. Said judgment disposed as follows: FOR ALL THE FOREGOING CONSIDERATIONS, this Court hereby renders judgment DISMISSING the complaint against all the defendants and ordering plaintiff [herein petitioner] to pay defendant Larin the amount of P200,000.00 (Two Hundred Thousand Pesos) as actual and compensatory damages; P200,000.00 as moral damages; and P50,000.00 as exemplary damages and attorneys fees of P100,000.00.1 The facts, which we find supported by the records, have been summarized by the Court of Appeals as follows: On February 20, 1976, petitioner, Bibiano V. Baas Jr. sold to Ayala Investment Corporation (AYALA), 128,265 square meters of land located at Bayanan, Muntinlupa, for two million, three hundred eight thousand, seven hundred seventy (P2,308,770.00) pesos. The Deed of Sale provided that upon the signing of the contract AYALA shall pay four hundred sixty-one thousand, seven hundred fifty-four (P461,754.00) pesos. The balance of one million, eight hundred forty-seven thousand and sixteen (P1,847,016.00) pesos was to be paid in four equal consecutive annual installments, with twelve (12%) percent interest per annum on the outstanding balance. AYALA issued one promissory note covering four equal annual installments. Each periodic payment of P461,754.00 pesos shall be payable starting on February 20, 1977, and every year thereafter, or until February 20, 1980. The same day, petitioner discounted the promissory note with AYALA, for its face value of P1,847,016.00, evidenced by a Deed of Assignment signed by the petitioner and AYALA. AYALA issued nine (9) checks to petitioner, all dated February 20, 1976, drawn against Bank of the Philippine Islands with the uniform amount of two hundred five thousand, two hundred twenty-four (P205,224.00) pesos. In his 1976 Income Tax Return, petitioner reported the P461,754 initial payment as income from disposition of capital asset.2 Selling Price of Land P2,308,770.0 0

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Less Initial Payment Unrealized Gain

461,754.00 P1,847,016.0 0

1976 Declaration of Income on Disposition of Capital Asset subject to Tax: Initial Payment Less: Cost Expenses Income Income subject to tax (P385,206. 10 x 50%) of land and other incidental P461,754.00 ( 76,547.90) P385,206.10 P192,603.65

In the succeeding years, until 1979, petitioner reported a uniform income of two hundred thirty thousand, eight hundred seventy-seven (P230,877.00) pesos 4 as gain from sale of capital asset. In his 1980 income tax amnesty return, petitioner also reported the same amount of P230,877.00 as the realized gain on disposition of capital asset for the year. On April 11, 1978, then Revenue Director Mauro Calaguio authorized tax examiners, Rodolfo Tuazon and Procopio Talon to examine the books and records of petitioner for the year 1976. They discovered that petitioner had no outstanding receivable from the 1976 land sale to AYALA and concluded that the sale was cash and the entire profit should have been taxable in 1976 since the income was wholly derived in 1976. Tuazon and Talon filed their audit report and declared a discrepancy of two million, ninetyfive thousand, nine hundred fifteen (P2,095,915.00) pesos in petitioner's 1976 net income. They recommended deficiency tax assessment for two million, four hundred seventy-three thousand, six hundred seventy-three (P2,473,673.00) pesos. Meantime, Aquilino Larin succeeded Calaguio as Regional Director of Manila Region IV-A. After reviewing the examiners' report, Larin directed the revision of the audit report, with instruction to consider the land as capital asset. The tax due was only fifty (50%) percent of the total gain from sale of the property held by the taxpayer beyond twelve months pursuant to Section 345 of the 1977 National Internal Revenue Code (NIRC). The deficiency tax assessment was reduced to nine hundred thirty six thousand, five hundred ninety-eight pesos and fifty centavos (P936,598.50), inclusive of surcharges and penalties for the year 1976. On June 27, 1980, respondent Larin sent a letter to petitioner informing of the income tax deficiency that must be settled him immediately. On September 26, 1980, petitioner acknowledged receipt of the letter but insisted that the sale of his land to AYALA was on installment. On June 8, 1981, the matter was endorsed to the Acting Chief of the Legal Branch of the National Office of the BIR. The Chief of the Tax Fraud Unit recommended the prosecution of a criminal case for conspiring to file false and fraudulent returns, in violation of Section 51 of the Tax Code against petitioner and his accountants, Andres P. Alejandre and Conrado Baas.

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On June 17, 1981, Larin filed a criminal complaint for tax evasion against the petitioner. On July 1, 1981, news items appeared in the now defunct Evening Express with the headline: "BIR Charges Realtor" and another in the defunct Evening Post with a news item: "BIR raps Realtor, 2 accountants." Another news item also appeared in the July 2, 1981, issue of the Bulletin Today entitled: "3-face P1-M tax evasion raps." All news items mentioned petitioner's false income tax return concerning the sale of land to AYALA. On July 2, 1981, petitioner filed an Amnesty Tax Return under P.D. 1740 and paid the amount of forty-one thousand, seven hundred twenty-nine pesos and eighty-one centavos (P41,729.81). On November 2, 1981, petitioner again filed an Amnesty Tax Return under P.D. 1840 and paid an additional amount of one thousand, five hundred twenty-five pesos and sixty-two centavos (P1,525.62). In both, petitioner did not recognize that his sale of land to AYALA was on cash basis. Reacting to the complaint for tax evasion and the news reports, petitioner filed with the RTC of Manila an action6 for damages against respondents Larin, Tuazon and Talon for extortion and malicious publication of the BIR's tax audit report. He claimed that the filing of criminal complaints against him for violation of tax laws were improper because he had already availed of two tax amnesty decrees, Presidential Decree Nos. 1740 and 1840. The trial court decided in favor of the respondents and awarded Larin damages, as already stated. Petitioner seasonably appealed to the Court of Appeals. In its decision of November 29, 1991, the respondent court affirmed the trial court's decision, thus: The finding of the court a quo that plaintiff-appellant's actions against defendantappellee Larin were unwarranted and baseless and as a result thereof, defendantappellee Larin was subjected to unnecessary anxiety and humiliation is therefore supported by the evidence on record.1wphi1.nt Defendant-appellee Larin acted only in pursuance of the authority granted to him. In fact, the criminal charges filed against him in the Tanodbayan and in the City Fiscal's Office were all dismissed. WHEREFORE, the appealed judgment is hereby AFFIRMED in toto.7 Hence this petition, wherein petitioner raises before us the following queries: I. WHETHER THE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF PERTINENT TAX LAWS, THUS IT FAILED TO APPRECIATE THE CORRECTNESS AND ACCURACY OF PETITIONER'S RETURN OF THE INCOME DERIVED FROM THE SALE OF THE LAND TO AYALA. II. WHETHER THE RESPONDENT COURT ERRED IN NOT FINDING THAT THERE WAS AN ALLEGED ATTEMPT TO EXTORT [MONEY FROM] PETITIONER BY PRIVATE RESPONDENTS. III. WHETHER THE RESPONDENT COURT ERRED IN ITS INTERPRETATION OF PRESIDENTIAL DECREE NOS. 1740 AND 1840, AMONG OTHERS, PETITIONER'S IMMUNITY FROM CRIMINAL PROSECUTION.

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IV. WHETHER THE RESPONDENT COURT ERRED IN ITS INTERPRETATION OF WELLESTABLISHED DOCTRINES OF THIS HONORABLE COURT AS REGARDS THE AWARD OF ACTUAL, MORAL AND EXEMPLARY DAMAGES IN FAVOR OF RESPONDENT LARIN. In essence, petitioner asks the Court to resolve seriatim the following issues: 1. Whether respondent court erred in ruling that there was no extortion attempt by BIR officials; 2. Whether respondent court erred in holding that P.D. 1740 and 1840 granting tax amnesties did not grant immunity from tax suits; 3. Whether respondent court erred in finding that petitioner's income from the sale of land in 1976 should be declared as a cash transaction in his tax return for the same year (because the buyer discounted the promissory note issued to the seller on future installment payments of the sale, on the same day of the sale); 4. Whether respondent court erred and committed grave abuse of discretion in awarding damages to respondent Larin. The first issue, on whether the Court of Appeals erred in finding that there was no extortion, involves a determination of fact. The Court of Appeals observed, The only evidence to establish the alleged extortion attempt by defendants-appellees is the plaintiff-appellant's self serving declarations. As found by the court a quo, "said attempt was known to plaintiff-appellant's son-inlaw and counsel on record, yet, said counsel did not take the witness stand to corroborate the testimony of plaintiff."8 As repeatedly held, findings of fact by the Court of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this Court, unless these findings are not supported by evidence.9 Similarly, neither should we disturb a finding of the trial court and appellate court that an allegation is not supported by evidence on record. Thus, we agree with the conclusion of respondent court that herein private respondents, on the basis of evidence, could not be held liable for extortion. On the second issue of whether P.D. Nos. 1740 and 1840 which granted tax amnesties also granted immunity from criminal prosecution against tax offenses, the pertinent sections of these laws state: P.D. No. 1740. CONDONING PENALTIES FOR CERTAIN VIOLATIONS OF THE INCOME TAX LAW UPON VOLUNTARY DISCLOSURE OF UNDECLARED INCOME FOR INCOME TAX PURPOSES AND REQUIRING PERIODIC SUBMISSION OF NET WORTH STATEMENT. xxx xxx xxx

Sec. 1. Voluntary Disclosure of Correct Taxable Income. Any individual who, for any or all of the taxable years 1974 to 1979, had failed to file a return is hereby, allowed to file a return for each of the aforesaid taxable years and accurately declare therein the true and correct income, deductions and exemptions and pay the income tax due

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per return. Likewise, any individual who filed a false or fraudulent return for any taxable year in the period mentioned above may amend his return and pay the correct amount of tax due after deducting the taxes already paid, if any, in the original declaration. (emphasis ours) xxx xxx xxx

Sec. 5. Immunity from Penalties. Any individual who voluntarily files a return under this Decree and pays the income tax due thereon shall be immune from the penalties, civil or criminal, under the National Internal Revenue Code arising from failure to pay the correct income tax with respect to the taxable years from which an amended return was filed or for which an original return was filed in cases where no return has been filed for any of the taxable years 1974 to 1979: Provided, however, That these immunities shall not apply in cases where the amount of net taxable income declared under this Decree is understated to the extent of 25% or more of the correct net taxable income. (emphasis ours) P.D. NO. 1840 GRANTING A TAX AMNESTY ON UNTAXED INCOME AND/OR WEALTH EARNED OR ACQUIRED DURING THE TAXABLE YEARS 1974 TO 1980 AND REQUIRING THE FILING OF THE STATEMENT OF ASSETS, LIABILITIES, AND NET WORTH. Sec. 1. Coverage. In case of voluntary disclosure of previously untaxed income and/or wealth such as earnings, receipts, gifts, bequests or any other acquisition from any source whatsoever, realized here or abroad, by any individual taxpayer, which are taxable under the National Internal Revenue Code, as amended, the assessment and collection of all internal revenue taxes, including the increments or penalties on account of non-payment, as well as all civil, criminal or administrative liabilities arising from or incident thereto under the National Internal Revenue Code, are hereby condoned provided that the individual taxpayer shall pay. (emphasis ours) ... Sec. 2. Conditions for Immunity. The immunity granted under Section one of this Decree shall apply only under the following conditions: a) Such previously untaxed income and/or wealth must have been earned or realized in any of the years 1974 to 1980; b) The taxpayer must file an amnesty return on or before November 30, 1981, and fully pay the tax due thereon; c) The amnesty tax paid by the taxpayer under this Decree shall not be less than P1,000.00 per taxable year; and d) The taxpayer must file a statement of assets, liabilities and net worth as of December 31, 1980, as required under Section 6 hereof. (emphasis ours) It will be recalled that petitioner entered into a deed of sale purportedly on installment. On the same day, he discounted the promissory note covering the future installments. The discounting seems questionable because ordinarily, when a bill is discounted, the lender (e.g. banks, financial institution) charges or deducts a certain percentage from the principal value as its compensation. Here, the discounting was done by the buyer. On July 2, 1981, two weeks after the filing of the tax evasion complaint against him by respondent Larin on

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June 17, 1981, petitioner availed of the tax amnesty under P.D. No. 1740. His amended tax return for the years 1974 - 1979 was filed with the BIR office of Valenzuela, Bulacan, instead of Manila where the petitioner's principal office was located. He again availed of the tax amnesty under P.D. No. 1840. His disclosure, however, did not include the income from his sale of land to AYALA on cash basis. Instead he insisted that such sale was on installment. He did not amend his income tax return. He did not pay the tax which was considerably increased by the income derived from the discounting. He did not meet the twin requirements of P.D. 1740 and 1840, declaration of his untaxed income and full payment of tax due thereon. Clearly, the petitioner is not entitled to the benefits of P.D. Nos. 1740 and 1840. The mere filing of tax amnesty return under P.D. 1740 and 1840 does not ipso facto shield him from immunity against prosecution. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delinquencies, the tax payer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income.10 It also bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.11 Hence, on this matter, it is our view that petitioner's claim of immunity from prosecution under the shield of availing tax amnesty is untenable. On the third issue, petitioner asserts that his sale of the land to AYALA was not on cash basis but on installment as clearly specified in the Deed of Sale which states: That for and in consideration of the sum of TWO MILLION THREE HUNDRED EIGHT THOUSAND SEVEN HUNDRED SEVENTY (P2,308,770.00) PESOS Philippine Currency, to be paid as follows: 1. P461,754.00, upon the signing of the Deed of Sale; and, 2. The balance of P1,847,016.00, to be paid in four (4) equal, consecutive, annual installments with interest thereon at the rate of twelve percent (12%) per annum, beginning on February 20, 1976, said installments to be evidenced by four (4) negotiable promissory notes.12 Petitioner resorts to Section 43 of the NIRC and Sec. 175 of Revenue Regulation No. 2 to support his claim. Sec. 43 of the 1977 NIRC states, Installment basis. (a) Dealers in personal property. . . . (b) Sales of realty and casual sales of personalty In the case (1) of a casual sale or other casual disposition of personal property (other than property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year), for a price exceeding one thousand pesos, or (2) of a sale or other disposition of real property if in either case the initial payments do not exceed twenty-five percentum of the selling price, the income may, under regulations prescribed by the Minister of Finance, be returned on the basis and in the manner above prescribed in this section. As used in this section the term "initial payment"

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means the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made. . . . (emphasis ours) Revenue Regulation No. 2, Section 175 provides, Sale of real property involving deferred payments . Under section 43 deferredpayment sales of real property include (1) agreements of purchase and sale which contemplate that a conveyance is not to be made at the outset, but only after all or a substantial portion of the selling price has been paid, and (b) sales in which there is an immediate transfer of title, the vendor being protected by a mortgage or other lien as to deferred payments. Such sales either under (a) or (b), fall into two classes when considered with respect to the terms of sale, as follows: (1) Sales of property on the installment plan, that is, sales in which the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable year in which the sale is made do not exceed 25 per cent of the selling price; (2) Deferred-payment sales not on the installment plan, that is sales in which the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable year in which the sale is made exceed 25 per cent of the selling price; In the sale of mortgaged property the amount of the mortgage, whether the property is merely taken subject to the mortgage or whether the mortgage is assumed by the purchaser, shall be included as a part of the "selling price" but the amount of the mortgage, to the extent it does not exceed the basis to the vendor of the property sold, shall not be considered as a part of the "initial payments" or of the "total contract price," as those terms are used in section 43 of the Code, in sections 174 and 176 of these regulations, and in this section. The term "initial payments" does not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the vendee as part of the purchase price which are due and payable in subsequent years. Commissions and other selling expenses paid or incurred by the vendor are not to be deducted or taken into account in determining the amount of the "initial payments," the "total contract price," or the "selling price." The term "initial payments" contemplates at least one other payment in addition to the initial payment. If the entire purchase price is to be paid in a lump sum in a later year, there being no payment during the year, the income may not be returned on the installment basis. Income may not be returned on the installment basis where no payment in cash or property, other than evidences of indebtedness of the purchaser, is received during the first year, the purchaser having promised to make two or more payments, in later years. Petitioner asserts that Sec. 43 allows him to return as income in the taxable years involved, the respective installments as provided by the deed of sale between him and AYALA. Consequently, he religiously reported his yearly income from sale of capital asset, subject to tax, as follows: Year 1977 P461,754) 1978 (50% of P230,877. 00 230,877.0

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0 1979 1980 230,877.0 0 230,877.0 0

Petitioner says that his tax declarations are acceptable modes of payment under Section 175 of the Revenue Regulations (RR) No. 2. The term "initial payment", he argues, does not include amounts received by the vendor which are part of the complete purchase price, still due and payable in subsequent years. Thus, the proceeds of the promissory notes, not yet due which he discounted to AYALA should not be included as income realized in 1976. Petitioner states that the original agreement in the Deed of Sale should not be affected by the subsequent discounting of the bill. On the other hand, respondents assert that taxation is a matter of substance and not of form. Returns are scrutinized to determine if transactions are what they are and not declared to evade taxes. Considering the progressive nature of our income taxation, when income is spread over several installment payments through the years, the taxable income goes down and the tax due correspondingly decreases. When payment is in lump sum the tax for the year proportionately increases. Ultimately, a declaration that a sale is on installment diminishes government taxes for the year of initial installment as against a declaration of cash sale where taxes to the government is larger. As a general rule, the whole profit accruing from a sale of property is taxable as income in the year the sale is made. But, if not all of the sale price is received during such year, and a statute provides that income shall be taxable in the year in which it is "received," the profit from an installment sale is to be apportioned between or among the years in which such installments are paid and received.13 Sec. 43 and Sec. 175 says that among the entities who may use the above-mentioned installment method is a seller of real property who disposes his property on installment, provided that the initial payment does not exceed 25% of the selling price. They also state what may be regarded as installment payment and what constitutes initial payment. Initial payment means the payment received in cash or property excluding evidences of indebtedness due and payable in subsequent years, like promissory notes or mortgages, given of the purchaser during the taxable year of sale. Initial payment does not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the vendee as part of the purchase price which are due and payable in subsequent years.14 Such disposition or discounting of receivable is material only as to the computation of the initial payment. If the initial payment is within 25% of total contract price, exclusive of the proceeds of discounted notes, the sale qualifies as an installment sale, otherwise it is a deferred sale.15 Although the proceed of a discounted promissory note is not considered part of the initial payment, it is still taxable income for the year it was converted into cash. The subsequent payments or liquidation of certificates of indebtedness is reported using the installment method in computing the proportionate income 16 to be returned, during the respective year it was realized. Non-dealer sales of real or personal property may be reported as income under the installment method provided that the obligation is still outstanding at the close of that year. If the seller disposes the entire installment obligation by discounting the bill or the promissory note, he necessarily must report the balance of the income from the discounting not only income from the initial installment payment.

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Where an installment obligation is discounted at a bank or finance company, a taxable disposition results, even if the seller guarantees its payment, continues to collect on the installment obligation, or handles repossession of merchandise in case of default. 17 This rule prevails in the United States.18 Since our income tax laws are of American origin, 19 interpretations by American courts an our parallel tax laws have persuasive effect on the interpretation of these laws.20 Thus, by analogy, all the more would a taxable disposition result when the discounting of the promissory note is done by the seller himself. Clearly, the indebtedness of the buyer is discharged, while the seller acquires money for the settlement of his receivables. Logically then, the income should be reported at the time of the actual gain. For income tax purposes, income is an actual gain or an actual increase of wealth. 21 Although the proceeds of a discounted promissory note is not considered initial payment, still it must be included as taxable income on the year it was converted to cash. When petitioner had the promissory notes covering the succeeding installment payments of the land issued by AYALA, discounted by AYALA itself, on the same day of the sale, he lost entitlement to report the sale as a sale on installment since, a taxable disposition resulted and petitioner was required by law to report in his returns the income derived from the discounting. What petitioner did is tantamount to an attempt to circumvent the rule on payment of income taxes gained from the sale of the land to AYALA for the year 1976. Lastly, petitioner questions the damages awarded to respondent Larin. Any person who seeks to be awarded actual or compensatory damages due to acts of another has the burden of proving said damages as well as the amount thereof. 22 Larin says the extortion cases filed against him hampered his immediate promotion, caused him strong anxiety and social humiliation. The trial court awarded him two hundred thousand (P200,000,00) pesos as actual damages. However, the appellate court stated that, despite pendency of this case, Larin was given a promotion at the BIR. Said respondent court: We find nothing on record, aside from defendant-appellee Larin's statements (TSN, pp. 6-7, 11 December 1985), to show that he suffered loss of seniority that allegedly barred his promotion. In fact, he was promoted to his present position despite the pendency of the instant case (TSN, pp. 35-39, 04 November 1985). 23 Moreover, the records of the case contain no statement whatsoever of the amount of the actual damages sustained by the respondents. Actual damages cannot be allowed unless supported by evidence on the record. 24 The court cannot rely on speculation, conjectures or guesswork as to the fact and amount of damages. 25 To justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, the actual amount of loss.26 Since we have no basis with which to assess, with certainty, the actual or compensatory damages counter-claimed by respondent Larin, the award of such damages should be deleted. Moral damages may be recovered in cases involving acts referred to in Article 21 27 of the Civil Code.28 As a rule, a public official may not recover damages for charges of falsehood related to his official conduct unless he proves that the statement was made with actual malice. In Babst, et. al. vs. National Intelligence Board, et. al., 132 SCRA 316, 330 (1984), we reiterated the test for actual malice as set forth in the landmark American case of New York Times vs. Sullivan,29 which we have long adopted, in defamation and libel cases, viz.: . . . with knowledge that it was false or with reckless disregard of whether it was false or not.

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We appreciate petitioner's claim that he filed his 1976 return in good faith and that he had honestly believed that the law allowed him to declare the sale of the land, in installment. We can further grant that the pertinent tax laws needed construction, as we have earlier done. That petitioner was offended by the headlines alluding to him as tax evader is also fully understandable. All these, however, do not justify what amounted to a baseless prosecution of respondent Larin. Petitioner presented no evidence to prove Larin extorted money from him. He even admitted that he never met nor talked to respondent Larin. When the tax investigation against the petitioner started, Larin was not yet the Regional Director of BIR Region IV-A, Manila. On respondent Larin's instruction, petitioner's tax assessment was considered one involving a sale of capital asset, the income from which was subjected to only fifty percent (50%) assessment, thus reducing the original tax assessment by half. These circumstances may be taken to show that Larin's involvement in extortion was not indubitable. Yet, petitioner went on to file the extortion cases against Larin in different fora. This is where actual malice could attach on petitioner's part. Significantly, the trial court did not err in dismissing petitioner's complaints, a ruling affirmed by the Court of Appeals. Keeping all these in mind, we are constrained to agree that there is sufficient basis for the award of moral and exemplary damages in favor of respondent Larin. The appellate court believed respondent Larin when he said he suffered anxiety and humiliation because of the unfounded charges against him. Petitioner's actions against Larin were found "unwarranted and baseless," and the criminal charges filed against him in the Tanodbayan and City Fiscal's Office were all dismissed. 30 Hence, there is adequate support for respondent court's conclusion that moral damages have been proved. Now, however, what would be a fair amount to be paid as compensation for moral damages also requires determination. Each case must be governed by its own peculiar circumstances.31 On this score, Del Rosario vs. Court of Appeals,32 cites several cases where no actual damages were adjudicated, and where moral and exemplary damages were reduced for being "too excessive," thus: In the case of PNB v. C.A., [256 SCRA 309 (1996)], this Court quoted with approval the following observation from RCPI v. Rodriguez, viz: ** **. Nevertheless, we find the award of P100,000.00 as moral damages in favor of respondent Rodriguez excessive and unconscionable. In the case of Prudenciado v. Alliance Transport System, Inc. (148 SCRA 440 [1987]) we said: . . . [I]t is undisputed that the trial courts are given discretion to determine the amount of moral damages (Alcantara v. Surro, 93 Phil. 472) and that the Court of Appeals can only modify or change the amount awarded when they are palpably and scandalously excessive "so as to indicate that it was the result of passion, prejudice or corruption on the part of the trial court" (Gellada v. Warner Barnes & Co., Inc., 57 O.G. [4] 7347, 7358; Sadie v. Bacharach Motors Co., Inc., 57 O.G. [4] 636 and Adone v. Bacharach Motor Co., Inc., 57 O.G. 656). But in more recent cases where the awards of moral and exemplary damages are far too excessive compared to the actual loses sustained by the aggrieved party, this Court ruled that they should be reduced to more reasonable amounts. . . . . (Emphasis ours.) In other words, the moral damages awarded must be commensurate with the loss or injury suffered.

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In the same case (PNB v. CA), this Court found the amount of exemplary damages required to be paid (P1,000,000,00) "too excessive" and reduced it to an "equitable level" (P25,000.00). It will be noted that in above cases, the parties who were awarded moral damages were not public officials. Considering that here, the award is in favor of a government official in connection with his official function, it is with caution that we affirm granting moral damages, for it might open the floodgates for government officials counter-claiming damages in suits filed against them in connection with their functions. Moreover, we must be careful lest the amounts awarded make citizens hesitate to expose corruption in the government, for fear of lawsuits from vindictive government officials. Thus, conformably with our declaration that moral damages are not intended to enrich anyone, 33 we hereby reduce the moral damages award in this case from two hundred thousand (P200,000.00) pesos to seventy five thousand (P75,000.00) pesos, while the exemplary damage is set at P25,000.00 only. The law allows the award of attorney's fees when exemplary damages are awarded, and when the party to a suit was compelled to incur expenses to protect his interest. 34 Though government officers are usually represented by the Solicitor General in cases connected with the performance of official functions, considering the nature of the charges, herein respondent Larin was compelled to hire a private lawyer for the conduct of his defense as well as the successful pursuit of his counterclaims. In our view, given the circumstances of this case, there is ample ground to award in his favor P50,000,00 as reasonable attorney's fees. WHEREFORE, the assailed decision of the Court of Appeals dated November 29, 1991, is hereby AFFIRMED with MODIFICATION so that the award of actual damages are deleted; and that petitioner is hereby ORDERED to pay to respondent Larin moral damages in the amount of P75,000.00, exemplary damages in the amount of P25,000.00, and attorney's fees in the amount of P50,000.00 only.1wphi1.nt No pronouncement as to costs. SO ORDERED. Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur. [G.R. No. 117319. July 19, 2006] BPI FAMILY BANK versus COURT OF APPEALS, COURT OF TAX APPEALS AND COMMISSIONER OF INTERNAL REVENUE Third Division Sirs/Mesdames: Quoted hereunder, for your information, is a resolution of this Court dated JULY 19, 2006. G.R. No. 117319 (BPI Family Bank versus Court of Appeals, Court of Tax Appeals and Commissioner of Internal Revenue) x ------------------------------------------------------------------------------------------------------------------------- x

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RESOLUTION From April 28, 1986 to December 19, 1986, petitioner affixed and paid the documentary stamps on its confirmations of sale of T-bills and Central Bank bills. On April 6, 1987, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 13-87 370[1] stating among others that no documentary stamp tax shall be imposed on documents of conveyance of instruments enumerated in Section 229, 371[2] presently Section 180 of the National Internal Revenue Code (NIRC). Pursuant thereto, petitioner filed with the BIR a claim for refund, amounting to P1,116,612, alleging among others that T-bills and Central Bank bills fall within the purview of the instruments enumerated in Section 229 (now Section 180) of the National Internal Revenue Code. On April 15, 1988, petitioner filed a petition for review with the respondent Court of Tax Appeals. The Court of Tax Appeals denied the claim for refund, and later on, the motion for reconsideration. On appeal, the Court of Appeals ruled that, procedurally, the petitioner failed to attach in its petition the proof of service and the duplicate original of the Court of Tax Appeals' decision; and on the substantial merits of the appeal, the sale and transfer of T-bills and Central Bank bills are subject to documentary stamp tax under Section 225 372[3] (now Section 176) of the NIRC. The dispositive portion of the Court of Appeals' decision reads as follows: WHEREFORE, the instant petition is hereby DISMISSED and the decision under review AFFIRMED. Costs against petitioner. SO ORDERED.373[4] Hence, this petition, raising the following issues: From the foregoing it is clear that there is a procedural as well as substantive issue that presents itself in this case. The procedural issue is whether the petition is dismissible for failure to comply with the requirements of Supreme Court Circular No. 1-88. The substantive issue is whether the Court of Appeals committed reversible error in not ruling that Treasury Bills and Central [Bank] Bills are promissory notes or are included in the definition of deposit substitutes under sec. 180 of the NIRC. 374[5] (Stress supplied.) Simply, the issue on the substantive aspect is, Are T-bills and Central Bank bills subject to documentary stamp tax under Section 225 of the NIRC? On the procedural aspect, the issue is: Did the Court of Appeals err in dismissing the petition for failure to attach the proof of service and the duplicate original of the Court of Tax Appeals' decision?

370 371 372 373 374

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Before us, petitioner now submits that said government securities do not fall under Section 225. Also, petitioner claims that those cited government securities are deemed as promissory notes and/or deposit substitutes enumerated under Section 229 (now Section 180), hence, by virtue of Revenue Memorandum Circular No. 13-87, they are not subject to documentary stamp tax. Petitioner also contends that: (1) in BIR Ruling No. 036 dated February 10, 1988, the then Commissioner has issued an opinion addressed to the Chief of the Banks, Financing & Insurance Division of the BIR that, since treasury bills are considered as deposit substitutes, they are subject to documentary stamp tax under Section 229 of the NIRC;375[6] (2) Revenue Regulations No. 17-84, Section 2(h)(b) provided that, the following borrowings shall be considered as deposit substitutes, ". . .(b) All borrowings of the national and local government and its instrumentalities including the Central Bank of the Philippines, evidenced by debt instruments denoted as treasury bonds, bills, notes, certificates of indebtedness and similar instruments;"376[7] (3) Revenue Memorandum Circular No. 13-87, stated that, since Section 225 of the NIRC applies only to documents of conveyances covering instruments stated in Sections 223 and 224 (now Secs. 174 and 175) of the NIRC, it follows that documents of conveyance covering instruments stated in Section 229 are not subject to DST.377[8] Therefore, according to petitioner, the subject government securities are exempt from documentary stamp taxes. The tax court and the appellate court, however, held that T-bills and Central Bank bills, under its governing laws, Republic Act No. 245, as amended by Presidential Decree No. 142,378[9] and R.A. No. 265,379[10] are denominated as evidence of indebtedness, hence, are deemed the same as certificates of obligations or certificates of indebtedness. They added that the issuance of said government securities falls within the purview of Sections 222 (now Section 173) and 223 (now Section 174), while its sale, transfer or conveyance is under Section 225 (now Section 176) of the NIRC. We agree with the ruling of both the tax and appellate courts. It bears stressing that the main issue raised before us is: Are confirmations of sale of the subject government securities, between herein petitioner and private individuals/entities, subject to documentary stamp tax? A perusal of Section 225380[11] shows that on all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of certificates of obligation, in any association, company,

375 376 377 378 379 380

Page 304 of 1485

or corporation; or transfer of such securities by delivery, or by any paper, or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such certificates of obligation, there shall be collected a documentary stamp tax. In this case, we have to inquire whether the T-bills and Central Bank bills are covered by the said provision. Under Section 1381[12] of Republic Act No. 245, as amended by P.D. No. 142, Treasury bills are evidence of indebtedness, issued by the National Government on a discount basis and offered for sale either at auction on competitive or non-competitive basis, payable at any date not later than one year from the date of issue. Central Bank bills are also evidence of indebtedness issued by the Central Bank conformably with Section 98 382[13] of R.A. No. 265, which authorizes the Central Bank to issue and negotiate Central Bank obligations, and to place, buy, and sell freely its negotiable evidence of indebtedness. Contrary to petitioner's argument, a certificate of indebtedness is different from ordinary debt instruments such as promissory notes and deposit substitutes. A certificate of indebtedness includes only instruments having the general character of investment securities as distinguished from instruments evidencing debts arising in ordinary transactions between individuals.383[14] As distinguished from a promissory note which is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money, to order or bearer,384[15] T-bills and Central Bank bills are investment securities of a public character, issued by the Philippine Government, thru the Central Bank of the Philippines. On the other hand, the chief feature of a deposit substitute is borrowing. 385[16] In this case, petitioner sells government securities to private individuals/entities, in which its confirmations of sale are being subjected to documentary stamp tax. There is no borrowing or debt instrument involved in this case. Here, the petitioner, as the seller, simply conveys through sale, specific government securities to the buyer, who thereby acquires title thereto, including the plenary right of disposal. As there is no borrowing, there is no debt with respect to which the seller can be primarily bound. Nor is the seller subsidiarily bound to respond in case the issuer of the said securities defaults, hypothetically assuming that the Philippine Government, as issuer of the securities sold, could default. Precisely, the sale of said government securities is always "without recourse." Both the respondent courts correctly held that whether T-bills and Central Bank bills are denominated as certificates of obligations, certificates of indebtedness or evidence of indebtedness, they bear the same meaning. Section 225 is clear. On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of certificates of obligation in any association, company, or corporation; or transfer of such securities by delivery, or by any paper, or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such certificates of obligation, there shall be collected a documentary stamp tax. The nomenclatures, i.e.,

381 382 383 384 385

Page 305 of 1485

evidence of indebtedness, certificate of obligation and certificate of indebtedness, bear the same meaning and although their various appellations are used interchangeably by law, they all refer to the subject securities, i.e., T-bills and Central Bank bills. Rules and regulations issued by the administrative officials to implement a law cannot go beyond the terms and provisions of the latter. 386[17] While the interpretation placed upon a law by the executive officers is entitled to great respect by the courts, nevertheless, it is not conclusive and will be ignored if judicially found to be erroneous. Administrative rulings have been aptly described as follows: "They are the best guess of the moment and incidentally often contain such well considered and sound law; but the courts have held that they do not prevent an entire change of front at any time and are merely advisory - sort of an information service to the taxpayer." Moreover, administrative rulings of previous Commissioners are not conclusive and binding upon their successors 387[18] if the latter become convinced that a law warrants a different construction. Therefore, courts will not countenance administrative rulings that are not consistent and in harmony with the law they seek to apply and implement. Therefore, the confirmations of sale of government securities made by the petitioner to private individuals/entities are subject to documentary stamp tax pursuant to Section 225 of the NIRC. We see no need to rule on the procedural issues, since the Court of Appeals, despite pronouncement of the alleged procedural defects, nevertheless, ruled on the merits of the case. WHEREFORE, the instant petition is DENIED. The Court of Appeals' decision dated September 19, 1994 in CA-G.R. SP No. 29853 is AFFIRMED. No pronouncement as to costs. SO ORDERED. Very truly yours, (Sgd.) LUCITA ABJELINA-SORIANO Clerk of Court Republic SUPREME Manila FIRST DIVISION G.R. No. 137002 July 27, 2006 petitioner, of the Philippines COURT

BANK OF THE PHILIPPINE ISLANDS, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

386 387

Page 306 of 1485

DECISION CHICO-NAZARIO, J.: This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Court, as amended, seeking to set aside a Decision 1 of the Court of Appeals dated 14 August 2004 ordering the petitioner to pay respondent Commissioner of Internal Revenue (CIR) deficiency documentary stamp tax of P690,030 for the year 1986, inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid. The Court of Appeals in its assailed Decision affirmed the Decision 2 of the Court of Tax Appeals (CTA) dated 31 May 1994. From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI instructed, by cable, its correspondent bank in New York to transfer U.S. dollars deposited in BPI's account therein to the Federal Reserve Bank in New York for credit to the Central Bank's account therein. Thereafter, the Federal Reserve Bank sent to the Central Bank confirmation that such funds had been credited to its account and the Central Bank promptly transferred to the petitioner's account in the Philippines the corresponding amount in Philippine pesos.3 During the period starting 11 June 1985 until 9 March 1987, the Central Bank enjoyed tax exemption privileges pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board. However, in 1985, Presidential Decree No. 1994 -- An Act Further Amending Certain Provisions of the National Internal Revenue Code was enacted. This law amended Section 222 (now 173) of the National Internal Revenue Code (NIRC), by adding the foregoing: [W]henever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. In 1988, respondent CIR ordered an investigation to be made on BPI's sale of foreign currency. As a result thereof, the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now Section 182) 4 of the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30 per P200.00 on all foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06, which consists of a documentary stamp tax liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a compromise penalty of P300.00.5 BPI disputed the findings contained in the pre-assessment notice. Nevertheless, the CIR issued Assessment No. FAS-5-86-88-003022, dated 30 September 1988, which BPI received on 11 October 1988. BPI formally protested the assessment, but the protest was denied. On 10 July 1990, BPI received the final notice and demand for payment of its 1986 assessment for deficiency documentary stamp tax in the amount of P3,016,316.06. Consequently, a petition for review was filed with the CTA on 9 August 1990. 6 On 31 May 1994, the CTA rendered the Decision holding BPI liable for documentary stamp tax in connection with the sale of foreign exchange to the Central Bank from the period 29 July 1986 to 8 October 1986 only, thus substantially reducing the CIR's original assessment. The dispositive portion of the said Decision reads:

Page 307 of 1485

WHEREFORE, premises considered, petitioner is hereby ordered to pay respondent Commissioner of Internal Revenue, the amount of P690,030 inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid pursuant to Section 249 (cc) (sic) (3) of the Tax Code.7 The CTA ruled that BPI's instructions to its correspondent bank in the U.S. to pay to the Federal Reserve Bank in New York, for the account of the Central Bank, a sum of money falls squarely within the scope of Section 51 of The Revised Documentary Stamp Tax Regulations (Regulations No. 26), dated 26 March 1924, the implementing rules to the earlier provisions on documentary stamp tax, which provides that: 8 What may be regarded as telegraphic transfer . a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code. Nevertheless, the CTA also noted that although Presidential Decree No. 1994, the law which passes the liability on to the non-exempt party, was published in the Official Gazette issue of 2 December 1985, the same was released to the public only on 18 June 1986, as certified by the National Printing Office. Therefore, Presidential Decree No. 1994 took effect only in July 1986 or 15 days after the issue of Official Gazette where the law was actually published, that is, circulated to the public. As a result of the delay, BPI's transactions prior to the effectivity of Presidential Decree No. 1994 were not subject to documentary stamp tax. Hence, the CTA reduced the assessment from P3,016,316.06 to P690,030.00, plus 20% annual interest until fully paid pursuant to Section 249(c) of the NIRC. 9 Both parties filed their respective Motions for Reconsideration, which the CTA denied in a Resolution dated 26 September 1994. BPI filed a Petition for Review with the Court of Appeals on 11 November 1994. On 14 August 1998, the Court of Appeals affirmed the Decision of the CTA. The Court of Appeals ruled that the documentary stamp tax imposed under Section 195 (now Section 182) is not limited only to foreign bills of exchange and letters of credit but also includes the orders made by telegraph or by any other means for the payment of money made by any person drawn in but payable out of the Philippines. The Court of Appeals also maintained that telegraphic transfers, such as the one BPI sent to its correspondent bank in the U.S., are proper subjects for the imposition of documentary stamp tax under Section 195 (now Section 182) and Section 51 of Revenue Regulation No. 26. The Court of Appeals likewise affirmed the CTA's Decision imposing a 20% delinquency on the reduced assessment, in accordance with Section 24(c)(3) of the NIRC and the case of Philippine Refining Company v. Court of Appeals .10 Petitioner filed a Partial Motion for Reconsideration on 9 September 1998, which the Court of Appeals denied on 29 December 1998.11 Hence this petition, wherein the petitioner raised the following issues: I WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT SALES OF FOREIGN EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE TAX CODE

Page 308 of 1485

II WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE IMPOSITION OF A DELINQUENCY INTEREST OF 20% ON THE REVISED DEFICIENCY STAMP ASSESSMENT DESPITE A REDUCTION THEREOF BY THE COUR T OF TAX APPEALS WHICH ERRED IN ITS ORIGINAL ASSESSMENT. 12 The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection with its sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the NIRC, quoted hereunder: Sec. 182. Stamp tax on foreign bills of exchange and letters of credit . On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign country. To determine what is being taxed under this section, a discussion on the nature of the acts covered by Section 195 (now Section 182) of the NIRC is indispensable. This section imposes a documentary stamp tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons. This enumeration is further limited by the qualification that they should be drawn in the Philippines and payable outside of the Philippines. A definition of a "bill of exchange" is provided by Section 39 of Regulations No. 26, the rules governing documentary taxes promulgated by the Bureau of Internal Revenue (BIR) in 1924: Sec. 39. Definition of "bill of exchange". The term bill of exchange denotes checks, drafts, and all other kinds of orders for the payment of money, payable at sight, or on demand or after a specific period after sight or from a stated date. Section 126 of The Negotiable Instruments Law (Act No. 2031) reiterates that it is an "order for the payment of money" and specifies the particular requisites that make it negotiable. Sec. 126. Bill of exchange defined. A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or to bearer. Section 129 of the same law classifies bills of exchange as inland and foreign, the distinction is laid down by where the bills are drawn and paid. Thus, a "foreign bill of exchange" may be drawn outside the Philippines, payable outside the Philippines, or both drawn and payable outside of the Philippines. Sec. 129. Inland and foreign bills of exchange. -- An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. x x x

Page 309 of 1485

The Code of Commerce loosely defines a "letter of credit" and provides for its essential conditions, thus: Art. 567. Letters of credit are those issued by one merchant to another or for the purpose of attending to a commercial transaction. Art 568. The essential conditions of letters of credit shall be: 1. To be issued in favor of a definite person and not to order. 2. To be limited to a fixed and specified amount, or to one or more undetermined amounts, but within a maximum the limits of which has to be stated exactly. A more explicit definition of a letter of credit can be found in the commentaries: A letter of credit is one whereby one person requests some other person to advance money or give credit to a third person, and promises that he will repay the same to the person making the advancement, or accept the bills drawn upon himself for the like amount.13 A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used for the payment at the time payment is made. However, in both bills of exchange and letters of credit, a person orders another to pay money to a third person. The phrase "orders, by telegraph or otherwise, for the payment of money" used in reference to documentary stamp taxes may be found in an earlier documentary tax provision, Section 1449(i) of the Administrative Code of 1917, which was substantially reproduced in Section 195 (now Section 182) of the NIRC. Regulations No. 26, which provided the rules and guidelines for the documentary stamp tax imposed under the Administrative Code of 1917, contains an explanation for the phrase "orders, by telegraph or otherwise, for the payment of money": What may be regarded as telegraphic transfer . a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code. In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal Reserve Bank in New York a sum of money, which is to be credited to the account of the Central Bank. These are the same acts described under Section 51 of Regulations No. 26, interpreting the documentary stamp tax provision in the Administrative Code of 1917, which is substantially identical to Section 195 (now Section 182) of the NIRC. These acts performed by BPI incidental to its sale of foreign exchange to the Central Bank are included among those taxed under Section 195 (now Section 182) of the NIRC. BPI alleges that the assailed decision must be reversed since the sale between BPI and the Central Bank of foreign exchange, as distinguished from foreign bills of exchange, is not subject to the documentary stamp taxes prescribed in Section 195 (now Section 182) of the NIRC. This argument leaves much to be desired. In this case, it is not the sale of foreign

Page 310 of 1485

exchange per se that is being taxed under Section 195 of the NIRC. This section refers to a documentary stamp tax, which is an excise upon the facilities used in the transaction of the business separate and apart from the business itself. 14 It is not a tax upon the business itself which is so transacted, but it is a duty upon the facilities made use of and actually employed in the transaction of the business, and separate and apart from the business itself. 15 Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of credit, and orders of payment for money, drawn in Philippines, but payable outside the Philippines. From this enumeration, two common elements need to be present: (1) drawing the instrument or ordering a drawee, within the Philippines; and (2) ordering that drawee to pay another person a specified amount of money outside the Philippines. What is being taxed is the facility that allows a party to draw the draft or make the order to pay within the Philippines and have the payment made in another country. A perusal of the facts contained in the record in this case shows that BPI, while in the Philippines, ordered its correspondent bank by cable to make a payment, and that payment is to be made to the Federal Reserve Bank in New York. Thus, BPI made use of the aforementioned facility. As a result, BPI need not have sent a representative to New York, nor did the Federal Reserve Bank have to go to the Philippines to collect the funds which were to be credited to the Central Bank's account with them. The transaction was made at the shortest time possible and at the greatest convenience to the parties. The tax was laid upon this privilege or facility used by the parties in their transactions, transactions which they may effect through our courts, and which are regulated and protected by our government. BPI further alleges that since the funds transferred to the Federal Reserve Bank were taken from BPI's account with the correspondent bank, this is not the transaction contemplated under Section 51 of Regulations No. 26. BPI argues that Section 51 of Regulations No. 26, in using the phrase "with which local bank has credit," involves transactions wherein the drawee bank pays with its own funds and excludes from the coverage of the law situations wherein the funds paid out by the correspondent bank are owned by the drawer. In the case of Republic of the Philippines v. Philippine National Bank ,16 the Court equated "credit" with the term "deposits," and identified the depositor as the creditor and the bank as the debtor. And as correctly stated by the trial court, the term "credit" in its usual meaning is a sum credited on the books of a company to a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to make a promised payment. It is the correlative to debt or indebtedness, and that which is due to any person, as distinguished from that which he owes. The same is true with the term "deposits" in banks where the relationship created between the depositor and the bank is that of creditor and debtor. By this definition of "credit," BPI's deposit account with its correspondent bank is much the same as the "credit" referred to in Section 51 of Regulations No. 26. Thus, the fact that the funds transferred to the Central Bank's account with the Federal Reserve Bank are from BPI's deposit account with the correspondent bank can only underline that the present case is the same situation described under Section 51 of Regulations No. 26. Moreover, the fact that the funds belong to BPI and were not advanced by the correspondent bank will not remove the transaction from the coverage of Section 195 (now Section 182) of the NIRC. There are transactions covered by this section wherein funds belonging to the drawer are used for payment. A bill of exchange, when drawn in the

Page 311 of 1485

Philippines but payable in another country, would surely be covered by this section. And in the case of a bill of exchange, the funds may belong to the drawer and need not be advanced by the drawee, as in the case of a check or a draft. In the description of a draft provided hereunder, the drawee is in possession of funds belonging to the drawer of the bill: A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from each other. It is an order made by one person, say the buyer of goods, addressed to a person having in his possession funds of such buyer ordering the addressee to pay the purchase price to the seller of the goods. Where the order is made by one bank to another, it is referred to as a bank draft. 17 BPI argues that the foreign exchange sold was deposited and transferred within the U.S. and is therefore outside Philippine territory. This argument is unsubstantial. The documentary stamp tax is not imposed on the sale of foreign exchange, rather it is an excise tax on the privilege or facility which the parties used in their transaction. In the case of Allied Thread Co., Inc. v. City Mayor of Manila,18 the Court explained the scope encompassed by the power to levy an excise tax: The tax imposition here is upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, and hence is in the nature of an excise tax. The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in (Emphasis supplied). In this case, the act of BPI instructing the correspondent bank to transfer the funds to the Federal Reserve Bank was performed in the Philippines. Therefore, the excise tax may be levied by the Philippine government. Section 195 (now Section 182) of the NIRC would be rendered invalid if the fact that the payment was made outside of the country can be used as a basis for nonpayment of the tax. The second issue is whether the delinquency interest of 20% per annum, as provided under Section 249(c)(3) of the NIRC, is applicable in this case. In the case of Philippine Refining Company v. Court of Appeals ,19 this Court categorically ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR. As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioner's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00. This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional charges and interests incident to delinquency by explaining that the nature of additional charges is compensatory and not a penalty.

Page 312 of 1485

The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed in subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State.20 The same principle was used in Ross v. U.S.21 when the U.S. Supreme Court ruled that it was only equitable for the government to collect interest from a taxpayer who, by the government's error, received a refund which was not due him. Even though [the] taxpayer here did not request the refund made to him, and the situation is entirely due to an error on the part of the government, taxpayer and not the government has had the use of the money during the period involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of money. Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC. WHEREFORE, premises considered, this Court DENIES this petition and AFFIRMS the Decision of the Court of Appeals in CA-G.R. SP No. 57362 dated 14 August 1998, ordering that petitioner Bank of the Philippine Islands to pay Respondent Commissioner of Internal Revenue the deficiency documentary stamp tax in the amount of P690,030.00 inclusive of surcharge and compromise penalty, plus 20% annual interest from 7 June 1990 until fully paid. Costs against the petitioner. SO ORDERED. Panganiban, C.J., Ynares-Santiago, Austria-Martinez, Callejo, Sr., J.J., concur. SECOND DIVISION

Page 313 of 1485

SECURITY BANK CORPORATION (formerly SECURITY BANK AND TRUST COMPANY), Petitioner, Present: G.R. No. 130838

PUNO, J., Chairperson, - versus SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ.

THE COMMISSIONER REVENUE,

OF

INTERNAL Promulgated:

Respondent. August 22, 2006

x-------------------------------------------------------------------------------------x

DECISION

GARCIA, J.:

Page 314 of 1485

Before us is this petition for review on certiorari to reverse, annul and/or nullify the

Decision388[1] dated August 29, 1997 of the Court of Appeals (CA) which affirmed the January 12, 1996 Decision 389[2] and May 21, 1996 Resolution 390[3] of the Court of Tax Appeals (CTA) in CTA Case No. 4784 adjudging herein petitioner Security Bank Corporation (SBC) liable for deficiency documentary stamp tax (DST) on its 1983 sales of securities under repurchase agreements.

The facts are undisputed:

Sometime before March 19, 1987, SBC, a registered commercial bank and a member of the Bankers Association of the Philippines (BAP), received a Pre-Assessment Notice dated March 6, 1987 from the Bureau of Internal Revenue (BIR) for deficiency DST containing the following details:

1983 Deficiency Documentary Stamp Tax 391[4]

A.

On Promissory Notes Issued

Promissory notes issued during the year

P926,385,255.00

Documentary stamp tax due thereon:

P926,385,255.00 P

0.65

P 3,010,752.08

388 389 390 391

Page 315 of 1485

P200.00

B.

On Sale of Securities under Repurchase Agreement

Securities sold during the year

P3,022,803,857.63

Documentary stamp tax due thereon:

P3,022,803,857.63 P

0.25

P 3,778,504.82

P200.00 ______________

Total Add: Compromise penalty

P6,789,256.90 600.00 ______________

TOTAL AMOUNT DUE AND COLLECTIBLE

P6,789,856.90.

In its letter dated March 19, 1987, SBC protested the above-quoted pre-assessment notice on the following grounds: (1) promissory notes issued by SBC prior to October 15, 1984 or specifically in 1983, were non-negotiable and, therefore, not subject to documentary stamp tax; and sale of securities under Repurchase Agreement is not subject to DST.

(2)

Page 316 of 1485

Instead of answering the letter-protest, the BIR sent SBC an assessment letter 392[5] dated May 29, 1987. The letter was a reiteration of the pre-assessment notice previously received, but SBC nevertheless sent a written reply to the assessment notice, clarifying that its answer thereto was already contained in its previous letter-protest of March 19, 1987. On April 8, 1988, the BIR, through former Commissioner Bienvenido A. Tan, Jr., entered into a general compromise agreement 393[6] with the BAP concerning the DST assessment of the various member banks relating to non-negotiable promissory notes, whereby the BAP members agreed to pay THREE AND ONE-FOURTH CENTAVOS (P0.0325) per P200 of the total issuances of non-negotiable promissory notes issued prior to October 15, 1984. Pursuant to said compromise agreement, SBC signed its own compromise agreement394[7] with the BIR on August 15, 1988 by paying the amount of P641,743.23 as full settlement of its 1983 deficiency DST, computed as follows:

Promissory notes issued during the year 1983

P 926,385,255.00

Add:

Securities sold under Repurchase Agreement

3,022,803,857.63 _________________ P3,949,189,112.63

Compromise Base

0.0325 200

= P 3,949,189,112.63 P

0.0325 200

392 393 394

Page 317 of 1485

= P641,743.23 =========

compromised amount paid under P.O. No. C3252171 and C.R. No. 814457384 both dated March 31, 1988.

Despite its availment of the compromise agreement, SBC still received a letter from the BIR demanding payment of the amount of P3,287,399.20 as DST on securities sold under repurchase agreements in 1983, to wit:

1983 Deficiency Documentary Stamp Tax On Sale of Securities Under Repurchase Agreement 395[8]

Securities Sold During the Year

P3,022,803,857.63

Documentary Stamp Tax Due Thereon

P3,022,803,857.63

0.25

P 3,778,604. 82

P200.00

Less:

Partial Payment

P3,022,803,857.63

0.0325

P 491,205.62 _______________

P200.00

395

Page 318 of 1485

TOTAL AMOUNT STILL DUE AND COLLECTIBLE P3,287,399.20. ==============

Through a letter dated August 23, 1989, SBC informed the BIR that the assessment sought to be collected was already the subject of a compromise agreement. On June 17, 1991, SBC filed a protest with the BIRs Appellate Division disputing the reassessment of the DST on sale of securities with repurchase agreements. Commissioner denied said protest in a letter was received by SBC on March 11, 1992. On March 17, 1992, SBC filed a request for reconsideration, which remained unresolved despite BIRs receipt thereof. Eventually, SBC filed a petition for review 397[10] with the CTA questioning the reassessment. On June 19, 1992, the BIR filed its answer alleging the following special and affirmative defenses: 1. The 1988 BIR-BAP DST Compromise Agreement covers only tax assessments involving documentary stamp tax on all types of promissory notes issued prior to October 15, 1984; 2. SBCs sale of securities under a Repurchase Agreement is not included or placed within the scope of the Compromise Agreement. The law is specific that the subject of a compromise comprises only those matters which are definitely stated therein (Article 2036, New Civil Code); 3. SBC, knowing fully well that documentary stamp taxes on sales of securities under Repurchase Agreement were not within the scope of the BIR-BAP DST Compromise Agreement, induced the BIR to enter into a compromise settlement thereof. A compromise in which there is a mistake, fraud, violence, intimidation, undue influence or falsity of documents may be rescinded or invalidated (Article 2038 in relation to Article 1330 of the New Civil Code); and 4. The assessment is in accordance with law and regulation.
396

The BIR

[9] dated January 29, 1992, copy of which

396 397

Page 319 of 1485

Issues having been joined, SBC presented documentary and testimonial evidence supportive of its cause. After SBC rested its case, the BIR presented and offered only documentary evidence consisting of BIR records. presented by it. On January 12, 1996, the CTA rendered its decision, the decretal portion of which reads: WHEREFORE, in view of all the foregoing, instant petition for review is found to be without merit and the same is hereby DISMISSED. ACCORDINGLY, petitioner is hereby ORDERED to PAY to respondent the amount of P3,287,399.82, without any surcharge and interest thereon, as deficiency documentary stamp tax due on petitioners sale of securities under repurchase agreement for the year 1983. SO ORDERED. In time, SBC filed a motion for reconsideration, which the CTA denied in its Resolution of May 21, 1996. No further testimonial evidence was

Therefrom, SBC went to the CA on a petition for review. In the herein assailed Decision398[11] dated August 29, 1997, the CA dismissed SBCs petition, thus: WHEREFORE, the instant petition for review is hereby DISMISSED by this Court for lack of merit. The appealed decision of the Court of Tax Appeals in C.T.A. Case No. 4784 is Affirmed. Costs against petitioner. SO ORDERED.

Hence, SBCs present recourse on the following assigned errors: I. THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT THERE ARE FACTUAL AND LEGAL BASES FOR THE HONORABLE COURT OF TAX APPEALS TO HAVE FOUND PETITIONER LIABLE TO PAY RESPONDENT COMMISSIONER OF INTERNAL REVENUE THE AMOUNT OF P3,287,399.82, WITHOUT ANY SURCHARGE AND INTEREST THEREON, AS DEFICIENCY DOCUMENTARY

398

Page 320 of 1485

STAMP TAX DUE ON PETITIONERS SALE OF SECURITIES UNDER REPURCHASE AGREEMENT FOR THE YEAR 1983. II. THERE WAS ERROR IN FINDING THAT THE TERMS AND CONDITIONS OF THE COMPROMISE AGREEMENT (BETWEEN PETITIONER AND FORMER COMMISSIONER BIENVENIDO TAN), DID NOT INCLUDE/COVER THE WHOLE DST ASSESSMENT ON THE DOCUMENTS OF SALES OF SECURITIES IN 1983 OR THAT MISTAKE WAS COMMITTED BY THE BUREAU OF INTERNAL REVENUE WITH REGARD TO THE OFFER AND ACCEPTANCE OF THE TAX BASE OF THE COMPROMISE SETTLEMENT.

The recourse has no merit. Relative to the first issue, SBC claims that the BIRs DST assessment on its sales of securities with repurchase agreements lacks factual and legal bases. While it never disputed the amount of P3,022,803,857.63 used by the BIR as tax base for its assessment, which constitutes as the factual basis for the DST assessment on sales of securities under repurchase agreements, SBC claimed that these conveyances are instruments covered under Section 229 (now Section 180) of the National Internal Revenue Code (NIRC) that are not subject to DST imposed by Section 225 (now 176) of the NIRC. We do not agree. The NIRC levies DST upon documents, instruments and papers as follows: SEC. 173.399[12] Stamp taxes upon documents, instruments, and papers Upon documents, instruments, and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following sections of this Title, by the person making, signing, issuing, accepting, or transferring the same, and at the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party to thereto who is not exempt shall be the one directly liable for the tax. (Emphasis supplied.)

399

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Particularly covering sales of securities, which SBC has been assessed by the BIR in this case, and the corresponding DST rates due thereon at the time the said tax accrued, the former Section 225 (now Section 176) of the NIRC provides: SEC. 225. Stamp tax on sales, agreements to sell, memorandum of sales, deliveries or transfer of bonds, due-bills, certificates of obligations, or shares or certificates of stocks On all sales, or agreements to sell or memorandum of sales, or deliveries, or transfer of bonds, due-bills, certificates of obligation, or shares or certificates of stock in any association, company or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such bond, due-bills, certificates of obligation or stock, or to secure the future payment of money, or for the future transfer of any bond, due-bill, certificates of obligation or stock, there shall be collected a documentary stamp tax of twenty-five centavos on each two hundred pesos, or fractional part thereof, of the par value of such bond, duebill, certificates of obligation or stock; Provided, That only one tax shall be collected of each sale or transfer of stock or securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or delivered in pursuance of such sale or transfer; and provided, further, That in case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty-five percentum of the documentary stamp tax paid upon the original issue of said stock.

It is clear from the plain language of the law that all sales of securities , without making any distinction as to the nature or type of the sale, i.e., whether it be with a repurchase agreement or not, are taxable. On the other hand, all securities consisting of bonds, due-bills, certificates of obligation, or shares or certificates of stock in any association, company or corporation, of whatever type or nature are within the scope of this section. SBC contends, however, that the sales of securities being levied upon are not covered by Section 225 (now Section 176), but instead fall under Section 229 (now Section 180) of the Tax Code. In this respect, SBC invokes Revenue Memorandum Circulars No. 1387400[13] and No. 33-86401[14] and BIR Ruling No. 119-91. 402[15]

400 401

Page 322 of 1485

We are not persuaded for the simple reason that the BIR circulars and ruling relied upon were all issued after 1983, the tax period involved in this case. Those circulars and ruling cannot prevail over the clear and plain language of the Tax Code. 403[16] Moreover, the Court has no basis to rule in the present petition for review on certiorari, which by its very nature is limited to questions of law and not of facts, whether the securities subject of the tax assessment in this case in fact fall within the ambit of said revenue memorandum circulars. This Court is bound by the factual findings by the CTA, which did not rule that the subject securities, because of what type these were, fall under Section 229 (now Section 180) instead of 225 (now Section 176) of the NIRC. In Commissioner of Internal Revenue v. Court of Appeals, 404[17] the Court ruled: x x x the Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of whether. x x x Consequently, as a matter of principle, this Court will not set aside the conclusion reached by the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority. This point becomes more evident in the case before us where the unanimous findings and conclusions of both the Court of Tax Appeals and the Court of Appeals appear untainted by any abuse of authority, much less grave abuse of discretion.

On this point, the Court finds the decision of the CA affirming that of the CTA free from any palpable or reversible error. Relative to the second issue, SBC claims that based on the terms and conditions of the compromise agreement between it and then BIR Commissioner Tan, the whole DST assessment for 1983, including that on sales of securities, is deemed included thereunder. SBC further claims that the contemporaneous and subsequent acts of revenue officials in accepting its offer of payment, using the entire 1983 DST deficiency assessment, clearly including the sales of securities with repurchase agreement for the year 1983 in the amount of P3,022,803,857.63 as the tax base, were indicative of the fact that the DST due

402 403 404

Page 323 of 1485

on said sales of securities for the year 1983 has been duly settled pursuant to the said compromise agreement of August 15, 1988. Again, we disagree. There is nothing clearer from the plain reading of the first paragraph of the subject compromise agreement than the fact that the only subject matter thereof is the assessment relating to Non-negotiable Promissory Notes issued prior to October 15, 1984. 405[18] follows: VI. EXCLUSIONS: Other issues raised in the tax assessments or which may be raised for open and assessed/pre-assessed years respectively, not involving documentary stamp tax on all types of promissory notes issued prior to Oct. 15, 1984 are not included in, nor affected by this compromise,406[19] (Emphasis supplied). To emphasize the limited scope thereof, the same compromise agreement expressly reiterated, in its Section VI, the exclusions thereto as

The issue of DST assessment on sales of securities with repurchase agreement, which was the subject of the reassessment being questioned in this case, is definitely not within the scope of the compromise agreement, being limited as it is to DST on promissory notes issued prior to October 15, 1984. The DST assessed on the former arises from the act of selling securities (presently taxed under Section 176), while the DST assessed in the latter is on the act of issuing promissory notes (taxed under Section 180). It is evident from the separate provisions governing the two that the law treats these two instruments differently. This Court simply cannot agree with SBC that securities and promissory notes for purposes of the subject Compromise Agreement are one and the same thing. Besides, even assuming, in gratia argumenti, that promissory notes may be included under the generic term securities, securities cannot be included under the specific term promissory notes so as to be deemed within the scope of the same compromise agreement. To be sure, the term promissory note has a definite meaning under the negotiable instruments law, which does not include securities, and this definite meaning is what is deemed incorporated in the compromise agreement entered

405 406

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into by and between SBC and the BIR, unless a different definition is therein expressly agreed upon, which is not the case.

Finally, as regards SBCs contention that the BIR, through its various officials, accepted its offer to settle its entire DST deficiency assessment for 1983 which included the DST assessment for securities with repurchase agreement in the tax base for purposes of the computation of the DST due and collectible, suffice it to say that such acceptance and approval were not made by the BIR Commissioner himself, who, under Section 204 of the NIRC, has the sole power and authority to compromise taxes. Neither was there any showing that the BIR Commissioner specifically authorized those revenue officials, who purportedly accepted and approved SBCs offer of payment, to compromise the DST on sale of securities, which, to stress, were not included in the Compromise Agreement of August 15, 1988 by delegating his power to compromise said DST assessment on securities. This ultra vires act of those revenue officials cannot have any valid and binding legal effect upon the BIR, so as to proscribe the latter from issuing the assailed reassessment of unpaid DST on the sales of securities under repurchase agreements for the year 1983.

WHEREFORE , the petition is DENIED and the assailed CA Decision dated August 29, 1997 is AFFIRMED in toto.

Costs against petitioner.

SO ORDERED. Republic SUPREME Manila SECOND DIVISION G.R. No. 171266 April 4, 2007 of the Philippines COURT

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INTERNATIONAL EXCHANGE BANK, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION CARPIO MORALES, J.: Is a Savings Account-Fixed Savings Deposit (FSD) evidenced by a passbook issued by International Exchange Bank (petitioner) subject to documentary stamp tax (DST) for the years 1996 and 1997? Petitioner, a banking institution duly organized and existing under the laws of the Philippines, was on April 13, 1999 served Letter of Authority No. 000020535 1 by the Commissioner of Internal Revenue (respondent) directing the examination by a "Special Team created pursuant to RSO 797-98" (Special Team) of petitioners books of accounts and other accounting records for the year 1997 and "unverified prior years." An examination of said documents was in fact conducted. Petitioner subsequently received on November 16, 1999 a "Notice to Taxpayer" 2 from the Assistant Commissioner, Enforcement Service of the Bureau of Internal Revenue, notifying it of the results of the examination conducted by the Special Team regarding its tax liabilities, which amounted to P465,158,118.31 for 1996 and P17,033,311,974.23 for 1997, and requesting it to appear for an informal conference to present its side. Between November3 and December4 1999, petitioners representatives met with the Special Team to discuss and/or dispute portions of the Special Teams audit findings. Eventually, the parties resolved issues relating to transactions involving payment of final withholding and gross receipts taxes.5 On January 6, 2000, petitioner was personally served with an undated Pre-Assessment Notice6 (PAN) assessing it of deficiency on its purchases of securities from the Bangko Sentral ng Pilipinas or Government Securities Purchased-Reverse Repurchase Agreement (RRPA) and its FSD for the taxable years 1996 and 1997, viz: Details (Taxable Year 1996) INDUSTRY ISSUES 1. DOCUMENTARY STAMP TAX (DST) On Government Securities Purchased-RRPA and Savings Deposits - SD totaling P25,180,492.15. Government Securities Purchased-RRP amounting to P3,584,098,013.35 is subject to DST under Section 180 of the NIRC, as amended, since this falls under the classification of Deposits Substitutes as defined by RR 3-97. Savings Deposit-FSD amounting to P9,845,497,800.27 should be treated as time deposits considering that its features are very much the same as time deposits (interest rates; terms). In substance, these are certificate[s] of deposits subject to Documentary Stamp Tax under Section 180 of the NIRC which provides among others that certificate[s] of deposits bearing interest and others not payable on sight or demand are subject to DST. 7 of Discrepancies Petitioner,

Page 326 of 1485

Details (Taxable Year 1997) INDUSTRY ISSUES 1. DOCUMENTARY STAMP TAX (DST) On Government Securities Purchased-RRPA and Savings Deposits-FSD totaling P75,383,751.55. Government Securities Purchased-RRP amounting to P12,180.427,820.44 is subject to DST under Sec. 180 of the NIRC, as amended, since this falls under the classification of Deposit Substitutes as defined by RR 3-97. Savings Deposits-FSD amounting to P28,024,239,673.35 should be treated as time deposits considering that its features are very much the same as time deposits (interest rates; terms). In substance, these are certificates of deposit subject to Documentary Stamp Tax under Section 180 of the NIRC which provides among others that certificate[s] of deposit bearing interest and others not payable on sight or demand are subject to DST. 8 (Underscoring in the original) The PAN advised petitioner that in case it was not agreeable to the above-quoted findings, it may "see the Assistant Commissioner-Enforcement Service to clarify issues arising from the investigation and/or review," and its failure to do so within 15 days from receipt of the PAN would mean that it was agreeable.9 On January 12, 2000, petitioner received a Formal Assessment Notice 10 (FAN) for deficiency DST on its RRPA and FSD, including surcharges, in the amounts of P25,180,492.15 for 1996 and P75,383,751.55 for 1997, and an accompanying demand letter 11 requesting payment thereof within 30 days. Acting on the FAN, petitioner filed on February 11, 2000 a protest letter 12 alleging that the assessments should be reconsidered on the grounds that: (1) the assessments are null and void for having been issued without any authority and due process, and were made beyond the prescribed period for making assessments; (2) there is no law imposing DST on RRPA, and assuming that DST was payable, it is the Bangko Sentral ng Pilipinas which is liable therefor; (3) there is no law imposing DST on its FSD; and (4) assuming the deficiency assessments for DST were proper, the imposition of surcharges was patently without legal authority. Respondent failed to act on the protest, prompting petitioner to file a petition for review before the Court of Tax Appeals (CTA). By Decision13 of October 26, 2004, the First Division of the CTA (CTA Division) disposed as follows: WHEREFORE, petitioners deficiency assessments pertaining to the reverse purchase agreements in the amounts of P6,720,183.77 and P22,838,302.16 inclusive of surcharges, for the years 1996 and 1997, respectively, are hereby CANCELLED and WITHDRAWN. However, the deficiency assessments pertaining to savings deposits-FSD are hereby UPHELD and petitioner is ORDERED to PAY the respondent the amount of P71,005,757.77 representing deficiency documentary stamp tax for the years 1996 and 1997. In addition thereto, petitioner is ORDERED to PAY respondent 20% delinquency interest from February 12, 2000 until fully paid pursuant to Section 249 of the 1997 NIRC. 14 (Emphasis and underscoring supplied) of Discrepancies

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Petitioner moved for reconsideration of the CTA Division decision. Respondent moved too for a partial review of the decision. Petitioner argued that its FSD is not subject to DST since it was not one of the documents enumerated either under the 1977 Tax Code (Tax Code) or the 1997 National Internal Revenue Code (NIRC). Respondent on the other hand argued that petitioner should be liable not only for DST on its FSD but also on its RRPA. For lack of merit, the CTA Division, by Resolution 15 of April 20, 2005, denied petitioners motion for reconsideration and respondents motion for partial reconsideration. Only petitioner appealed to the CTA En Banc before which it proffered that its FSD cannot be considered a certificate of deposit subject to DST under Section 180 of the Tax Code for, unlike a certificate of deposit which is a negotiable instrument, the passbook it issued for its FSD was not payable to the order of the depositor or to some other person as the deposit could only be withdrawn by the depositor or by a duly authorized representative. 16 Petitioner likewise proffered that the legislative deliberations on the bill that was to become Republic Act No. (R.A.) 9243 17 showed that the definition of certificates of deposit was amended to include "other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date" in order to plug a revenue loophole caused by the term "certificates of deposit" provided under the Tax Code and the NIRC.18 Furthermore, petitioner argued that a "deposits [sic] evidenced by a passbook [which] have features akin to a time deposit," such as petitioners FSD, is not subject to DST under the Tax Code and the NIRC.19 Finally, petitioner argued that the FAN for 1996 and 1997 were issued in violation of its right to due process, they having been issued even before it could respond to the PAN; and that the 1996 assessment is null and void for having been issued beyond the 3-year prescriptive period. By Decision20 of January 30, 2006, the CTA En Banc affirmed the decision of the CTA Division finding petitioner liable for payment of deficiency DST for its FSD. In affirming the CTA Division Decision, the CTA En Banc held that a time deposit is a type of a certificate of deposit drawing interest, and petitioners FSD has the same nature and characteristics as those of a time deposit; that the requirement of due process had been substantially complied with; and the 1996 assessment was not barred by prescription because there was no requirement for the filing of a DST return under the Tax Code. Hence, the present petition for review on certiorari, petitioner reiterating the same grounds advanced before the CTA En Banc. The issue, in the main, is whether petitioners FSD is subject to DST for the years assessed. The applicable provision is Section 180 of the Tax Code, as amended by R.A. 7660, 21 which reads:

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Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities, certificates of deposit bearing interest and others not payable on sight or demand. - On all loan agreements signed abroad wherein the object of the contract is located or used in the Philippines; bills of exchange (between points within the Philippines), drafts, instruments and securities issued by the Government or any of its instrumentalities or certificates of deposits drawing interest, or orders for the payment of any sum of money otherwise than at sight or on demand, or on all promissory notes, whether negotiable or nonnegotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan, whichever will yield a higher tax: Provided, however, That loan agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase on installment for his personal use or that of his family and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided under this section. (Emphasis and underscoring supplied) Petitioner posits that based on this Courts definition of a certificate of deposit in Far East Bank and Trust Company v. Querimit, 22 viz: A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created. . . . 23 its FSD is not a certificate of deposit since there is nothing in the terms and conditions printed on the passbook evidencing it that can be construed to mean that the bank or banker acknowledges the receipt of a sum of money on deposit. 24 Petitioner moreover posits that the FSD, unlike a certificate of deposit, is not negotiable or payable to the order of some other person or his order but is "only withdrawable by the depositor or his authorized representative."25 Petitioners position does not lie. As correctly found by the CTA En Banc, a passbook representing an interest earning deposit account issued by a bank qualifies as a certificate of deposit drawing interest. 26 A document to be deemed a certificate of deposit requires no specific form as long as there is some written memorandum that the bank accepted a deposit of a sum of money from a depositor.27 What is important and controlling is the nature or meaning conveyed by the passbook and not the particular label or nomenclature attached to it, inasmuch as substance, not form, is paramount.28 Contrary to petitioners claim, not all certificates of deposit are negotiable. A certificate of deposit may or may not be negotiable as gathered from the use of the conjunction or, instead of and, in its definition. A certificate of deposit may be payable to the depositor, to the order of the depositor, or to some other person or his order.

Page 329 of 1485

In any event, the negotiable character of any and all documents under Section 180 is immaterial for purposes of imposing DST. Orders for the payment of sum of money payable at sight or on demand are of course explicitly exempted from the payment of DST. Thus, a regular savings account with a passbook which is withdrawable at any time is not subject to DST, unlike a time deposit which is payable on a fixed maturity date. As for petitioners argument that its FSD is similar to a regular savings deposit because it is evidenced by a passbook,29 and that based on the legislative deliberations on the bill which was to become R.A. 9243 which amended Section 180 of the NIRC (which is to a large extent the same as Section 180 of the Tax Code, as amended by R.A. 7660), Congress admitted that deposits evidenced by passbooks which have features akin to time deposits are not subject to DST,30 the same does not lie. The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term and the reduction of interest rates in case of pre-termination are essential features of a time deposit. Thus explains the CTA En Banc: It is well-settled that certificates of time deposit are subject to the DST and that a certificate of time deposit is but a type of a certificate of deposit drawing interest. Thus, in resolving the issue before Us, it is necessary to determine whether petitioners Savings Account-Fixed Savings Deposit (SA-FSD) has the same nature and characteristics as a time deposit. In this regard, the findings of fact stated in the assailed Decision [of the CTA Division] are as follows: "In this case, a depositor of a savings deposit-FSD is required to keep the money with the bank for at least thirty (30) days in order to yield a higher interest rate. Otherwise, the deposit earns interest pertaining only to a regular savings deposit. The same feature is present in a time deposit. A depositor is allowed to withdraw his time deposit even before its maturity subject to bank charges on its pre[-]termination and the depositor loses his entitlement to earn the interest rate corresponding to the time deposit. Instead, he earns interest pertaining only to a regular savings deposit. Thus, petitioners argument that the savings deposit-FSD is withdrawable anytime as opposed to a time deposit which has a maturity date, is not tenable. In both cases, the deposit may be withdrawn anytime but the depositor gets to earn a lower rate of interest. The only difference lies on the evidence of deposit, a savings deposit-FSD is evidenced by a passbook, while a time deposit is evidenced by a certificate of time deposit." In order for a depositor to earn the agreed higher interest rate in a SA-FSD, the amount of deposit must be maintained for a fixed period. Such being the case, We agree with the finding that the SA-FSD is a deposit account with a fixed term. Withdrawal before the expiration of said fixed term results in the reduction of the interest rate. Having a fixed term and reduction of interest rate in case of pre-termination are essentially the features of a time deposit. Hence, this Court concurs with the conclusion reached in the assailed Decision that petitioners SA-FSD and time deposit are substantially the same. . . . 31 (Italics in the original; underscoring supplied) The findings and conclusions reached by the CTA which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an

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expertise on the subject, and unless there has been an abuse or improvident exercise of authority,32 and none has been shown in the present case, deserves respect. It bears emphasis that DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. 33 It is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business. 34 While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade payment of just taxes. 35 To claim that time deposits evidenced by passbooks should not be subject to DST is a clear evasion of the rule on equality and uniformity in taxation that requires the imposition of DST on documents evidencing transactions of the same kind, in this particular case, on all certificates of deposits drawing interest.36 The further amendment of Section 180 of the NIRC and its renumbering as Section 179 by R.A. 9243, which was approved on February 17, 2004, viz: SEC. 5. Section 180 of the National Internal Revenue Code of 1997, as amended, is hereby renumbered as Section 179 and further amended to read as follows: SEC. 179. Stamp Tax on All Debt Instruments. On every original issue of debt instruments, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the issue price of any such debt instruments: Provided, That for such debt instruments with terms of less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its term in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan. For purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements, including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and securities issued by the government of any of its instrumentalities, deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation." (Underscoring supplied), does not mean that as proffered, prior to its further amendment on said date, Section 180 of the Tax Code and the NIRC time deposits for which passbooks were issued were exempted from payment of DST. If at all, the further amendment was intended to eliminate precisely the scheme used by banks of issuing passbooks to "cloak" its time deposits as regular savings deposits. This is reflected from the following exchanges between Mr. Miguel Andaya of the Bankers Association of the Philippines and Senator Ralph Recto, Senate Chairman of the Committee on Ways and Means, during the deliberations on Senate Bill No. 2518 which eventually became R.A. 9243:

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MR. MIGUEL ANDAYA (Bankers Association of the Philippines). Just to clarify. Savings deposit at the present time is not subject to DST. THE CHAIRMAN. Thats right. MR. ANDAYA. Time deposit is subject. I agree with you in principle that if we are going to encourage deposits, whether savings or time THE CHAIRMAN. Uh-huh. MR. ANDAYA. . .its questionable whether we should tax it with DST at all, even the question of imposing final withholding tax has been raised as an issue. THE CHAIRMAN. If I had it my way, Ill cut it by half. MR. ANDAYA. Yeah, but I guess concerning the constraint of government revenue, even the industry itself right now is not pushing in that direction, but in the long term, when most of us in this room are gone, we hope that DST will disappear from the face of this earth, no. Now, I think the move of the DOF to expand the coverage of or to add that phrase, "Other evidence of indebtedness," it just removed ambiguity. When we testified earlier in the House on this very same bull, we did not interpose any objections if only for the sake of avoiding further ambiguity in the implementation of DST on deposits. Because of what has happened so far is, we dont know whether the examiner is gonna come in and say, "This savings deposit is not savings but its time deposit." So, I think what DOF has done is to eliminate any confusion. They said that a deposit that has a maturity. . . THE CHAIRMAN. Uh-huh. MR. ANDAYA. . . . which is time, in effect, regardless of what form it takes should be subject to DST. THE CHAIRMAN. Would that include savings deposit now? MR. ANDAYA. So that if we cloaked a deposit as savings deposit but it has got a fixed maturity . . . THE CHAIRMAN. Uh-huh. MR. ANDAYA. . . that would fall under the purview.37 (Underscoring supplied) Finally, as the records show, contrary to petitioners claim, it had been afforded the opportunity to protest the assessment notices as in fact it even requested for a reinvestigation which is, given the nature of the present case, the essence of due process. 38 WHEREFORE, the petition is DENIED. SO ORDERED.

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THIRD DIVISION

NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) and Spouses EDUARDO R. DEE and ARCELITA M. DEE, Petitioners,

G.R. No. 148753

Present:

Panganiban, J, Chairman, Sandoval-Gutierrez, Corona,* and

- versus -

Carpio Morales, JJ

PHILIPPINE NATIONAL BANK, Respondent.

Promulgated:

July 30, 2004 x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

ourts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained power to increase interest rates, penalties and other

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charges at the latters sole discretion and without giving prior notice to and securing the consent of the borrowers. This unilateral __________________ * On leave.

authority is anathema to the mutuality of contracts and enable lenders to take undue advantage of borrowers. Although the Usury Law has been effectively repealed, courts may still reduce iniquitous or unconscionable rates charged for the use of money. Furthermore, excessive interests, penalties and other charges not revealed in disclosure statements issued by banks, even if stipulated in the promissory notes, cannot be given effect under the Truth in Lending Act.

The Case

Before us is a Petition for Review407[1] under Rule 45 of the Rules of Court, seeking to nullify the June 20, 2001 Decision 408[2] of the Court of Appeals 409[3] (CA) in CA-GR CV No. 55231. The decretal portion of the assailed Decision reads as follows:

WHEREFORE, the decision of the Regional Trial Court of Dagupan City, Branch 40 dated December 28, 1995 is REVERSED and SET ASIDE. The foreclosure proceedings of the mortgaged properties of defendants-appellees410[4] and the February 26, 1992 auction sale are declared legal and valid and said defendants-appellees are ordered to pay plaintiffappellant PNB,411[5] jointly and severally[,] the amount of deficiency that will be computed by the trial court based on the original penalty of 6% per annum as explicitly stated in the loan documents and to pay attorneys fees in an amount equivalent to x x x 1% of the total amount due and the costs of suit and expenses of litigation. 412[6]

407 408 409 410 411 412

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The Facts

The facts are narrated by the CA as follows:

On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by [Petitioner] NSBCI [1)] authorizing the company to x x x apply for or secure a commercial loan with the PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank and the NSBCI, using or mortgaging the real estate properties registered in the name of its President and Chairman of the Board [Petitioner] Eduardo R. Dee as collateral; [and] 2) authorizing [petitionerspouses] to secure the loan and to sign any [and all] documents which may be required by [Respondent] PNB[,] and that [petitioner-spouses] shall act as sureties or co-obligors who shall be jointly and severally liable with [Petitioner] NSBCI for the payment of any [and all] obligations. On August 15, 1989, Resolution No. 77 was approved by granting the request of [Respondent] PNB thru its Board NSBCI for an P8 Million loan broken down into a revolving credit line of P7.7M and an unadvised line of P0.3M for additional operating and working capital 413[7] to mobilize its various construction projects, namely: 1) 2) 3) 4) 5) 6) 7) 8) MWSS Watermain; NEA-Liberty farm; Olongapo City Pag-Asa Public Market; Renovation of COA-NCR Buildings 1, 2 and 9; Dupels, Inc., Extensive prawn farm development project; Banawe Hotel Phase II; Clark Air Base -- Barracks and Buildings; and Others: EDSA Lighting, Roxas Blvd. Painting NEA Sapang Palay and Angeles City.

The loan of [Petitioner] NSBCI was secured by a first mortgage on the following: a) three (3) parcels of residential land located at Mangaldan, Pangasinan with total land area of 1,214 square meters[,] including improvements thereon and registered under TCT Nos. 128449, 126071, and 126072 of the Registry of Deeds of Pangasinan; b) six (6) parcels of residential land situated at San Fabian, Pangasinan with total area of 1,767 square meters[,] including improvements thereon and covered by TCT Nos. 144006, 144005, 120458, 120890, 144161[,] and 121127 of the Registry of Deeds of Pangasinan; and c) a residential lot and improvements thereon located at Mangaldan, Pangasinan with an area of 4,437 square meters and covered by TCT No. 140378 of the Registry of Deeds of Pangasinan. The loan was further secured by the joint and several signatures of [Petitioners] Eduardo Dee and Arcelita Marquez Dee, who signed as accommodation-mortgagors since all the collaterals were owned by them and registered in their names.

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Moreover [Petitioner] NSBCI executed the following documents, viz: a) promissory note dated June 29, 1989 in the amount of P5,000,000.00 with due date on October 27, 1989; [b)] promissory note dated September 1, 1989 in the amount of P2,700,000.00 with due date on December 30, 1989; and c) promissory note dated September 6, 1989 in the amount of P300,000.00 with maturity date on January 4, 1990. In addition, [petitioner] corporation also signed the Credit Agreement dated August 31, 1989 relating to the revolving credit line of P7.7 Million x x x and the Credit Agreement dated September 5, 1989 to support the unadvised line of P300,000.00. On August 31, 1989, [petitioner-spouses] executed a Joint and Solidary Agreement (JSA) in favor of [Respondent] PNB unconditionally and irrevocably binding themselves to be jointly and severally liable with the borrower for the payment of all sums due and payable to the Bank under the Credit Document. Later on, [Petitioner] NSBCI failed to comply with its obligations under the promissory notes. On June 18, 1991, [Petitioner] Eduardo R. Dee on behalf of [Petitioner] NSBCI sent a letter to the Branch Manager of the PNB Dagupan Branch requesting for a 90-day extension for the payment of interests and restructuring of its loan for another term. Subsequently, NSBCI tendered payment to [Respondent] PNB [of] three (3) checks aggregating P1,000,000.00, namely 1) check no. 316004 dated August 8, 1991 in the amount of P200,000.00; 2) check no. 03499997 dated August 8, 1991 in the amount of P650,000.00; and 3) check no. 03499998 dated August 15, 1991 in the amount of P150,000.00.414[8] In a meeting held on August 12, 1991, [Respondent] PNBs representative[,] Mr. Rolly Cruzabra, was informed by [Petitioner] Eduardo Dee of his intention to remit to [Respondent] PNB post-dated checks covering interests, penalties and part of the loan principals of his due account. On August 22, 1991, [Respondent] banks Crispin Carcamo wrote [Petitioner] Eduardo Dee[,] informing him that [Petitioner] NSBCIs proposal [was] acceptable[,] provided the total payment should be P4,128,968.29 that [would] cover the amount of P1,019,231.33 as principal, P3,056,058.03 as interests and penalties[,] and P53,678.93 for insurance[,] with the issuance of post-dated checks to be dated not later than November 29, 1991. On September 6, 1991, [Petitioner] Eduardo Dee wrote the PNB Branch Manager reiterating his proposals for the settlement of [Petitioner] NSBCIs past due loan account amounting to P7,019,231.33. [Petitioner] Eduardo Dee later tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in favor of [Respondent] PNB, viz:

Check No.

Date

Amount

414

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03500087 03500088 03500089 03500090

Sept. 29, 1991 Oct. 29, 1991 Nov. 29, 1991 Dec. 20, 1991

P277,826.70 P277,826.70 P277,826.70 P277,826.57

Upon presentment[,] however, x x x check nos. 03500087 and 03500088 dated September 29 and October 29, 1991 were dishonored by the drawee bank and returned due [to] a stop payment order from [petitioners]. On November 12, 1991, PNBs Mr. Carcamo wrote [Petitioner] Eduardo Dee informing him that unless the dishonored checks [were] made good, said PNB branch shall recall its recommendation to the Head Office for the restructuring of the loan account and refer the matter to its legal counsel for legal action.[] [Petitioners] did not heed [respondents] warning and as a result[,] the PNB Dagupan Branch sent demand letters to [Petitioner] NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr. Avenue, Quezon City[,] asking it to settle its past due loan account. [Petitioners] nevertheless failed to pay their loan obligations within the [timeframe] given them and as a result, [Respondent] PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for Sale under Act 3135, as amended[,] and Presidential Decree No. 385 dated January 30, 1992. The notice of extra-judicial sale of the mortgaged properties relating to said PNBs [P]etition for [S]ale was published in the February 8, 15 and 22, 1992 issues of the Weekly Guardian, allegedly a newspaper of general circulation in the Province of Pangasinan, including the cities of Dagupan and San Carlos. In addition[,] copies of the notice were posted in three (3) public places[,] and copies thereof furnished [Petitioner] NSBCI at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City, [and at] 555 Shaw Blvd., Mandaluyong[, Metro Manila;] and [Petitioner] Sps. Eduardo and Arcelita Dee at 213 Wilson St., San Juan, Metro Manila. On February 26, 1992, the Provincial Deputy Sheriff Cresencio F. Ferrer of Lingayen, Pangasinan foreclosed the real estate mortgage and sold at public auction the mortgaged properties of [petitioner-spouses,] with [Respondent] PNB being declared the highest bidder for the amount of P10,334,000.00. On March 2, 1992, copies of the Sheriffs Certificate of Sale were sent by registered mail to [petitioner] corporations address at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City and [petitioner-spouses] address at 213 Wilson St., San Juan, Metro Manila. On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to [petitioners] at their address at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City[,] informing them that the properties securing their loan account [had] been sold at public auction, that the Sheriffs Certificate of Sale had been registered with the Registry of Deeds of Pangasinan on March 13,

Page 337 of 1485

1992[,] and that a period of one (1) year therefrom [was] granted to them within which to redeem their properties. [Petitioners] failed to redeem their properties within the one-year redemption period[,] and so [Respondent] PNB executed a [D]eed of [A]bsolute [S]ale consolidating title to the properties in its name. TCT Nos. 189935 to 189944 were later issued to [Petitioner] PNB by the Registry of Deeds of Pangasinan. On August 4, 1992, [Respondent] PNB informed [Petitioner] NSBCI that the proceeds of the sale conducted on February 26, 1992 were not sufficient to cover its total claim amounting to P12,506,476.43[,] and thus demanded from the latter the deficiency of P2,172,476.43 plus interest and other charges[,] until the amount [was] fully paid. [Petitioners] refused to pay the above deficiency claim which compelled [Respondent] PNB to institute the instant [C]omplaint for the collection of its deficiency claim. Finding that the PNB debt relief package automatically [granted] to [Petitioner] NSBCI the benefits under the program, the court a quo ruled in favor of [petitioners] in its Decision dated December 28, 1995, the fallo of which reads: In view of the foregoing, the Court believes and so holds that the [respondent] has no cause of action against the [petitioners].

Page 338 of 1485

WHEREFORE, costs.415[9] the case is hereby DISMISSED, without

On appeal, respondent assailed the trial courts Decision dismissing its deficiency claim on the mortgage debt. It also challenged the ruling of the lower court that Petitioner NSBCIs loan account was bloated, and that the inadequacy of the bid price was sufficient to set aside the auction sale.

Ruling of the Court of Appeals

Reversing the trial court, the CA held that Petitioner NSBCI did not avail itself of respondents debt relief package (DRP) or take steps to comply with the conditions for qualifying under the program. The appellate court also ruled that entitlement to the program was not a matter of right, because such entitlement was still subject to the approval of higher bank authorities, based on their assessment of the borrowers repayment capability and satisfaction of other requirements.

As to the misapplication of loan payments, the CA held that the subsidiary ledgers of NSBCIs loan accounts with respondent reflected all the loan proceeds as well as the partial payments that had been applied either to the principal or to the interests, penalties and other charges. Having been made in the ordinary and usual course of the banking business of respondent, its entries were presumed accurate, regular and fair under Section 5(q) of Rule 131 of the Rules of Court. Petitioners failed to rebut this presumption.

The increases in the interest rates on NSBCIs loan were also held to be authorized by law and the Monetary Board and -- like the increases in penalty rates -- voluntarily and freely agreed upon by the parties in the Credit Agreements they executed. Thus, these increases were binding upon petitioners.

However, after considering that two to three of Petitioner NSBCIs projects covered by the loan were affected by the economic slowdown in the areas near the military bases in the cities of Angeles and Olongapo, the appellate court annulled and deleted the adjustment in penalty from 6 percent to 36 percent per annum. Not only did respondent fail to demonstrate the existence of market forces and economic conditions that would justify such increases; it could also have treated petitioners request for restructuring as a request for

415

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availment of the DRP. Consequently, the original penalty rate of 6 percent per annum was used to compute the deficiency claim.

The auction sale could not be set aside on the basis of the inadequacy of the auction price, because in sales made at public auction, the owner is given the right to redeem the mortgaged properties; the lower the bid price, the easier it is to effect redemption or to sell such right. The bid price of P10,334,000.00 vis--vis respondents claim of P12,506,476.43 was found to be neither shocking nor unconscionable.

The attorneys fees were also reduced by the appellate court from 10 percent to 1 percent of the total indebtedness. First, there was no extreme difficulty in an extrajudicial foreclosure of a real estate mortgage, as this proceeding was merely administrative in nature and did not involve a court litigation contesting the proceedings prior to the auction sale. Second, the attorneys fees were exclusive of all stipulated costs and fees. Third, such fees were in the nature of liquidated damages that did not inure to respondents salaried counsel.

Respondent was also declared to have the unquestioned right to foreclose the Real Estate Mortgage. It was allowed to recover any deficiency in the mortgage account not realized in the foreclosure sale, since petitioner-spouses had agreed to be solidarily liable for all sums due and payable to respondent.

Finally, the appellate court concluded that the extrajudicial foreclosure proceedings and auction sale were valid for the following reasons: (1) personal notice to the mortgagors, although unnecessary, was actually made; (2) the notice of extrajudicial sale was duly published and posted; (3) the extrajudicial sale was conducted through the deputy sheriff, under the direction of the clerk of court who was concurrently the ex-oficio provincial sheriff and acting as agent of respondent; (4) the sale was conducted within the province where the mortgaged properties were located; and (5) such sale was not shown to have been attended by fraud.

Hence this Petition.416[10]

Issues

416

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Petitioners submit the following issues for our consideration:

Whether or not the Honorable Court of Appeals correctly ruled that petitioners did not avail of PNBs debt relief package and were not entitled thereto as a matter of right.

II

Whether or not petitioners have adduced sufficient and convincing evidence to overthrow the presumption of regularity and correctness of the PNB entries in the subsidiary ledgers of the loan accounts of petitioners.

III

Whether or not the Honorable Court of Appeals seriously erred in not holding that the Respondent PNB bloated the loan account of petitioner corporation by imposing interests, penalties and attorneys fees without legal, valid and equitable justification.

IV

Whether or not the auction price at which the mortgaged properties was sold was disproportionate to their actual fair mortgage value.

Whether or not Respondent PNB is not entitled to recover the deficiency in the mortgage account not realized in the foreclosure sale, considering that:

Page 341 of 1485

A.

Petitioners are merely guarantors of the mortgage debt of petitioner corporation which has a separate personality from the [petitioner-spouses].

B.

The joint and solidary agreement executed by [petitionerspouses] are contracts of adhesion not binding on them;

C.

The NSBCI Board Resolution is not valid and binding on [petitioner-spouses] because they were compelled to execute the said Resolution[;] otherwise[,] Respondent PNB would not grant petitioner corporation the loan; The Respondent PNB had already in its possession the properties of the [petitioner-spouses] which served as a collateral to the loan obligation of petitioner corporation[,] and to still allow Respondent PNB to recover the deficiency claim amounting to a very substantial amount of P2.1 million would constitute unjust enrichment on the part of Respondent PNB.

D.

VI

Whether or not the extrajudicial foreclosure proceedings and auction sale, including all subsequent proceedings[,] are null and void for non-compliance with jurisdictional and other mandatory requirements; whether or not the petition for extrajudicial foreclosure of mortgage was filed prematurely; and whether or not the finding of fraud by the trial court is amply supported by the evidence on record. 417[11]

The foregoing may be summed up into two main issues: first, whether the loan accounts are bloated; and second, whether the extrajudicial foreclosure and subsequent claim for deficiency are valid and proper.

417

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The Courts Ruling

The Petition is partly meritorious.

First Main Issue: Bloated Loan Accounts

At the outset, it must be stressed that only questions of law 418[12] may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. As a rule, questions of fact cannot be the subject of this mode of appeal, 419[13] for [t]he Supreme Court is not a trier of facts.420[14] As exceptions to this rule, however, factual findings of the CA may be reviewed on appeal421[15] when, inter alia, the factual inferences are manifestly mistaken; 422 [16] the judgment is based on a misapprehension of facts; 423[17] or the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different legal conclusion.424[18] In the present case, these exceptions exist in various instances, thus prompting us to take cognizance of factual issues and to decide upon them in the interest of justice and in the exercise of our sound discretion. 425[19]

Indeed, Petitioner NSBCIs loan accounts with respondent appear to be bloated with some iniquitous imposition of interests, penalties, other charges and attorneys fees. To demonstrate this point, the Court shall take up one by one the promissory notes, the credit agreements and the disclosure statements.

418 419 420 421 422 423 424 425

Page 343 of 1485

Increases in Interest Baseless

Promissory Notes. In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in the first, and 21.5 percent in the second and again in the third. However, a uniform clause therein permitted respondent to increase the rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x x,426[20] without even giving prior notice to petitioners. The Court holds that petitioners accessory duty to pay interest427[21] did not give respondent unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. 428[22] It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement.

The unilateral determination and imposition 429[23] of increased rates is violative of the principle of mutuality of contracts ordained in Article 1308 430[24] of the Civil Code.431[25] One-sided impositions do not have the force of law between the parties, because such impositions are not based on the parties essential equality.

Although escalation clauses432[26] are valid in maintaining fiscal stability and retaining the value of money on long-term contracts, 433[27] giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the right to assent to an important modification in their agreement 434[28] and would also negate the element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts dependent exclusively upon the uncontrolled will 435[29] of respondent and was therefore void. Besides, the pro forma promissory notes have the

426 427 428 429 430 431 432 433 434 435

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character of a contract dadhsion,436[30] where the parties do not bargain on equal footing, the weaker partys [the debtors] participation being reduced to the alternative to take it or leave it.437[31]

While the Usury Law438[32] ceiling on interest rates was lifted by [Central Bank] Circular No. 905,439[33] nothing in the said Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.440[34] In fact, we have declared nearly ten years ago that neither this Circular nor PD 1684, which further amended the Usury Law,

436 437 438 439 440

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authorized either party to unilaterally raise the interest rate without the others consent.441[35]

Moreover, a similar case eight years ago pointed out to the same respondent (PNB) that borrowing signified a capital transfusion from lending institutions to businesses and industries and was done for the purpose of stimulating their growth; yet respondents continued unilateral and lopsided policy442[36] of increasing interest rates without the prior assent443[37] of the borrower not only defeats this purpose, but also deviates from this pronouncement. Although such increases are not usurious, since the Usury Law is now legally inexistent444[38] -- the interest ranging from 26 percent to 35 percent in the statements of account445[39] -- must be equitably reduced for being iniquitous, unconscionable and exorbitant.446[40] Rates found to be

441 442 443 444 445 446

Page 346 of 1485

iniquitous or unconscionable are void, as if it there were no express contract thereon. 447[41] Above all, it is undoubtedly against public policy to charge excessively for the use of money.448[42]

It cannot be argued that assent to the increases can be implied either from the June 18, 1991 request of petitioners for loan restructuring or from their lack of response to the statements of account sent by respondent. Such request does not indicate any agreement to an interest increase; there can be no implied waiver of a right when there is no clear, unequivocal and decisive act showing such purpose. 449[43] Besides, the statements were not letters of information sent to secure their conformity; and even if we were to presume these as an offer, there was no acceptance. No one receiving a proposal to modify a loan contract, especially interest -- a vital component -- is obliged to answer the proposal.450[44]

447 448 449 450

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Furthermore, respondent did not follow the stipulation in the Promissory Notes providing for the automatic conversion of the portion that remained unpaid after 730 days -or two years from date of original release -- into a medium-term loan, subject to the applicable interest rate to be applied from the dates of original release. 451[45]

In the first,452[46] second453[47] and third454[48] Promissory Notes, the amount that remained unpaid as of October 27, 1989, December 1989 and January 4, 1990 -- their respective due dates -- should have been automatically converted by respondent into medium-term loans on June 30, 1991, September 2, 1991, and September 7, 1991, respectively. And on this unpaid amount should have been imposed the same interest rate charged by respondent on other medium-term loans; and the rate applied from June 29, 1989, September 1, 1989 and September 6, 1989 -- their respective original release -- until paid. But these steps were not taken. Aside from sending demand letters, respondent did not at all exercise its option to enforce collection as of these Notes due dates. Neither did it renew or extend the account.

In these three Promissory Notes, evidently, no complaint for collection was filed with the courts. It was not until January 30, 1992 that a Petition for Sale of the mortgaged properties was filed -- with the provincial sheriff, instead. 455[49] Moreover, respondent did not supply the interest rate to be charged on medium-term loans granted by automatic conversion. Because of this deficiency, we shall use the legal rate of 12 percent per annum on loans and forbearance of money, as provided for by CB Circular 416. 456[50]

Credit Agreements. Aside from the promissory notes, another main document involved in the principal obligation is the set of credit agreements executed and their annexes.

451 452 453 454 455 456

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The first Credit Agreement457[51] dated June 19, 1989 -- although offered and admitted in evidence, and even referred to in the first Promissory Note -- cannot be given weight.

First, it was not signed by respondent through its branch manager. 458[52] Apparently it was surreptitiously acknowledged before respondents counsel, who unflinchingly declared that it had been signed by the parties on every page, although respondents signature does not appear thereon.459[53]

Second, it was objected to by petitioners,460[54] contrary to the trial courts findings.461[55] However, it was not the Agreement, but the revolving credit line 462[56] of P5,000,000, that expired one year from the Agreements date of implementation. 463[57]

Third, there was no attached annex that contained the General Conditions. 464[58] Even the Acknowledgment did not allude to its existence. 465[59] Thus, no terms or conditions could be added to the Agreement other than those already stated therein.

Since the first Credit Agreement cannot be given weight, the interest rate on the first availment pegged at 3 percent over and above respondents prime rate 466[60] on the date of such availment467[61] has no bearing at all on the loan. After the first Notes due date, the rate

457 458 459 460 461 462 463 464 465 466 467

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of 19 percent agreed upon should continue to be applied on the availment, until its automatic conversion to a medium-term loan.

The second Credit Agreement468[62] dated August 31, 1989, provided for interest -respondents prime rate, plus the applicable spread469[63] in effect as of the date of each availment,470[64] on a revolving credit line of P7,700,000471[65] -- but did not state any provision on its increase or decrease. 472[66] Consequently, petitioners could not be made to bear interest more than such prime rate plus spread. The Court gives weight to this second Credit Agreement for the following reasons.

First, this document submitted by respondent was admitted by petitioners. 473[67] Again, contrary to their assertion, it was not the Agreement -- but the credit line -- that expired one year from the Agreements date of implementation. 474[68] Thus, the terms and conditions continued to apply, even if drawdowns could no longer be made.

Second, there was no 7-page annex475[69] offered in evidence that contained the General Conditions,476[70] notwithstanding the Acknowledgment of its existence by respondents counsel. Thus, no terms or conditions could be appended to the Agreement other than those specified therein.

Third, the 12-page General Conditions 477[71] offered and admitted in evidence had no probative value. There was no reference to it in the Acknowledgment of the Agreement; neither was respondents signature on any of the pages thereof. Thus, the General

468 469 470 471 472 473 474 475 476 477

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Conditions stipulations on interest adjustment, 478[72] whether on a fixed or a floating scheme, had no effect whatsoever on the Agreement. Contrary to the trial courts findings,479[73] the General Condition were correctly objected to by petitioners. 480[74] The rate of 21.5 percent agreed upon in the second Note thus continued to apply to the second availment, until its automatic conversion into a medium-term loan.

The third Credit Agreement481[75] dated September 5, 1989, provided for the same rate of interest as that in the second Agreement. This rate was to be applied to availments of an unadvised line of P300,000. Since there was no mention in the third Agreement, either, of any stipulation on increases or decreases 482[76] in interest, there would be no basis for imposing amounts higher than the prime rate plus spread. Again, the 21.5 percent rate agreed upon would continue to apply to the third availment indicated in the third Note, until such amount was automatically converted into a medium-term loan.

The Court also finds that, first, although this document was admitted by petitioners,483[77] it was the credit line that expired one year from the implementation of the Agreement.484[78] The terms and conditions therein continued to apply, even if availments could no longer be drawn after expiry.

Second, there was again no 7-page annex485[79] offered that contained the General Conditions,486[80] regardless of the Acknowledgment by the same respondents counsel affirming its existence. Thus, the terms and conditions in this Agreement relating to interest cannot be expanded beyond that which was already laid down by the parties.

Disclosure Statements. In the present case, the Disclosure Statements 487[81] furnished by respondent set forth the same interest rates as those respectively indicated in

478 479 480 481 482 483 484 485 486

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the Promissory Notes. Although no method of computation was provided showing how such rates were arrived at, we will nevertheless take up the Statements seriatim in order

487

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to determine the applicable rates clearly.

As to the first Disclosure Statement on Loan/Credit Transaction 488[82] dated June 13, 1989, we hold that the 19.5 percent effective interest rate per annum 489[83] would indeed apply to the first availment or drawdown evidenced by the first Promissory Note. Not only was this Statement issued prior to the consummation of such availment or drawdown, but the rate shown therein can also be considered equivalent to 3 percent over and above respondents prime rate in effect. Besides, respondent mentioned no other rate that it considered to be the prime rate chargeable to petitioners. Even if we disregarded the related Credit Agreement, we assume that this private transaction between the parties was fair and regular,490[84] and that the ordinary course of business was followed. 491[85]

As to the second Disclosure Statement on Loan/Credit Transaction 492[86] dated September 2, 1989, we hold that the 21.5 percent effective interest rate per annum 493[87] would definitely apply to the second availment or drawdown evidenced by the second Promissory Note. Incidentally, this Statement was issued only after the consummation of its related availment or drawdown, yet such rate can be deemed equivalent to the prime rate plus spread, as stipulated in the corresponding Credit Agreement. Again, we presume that this private transaction was fair and regular, and that the ordinary course of business was followed. That the related Promissory Note was pre-signed would also bolster petitioners claim although, under cross-examination Efren Pozon -- Assistant Department Manager I494[88] of PNB, Dagupan Branch -- testified that the Disclosure Statements were the basis for preparing the Notes.495[89]

As to the third Disclosure Statement on Loan/Credit Transaction 496[90] dated September 6, 1989, we hold that the same 21.5 percent effective interest rate per annum497[91] would apply to the third

488 489 490 491 492 493 494 495 496

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availment or drawdown evidenced by the third Promissory Note. This Statement was made available to petitioner-spouses, only after the related Credit Agreement had been executed, but simultaneously with the consummation of the Statements related availment or drawdown. Nonetheless, the rate herein should still be regarded as equivalent to the prime rate plus spread, under the similar presumption that this private transaction was fair and regular and that the ordinary course of business was followed.

In sum, the three disclosure statements, as well as the two credit agreements considered by this Court, did not provide for any increase in the specified interest rates. Thus, none would now be permitted. When cross-examined, Julia Ang-Lopez, Finance Account Analyst II of PNB, Dagupan Branch, even testified that the bases for computing such rates were those sent by the head office from time to time, and not those indicated in the notes or disclosure statements.498[92]

In addition to the preceding discussion, it is then useless to labor the point that the increase in rates violates the impairment 499[93] clause of the Constitution, 500[94] because the sole purpose of this provision is to safeguard the integrity of valid contractual agreements against unwarranted interference by the State 501[95] in the form of laws. Private individuals intrusions on interest rates is governed by statutory enactments like the Civil Code.

Penalty, or Increases Thereof, Unjustified

No penalty charges or increases thereof appear either in the Disclosure Statements502[96] or in any of the clauses in the second and the third Credit Agreements503[97] earlier discussed. While a standard penalty charge of 6 percent per annum has been imposed on the amounts stated in all three Promissory Notes still

497 498 499 500 501 502 503

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remaining unpaid or unrenewed when they fell due, 504[98] there is no stipulation therein that would justify any increase in that charges. The effect, therefore, when the borrower is not clearly informed of the Disclosure Statements -- prior to the consummation of the availment or drawdown -- is that the lender will have no right to collect upon such charge 505[99] or increases thereof, even if stipulated in the Notes. The time is now ripe to give teeth to the often ignored forty-one-year old Truth in Lending Act 506[100] and thus transform it from a snivelling paper tiger to a growling financial watchdog of hapless borrowers.

Besides, we have earlier said that the Notes are contracts of adhesion; although not invalid per se, any apparent ambiguity in the loan contracts -- taken as a whole -- shall be strictly construed against respondent who caused it. 507[101] Worse, in the statements of account, the penalty rate has again been unilaterally increased by respondent to 36 percent without petitioners consent. As a result of its move, such

504 505 506 507

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liquidated damages intended as a penalty shall be equitably reduced by the Court to zilch508[102] for being iniquitous or unconscionable. 509[103]

Although the first Disclosure Statement was furnished Petitioner NSBCI prior to the execution of the transaction, it is not a contract that can be modified by the related Promissory Note, but a mere statement in writing that reflects the true and effective cost of loans from respondent. Novation can never be presumed, 510[104] and the animus novandi must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.511[105] To allow novation will surely flout the policy of the State to protect

508 509 510 511

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its citizens from a lack of awareness of the true cost of credit. 512[106]

With greater reason should such penalty charges be indicated in the second and third Disclosure Statements, yet none can be found therein. While the charges are issued after the respective availment or drawdown, the disclosure statements are given simultaneously therewith. Obviously, novation still does not apply.

Other Charges Unwarranted

In like manner, the other charges imposed by respondent are not warranted. No particular values or rates of service charge are indicated in the Promissory Notes or Credit Agreements, and no total value or even the breakdown figures of such non-finance charge are specified in the Disclosure Statements. Moreover, the provision in the Mortgage that requires the payment of insurance and other charges is neither made part of nor reflected in such Notes, Agreements, or Statements. 513[107]

Attorneys Fees Equitably Reduced

We affirm the equitable reduction in attorneys fees.514[108] These are not an integral part of the cost of borrowing, but arise only when collecting upon the Notes becomes necessary. The purpose of these fees is not to give respondent a larger compensation for the loan than the law already allows, but to protect it against any future loss or damage by being compelled to retain counsel in-house or not -- to institute judicial proceedings for the collection of its credit. 515[109] Courts have has the power516[110] to determine their reasonableness517[111] based on quantum meruit518[112] and to reduce519[113] the amount thereof if excessive.520[114]

512 513 514 515 516 517 518

Page 357 of 1485

In addition, the disqualification argument in the Affidavit of Publication raised by petitioners no longer holds water, inasmuch as Act 496 521[115] has repealed the Spanish Notarial Law.522[116] In the same vein, their engagement of their counsel in another capacity concurrent with the practice of law is not prohibited, so long as the roles being assumed by such counsel is made clear to the client. 523[117] The only reason for this clarification requirement is that certain ethical considerations operative in one profession may not be so in the other.524[118]

Debt Relief Package Not Availed Of

We also affirm the CAs disquisition on the debt relief package (DRP).

Respondents Circular is not an outright grant of assistance or extension of payment,525[119] but a mere offer subject to specific terms and conditions. Petitioner NSBCI failed to establish satisfactorily that it had been seriously and directly affected by the economic slowdown in the peripheral areas of the then US military bases. Its allegations, devoid of any verification, cannot lead to a supportable conclusion. In fact, for short-term loans, there is still a need to conduct a thorough review of the borrowers repayment possibilities.526[120]

519 520 521 522 523 524 525 526

Page 358 of 1485

Neither has Petitioner NSBCI shown enough margin of equity, 527[121] based on the latest loan value of hard collaterals, 528[122] to be eligible for the package. Additional accommodations on an unsecured basis may be granted only when regular payment amortizations have been established, or when the merits of the credit application would so justify.529[123]

The branch managers recommendation to restructure or extend a total outstanding loan not exceeding P8,000,000 is not final, but subject to the approval of respondents Branches Department Credit Committee, chaired by its executive vice-president. 530[124] Aside from being further conditioned on other pertinent policies of respondent, 531[125] such approval nevertheless needs to be reported to its Board of Directors for confirmation. 532[126] In fact, under the General Banking Law of 2000,533[127] banks shall grant loans and other credit accommodations only in amounts and for periods of time essential to the effective completion of operations to be financed, consistent with safe and sound banking practices.534[128] The Monetary Board -- then and now -- still prescribes, by regulation, the conditions and limitations under which banks may grant extensions or renewals of their loans and other credit accommodations.535[129]

527 528 529 530 531 532 533 534 535

Page 359 of 1485

Entries in Subsidiary Ledgers Regular and Correct

Contrary to petitioners assertions, the subsidiary ledgers of respondent properly reflected all entries pertaining to Petitioner NSBCIs loan accounts. In accordance with the Generally Accepted Accounting Principles (GAAP) for the Banking Industry, 536[130] all interests accrued or earned on such loans, except those that were restructured and nonaccruing,537[131] have been periodically taken into income. 538[132] Without a doubt, the subsidiary ledgers in a manual accounting system are mere private documents 539[133] that support and are controlled by the general ledger. 540[134] Such ledgers are neither foolproof nor standard in format, but are periodically subject to audit. Besides, we go by the presumption that the recording of private transactions has been fair and regular, and that the ordinary course of business has been followed.

Second Main Issue: Extrajudicial Foreclosure Valid, But Deficiency Claims Excessive

Respondent aptly exercised its option to foreclose the mortgage, 541[135] after petitioners had failed to pay all the Notes in full when they fell due. 542[136] The extrajudicial sale and subsequent proceedings are therefore valid, but the alleged deficiency claim cannot be recovered.

536 537 538 539 540 541 542

Page 360 of 1485

Auction Price Adequate

In the accessory contract543[137] of real mortgage,544[138] in which immovable property or real rights thereto are used as security 545[139] for the fulfillment of the principal loan obligation,546[140] the bid price may be lower than the propertys fair market value. 547 [141] In fact, the loan value itself is only 70 percent of the appraised value. 548[142] As correctly emphasized by the appellate court, a low bid price will make it

543 544 545 546 547 548

Page 361 of 1485

easier549[143] for the owner to effect redemption 550[144] by subsequently reacquiring the property or by selling the right to redeem and thus recover alleged losses. Besides, the public auction sale has been regularly and fairly conducted, 551[145] there has been ample authority to effect the sale,552[146] and the Certificates of Title can be relied upon. No personal notice553[147] is even required,554[148] because an extrajudicial foreclosure is an action in rem, requiring only notice by publication and posting, in order to bind parties interested in the foreclosed property.555[149]

As no redemption556[150] was exercised within one year after the date of registration of the Certificate of Sale with the Registry of Deeds, 557[151] respondent -- being the highest bidder -- has the right to a writ of possession, the final process that will consummate the extrajudicial foreclosure. On the other hand, petitioner-spouses, who are mortgagors herein, shall lose all their rights to the property.558[152]

No Deficiency Claim Receivable

After the foreclosure and sale of the mortgaged property, the Real Estate Mortgage is extinguished. Although the mortgagors, being third persons, are not liable for any deficiency in the absence of a contrary stipulation, 559[153] the action for recovery of such amount -- being clearly sureties to the principal obligation -- may still be directed against them.560[154] However, respondent may impose only the stipulated interest rates of 19.5

549 550 551 552 553 554 555 556 557 558 559 560

Page 362 of 1485

percent and 21.5 percent on the respective availments -- subject to the 12 percent legal rate revision upon automatic conversion into medium-term loans -- plus 1 percent attorneys fees, without additional charges on penalty, insurance or any increases thereof.

Accordingly, the excessive interest rates in the Statements of Account sent to petitioners are reduced to 19.5 percent and 21.5 percent, as stipulated in the Promissory Notes; upon loan conversion, these rates are further reduced to the legal rate of 12 percent. Payments made by petitioners are pro-rated, the charges on penalty and insurance eliminated, and the resulting total unpaid principal and interest of P6,582,077.70 as of the date of public auction is then subjected to 1 percent attorneys fees. The total outstanding obligation is compared to the bid price. On the basis of these rates and the comparison made, the deficiency claim receivable amounting to P2,172,476.43 in fact vanishes. Instead, there is an overpayment by more than P3 million, as shown in the following Schedules:

Page 363 of 1485

SCHEDULE 1: PN (1) drawdown amount on 6/29/89 Less: Interest deducted in advance (per 6/13/89 Disclosure Statement) Net proceeds Principal Add: Interest at 19.5% p.a. 10/28/89-12/31/89 (5,000,000 x 19.5% x [65/365]) 1/1/90-1/5/90 (5,000,000 x 19.5% x [5/365]) Amount due as of 1/5/90 Less: Payment on 1/5/90 (pro-rated upon interest) Balanc e Add: Interest at 19.5% p.a. 1/6/90-3/30/90 ([5,000,000-356,821.30] x 19.5% x [84/365]) Amount due as of 3/30/90 Less: Payment on 3/30/90 (pro-rated upon interest) Balanc e Add: Interest at 19.5% p.a. 3/31/90-5/31/90 ([5,000,000-356,821.30] x 19.5% x [62/365]) Amount due as of 5/31/90 Less: Payment on 5/31/90 (pro-rated upon interest) Balanc e Add: Interest at 19.5% p.a. 6/1/90-6/29/90 ([5,000,000-(356,821.30+821.33)] x 19.5% x [29/365]) Amount due as of 6/29/90 Less: Payment on 6/29/90 (pro-rated upon interest) Balanc e

173,6

13,35

Page 364 of 1485

Add: Interest at 19.5% p.a. 6/30/90-12/31/90 ([5,000,000-(356,821.30+821.33+767,087.92)] x 19.5% x [185/365]) 1/1/91-6/29/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 19.5% x [180/365]) Interest at 12% p.a. upon automatic conversion 6/30/91-8/8/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [40/365]) Amount due as of 8/8/91 Less: Payment on 8/8/91 (pro-rated upon interest) Balanc e Add: Interest at 12% p.a. 8/9/91-8/15/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [7/365]) Amount due as of 8/15/91 Less: Payment on 8/15/91 (pro-rated upon interest) Balanc e Add: Interest at 12% p.a. 8/16/91-11/29/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [106/365]) Amount due as of 11/29/91 Less: Payment on 11/29/91 (pro-rated upon interest) Balanc e Add: Interest at 12% p.a. 11/30/91-12/20/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [21/365]) Amount due as of 12/20/91 Less: Payment on 12/20/91 (pro-rated upon interest) Balanc e Add: Interest at 12% p.a. 12/21/91-12/31/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [11/365]) 1/1/92-2/26/92 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [57/365]) Amount due on PN (1) as of 2/26/92

383,0

372,6

50,96

14,28

74,00

Page 365 of 1485

SCHEDULE 2: PN (2) drawdown amount on 9/1/89 Less: Interest deducted in advance (per 9/1/89 Disclosure Statement) Net proceeds Principal Add: Interest at 21.5% p.a. 12/31/89 (2,700,000 x 21.5% x [1/365]) 1/1/90-1/5/90 (2,700,000 x 21.5% x [5/365]) Amount due as of 1/5/90 Less: Payment on 1/5/90 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 1/6/90-3/30/90 ([2,700,000-18,209.65] x 21.5% x [84/365]) Amount due as of 3/30/90 Less: Payment on 3/30/90 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 3/31/90-5/31/90 ([2,700,000-18,209.65] x 21.5% x [62/365]) Amount due as of 5/31/90 Less: Payment on 5/31/90 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 6/1/90-6/29/90 ([2,700,000-(18,209.65+523.04)] x 21.5% x [29/365]) Amount due as of 6/29/90 Less: Payment on 6/29/90 (pro-rated upon interest) Balanc e

1,590.

7,952.

Page 366 of 1485

Add: Interest at 21.5% p.a. 6/30/90-12/31/90 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [185/365]) 1/1/91-8/8/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [220/365]) Amount due as of 8/8/91 Less: Payment on 8/8/91 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 8/9/91-8/15/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [7/365]) Amount due as of 8/15/91 Less: Payment on 8/15/91 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 8/16/91-9/1/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [17/365]) Interest at 12% p.a. upon automatic conversion 9/2/91-11/29/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [89/365]) Amount due as of 11/29/91 Less: Payment on 11/29/91 (pro-rated upon interest) Balanc e Add: Interest at 12% p.a. 11/30/91-12/20/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [21/365]) Amount due as of 12/20/91 Less: Payment on 12/20/91 (pro-rated upon interest) Balanc e Add: Interest at 12% p.a. 12/21/91-12/31/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [11/365]) 1/1/92-2/26/92 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [57/365])

238,95

284,16

21,957

64,161

7,930.

41,092

Page 367 of 1485

Amount due on PN (2) as of 2/26/92

Page 368 of 1485

SCHEDULE 3: PN (3) drawdown amount on 9/6/89 Less: Interest deducted in advance (per 9/6/89 Disclosure Statement) Net proceeds Principal Add: Interest at 21.5% p.a. 1/5/90 (300,000 x 21.5% x [1/365]) Amount due as of 1/5/90 Less: Payment on 1/5/90 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 1/6/90-3/30/90 ([300,000-337.22] x 21.5% x [84/365]) Amount due as of 3/30/90 Less: Payment on 3/30/90 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 3/31/90-5/31/90 ([300,000-337.22] x 21.5% x [62/365]) Amount due as of 5/31/90 Less: Payment on 5/31/90 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 6/1/90-6/29/90 ([300,000-(337.22+58.44)] x 21.5% x [29/365]) Amount due as of 6/29/90 Less: Payment on 6/29/90 (pro-rated upon interest) Balanc e

Page 369 of 1485

Add: Interest at 21.5% p.a. 6/30/90-12/31/90 ([300,000-(337.22+58.44+54,583.14)] x 21.5% [185/365]) 1/1/91-8/8/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% [220/365]) Amount due as of 8/8/91 Less: Payment on 8/8/91 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 8/9/91-8/15/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% [7/365]) Amount due as of 8/15/91 Less: Payment on 8/15/91 (pro-rated upon interest) Balanc e Add: Interest at 21.5% p.a. 8/16/91-9/6/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% [22/365]) Interest at 12% p.a. upon automatic conversion 9/7/91-11/29/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% [84/365]) Amount due as of 11/29/91 Less: Payment on 11/29/91 (pro-rated upon interest) Balanc e Add: Interest at 12% p.a. 11/30/91-12/20/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% [21/365]) Amount due as of 12/20/91 Less: Payment on 12/20/91 (pro-rated upon interest) Balanc e Add: Interest at 12% p.a. 12/21/91-12/31/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% [11/365]) 1/1/92-2/26/92 ([300,000-(337.22+58.44+54,583.14)]] x 12% [57/365]) x x

26,700

31,752

3,175. x

6,766.

x x

886.10

4,591.

Page 370 of 1485

Amount due on PN (3) as of 2/26/92

Page 371 of 1485

SCHEDULE 4: Application of Payments Upon Interest

Date

Interest Payable PN P PN (2) PN (3) (1) 186,986.30 9,542.47 176.71 196,705.48 208,370.59 132,693.52 14,827.15 355,891.26 198,985.09 126,716.69 14,159.30 339,861.08 71,924.74 45,801.92 5,117.90 122,844.56 806,639.99 523,113.94 58,452.66 1,388,206.59 321,652.11 211,852.33 23,672.34 557,176.79 370,109.22 240,937.94 27,241.23 638,288.39 235,767.70 151,204.51 17,075.64 404,047.85 P

Pro-rated 543,807.61 27,752.12 513.93 572,073.65 163,182.85 103,917.28 11,611.70 278,711.83 199,806.42 127,239.72 14,217.74 341,263.89 839,012.66 534,286.14 59,701.04 1,432,999.84 493,906.31 320,303.08 35,790.61 850,000.00 86,593.37 57,033.69 6,372.93 150,000.00 161,096.81 104,872.65 11,857.24 277,826.70 162,115.78 103,969.45 11,741.35 277,826.57

1/5/90

3/30/90

PN (1) PN (2) PN (3)

5/31/90

PN (1) PN (2) PN (3)

6/29/90

PN (1) PN (2) PN (3)

8/8/91

PN (1) PN (2) PN (3)

8/15/91

PN (1) PN (2) PN (3)

11/29/91

PN (1) PN (2) PN (3)

12/20/91

PN (1) PN (2) PN (3) P

Page 372 of 1485

Page 373 of 1485

In the preparation of the above-mentioned schedules, these basic legal principles were followed:

First, the payments were applied to debts that were already due. 561[155] Thus, when the first payment was made and applied on January 5, 1990, all Promissory Notes were already due.

Second, payments of the principal were not made until the interests had been covered. 562 [156] For instance, the first payment on January 15, 1990 had initially been applied to all interests due on the notes, before deductions were made from their respective principal amounts. The resulting decrease in interest balances served as the bases for subsequent pro-ratings.

Third, payments were proportionately applied to all interests that were due and of the same nature and burden.563[157] This legal principle was the rationale for the pro-rated computations shown on Schedule 4.

Fourth, since there was no stipulation on capitalization, no interests due and unpaid were added to the principal; hence, such interests did not earn any additional interest. 564[158] The simple -- not compounded -- method of interest calculation 565[159] was used on all Notes until the date of public auction.

In fine, under solutio indebiti566[160] or payment by mistake,567[161] there is no deficiency receivable in favor of PNB, but rather an excess claim or surplus 568[162] payable by respondent; this excess should immediately be returned to petitioner-spouses or their

561 562 563 564 565 566 567 568

Page 374 of 1485

assigns -- not to mention the buildings and improvements 569[163] on and the fruits of the property -- to the end that no one may be unjustly enriched or benefited at

569

Page 375 of 1485

the expense of another.570[164] Such surplus is in the amount of P3,686,101.52, computed as follows:

Total unpaid principal and interest on the promissory notes as of February 26, 1992: Drawdown on June 29, 1989 (Schedule 1) Drawdown on September 1, 1989 (Schedule 2) Drawdown on September 6, 1989 (Schedule 3) 255,833.22 6,582,077.70 Add: 1% attorneys fees Total outstanding obligation Less: Bid price Excess P 65,820.78 6,647,898.48 10,334,000.00 3,686,101.52 2,289,040.38 P 4,037,204.10

Joint and Solidary Agreement. Contrary to the contention of the petitionerspouses, their Joint and Solidary Agreement (JSA) 571[165] was indubitably a surety, not a guaranty.572[166] They consented to be jointly and severally liable with Petitioner NSBCI -the borrower -- not only for the payment of all sums due and payable in favor of respondent, but also for the faithful and prompt performance of all the terms and conditions thereof. 573

570 571 572 573

Page 376 of 1485

[167] Additionally, the corporate secretary of Petitioner NSBCI certified as early as February 23, 1989, that the spouses should act as such surety. 574[168] But, their solidary liability should be carefully studied, not sweepingly assumed to cover all availments instantly.

First, the JSA was executed on August 31, 1989. As correctly adverted to by petitioners,575[169] it covered only the Promissory Notes of P2,700,000 and P300,000 made after that date. The terms of a contract of suretyship undeniably determine the suretys liability576[170] and cannot extend beyond what is stipulated therein. 577[171] Yet, the total amount petitioner-spouses agreed to be held liable for was P7,700,000; by the time the JSA was executed, the first Promissory Note was still unpaid and was thus brought within the JSAs ambit.578[172] Second, while the JSA included all costs, charges and expenses that respondent might incur or sustain in connection with the credit documents, 579[173] only the interest was imposed under the pertinent Credit Agreements. Moreover, the relevant Promissory Notes had to be resorted to for proper valuation of the interests charged.

Third, although the JSA, as a contract of adhesion, should be taken contra proferentum against the party who may have caused any ambiguity therein, no such ambiguity was found. Petitioner-spouses, who agreed to be accommodation mortgagors, 580 [174] can no longer be held individually liable for the entire onerous obligation 581[175] because, as

574 575 576 577 578 579 580 581

Page 377 of 1485

it turned out, it was respondent that still owed them.

To summarize, to give full force to the Truth in Lending Act, only the interest rates of 19.5 percent and 21.5 percent stipulated in the Promissory Notes may be imposed by respondent on the respective availments. After 730 days, the portions remaining unpaid are automatically converted into medium-term loans at the legal rate of 12 percent. In all instances, the simple method of interest computation is followed. Payments made by petitioners are applied and pro-rated according to basic legal principles. Charges on penalty and insurance are eliminated, and 1 percent attorneys fees imposed upon the total unpaid balance of the principal and interest as of the date of public auction. The P2 million deficiency claim therefore vanishes, and a refund of P3,686,101.52 arises.

WHEREFORE, this Petition is hereby PARTLY GRANTED. The Decision of the Court of Appeals is AFFIRMED, with the MODIFICATION that PNB is ORDERED to refund the sum of P3,686,101.52 representing the overcollection computed above, plus interest thereon at the legal rate of six percent (6%) per annum from the filing of the Complaint until the finality of this Decision. After this Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction. No costs.

SO ORDERED. SECOND DIVISION

BANK OF THE PHILIPPINE ISLANDS, INC., Petitioner,

G.R. No. 184122

Present: Carpio, J., Chairperson,

- versus -

Brion, Del Castillo, Abad, and Perez, JJ.

SPS. NORMAN AND ANGELINA YU

Page 378 of 1485

and TUANSON BUILDERS CORPORATION represented by PRES. NORMAN YU, Respondents. January 20, 2010 Promulgated:

x ---------------------------------------------------------------------------------------- x

DECISION

ABAD, J.:

This case is about the propriety of a summary judgment in resolving a documented claim of alleged excessive penalty charges, interest, attorneys fees, and foreclosure expenses imposed in an extrajudicial foreclosure of mortgage.

The Facts and the Case

Respondents Norman and Angelina Yu (the Yus), doing business as Tuanson Trading, and Tuanson Builders Corporation (Tuanson Builders) borrowed various sums totaling P75 million from Far East Bank and Trust Company. For collateral, they executed real estate mortgages over several of their properties, 582[1] including certain lands in Legazpi City owned by Tuanson Trading. 583[2] In 1999, unable to pay their loans, the Yus and Tuanson Builders requested a loan restructuring, 584[3] which the bank, now merged with Bank of the

582 583 584

Page 379 of 1485

Philippine Islands (BPI), granted.585[4] P33,400,000.00. By this time, the Yus loan balance stood at

The restructured loan used the same collaterals, with the exception of

Transfer Certificate of Title 40247 that secured a loan of P1,600,000.586[5]

Despite the restructuring, however, the Yus still had difficulties paying their loan. They asked BPI to release some of the mortgaged lands since their total appraised value far exceeded the amount of the remaining debt. withheld payments on their amortizations. action against BPI and the winning When BPI ignored their request, the Yus Thus, BPI extrajudicially foreclosed 587[6] the Magnacraft Development Corporation

mortgaged properties in Legazpi City and in Pili, Camarines Sur. But the Yus sought by court bidder, (Magnacraft), the annulment of the foreclosure sale.

In the course of the proceedings, however, the Yus and Magnacraft entered into a compromise agreement588[7] that affirmed the latters ownership of three out of the 10 parcels of land that were auctioned. By virtue of this agreement, the court dismissed the complaint against Magnacraft,589[8] without prejudice to the Yus filing a new one against BPI.

On October 24, 2003 the Yus filed their new complaint before the Regional Trial Court (RTC) of Legazpi City, Branch 1, in Civil Case 10286 against BPI for recovery of alleged excessive penalty charges, attorneys fees, and foreclosure expenses that the bank caused to be incorporated in the price of the auctioned properties.590[9]

585 586 587 588 589 590

Page 380 of 1485

In its answer,591[10] BPI essentially admitted the foreclosure of the mortgaged properties for P39,055,254.95, broken down as follows: P33,283,758.73 as principal debt; P2,110,282.78 as interest; and P3,661,213.46 as penalty charges. 592[11] BPI qualified that the total of P39,055,254.95 corresponded only to the Yus debt as of date of filing of the petition.593[12] The notice of the auction sale said that the total was inclusive of interest, penalty charges, attorneys fee and expenses of this foreclosure. 594[13]

BPI further admitted that its bid of P45,090,566.41 for all the auctioned properties was broken down as follows:595[14]

Principal Interest Penalty Charges Sub-total Add: 10% Attorneys Fees Litigation Expenses & Interest Cost of Publication & Interest TOTAL.

P 32,188,723.07 2,763,088.93 5,568.649.09 P 40,520,461.09 4,052,046.11 446,726.74 71,332.47 P 45,090,566.41

BPI also admitted that Magnacraft submitted the highest and winning bid of P45,500,000.00.596[15] The sheriff turned over this amount to BPI. 597[16] According to BPI, it in turn remitted to the Clerk of Court the P409,433.59 difference between its bid price and that of Magnacrafts.598[17] Although the proceeds of the sale exceeded the

591 592 593 594 595 596 597 598

Page 381 of 1485

P39,055,254.95 stated in the notice of sale by P6,035,311.46,599[18] the bid amount increased because it now included litigation expenses and attorneys fees as well as interests and penalties as recomputed.600[19]

BPI admitted that it also pushed through with the second auction for the sale of a lot in Pili, Camarines Sur that secured a remaining debt of P5,562,000.601[20] BPI made the lone bid602[21] of P1,701,934.09.603[22]

The Yus had three causes of action against BPI.

First. The bank imposed excessive penalty charges and interests: over P5 million in penalty charges computed at 36% per annum compared to the 12% per annum that the Court fixed in the cases of State Investment House, Inc. v. Court of Appeals 604[23] and Ruiz v. Court of Appeals.605[24] In addition, BPI collected a 14% yearly interest on the principal, bringing the combined penalty charges and interest to 50% of the principal per annum.

Second.

BPI also imposed a charge of P4,052,046.11 in attorneys fees, the

equivalent of 10% of the principal, interest, and penalty charges.

599 600 601 602 603 604 605

Page 382 of 1485

Third. BPI did not provide documents to support its claim for foreclosure expenses of P446,726.74 and cost of publication of P518,059.21.

As an alternative to their three causes of action, the Yus claimed that BPI was in estoppel to claim more than the amount stated in its published notices. Consequently, it must turn over the excess bid of P6,035,311.46.

After pre-trial, the Yus moved for summary judgment, 606[25] pointing out that based on the answer,607[26] the common exhibits of the parties, 608[27] and the answer to the written interrogatories to the sheriff, 609[28] no genuine issues of fact exist in the case. The Yus waived their claim for moral damages so the RTC can dispose of the case through a summary judgment.610[29]

Initially, the RTC granted only a partial summary judgment. It reduced the penalty charge of 36% per annum611[30] to 12% per annum until the debt would have been fully paid but maintained the attorneys fees as reasonable considering that BPI already waived the P1,761,511.36 that formed part of the attorneys fees and reduced the rate of attorneys fees it collected from 25% to 10% of the amount due. The RTC ruled that facts necessary to resolve the issues on penalties and fees had been admitted by the parties thus dispensing with the need to receive evidence.612[31]

606 607 608 609 610 611 612

Page 383 of 1485

Still, the RTC held that it needed to receive evidence for the resolution of the issues of (1) whether or not the foreclosure and publication expenses were justified; (2) whether or not the foreclosure of the lot in Pili, Camarines Sur, was valid given that the proceeds of the foreclosure of the properties in Legazpi City sufficiently covered the debt; and (3) whether or not BPI was entitled to its counterclaim for attorneys fees, moral damages, and exemplary damages.613[32]

The Yus moved for partial reconsideration. 614[33] They argued that, since BPI did not mark in evidence any document in support of the foreclosure expenses it claimed, it may be assumed that the bank had no evidence to prove such expenses. As regards their right to the pro-rating of their debt among the mortgaged properties, the Yus pointed out that BPI did not dispute the fact that the proceeds of the sale of the properties in Legazpi City fully satisfied the debt. Thus, the court could already resolve without trial the issue of whether or not the foreclosure of the Pili property was valid.

Further, the Yus sought reconsideration of the reduction of penalty charges and the allowance of the attorneys fees. They claimed that the penalty charges should be deleted for violation of Republic Act (R.A.) 3765 or the Truth in Lending Act. BPIs disclosure did not state the rate of penalties on late amortizations. Also, the Yus asked the court to reduce the attorneys fees from 10% to 1% of the amount due. On January 3, 2006 the RTC reconsidered its earlier decision and rendered a summary judgment: 615[34]

1. Deleting the penalty charges imposed by BPI for noncompliance with the Truth in Lending Act; 2. Reducing the attorneys fees to 1% of the principal and interest; 3. Upholding the reasonableness of the foreclosure expenses and cost of publication, both with interests; 4. Reiterating the turnover by the Clerk of Court to the Yus of the excess in the bid price; 5. Deleting the Yus claim for moral damages they having waived it;

613 614 615

Page 384 of 1485

6. Denying the Yus claim for attorneys fees for lack of basis; and 7. Dismissing BPIs counterclaim for moral and exemplary damages and for attorneys fees for lack of merit considering that summary judgment has been rendered in favor of the Yus.

BPI appealed the decision to the Court of Appeals (CA) in CA-G.R. CV 86577. But the CA rendered judgment on January 23, 2008, affirming the RTC decision in all respects. And when BPI asked for reconsideration, 616[35] the CA denied it on July 14, 2008, 617[36] hence, the banks recourse to this Court.

The Issues Presented

BPI presents the following issues:

1.

Whether or not the case presented no genuine issues of fact

such as to warrant a summary judgment by the RTC; and 2. Where summary judgment is proper, whether or not the RTC

and the CA a) correctly deleted the penalty charges because of BPIs alleged failure to comply with the Truth in Lending Act; b) correctly reduced the attorneys fees to 1% of the judgment debt; and c) properly dismissed BPIs counterclaims for moral and exemplary damages, attorneys fees, and litigation expenses.

The Courts Rulings

616 617

Page 385 of 1485

One. A summary judgment is apt when the essential facts of the case are

uncontested or the parties do not raise any genuine issue of fact. 618[37] Here, to resolve the issue of the excessive charges allegedly incorporated into the auction bid price, the RTC simply had to look at a) the pleadings of the parties; b) the loan agreements, the promissory note, and the real estate mortgages between them; c) the foreclosure and bidding documents; and d) the admissions and other disclosures between the parties during pretrial. Since the parties admitted not only the existence, authenticity, and genuine execution of these documents but also what they stated, the trial court did not need to hold a trial for the reception of the evidence of the parties.

BPI contends that a summary judgment was not proper given the following issues that the parties raised: 1) whether or not the loan agreements between them were valid and enforceable; 2) whether or not the Yus have a cause of action against BPI; 3) whether or not the Yus are proper parties in interest; 4) whether or not the Yus are estopped from questioning the foreclosure proceeding after entering into a compromise agreement with Magnacraft; 5) whether or not the penalty charges and fees and expenses of litigation and publication are excessive; and 6) whether or not BPI violated the Truth in Lending Act. 619[38]

But these are issues that could be readily resolved based on the facts established by the pleadings and the admissions of the parties.620[39] Indeed, BPI has failed to name any document or item of fact that it would have wanted to adduce at the trial of the case. A trial would have been such a great waste of time and resources.

Two.

Both the RTC and CA decisions cited BPIs alleged violation of the Truth in

Lending Act and the ruling of the Court in New Sampaguita Builders Construction, Inc. v.

618 619 620

Page 386 of 1485

Philippine National Bank621[40] to justify their deletion of the penalty charges. Section 4 of the Truth in Lending Act states that:

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: (1) the cash price or delivered price of the property or service to be acquired; (2) the amounts, if any, to be credited as down payment and/or trade-in; (3) the difference between the amounts set forth under clauses (1) and (2); (4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; (5) the total amount to be financed; (6) the finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.

Penalty charge, which is liquidated damages resulting from a breach, 622[41] falls under item (6) or finance charge. A finance charge represents the amount to be paid by the debtor incident to the extension of credit. 623[42] The lender may provide for a penalty clause so long as the amount or rate of the charge and the conditions under which it is to be paid are disclosed to the borrower before he enters into the credit agreement.

In this case, although BPI failed to state the penalty charges in the disclosure statement, the promissory note that the Yus signed, on the same date as the disclosure statement, contained a penalty clause that said: I/We jointly and severally, promise to further pay a late payment charge on any overdue amount herein at the rate of 3% per month. The promissory note is an acknowledgment of a debt and commitment to repay it

621 622 623

Page 387 of 1485

on the date and under the conditions that the parties agreed on. 624[43] It is a valid contract absent proof of acts which might have vitiated consent.625[44]

The question is whether or not the reference to the penalty charges in the promissory note constitutes substantial compliance with the disclosure requirement of the Truth in Lending Act.626[45] The RTC and CA relied on the ruling in New Sampaguita as authority that the non-disclosure of the penalty charge renders its imposition illegal. But New Sampaguita is not attended by the same circumstances. What New Sampaguita disallowed, because it was not mentioned either in the disclosure statement or in the promissory note, was the unilateral increase in the rates of penalty charges that the creditor imposed on the borrower. Here, however, it is not shown that BPI increased the rate of penalty charge that it collected from the Yus.
627

[46]

The ruling that is more in point is that laid down in The Consolidated Bank and Trust Corporation v. Court of Appeals ,628[47] a case cited in New Sampaguita. The Consolidated Bank ruling declared valid the penalty charges that were stipulated in the promissory notes.629[48] What the Court disallowed in that case was the collection of a handling charge that the promissory notes did not contain.

The Court has affirmed that financial charges are amply disclosed if stated in the promissory note in the case of Development Bank of the Philippines v. Arcilla, Jr. 630[49] The Court there said, Under Circular 158 of the Central Bank, the lender is required to include

624 625 626 627 628 629 630

Page 388 of 1485

the information required by R.A. 3765 in the contract covering the credit transaction or any other document to be acknowledged and signed by the borrower. In addition, the contract or document shall specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the debtor. In this case, the promissory notes signed by the Yus contained data, including penalty charges, required by the Truth in Lending Act. They cannot avoid liability based on a rigid interpretation of the Truth in Lending Act that contravenes its goal.

Nonetheless, the courts have authority to reduce penalty charges when these are unreasonable and iniquitous. 631[50] Considering that BPI had already received over P2.7 million in interest and that it seeks to impose the penalty charge of 3% per month or 36% per annum on the total amount dueprincipal plus interest, with interest not paid when due added to and becoming part of the principal and also bearing interest at the same ratethe Court finds the ruling of the RTC in its original decision 632[51] reasonable and fair. Thus, the penalty charge of 12% per annum or 1% per month 633[52] is imposed.

Three.

As for the award of attorneys fee, it being part of a partys liquidated

damages, the same may likewise be equitably reduced. 634[53] The CA correctly affirmed the RTC Order635[54] to reduce it from 10% to 1% based on the following reasons: (1) attorneys fee is not essential to the cost of borrowing, but a mere incident of collection; 636[55] (2) 1% is just and adequate because BPI had already charged foreclosure expenses; (3) attorneys fee of 10% of the total amount due is onerous considering the rote effort that goes into extrajudicial foreclosures.

631 632 633 634 635 636

Page 389 of 1485

WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Appeals Decision in CA-G.R. CV 86577 dated January 23, 2008 subject to the RESTORATION of the penalty charge of 12% per annum or 1% per month of the amount due computed from date of nonpayment or November 25, 2001.

Page 390 of 1485

SO ORDERED. Republic of the Philippines Supreme Court Manila

FIRST DIVISION

UNION BANK OF THE PHILIPPINES, Petitioner,

G.R. Nos. 173090-91

Present:

CORONA, C.J., Chairperson, LEONARDO-DE CASTRO, - versus BERSAMIN, DEL CASTILLO, and VILLARAMA, JR., JJ.

SPOUSES RODOLFO VICTORIA N. TIU,

T.

TIU

AND

Page 391 of 1485

Respondents. Promulgated:

September 7, 2011 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari seeking to reverse the Joint Decision 637[1] of the Court of Appeals dated February 21, 2006 in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253, as well as the Resolution 638[2] dated June 1, 2006 denying the Motion for Reconsideration.

The factual and procedural antecedents of this case are as follows:

On November 21, 1995, petitioner Union Bank of the Philippines (Union Bank) and respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a Credit Line Agreement (CLA) whereby Union Bank agreed to make available to the spouses Tiu credit facilities in such amounts as may be approved. 639[3] From September 22, 1997 to

637 638 639

Page 392 of 1485

March 26, 1998, the spouses Tiu took out various loans pursuant to this CLA in the total amount of three million six hundred thirty-two thousand dollars (US$3,632,000.00), as evidenced by promissory notes:

PN No. 87/98/111 87/98/108 87/98/152 87/98/075 87/98/211 87/98/071 87/98/107 87/98/100 87/98/197 87/97/761 87/97/768 87/97/767 87/97/970 87/97/747 87/96/944 87/98/191 87/98/198 87/98/090

Amount in US$ 72,000.00 84,000.00 320,000.00 150,000.00 32,000.00 110,000.00 135,000.00 75,000.00 195,000.00 60,000.00 30,000.00 180,000.00 110,000.00 50,000.00 605,000.00 470,000.00 505,000.00 449,000.00 US$3,632,000.00640[ 4]

Date Granted 02/16/98 02/13/98 03/02/98 01/30/98 03/26/98 01/29/98 02/13//98 02/12/98 03/19/98 09/26/97 09/29/97 09/29/97 12/29/97 09/22/97 12/19/97 03/16/98 03/19/98 02/09/98

640

Page 393 of 1485

On June 23, 1998, Union Bank advised the spouses Tiu through a letter 641[5] that, in view of the existing currency risks, the loans shall be redenominated to their equivalent Philippine peso amount on July 15, 1998. On July 3, 1998, the spouses Tiu wrote to Union Bank authorizing the latter to redenominate the loans at the rate of US$1=P41.40642[6] with interest of 19% for one year.643[7]

On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring Agreement.644[8] The Restructuring Agreement contains a clause wherein the spouses Tiu confirmed their debt and waived any action on account thereof. To quote said clause:

1.

Confirmation of Debt The BORROWER hereby confirms and accepts that as of December 8, 1999, its outstanding principal indebtedness to the BANK under the Agreement and the Notes amount to ONE HUNDRED FIFTY[-]FIVE MILLION THREE HUNDRED SIXTY[-]FOUR THOUSAND EIGHT HUNDRED PESOS (PHP 155,364,800.00) exclusive of interests, service and penalty charges (the Indebtedness) and further confirms the correctness, legality, collectability and enforceability of the Indebtedness. The BORROWER unconditionally waives any action, demand or claim that they may otherwise have to dispute the amount of the Indebtedness as of the date specified in this Section, or the collectability and enforceability thereof. It is the understanding of the parties that the BORROWERs acknowledgment, affirmation, and waiver herein are material considerations for the BANKs agreeing to restructure the Indebtedness which would have already become due and payable as of the above date under the terms of the Agreement and the Notes.645[9]

The restructured amount (P155,364,800.00) is the sum of the following figures: (1) P150,364,800.00, which is the value of the US$3,632,000.00 loan as redenominated under

641 642 643 644 645

Page 394 of 1485

the above-mentioned exchange rate of US$1=P41.40; and (2) P5,000,000.00, an additional loan given to the spouses Tiu to update their interest payments. 646[10]

Under the same Restructuring Agreement, the parties declared that the loan obligation to be restructured (after deducting the dacion price of properties ceded by the Tiu spouses and adding: [1] the taxes, registration fees and other expenses advanced by Union Bank in registering the Deeds of Dation in Payment; and [2] other fees and charges incurred by the Indebtedness) is one hundred four million six hundred sixty-eight thousand seven hundred forty-one pesos (P104,668,741.00) (total restructured amount). 647[11] The Deeds of Dation in Payment referred to are the following:

1.

Dation of the Labangon properties Deed executed by Juanita Tiu, the mother of respondent Rodolfo Tiu, involving ten parcels of land with improvements located in Labangon, Cebu City and with a total land area of 3,344 square meters, for the amount of P25,130,000.00. The Deed states that these properties shall be leased to the Tiu spouses at a monthly rate of P98,000.00 for a period of two years.648[12]

2.

Dation of the Mandaue property Deed executed by the spouses Tiu involving one parcel of land with improvements located in A.S. Fortuna St., Mandaue City, covered by TCT No. T-31604 and with a land area of 2,960 square meters, for the amount of P36,080,000.00. The Deed states that said property shall be leased to the Tiu spouses at a monthly rate of P150,000.00 for a period of two years.649[13]

646 647 648 649

Page 395 of 1485

As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real Estate Mortgage in favor of Union Bank over their residential property inclusive of lot and improvements located at P. Burgos St., Mandaue City, covered by TCT No. T-11951 with an area of 3,096 square meters.650[14]

The spouses Tiu undertook to pay the total restructured amount (P104,668,741.00) via three loan facilities (payment schemes).

The spouses Tiu claim to have made the following payments: (1) P15,000,000.00 on August 3, 1999; and (2) another P13,197,546.79 as of May 8, 2001. Adding the amounts paid under the Deeds of Dation in Payment, the spouses Tiu postulate that their payments added up to P89,407,546.79.651[15]

Asserting that the spouses Tiu failed to comply with the payment schemes set up in the Restructuring Agreement, Union Bank initiated extrajudicial foreclosure proceedings on the residential property of the spouses Tiu, covered by TCT No. T-11951. The property was to be sold at public auction on July 18, 2002.

The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu, filed with the Regional Trial Court (RTC) of Mandaue City a Complaint seeking to have the Extrajudicial Foreclosure declared null and void. The case was docketed as Civil Case No. MAN-4363. 652[16] Named as defendants were Union Bank and Sheriff IV Veronico C. Ouano (Sheriff Oano) of Branch 55, RTC, Mandaue City. Complainants therein prayed for the following: (1) that the spouses Tiu be declared to have fully paid their obligation to Union Bank; (2) that defendants be permanently enjoined from proceeding with the auction sale; (3) that Union Bank be ordered to return to the spouses

650 651 652

Page 396 of 1485

Tiu their properties as listed in the Complaint; (4) that Union Bank be ordered to pay the plaintiffs the sum of P10,000,000.00 as moral damages, P2,000,000.00 as exemplary damages, P3,000,000.00 as attorneys fees and P500,000.00 as expenses of litigation; and (5) a writ of preliminary injunction or temporary restraining order be issued enjoining the public auction sale to be held on July 18, 2002.653[17]

The spouses Tiu claim that from the beginning the loans were in pesos, not in dollars. Their office clerk, Lilia Gutierrez, testified that the spouses Tiu merely received the peso equivalent of their US$3,632,000.00 loan at the rate of US$1=P26.00. The spouses Tiu further claim that they were merely forced to sign the Restructuring Agreement and take up an additional loan of P5,000,000.00, the proceeds of which they never saw because this amount was immediately applied by Union Bank to interest payments. 654[18]

The spouses Tiu allege that the foreclosure sale of the mortgaged properties was invalid, as the loans have already been fully paid. They also allege that they are not the owners of the improvements constructed on the lot because the real owners thereof are their co-petitioners, Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu.655[19]

The spouses Tiu further claim that prior to the signing of the Restructuring Agreement, they entered into a Memorandum of Agreement with Union Bank whereby the former deposited with the latter several certificates of shares of stock of various companies and four certificates of title of various parcels of land located in Cebu. The spouses Tiu claim that these properties have not been subjected to any lien in favor of Union Bank, yet the latter continues to hold on to these properties and has not returned the same to the former.656[20]

653 654 655 656

Page 397 of 1485

On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily and validly entered into by both parties. Presenting as evidence the Warranties embodied in the Real Estate Mortgage, Union Bank contends that the foreclosure of the mortgage on the residential property of the spouses Tiu was valid and that the improvements thereon were absolutely owned by them. Union Bank denies receiving certificates of shares of stock of various companies or the four certificates of title of various parcels of land from the spouses Tiu. However, Union Bank also alleges that even if said certificates were in its possession it is authorized under the Restructuring Agreement to retain any and all properties of the debtor as security for the loan. 657[21]

The RTC issued a Temporary Restraining Order658[22] and, eventually, a Writ of Preliminary Injunction659[23] preventing the sale of the residential property of the spouses Tiu.
660

[24]

On December 16, 2004, the RTC rendered its Decision 661[25] in Civil Case No. MAN4363 in favor of Union Bank. The dispositive portion of the Decision read:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the Complaint and lifting and setting aside the Writ of Preliminary Injunction. No pronouncement as to damages, attorneys fees and costs of suit.662[26]

657 658 659 660 661 662

Page 398 of 1485

In upholding the validity of the Restructuring Agreement, the RTC held that the spouses Tiu failed to present any evidence to prove either fraud or intimidation or any other act vitiating their consent to the same. The exact obligation of the spouses Tiu to Union Bank is therefore P104,668,741.00, as agreed upon by the parties in the Restructuring Agreement. As regards the contention of the spouses Tiu that they have fully paid their indebtedness, the RTC noted that they could not present any detailed accounting as to the total amount they have paid after the execution of the Restructuring Agreement. 663[27]

On January 4, 2005, Union Bank filed a Motion for Partial Reconsideration, 664[28] protesting the finding in the body of the December 16, 2004 Decision that the residential house on Lot No. 639 is not owned by the spouses Tiu and therefore should be excluded from the real properties covered by the real estate mortgage. On January 6, 2005, the spouses Tiu filed their own Motion for Partial Reconsideration and/or New Trial. 665[29] They alleged that the trial court failed to rule on their fourth cause of action wherein they mentioned that they turned over the following titles to Union Bank: TCT Nos. 30271, 116287 and 116288 and OCT No. 0-3538. They also prayed for a partial new trial and for a declaration that they have fully paid their obligation to Union Bank. 666[30]

On January 11, 2005, the spouses Tiu received from Sheriff Oano a Second Notice of Extra-judicial Foreclosure Sale of Lot No. 639 to be held on February 3, 2005. To prevent the same, the Tiu spouses filed with the Court of Appeals a Petition for Prohibition and Injunction with Application for TRO/Writ of Preliminary Injunction. 667[31] The petition was docketed as CA-G.R. SP No. 00253. January 27, 2005.668[32] The Court of Appeals issued a Temporary Restraining Order on

663 664 665 666 667 668

Page 399 of 1485

On January 19, 2005, the RTC issued an Order denying Union Banks Motion for Partial Reconsideration and the Tiu spouses Motion for Partial Reconsideration and/or New Trial.669[33]

Both the spouses Tiu and Union Bank appealed the case to the Court of Appeals. 670 [34] The two appeals were given a single docket number, CA-G.R. CEB-CV No. 00190. Acting on a motion filed by the spouses Tiu, the Court of Appeals consolidated CA-G.R. SP No. 00253 with CA-G.R. CEB-CV No. 00190.671[35]

On April 19, 2005, the Court of Appeals issued a Resolution finding that there was no need for the issuance of a Writ of Preliminary Injunction as the judgment of the lower court has been stayed by the perfection of the appeal therefrom.672[36]

On May 9, 2005, Sheriff Oano proceeded to conduct the extrajudicial sale. Bank submitted the lone bid of P18,576,000.00. and regular Certificate of Sale. 674[38]
673

Union

[37] On June 14, 2005, Union Bank filed a

motion with the Court of Appeals praying that Sheriff Oano be ordered to issue a definite On July 21, 2005, the Court of Appeals issued a Resolution denying the Motion and suspending the auction sale at whatever stage, pending

669 670 671 672 673 674

Page 400 of 1485

resolution of the appeal and conditioned upon the filing of a bond in the amount of P18,000,000.00 by the Tiu spouses.675[39] The Tiu spouses failed to file said bond. 676[40]

On February 21, 2006, the Court of Appeals rendered the assailed Joint Decision in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253. same is with the RTC.677[41] The Court of Appeals dismissed the Petition for Prohibition, CA-G.R. SP No. 00253, on the ground that the proper venue for the

On the other hand, the Court of Appeals ruled in favor of the spouses Tiu in CA-G.R. CV No. 00190. The Court of Appeals held that the loan transactions were in pesos, since there was supposedly no stipulation the loans will be paid in dollars and since no dollars ever exchanged hands. Considering that the loans were in pesos from the beginning, the Court of Appeals reasoned that there is no need to convert the same. By making it appear that the loans were originally in dollars, Union Bank overstepped its rights as creditor, and made unwarranted interpretations of the original loan agreement. According to the Court of Appeals, the Restructuring Agreement, which purportedly attempts to create a novation of the original loan, was not clearly authorized by the debtors and was not supported by any cause or consideration. using the Since the Restructuring Agreement is void, the original loan of The Court of Appeals likewise P94,432,000.00 (representing the amount received by the spouses Tiu of US$3,632,000.00 US$1=P26.00 exchange rate) should subsist. invalidated (1) the P5,000,000.00 charge for interest in the Restructuring Agreement, for having been unilaterally imposed by Union Bank; and (2) the lease of the properties conveyed in dacion en pago, for being against public policy.
678

[42]

In sum, the Court of Appeals found Union Bank liable to the spouses Tiu in the amount of P927,546.79. For convenient reference, we quote relevant portion of the Court of Appeals Decision here:

675 676 677 678

Page 401 of 1485

To summarize the obligation of the Tiu spouses, they owe Union Bank P94,432,000.00. The Tiu spouses had already paid Union Bank the amount of P89,407,546.79. On the other hand, Union Bank must return to the Tiu spouses the illegally collected rentals in the amount of P5,952,000.00. Given these findings, the obligation of the Tiu spouses has already been fully paid. In fact, it is the Union Bank that must return to the Tiu spouses the amount of NINE HUNDRED TWENTY[-]SEVEN THOUSAND FIVE HUNDRED FORTY[-]SIX PESOS AND SEVENTY[-]NINE CENTAVOS (P927,546.79).679[43]

With regard to the ownership of the improvements on the subject mortgaged property, the Court of Appeals ruled that it belonged to respondent Rodolfo Tius father, Jose Tiu, since 1981. According to the Court of Appeals, Union Bank should not have relied on warranties made by debtors that they are the owners of the property. The appellate court went on to permanently enjoin Union Bank from foreclosing the mortgage not only of the property covered by TCT No. T-11951, but also any other mortgage over any other property of the spouses Tiu.680[44]

The Court of Appeals likewise found Union Bank liable to return the certificates of stocks and titles to real properties of the spouses Tiu in its possession. The appellate court held that Union Bank made judicial admissions of such possession in its Reply to Plaintiffs Request for Admission. 681[45] In the event that Union Bank can no longer return these certificates and titles, it was mandated to shoulder the cost for their replacement. 682[46]

Finally, the Court of Appeals took judicial notice that before or during the financial crisis, banks actively convinced debtors to make dollar loans in the guise of benevolence, saddling borrowers with loans that ballooned twice or thrice their original loans. The Court of Appeals, noting the cavalier way with which banks exploited and manipulated the

679 680 681 682

Page 402 of 1485

situation,683[47] held Union Bank liable to the spouses Tiu for P100,000.00 in moral damages, P100,000.00 in exemplary damages, and P50,000.00 in attorneys fees.684[48]

The Court of Appeals disposed of the case as follows:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us permanently enjoining Union Bank from foreclosing the mortgage of the residential property of the Tiu spouses which is covered by Transfer Certificate of Title No. 11951 and from pursuing other foreclosure of mortgages over any other properties of the Tiu spouses for the above-litigated debt that has already been fully paid. If a foreclosure sale has already been made over such properties, this Court orders the cancellation of such foreclosure sale and the Certificate of Sale thereof if any has been issued. This Court orders Union Bank to return to the Tiu spouses the amount of NINE HUNDRED TWENTY[-]SEVEN THOUSAND FIVE HUNDRED FORTY[-]SIX PESOS AND SEVENTY[-]NINE CENTAVOS (P927,546.79) representing illegally collected rentals. This Court also orders Union Bank to return to the Tiu spouses all the certificates of shares of stocks and titles to real properties of the Tiu spouses that were deposited to it or, in lieu thereof, to pay the cost for the replacement and issuance of new certificates and new titles over the said properties. This Court finally orders Union Bank to pay the Tiu spouses ONE HUNDRED THOUSAND PESOS (P100,000.00) in moral damages, ONE HUNDRED THOUSAND PESOS (P100,000.00) in exemplary damages, FIFTY THOUSAND PESOS (P50,000.00) in attorneys fees and cost, both in the lower court and in this Court.685[49]

On June 1, 2006, the Court of Appeals rendered the assailed Resolution denying Union Banks Motion for Reconsideration.

Hence, this Petition for Review on Certiorari, wherein Union Bank submits the following issues for the consideration of this Court:

683 684 685

Page 403 of 1485

1.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT CONCLUDED THAT THERE WERE NO DOLLAR LOANS OBTAINED BY [THE] TIU SPOUSES FROM UNION BANK DESPITE [THE] CLEAR ADMISSION OF INDEBTEDNESS BY THE BORROWERMORTGAGOR TIU SPOUSES. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT NULLIFIED THE RESTRUCTURING AGREEMENT BETWEEN TIU SPOUSES AND UNION BANK FOR LACK OF CAUSE OR CONSIDERATION DESPITE THE ADMISSION OF THE BORROWERMORTGAGOR TIU SPOUSES OF THE DUE AND VOLUNTARY EXECUTION OF SAID RESTRUCTURING AGREEMENT.

2.

3.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT PERMANENTLY ENJOINED UNION BANK FROM FORECLOSING THE MORTGAGE ON THE RESIDENTIAL PROPERTY OF THE TIU SPOUSES DESPITE THE ADMISSION OF NON-PAYMENT OF THEIR OUTSTANDING LOAN TO THE BANK BY THE BORROWER-MORTGAGOR TIU SPOUSES;

4.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT FIXED THE AMOUNT OF THE OBLIGATION OF RESPONDENT SPOUSES CONTRARY TO THE PROVISIONS OF THE PROMISSORY NOTES, RESTRUCTURING AGREEMENT AND [THE] VOLUNTARY ADMISSIONS BY BORROWER-MORTGAGOR TIU SPOUSES;

5.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT RULED ON THE ALLEGED RENTALS PAID BY RESPONDENT SPOUSES WITHOUT ANY FACTUAL BASIS;

6.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT HELD WITHOUT ANY FACTUAL BASIS THAT THE LOAN OBLIGATION OF TIU SPOUSES HAS BEEN FULLY PAID;

7.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT HELD WITHOUT ANY FACTUAL BASIS THAT THE HOUSE INCLUDED IN THE REAL ESTATE MORTGAGE DID NOT BELONG TO THE TIU SPOUSES.

Page 404 of 1485

8. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN ORDERING UNION BANK TO RETURN THE CERTIFICATES OF SHARES OF STOCK AND TITLES TO REAL PROPERTIES OF TIU SPOUSES ALLEGEDLY IN THE POSSESSION OF UNION BANK.

9.

WHETHER OR NOT THE COURT OF APPEALS VIOLATED THE DOCTRINES AND PRINCIPLES ON APPELLATE JURISDICTION.

10. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN AWARDING DAMAGES AGAINST UNION BANK.686[50]

Validity of the Restructuring Agreement

As previously discussed, the Court of Appeals declared that the Restructuring Agreement is void on account of its being a failed novation of the original loan agreements. The Court of Appeals explained that since there was no stipulation that the loans will be paid in dollars, and since no dollars ever exchanged hands, the original loan transactions were in pesos.687[51] Proceeding from this premise, the Court of Appeals held that the Restructuring Agreement, which was meant to convert the loans into pesos, was unwarranted. Thus, the Court of Appeals reasoned that:

Be that as it may, however, since the loans of the Tiu spouses from Union Bank were peso loans from the very beginning, there is no need for conversion thereof. A Restructuring Agreement should merely confirm the loans, not add thereto. By making it appear in the Restructuring Agreement that the loans were originally dollar loans, Union Bank overstepped its rights as a creditor and made unwarranted interpretations of the original loan agreement. This Court is not bound by such interpretations made by Union Bank. When one party makes an interpretation of a contract, he makes it at his own risk, subject to a subsequent challenge by the other party and a modification by the courts. In this case, that party making the interpretation is not just any party, but a well entrenched and highly respected bank. The

686 687

Page 405 of 1485

matter that was being interpreted was also a financial matter that is within the profound expertise of the bank. A normal person who does not possess the same financial proficiency or acumen as that of a bank will most likely defer to the latters esteemed opinion, representations and interpretations. It has been often stated in our jurisprudence that banks have a fiduciary duty to their depositors. According to the case of Bank of the Philippine Islands vs. IAC (G.R. No. 69162, February 21, 1992 ), as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. Such fiduciary relationship should also extend to the banks borrowers who, more often than not, are also depositors of the bank. Banks are in the business of lending while most borrowers hardly know the basics of such business. When transacting with a bank, most borrowers concede to the expertise of the bank and consider their procedures, pronouncements and representations as unassailable, whether such be true or not. Therefore, when there is a doubtful banking transaction, this Court will tip the scales in favor of the borrower. Given the above ruling, the Restructuring Agreement, therefore, between the Tiu spouses and Union Bank does not operate to supersede all previous loan documents, as claimed by Union Bank. But the said Restructuring Agreement, as it was crafted by Union Bank, does not merely confirm the original loan of the Tiu spouses but attempts to create a novation of the said original loan that is not clearly authorized by the debtors and that is not supported by any cause or consideration. According to Article 1292 of the New Civil Code, in order that an obligation may by extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. Such is not the case in this instance. No valid novation of the original obligation took place. Even granting arguendo that there was a novation, the sudden change in the original amount of the loan to the new amount declared in the Restructuring Agreement is not supported by any cause or consideration. Under Article 1352 of the Civil Code, contracts without cause, or with unlawful cause, produce no effect whatever. A contract whose cause did not exist at the time of the transaction is void. Accordingly, Article 1297 of the New Civil Code mandates that, if the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished at any event. Since the Restructuring Agreement is void and since there was no intention to extinguish the original loan, the original loan shall subsist.688[52]

Union Bank does not dispute that the spouses Tiu received the loaned amount of US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of US$1=P26.689[53] However, Union Bank claims that this does not change the true nature of the loan as a foreign currency loan, 690[54] and proceeded to illustrate in its Memorandum

688 689

Page 406 of 1485

that the spouses Tiu obtained favorable interest rates by opting to borrow in dollars (but receiving the equivalent peso amount) as opposed to borrowing in pesos. 691[55]

We agree with Union Bank on this point. Although indeed, the spouses Tiu received peso equivalents of the borrowed amounts, the loan documents presented as evidence, i.e., the promissory notes,692[56] expressed the amount of the loans in US dollars and not in any other currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank in dollars, the amount stipulated in said loan documents. Thus, before the Restructuring Agreement, the spouses Tiu were bound to pay Union Bank the amount of US$3,632,000.00 plus the interest stipulated in the promissory notes, without converting the same to pesos. The spouses Tiu, who are in the construction business and appear to be dealing primarily in Philippine currency, should therefore purchase the necessary amount of dollars to pay Union Bank, who could have justly refused payment in any currency other than that which was stipulated in the promissory notes.

We disagree with the finding of the Court of Appeals that the testimony of Lila Gutierrez, which merely attests to the fact that the spouses Tiu received the peso equivalent of their dollar loan, proves the intention of the parties that such loans should be paid in pesos. If such had been the intention of the parties, the promissory notes could have easily indicated the same.

Such stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code provides:

690 691 692

Page 407 of 1485

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld693[57] the continued effectivity of Republic Act No. 529, which took effect earlier on June 16, 1950. Pursuant to Section 1694[58] of Republic Act No. 529, any agreement to pay an obligation in a currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred. 695[59] On June 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency.696[60]

On April 13, 1993, Central Bank Circular No. 1389 697[61] was issued, lifting foreign exchange restrictions and liberalizing trade in foreign currency. required. In cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was On July 5, 1996, Republic Act No. 8183 took effect, 698[62] expressly repealing The same statute also explicitly provided Republic Act No. 529 in Section 2 699[63] thereof.

that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment. 700[64]

693 694 695 696 697 698 699 700

Page 408 of 1485

Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on November 21, 1995,701[65] when the agreement to pay in foreign currency was still considered void under Republic Act No. 529, the actual loans, 702[66] as shown in the promissory notes, were taken out from September 22, 1997 to March 26, 1998 , during which time Republic Act No. 8183 was already in effect. In United Coconut Planters Bank v. Beluso,703[67] we held that:

[O]pening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. x x x.704[68]

Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail.

Similarly, the Court of Appeals pronouncement that the novation was not supported by any cause or consideration is likewise incorrect. This conclusion suggests that when the parties signed the Restructuring Agreement, Union Bank got something out of nothing or that the spouses Tiu received no benefit from the restructuring of their existing loan and was merely taken advantage of by the bank. It is important to note at this point that in the determination of the nullity of a contract based on the lack of consideration, the debtor has the burden to prove the same. Article 1354 of the Civil Code provides that [a]though the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.

701 702 703 704

Page 409 of 1485

In the case at bar, the Restructuring Agreement was signed at the height of the financial crisis when the Philippine peso was rapidly depreciating. Since the spouses Tiu were bound to pay their debt in dollars, the cost of purchasing the required currency was likewise swiftly increasing. If the parties did not enter into the Restructuring Agreement in December 1999 and the peso continued to deteriorate, the ability of the spouses Tiu to pay and the ability of Union Bank to collect would both have immensely suffered. As shown by the evidence presented by Union Bank, the peso indeed continued to deteriorate, climbing to US$1=P50.01 on December 2000.705[69] Hence, in order to ensure the stability of the loan agreement, Union Bank and the spouses Tiu agreed in the Restructuring Agreement to peg the principal loan at P150,364,800.00 and the unpaid interest at P5,000,000.00.

Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring Agreement was vitiated by fraud and mistake, alleging that (1) the Restructuring Agreement did not take into consideration their substantial payment in the amount of P40,447,185.60 before its execution; and (2) the dollar loans had already been redenominated in 1997 at the rate of US$1=P26.34.706[70]

We have painstakingly perused over the records of this case, but failed to find any documentary evidence of the alleged payment of P40,447,185.60 before the execution of the Restructuring Agreement. In paragraph 16 of their Amended Complaint, the spouses Tiu alleged payment of P40,447,185.60 for interests before the conversion of the dollar loan.707 [71] This was specifically denied by Union Bank in paragraph 5 of its Answer with Counterclaim.708[72] Respondent Rodolfo Tiu testified that they made 50 million plus in cash payment plus other monthly interest payments, 709[73] and identified a computation of

705 706 707 708 709

Page 410 of 1485

payments dated July 17, 2002 signed by himself.710[74] Such computation, however, was never formally offered in evidence and was in any event, wholly self-serving.

As regards the alleged redenomination of the same dollar loans in 1997 at the rate of US$1=P26.34, the spouses Tiu merely relied on the following direct testimony of Herbert Hojas, one of the witnesses of Union Bank:

Q: A: Q: A: Q: A: Q: A:

Could you please describe what kind of loan was the loan of the spouses Rodolfo Tiu, the plaintiffs in this case? It was originally an FCDU, meaning a dollar loan. What happened to this FCDU loan or dollar loan? The dollar loan was re-denominated in view of the very unstable exchange of the dollar and the peso at that time, Could you still remember what year this account was re-denominated from dollar to peso? I think it was on the year 1997. Could [you] still remember what was then the prevailing exchange rate between the dollar and the peso at that year 1997? Yes. I have here the list of the dollar exchange rate from January 1987 (sic). It was P26.34 per dollar.711[75]

Neither party presented any documentary evidence of the alleged redenomination in 1997. Respondent Rodolfo Tiu did not even mention it in his testimony. Furthermore, Hojas was obviously uncertain in his statement that said redenomination was made in 1997.

As pointed out by the trial court, the Restructuring Agreement, being notarized, is a public document enjoying a prima facie presumption of authenticity and due execution.

710 711

Page 411 of 1485

Clear and convincing evidence must be presented to overcome such legal presumption. 712 [76] The spouses Tiu, who attested before the notary public that the Restructuring It is difficult to believe that the spouses Tiu, veteran Agreement is their own free and voluntary act and deed, 713[77] failed to present sufficient evidence to prove otherwise. businessmen who operate a multi-million peso company, would sign a very important document without fully understanding its contents and consequences.

This Court therefore rules that the Restructuring Agreement is valid and, as such, a valid and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26, 1998 which had a total amount of US$3,632,000.00.

Validity of the Foreclosure of Mortgage

The spouses Tiu challenge the validity of the foreclosure of the mortgage on two grounds, claiming that: (1) the debt had already been fully paid; and (2) they are not the owners of the improvements on the mortgaged property.

(1) Allegation of full payment of the mortgage debt

In the preceding discussion, we have ruled that the Restructuring Agreement is a valid and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26, 1998 in the total amount of US$3,632,000.00. Thus, in order that the spouses Tiu can be held to have fully paid their loan obligation, they should present evidence showing their payment of the total restructured amount under the Restructuring Agreement which was P104,668,741.00. As we have discussed above, however, while respondent Rodolfo Tiu appeared to have identified during his testimony a computation dated July 17,

712 713

Page 412 of 1485

2002 of the alleged payments made to Union Bank, 714[78] the same was not formally offered in evidence. Applying Section 34, Rule 132 715[79] of the Rules of Court, such computation cannot be considered by this Court. We have held that a formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon the evidence offered by the parties at the trial. It has several functions: (1) to enable the trial judge to know the purpose or purposes for which the proponent is presenting the evidence; (2) to allow opposing parties to examine the evidence and object to its admissibility; and (3) to facilitate review by the appellate court, which will not be required to review documents not previously scrutinized by the trial court. 716[80] Moreover, even if such computation were admitted in evidence, the same is self-serving and cannot be given probative weight. In the case at bar, the records do not contain even a single receipt evidencing payment to Union Bank.

The Court of Appeals, however, held that several payments made by the spouses Tiu had been admitted by Union Bank. Indeed, Section 11, Rule 8 of the Rules of Court We should therefore provides that an allegation not specifically denied is deemed admitted. In such a case, no further evidence would be required to prove the antecedent facts. Complaint717[81] were not specifically denied by Union Bank. examine which of the payments specified by the spouses Tiu in their Amended

The allegations of payment are made in paragraphs 16 to 21 of the Amended Complaint:

16. Before conversion of the dollar loan into a peso loan[,] the spouses Tiu had already paid the defendant bank the amount of P40,447,185.60 for interests;

714 715 716 717

Page 413 of 1485

17. On August 3, 1999 and August 12, 1999, plaintiffs made payments in the amount of P15,000,000.00; 18. In order to lessen the obligation of plaintiffs, the mother of plaintiff Rodolfo T. Tiu, plaintiff Juanita T. Tiu, executed a deed of dacion in payment in favor of defendant involving her 10 parcels of land located in Labangon, Cebu City for the amount of P25,130,000.00. Copy of the deed was attached to the original complaint as Annex C; 19. For the same purpose, plaintiffs spouses Tiu also executed a deed of dacion in payment of their property located at A.S. Fortuna St., Mandaue City for the amount of P36,080,000.00. Copy of the deed was attached to the original complaint as Annex D; 20. The total amount of the two dacions in payment made by the plaintiffs was P61,210,000.00; 21. Plaintiffs spouses Tiu also made other payment of the amount of P13,197,546.79 as of May 8, 2001;718[82]

In paragraphs 4 and 5 of their Answer with Counterclaim, 719[83] Union Bank specifically denied the allegation in paragraph 9 of the Complaint, but admitted the allegations in paragraphs 17, 18, 19, 20 and 21 thereof. Paragraphs 18, 19 and 20 allege the two deeds of dacion. However, these instruments were already incorporated in the computation of the outstanding debt (i.e., subtracted from the confirmed debt of P155,364,800.00), as can be gleaned from the following provisions in the Restructuring Agreement:

a.)

The loan obligation to the BANK to be restructured herein after deducting from the Indebtedness of the BORROWER the dacion price of the properties subject of the Deeds of Dacion and adding to the Indebtedness all the taxes, registration fees and other expenses advanced by the bank in registering the Deeds of Dacion, and also adding to the Indebtedness the interest, and other fees and charges incurred by the Indebtedness, amounts to ONE HUNDRED FOUR MILLION SIX HUNDRED SIXTY-EIGHT THOUSAND SEVEN HUNDRED FORTY-ONE PESOS (PHP104,668,741.00) (the TOTAL RESTRUCTURED AMOUNT).720[84]

718 719 720

Page 414 of 1485

As regards the allegations of cash payments in paragraphs 17 and 21 of the Amended Complaint, the date of the alleged payment is critical as to whether they were included in the Restructuring Agreement. The payment of P15,000,000.00 alleged in paragraph 17 of the Amended Complaint was supposedly made on August 3 and 12, 1999. This payment was before the date of execution of the Restructuring Agreement on December 21, 1999, and is therefore already factored into the restructured obligation of the spouses. 721[85] Complaint was dated May, 8, 2001. to more than a year earlier. On the other hand, the payment of P13,197,546.79 alleged in paragraph 21 of the Amended Said payment cannot be deemed included in the computation of the spouses Tius debt in the Restructuring Agreement, which was assented This amount (P13,197,546.79) is even absent722[86] in the computation of Union Bank of the outstanding debt, in contrast with the P15,000,000.00 payment which is included723[87] therein. Union Bank did not explain this discrepancy and merely relied on the spouses Tius failure to formally offer supporting evidence. Since this payment of P13,197,546.79 on May 8, 2001 was admitted by Union Bank in their Answer with Counterclaim, there was no need on the part of the spouses Tiu to present evidence on the same. Nonetheless, if we subtract this figure from the total restructured amount (P104,668,741.00) in the Restructuring Agreement, the result is that the spouses Tiu still owe Union Bank P91,471,194.21.

(2) Allegation of third party ownership of the improvements on the mortgaged lot

The Court of Appeals, taking into consideration its earlier ruling that the loan was already fully paid, permanently enjoined Union Bank from foreclosing the mortgage on the property covered by Transfer Certificate of Title No. 11951 (Lot No. 639) and from pursuing other foreclosure of mortgages over any other properties of the spouses Tiu. The Court of Appeals ruled:

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Page 415 of 1485

The prayer, therefore, of the Tiu spouses to enjoin the foreclosure of the real estate mortgage over their residential property has merit. The loan has already been fully paid. It should also be noted that the house constructed on the residential property of the Tiu spouses is not registered in the name of the Tiu spouses, but in the name of Jose Tiu (Records, pp. 127132), the father of appellant and petitioner Rodolfo Tiu, since 1981. It had been alleged by the Tiu spouses that Jose Tiu died on December 18, 1983, and, that consequently upon his death, Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu became owners of the house (Records, p. 116). This allegation has not been substantially denied by Union Bank. All that the Union Bank presented to refute this allegation are a Transfer Certificate of Title and a couple of Tax Declarations which do not indicate that a residential house is titled in the name of the Tiu spouses. In fact, in one of the Tax Declarations, the market value of the improvements is worth only P3,630.00. Certainly, Union Bank should have been aware that this Tax Declaration did not cover the residential house. Union Bank should also not rely on warranties made by debtors that they are the owners of the property. They should investigate such representations. The courts have made consistent rulings that a bank, being in the business of lending, is obligated to verify the true ownership of the properties mortgaged to them. Consequently, this Court permanently enjoins Union Bank from foreclosing the mortgage of the residential property of the Tiu spouses which is covered by Transfer Certificate of Title No. 11951 and from pursuing other foreclosure of mortgages over any other properties of the Tiu spouses. If a foreclosure sale has already been made over such properties, this Court orders the cancellation of such foreclosure sale and the Certificate of Sale thereof if any has been issued, and the return of the title to the Tiu spouses. 724[88]

We disagree. Contrary to the ruling of the Court of Appeals, the burden to prove the spouses Tius allegation that they do not own the improvements on Lot No. 639, despite having such improvements included in the mortgage is on the spouses Tiu themselves. The fundamental rule is that he who alleges must prove. 725[89] The allegations of the spouses Tiu on this matter, which are found in paragraphs 35 to 39 726[90] of their Amended Complaint, were specifically denied in paragraph 9 of Union Banks Answer with Counterclaim.727[91]

Upon careful examination of the evidence, we find that the spouses Tiu failed to prove that the improvements on Lot No. 639 were owned by third persons. In fact, the

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Page 416 of 1485

evidence presented by the spouses Tiu merely attempt to prove that the improvements on Lot No. 639 were declared for taxes in the name of respondent Rodolfo Tius father, Jose Tiu, who allegedly died on December 18, 1983. There was no effort to show how their coplaintiffs in the original complaint, namely Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu, became co-owners of the house. The spouses Tiu did not present evidence as to (1) who the heirs of Jose Tiu are; (2) if Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu are indeed included as heirs; and (3) why petitioner Rodolfo Tiu is not included as an heir despite being the son of Jose Tiu. No birth certificate of the alleged heirs, will of the deceased, or any other piece of evidence showing judicial or extrajudicial settlement of the estate of Jose Tiu was presented.

In light of the foregoing, this Court therefore sets aside the ruling of the Court of Appeals permanently enjoining Union Bank from foreclosing the mortgage on Lot No. 639, including the improvements thereon.

Validity of Alleged Rental Payments on the Properties Conveyed to the Bank via Dacion en Pago

The Court of Appeals found the lease contracts over the properties conveyed to Union Bank via dacion en pago to be void for being against public policy. The appellate court held that since the General Banking Law of 2000728[92] mandates banks to immediately dispose of real estate properties that are not necessary for its own use in the conduct of its business, banks should not enter into two-year contracts of lease over properties paid to them through dacion.729[93] The Court of Appeals thus ordered Union Bank to return the rentals it collected. To determine the amount of rentals paid by the spouses Tiu to Union Bank, the Court of Appeals simply multiplied the monthly rental stipulated in the Restructuring Agreement by the stipulated period of the lease agreement:

728 729

Page 417 of 1485

For the Labangon property, the Tiu spouses paid rentals in the amount of P98,000.00 per month for two years, or a total amount of P2,352,000.00. For the A.S. Fortuna property, the Tiu spouses paid rentals in the amount of P150,000.00 per month for two years, or a total amount of P3,600,000.00. The total amount in rentals paid by the Tiu spouses to Union Bank is FIVE MILLION NINE HUNDRED FIFTY- TWO THOUSAND PESOS (P5,952,000.00). This Court finds that the return of this amount to the Tiu spouses is called for since it will better serve public policy. These properties that were given by the Tiu spouses to Union Bank as payment should not be used by the latter to extract more money from the former. This situation is analogous to having a debtor pay interest for a debt already paid. Instead of leasing the properties, Union Bank should have instructed the Tiu spouses to vacate the said properties so that it could dispose of them.730[94]

The Court of Appeals committed a serious error in this regard.

As pointed out by

petitioner Union Bank, the spouses Tiu did not present any proof of the alleged rental payments. Not a single receipt was formally offered in evidence. The mere stipulation in a contract of the monthly rent to be paid by the lessee is certainly not evidence that the same has been paid. Since the spouses Tiu failed to prove their payment to Union Bank of the amount of P5,952,000.00, we are constrained to reverse the ruling of the Court of Appeals ordering its return.

Even assuming arguendo that the spouses Tiu had duly proven that it had paid rent to Union Bank, we nevertheless disagree with the finding of the Court of Appeals that it is against public policy for banks to enter into two-year contracts of lease of properties ceded to them through dacion en pago. The provisions of law cited by the Court of Appeals, namely Sections 51 and 52 of the General Banking Law of 2000, merely provide:

SECTION 51. Ceiling on Investments in Certain Assets. Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: Provided, however, That the total investment in such real estate and improvements thereof, including bank equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate, unless otherwise provided by the Monetary Board.

730

Page 418 of 1485

SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the following circumstances: 52.1. for debts; Such as shall be mortgaged to it in good faith by way of security

52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or 52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due it. Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may, after said period, continue to hold the property for its own use, subject to the limitations of the preceding Section.

Section 52.2 contemplates a dacion en pago.

Thus, Section 52 undeniably gives

banks five years to dispose of properties conveyed to them in satisfaction of debts previously contracted in the course of its dealings, unless another period is prescribed by the Monetary Board. Furthermore, there appears to be no legal impediment for a bank to lease the real properties it has received in satisfaction of debts, within the five-year period that such bank is allowed to hold the acquired realty.

We do not dispute the interpretation of the Court of Appeals that the purpose of the law is to prevent the concentration of land holdings in a few hands, and that banks should not be allowed to hold on to the properties contemplated in Section 52 beyond the five-year period unless such bank has exerted its best efforts to dispose of the property in good faith but failed. However, inquiries as to whether the banks exerted best efforts to dispose of the property can only be done if said banks fail to dispose of the same within the period provided. Such inquiry is furthermore irrelevant to the issues in the case at bar.

Order to Return Certificates Allegedly in Banks Possession

Union

Page 419 of 1485

In the Amended Complaint, the spouses Tiu alleged 731[95] that they delivered several certificates and titles to Union Bank pursuant to a Memorandum of Agreement. allegedly continued to hold on to said properties. These certificates and titles were not subjected to any lien in favor of Union Bank, but the latter

The RTC failed to rule on this issue. The Court of Appeals, tackling this issue for the first time, ruled in favor of the Tiu spouses and ordered the return of these certificates and titles. The appellate court added that if Union Bank can no longer return these certificates or titles, it should shoulder the cost for their replacement. 732[96]

Union Bank, asserting that the Memorandum of Agreement did not, in fact, push through, denies having received the subject certificates and titles. Union Bank added that even assuming arguendo that it is in possession of said documents, the Restructuring Agreement itself allows such possession.733[97]

The evidence on hand lends credibility to the allegation of Union Bank that the Memorandum of Agreement did not push through. The copy of the Memorandum of Agreement attached by the spouses Tiu themselves to their original complaint did not bear the signature of any representative from Union Bank and was not notarized. 734[98]

We, however, agree with the finding of the Court of Appeals that despite the failure of the Memorandum of Agreement to push through, the certificates and titles mentioned therein do appear to be in the possession of Union Bank. As held by the Court of Appeals:

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Page 420 of 1485

Lastly, this Court will order, as it hereby orders, Union Bank to return to the Tiu spouses all the certificates of shares of stocks and titles to real properties of the Tiu spouses in its possession. Union Bank cannot deny possession of these items since it had made judicial admissions of such possession in their document entitled Reply to Plaintiffs request for Admission (records, pp. 216-217). While in that document, Union Bank only admitted to the possession of four real estate titles, this Court is convinced that all the certificates and titles mentioned in the unconsummated Memorandum of Agreement (Records, pp. 211-213) were given by the Tiu spouses to Union Bank for appraisal. This finding is further bolstered by the admission of the Union Bank that it kept the titles for safekeeping after it rejected the Memorandum of Agreement. Since Union Bank rejected these certificates and titles of property, it should return the said items to the Tiu spouses. If Union Bank can no longer return these certificates and titles or if it has misplaced them, it shall shoulder the cost for the replacement and issuance of new certificates and new titles over the said properties. 735[99]

As regards Union Banks argument that it has the right to retain said documents pursuant to the Restructuring Agreement, it is referring to paragraph 11(b), which provides that:

11. Effects of Default When the BORROWER is in default, such default shall have the following effects, alternative, concurrent and cumulative with each other: xxxx

(b) The BANK shall be entitled to all the remedies provided for and further shall have the right to effect or apply against the partial or full payment of any and all obligations of the BORROWER under this Restructuring Agreement any and all moneys or other properties of the BORROWER which, for any reason, are or may hereafter come into the possession of the Bank or the Banks agent. All such moneys or properties shall be deemed in the BANKs possession as soon as put in transit to the BANK by mail or carrier.736[100]

735 736

Page 421 of 1485

In the first place, notwithstanding the foregoing provision, there is no clear intention on the part of the spouses Tiu to deliver the certificates over certain shares of stock and real properties as security for their debt. From the terms of the Memorandum of Agreement, these certificates were surrendered to Union Bank in order that the said properties described therein be given their corresponding loan values required for the restructuring of the spouses Tius outstanding obligations. However, in the event the parties fail to agree on the valuation of the subject properties, Union Bank agrees to release the same. 737[101] As Union Bank itself vehemently alleges, the Memorandum of Agreement was not consummated. Moreover, despite the fact that the Bank was aware, or in possession, of these certificates, 738 [102] at the time of execution of the Restructuring Agreement, only the mortgage over the real property covered by TCT No. T-11951 was expressly mentioned as a security in the Restructuring Agreement. In fact, in its Reply to Request for Admission, 739[103] Union Bank admitted that (1) the titles to the real properties were submitted to it for appraisal but were subsequently rejected, and (2) no real estate mortgages were executed over the said properties. There being no agreement that these properties shall secure respondents obligation, Union Bank has no right to retain said certificates.

Assuming arguendo that paragraph 11(b) of the Restructuring Agreement indeed allows the retention of the certificates (submitted to the Bank ostensibly for safekeeping and appraisal) as security for spouses Tius debt, Union Banks position still cannot be upheld. Insofar as said provision permits Union Bank to apply properties of the spouses Tiu in its possession to the full or partial payment of the latters obligations, the same appears to impliedly allow Union Bank to appropriate these properties for such purpose. However, said provision cannot be validly applied to the subject certificates and titles without violating the prohibition against pactum commissorium contained in Article 2088 of the Civil Code, to the effect that [t]he creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them[;] [a]ny stipulation to the contrary is null and void. Applicable by analogy to the present case is our ruling in Nakpil v. Intermediate Appellate Court, 740[104] wherein property held in trust was ceded to the trustee upon failure of the beneficiary to answer for the amounts owed to the former, to wit:

737 738 739 740

Page 422 of 1485

For, there was to be automatic appropriation of the property by Valdes in the event of failure of petitioner to pay the value of the advances. Thus, contrary to respondent's manifestations, all the elements of a pactum commissorium were present: there was a creditor-debtor relationship between the parties; the property was used as security for the loan; and, there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner.741[105] (Emphases supplied.)

This Court therefore affirms the order of the Court of Appeals for Union Bank to return to the spouses Tiu all the certificates of shares of stock and titles to real properties that were submitted to it or, in lieu thereof, to pay the cost for the replacement and issuance of new certificates and new titles over the said properties.

Validity of the Award of Damages

The Court of Appeals awarded damages in favor of the spouses Tiu based on its taking judicial notice of the alleged exploitation by many banks of the Asian financial crisis, as well as the foreclosure of the mortgage of the home of the spouses Tiu despite the alleged full payment by the latter. As regards the alleged manipulation of the financial crisis, the Court of Appeals held:

As a final note, this Court observes the irregularity in the circumstances [surrounding] dollar loans granted by banks right before or during the Asian financial crisis. It is of common knowledge that many banks, around that time, actively pursued and convinced debtors to make dollar loans or to convert their peso loans to dollar loans allegedly because of the lower interest rate of dollar loans. This is a highly suspect behavior on the part of the banks because it is irrational for the banks to voluntarily and actively proffer a conversion that would give them substantially less income. In the guise of benevolence, many banks were able to convince borrowers to make dollar loans or to convert their peso loans to dollar loans. Soon thereafter, the Asian financial crisis hit, and many borrowers were saddled with loans that ballooned to twice or thrice the amount of their original loans. This court takes judicial notice of these events or matters which are of public

741

Page 423 of 1485

knowledge. It is inconceivable that the banks were unaware of the looming Asian financial crisis. Being in the forefront of the financial world and having access to financial data that were not available to the average borrower, the banks were in such a position that they had a higher vantage point with respect to the financial landscape over their average clients. The cavalier way with which banks exploited and manipulated the situation is almost too palpable that they openly and unabashedly struck heavy blows on the Philippine economy, industries and businesses. The banks have a fiduciary duty to their clients and to the Filipino people to be transparent in their dealings and to make sure that the latters interest are not prejudiced by the formers interest. Article 1339 of the New Civil Code provides that the failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. Undoubtedly, the banks and their clients are bound by confidential relations. The almost perfect timing of the banks in convincing their clients to shift to dollar loans just when the Asian financial crisis struck indicates that the banks not only failed to disclose facts to their clients of the looming crisis, but also suggests of the insidious design to take advantage of these undisclosed facts.742[106]

We have already held that the foreclosure of the mortgage was warranted under the circumstances. As regards the alleged exploitation by many banks of the Asian financial crisis, this Court rules that the generalization made by the appellate court is unfounded and cannot be the subject of judicial notice. It is axiomatic that good faith is always presumed unless convincing evidence to the contrary is adduced. alleging bad faith to sufficiently prove such allegation. presumption of good faith prevails.
743

It is incumbent upon the party Absent enough proof thereof, the

[107] The alleged insidious design of many banks to

betray their clients during the Asian financial crisis is certainly not of public knowledge. The deletion of the award of moral and exemplary damages in favor of the spouses Tiu is therefore in order.

WHEREFORE, the Petition is PARTIALLY GRANTED. The Joint Decision of the Court of Appeals in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253 dated February 21, 2006 is hereby AFFIRMED insofar as it ordered petitioner Union Bank of the Philippines to return to the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu all the certificates of shares of stock and titles to real properties that were submitted to it or, in lieu thereof, to pay the cost for the replacement and issuance of new certificates and new titles over the said properties.

742 743

Page 424 of 1485

The foregoing Joint Decision is hereby SET ASIDE: (1) insofar as it permanently enjoined Union Bank of the Philippines from foreclosing the mortgage of the residential property of respondent spouses Rodolfo T. Tiu and Victoria N. Tiu which is covered by Transfer Certificate of Title No. 11951; (2) insofar as it ordered Union Bank of the Philippines to return to the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu the amount of P927,546.79 representing illegally collected rentals; and (3) insofar as it ordered Union Bank of the Philippines to pay the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu P100,000.00 in moral damages, P100,000.00 in exemplary damages, P50,000.00 in attorneys fees and cost, both in the lower court and in this Court.

No further pronouncement as to costs.

SO ORDERED.

Republic Supreme Manila SECOND DIVISION

of

the

Philippines Court

Page 425 of 1485

ELEANOR DE LEON LLENADO, Petitioner, G.R. No. 193279 Present: CARPIO, J., Chairperson, BRION, PEREZ, SERENO, and REYES, JJ. Promulgated: - versus March 14, 2012

PEOPLE OF THE PHILIPPINES EDITHA VILLAFLORES, Respondents.

and

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION SERENO, J.:

Petitioner was convicted by the Metropolitan Trial Court (MeTC) of Valenzuela City, Branch 82 in Criminal Case No. 54905 for violating Batasang Pambansa Blg. 22 (B.P. 22) or the Bouncing Checks Law.

It appears that petitioner issued checks to secure the loans obtained from private respondent. Upon presentment, the checks were dishonored, leading to the filing with the MeTC of criminal cases docketed as Criminal Case Nos. 54905, 54906, 54907, and 54908 for four (4) counts of violation of B.P. 22.

Subsequently, petitioner settled the loans subject of Criminal Case Nos. 54906, 54907 and 54908 using the funds of the Children of Mary Immaculate College, of which she

Page 426 of 1485

was president. Private respondent executed an Affidavit of Desistance for the three cases; 744 [1] thus, only Criminal Case No. 54905 covering a check worth, 1,500,000, proceeded to trial.

The MeTC found that all the following elements of a violation of B.P. 22 were present in the last check subject of the criminal proceedings: (1) the making, drawing, and issuance of any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he or she does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the drawee banks subsequent dishonor of the check for insufficiency of funds or credit, or dishonor of the check for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.745[2] In ruling against petitioner, the MeTC took note that petitioner admitted knowledge of the checks dishonor, and that the demand letter with Notice of Dishonor mailed to petitioners residence on 10 May 1999 was received by one Alfredo Abierra on 14 May 1999. Thus, petitioner was sentenced to pay 1,500,000, the amount of the dishonored check, and a fine of 200,000 with subsidiary imprisonment in case of insolvency.

The MeTC also held the Children of Mary Immaculate College liable for the value of the check for being the drawer thereof. Finally, the court ordered the payment of attorneys fees and litigation expenses.

On appeal with the Regional Trial Court (RTC), petitioner alleged that the receipt of the Notice of Dishonor was not sufficiently proven, and that the notice received by Abierra should not be held to be binding on her. However, on 26 November 2006, the RTC affirmed the Decision of the MeTC.

Petitioner subsequently filed a Petition for Review with the Court of Appeals (CA) under Rule 42 of the Rules of Court. In her Petition, she alleged that the trial court erred in ruling that she had received a notice of dishonor and in holding the school also liable for the value of the check.

744 745

Page 427 of 1485

The CA ruled that the elements of a violation of B.P. 22 were established. 746[3] However, it held that the trial court erred in holding Children of Mary Immaculate College civilly liable.

Applying Lunaria v. People,747[4] the CA modified the appealed judgment by imposing legal interest of 12% on the amount of the dishonored check. The dispositive portion of the CA Decision states:

WHEREFORE, the appeal is GRANTED in part. The Decision dated November 26, 2006 of the Regional Trial Court, Branch 75 of Valenzuela City, is MODIFIED in that petitioner is SENTENCED to pay a fine of 200,000.00 with subsidiary imprisonment in case of insolvency. Petitioner is ORDERED to indemnify private complainant in the amount of 1,500,000.00, the amount of the dishonored check, with 12% interest per annum from the date of judicial demand until the finality of this Decision plus attorneys fees of 20,000.00 and litigation expenses of 16,860.00. The civil liability adjudged against Children of Mary Immaculate College is REVERSED and SET ASIDE. SO ORDERED.748[5]

Petitioner thereafter filed a Motion for Reconsideration. 749[6] Finding no merit in the motion, it was denied by the CA through its assailed Resolution 750[7] promulgated on 10 August 2010. Hence, this Rule 45 Petition.

Petitioner now alleges that respondent failed to prove that there was actual receipt of the notice of dishonor. She also alleges, without expounding, that the ruling of the CA was not in accordance with laws and jurisprudence.

746 747 748 749 750

Page 428 of 1485

It is an established rule that the remedy of appeal through a Petition for Review on Certiorari under Rule 45 of the Rules of Court contemplates only questions of law and not questions of fact.751[8] The issue in the case at bar is clearly a question of fact that rightfully belonged to the proper determination of the MeTC, the RTC and the CA. All these lower courts found the elements of a violation of B.P. 22 present. Petitioner failed to provide any cogent reason for us to overturn these findings, or to consider this case as an exception to this general rule.

However, conforming to prevailing jurisprudence, we find the need to modify the ruling of the CA with regard to the imposition of interest on the judgment. It has been established that in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, that is, from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.752[9] In Ongson v. People,753[10] we held that interest began to run from the time of the extrajudicial demand, as duly proved by the creditor. Thus, petitioner should also be held liable for the amount of the dishonored check, which is 1,500,000, plus 12% legal interest covering the period from the date of the receipt of the demand letter on 14 May 1999 to the finality of this Decision. The total amount due in the dispositive portion of the CAs Decision, inclusive of interest, shall further earn 12% interest per annum from the finality of this Decision until fully paid.

WHEREFORE, in view of the foregoing, the Decision dated 27 April 2010 of the Court of Appeals in CA-G.R. CR No. 31349 is hereby AFFIRMED with MODIFICATIONS. Petitioner is ordered to indemnify private respondent the amount of the dishonored check, which is 1,500,000, with 12% interest per annum from the date of receipt of the extrajudicial demand on 14 May 1999 to the finality of this Decision. This total amount inclusive of interest shall further earn 12% interest per annum from the finality of the Decision until it is fully paid.

Petitioner is sentenced to pay a fine of 200,000 with subsidiary imprisonment in case of insolvency, plus attorneys fees of 20,000 and litigation expenses of 16,860.

751 752 753

Page 429 of 1485

SO ORDERED. SECOND [G.R. No. 183987, BANK, DIVISION July PETITIONER, 25, VS. 2012] CARMELO H. TUBLE,

ASIATRUST DEVELOPMENT RESPONDENT. DECISION SERENO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, seeking to review the Court of Appeals (CA) 28 March 2008 Decision and 30 July 2008 Resolution in CA-G.R. CV No. 87410. The CA affirmed the Regional Trial Court (RTC) Decision of 15 May 2006 in Civil Case No. 67973, which granted to respondent the refund of P845,805.49[1] representing the amount he had paid in excess of the redemption price. The antecedent facts are as follows:[2]

Respondent Carmelo H. Tuble, who served as the vice-president of petitioner Asiatrust Development Bank, availed himself of the car incentive plan and loan privileges offered by the bank. He was also entitled to the bank's Senior Managers Deferred Incentive Plan (DIP). Respondent acquired a Nissan Vanette through the company's car incentive plan. The arrangement was made to appear as a lease agreement requiring only the payment of monthly rentals. Accordingly, the lease would be terminated in case of the employee's resignation or retirement prior to full payment of the price. As regards the loan privileges, Tuble obtained three separate loans. The first, a real estate loan evidenced by the 18 January 1993 Promissory Note No. 0142 [3] with maturity date of 1 January 1999, was secured by a mortgage over his property covered by Transfer Certificate of Title No. T-145794. No interest on this loan was indicated. The second was a consumption loan, evidenced by the 10 January 1994 Promissory Note No. 0143[4] with the maturity date of 31 January 1995 and interest at 18% per annum. Aside from the said indebtedness, Tuble allegedly obtained a salary loan, his third loan. On 30 March 1995, he resigned. Subsequently, he was given the option to either return the vehicle without any further obligation or retain the unit and pay its remaining book value. Respondent had the following obligations to the bank after his retirement: (1) the purchase or return of the Nissan Vanette; (2) P100,000 as consumption loan; (3) P421,800 as real estate loan; and (4) P16,250 as salary loan. [5] In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, which was to be issued after the bank had given the resigned employee's clearance; and (2) P25,797.35 representing his final salary and corresponding 13th month pay. Respondent claimed that since he and the bank were debtors and creditors of each other, the offsetting of loans could legally take place. He then asked the bank to simply compute his DIP and apply his receivables to his outstanding loans. [6] However, instead of heeding his request, the bank sent him a 1 June 1995 demand letter [7] obliging him to pay his debts. The

Page 430 of 1485

bank also required him to return the Nissan Vanette. Despite this demand, the vehicle was not surrendered. On 14 August 1995, Tuble wrote the bank again to follow up his request to offset the loans. This letter was not immediately acted upon. It was only on 13 October 1995 that the bank finally allowed the offsetting of his various claims and liabilities. As a result, his liabilities were reduced to P970,691.46 plus the unreturned value of the vehicle. In order to recover the Nissan Vanette, the bank filed a Complaint for replevin against Tuble. Petitioner obtained a favorable judgment. Then, to collect the liabilities of respondent, it also filed a Petition for Extra-judicial Foreclosure of real estate mortgage over his property. The Petition was based only on his real estate loan, which at that time amounted to P421,800. His other liabilities to the bank were excluded. The foreclosure proceedings terminated, with the bank emerging as the purchaser of the secured property. Thereafter, Tuble timely redeemed the property on 17 March 1997 for P1,318,401.91. [8] Notably, the redemption price increased to this figure, because the bank had unilaterally imposed additional interest and other charges. With the payment of P1,318,401.91, Tuble was deemed to have fully paid his accountabilities. Thus, three years after his payment, the bank issued him a Clearance necessary for the release of his DIP share. Subsequently, he received a Manager's Check in the amount of P166,049.73 representing his share in the DIP funds. Despite his payment of the redemption price, Tuble questioned how the foreclosure basis of P421,800 ballooned to P1,318,401.91 in a matter of one year. Belatedly, the bank explained that this redemption price included the Nissan Vanette's book value, the salary loan, car insurance, 18% annual interest on the bank's redemption price of P421,800 , penalty and interest charges on Promissory Note No. 0142 , and litigation expenses.[9] By way of note, from these items, the amounts that remained to be collected as stated in the Petition before us, are (1) the 18% annual interest on the redemption price and (2) the interest charge on Promissory Note No. 0142. Because Tuble disputed the redemption price, he filed a Complaint for recovery of a sum of money and damages before the RTC. He specifically sought to collect P896,602.02 [10] representing the excess charges on the redemption price. Additionally, he prayed for moral and exemplary damages. The RTC ruled in favor of Tuble. The trial court characterized the redemption price as excessive and arbitrary, because the correct redemption price should not have included the above-mentioned charges. Moral and exemplary damages were also awarded to him. According to the trial court,[11] the value of the car should not have been included, considering that the bank had already recovered the Nissan Vanette. The obligations arising from the salary loan and car insurance should have also been excluded, for there was no proof that these debts existed. The interest and penalty charges should have been deleted, too, because Promissory Note No. 0142 did not indicate any interest or penalty charges. Neither should litigation expenses have been added, since there was no proof that the bank incurred those expenses. As for the 18% annual interest on the bid price of P421,800, the RTC agreed with Tuble that this charge was unlawful. Act 3135[12] as amended, in relation to Section 28 of Rule 39 of the Rules of Court,[13] only allows the mortgagee to charge an interest of 1 % per month if the foreclosed property is redeemed. Ultimately, under the principle of solutio indebiti, the trial court required the refund of these amounts charged in excess of the correct redemption

Page 431 of 1485

price. On appeal, the CA affirmed the findings of the RTC. [14] The appellate court only expounded the rule that, at the time of redemption, the one who redeemed is liable to pay only 1 % monthly interest plus taxes. Thus, the CA also concluded that there was practically no basis to impose the additional charges. Before this Court, petitioner reiterates its claims regarding the inclusion in the redemption price of the 18% annual interest on the bid price of P421,800 and the interest charges on Promissory Note No. 0142. Petitioner emphasizes that an 18% interest rate allegedly referred to in the mortgage deed is the proper basis of the interest. Pointing to the Real Estate Mortgage Contract, the bank highlights the blanket security clause or "dragnet clause" that purports to cover all obligations owed by Tuble:[15] All obligations of the Borrower and/or Mortgagor, its renewal, extension, amendment or novation irrespective of whether such obligations as renewed, extended, amended or novated are in the nature of new, separate or additional obligations; All other obligations of the Borrower and/or Mortgagor in favor of the Mortgagee, executed before or after the execution of this document whether presently owing or hereinafter incurred and whether or not arising from or connection with the aforesaid loan/Credit accommodation; x x x. Tuble's obligations are defined in Promissory Note Nos. 0142 and 0143. By way of recap, Promissory Note No. 0142 refers to the real estate loan; it does not contain any stipulation on interest. On the other hand, Promissory Note No. 0143 refers to the consumption loan; it charges an 18% annual interest rate. Petitioner uses this latter rate to impose an interest over the bid price of P421,800. Further, the bank sees the inclusion in the redemption price of an addition 12% annual interest on Tuble's real estate loan. On top of these claims, the bank raises a new item - the car's rental fee - to be included in the redemption price. In dealing with this argument raised for the first time on certiorari, this Court dismisses the contention based on the well-entrenched prohibition on raising new issues, especially factual ones, on appeal. [16] Thus, the pertinent issue in the instant appeal is whether or not the bank is entitled to include these items in the redemption price: (1) the interest charges on Promissory Note No. 0142; and (2) the 18% annual interest on the bid price of P421,800. RULING OF THE COURT The Price The 18% Annual of Applicable Interest on P421,800 Law the Bid

The bank argues that instead of referring to the Rules of Court to compute the redemption price, the courts a quo should have applied the General Banking Law, [17] considering that petitioner is a banking institution. The statute referred to requires that in the event of judicial or extrajudicial foreclosure of

Page 432 of 1485

any mortgage on real estate that is used as security for an obligation to any bank, banking institution, or credit institution, the mortgagor can redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage.[18] Petitioner is correct. We have already established in Union Bank of the Philippines v. Court of Appeals,[19] citing Ponce de Leon v. Rehabilitation Finance Corporation [20] and Sy v. Court of Appeals,[21] that the General Banking Act - being a special and subsequent legislation has the effect of amending Section 6 of Act No. 3135, insofar as the redemption price is concerned, when the mortgagee is a bank . Thus, the amount to be paid in redeeming the property is determined by the General Banking Act, and not by the Rules of Court in Relation to Act 3135. The Remedy of Foreclosure

In reviewing the bank's additional charges on the redemption price as a result of the foreclosure, this Court will first clarify certain vital points of fact and law that both parties and the courts a quo seem to have missed. Firstly, at the time respondent resigned, which was chronologically before the foreclosure proceedings, he had several liabilities to the bank. Secondly, when the bank later on instituted the foreclosure proceedings, it foreclosed only the mortgage secured by the real estate loan of P421,800.[22] It did not seek to include, in the foreclosure, the consumption loan under Promissory Note No. 0143 or the other alleged obligations of respondent. Thirdly, on 28 February 1996, the bank availed itself of the remedy of foreclosure and, in doing so, effectively gained the property. As a result of these established facts, one evident conclusion surfaces: the Real Estate Mortgage Contract on the secured property is already extinguished. In foreclosures, the mortgaged property is subjected to the proceedings for the satisfaction of the obligation. [23] As a result, payment is effected by abnormal means whereby the debtor is forced by a judicial proceeding to comply with the presentation or to pay indemnity. [24] Once the proceeds from the sale of the property are applied to the payment of the obligation, the obligation is already extinguished. [25] Thus, in Spouses Romero v. Court of Appeals,[26] we held that the mortgage indebtedness was extinguished with the foreclosure and sale of the mortgaged property, and that what remained was the right of redemption granted by law. Consequently, since the Real Estate Mortgage Contract is already extinguished, petitioner can no longer rely on it or invoke its provisions, including the dragnet clause stipulated therein. It follows that the bank cannot refer to the 18% annual interest charged in Promissory Note No. 0143, an obligation allegedly covered by the terms of the Contract. Neither can the bank use the consummated contract to collect on the rest of the obligations, which were not included when it earlier instituted the foreclosure proceedings. It cannot be allowed to use the same security to collect on the other loans. To do so would be akin to foreclosing an already foreclosed property. Rather than relying on an expired contract, the bank should have collected on the excluded loans by instituting the proper actions for recovery of sums of money. Simply put, petitioner should have run after Tuble separately, instead of hostaging the same property to cover all of his liabilities.

Page 433 of 1485

The Right of Redemption

Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the right to redeem the security by paying the redemption price. The right of redemption of foreclosed properties was a statutory privilege [27] he enjoyed. Redemption is by force of law, and the purchaser at public auction is bound to accept it. [28] Thus, it is the law that provides the terms of the right; the mortgagee cannot dictate them. The terms of this right, based on Section 47 of the General Banking Law, are as follows: 1. The redemptioner shall have the right within one year after the sale of the real estate, to redeem the property. 2. The redemptioner shall pay the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. 3. In case of redemptioners who are considered by law as juridical persons, they shall have the right to redeem not after the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier.

Consequently, the bank cannot alter that right by imposing additional charges and including other loans. Verily, the freedom to stipulate the terms and conditions of an agreement is limited by law.[29] Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate Court that the power to decide whether or not to foreclose is the prerogative of the mortgagee; however, once it has made the decision by filing a petition with the sheriff, the acts of the latter shall thereafter be governed by the provisions of the mortgage laws, and not by the instructions of the mortgagee. In direct contravention of this ruling, though, the bank included numerous charges and loans in the redemption price, which inexplicably ballooned to P1,318,401.91. On this error alone, the claims of petitioner covering all the additional charges should be denied. Thus, considering the undue inclusions of the additional charges, the bank cannot impose the 18% annual interest on the redemption price. The Dragnet Clause

In any event, assuming that the Real Estate Mortgage Contract subsists, we rule that the dragnet clause therein does not justify the imposition of an 18% annual interest on the redemption price. This Court has recognized that, through a dragnet clause, a real estate mortgage contract may exceptionally secure future loans or advancements. But an obligation is not secured by a mortgage, unless, that mortgage comes fairly within the terms of the mortgage contract.
[32]

We have also emphasized that the mortgage agreement, being a contract of adhesion, is to be carefully scrutinized and strictly construed against the bank, the party that prepared the agreement.[[33]] Here, after reviewing the entire deed, this Court finds that there is no specific mention of

Page 434 of 1485

interest to be added in case of either default or redemption . The Real Estate Mortgage Contract itself is silent on the computation of the redemption price. Although it refers to the Promissory Notes as constitutive of Tuble's secured obligations, the said contract does not state that the interest to be charged in case of redemption should be what is specified in the Promissory Notes. In Philippine Banking Communications v. Court of Appeals ,[34] we have construed such silence or omission of additional charges strictly against the bank. In that case, we affirmed the findings of the courts a quo that penalties and charges are not due for want of stipulation in the mortgage contract. Worse, when petitioner invites us to look at the Promissory Notes in determining the interest, these loan agreements offer different interest charges: Promissory Note No. 0142, which corresponds exactly to the real estate loan, contains no stipulation on interest; while Promissory Note No. 0143, which in turn corresponds to the consumption loan, provides a charge of 18% interest per annum. Thus, an ambiguity results as to which interest shall be applied, for to apply an 18% interest per annum based on Promissory Note No. 0143 will negate the existence of the 0% interest charged by Promissory Note No. 0142. Notably, it is this latter Promissory Note that refers to the principal agreement to which the security attaches. In resolving this ambiguity, we refer to a basic principle in the law of contracts: "[A]ny ambiguity is to be taken contra proferent[e]m, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care." [35] Therefore, the ambiguity in the mortgage deed whose terms are susceptible of different interpretations must be read against the bank that drafted it. Consequently, we cannot impute grave error on the part of the courts a quo for not appreciating a charge of 18% interest per annum. Furthermore, this Court refuses to be blindsided by the dragnet clause in the Real Estate Mortgage Contract to automatically include the consumption loan, and its corresponding interest, in computing the redemption price. As we have held in Prudential Bank v. Alviar,[36] in the absence of clear and supportive evidence of a contrary intention, a mortgage containing a dragnet clause will not be extended to cover future advances, unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor. In this regard, this Court adopted the "reliance on the security test" used in the abovementioned cases, Prudential Bank[37] and Philippine Bank of Communications.[38] In these Decisions, we elucidated the test as follows: x x x [A] mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the "offer" was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance ; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance .[39] (Emphasis supplied)

Page 435 of 1485

Here, the second loan agreement, or Promissory Note No. 0143, referring to the consumption loan makes no reference to the earlier loan with a real estate mortgage. Neither does the bank make any allegation that it relied on the security of the real estate mortgage in issuing the consumption loan to Tuble. It must be remembered that Tuble was petitioner's previous vice-president. Hence, as one of the senior officers, the consumption loan was given to him not as an ordinary loan, but as a form of accommodation or privilege.[40] The bank's grant of the salary loan to Tuble was apparently not motivated by the creation of a security in favor of the bank, but by the fact the he was a top executive of petitioner. Thus, the bank cannot claim that it relied on the previous security in granting the consumption loan to Tuble. For this reason, the dragnet clause will not be extended to cover the consumption loan. It follows, therefore, that its corresponding interest - 18% per annum - is inapplicable. Consequently, the courts a quo did not gravely abuse their discretion in refusing to apply an annual interest of 18% in computing the redemption price. A finding of grave abuse of discretion necessitates that the judgment must have been exercised arbitrarily and without basis in fact and in law.[41] The Interest Charges on Promissory Note No. 0142

In addition to the 18% annual interest, the bank also claims a 12% interest per annum on the consumption loan. Notwithstanding that Promissory Note No. 0142 contains no stipulation on interest payments, the bank still claims that Tuble is liable to pay the legal interest. This interest is currently at 12% per annum, pursuant to Central Bank Circular No. 416 and Article 2209 of the Civil Code, which provides: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation , the legal interest, which is six per cent per annum. (Emphasis supplied) While Article 2209 allows the recovery of interest sans stipulation, this charge is provided not as a form of monetary interest, but as one of compensatory interest.[42] Monetary interest refers to the compensation set by the parties for the use or forbearance of money.[43] On the other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or by the courts. [44] Compensatory interest, as a form of damages, is due only if the obligor is proven to have defaulted in paying the loan. [45] Thus, a default must exist before the bank can collect the compensatory legal interest of 12% per annum. In this regard, Tuble denies being in default since, by way of legal compensation, he effectively paid his liabilities on time. This argument is flawed. The bank correctly explains in its Petition that in order for legal compensation to take effect, Article 1279 of the Civil Code requires that the debts be liquidated and demandable. This provision reads: (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;

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(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) Liquidated debts are those whose exact amount has already been determined. [46] In this case, the receivable of Tuble, including his DIP share, was not yet determined; it was the petitioner's policy to compute and issue the computation only after the retired employee had been cleared by the bank. Thus, Tuble incorrectly invoked legal compensation in addressing this issue of default. Nevertheless, based on the findings of the RTC and the CA, the obligation of Tuble as evidenced by Promissory Note No. 0142, was set to mature on 1 January 1999. But then, he had already settled his liabilities on 17 March 1997 by paying PI,318,401.91 as redemption price. Then, in 1999, the bank issued his Clearance and share in the DIP in view of the full settlement of his obligations. Thus, there being no substantial delay on his part, the CA did not grievously err in not declaring him to be in default. The Award of Moral and Exemplary Damages

The courts a quo awarded Tuble P200,000 as moral damages and P50,000 as exemplary damages. As appreciated by the RTC, which had the opportunity to examine the parties, [47] the bank treated Tuble unfairly and unreasonably by refusing to lend even a little charity and human consideration when it immediately foreclosed the loans of its previous vicepresident instead of heeding his request to make a straightforward calculation of his receivables and offset them against his liabilities. [48] To the mind of the trial court, this was such a simple request within the control of the bank to grant; and if petitioner had only acceded, the troubles of the lawsuit would have been avoided. Moreover, the RTC found that the bank caused Tuble severe humiliation when the Nissan Vannette was seized from his new office at Kuok Properties Philippines. The trial court also highlighted the fact that respondent as the previous vice-president of petitioner was no ordinary employee - he was a man of good professional standing, and one who actively participated in civic organizations. The RTC then concluded that a man of his standing deserved fair treatment from his employer, especially since they served common goals. This Court affirms the dispositions of the RTC and the CA. They correctly ruled that the award of moral damages also includes cases of besmirched reputation, moral shock, social humiliation and similar injury. In this regard, the social and financial standings of the parties are additional elements that should be taken into account in the determination of the amount of moral damages. [49] Based on their findings that Tuble suffered undue embarrassment, given his social standing, the courts a quo had factual basis[50] to justify the award of moral damages and, consequently, exemplary damages [51] in his favor. From all the foregoing, we rule that the appellate court correctly deleted the 18% annual interest charges, albeit for different reasons. First, the interest cannot be imposed, because any reference to it under the Real Estate Mortgage Contract is misplaced, as the contract is already extinguished. Second, the said interest cannot be collected without any basis in terms of Tuble's redemption rights. Third, assuming that the Real Estate Mortgage Contract subsists, the bank cannot collect the interest because of the contract's ambiguity. Fourth, the dragnet clause referred to in the contract cannot be presumed to include the 18% annual interest specified in the consumption loan. Fifth, with respect to the compensatory interest claimed by the bank, we hold that neither is the interest due, because Tuble cannot be deemed to be in default of his obligations.

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IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 87410 are hereby AFFIRMED. SO Carpio, (Chairperson), Del Castillo,* Perez, and Reyes, JJ., concur. Republic SUPREME Manila FIRST DIVISION G.R. No. 141968 February 12, 2001 of the Philippines COURT ORDERED.

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents. KAPUNAN, J.: The respondent Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car - a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes.1wphi1.nt The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for "Sum of Money with Prayer for a Writ of Replevin"1 before the Metropolitan Trial Court of Pasay City, Branch 45. 2 On August 25, 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Bank's Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the bank's compound. On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. On August 29, 1995, Dr. Gueco delivered a manager's check in amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of

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Quezon City, Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit.3 On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the bank: 1. to return immediately the subject car to the appellants in good working condition; Appellee may deposit the Manager's check - the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to .secure said Manager's Check, over which appellants have no control; 2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as attorney's fees, and 3. to pay the cost of suit. In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED.4 The case was elevated to the Court of Appeals, which on February 17, 2000, issued the assailed decision, the decretal portion of which reads: WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED and the Decision of the Regional Trial Court of Quezon City, Branch 227, in Civil Case No. Q-97-31176, for lack of any reversible error, is AFFIRMED in toto. Costs against petitioner. SO ORDERED.5 The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages. The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court, raising the following assigned errors: I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT. II THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR OF THE RESPONDENTS.

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III THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGER'S/CASHIER'S CHECK BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIER'S CHECK THAT ALREADY BECAME STALE.6 As to the first issue, we find for the respondents. The issue as to what constitutes the terms of the oral compromise or any subsequent novation is a question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It is well settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding upon this Court.7 While there are exceptions to this rule,8 the present case does not fall under anyone of them, the petitioner's claim to the contrary, notwithstanding. Being an affirmative allegation, petitioner has the burden of evidence to prove his claim that the oral compromise entered into by the parties on August 28, 1995 included the stipulation that the parties would jointly file a motion to dismiss. This petitioner failed to do. Notably, even the Metropolitan Trial Court, while ruling in favor of the petitioner and thereby dismissing the complaint, did not make a factual finding that the compromise agreement included the condition of the signing of a joint motion to dismiss. The Court of Appeals made the factual findings in this wise: In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who related that respondent Dr. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. (TSN, October 23, 1996, pp. 17-21, Rollo, pp. 18, 5). Respondents, however, maintained that no such condition was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32). The trial court, whose factual findings are entitled to respect since it has the 'opportunity to directly observe the witnesses and to determine by their demeanor on the stand the probative value of their testimonies' (People vs. Yadao, et al. 216 SCRA 1, 7 [1992]), failed to make a categorical finding on the issue. In dismissing the claim of damages of the respondents, it merely observed that respondents are not entitled to indemnity since it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the release of the car. The trial court opined, thus: 'As regards the third issue, plaintiffs' claim for damages is unavailing. First, the plaintiffs could have avoided the renting of another car and could have avoided this litigation had he signed the Joint Motion to Dismiss. While it is true that herein defendant can unilaterally dismiss the case for collection of sum of money with replevin, it is equally true that there is nothing wrong for the plaintiff to affix his signature in the Joint Motion to Dismiss, for after all, the dismissal of the case against him is for his own good and benefit. In fact, the signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages. First, he will recover his car. Second, he will pay his obligation to the bank on its reduced amount of P150,000.00 instead of its original claim of P184,985.09. And third, the case against him will be dismissed. Plaintiffs, likewise, are not entitled to the award of moral damages and exemplary damages as there is no showing that the defendant bank acted fraudulently or in bad faith.' (Rollo, p. 15)

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The Court has noted, however, that the trial court, in its findings of facts, clearly indicated that the agreement of the parties on August 28, 1995 was merely for the lowering of the price, hence 'xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff entered into an oral compromise agreement, whereby the original claim of the bank of P184,985.09 was reduced to P150,000.00 and that upon payment of which, plaintiff was informed that the subject motor vehicle would be released to him.' (Rollo, p. 12) The lower court, on the other hand, expressly made a finding that petitioner failed to include the aforesaid signing of the Joint Motion to Dismiss as part of the agreement. In dismissing petitioner's claim, the lower court declared, thus: 'If it is true, as the appellees allege, that the signing of the joint motion was a condition sine qua non for the reduction of the appellants' obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a copy of the joint motion that day of August 28, 1995, for his family or legal counsel to see to be brought signed, together with the P150,000.00 in manager's check form to be submitted on the following day on August 29, 1995? (sic) [I]s a question whereby the answer up to now eludes this Court's comprehension. The appellees would like this Court to believe that Dr Gueco was informed by Mr. Rivera Rivera of the bank requirement of signing the joint motion on August 28, 1995 but he did not bother to show a copy thereof to his family or legal counsel that day August 28, 1995. This part of the theory of appellee is too complicated for any simple oral agreement. The idea of a Joint Motion to Dismiss being signed as a condition to the pushing through a deal surfaced only on August 29, 1995. 'This Court is not convinced by the appellees' posturing. Such claim rests on too slender a frame, being inconsistent with human experience. Considering the effect of the signing of the Joint Motion to Dismiss on the appellants' substantive right, it is more in accord with human experience to expect Dr. Gueco, upon being shown the Joint Motion to Dismiss, to refuse to pay the Manager's Check and for the bank to refuse to accept the manager's check. The only logical explanation for this inaction is that Dr. Gueco was not shown the Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his claim that its signing was never put into consideration in reaching a compromise.' xxx.9 We see no reason to reverse. Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both .the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared: The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the 'deliberate and intentional evasion of the normal fulfillment of obligation' When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former

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intentionally evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorney's fees.10 We disagree. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation. 11 We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. 12 The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fait. In no way, may the conduct of petitioner be characterized as "wanton, fraudulent, reckless, oppressive or malevolent."13 We, likewise, find for the petitioner with respect to the third assigned error. In the meeting of August 29, 1995, respondent Dr. Gueco delivered a manager's check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of respondent bank. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a statement to the effect that he was withholding the payment of the check.14 Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank, dated September 4, 1995, Dr. Gueco instructed the bank to disregard the 'hold order" letter and demanded the immediate release of his car, 15 to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. Gueco anytime. 16 While there is controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by petitioners,17 it appears from the pleadings that said check has not been encashed. The decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals, orders the petitioner: 1. to return immediately the subject car to the appellants in good working condition. Appellee may deposit the Manager's Check - the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Manager's Check over which appellants have no control.18

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Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale.19 It is their position that delivery of the manager's check produced the effect of payment 20 and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance respondents' position. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. 21 A check must be presented for payment within a reasonable time after its issue, 22 and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case.23 The test is whether the payee employed such diligence as a prudent man exercises in his own affairs.24 This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check.25 Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale. 26 Thus, even a delay of one (1) week 27 or two (2) days,28 under the specific circumstances of the cited cases constituted unreasonable time as a matter of law. In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's check. A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance.29 It is really the bank's own check and may be treated as a promissory note with the bank as a maker.30 The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.31 Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay.32 Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager's check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. 33 In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the Bank. 1wphi1.nt

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WHEREFORE, premises considered, the petition for review is given due course. The decision of the Court of Appeals affirming the decision of the Regional Trial Court is SET ASIDE. Respondents are further ordered to pay the original obligation amounting to P150,000.00 to the petitioner upon surrender or cancellation of the manager's check in the latter's possession, afterwhich, petitioner is to return the subject motor vehicle in good working condition. SO ORDERED. Davide, Jr., Puno, Pardo, and Ynares-Santiago, JJ., concur. SECOND DIVISION

TERESITA L. VERTUDES,[1] Petitioner,

G.R. No. 153166

Present:

Puno, J., Chairman, Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, -

versus -

JJ.

JULIE BUENAFLOR and BUREAU OF IMMIGRATION, Respondents. December 16, 2005 Promulgated:

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x--------------------------------------------------x

DECISION

PUNO, J.:

Before us is a petition for review by certiorari under Rule 45 of the Rules of Court, seeking to review and set aside the decision [2] and resolution[3] of the Court of Appeals (CA), which affirmed the decision of the Civil Service Commission (CSC) finding petitioner guilty of grave misconduct and dismissing her from government service.

Petitioner Teresita L. Vertudes was a fingerprint examiner at the Alien Registration Division of the Bureau of Immigration (BI). In a facsimile letter[4] dated July 27, 1998, a

certain Peng Villas, a news editor of the Philippine Weekly Newspaper, referred to then BI Commissioner Rufus Rodriguez the complaints of private respondent Julie Buenaflor, Amy Cosino and Manuelito Lao, against petitioner.

According to Villas, private respondent Buenaflor complained of having been convinced by petitioner into paying the total amount of P79,000.00 in exchange for the processing of her visa, passport and other travel documents for Japan. Private respondent delivered to petitioner Security Bank (SB) Check Nos. 0014797 and 0014798 in the amounts of P30,000.00 and P20,000.00, respectively, and cash worth P29,000.00. However, no visa was delivered. Private respondent insisted that petitioner return her money, to no avail.

Villas also referred to Commissioner Rodriguez the complaint of Lao who allegedly told him that he paid P60,000.00 to petitioner in exchange for a Chinese Visa and a passport for Taiwan. Likewise, Villas referred Cosinos complaint that the latter collected from Virfinia Dumbrique, Jaime Santos Flores and Mariano Evangelista, the amounts of P20,000.00 each, upon petitioner's word that they would be in exchange for tourist visas. Both Lao and Cosino

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claimed that the promised passport and visas did not materialize and despite many requests for the return of the amounts paid to petitioner, she refused to comply. Allegedly, "Vertudez threatened them that they cannot force her to pay back the said amount as she has the back up [of] higher BID officials."

Acting upon Villas' letter, Commissioner Rodriguez issued a memorandum, [5] directing the petitioner to submit a sworn written explanation. In her sworn written

memorandum,[6] petitioner assailed the credibility of Villas. She alleged that Villas was not a member of the National Press Club as he claimed to be. She averred that the sum of P50,000.00, as evidenced by SB Check Nos. 0014797 and 0014798, was extended to her by private respondent Buenaflor as a loan. She was constrained to borrow money from private respondent and other close friends when her brother became seriously ill. However, she claimed that she had fully settled her obligation to private respondent through installment. She also claimed that private respondent was the one engaged in illegal recruitment through the use of falsified or forged passports. Private respondent was allegedly using petitioners name in dealing with some immigration officials and employees to expedite the processing of the documents of her (private respondents) clients. Petitioner allegedly informed said officers and employees that she was not connected to private respondent in any way. Private respondent allegedly resented this "abrupt disassociation." Also, her repeated refusal to "escort" private respondent's clients who were leaving for abroad using falsified travel documents allegedly led private respondent to threaten her that she could easily use SB Check Nos. 0014797 and 0014798 as evidence to file charges against petitioner by making it appear that she (private respondent) gave the money because of petitioner's promise to facilitate her travel to Japan. Petitioner denied having received the sum of P29,000.00 from private respondent, contending that such claim is "pure falsehood because of the absence of document to prove the alleged receipt." As regards the

complaints of Lao and Cosino, petitioner denied having met or known said persons.

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Finding petitioners explanation "unsatisfactory and [her] defense weak,"

Commissioner Rodriguez issued Personnel Order No. RBR 98-60, [7] preventively suspending her for sixty (60) days pending the investigation of the case. The instant case was assigned to Special Prosecutor Norberto dela Cruz, who issued a subpoena [8] ordering private respondent and petitioner to appear before him on October 15, 1998 for the formal investigation of the case. It appears that in the meantime, Villas died and private

respondent personally took on the instant complaint with the BI for Grave Misconduct against petitioner, docketed as Administrative Charge No. 0004. Lao and Cosino filed their respective complaint-affidavits [9] with the BI which became the subject of another administrative case against petitioner.[10] On August 21, 1998, petitioner filed a Motion for Reconsideration (Re: Personnel Order No. RBR-98-60) with Motion to Dismiss. [11] On September 2, 1998, petitioner filed a Manifestation with Urgent Prayer to Resolve Motion to Dismiss, [12] averring that the complaint instituted by Villas in behalf of private respondent was a harassment case against her. Petitioner sought the dismissal of the instant action on the ground that in addition to the instant administrative case, private respondent had personally filed her complaintaffidavit "of similar nature and character" with the Manila City Prosecutor's Office, docketed as 98-H-44000-1, and with the Office of the Ombudsman, docketed as OMB-98-1701. Private respondent narrated the pertinent events in her complaint-affidavit [13] as follows: 1. That I met Ms. Teresita Vertudes, an employee of the Bureau of Immigration and Deportation, Intramuros, Manila sometime in the middle part of 1996; 2. That from that time on, we became friends because we come from the same region and that she used to tell us that she is capable of deploying job applicants to Japan; 3. That during one of those times that I dropped by her office, she intimated to me that a group of Immigration Officers are scheduled to leave for Japan for training and that she was the one who received a call from a Japanese Consul;

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4. That Ms. Teresita Vertudes asked me if I am interested in going to Japan because she will find a way to accommodate me and I told her that I am deeply interested but my problem was that my passport was left in Bacolod City and she volunteered to work-out [and] facilitate the processing of my passport and visa and that [all] I need to do is give her my picture which I did; 5. That she even added that she has a brother in Japan who could also help me find a job and I will be going there along with her son, Jimmy V[e]rtudes Santos. She showed to me her son's passport and application for a Visa, copies of which are attached and marked as Annexes "A", "B" and "C"; 6. That according to Ms. Vertudes I will be receiving a salary of one lapad per day as a factory worker and that should I accept to her offer, all that will be required of me is to give her the amount of P80,000.00; 7. That on December 24, 1997 Ms. Vertudes received from me Security Bank Check No. 0014797 in the amount of P30,000.00 which she was able to encash and likewise Security Bank Check No. 0014798 in the amount of P20,000.00 x x x Annexes "D" and "E"; 8. That on February 8, 1998, because of her insistence and persistence that I should deliver the balance of P30,000.00 to her so that I could leave in a week's time, I was forced to produce the said amount by requesting a friend to pawn my jewelry in the amount of P29,000.00 and the aforesaid amount was handed to Ms. Vertudes in the presence of Ms. Joy Gutierrez at her office in (BID), Intramuros, Manila; 9. That after that last payment, I have been asking her as to when I am suppose[d] to leave because I was already prepared to leave and have in fact told my relatives and friends that I will be leaving soon for Japan but she did not stop making promises; 10. That upon the advi[c]e of a lawyer and to be able to know once and for all whether I could still leave, I requested my lawyer to write a letter to Ms. Vertudes for her to refund the sums of money which I delivered to her in the total amount of P79,000.00 for the processing of my Passport and Visa for job deployment abroad but she did not even answer the letter and neither called up my lawyer to explain her side; letter is attached as Annex "E"; 11. That for Ms. Teresita Vertudes' failure to make good her promise to deploy me after receiving the amount of P79,000.00 in consideration of a job placement in Japan, I hereby charge her for the crime of Illegal Recruitment and Estafa; x x x

Annexed to private respondent's complaint-affidavit were: a) the affidavit of a certain Jessilyn Gutierrez[14] who attested that she accompanied private respondent in going to the office of petitioner and she was with private respondent when the latter

Page 448 of 1485

delivered to petitioner the checks amounting to P50,000.00 and cash worth P29,000.00 for private respondent's job placement to Japan; b) copies of the passport and application for a visa of petitioner's son, to prove that petitioner showed these documents to her so she would believe that she would be going to Japan with petitioner's son; c) copies of SB Check Nos. 0014797 and 0014798, to prove petitioner's receipt of the total amount of P50,000.00 from private respondent; and d) letter of private respondent's counsel to petitioner demanding the refund of P79,000.00 from petitioner.

On October 15, 1998, petitioner, accompanied by her counsel, and private respondent appeared before Special Prosecutor dela Cruz for the formal investigation of the case.[15] The second hearing took place on October 27, 1998, during which, petitioner submitted her Counter-Affidavit[16] and the affidavits of her witnesses. Her version was: 4.1. I first met Ms. Buenaflor sometime in 1996 when I was still assigned at the General Services Division of the Bureau of Immigration; 4.2. At that time, Ms. Buenaflor represented to me that she was connected with a travel agency assigned to process/facilitate documents of their clients in the Buereau of Immigration; 4.3. Indeed, I saw Ms. Buenaflor processing and making follow-ups of documents in the different Divisions/Departments of the Bureau of Immigration similar to what were being done by the representatives of other travel agencies transacting business therewith; 4.4. During that period, Ms. Buenaflor and me became close friends because she frequently visited me in my office at General Services Division and would even stay thereat while processing documents and waiting for their release. In fact, she often took her lunch and merienda with me and sometimes, with the other employees of our division; 4.5. Sometime in the third week of December 1997, I was informed by my relatives in our hometown that my brother, Mariano "Dido" Vertudes was seriously ill and was thereafter confined on December 22, 1997 at Gingoog General Hospital located at Gingoog City, Misamis Oriental; 4.6. The type of illness of my brother required extensive treatment and medication; and for this reason, they requested for financial assistance to defray the expenses therefor; 4.7. Since I was then in financial distress, I was constrained to borrow money with interests from Ms. Buenaflor and other close friends of mine. As a kind gesture on the part of Ms. Buenaflor she extended to me a loan in the total amount of P50,000.00 as represented by Security Bank check nos.

Page 449 of 1485

0014797 and 0014798 in the respective amounts of P30,000.00 and P20,000.00 (citation omitted); 4.8. It is however our agreement that I would pay the amount of P50,000.00 with the additional amount of P10,000.00 representing the interests therefore for a total of P60,000.00; 4.9. We further agreed that I would pay my financial obligation to Ms. Buenaflor on or before the last day of May 1998 from December 1997 on installment basis; 4.10. With the aforementioned amount of P50,000.00 loaned to me by Julie Buenaflor and the other amounts x x x from other friends, I was able to contribute the total amount of P100,000.00 for the treatment and hospitalization of my brother. It was, however, to no avail because my brother died on January 6, 1998; 4.11. Pursuant to our agreement, I was able to pay Ms. Buenaflor on installment basis the total amount of P60,000.00 at my earlier indicated address on the following dates: DATE February 28, 1998 March 31, 1998 April 30, 1998 May 30, 1998 AMOUNT P15,000.00 15,000.00 15,000.00 15,000.00

4.12. I tendered the said payments to Ms. Buenaflor at my residence on the dates earlier enumerated in the presence of my housemaids, Eliza Compo and Jocelyn Reyes; x x x

Petitioner averred that private respondent misrepresented to her (petitioner's) son, Jimmy Santos, Jr., that she (private respondent) would facilitate his travel to and employment in Japan. She also assailed the credibility of private respondent by accusing her of using several passports under different names. Attached to petitioner's counteraffidavit were: a) a copy of a passport application in the name of Honna Sumadia Araneta showing the photographs of private respondent; b) referral slip of the Pasay City Police Station and the sworn statement of a certain Armando Gambala charging private respondent with Estafa and Illegal Recruitment; [17] c) affidavits of petitioner's

Page 450 of 1485

son, Jimmy Santos, Jr.,[18] and a certain Enrico Tuazon, showing that they likewise filed a case for Estafa and Illegal Recruitment against private respondent; and d) a copy of the Certificate of Business Name and Certification [19] issued by Prudential Bank, to prove that private respondent misstated the address of her business establishment. Petitioner also submitted to Special Prosecutor dela Cruz the Pinagsamang Sinumpaang Salaysay[20] of her two housemaids, Eliza Compo and Jocelyn Reyes, to prove that she had fully paid her obligation to private respondent. Likewise, she submitted the handwritten joint sworn

statement[21] of Ernesto V. Cloma and Jhun M. Romero, media practitioners, to prove that Villas asked for petitioners forgiveness before he died, admitting that he only sent his letter dated July 27, 1998 to Commissioner Rodriguez in consideration of the amount given by private respondent.

On the same hearing, the parties agreed to submit the instant case for resolution. [22] Thus, in his Resolution dated November 12, 1998, [23] Special Prosecutor dela Cruz found petitioner guilty of grave misconduct and recommended her dismissal from the service. Meantime, the case instituted by private respondent with the Office of the Ombudsman was referred to the Office of the City Prosecutor, thus: After evaluation, the undersigned finds that the charges imputed against the respondent are not office related and that the administrative aspect of the case had already been undertaken by the Bureau of Immigration. In view thereof, it is respectfully recommended that the instant complaint be referred to the Office of the City Prosecutor of Manila for appropriate action. SO ORDERED.[24] (emphases supplied)

Petitioner filed a Motion to Re-open [25] with the BI, contending that the finding of the Ombudsman that "the charges imputed against [petitioner] are not office related" clearly

Page 451 of 1485

shows that she is not administratively liable for grave misconduct. She moved for the reopening of the case "to allow her to adduce further evidence mainly based on the findings of the Ombudsman." The motion, however, was denied for lack of merit.[26]

On January 12, 1999, Commissioner Rodriguez issued an order, adopting the resolution of Special Prosecutor dela Cruz, viz: WHEREFORE, respondent Teresita L. Vertudez is hereby found liable for grave misconduct under PD No. 807 and the Administrative Code of 1987. Accordingly, she is ordered dismissed from the service effective immediately with forfeiture of all benefits under the law, with prejudice to her reinstatement in this Bureau and all its branches. SO ORDERED.[27]

The order quoted the pertinent portion of Special Prosecutor dela Cruz's resolution, viz:

After carefully weighing and evaluating the versions of the complainant and the respondent, this Office is more incline[d] to give credence to complainant's declarations that she was indeed duped by the respondent into parting with the hard-earned money of P79,000.00 on the promise of the respondent that she would secure a passport and visa for the complainant to Japan. Respondent's alibi that the said amount was a loan from the complainant, who is her friend, is highly unbelievable. Complainant does not appear to be a rich person who would so easily part with such big amount of money without any security without any hope or assurance of being re-paid. The fact that complainant paid P79,000.00 to the respondent so she could get a passport and a visa to work in Japan as a factory worker clearly showed that she was desperately in need of a job. For her to give such amount to the respondent as an unsecured loan is extremely incredulous. Respondent's claim that the present complaint is pure harassment by the complainant is completely bereft of credence. What benefit or advantage would the complainant achieve in fabricating charges against the respondent? If the complainant filed this complaint, it was because she was wronged by the respondent. Likewise, respondent's allegation that the P50,000.00 she received from the complainant was a loan because she (respondent) was then in a financial distress and she needed money to help her sick brother in the

Page 452 of 1485

province was belied by her own son, Jimmy V. Santos, Jr., who declared in his Affidavit that sometime in December 1997, he gave P50,000.00 to the complainant so that the latter could obtain a tourist visa for him to Japan. Why should the respondent bother to get a P50,000.00 loan from the complainant to assist her ailing brother when she could readily obtain this amount from her own son? As to respondent's assertion that she was able to pay the P50,000.00 to the complainant, there is nothing to support such payment. The statements of her two (2) maids -- Eliza C[o]mpo and Jocelyn Reyes -- in their Sinumpaang Salaysay that respondent paid to the complainant the total amount of P60,000.00 during the months of February 1998 to May 1998 cannot be believed. Being the housemaids of the respondent, it is but natural and to be expected of these persons to come to the aid of their employe[r].[28]

Petitioner filed a Motion for Reconsideration and/or New Trial, [29] reiterating her argument in her Motion to Re-open. Again, the motion was denied. [30] Subsequently, the assailed order of dismissal was affirmed by then Department of Justice Secretary Serafin Cuevas.[31]

Petitioner appealed to the CSC,[32] raising the issues of lack of due process and lack of substantial evidence. On November 19, 1999, the CSC dismissed petitioner's appeal. It held, in part, that: A careful study of the records in the light of the arguments of appellant reveals that the requirements of due process have been duly observed in the proceedings had in this case. xxx As to the second issue, the Commission finds substantial evidence to prove that respondent receive[d] money in exchange for her services in facilitating the issuance of passport and visa of Julie Bernardo (sic). The complaint-affidavit of Julie Buenaflor is reproduced in part as follows: x x x In the absence of any improper motive or malice on the part of the witness to foist said charges on respondent, the Commission is inclined to give credence to the statements of witness Bernardo (sic). In fact Vertudez has admitted that she received money from Buenaflor but argued that the money was a mere loan. However, if this were true, Buenaflor should have demanded for a collateral, considering the amount involved. Vertudez failed to present any evidence that she gave any security in return for said loan which makes her version highly incredible. x x x[33]

Page 453 of 1485

Petitioner filed a motion for reconsideration[34] of the CSC's Resolution, to no avail. The CSC held:

In so far as Vertudez'[s] illegal recruitment activities are concerned, the Commission finds the existence of clear substantial evidence to establish the same. Evidence presented all point to the fact that Vertudez solicited money from BI clients in return for a visa to Japan. The witnesses against Vertudez include Peng Villas (Deceased), Julie Buenflor ( sic), Amy Cosino, Virginia Lubriano, Manuelito Lao and Jaime Santos Flores. The affidavits of said witnesses all speak of the modus operandi of Vertudez at the BI, where she approaches BI clients and offers them a visa, passport and an employment contract in exchange for P120,000.00. In the case of witness Julie Buenaflor, she testified that respondent assured her of a visa, a passport and a job in Japan for a fee of P80,000.00 and that Vertudez after getting paid failed to fulfill her promise. It is observed that Vertudez seeks to destroy the credibility of witness Buenaflor by implying that the former has a pending case for illegal recruitment and estafa. Records, however, show that the charges against witness Buenaflor all came up after Vertudez was formally charged by the BI and that such charges have no reasonable connection with her administrative case pending before the Commission. In this regard, "There being nothing in record to show that witnesses were actuated by any improper motive, their testimony shall be entitled to full faith and credit." (People v. Flores, 252 SCRA 31)[35]

Thereafter, petitioner filed a petition for review before the CA, raising the issues of: a) whether or not the BI and CSC violated petitioner's right to due process; b) whether or not respondents erred in finding that the alleged illegal recruitment activity of the petitioner had a direct relation to and connected with the performance of her duties and responsibilities as an employee of the BI; and c) whether or not there is substantial evidence to support the finding that petitioner is an illegal recruiter, thus, warranting her removal from public service.[36]

On February 12, 2002, the CA dismissed the petition for lack of merit. The CA found that "petitioner was given more than ample opportunity to ventilate her defense and disprove the charges leveled against her, hence, there can be no denial of her right to due

Page 454 of 1485

process."[37] Moreover, it held that "there is more than substantial evidence proving the charge of grave misconduct against petitioner."[38] The CA ratiocinated that: In the proceedings a quo, it was established that petitioner, indeed, received and encashed the two (2) checks given by private respondent in the total amount of Php50,000.00. This fact, therefore, gives credence to the claim of private respondent that she gave petitioner two (2) checks in consideration of the latter's promise to facilitate her employment abroad. This being the case, the burden was shifted to petitioner to refute this established fact through equally weighty and competent evidence. Now, petitioner admitted having received, and encashed, the two checks from private respondent but offered the excuse that the same was extended to her as a loan. Aside from her testimony and that of her household helpers to prove this assertion, no other independent and unbiased evidence was offered to prove the fact of loan. As it is, her theory of loan stands on flimsy ground and is not sufficient enough to overthrow the fact established by complainant. This considering that it is highly improbable and even contrary to human experience for a person to loan a huge amount of money as Php50,000.00 without any document evidencing such loan nor a collateral to secure its payment. Note even that the two checks were made payable to "cash," a bearer instrument, and was not even crossed on its face, hence, can be encashed by any person holding the negotiable instrument. If, indeed, private respondent gave the two checks to petitioner as a clean loan (without any collateral) without any separate document embodying their loan agreement, the latter should have at least been made the payee of the checks and a memorandum written at the back of the check to the effect that it is being extended as a loan, in order to protect the interest of the lender. This is conventional business practice which is altogether absent in the case at bar, hence, petitioner's theory of loan must necessarily crumble. [39]

Petitioner filed a Motion for Reconsideration, [40] contending that the CA failed to resolve the issue of whether petitioner's alleged illegal recruitment activities are directly connected with her duties and responsibilities as a Fingerprint Examiner of the BI. This motion was denied.[41]

Undaunted, petitioner filed this petition, summing up the issues as follows: 1. WHETHER OR NOT THE HONORABLE SUPREME COURT MAY REVIEW THE DECISION OF THE COURT OF APPEALS IN CA-G.R. SP NO. 58766; 2. WHETHER OR NOT THE COURT OF APPEALS RESOLVED THE SECOND ISSUE RAISED IN THE PETITION FOR REVIEW FILED BEFORE IT; 3. WHETHER OR NOT THERE IS SUBSTANTIAL EVIDENCE TO SUPPORT THE FINDINGS THAT PETITIONER IS GUILTY OF GRAVE MISCONDUCT;

Page 455 of 1485

4. WHETHER OR NOT A PROMISE TO FACILITATE EMPLOYMENT OF ANOTHER ABROAD CONSTITUTES GRAVE MISCONDUCT[;] 5. WHETHER OR NOT PETITIONER WAS ACCORDED DUE PROCESS; 6. WHETHER OR NOT THE ACT CONSTITUTING GRAVE MISCONDUCT MUST HAVE A DIRECT RELATION TO THE FUNCTION OF THE PUBLIC OFFICE HELD BY RESPONDENTS IN ADMINISTRATIVE CASES; AND 7. WHETHER OR NOT THE ALLEGED ACT COMMITTED BY THE PETITIONER IS DIRECTLY RELATED TO ANY OF HER FUNCTIONS AS FINGERPRINT EXAMINER AT THE BUREAU OF IMMIGRATION.[42]

The petition is denied.

We shall first resolve the issue of due process. Petitioner contends that the essential requirements of due process as laid down in Ang Tibay v. Court of Industrial Relations[43] and Doruelo v. COMELEC[44] were violated in the case at bar. First, she contends that she was denied of her right to a full hearing when she was not accorded the opportunity to cross-examine the witnesses against her, as provided under Section 48, par. 5, Title I, Book V of the Administrative Code of 1987. She allegedly raised this issue in her appeal before the CSC.[45] The argument is unmeritorious. We have explained the meaning of the right to cross-examination as a vital element of due process as follows:

The right of a party to confront and cross-examine opposing witnesses in a judicial litigation, be it criminal or civil in nature, or in proceedings before administrative tribunals with quasi-judicial powers, is a fundamental right which is part of due process. However, the right is a personal one which may be waived expressly or impliedly by conduct amounting to a renunciation of the right of cross-examination. Thus, where a party has had the opportunity to cross-examine a witness but failed to avail himself of it, he necessarily forfeits the right to cross-examine and the testimony given on direct examination of the witness will be received or allowed to remain in the record. [46] (emphasis supplied)

Page 456 of 1485

In the case at bar, petitioner cannot argue that she was deprived of due process simply because no cross-examination took place. Nothing on record shows that petitioner asked for cross-examination during the formal investigation conducted by Special Prosecutor dela Cruz. Notably, two hearings were conducted, during which, both private respondent and petitioner appeared. During the hearing dated October 27, 1998, both parties agreed to submit the case for resolution after petitioner submitted her counteraffidavit and the affidavits of her witnesses. In fact, when petitioner filed her Motion to Reopen the case with the BI, she did not question the lack of cross-examination during the investigation proceedings. She merely based her motion on the order of the Office of the Ombudsman finding the charge against her as "not office related." In the same pleading, she admitted that "[a]s early as October 27, 1998, the instant administrative action has been submitted for resolution after the contending parties have submitted their respective evidence" and that her move for the re-opening of the administrative case was merely "to allow her to adduce further evidence mainly based on the findings of the Office of the Ombudsman. " Again, in her Motion for Reconsideration and/or New Trial of Commissioner Rodriguez's order of dismissal, she merely reiterated her arguments in her Motion to Re-open. She never complained that she was deprived of her right to crossexamination during the investigation of Special Prosecutor dela Cruz. The right to crossexamination being a personal right, petitioner must be deemed to have waived this right by agreeing to submit the case for resolution and not questioning the lack of it in the proceedings before the BI.

More importantly, it is well-settled that the essence of due process in administrative proceedings is an opportunity to explain one's side or an opportunity to seek reconsideration of the action or ruling complained of. [47] This was clearly satisfied in the case at bar. Records show that petitioner not only gave her sworn written explanation of the charges against her during the initial stage of the investigation, she also submitted: a) a

Page 457 of 1485

sworn counter-affidavit refuting the charges against her, with all the attached annexes as evidence; b) a Motion to Re-open the case with the BI; c) a Motion for Reconsideration and/or New Trial with the BI; d) an Appeal to the CSC; e) a Motion for Reconsideration with the CSC; f) an Appeal to the CA; g) a Motion for Reconsideration with the CA; and h) the instant petition for review. Second, petitioner contends that Commissioner Rodriguez violated the principle that "the tribunal or body or any of its judges must act on its or his own independent consideration of the law and facts of the controversy and not simply accept the views of a subordinate in arriving at a decision" when his denial of her Motion to Re-open and his order finding her guilty of grave misconduct were based exclusively on the resolution of Special Prosecutor dela Cruz.[48]

This argument is likewise unavailing.

There is nothing essentially wrong in the head of a bureau adopting the recommendation of a subordinate. Section 47, Book V of the Administrative Code of 1987 gives the chief of bureau or office or department the power to delegate the task of investigating a case to a subordinate. [49] What due process demands is for the chief of the bureau to personally weigh and assess the evidence which the subordinate has gathered and not merely to rely on the recommendation of said investigating officer. [50]

In the case at bar, the order of Commissioner Rodriguez enjoys the disputable presumption that official duties have been regularly performed. That his decision quotes the resolution of Special Prosecutor dela Cruz does not necessarily imply that he did not personally examine the affidavits and evidence presented by the parties. Petitioner's bare assertion that Commissioner Rodriguez did not personally examine the evidence, without more, is not sufficient to overcome this presumption.

Page 458 of 1485

Third, petitioner contends that the CSC did not have basis in finding: a) that the affidavits of "Peng Villas (Deceased), Julie Buenaflor, Amy Cosino, Virginia Lubriano, Manuelito Lao and Jaime Santos Flores x x x all speak of the modus operandi of Vertudez at the BI" as these affidavits were not submitted to the CSC; and b) that petitioner "solicited money from BI clients" inasmuch as private respondent never alleged that she was a BI client. Moreover, the CSC's finding that private respondent "testified that respondent

assured her of a visa, a passport and a job in Japan for a fee of P80,000.00 and that Vertudez, after getting paid, failed to fulfill her promise" is not supported by the complaintaffidavit of private respondent which merely stated that petitioner "volunteered to work-out and facilitate the processing of [private respondent's] passport and visa" and that petitioner "has a brother in Japan who could also help [private respondent] find a job." [51] Petitioner also assails the failure of the BI and CSC to consider the handwritten joint sworn statement of media practitioners Cloma and Romero and the joint affidavit of the housemaids of petitioner, Compo and Reyes.[52] Again, these arguments fail to impress. It is settled that only questions of law are entertained in petitions for review on certiorari under Rule 45 of the Rules of Court. [53] It is not the function of this Court, in a petition under Rule 45, to scrutinize, weigh and analyze evidence all over again. [54] Wellsettled is the rule that the findings of fact of quasi-judicial agencies, like the BI and the CSC, are accorded not only respect but even finality if such findings are supported by substantial evidence.[55] Substantial evidence is such amount of relevant evidence which a

reasonable mind might accept as adequate to support a conclusion, even if other equally reasonable minds might conceivably opine otherwise.[56]

In the case at bar, we note that contrary to petitioner's stance, the affidavits of Lao and Cosino do appear in the records of the CSC.[57] In any case, the affidavits of Villas,

Cosino, Lubriano, Lao and Flores are of little relevance to the case at bar. If any, they are

Page 459 of 1485

merely corroborating evidence. Note that it was only in the CSC's resolution on petitioner's Motion for Reconsideration that said affidavits were mentioned. These affidavits were not used as basis for the decision rendered by the BI, the main decision of the CSC denying the appeal of petitioner and the decision of the CA. We find the unanimous finding of guilt of

the BI, the CSC and the CA amply supported by the following evidence on record: a) the complaint-affidavit of private respondent; b) the affidavit of Jessilyn Gutierrez; c) copies of the passport and application for a visa of petitioner's son; d) copies of SB Check Nos. 0014797 and 0014798; and e) letter of private respondent's counsel to petitioner demanding from petitioner the refund of the P79,000.00 that private respondent paid to petitioner.

As to the other contentions, we note that in addition to the self-serving quotations of petitioner from the complaint-affidavit of private respondent, said complaint-affidavit categorically alleged that petitioner told private respondent that the latter would "be receiving a salary of one lapad per day as a factory worker and that should [she] accept [petitioner's] offer, all that [would] be required of [her was] to give [petitioner] the amount of P80,000.00." Private respondent also categorically alleged that she was charging

petitioner for her "failure to make good her promise to deploy [her] after receiving the amount of P79,000.00 in consideration of a job placement in Japan." Thus, contrary to petitioner's stance, the assailed findings of the CSC are supported by private respondent's complaint-affidavit. Moreover, it is well-settled that it is not for the appellate court to substitute its own judgment for that of the administrative agency on the sufficiency of the evidence and the credibility of the witnesses. Administrative decisions on matters within their jurisdiction are entitled to respect and can only be set aside on proof of grave abuse of discretion, fraud or error of law. None of these vices has been shown in this case.[58]

Page 460 of 1485

We shall now proceed to the other issue: whether petitioner is guilty of grave misconduct warranting her removal from government service. Citing Sarigumba v. Pasok,[59] petitioner contends that "[m]isconduct, warranting removal from office of a public officer, must have a direct relation to and connected with the performance of official duties, amounting either to maladministration or willful, intentional neglect and failure to discharge the duties of the office." Since the BI is a government agency principally responsible for the administration and enforcement of immigration, citizenship and alien admission and registration laws, "by no stretch of imagination" can there be a direct relation between the function of a fingerprint examiner and the alleged promise to facilitate private respondent's employment abroad. [60] Petitioner also

capitalizes on the allegation of private respondent in her complaint-affidavit that she and petitioner "became friends" to contend that the acts being imputed against her are personal and not office-related.[61] These arguments lack merit. The allegations in private respondents complaint-affidavit indicate that petitioner used her position as a BI employee to assure private respondent that she could facilitate petitioner's deployment to Japan. Private respondent alleged that "during one of those times that [she] dropped by [petitioner's] office, [petitioner] intimated to [her] that a group of Immigration officers [were] scheduled to leave for Japan for training and that [petitioner] was the one who received a call from a Japanese Consul ." Petitioner "asked [private respondent] if [she was] interested in going to Japan because [petitioner] will find a way to accommodate [her]." Even petitioner's own admissions show that her position as an employee of the BI may be utilized in connection with illegal recruitment. In her memorandum to

Commissioner Rodriguez, as reiterated in her counter-affidavit, petitioner alleged that private respondent was engaged in illegal recruitment and " was using [petitioner's]

Page 461 of 1485

name in her dealings with some immigration officials and employees, presumably to expedite the processing of the documents belonging to her clients." Petitioner likewise claimed that she "declined [private respondent's] proposal that [she] 'escort' some of [private respondent's] clients who would be leaving for foreign countries but with falsified travel documents ." Private respondent even told her that the "proposed scheme could easily be done because being an employee of this Bureau, [petitioner has] several connections not only at the Ninoy Aquino International Airport (NAIA) but also in Mactan International Airport ." That her position is designated as "fingerprint examiner" is not determinative of the issue of whether the charge against her is work-related. The allegations in the complaint against petitioner and her own admissions show that her duties go beyond her job title and that the charge against her is connected with her position as an employee of the BI.

Finally, petitioner contends that "a promise to find a way to accommodate private respondent and a representation that petitioner has a brother who could help private respondent find a job are not misconduct warranting the dismissal of petitioner from office" but, "[a]t most," only "entitle[s] private respondent to civil indemnity." Petitioner contends that the CA's finding that petitioner merely made a "promise to facilitate" private respondent's employment abroad, as distinguished from the CSC's finding that petitioner committed "shameful illegal recruitment activities," practically absolved petitioner from the charge of grave misconduct. This argument deserves scant consideration. Misconduct has been defined as an intentional wrongdoing or deliberate violation of a rule of law or standard of behavior, especially by a

Page 462 of 1485

government official.[62] As distinguished from simple misconduct, the elements of corruption, clear intent to violate the law or flagrant disregard of established rule, must be manifest in a charge of grave misconduct. [63] Corruption, as an element of grave misconduct, consists in the act of an official or fiduciary person who unlawfully and wrongfully uses his station or character to procure some benefit for himself or for another person, contrary to duty and the rights of others. [64] An act need not be tantamount to a crime for it to be considered as grave misconduct as in fact, crimes involving moral turpitude are treated as a separate ground for dismissal under the Administrative Code. [65] In the case at bar, petitioner cannot downplay the charges against her. Whether the charges against petitioner satisfy the elements of illegal recruitment to make her criminally liable for such crime is not the issue at bar. At the very least, petitioner was found to have taken advantage of her position as an employee of the BI to falsely promise, for pecuniary gain, the facilitation of private respondent's travel to Japan, including the processing of her passport, visa and other travel documents. Worse, she was found to have refused to reimburse the amounts paid to her by private respondent even when the promised passport, visa, and travel documents did not materialize. Undoubtedly, these acts involve "corruption, clear intent to violate the law or flagrant disregard of established rule." Under Section 23(c), Rule XIV the Omnibus Civil Service Rules and Regulations, these acts constitute a grave offense for which petitioner must suffer the penalty of dismissal. IN VIEW WHEREOF, the petition is DENIED. The Court of Appeals Decision dated February 12, 2002 and Resolution dated April 16, 2002 in CA-G.R. SP No. 58766 are AFFIRMED. SO ORDERED.

Republic of the Philippines

Page 463 of 1485

Supreme Court Manila

THIRD DIVISION

PHILIPPINE NATIONAL BANK, Petitioner,

G.R. No. 170325 Present: YNARES-SANTIAGO, J., Chairperson,

- versus -

AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ.

ERLANDO T. RODRIGUEZ Promulgated: and NORMA RODRIGUEZ, Respondents. September 26, 2008 x--------------------------------------------------x DECISION REYES, R.T., J.:

WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order or bearer? What is the fictitious-payee rule and who is liable under it? Is there any exception?

Page 464 of 1485

These questions seek answers in this petition for review on certiorari of the Amended Decision754[1] of the Court of Appeals (CA) which affirmed with modification that of the Regional Trial Court (RTC).755[2]

The Facts

The facts as borne by the records are as follows:

Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the account name Erlando and/or Erlando T. Rodriguez). Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the account name

The spouses were engaged in the informal lending business.

In line with their

business, they had a discounting756[3] arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. savings accounts with petitioner bank. The association maintained current and

754 755 756

Page 465 of 1485

PEMSLA regularly granted loans to its members. Spouses Rodriguez would

rediscount the postdated checks issued to members whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members.

It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in the checks.

In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties.

For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount of P2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA. 757[4]

Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks

757

Page 466 of 1485

deposited by the spouses were returned or dishonored for the reason Account Closed. The corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.

RTC Disposition

Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to recover the value of their checks that were The spouses deposited to the PEMSLA savings account amounting to P2,345,804.00.

contended that because PNB credited the checks to the PEMSLA account even without indorsements, PNB violated its contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear the loss.

PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim for damages should come from the payees of the checks, and not from spouses Rodriguez. Since there was no demand from the said payees, the obligation should be considered as discharged.

In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.

In its Answer,758[5] PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any indorsement from the payees. spouses Rodriguez, the makers, receive the proceeds of the checks . The bank contended that actually did not intend for the named payees to Consequently, the payees were considered as

fictitious payees as defined under the Negotiable Instruments Law (NIL). Being checks

758

Page 467 of 1485

made to fictitious payees which are bearer instruments, the checks were negotiable by mere delivery. PNBs Answer included its cross-claim against its co-defendants PEMSLA and the MCP, praying that in the event that judgment is rendered against the bank, defendants should be ordered to reimburse PNB the amount it shall pay. the cross-

After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to return the value of the checks. All counterclaims and cross-claims were dismissed. The dispositive portion of the RTC decision reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows: 1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or restore the amount of P775,337.00 in the PNBig Demand Deposit Checking/Current Account No. 810480-4 of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig Demand Deposit, Checking/Current Account No. 810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon to be computed from the filing of this complaint until fully paid; The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages suffered by them taking into consideration the standing of the plaintiffs being sugarcane planters, realtors, residential subdivision owners, and other businesses: (a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their having incurred great dificulty (sic) especially in the residential subdivision business, which was not pushed through and the contractor even threatened to file a case against the plaintiffs; (b) Moral damages in the amount of P1,000,000.00; (c) Exemplary damages in the amount of P500,000.00; (d) Attorneys fees in the amount of P150,000.00 considering that this case does not involve very complicated issues; and for the (e) Costs of suit. 3. Other claims and counterclaims are hereby dismissed. 759[6]

2.

759

Page 468 of 1485

CA Disposition

PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be considered as payable to bearer and not to order.

In a Decision760[7] dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA. The court a quo declared:

We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to order. Rather, we are more convinced by the strong and credible evidence for the defendantappellant with regard to the plaintiffs-appellees and PEMSLAs business arrangement that the value of the rediscounted checks of the plaintiffsappellees would be deposited in PEMSLAs account for payment of the loans it has approved in exchange for PEMSLAs checks with the full value of the said loans. This is the only obvious explanation as to why all the disputed sixtynine (69) checks were in the possession of PEMSLAs errand boy for presentment to the defendant-appellant that led to this present controversy. It also appears that the teller who accepted the said checks was PEMSLAs officer, and that such was a regular practice by the parties until the defendant-appellant discovered the scam. The logical conclusion, therefore, is that the checks were never meant to be paid to order, but instead, to PEMSLA. We thus find no breach of contract on the part of the defendant-appellant. According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA allegedly issued post-dated checks to its qualified members who had applied for loans. However, because of PEMSLAs insufficiency of funds, PEMSLA approached the plaintiffs-appellees for the latter to issue rediscounted checks in favor of said applicant members. Based on the investigation of the defendant-appellant, meanwhile, this arrangement allowed the plaintiffsappellees to make a profit by issuing rediscounted checks, while the officers of PEMSLA and other members would be able to claim their loans, despite the fact that they were disqualified for one reason or another. They were able to achieve this conspiracy by using other members who had loaned lesser amounts of money or had not applied at all. x x x.761[8] (Emphasis added)

760

Page 469 of 1485

The CA found that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in the checks were fictitious payees because they were not the intended payees at all.

The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces were unquestionably payable to order; and that PNB committed a breach of contract when it paid the value of the checks to PEMSLA without indorsement from the payees. They also argued that their cause of action is not only against PEMSLA but also against PNB to recover the value of the checks.

On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of which read:

In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for the following: 1. 2. 3. 4. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May 1999 until fully paid; Moral damages in the amount of P200,000; Attorneys fees in the amount of P100,000; and Costs of suit.

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING WITH MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as set forth in the immediately next preceding paragraph hereof, and SETTING ASIDE Our original decision promulgated in this case on 22 July 2004.

761

Page 470 of 1485

SO ORDERED.762[9]

The CA ruled that the checks were payable to order.

According to the appellate

court, PNB failed to present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended the checks to be received by the specified payees. Thus, PNB is liable for the value of the checks which it paid to PEMSLA without indorsements from the named payees. The award for damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez account with the highest degree of care considering the fiduciary nature of their relationship, which constrained respondents to seek legal action.

Hence, the present recourse under Rule 45.

Issues

The issues may be compressed to whether the subject checks are payable to order or to bearer and who bears the loss?

PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the named payees to receive the proceeds. Thus, they are bearer instruments that could be validly negotiated by mere delivery . Further, testimonial and documentary evidence presented during trial amply proved that spouses Rodriguez and the officers of PEMSLA conspired with each other to defraud the bank.

Our Ruling

762

Page 471 of 1485

Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice of innocent parties. A court discovering an erroneous judgment before it becomes final may, motu proprio or upon motion of the parties, correct its judgment with the singular objective of achieving justice for the litigants. 763[10]

However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court does not sanction careless disposition of cases by courts of justice. The highest degree of diligence must go into the study of decision by litigants. every controversy submitted for Every issue and factual detail must be closely scrutinized and

analyzed, and all the applicable laws judiciously studied, before the promulgation of every judgment by the court. Only in this manner will errors in judgments be avoided.

Now to the core of the petition.

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument . A check is a bill of exchange drawn on a bank payable on demand. 764[11] It is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:

SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of (a) A payee who is not maker, drawer, or drawee; or (b) The drawer or maker; or (c) The drawee; or (d) Two or more payees jointly; or (e) One or some of several payees; or (f) The holder of an office for the time being.

763 764

Page 472 of 1485

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty. SEC. 9. When payable to bearer. The instrument is payable to bearer (a) (b) (c) When it is expressed to be so payable; or When it is payable to a person named therein or bearer; or When it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable; or (d) When the name of the payee does not purport to be the name of any person; or (e) Where the only or last indorsement is an indorsement in blank.765[12] (Underscoring supplied)

The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere delivery. The provision reads:

SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by delivery.

A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable. Thus, checks issued to Prinsipe Abante or Si Malakas at si Maganda , who are well-known characters in Philippine mythology, are bearer instruments because the named payees are fictitious and non-existent.

765

Page 473 of 1485

We have yet to discuss a broader meaning of the term fictitious as used in the NIL. It is for this reason that We look elsewhere for guidance. Court rulings in the United States are a logical starting point since our law on negotiable instruments was directly lifted from the Uniform Negotiable Instruments Law of the United States.766[13]

A review of US jurisprudence yields that an actual, existing, and living payee may also be fictitious if the maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity. 767[14] Thus, a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a fictitious payee and the check is a bearer instrument .

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it will be most convenient for the maker who desires to escape payment of the check to always deny the validity of the indorsement. This despite the fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the check. 768[15]

The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.
769

[16] In the said case, the corporation Mueller & Martin was defrauded by George L.

766 767 768 769

Page 474 of 1485

Martin, one of its authorized signatories. Martin drew seven checks payable to the German Savings Fund Company Building Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without authority from the latter. Martin was also an officer of the GSFCBA but did not have signing authority. At the back of the checks, Martin placed the rubber stamp of the GSFCBA and signed his own name as indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal profit. When the corporation filed an action against the bank to recover the amount of the checks, the claim was denied.

The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified payee to have any part in the transactions, the payee is considered as a fictitious payee. The check is then considered as a bearer instrument to be validly negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was authorized to make payment to the bearer of the check, regardless of whether prior indorsements were genuine or not. 770[17]

The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc.771[18] upheld the fictitious-payee rule. The rule protects the depositary bank and assigns the loss to the drawer of the check who was in a better position to prevent the loss in the first place. Due care is not even required from the drawee or depositary bank in accepting and paying the checks. The effect is that a showing of negligence on the part of the depositary bank will not defeat the protection that is derived from this rule.

However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee bank, or any The transferee of the check for that matter, will work to strip it of this defense.

exception will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. Said the US Supreme Court in Getty:

770 771

Page 475 of 1485

Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances which might have well induced a prudent banker to investigate and other permutations of negligence are not relevant considerations under Section 3-405 x x x. Rather, there is a commercial bad faith exception to UCC 3-405, applicable when the transferee acts dishonestly where it has actual knowledge of facts and circumstances that amount to bad faith, thus itself becoming a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with honesty in fact. x x x772[19] (Emphasis added)

Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.

In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were payable to specific persons. of PEMSLA that had a rediscounting arrangement with spouses Rodriguez. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who were members

What remains to be determined is if the payees, though existing persons, were fictitious in its broader context.

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named payees to be part of the transaction involving the checks. At most, the banks thesis shows that the payees did not have knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks proceeds . Considering that respondentsspouses were transacting with PEMSLA and not the individual payees, it is understandable that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks.

772

Page 476 of 1485

Verily, the subject checks are

presumed order instruments.

This is because, as

found by both lower courts, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation that the maker of the check intended for the payee to have no interest in the transaction.

Because of a failure to show that the payees were fictitious in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.773[20]

PNB was remiss in its duty as the drawee bank . It does not dispute the fact that its teller or tellers accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing that order instruments can only be negotiated with a valid indorsement.

A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is apparently grossly negligent in its operations. 774[21] This Court has recognized the unique public interest possessed by the banking industry and the need for the people to have full trust and confidence in their banks. 775[22] For this reason, banks are minded to treat their customers accounts with utmost care, confidence, and honesty.776[23]

773 774 775 776

Page 477 of 1485

In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly in

Page 478 of 1485

accordance with the drawers instructions, i.e., to the named payee in the check. It should charge to the drawers accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the drawers account .777[24]

In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against respondents-spouses accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and the genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions of the drawers. miserably failed to discharge this burden. Petitioner

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the drawers, respondentsspouses. Instead, it paid the values of the checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the drawers and the payees.

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of their employees. In Bank of the Philippine Islands v. Court of Appeals ,778[25] this Court cautioned thus:

Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater

777 778

Page 479 of 1485

than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.779[26]

PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should be held liable. 780[27]

PNBs argument that there is no loss to compensate since no demand for payment has been made by the payees must also fail. Damage was caused to respondents-spouses when the PEMSLA checks they deposited were returned for the reason Account Closed. These PEMSLA checks were the corresponding payments to the Rodriguez checks. Since they could not encash the PEMSLA checks, respondents-spouses were unable to collect payments for the amounts they had advanced.

A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named payees, PNB was duty-bound by law and by banking rules and procedure to require that the checks be properly indorsed before accepting them for deposit and payment. In fine, PNB should be held liable for the amounts of the checks.

One Last Note

We note that the RTC failed to thresh out the merits of PNBs cross-claim against its co-defendants PEMSLA and MPC. The records are bereft of any pleading filed by these two defendants in answer to the complaint of respondents-spouses and cross-claim of PNB. The Rules expressly provide that failure to file an answer is a ground for a declaration that defendant

779 780

Page 480 of 1485

is in default.781[28] Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive pleadings. Verily, the RTC dismissal of PNBs cross-claim has no basis. Thus, this judgment shall be without prejudice to whatever action the bank might take against its co-defendants in the trial court.

To PNBs credit, it became involved in the controversial transaction not of its own volition but due to the actions of some of its employees. Considering that moral damages must be understood to be in concept of grants, not punitive or corrective in nature, We resolve to reduce the award of moral damages to P50,000.00.782[29]

WHEREFORE,

the

appealed

Amended

Decision

is

AFFIRMED

with

the

MODIFICATION that the award for moral damages is reduced to P50,000.00, and that this is without prejudice to whatever civil, criminal, or administrative action PNB might take against PEMSLA, MPC, and the employees involved.

SO ORDERED.

Republic SUPREME Manila FIRST DIVISION G.R. No. 167567

of

the

Philippines COURT

September 22, 2010 Petitioner,

SAN MIGUEL CORPORATION, vs. BARTOLOME PUZON, JR., Respondent. DECISION DEL CASTILLO, J.:

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Page 481 of 1485

This petition for review assails the December 21, 2004 Decision 1 and March 28, 2005 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 83905, which dismissed the petition before it and denied reconsideration, respectively. Factual Antecedents Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer products of petitioner San Miguel Corporation (SMC) for Paraaque City. Puzon purchased SMC products on credit. To ensure payment and as a business practice, SMC required him to issue postdated checks equivalent to the value of the products purchased on credit before the same were released to him. Said checks were returned to Puzon when the transactions covered by these checks were paid or settled in full. On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for which he issued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904 (for P309,500.00) and 27903 (for P11,510,827.00) to cover the said transaction. On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Paraaque City to reconcile his account with SMC. During that visit Puzon allegedly requested to see BPI Check No. 17657. However, when he got hold of BPI Check No. 27903 which was attached to a bond paper together with BPI Check No. 17657 he allegedly immediately left the office with his accountant, bringing the checks with them. SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon ignored the demand hence SMC filed a complaint against him for theft with the City Prosecutors Office of Paraaque City. Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ) The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC] and [Puzon] appears to be one of credit or creditor-debtor relationship. The problem lies in the reconciliation of accounts and the non-payment of beer empties which cannot give rise to a criminal prosecution for theft."3 Thus, in her July 31, 2001 Resolution, 4 she recommended the dismissal of the case for lack of evidence. SMC appealed. On June 4, 2003, the DOJ issued its resolution 5 affirming the prosecutors Resolution dismissing the case. Its motion for reconsideration having been denied in the April 23, 2004 DOJ Resolution,6 SMC filed a petition for certiorari with the CA. Ruling of the Court of Appeals The CA found that the postdated checks were issued by Puzon merely as a security for the payment of his purchases and that these were not intended to be encashed. It thus concluded that SMC did not acquire ownership of the checks as it was duty bound to return the same checks to Puzon after the transactions covering them were settled. The CA agreed with the prosecutor that there was no theft, considering that a person cannot be charged with theft for taking personal property that belongs to himself. It disposed of the appeal as follows:

Page 482 of 1485

WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant petition is hereby DISMISSED. The assailed Resolutions of public respondent, dated 04 June 2003 and 23 April 2004, are AFFIRMED. No costs at this instance. SO ORDERED.7 The motion for reconsideration of SMC was denied. Hence, the present petition. Issues Petitioner now raises the following issues: I WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG OTHERS BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00) II WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00), WERE ISSUED IN PAYMENT OF HIS BEER PURCHASES OR WERE USED MERELY AS SECURITY TO ENSURE PAYMENT OF PUZONS OBLIGATION. III WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS ISSUED IN PAYMENT OF BEER PRODUCTS PURCHASED ON CREDIT SHOULD THE TRANSACTIONS COVERED BY THESE CHECKS [BE] SETTLED ON [THE] MATURITY DATES THEREOF COULD BE LIKENED TO A CONTRACT OF PLEDGE. IV WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE INDICTMENT OF PUZON FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF THE REVISED PENAL CODE. 8 Petitioner's Arguments SMC contends that Puzon was positively identified by its employees to have taken the subject postdated checks. It also contends that ownership of the checks was transferred to it because these were issued, not merely as security but were, in payment of Puzons purchases. SMC points out that it has established more than sufficient probable cause to justify the indictment of Puzon for the crime of Theft. Respondents Arguments On the other hand, Puzon contends that SMC raises questions of fact that are beyond the province of an appeal on certiorari. He also insists that there is no probable cause to charge

Page 483 of 1485

him with theft because the subject checks were issued only as security and he therefore retained ownership of the same. Our Ruling The petition has no merit. Preliminary Matters At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The resolution of the first issue raised by SMC of whether respondent stole the subject check, which calls for the Court to determine whether respondent is guilty of a felony, first requires that the facts be duly established in the proper forum and in accord with the proper procedure. This issue cannot be resolved based on mere allegations of facts and affidavits. The same is true with the second issue raised by petitioner, to wit: whether the checks issued by Puzon were payments for his purchases or were intended merely as security to ensure payment. These issues cannot be properly resolved in the present petition for review on certiorari which is rooted merely on the resolution of the prosecutor finding no probable cause for the filing of an information for theft. The third issue raised by petitioner, on the other hand, would entail venturing into constitutional matters for a complete resolution. This route is unnecessary in the present case considering that the main matter for resolution here only concerns grave abuse of discretion and the existence of probable cause for theft, which at this point is more properly resolved through another more clear cut route. Probable Cause for Theft "Probable cause is defined as such facts and circumstances that will engender a wellfounded belief that a crime has been committed and that the respondent is probably guilty thereof and should be held for trial." 9 On the fine points of the determination of probable cause, Reyes v. Pearlbank Securities, Inc.10 comprehensively elaborated that: The determination of [the existence or absence of probable cause] lies within the discretion of the prosecuting officers after conducting a preliminary investigation upon complaint of an offended party. Thus, the decision whether to dismiss a complaint or not is dependent upon the sound discretion of the prosecuting fiscal. He may dismiss the complaint forthwith, if he finds the charge insufficient in form or substance or without any ground. Or he may proceed with the investigation if the complaint in his view is sufficient and in proper form. To emphasize, the determination of probable cause for the filing of information in court is an executive function, one that properly pertains at the first instance to the public prosecutor and, ultimately, to the Secretary of Justice, who may direct the filing of the corresponding information or move for the dismissal of the case. Ultimately, whether or not a complaint will be dismissed is dependent on the sound discretion of the Secretary of Justice. And unless made with grave abuse of discretion, findings of the Secretary of Justice are not subject to review. For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct of preliminary investigations and to leave the Department of Justice ample latitude of discretion in the determination of what constitutes sufficient evidence to establish probable cause for the prosecution of supposed offenders. Consistent with this policy, courts do not reverse the Secretary of Justice's findings and conclusions on the matter of probable cause except in clear cases of grave abuse of discretion.

Page 484 of 1485

In the present case, we are also not sufficiently convinced to deviate from the general rule of non-interference. Indeed the CA did not err in dismissing the petition for certiorari before it, absent grave abuse of discretion on the part of the DOJ Secretary in not finding probable cause against Puzon for theft. The Revised Penal Code provides: Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain but without violence against, or intimidation of persons nor force upon things, shall take personal property of another without the latters consent. xxxx "[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property; (2) that said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished without the use of violence or intimidation against persons or force upon things."11 Considering that the second element is that the thing taken belongs to another, it is relevant to determine whether ownership of the subject check was transferred to petitioner. On this point the Negotiable Instruments Law provides: Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. (Underscoring supplied.) Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for the purpose of giving effect thereto. 12 Otherwise, it cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the instrument is evident thus title to or ownership of the check was transferred upon delivery. However, if the check was not given as payment, there being no intent to give effect to the instrument, then ownership of the check was not transferred to SMC. The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What was issued was a receipt for the document, a "POSTDATED CHECK SLIP."13 Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on receivables, all issuances are to be covered by post-dated checks. However, you have deviated from this policy by forcibly taking away the check you have issued to us to cover the December issuance."14 Notably, the term "payment" was not used instead the terms "covered" and "cover" were used.

Page 485 of 1485

Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the check was given in payment of the obligation of Puzon, the same is contradicted by his statements in paragraph 4, where he states that "As a standard company operating procedure, all beer purchases by dealers on credit shall be covered by postdated checks equivalent to the value of the beer products purchased"; in paragraph 9 where he states that "the transaction covered by the said check had not yet been paid for," and in paragraph 8 which clearly shows that partial payment is expected to be made by the return of beer empties, and not by the deposit or encashment of the check. 1avvphi1 Clearly the term "cover" was not meant to be used interchangeably with "payment." When taken in conjunction with the counter-affidavit of Puzon where he states that "As the [liquid beer] contents are paid for, SMC return[s] to me the corresponding PDCs or request[s] me to replace them with whatever was the unpaid balance." 15 it becomes clear that both parties did not intend for the check to pay for the beer products. The evidence proves that the check was accepted, not as payment, but in accordance with the longstanding policy of SMC to require its dealers to issue postdated checks to cover its receivables. The check was only meant to cover the transaction and in the meantime Puzon was to pay for the transaction by some other means other than the check. This being so, title to the check did not transfer to SMC; it remained with Puzon. The second element of the felony of theft was therefore not established. Petitioner was not able to show that Puzon took a check that belonged to another. Hence, the prosecutor and the DOJ were correct in finding no probable cause for theft. Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ in sustaining the dismissal of the case for theft for lack of probable cause. WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005 Resolution of the Court of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED. SO ORDERED. Republic SUPREME Manila THIRD DIVISION of the Philippines COURT

G.R. No. 75908 October 22, 1999 FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO O. BORROMEO, INC., petitioners, vs. AMANCIO SUN and the COURT OF APPEALS, respondents. PURISIMA, J.: At bar is a Petition for review on Certiorari under Rule 45 of the Revised Rules of Court seeking to set aside the Resolution of the then Intermediate Appellate Court 1, dated March 13, 1986, in AC-G.R. CV NO. 67988, which reversed its earlier Decision dated February 12,

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1985, setting aside the Decision of the former Court of the First Instance of Rizal, Branch X, in Civil Case No. 19466. The antecedent facts are as follows: Private respondent Amancio Sun brought before the then Court of the First Instance of Rizal, Branch X, an action against Lourdes O. Borromeo (in her capacity as corporate secretary), Federico O. Borromeo and Federico O. Borromeo (F.O.B.), Inc., to compel the transfer to his name in the books of F.O.B., Inc., 23,223 shares of stock registered in the name of Federico O. Borromeo, as evidenced by a Deed of Assignment dated January 16, 1974. Private respondent averred 2 that all the shares of stock of F.O.B. Inc. registered in the name of Federico O. Borromeo belong to him, as the said shares were placed in the name of Federico O. Borromeo "only to give the latter personality and importance in the business world." 3 According to the private respondent, on January 16, 1974 Federico O. Borromeo executed in his favor a Deed of Assignment with respect to the said 23,223 shares of stock. On the other hand, petitioner Federico O. Borromeo disclaimed any participation in the execution of the Deed of Assignment, theorizing that his supposed signature thereon was forged.1wphi1.nt After trial, the lower court of origin came out with a decision declaring the questioned signature on subject Deed of Assignment, dated January 16, 1974, as the genuine signature of Federico O. Borromeo; ratiocinating thus: After considering the testimonies of the two expert witnesses for the parties and after a careful and judicious study and analysis of the questioned signature as compared to the standard signatures, the Court is not in a position to declare that the questioned signature in Exh. A is a forgery. On the other hand, the Court is of the opinion that the questioned signature is the real signature of Federico O. Borromeo between the years 1954 to 1957 but definitely is not his signature in 1974 for by then he has changed his signature. Consequently, to the mind of the Court Exhibit A was signed by defendant Federico O. Borromeo between the years 1954 to 1957 although the words in the blank were filled at a much later date. 4 On appeal by petitioners, the Court of Appeals adjudged as forgery the controverted signature of Federico O. Borromeo; disposing as follows: WHEREFORE, the judgment of the Court a quo as to the second cause of action dated March 12, 1980 is hereby reversed and set aside and a new judgment is hereby rendered: 1. Ordering the dismissal of the complaint as to defendant-appellants; 2. Ordering plaintiff-appellee on appellants' counterclaim to pay the latter: a) P20,000.00 as moral damages; b) P10,000.00 as exemplary damages; c) P 10,000.00 as attorney's fees.

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3. Ordering plaintiff-appellee to pay the costs.
5

On March 29, 1985, Amancio Sun interposed a motion for reconsideration of the said decision, contending that Segundo Tabayoyong, petitioners' expert witness, is not a credible witness as found and concluded in the following disposition by this Court in Cesar vs. Sandigan Bayan 6: The testimony of Mr. Segundo Tabayoyong on March 5, 1980, part of which is cited on pages 19-23 of the petition, shows admissions which are summarized by the petitioner as follows: He never finished any degree in Criminology. Neither did he obtain any degree in physics or chemistry. He was a mere trainee in the NBI laboratory. He said he had gone abroad only once-to Argentina which, according to him is the only one country in the world that gives this degree (?) . . . "People go there where they obtain this sort of degree (?) where they are authorized to practice (sic) examination of questioned documents." His civil service eligibility was second grade (general clerical). His present position had to be "re-classified" "confidential" in order to qualify him to it. He never passed any Board Examination. He has never authored any book on the subject on which he claimed to be an "expert." Well, he did "write" a so-called pamphlet pretentiously called "Fundamentals of Questioned Documents Examination and Forgery Detection." In that pamphlet, he mentioned some references' (some) are Americans and one I think is a British, sir, like in the case of Dr. Wilson Harrison, a British' (he repeated with emphasis). Many of the "theories" contained in his pamphlet were lifted body and soul from those references, one of them being Albert Osborn. His pamphlet has neither quotations nor footnotes, although he was too aware of the crime committed by many an author called "plagiarism." But that did not deter him, nor bother him in the least. He has never been a member of any professional organization of experts in his supposed field of expertise, because he said there is none locally. Neither is he on an international level. 7 Acting an the aforesaid motion for reconsideration, the Court of Appeals reconsidered its decision of February 12, 1985 aforementioned. Thereafter, the parties agreed to have subject Deed of Assignment examined by the Philippine Constabulary (PC) Crime Laboratory, which submitted a Report on January 9, 1986, the pertinent portion of which, stated: 1. Comparative examination and analysis of the questioned and the standard signature reveal significant similarities in the freedom of movement, good quality of lines, skills and individual handwriting characteristics.

Page 488 of 1485

2. By process of interpolation the questioned signature fits in and can be bracketed in time with the standard signatures written in the years between 1956 to 1959. Microscopic examination of the ink used in the questioned signature and the standard signature in document dated 30 July 1959 marked Exh. "E" indicate gallotanic ink. xxx xxx xxx 1. The questioned signature FEDERICO O. BORROMEO marked "Q" appearing in the original Deed of Assignment dated 16 January 1974 and the submitted standard signatures of Federico O. Borromeo marked "S-1" to "S-49" inclusive were written BY ONE AND THE SAME PERSON. 2. The questioned signature FEDERICO O. BORROMEO marked "Q" COULD HAVE BEEN SIGNED IN THE YEARS BETWEEN 19501957. 8 After hearing the arguments the lawyers of record advanced on the said "Report" of the PC Crime Laboratory, the Court of Appeals resolved: xxx xxx xxx 1) to ADMIT the Report dated Jan. 9, 1986 of the PC Crime Laboratory on the Deed of Assignment in evidence, without prejudice to the parties' assailing the credibility of said Report; 2) to GIVE both parties a non-extendible period of FIVE (5) DAYS from February 27, 1986, within which to file simultaneous memoranda. 9 On March 13, 1986, the Court of Appeals reversed its decision of February 12, 1985, which affirmed in toto the decision of the trial court of origin; resolving thus: WHEREFORE, finding the Motion for Reconsideration meritorious. We hereby set aside our Decision, dated February 12, 1985 and in its stead a new judgment is hereby rendered affirming in toto the decision of the trial Court, dated March 12, 1980, without pronouncement as to costs. SO ORDERED.
10

Therefrom, petitioners found their way to this court via the present Petition; theorizing that: I THE RESPONDENT COURT ERRED IN HOLDING THAT WHEN PETITIONER AGREED TO THE SUGGESTION OF RESPONDENT COURT TO HAVE THE QUESTIONED DOCUMENT EXAMINED BY THE PC CRIME LABORATORY THEY COULD NO LONGER QUESTION THE COMPETENCY OF THE DOCUMENT. II

Page 489 of 1485

THE COURT OF APPEALS ERRED IN HOLDING THAT THE QUESTIONED DOCUMENT WAS SIGNED IN 1954 BUT WAS DATED IN 1974. III THE COURT OF APPEALS ERRED IN HOLDING THAT THE SIGNATURE OF FEDERICO O. BORROMEO IN THE DEED OF ASSIGNMENT (EXHIBIT "A") IS A GENUINE SIGNATURE CIRCA 1954-1957. The Petition is barren of merit. Well-settled is the rule that "factual findings of the Court of Appeals are conclusive on the parties and not reviewable by the Supreme Court and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court." 11 In the present case, the trial court found that the signature in question is the genuine signature of Federico O. Borromeo between the years 1954 to 1957 although the words in the blank space of the document in question were written on a much later date. The same conclusion was arrived at by the Court of Appeals on the basis of the Report of the PC crime Laboratory corroborating the findings of Col. Jose Fernandez that the signature under controversy is genuine. It is significant to note that Mr. Tabayoyong, petitioners' expert witness, limited his comparison of the questioned signature with the 1974 standard signature of Federico O. Borromeo. No comparison of the subject signature with the 1950 1957 standard signature was ever made by Mr. Tabayoyong despite his awareness that the expert witness of private respondent, Col. Jose Fernandez, made a comparison of said signatures and notwithstanding his (Tabayoyong's) access to such signatures as they were all submitted to the lower Court. As correctly ratiocinated 12 by the Court of origin, the only conceivable reason why Mr. Tabayoyong avoided making such a comparison must have been, that even to the naked eye the questioned signature affixed to the Deed of Assignment, dated January 16, 1974, is strikingly similar to the 1950 to 1954 standard signature of Federico O. Borromeo, such that if a comparison thereof was made by Mr. Tabayoyong, he would have found the questioned signature genuine. That the Deed of Assignment is dated January 16, 1974 while the questioned signature was found to be circa 1954-1957, and not that of 1974, is of no moment. It does not necessarily mean, that the deed is a forgery. Pertinent records reveal that the subject Deed of Assignment is embodied in a blank form for the assignment of shares with authority to transfer such shares in the books of the corporation. It was clearly intended to be signed in blank to facilitate the assignment of shares from one person to another at any future time. This is similar to Section 14 of the Negotiable Instruments Law where the blanks may be filled up by the holder, the signing in blank being with the assumed authority to do so. Indeed, as the shares were registered in the name of Federico O. Borromeo just to give him personality and standing in the business community, private respondent had to have a counter evidence of ownership of the shares involved. Thus, the execution of the deed of assignment in blank, to be filled up whenever needed. The same explains the discrepancy between the date of the deed of assignment and the date when the signature was affixed thereto. While it is true that the 1974 standard signature of Federico O. Borromeo is to the naked eye dissimilar to his questioned signature circa 1954-1957, which could have been caused by sheer lapse of time, Col. Jose Fernander, respondent's expert witness, found the said

Page 490 of 1485

signatures similar to each other after subjecting the same to stereomicroscopic examination and analysis because the intrinsic and natural characteristics of Federico O. Borromeo's handwriting were present in all the exemplar signatures used by both Segundo Tabayoyong and Col. Jose Fernandez. It is therefore beyond cavil that the findings of the Court of origin affirmed by the Court of Appeals on the basis of the corroborative findings of the Philippine Constabulary Crime Laboratory confirmed the genuineness of the signature of Federico O. Borromeo in the Deed of Assignment dated January 16, 1974. Petitioners, however, question the "Report" of the document examiner on the ground that they were not given an opportunity to cross-examine the Philippine Constabulary document examiner; arguing that they never waived their right to question the compentecy of the examiner concerned. While the Court finds merit in the contention of petitioners, that they did not actually waive their right to cross-examine on any aspect of subject Report of the Philippine Constabulary Crime Laboratory, the Court discerns no proper basis for deviating from the findings of the Court of Appeals on the matter. It is worthy to stress that courts may place whatever weight due on the testimony of an expert witness. 13 Conformably, in giving credence and probative value to the said "Report" of the Philippine Constabulary Crime Laboratory, corroborating the findings of the trial Court, the Court of Appeals merely exercised its discretion. There being no grave abuse in the exercise of such judicial discretion, the findings by the Court of Appeals should not be disturbed on appeal.1wphi1.nt Premises studiedly considered, the Court is of the irresistible conclusion, and so holds, that the respondent Court erred not in affirming the decision of the Regional Trial Court a quo in Civil Case No. 19466. WHEREFORE, the Petition is DISMISSED for lack of merit and the assailed Resolution, dated March 13, 1986, AFFIRMED. No pronouncement as to costs. SO ORDERED. Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur. Republic SUPREME Manila THIRD DIVISION G.R. No. 126568 April 30, 2003 and of the Philippines COURT

QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO GONZALES EUFEMIA GONZALES, petitioners, vs. THE COURT OF APPEALS (CA) and REPUBLIC PLANTERS BANK, respondents. CARPIO MORALES, J.:

In the expansion of its logging business, petitioner Quirino Gonzales Logging Concessionaire (QGLC), through its proprietor, general manager co-petitioner Quirino Gonzales, applied

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on October 15, 1962 for credit accommodations 1 with respondent Republic Bank (the Bank), later known as Republic Planters Bank. The Bank approved QGLC's application on December 21, 1962, granting it a credit line of P900,000.002 broken into an overdraft line of P500,000.00 which was later reduced to P450,000.00 and a Letter of Credit (LC) line of P400,000.00. 3 Pursuant to the grant, the Bank and petitioners QGLC and the spouses Quirino and Eufemia Gonzales executed ten documents: two denominated "Agreement for Credit in Current Account,"4 four denominated "Application and Agreement for Commercial Letter of Credit," 5 and four denominated "Trust Receipt."6 Petitioners' obligations under the credit line were secured by a real estate mortgage on four parcels of land: two in Pandacan, Manila, one in Makati (then part of Rizal), and another in Diliman, Quezon City.7 In separate transactions, petitioners, to secure certain advances from the Bank in connection with QGLC's exportation of logs, executed a promissory note in 1964 in favor of the Bank. They were to execute three more promissory notes in 1967. In 1965, petitioners having long defaulted in the payment of their obligations under the credit line, the Bank foreclosed the mortgage and bought the properties covered thereby, it being the highest bidder in the auction sale held in the same year. Ownership over the properties was later consolidated in the Bank on account of which new titles thereto were issued to it.8 On January 27, 1977, alleging non-payment of the balance of QGLC's obligation after the proceeds of the foreclosure sale were applied thereto, and non-payment of the promissory notes despite repeated demands, the Bank filed a complaint for "sum of money" (Civil Case No. 106635) against petitioners before the Regional Trial Court (RTC) of Manila. The complaint listed ten causes of action. The first concerns the overdraft line under which the Bank claimed that petitioners withdrew amounts (unspecified) at twelve percent per annum which were unpaid at maturity and that after it applied the proceeds of the foreclosure sale to the overdraft debt, there remained an unpaid balance of P1,224,301.56. The Bank's second to fifth causes of action pertain to the LC line under which it averred that on the strength of the LCs it issued, the beneficiaries thereof drew and presented sight drafts to it which it all paid after petitioners' acceptance; and that it delivered the tractors and equipment subject of the LCs to petitioners who have not paid either the full or part of the face value of the drafts. Specifically with respect to its second cause of action, the Bank alleged that it issued LC No. 63-0055D on January 15, 1963 in favor of Monark International Incorporated 9 covering the purchase of a tractor10 on which the latter allegedly drew a sight draft with a face value of P71,500.00,11 which amount petitioners have not, however, paid in full. Under its third cause of action, the Bank charged that it issued LC No. 61-1110D on December 27, 1962 also in favor of Monark International covering the purchase of another tractor and other equipment; 12 and that Monark International drew a sight draft with a face value of P80,350.00,13 and while payments for the value thereof had been made by petitioners, a balance of P68,064.97 remained.

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Under the fourth cause of action, the Bank maintained that it issued LC No. 63-0182D on February 11, 1963 in favor of J.B.L. Enterprises, Inc. 14 covering the purchase of two tractors,15 and J.B.L. Enterprises drew on February 13, 1963 a sight draft on said LC in the amount of P155,000.00 but petitioners have not paid said amount. On its fifth cause of action, the Bank alleged that it issued LC No. 63-0284D on March 14, 1963 in favor of Super Master Auto Supply (SMAS) covering the purchase of "Eight Units GMC (G.I.) Trucks"; that on March 14, 1963, SMAS drew a sight draft with a face value of P64,000.0016 on the basis of said LC; and that the payments made by petitioners for the value of said draft were deficient by P45,504.74. The Bank thus prayed for the settlement of the above-stated obligations at an interest rate of eleven percent per annum, and for the award of trust receipt commissions, attorney's fees and other fees and costs of collection. The sixth to ninth causes of action are anchored on the promissory notes issued by petitioners allegedly to secure certain advances from the Bank in connection with the exportation of logs as reflected above. 17 The notes were payable 30 days after date and provided for the solidary liability of petitioners as well as attorney's fees at ten percent of the total amount due18 in the event of their non-payment at maturity. The note dated June 18, 1964, subject of the sixth cause of action, has a face value of P55,000.00 with interest rate of twelve percent per annum;19 that dated July 7, 1967 subject of the seventh has a face value of P20,000.00; 20 that dated July 18, 1967 subject of the eighth has a face value of P38,000.00;21 and that dated August 23, 1967 subject of the ninth has a face value of P11,000.00.22 The interest rate of the last three notes is pegged at thirteen percent per annum.23 On its tenth and final cause of action, the Bank claimed that it has accounts receivable from petitioners in the amount of P120.48. In their Answer24 of March 3, 1977, petitioners admit the following: having applied for credit accommodations totaling P900,000.00 to secure which they mortgaged real properties; opening of the LC/Trust Receipt Line; the issuance by the Bank of the various LCs; and the foreclosure of the real estate mortgage and the consolidation of ownership over the mortgaged properties in favor of the Bank. They deny, however, having availed of the credit accommodations and having received the value of the promissory notes, as they do deny having physically received the tractors and equipment subject of the LCs. As affirmative defenses, petitioners assert that the complaint states no cause of action, and assuming that it does, the same is/are barred by prescription or null and void for want of consideration. By Order of March 10, 1977, Branch 36 of the Manila RTC attached the preferred shares of stocks of the spouses Quirino and Eufemia Gonzales with the Bank with a total par value of P414,000.00. Finding for petitioners, the trial court rendered its Decision of April 22, 1992 the dispositive portion of which reads: WHEREFORE, judgment is rendered as follows:

Page 493 of 1485

1. All the claims of plaintiff particularly those described in the first to the tenth causes of action of its complaint are denied for the reasons earlier mentioned in the body of this decision; 2. As regards the claims of defendants pertaining to their counterclaim (Exhibits "1", "2" and "3"), they are hereby given ten (10) years from the date of issuance of the torrens title to plaintiff and before the transfer thereof in good faith to a third party buyer within which to ask for the reconveyance of the real properties foreclosed by plaintiff, 3. The order of attachment which was issued against the preferred shares of stocks of defendants-spouses Quirino Gonzales and Eufemia Gonzales with the Republic Bank now known as Republic Planters Bank dated March 21, 1977 is hereby dissolved and/or lifted, and 4. Plaintiff is likewise ordered to pay the sum of P20,000.00, as and for attorney's fees, with costs against plaintiff. SO ORDERED. In finding for petitioners, the trial court ratiocinated:25 Art. 1144 of the Civil Code states that an action upon a written contract prescribes in ten (10) years from the time the right of action accrues. Art. 1150 states that prescription starts to run from the day the action may be brought. The obligations allegedly created by the written contracts or documents supporting plaintiff's first to the sixth causes of action were demandable at the latest in 1964. Thus when the complaint was filed on January 27, 1977 more than ten (10) years from 1964 [when the causes of action accrued] had already lapsed. The first to the sixth causes of action are thus barred by prescription . . . . As regards the seventh and eight causes of action, the authenticity of which documents were partly in doubt in the light of the categorical and uncontradicted statements that in 1965, defendant Quirino Gonzales logging concession was terminated based on the policy of the government to terminate logging concessions covering less than 20,000 hectares. If this is the case, the Court is in a quandary why there were log exports in 1967? Because of the foregoing, the Court does not find any valid ground to sustain the seventh and eight causes of action of plaintiff's complaint. As regards the ninth cause of action, the Court is baffled why plaintiff extended to defendants another loan when defendants according to plaintiff's records were defaulting creditors? The above facts and circumstances has (sic) convinced this Court to give credit to the testimony of defendants' witnesses that the Gonzales spouses signed the documents in question in blank and that the promised loan was never released to them. There is therefore a total absence of consent since defendants did not give their consent to loans allegedly procured, the proceeds of which were never received by the alleged debtors, defendants herein. . . . Plaintiff did not present evidence to support its tenth cause of action. For this reason, it must consequently be denied for lack of evidence.

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On the matter of [the] counterclaims of defendants, they seek the return of the real and personal properties which they have given in good faith to plaintiff. Again, prescription may apply. The real properties of defendants acquired by plaintiff were foreclosed in 1965 and consequently, defendants had one (1) year to redeem the property or ten (10) years from issuance of title on the ground that the obligation foreclosed was fictitious. xxx xxx xxx

On appeal,26 the Court of Appeals (CA) reversed the decision of the trial court by Decision 27 of June 28, 1996 which disposed as follows:28 WHEREFORE, premises considered, the appealed decision (dated April 22, 1992) of the Regional Trial Court (Branch 36) in Manila in Civil Case No. 82-4141 is hereby REVERSED and let the case be remanded back to the court a quo for the determination of the amount(s) to be awarded to the [the Bank]-appellant relative to its claims against the appellees. SO ORDERED. With regard to the first to sixth causes of action, the CA upheld the contention of the Bank that the notices of foreclosure sale were "tantamount" to demand letters upon the petitioners which interrupted the running of the prescriptive period. 29 As regards the seventh to ninth causes of action, the CA also upheld the contention of the Bank that the written agreements-promissory notes prevail over the oral testimony of petitioner Quirino Gonzales that the cancellation of their logging concession in 1967 made it unbelievable for them to secure in 1967 the advances reflected in the promissory notes. 30 With respect to petitioners' counterclaim, the CA agreed with the Bank that: 31 Certainly, failure on the part of the trial court to pass upon and determine the authenticity and genuineness of [the Bank's] documentary evidence [the trial court having ruled on the basis of prescription of the Bank's first to sixth causes of action] makes it impossible for the trial court' to eventually conclude that the obligation foreclosed (sic) was fictitious. Needless to say, the trial court's ruling averses (sic) the well-entrenched rule that 'courts must render verdict on their findings of facts." (China Banking Co. vs. CA, 70 SCRA 398) Furthermore, the defendants-appellees' [herein petitioners'] counterclaim is basically an action for the reconveyance of their properties, thus, the trial court's earlier ruling that the defendants-appellees' counterclaim has prescribed is itself a ruling that the defendants-appellees' separate action for reconveyance has also prescribed. The CA struck down the trial court's award of attorney's fees for lack of legal basis. 32 Hence, petitioners now press the following issues before this Court by the present petition for review on certiorari: 1. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT RESPONDENT-APPELLEES (SIC.) REPUBLIC PLANTERS BANK['S] FIRST, SECOND, THIRD, FOURTH, FIFTH AND SIXTH CAUSES OF ACTION HAVE NOT PRESCRIBED

Page 495 of 1485

CONTRARY TO THE FINDINGS OF THE LOWER COURT, RTC BRANCH 36 THAT THE SAID CAUSES OF ACTION HAVE ALREADY PRESCRIBED. 2. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT RESPODNENT-APPELLEES (SIC.) REPUBLIC PLANTERS BANK['S] SEVENTH, EIGHT AND NINTH CAUSES OF ACTION APPEARS (SIC.) TO BE IMPRESSED WITH MERIT CONTRARY TO THE FINDINGS OF THE LOWER COURT RTC BRANCH 36 THAT THE SAID CAUSES HAVE NO VALID GROUND TO SUSTAIN [THEM] AND FOR LACK OF EVIDENCE. 3. WHETHER OR NOT RESPONDENT COURT [ERRED] IN REVERSING THE FINDINGS OF THE REGIONAL TRIAL COURT BRANCH 36 OF MANILA THAT PETITIONERS-APPELLANT (SIC.) MAY SEEK THE RETURN OF THE REAL AND PERSONAL PROPERTIES WHICH THEY MAY HAVE GIVEN IN GOOD FAITH AS THE SAME IS BARRED BY PRESCRIPTION AND THAT PETITIONERS-APPELLANT (SIC.) HAD ONE (1) YEAR TO REDEEM THE PROPERTY OR TEN (10) YEARS FROM ISSUANCE OF THE TITLE ON THE GROUND THAT THE OBLIGATION FORECLOSED WAS FICTITIOUS. 4. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT PEITIONERSAPPELLANTS [SIC] ARE NOT ENTITLED TO AN AWARD OF ATTORNEY'S FEES. The petition is partly meritorious. On the first issue. The Civil Code provides that an action upon written contract, an obligation created by law, and a judgment must be brought within ten years from the time the right of action accrues.33 The finding of the trial court that more than ten years had elapsed since the right to bring an action on the Bank's first to sixth causes had arisen 34 is not disputed. The Bank contends, however, that "the notices of foreclosure sale in the foreclosure proceedings of 1965 are tantamount to formal demands upon petitioners for the payment of their past due loan obligations with the Bank, hence, said notices of foreclosure sale interrupted/forestalled the running of the prescriptive period."35 The Bank's contention does not impress. Prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor. 36 The law specifically requires a written extrajudicial demand by the creditors which is absent in the case at bar. The contention that the notices of foreclosure are "tantamount" to a written extrajudicial demand cannot be appreciated, the contents of said notices not having been brought to light. But even assuming arguendo that the notices interrupted the running of the prescriptive period, the argument would still not lie for the following reasons: With respect to the first to the fifth causes of action, as gleaned from the complaint, the Bank seeks the recovery of the deficient amount of the obligation after the foreclosure of the mortgage. Such suit is in the nature of a mortgage action because its purpose is precisely to enforce the mortgage contract. 37 A mortgage action prescribes after ten years from the time the right of action accrued.38

Page 496 of 1485

The law gives the mortgagee the right to claim for the deficiency resulting from the price obtained in the sale of the property at public auction and the outstanding obligation at the time of the foreclosure proceedings. 39 In the present case, the Bank, as mortgagee, had the right to claim payment of the deficiency after it had foreclosed the mortgage in 1965. 40 In other words, the prescriptive period started to run against the Bank in 1965. As it filed the complaint only on January 27, 1977, more than ten years had already elapsed, hence, the action on its first to fifth causes had by then prescribed. No other conclusion can be reached even if the suit is considered as one upon a written contract or upon an obligation to pay the deficiency which is created by law,41 the prescriptive period of both being also ten years.42 As regards the promissory note subject of the sixth cause of action, its period of prescription could not have been interrupted by the notices of foreclosure sale not only because, as earlier discussed, petitioners' contention that the notices of foreclosure are tantamount to written extra-judicial demand cannot be considered absent any showing of the contents thereof, but also because it does not appear from the records that the said note is covered by the mortgage contract. Coming now to the second issue, petitioners seek to evade liability under the Bank's seventh to ninth causes of action by claiming that petitioners Quirino and Eufemia Gonzales signed the promissory notes in blank; that they had not received the value of said notes, and that the credit line thereon was unnecessary in view of their money deposits, they citing "Exhibits 2 to 2-B,"43 in, and unremitted proceeds on log exports from, the Bank. In support of their claim, they also urge this Court to look at Exhibits "B" (the Bank's recommendation for approval of petitioners' application for credit accommodations), "P" (the "Application and Agreement for Commercial Letter of Credit" dated January 16, 1963) and "T" (the "Application and Agreement for Commercial Letter of Credit" dated February 14, 1963). The genuineness and due execution of the notes had, however, been deemed admitted by petitioners, they having failed to deny the same under oath. 44 Their claim that they signed the notes in blank does not thus lie. Petitioners' admission of the genuineness and due execution of the promissory notes notwithstanding, they raise want of consideration 45 thereof. The promissory notes, however, appear to be negotiable as they meet the requirements of Section 1 46 of the Negotiable Instruments Law. Such being the case, the notes are prima facie deemed to have been issued for consideration.47 It bears noting that no sufficient evidence was adduced by petitioners to show otherwise. Exhibits "2" to "2-B" to which petitioners advert in support of their claim that the credit line on the notes was unnecessary because they had deposits in, and remittances due from, the Bank deserve scant consideration. Said exhibits are merely claims by petitioners under their then proposals for a possible settlement of the case dated February 3, 1978. Parenthetically, the proposals were not even signed by petitioners but by certain Attorneys Osmundo R. Victoriano and Rogelio P. Madriaga. In any case, it is no defense that the promissory notes were signed in blank as Section 14 48 of the Negotiable Instruments Law concedes the prima facie authority of the person in possession of negotiable instruments, such as the notes herein, to fill in the blanks. As for petitioners' reliance on Exhibits "B", "P" and "T," they have failed to show the relevance thereof to the seventh up to the ninth causes of action of the Bank.

Page 497 of 1485

On the third issue, petitioners asseverate that with the trial court's dismissal of the Bank's complaint and the denial of its first to sixth causes of action, it is but fair and just that the real properties which were mortgaged and foreclosed be returned to them. 49 Such, however, does not lie. It is not disputed that the properties were foreclosed under Act No. 3135 (An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages), as amended. Though the Bank's action for deficiency is barred by prescription, nothing irregular attended the foreclosure proceedings to warrant the reconveyance of the properties covered thereby. As for petitioners' prayer for moral and exemplary damages, it not having been raised as issue before the courts below, it can not now be considered. Neither can the award of attorney's fees for lack of legal basis. WHEREFORE, the CA Decision is hereby AFFIRMED with MODIFICATION. Republic Bank's Complaint with respect to its first to sixth causes of action is hereby DISMISSED. Its complaint with respect to its seventh to ninth causes of action is REMANDED to the court of origin, the Manila Regional Trial Court, Branch 36, for it to determine the amounts due the Bank thereunder. SO ORDERED. Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ ., concur. G.R. No. 142047. July 10, 2006] SPS. SERGIO AND MILAGROS OJEDA versus ANDRELINA ORBETA Third Division Sirs/Mesdames: Quoted hereunder, for your information, is a resolution of this Court dated JULY 10, 2006. G.R. No. 142047 (Sps. Sergio and Milagros Ojeda versus Andrelina Orbeta) Petitioner spouses Sergio Ojeda and Milagros Ojeda seek a reversal of the February 24, 2000 Decision783[1] rendered by the Court of Appeals in CA-G.R. CV No. 59985 entitled Andrelina Orbeta v. Sps. Sergio Ojeda and Milagros Ojeda . The questioned decision affirmed the February 23, 1995 Decision784[2] of the Regional Trial Court, Branch 106 of Quezon City in Civil Case No. Q-91-7794. The facts of this case are not complicated. From 1986 to 1989, the spouses Ojeda obtained various loans they would use as additional capital from Andrelina Orbeta, a general merchandiser and former market stall holder. Over time, Orbeta extended a total of 18 loans to the spouses. 785[3] Although the couple failed to pay their obligations on time, Orbeta continued to accommodate them, and lent them more

783 784

Page 498 of 1485

money on the assurance that they would soon pay all their debts. Every time Orbeta would verbally demand payment, she was told that payment was forthcoming and there was nothing to worry about since the spouses' business was doing well and the couple had a daughter based in Japan who always sent them money. To their sincerity, they aver, they even delivered a copy of the registration papers of one of their vehicles to Orbeta. Notwithstanding all their promises, however, the spouses' obligations remained unpaid. Orbeta made numerous demands but all attempts to collect from the couple proved futile. Frustrated by their failure to pay, Orbeta through her lawyer sent a demand letter to the spouses on March 1989.786[4] Eventually, on July 1989, after an accounting of all outstanding loans due, Milagros Ojeda issued Security Bank and Trust Company Check No. 027836 dated September 1, 1989 for P487,133.87, representing full settlement of all obligations due in favor of Orbeta. When presented for payment, however, the check was dishonored for having been drawn against an account already closed. Consequently, Orbeta filed Criminal Case No. Q-90-10226 for violation of Batas Pambansa Bilang 22 against Milagros Ojeda with the Regional Trial Court of Quezon City. 787[5] After a plea of guilty, judgment was rendered against the accused in a decision 788[6] dated October 11, 1990. The dispositive portion of the decision read: WHEREFORE, considering the plea of Guilty entered by accused Milagros Ojeda this morning, the Court hereby renders judgment: 1. Finding said accused GUILTY beyond reasonable doubt of the offense charged; 2. Sentencing her to suffer the penalty of ONE (1) YEAR imprisonment; and 3. To pay costs. The decision was promulgated in open Court this morning in the presence of the accused herself, Assistant City Prosecutor Perpetuo LB Alonzo and Atty. Renerio S. Payumo. SO ORDERED. Consistent with the reservation made by Ojeda in the BP 22 case, Civil Case No. Q-91-7794 was subsequently filed against the spouses to collect on the civil aspect of the BP 22 case. In the civil case, the Regional Trial Court ruled as follows: WHEREFORE, finding no cogent reason to deny the relief being prayed for, the cause of action of plaintiff having been fully established and proven by preponderant evidence, judgment is hereby rendered ordering defendants to pay plaintiff: 1. The amount of Four Hundred Eighty Seven Thousand One Hundred Thirteen and 87/100 (P487,113.87) pesos with 12% interest from filing of the case until fully paid.

785 786 787 788

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2. 25% of the principal obligation as and by way of attorney's fees. 3. Cost of suit.

SO ORDERED.789[7] Aggrieved, the spouses brought their case to the Court of Appeals where the Regional Trial Court's judgment was affirmed, to wit: WHEREFORE, with the sole modification that the award for attorney's fee[s] is hereby eliminated, the Judgment appealed from is in all other respects AFFIRMED, with the costs of this instance to be taxed against the defendants-appellants. SO ORDERED.790[8] Before us now are the following issues: (1) Are the spouses liable for issuing Security Bank and Trust Company Check No. 027836? (2) Did the Court of Appeals err in upholding the propriety of the civil case that was instituted separately from the BP 22 case? To justify their prayer for a reversal of the Court of Appeals' decision, the spouses insist that there are special and important reasons present in the case which constitute a question of law and there was a misapprehension of facts committed by the Court of Appeals which must be rectified. Petitioners maintain that any obligation arising from Security Bank and Trust Company Check No. 027836 is invalid and illegal since the same was issued in blank except for the signature of Milagros Ojeda. They further claim that they already paid P55,000 to satisfy their obligation to Orbeta of P30,000 only. The couple also aver that the motion of Orbeta to file a separate civil action was merely noted by the Regional Trial Court in the BP 22 case and there was no order granting the institution of a separate civil action. Respondent Orbeta, on the other hand, counters that the errors raised by the spouses deal with questions of fact which have already been passed upon and decided by the Regional Trial Court and the Court of Appeals and cannot now be raised in this petition for review. Orbeta also contends that, the couple cannot assert for the first time that the motion to file a separate civil action was merely noted and no order was issued by the Regional Trial Court granting the same since a full blown trial had been conducted without the said issue having been raised by the spouses, hence, they are barred from doing so, since they are considered to have waived any objection they may have had on the subject. Finally, Orbeta points out that the judgment in the BP 22 case did not contain an award for civil liability which is tantamount to the Regional Trial Court's approval of the motion. 791[9] To resolve the first issue, we must here emphasize that the jurisdiction of this Court in a petition such as this is limited to reviewing errors of law that might have been committed by the lower court. The allegation of the spouses that Security Bank and Trust Company Check No. 027836 was delivered to Orbeta in blank except for the signature of Milagros Ojeda and the amount of P10,000 annotated at the back of the check, and their contention that they

789 790 791

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cannot be held liable for the face value of the check since Milagros Ojeda was not the one who filled up the date, name of the payee and the amount appearing on the check, are questions of fact that require us to re-examine the evidence presented by the contending parties during trial. This cannot be done in a petition for review. Under Rule 45, only questions of law may be raised in a petition for review, except in very few specified instances, e.g. where there is variance in the factual findings of the trial and appellate courts. Since both the Regional Trial Court and the Court of Appeals agree on the cited facts, we are bound by their factual findings. In any event, the spouses do not deny that the check was delivered to Orbeta and that the signature appearing on the check belongs to Milagros Ojeda. Even if the check was delivered to Orbeta in blank, we must stress that the presumption is that the latter had prima facie authority to complete the check by filling up the same. Here, the provision of Section 14 of the Negotiable Instruments Law is pertinent: SEC. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument, when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. (Emphasis supplied.) The law merely requires that the instrument be in the possession of a person other than the drawer or maker, and from such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks. 792[10] Because of the presumption of authority, the burden of proving that there was no authority or that the authority granted was exceeded is placed on the person questioning such authority.793[11] There is nothing on record to show that the prima facie presumption created by the afore-quoted section was successfully refuted by the spouses. Therefore, the couple's stance that they cannot be held liable for the check because they were not the ones who wrote the date, the name of the payee and the amount, is untenable. On the second issue, it appears that an urgent motion to file a separate civil action was filed by Orbeta on October 11, 1990, which motion was correspondingly noted by the Regional Trial Court in its decision.794[12] Since the civil liability involved in this case is one that arises from a crime, the rule is that the same is impliedly instituted with the criminal action unless the offended party expressly waives the civil action; reserves his right to institute it separately; or institutes the civil action prior to the filing of the criminal case. 795[13] The purpose of the rule requiring reservation is to prevent the offended party from recovering damages twice for the same act or omission.796[14]

792 793 794 795

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Orbeta's intention to reserve her right to recover the civil liability arising from the BP 22 case is clear from the time she filed the urgent motion. 797[15] The fact that the Regional Trial Court did not provide for an award of damages in its decision is also a clear recognition of Orbeta's reservation. Contrary to the spouses' argument, an order by the Regional Trial Court granting the urgent motion to file a separate civil action is not necessary since the rules only require that the offended party make the reservation before the prosecution starts to present its evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation. Lastly, we agree with respondent that it is now too late for the spouses to question the institution of the civil case separately from the BP 22 case. A full blown trial was conducted in the civil case with the participation of the spouses, but they never raised any objection thereto, and they cannot be allowed here and now to raise this issue for the first time. WHEREFORE, the instant petition is DENIED. The February 24, 2000 Decision of the Court of Appeals sustaining the February 23, 1995 Decision of the Regional Trial Court is AFFIRMED. Costs against petitioners. SO ORDERED. Very truly yours, (Sgd.) LUCITA ABJELINA-SORIANO Clerk of Court Republic SUPREME Manila THIRD DIVISION G.R. No. 141181 April 27, 2007 of the Philippines COURT

SAMSON CHING, Petitioner, vs. CLARITA NICDAO and HON. COURT OF APPEALS, Respondents. DECISION CALLEJO, SR., J.: Before the Court is a petition for review on certiorari filed by Samson Ching of the Decision1 dated November 22, 1999 of the Court of Appeals (CA) in CA-G.R. CR No. 23055. The

796 797

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assailed decision acquitted respondent Clarita Nicdao of eleven (11) counts of violation of Batas Pambansa Bilang (BP) 22, otherwise known as "The Bouncing Checks Law." The instant petition pertains and is limited to the civil aspect of the case as it submits that notwithstanding respondent Nicdaos acquittal, she should be held liable to pay petitioner Ching the amounts of the dishonored checks in the aggregate sum of P20,950,000.00. Factual and Procedural Antecedents On October 21, 1997, petitioner Ching, a Chinese national, instituted criminal complaints for eleven (11) counts of violation of BP 22 against respondent Nicdao. Consequently, eleven (11) Informations were filed with the First Municipal Circuit Trial Court (MCTC) of Dinalupihan-Hermosa, Province of Bataan, which, except as to the amounts and check numbers, uniformly read as follows: The undersigned accuses Clarita S. Nicdao of a VIOLATION OF BATAS PAMBANSA BILANG 22, committed as follows: That on or about October 06, 1997, at Dinalupihan, Bataan, Philippines, and within the jurisdiction of this Honorable Court, the said accused did then and there willfully and unlawfully make or draw and issue Hermosa Savings & Loan Bank, Inc. Check No. [002524] dated October 06, 1997 in the amount of [P20,000,000.00] in payment of her obligation with complainant Samson T.Y. Ching, the said accused knowing fully well that at the time she issued the said check she did not have sufficient funds in or credit with the drawee bank for the payment in full of the said check upon presentment, which check when presented for payment within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason that it was drawn against insufficient funds and notwithstanding receipt of notice of such dishonor the said accused failed and refused and still fails and refuses to pay the value of the said check in the amount of [P20,000,000.00] or to make arrangement with the drawee bank for the payment in full of the same within five (5) banking days after receiving the said notice, to the damage and prejudice of the said Samson T.Y. Ching in the aforementioned amount of [P20,000,000.00], Philippine Currency. CONTRARY TO LAW. Dinalupihan, Bataan, October 21, 1997. (Sgd.) SAMSON T.Y. CHING Complainant The cases were docketed as Criminal Cases Nos. 9433 up to 9443 involving the following details: Check No. 0025242 0088563 0121424 Amount P 20,000,000 150,000 100,000 Date Oct. 1997 Oct. 1997 Oct. Private Complainant 6, Samson Ching 6, " T.Y. Reason Dishonor DAIF* " " for the

6, "

Page 503 of 1485

1997 0045315 0022546 0088757 0089368 0022739 50,000 100,000 100,000 50,000 50,000 Oct. 1997 Oct. 1997 Oct. 1997 Oct. 1997 Oct. 1997 Oct. 1997 Oct. 1997 Oct. 1997 6, 6, 6, 6, 6, 6, 6, 6, " " " " " " " " " " " " " " " "

00894810 150,000 00893511 100,000 01037712 100,000

At about the same time, fourteen (14) other criminal complaints, also for violation of BP 22, were filed against respondent Nicdao by Emma Nuguid, said to be the common law spouse of petitioner Ching. Allegedly fourteen (14) checks, amounting to P1,150,000.00, were issued by respondent Nicdao to Nuguid but were dishonored for lack of sufficient funds. The Informations were filed with the same MCTC and docketed as Criminal Cases Nos. 9458 up to 9471. At her arraignment, respondent Nicdao entered the plea of "not guilty" to all the charges. A joint trial was then conducted for Criminal Cases Nos. 9433-9443 and 9458-9471. For the prosecution in Criminal Cases Nos. 9433-9443, petitioner Ching and Imelda Yandoc, an employee of the Hermosa Savings & Loan Bank, Inc., were presented to prove the charges against respondent Nicdao. On direct-examination, 13 petitioner Ching preliminarily identified each of the eleven (11) Hermosa Savings & Loan Bank (HSLB) checks that were allegedly issued to him by respondent Nicdao amounting to P20,950,000.00. He identified the signatures appearing on the checks as those of respondent Nicdao. He recognized her signatures because respondent Nicdao allegedly signed the checks in his presence. When petitioner Ching presented these checks for payment, they were dishonored by the bank, HSLB, for being "DAIF" or "drawn against insufficient funds." Petitioner Ching averred that the checks were issued to him by respondent Nicdao as security for the loans that she obtained from him. Their transaction began sometime in October 1995 when respondent Nicdao, proprietor/manager of Vignette Superstore, together with her husband, approached him to borrow money in order for them to settle their financial obligations. They agreed that respondent Nicdao would leave the checks undated and that she would pay the loans within one year. However, when petitioner Ching went to see her after the lapse of one year to ask for payment, respondent Nicdao allegedly said that she had no cash.

Page 504 of 1485

Petitioner Ching claimed that he went back to respondent Nicdao several times more but every time, she would tell him that she had no money. Then in September 1997, respondent Nicdao allegedly got mad at him for being insistent and challenged him about seeing each other in court. Because of respondent Nicdao's alleged refusal to pay her obligations, on October 6, 1997, petitioner Ching deposited the checks that she issued to him. As he earlier stated, the checks were dishonored by the bank for being "DAIF." Shortly thereafter, petitioner Ching, together with Emma Nuguid, wrote a demand letter to respondent Nicdao which, however, went unheeded. Accordingly, they separately filed the criminal complaints against the latter. On cross-examination,14 petitioner Ching claimed that he had been a salesman of the La Suerte Cigar and Cigarette Manufacturing for almost ten (10) years already. As such, he delivered the goods and had a warehouse. He received salary and commissions. He could not, however, state his exact gross income. According to him, it increased every year because of his business. He asserted that aside from being a salesman, he was also in the business of extending loans to other people at an interest, which varied depending on the person he was dealing with. Petitioner Ching confirmed the truthfulness of the allegations contained in the eleven (11) Informations that he filed against respondent Nicdao. He reiterated that, upon their agreement, the checks were all signed by respondent Nicdao but she left them undated. Petitioner Ching admitted that he was the one who wrote the date, October 6, 1997, on those checks when respondent Nicdao refused to pay him. With respect to the P20,000,000.00 check (Check No. 002524), petitioner Ching explained that he wrote the date and amount thereon when, upon his estimation, the money that he regularly lent to respondent Nicdao beginning October 1995 reached the said sum. He likewise intimated that prior to 1995, they had another transaction amounting to P1,200,000.00 and, as security therefor, respondent Nicdao similarly issued in his favor checks in varying amounts of P100,000.00 and P50,000.00. When the said amount was fully paid, petitioner Ching returned the checks to respondent Nicdao. Petitioner Ching maintained that the eleven (11) checks subject of Criminal Cases Nos. 9433-9443 pertained to respondent Nicdaos loan transactions with him beginning October 1995. He also mentioned an instance when respondent Nicdaos husband and daughter approached him at a casino to borrow money from him. He lent them P300,000.00. According to petitioner Ching, since this amount was also unpaid, he included it in the other amounts that respondent Nicdao owed to him which totaled P20,000,000.00 and wrote the said amount on one of respondent Nicdaos blank checks that she delivered to him. Petitioner Ching explained that from October 1995 up to 1997, he regularly delivered money to respondent Nicdao, in the amount of P1,000,000.00 until the total amount reached P20,000,000.00. He did not ask respondent Nicdao to acknowledge receiving these amounts. Petitioner Ching claimed that he was confident that he would be paid by respondent Nicdao because he had in his possession her blank checks. On the other hand, the latter allegedly had no cause to fear that he would fill up the checks with just any amount because they had trust and confidence in each other. When asked to produce the piece of paper on which he allegedly wrote the amounts that he lent to respondent Nicdao, petitioner Ching could not present it; he reasoned that it was not with him at that time. It was also averred by petitioner Ching that respondent Nicdao confided to him that she told her daughter Janette, who was married to a foreigner, that her debt to him was only between P3,000,000.00 and P5,000,000.00. Petitioner Ching claimed that he offered to

Page 505 of 1485

accompany respondent Nicdao to her daughter in order that they could apprise her of the amount that she owed him. Respondent Nicdao refused for fear that it would cause disharmony in the family. She assured petitioner Ching, however, that he would be paid by her daughter. Petitioner Ching reiterated that after the lapse of one (1) year from the time respondent Nicdao issued the checks to him, he went to her several times to collect payment. In all these instances, she said that she had no cash. Finally, in September 1997, respondent Nicdao allegedly went to his house and told him that Janette was only willing to pay him between P3,000,000.00 and P5,000,000.00 because, as far as her daughter was concerned, that was the only amount borrowed from petitioner Ching. On hearing this, petitioner Ching angrily told respondent Nicdao that she should not have allowed her debt to reach P20,000,000.00 knowing that she would not be able to pay the full amount. Petitioner Ching identified the demand letter that he and Nuguid sent to respondent Nicdao. He explained that he no longer informed her about depositing her checks on his account because she already made that statement about seeing him in court. Again, he admitted writing the date, October 6, 1997, on all these checks. Another witness presented by the prosecution was Imelda Yandoc, an employee of HSLB. On direct-examination,15 she testified that she worked as a checking account bookkeeper/teller of the bank. As such, she received the checks that were drawn against the bank and verified if they were funded. On October 6, 1997, she received several checks issued by respondent Nicdao. She knew respondent Nicdao because the latter maintained a savings and checking account with them. Yandoc identified the checks subject of Criminal Cases Nos. 9433-9443 and affirmed that stamped at the back of each was the annotation "DAIF". Further, per the banks records, as of October 8, 1997, only a balance of P300.00 was left in respondent Nicdaos checking account and P645.83 in her savings account. On even date, her account with the bank was considered inactive. On cross-examination,16 Yandoc stated anew that respondent Nicdaos checks bounced on October 7, 1997 for being "DAIF" and her account was closed the following day, on October 8, 1997. She informed the trial court that there were actually twenty-five (25) checks of respondent Nicdao that were dishonored at about the same time. The eleven (11) checks were purportedly issued in favor of petitioner Ching while the other fourteen (14) were purportedly issued in favor of Nuguid. Yandoc explained that respondent Nicdao or her employee would usually call the bank to inquire if there was an incoming check to be funded. For its part, the defense proffered the testimonies of respondent Nicdao, Melanie Tolentino and Jocelyn Nicdao. On direct-examination, 17 respondent Nicdao stated that she only dealt with Nuguid. She vehemently denied the allegation that she had borrowed money from both petitioner Ching and Nuguid in the total amount of P22,950,000.00. Respondent Nicdao admitted, however, that she had obtained a loan from Nuguid but only for P2,100,000.00 and the same was already fully paid. As proof of such payment, she presented a Planters Bank demand draft dated August 13, 1996 in the amount of P1,200,000.00. The annotation at the back of the said demand draft showed that it was endorsed and negotiated to the account of petitioner Ching. In addition, respondent Nicdao also presented and identified several cigarette wrappers 18 at the back of which appeared computations. She explained that Nuguid went to the grocery store everyday to collect interest payments. The principal loan was P2,100,000.00 with 12%

Page 506 of 1485

interest per day. Nuguid allegedly wrote the payments for the daily interests at the back of the cigarette wrappers that she gave to respondent Nicdao. The principal loan amount of P2,100,000.00 was allegedly delivered by Nuguid to respondent Nicdao in varying amounts of P100,000.00 and P150,000.00. Respondent Nicdao refuted the averment of petitioner Ching that prior to 1995, they had another transaction. With respect to the P20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but denied that she issued the same to petitioner Ching. Anent the other ten (10) checks, she likewise admitted that the signatures thereon were hers while the amounts and payee thereon were written by either Jocelyn Nicdao or Melanie Tolentino, who were employees of Vignette Superstore and authorized by her to do so. Respondent Nicdao clarified that, except for the P20,000,000.00 check, the other ten (10) checks were handed to Nuguid on different occasions. Nuguid came to the grocery store everyday to collect the interest payments. Respondent Nicdao said that she purposely left the checks undated because she would still have to notify Nuguid if she already had the money to fund the checks. Respondent Nicdao denied ever confiding to petitioner Ching that she was afraid that her daughter would get mad if she found out about the amount that she owed him. What allegedly transpired was that when she already had the money to pay them (presumably referring to petitioner Ching and Nuguid), she went to them to retrieve her checks. However, petitioner Ching and Nuguid refused to return the checks claiming that she (respondent Nicdao) still owed them money. She demanded that they show her the checks in order that she would know the exact amount of her debt, but they refused. It was at this point that she got angry and dared them to go to court. After the said incident, respondent Nicdao was surprised to be notified by HSLB that her check in the amount of P20,000,000.00 was just presented to the bank for payment. She claimed that it was only then that she remembered that sometime in 1995, she was informed by her employee that one of her checks was missing. At that time, she did not let it bother her thinking that it would eventually surface when presented to the bank. Respondent Nicdao could not explain how the said check came into petitioner Chings possession. She explained that she kept her checks in an ordinary cash box together with a stapler and the cigarette wrappers that contained Nuguids computations. Her saleslady had access to this box. Respondent Nicdao averred that it was Nuguid who offered to give her a loan as she would allegedly need money to manage Vignette Superstore. Nuguid used to run the said store before respondent Nicdaos daughter bought it from Nuguids family, its previous owner. According to respondent Nicdao, it was Nuguid who regularly delivered the cash to respondent Nicdao or, if she was not at the grocery store, to her saleslady. Respondent Nicdao denied any knowledge that the money loaned to her by Nuguid belonged to petitioner Ching. At the continuation of her direct-examination, 19 respondent Nicdao said that she never dealt with petitioner Ching because it was Nuguid who went to the grocery store everyday to collect the interest payments. When shown the P20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but she denied issuing it as a blank check to petitioner Ching. On the other hand, with respect to the other ten (10) checks, she also admitted that the signatures thereon were hers and that the amounts thereon were written by either Josie Nicdao or Melanie Tolentino, her employees whom she authorized to do so.

Page 507 of 1485

With respect to the payee, it was purposely left blank allegedly upon instruction of Nuguid who said that she would use the checks to pay someone else. On cross-examination,20 respondent Nicdao explained that Josie Nicdao and Melanie Tolentino were caretakers of the grocery store and that they manned it when she was not there. She likewise confirmed that she authorized them to write the amounts on the checks after she had affixed her signature thereon. She stressed, however, that the P20,000,000.00 check was the one that was reported to her as lost or missing by her saleslady sometime in 1995. She never reported the matter to the bank because she was confident that it would just surface when it would be presented for payment. Again, respondent Nicdao identified the cigarette wrappers which indicated the daily payments she had made to Nuguid. The latter allegedly went to the grocery store everyday to collect the interest payments. Further, the figures at the back of the cigarette wrappers were written by Nuguid. Respondent Nicdao asserted that she recognized her handwriting because Nuguid sometimes wrote them in her presence. Respondent Nicdao maintained that she had already paid Nuguid the amount of P1,200,000.00 as evidenced by the Planters Bank demand draft which she gave to the latter and which was subsequently negotiated and deposited in petitioner Chings account. In connection thereto, respondent Nicdao refuted the prosecutions allegation that the demand draft was payment for a previous transaction that she had with petitioner Ching. She clarified that the payments that Nuguid collected from her everyday were only for the interests due. She did not ask Nuguid to make written acknowledgements of her payments. Melanie Tolentino was presented to corroborate the testimony of respondent Nicdao. On direct-examination,21 Tolentino stated that she worked at the Vignette Superstore and she knew Nuguid because her employer, respondent Nicdao, used to borrow money from her. She knew petitioner Ching only by name and that he was the "husband" of Nuguid. As an employee of the grocery store, Tolentino stated that she acted as its caretaker and was entrusted with the custody of respondent Nicdaos personal checks. Tolentino identified her own handwriting on some of the checks especially with respect to the amounts and figures written thereon. She said that Nuguid instructed her to leave the space for the payee blank as she would use the checks to pay someone else. Tolentino added that she could not recall respondent Nicdao issuing a check to petitioner Ching in the amount of P20,000,000.00. She confirmed that they lost a check sometime in 1995. When informed about it, respondent Nicdao told her that the check could have been issued to someone else, and that it would just surface when presented to the bank. Tolentino recounted that Nuguid came to the grocery store everyday to collect the interest payments of the loan. In some instances, upon respondent Nicdaos instruction, Tolentino handed to Nuguid checks that were already signed by respondent Nicdao. Sometimes, Tolentino would be the one to write the amount on the checks. Nuguid, in turn, wrote the amounts on pieces of paper which were kept by respondent Nicdao. On cross-examination,22 Tolentino confirmed that she was authorized by respondent Nicdao to fill up the checks and hand them to Nuguid. The latter came to the grocery store everyday to collect the interest payments. Tolentino claimed that in 1995, in the course of chronologically arranging respondent Nicdaos check booklets, she noticed that a check was missing. Respondent Nicdao told her that perhaps she issued it to someone and that it would just turn up in the bank. Tolentino was certain that the missing check was the same one that petitioner Ching presented to the bank for payment in the amount of P20,000,000.00.

Page 508 of 1485

Tolentino stated that she left the employ of respondent Nicdao sometime in 1996. After the checks were dishonored in October 1997, Tolentino got a call from respondent Nicdao. After she was shown a fax copy thereof, Tolentino confirmed that the P20,000,000.00 check was the same one that she reported as missing in 1995. Jocelyn Nicdao also took the witness stand to corroborate the testimony of the other defense witnesses. On direct-examination,23 she averred that she was a saleslady at the Vignette Superstore from August 1994 up to April 1998. She knew Nuguid as well as petitioner Ching. Jocelyn Nicdao further testified that respondent Nicdao was indebted to Nuguid. Jocelyn Nicdao used to fill up the checks of respondent Nicdao that had already been signed by her and give them to Nuguid. The latter came to the grocery store everyday to pick up the interest payments. Jocelyn Nicdao identified the checks on which she wrote the amounts and, in some instances, the name of Nuguid as payee. However, most of the time, Nuguid allegedly instructed her to leave as blank the space for the payee. Jocelyn Nicdao identified the cigarette wrappers as the documents on which Nuguid acknowledged receipt of the interest payments. She explained that she was the one who wrote the minus entries and they represented the daily interest payments received by Nuguid. On cross-examination,24 Jocelyn Nicdao stated that she was a distant cousin of respondent Nicdao. She stopped working for her in 1998 because she wanted to take a rest. Jocelyn Nicdao reiterated that she handed the checks to Nuguid at the grocery store. After due trial, on December 8, 1998, the MCTC rendered judgment in Criminal Cases Nos. 9433-9443 convicting respondent Nicdao of eleven (11) counts of violation of BP 22. The MCTC gave credence to petitioner Chings testimony that respondent Nicdao borrowed money from him in the total amount of P20,950,000.00. Petitioner Ching delivered P1,000,000.00 every month to respondent Nicdao from 1995 up to 1997 until the sum reached P20,000,000.00. The MCTC also found that subsequent thereto, respondent Nicdao still borrowed money from petitioner Ching. As security for these loans, respondent Nicdao issued checks to petitioner Ching. When the latter deposited the checks (eleven in all) on October 6, 1997, they were dishonored by the bank for being "DAIF." The MCTC explained that the crime of violation of BP 22 has the following elements: (a) the making, drawing and issuance of any check to apply to account or for value; (b) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (c) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. 25 According to the MCTC, all the foregoing elements are present in the case of respondent Nicdaos issuance of the checks subject of Criminal Cases Nos. 9433-9443. On the first element, respondent Nicdao was found by the MCTC to have made, drawn and issued the checks. The fact that she did not personally write the payee and date on the checks was not material considering that under Section 14 of the Negotiable Instruments Law, "where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as

Page 509 of 1485

such for any amount x x x." Respondent Nicdao admitted that she authorized her employees to provide the details on the checks after she had signed them. The MCTC disbelieved respondent Nicdaos claim that the P20,000,000.00 check was the same one that she lost in 1995. It observed that ordinary prudence would dictate that a lost check would at least be immediately reported to the bank to prevent its unauthorized endorsement or negotiation. Respondent Nicdao made no such report to the bank. Even if the said check was indeed lost, the MCTC faulted respondent Nicdao for being negligent in keeping the checks that she had already signed in an unsecured box. The MCTC further ruled that there was no evidence to show that petitioner Ching was not a holder in due course as to cause it (the MCTC) to believe that the said check was not issued to him. Respondent Nicdaos admission of indebtedness was sufficient to prove that there was consideration for the issuance of the checks. The second element was also found by the MCTC to be present as it held that respondent Nicdao, as maker, drawer or issuer, had knowledge that at the time of issue she did not have sufficient funds in or credit with the drawee bank for the payment in full of the checks upon their presentment. As to the third element, the MCTC established that the checks were subsequently dishonored by the drawee bank for being "DAIF" or drawn against insufficient funds. Stamped at the back of each check was the annotation "DAIF." The bank representative likewise testified to the fact of dishonor. Under the foregoing circumstances, the MCTC declared that the conviction of respondent Nicdao was warranted. It stressed that the mere act of issuing a worthless check was malum prohibitum; hence, even if the checks were issued in the form of deposit or guarantee, once dishonored, the same gave rise to the prosecution for and conviction of BP 22. 26 The decretal portion of the MCTC decision reads: WHEREFORE, in view of the foregoing, the accused is found guilty of violating Batas Pambansa Blg. 22 in 11 counts, and is hereby ordered to pay the private complainant the amount of P20,950,000.00 plus 12% interest per annum from date of filing of the complaint until the total amount had been paid. The prayer for moral damages is denied for lack of evidence to prove the same. She is likewise ordered to suffer imprisonment equivalent to 1 year for every check issued and which penalty shall be served successively. SO ORDERED.27 Incidentally, on January 11, 1999, the MCTC likewise rendered its judgment in Criminal Cases Nos. 9458-9471 and convicted respondent Nicdao of the fourteen (14) counts of violation of BP 22 filed against her by Nuguid. On appeal, the Regional Trial Court (RTC) of Dinalupihan, Bataan, Branch 5, in separate Decisions both dated May 10, 1999, affirmed in toto the decisions of the MCTC convicting respondent Nicdao of eleven (11) and fourteen (14) counts of violation of BP 22 in Criminal Cases Nos. 9433-9443 and 9458-9471, respectively. Respondent Nicdao forthwith filed with the CA separate petitions for review of the two decisions of the RTC. The petition involving the eleven (11) checks purportedly issued to petitioner Ching was docketed as CA-G.R. CR No. 23055 (assigned to the 13th Division). On the other hand, the petition involving the fourteen (14) checks purportedly issued to Nuguid

Page 510 of 1485

was docketed as CA-G.R. CR No. 23054 (originally assigned to the 7th Division but transferred to the 6th Division). The Office of the Solicitor General (OSG) filed its respective comments on the said petitions. Subsequently, the OSG filed in CA-G.R. CR No. 23055 a motion for its consolidation with CA-G.R. CR No. 23054. The OSG prayed that CA-G.R. CR No. 23055 pending before the 13th Division be transferred and consolidated with CA-G.R. CR No. 23054 in accordance with the Revised Internal Rules of the Court of Appeals (RIRCA). Acting on the motion for consolidation, the CA in CA-G.R. CR No. 23055 issued a Resolution dated October 19, 1999 advising the OSG to file the motion in CA-G.R. CR No. 23054 as it bore the lowest number. Respondent Nicdao opposed the consolidation of the two cases. She likewise filed her reply to the comment of the OSG in CA-G.R. CR No. 23055. On November 22, 1999, the CA (13th Division) rendered the assailed Decision in CA-G.R. CR No. 23055 acquitting respondent Nicdao of the eleven (11) counts of violation of BP 22 filed against her by petitioner Ching. The decretal portion of the assailed CA Decision reads: WHEREFORE, being meritorious, the petition for review is hereby GRANTED. Accordingly, the decision dated May 10, 1999, of the Regional Trial Court, 3rd Judicial Region, Branch 5, Bataan, affirming the decision dated December 8, 1998, of the First Municipal Circuit Trial Court of Dinalupihan-Hermosa, Bataan, convicting petitioner Clarita S. Nicdao in Criminal Cases No. 9433 to 9443 of violation of B.P. Blg. 22 is REVERSED and SET ASIDE and another judgment rendered ACQUITTING her in all these cases, with costs de oficio. SO ORDERED.28 On even date, the CA issued an Entry of Judgment declaring that the above decision has become final and executory and is recorded in the Book of Judgments. In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the CA made the following factual findings: Petitioner [respondent herein] Clarita S. Nicdao, a middle-aged mother and housekeeper who only finished high school, has a daughter, Janette Boyd, who is married to a wealthy expatriate. Complainant [petitioner herein] Samson Ching is a Chinese national, who claimed he is a salesman of La Suerte Cigar and Cigarette Factory. Emma Nuguid, complainants live-in partner, is a CPA and formerly connected with Sycip, Gorres and Velayo. Nuguid used to own a grocery store now known as the Vignette Superstore. She sold this grocery store, which was about to be foreclosed, to petitioners daughter, Janette Boyd. Since then, petitioner began managing said store. However, since petitioner could not always be at the Vignette Superstore to keep shop, she entrusted to her salesladies, Melanie Tolentino and Jocelyn Nicdao, pre-signed checks, which were left blank as to amount and the payee, to cover for any delivery of merchandise sold at the store. The blank and personal checks were placed in a cash box at Vignette Superstore and were filled up by said salesladies upon instruction of petitioner as to amount, payee and date. Soon thereafter, Emma Nuguid befriended petitioner and offered to lend money to the latter which could be used in running her newly acquired store. Nuguid represented to petitioner that as former manager of the Vignette Superstore, she knew that petitioner would be in need of credit to meet the daily expenses of running the business, particularly in the daily purchases of merchandise to be sold at the store. After Emma Nuguid succeeded in

Page 511 of 1485

befriending petitioner, Nuguid was able to gain access to the Vignette Superstore where petitioners blank and pre-signed checks were kept.29 In addition, the CA also made the finding that respondent Nicdao borrowed money from Nuguid in the total amount of P2,100,000.00 secured by twenty-four (24) checks drawn against respondent Nicdaos account with HSLB. Upon Nuguids instruction, the checks given by respondent Nicdao as security for the loans were left blank as to the payee and the date. The loans consisted of (a) P950,000.00 covered by ten (10) checks subject of the criminal complaints filed by petitioner Ching (CA-G.R. CR No. 23055); and (b) P1,150,000.00 covered by fourteen (14) checks subject of the criminal complaints filed by Nuguid (CA-G.R. CR No. 23054). The loans totaled P2,100,000.00 and they were transacted between respondent Nicdao and Nuguid only. Respondent Nicdao never dealt with petitioner Ching. Against the foregoing factual findings, the CA declared that, based on the evidence, respondent Nicdao had already fully paid the loans. In particular, the CA referred to the Planters Bank demand draft in the amount of P1,200,000.00 which, by his own admission, petitioner Ching had received. The appellate court debunked petitioner Chings allegation that the said demand draft was payment for a previous transaction. According to the CA, petitioner Ching failed to adduce evidence to prove the existence of a previous transaction between him and respondent Nicdao. Apart from the demand draft, the CA also stated that respondent Nicdao made interest payments on a daily basis to Nuguid as evidenced by the computations written at the back of the cigarette wrappers. Based on these computations, as of July 21, 1997, respondent Nicdao had made a total of P5,780,000.00 payments to Nuguid for the interests alone. Adding up this amount and that of the Planters Bank demand draft, the CA placed the payments made by respondent Nicdao to Nuguid as already amounting to P6,980,000.00 for the principal loan amount of only P2,100,000.00. The CA negated petitioner Chings contention that the payments as reflected at the back of the cigarette wrappers could be applied only to the interests due. Since the transactions were not evidenced by any document or writing, the CA ratiocinated that no interests could be collected because, under Article 1956 of the Civil Code, "no interest shall be due unless it has been expressly stipulated in writing." The CA gave credence to the testimony of respondent Nicdao that when she had fully paid her loans to Nuguid, she tried to retrieve her checks. Nuguid, however, refused to return the checks to respondent Nicdao. Instead, Nuguid and petitioner Ching filled up the said checks to make it appear that: (a) petitioner Ching was the payee in five checks; (b) the six checks were payable to cash; (c) Nuguid was the payee in fourteen (14) checks. Petitioner Ching and Nuguid then put the date October 6, 1997 on all these checks and deposited them the following day. On October 8, 1997, through a joint demand letter, they informed respondent Nicdao that her checks were dishonored by HSLB and gave her three days to settle her indebtedness or else face prosecution for violation of BP 22. With the finding that respondent Nicdao had fully paid her loan obligations to Nuguid, the CA declared that she could no longer be held liable for violation of BP 22. It was explained that to be held liable under BP 22, it must be established, inter alia, that the check was made or drawn and issued to apply on account or for value. According to the CA, the word "account" refers to a pre-existing obligation, while "for value" means an obligation incurred simultaneously with the issuance of the check. In the case of respondent Nicdaos checks, the pre-existing obligations secured by them were already extinguished after full payment had been made by respondent Nicdao to Nuguid. Obligations are extinguished by, among

Page 512 of 1485

others, payment.30 The CA believed that when petitioner Ching and Nuguid refused to return respondent Nicdaos checks despite her total payment of P6,980,000.00 for the loans secured by the checks, petitioner Ching and Nuguid were using BP 22 to coerce respondent Nicdao to pay a debt which she no longer owed them. With respect to the P20,000,000.00 check, the CA was not convinced by petitioner Chings claim that he delivered P1,000,000.00 every month to respondent Nicdao until the amount reached P20,000,000.00 and, when she refused to pay the same, he filled up the check, which she earlier delivered to him as security for the loans, by writing thereon the said amount. In disbelieving petitioner Ching, the CA pointed out that, contrary to his assertion, he was never employed by the La Suerte Cigar and Cigarette Manufacturing per the letter of Susan Resurreccion, Vice-President and Legal Counsel of the said company. Moreover, as admitted by petitioner Ching, he did not own the house where he and Nuguid lived. Moreover, the CA characterized as incredible and contrary to human experience that petitioner Ching would, as he claimed, deliver a total sum of P20,000,000.00 to respondent Nicdao without any documentary proof thereof, e.g., written acknowledgment that she received the same. On the other hand, it found plausible respondent Nicdaos version of the story that the P20,000,000.00 check was the same one that was missing way back in 1995. The CA opined that this missing check surfaced in the hands of petitioner Ching who, in cahoots with Nuguid, wrote the amount P20,000,000.00 thereon and deposited it in his account. To the mind of the CA, the inference that the check was stolen was anchored on competent circumstantial evidence. Specifically, Nuguid, as previous manager/owner of the grocery store, had access thereto. Likewise applicable, according to the CA, was the presumption that the person in possession of the stolen article was presumed to be guilty of taking the stolen article.31 The CA emphasized that the P20,000,000.00 check was never delivered by respondent Nicdao to petitioner Ching. As such, the said check without the details as to the date, amount and payee, was an incomplete and undelivered instrument when it was stolen and ended up in petitioner Chings hands. On this point, the CA applied Sections 15 and 16 of the Negotiable Instruments Law: SEC. 15. Incomplete instrument not delivered. Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery. SEC. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. The CA held that the P20,000,000.00 check was filled up by petitioner Ching without respondent Nicdaos authority. Further, it was incomplete and undelivered. Hence, petitioner

Page 513 of 1485

Ching did not acquire any right or interest therein and could not assert any cause of action founded on the stolen checks.32 Under these circumstances, the CA concluded that respondent could not be held liable for violation of BP 22. The Petitioners Case As mentioned earlier, the instant petition pertains and is limited solely to the civil aspect of the case as petitioner Ching argues that notwithstanding respondent Nicdaos acquittal of the eleven (11) counts of violation of BP 22, she should be held liable to pay petitioner Ching the amounts of the dishonored checks in the aggregate sum of P20,950,000.00. He urges the Court to review the findings of facts made by the CA as they are allegedly based on a misapprehension of facts and manifestly erroneous and contradicted by the evidence. Further, the CAs factual findings are in conflict with those of the RTC and MCTC. Petitioner Ching vigorously argues that notwithstanding respondent Nicdaos acquittal by the CA, the Supreme Court has the jurisdiction and authority to resolve and rule on her civil liability. He invokes Section 1, Rule 111 of the Revised Rules of Court which, prior to its amendment, provided, in part: SEC. 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action. Such civil action includes the recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused. x x x Supreme Court Circular No. 57-9733 dated September 16, 1997 is also cited as it provides in part: 1. The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to necessarily include the corresponding civil action, and no reservation to file such civil action separately shall be allowed or recognized. x x x Petitioner Ching theorizes that, under Section 1, Rule 111 of the Revised Rules of Court, the civil action for the recovery of damages under Articles 32, 33, 34, and 2176 arising from the same act or omission of the accused is impliedly instituted with the criminal action. Moreover, under the above-quoted Circular, the criminal action for violation of BP 22 necessarily includes the corresponding civil action, which is the recovery of the amount of the dishonored check representing the civil obligation of the drawer to the payee. In seeking to enforce the alleged civil liability of respondent Nicdao, petitioner Ching maintains that she had loan obligations to him totaling P20,950,000.00. The existence of the same is allegedly established by his testimony before the MCTC. Also, he asks the Court to take judicial notice that for a monetary loan secured by a check, the check itself is the evidence of indebtedness.

Page 514 of 1485

He insists that, contrary to her protestation, respondent Nicdao also transacted with him, not only with Nuguid. Petitioner Ching pointed out that during respondent Nicdaos testimony, she referred to her creditors in plural form, e.g. "[I] told them, most checks that I issued I will inform them if I have money." Even respondent Nicdaos employees allegedly knew him; they testified that Nuguid instructed them at times to leave as blank the payee on the checks as they would be paid to someone else, who turned out to be petitioner Ching. It was allegedly erroneous for the CA to hold that he had no capacity to lend P20,950,000.00 to respondent Nicdao. Petitioner Ching clarified that what he meant when he testified before the MCTC was that he was engaged in dealership with La Suerte Cigar and Cigarette Manufacturing, and not merely its sales agent. He stresses that he owns a warehouse and is also in the business of lending money. Further, the CAs reasoning that he could not possibly have lent P20,950,000.00 to respondent Nicdao since petitioner Ching and Nuguid did not own the house where they live, is allegedly non sequitur. Petitioner Ching maintains that, contrary to the CAs finding, the Planters Bank demand draft for P1,200,000.00 was in payment for respondent Nicdaos previous loan transaction with him. Apart from the P20,000,000.00 check, the other ten (10) checks (totaling P950,000.00) were allegedly issued by respondent Nicdao to petitioner Ching as security for the loans that she obtained from him from 1995 to 1997. The existence of another loan obligation prior to the said period was allegedly established by the testimony of respondent Nicdaos own witness, Jocelyn Nicdao, who testified that when she started working in Vignette Superstore in 1994, she noticed that respondent Nicdao was already indebted to Nuguid. Petitioner Ching also takes exception to the CAs ruling that the payments made by respondent Nicdao as reflected on the computations at the back of the cigarette wrappers were for both the principal loan and interests. He insists that they were for the interests alone. Even respondent Nicdaos testimony allegedly showed that they were daily interest payments. Petitioner Ching further avers that the interest payments totaling P5,780,000.00 can only mean that, contrary to respondent Nicdaos claim, her loan obligations amounted to much more than P2,100,000.00. Further, she is allegedly estopped from questioning the interests because she willingly paid the same. Petitioner Ching also harps on respondent Nicdaos silence when she received his and Nuguids demand letter to her. Through the said letter, they notified her that the twenty-five (25) checks valued at P22,100,000.00 were dishonored by the HSLB, and that she had three days to settle her ndebtedness with them, otherwise, face prosecution. Respondent Nicdaos silence, i.e., her failure to deny or protest the same by way of reply, vis--vis the demand letter, allegedly constitutes an admission of the statements contained therein. On the other hand, the MCTCs decision, as affirmed by the RTC, is allegedly based on the evidence on record; it has been established that the checks were respondent Nicdaos personal checks, that the signatures thereon were hers and that she had issued them to petitioner Ching. With respect to the P20,000,000.00 check, petitioner Ching assails the CAs ruling that it was stolen and was never delivered or issued by respondent Nicdao to him. The issue of the said check being stolen was allegedly not raised during trial. Further, her failure to report the alleged theft to the bank to stop payment of the said lost or missing check is allegedly contrary to human experience. Petitioner Ching describes respondent Nicdaos defense of stolen or lost check as incredible and, therefore, false. Aside from the foregoing substantive issues that he raised, petitioner Ching also faults the CA for not acting and ordering the consolidation of CA-G.R. CR No. 23055 with CA-G.R. CR No. 23054. He informs the Court that latter case is still pending with the CA.

Page 515 of 1485

In fine, it is petitioner Chings view that the CA gravely erred in disregarding the findings of the MCTC, as affirmed by the RTC, and submits that there is more than sufficient preponderant evidence to hold respondent Nicdao civilly liable to him in the amount of P20,950,000.00. He thus prays that the Court direct respondent Nicdao to pay him the said amount plus 12% interest per annum computed from the date of written demand until the total amount is fully paid. The Respondents Counter-Arguments Respondent Nicdao urges the Court to deny the petition. She posits preliminarily that it is barred under Section 2(b), Rule 111 of the Revised Rules of Court which states: SEC. 2. Institution of separate of civil action. - Except in the cases provided for in Section 3 hereof, after the criminal action has been commenced, the civil action which has been reserved cannot be instituted until final judgment in the criminal action. xxxx (b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. According to respondent Nicdao, the assailed CA decision has already made a finding to the effect that the fact upon which her civil liability might arise did not exist. She refers to the ruling of the CA that the P20,000,000.00 check was stolen; hence, petitioner Ching did not acquire any right or interest over the said check and could not assert any cause of action founded on the said check. Consequently, the CA held that respondent Nicdao had no obligation to make good the stolen check and cannot be held liable for violation of BP 22. She also refers to the CAs pronouncement relative to the ten (10) other checks that they were not issued to apply on account or for value, considering that the loan obligations secured by these checks had already been extinguished by her full payment thereof. To respondent Nicdaos mind, these pronouncements are equivalent to a finding that the facts upon which her civil liability may arise do not exist. The instant petition, which seeks to enforce her civil liability based on the eleven (11) checks, is thus allegedly already barred by the final and executory decision acquitting her. In any case, respondent Nicdao contends that the CA did not commit serious misapprehension of facts when it found that the P20,000,000.00 check was a stolen check and that she never made any transaction with petitioner Ching. Moreover, the other ten (10) checks were not issued to apply on account or for value. These findings are allegedly supported by the evidence on record which consisted of the respective testimonies of the defense witnesses to the effect that: respondent Nicdao had the practice of leaving presigned checks placed inside an unsecured cash box in the Vignette Superstore; the salesladies were given the authority to fill up the said checks as to the amount, payee and date; Nuguid beguiled respondent Nicdao to obtain loans from her; as security for the loans, respondent Nicdao issued checks to Nuguid; when the salesladies gave the checks to Nuguid, she instructed them to leave blank the payee and date; Nuguid had access to the grocery store; in 1995, one of the salesladies reported that a check was missing; in 1997, when she had fully paid her loans to Nuguid, respondent Nicdao tried to retrieve her checks but Nuguid and petitioner Ching falsely told her that she still owed them money; they then maliciously filled up the checks making it appear that petitioner Ching was the payee in the five checks and the six others were payable to "cash"; and knowing fully well that these

Page 516 of 1485

checks were not funded because respondent Nicdao already fully paid her loans, petitioner Ching and Nuguid deposited the checks and caused them to be dishonored by HSLB. It is pointed out by respondent Nicdao that her testimony (that the P20,000,000.00 check was the same one that she lost sometime in 1995) was corroborated by the respective testimonies of her employees. Another indication that it was stolen was the fact that among all the checks which ended up in the hands of petitioner Ching and Nuguid, only the P20,000,000.00 check was fully typewritten; the rest were invariably handwritten as to the amounts, payee and date. Respondent Nicdao defends the CAs conclusion that the P20,000,000.00 check was stolen on the ground that an appeal in a criminal case throws open the whole case to the appellate courts scrutiny. In any event, she maintains that she had been consistent in her theory of defense and merely relied on the disputable presumption that the person in possession of a stolen article is presumed to be the author of the theft. Considering that it was stolen, respondent Nicdao argues, the P20,000,000.00 check was an incomplete and undelivered instrument in the hands of petitioner Ching and he did not acquire any right or interest therein. Further, he cannot assert any cause of action founded on the said stolen check. Accordingly, petitioner Chings attempt to collect payment on the said check through the instant petition must fail. Respondent Nicdao describes as downright incredible petitioner Chings testimony that she owed him a total sum of P20,950,000.00 without any documentary proof of the loan transactions. She submits that it is contrary to human experience for loan transactions involving such huge amounts of money to be devoid of any documentary proof. In relation thereto, respondent Nicdao underscores that petitioner Ching lied about being employed as a salesman of La Suerte Cigar and Cigarette Manufacturing. It is underscored that he has not adequately shown that he possessed the financial capacity to lend such a huge amount to respondent Nicdao as he so claimed. Neither could she be held liable for the ten (10) other checks (in the total amount of P950,000,000.00) because as respondent Nicdao asseverates, she merely issued them to Nuguid as security for her loans obtained from the latter beginning October 1995 up to 1997. As evidenced by the Planters Bank demand draft in the amount of P1,200,000.00, she already made payment in 1996. The said demand draft was negotiated to petitioner Chings account and he admitted receipt thereof. Respondent Nicdao belies his claim that the demand draft was payment for a prior existing obligation. She asserts that petitioner Ching was unable to present evidence of such a previous transaction. In addition to the Planters Bank demand draft, respondent Nicdao insists that petitioner Ching received, through Nuguid, cash payments as evidenced by the computations written at the back of the cigarette wrappers. Nuguid went to the Vignette Superstore everyday to collect these payments. The other defense witnesses corroborated this fact. Petitioner Ching allegedly never disputed the accuracy of the accounts appearing on these cigarette wrappers; nor did he dispute their authenticity and accuracy. Based on the foregoing evidence, the CA allegedly correctly held that, computing the amount of the Planters Bank demand draft (P1,200,000.00) and those reflected at the back of the cigarette wrappers (P5,780,000.00), respondent Nicdao had already paid petitioner Ching and Nuguid a total sum of P6,980,000.00 for her loan obligations totaling only P950,000.00, as secured by the ten (10) HSLB checks excluding the stolen P20,000,000.00 check.

Page 517 of 1485

Respondent Nicdao rebuts petitioner Chings argument (that the daily payments were applied to the interests), and claims that this is illegal. Petitioner Ching cannot insist that the daily payments she made applied only to the interests on the loan obligations, considering that there is admittedly no document evidencing these loans, hence, no written stipulation for the payment of interests thereon. On this point, she invokes Article 1956 of the Civil Code, which proscribes the collection of interest payments unless expressly stipulated in writing. Respondent Nicdao emphasizes that the ten (10) other checks that she issued to Nuguid as security for her loans had already been discharged upon her full payment thereof. It is her belief that these checks can no longer be used to coerce her to pay a debt that she does not owe. On the CAs failure to consolidate CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054, respondent Nicdao proffers the explanation that under the RIRCA, consolidation of the cases is not mandatory. In fine, respondent Nicdao urges the Court to deny the petition as it failed to discharge the burden of proving her civil liability with the required preponderance of evidence. Moreover, the CAs acquittal of respondent Nicdao is premised on the finding that, apart from the stolen check, the ten (10) other checks were not made to apply to a valid, due and demandable obligation. This, in effect, is a categorical ruling that the fact from which the civil liability of respondent Nicdao may arise does not exist. The Courts Rulings The petition is denied for lack of merit. Notwithstanding respondent Nicdaos acquittal, petitioner Ching is entitled to appeal the civil aspect of the case within the reglementary period It is axiomatic that "every person criminally liable for a felony is also civilly liable." 34 Under the pertinent provision of the Revised Rules of Court, the civil action is generally impliedly instituted with the criminal action. At the time of petitioner Chings filing of the Informations against respondent Nicdao, Section 1,35 Rule 111 of the Revised Rules of Court, quoted earlier, provided in part: SEC. 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action. Such civil action includes the recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused. xxxx As a corollary to the above rule, an acquittal does not necessarily carry with it the extinguishment of the civil liability of the accused. Section 2(b) 36 of the same Rule, also quoted earlier, provided in part:

Page 518 of 1485

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. It is also relevant to mention that judgments of acquittal are required to state "whether the evidence of the prosecution absolutely failed to prove the guilt of the accused or merely failed to prove his guilt beyond reasonable doubt. In either case, the judgment shall determine if the act or omission from which the civil liability might arise did not exist." 37 In Sapiera v. Court of Appeals, 38 the Court enunciated that the civil liability is not extinguished by acquittal: (a) where the acquittal is based on reasonable doubt; (b) where the court expressly declares that the liability of the accused is not criminal but only civil in nature; and (c) where the civil liability is not derived from or based on the criminal act of which the accused is acquitted. Thus, under Article 29 of the Civil Code ART. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a preponderance of evidence. Upon motion of the defendant, the court may require the plaintiff to file a bond to answer for damages in case the complaint should be found to be malicious. If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground. The Court likewise expounded in Salazar v. People 39 the consequences of an acquittal on the civil aspect in this wise: The acquittal of the accused does not prevent a judgment against him on the civil aspect of the criminal case where: (a) the acquittal is based on reasonable doubt as only preponderance of evidence is required; (b) the court declared that the liability of the accused is only civil; (c) the civil liability of the accused does not arise from or is not based upon the crime of which the accused is acquitted. Moreover, the civil action based on the delict is extinguished if there is a finding in the final judgment in the criminal action that the act or omission from which the civil liability may arise did not exist or where the accused did not commit the act or omission imputed to him. If the accused is acquitted on reasonable doubt but the court renders judgment on the civil aspect of the criminal case, the prosecution cannot appeal from the judgment of acquittal as it would place the accused in double jeopardy. However, the aggrieved party, the offended party or the accused or both may appeal from the judgment on the civil aspect of the case within the period therefor. From the foregoing, petitioner Ching correctly argued that he, as the offended party, may appeal the civil aspect of the case notwithstanding respondent Nicdaos acquittal by the CA. The civil action was impliedly instituted with the criminal action since he did not reserve his right to institute it separately nor did he institute the civil action prior to the criminal action. Following the long recognized rule that "the appeal period accorded to the accused should also be available to the offended party who seeks redress of the civil aspect of the decision," the period to appeal granted to petitioner Ching is the same as that granted to the accused.40 With petitioner Chings timely filing of the instant petition for review of the civil

Page 519 of 1485

aspect of the CAs decision, the Court thus has the jurisdiction and authority to determine the civil liability of respondent Nicdao notwithstanding her acquittal. In order for the petition to prosper, however, it must establish that the judgment of the CA acquitting respondent Nicdao falls under any of the three categories enumerated in Salazar and Sapiera, to wit: (a) where the acquittal is based on reasonable doubt as only preponderance of evidence is required; (b) where the court declared that the liability of the accused is only civil; and (c) where the civil liability of the accused does not arise from or is not based upon the crime of which the accused is acquitted. Salazar also enunciated that the civil action based on the delict is extinguished if there is a finding in the final judgment in the criminal action that the act or omission from which the civil liability may arise did not exist or where the accused did not commit the act or omission imputed to him. For reasons that will be discussed shortly, the Court holds that respondent Nicdao cannot be held civilly liable to petitioner Ching. The acquittal of respondent Nicdao likewise effectively extinguished her civil liability A painstaking review of the case leads to the conclusion that respondent Nicdaos acquittal likewise carried with it the extinction of the action to enforce her civil liability. There is simply no basis to hold respondent Nicdao civilly liable to petitioner Ching. First, the CAs acquittal of respondent Nicdao is not merely based on reasonable doubt. Rather, it is based on the finding that she did not commit the act penalized under BP 22. In particular, the CA found that the P20,000,000.00 check was a stolen check which was never issued nor delivered by respondent Nicdao to petitioner Ching. As such, according to the CA, petitioner Ching "did not acquire any right or interest over Check No. 002524 and cannot assert any cause of action founded on said check," 41 and that respondent Nicdao "has no obligation to make good the stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22."42 With respect to the ten (10) other checks, the CA established that the loans secured by these checks had already been extinguished after full payment had been made by respondent Nicdao. In this connection, the second element for the crime under BP 22, i.e., "that the check is made or drawn and issued to apply on account or for value," is not present. Second, in acquitting respondent Nicdao, the CA did not adjudge her to be civilly liable to petitioner Ching. In fact, the CA explicitly stated that she had already fully paid her obligations. The CA computed the payments made by respondent Nicdao vis--vis her loan obligations in this manner: Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in her own handwriting totaling P5,780,000.00 and the P1,200,000.00 demand draft received by Emma Nuguid, it would appear that petitioner [respondent herein] had already

Page 520 of 1485

made payments in the total amount of P6,980,000.00 for her loan obligation of only P2,100,000.00 (P950,000.00 in the case at bar and P1,150,000.00 in CA-G.R. CR No. 23054).43 On the other hand, its finding relative to the P20,000,000.00 check that it was a stolen check necessarily absolved respondent Nicdao of any civil liability thereon as well. Third, while petitioner Ching attempts to show that respondent Nicdaos liability did not arise from or was not based upon the criminal act of which she was acquitted (ex delicto) but from her loan obligations to him (ex contractu), however, petitioner Ching miserably failed to prove by preponderant evidence the existence of these unpaid loan obligations. Significantly, it can be inferred from the following findings of the CA in its decision acquitting respondent Nicdao that the act or omission from which her civil liability may arise did not exist. On the P20,000,000.00 check, the CA found as follows: True, indeed, the missing pre-signed and undated check no. 002524 surfaced in the possession of complainant Ching who, in cahoots with his paramour Emma Nuguid, filled up the blank check with his name as payee and in the fantastic amount of P20,000,000.00, dated it October 6, 1997, and presented it to the bank on October 7, 1997, along with the other checks, for payment. Therefore, the inference that the check was stolen is anchored on competent circumstantial evidence. The fact already established is that Emma Nuguid , previous owner of the store, had access to said store. Moreover, the possession of a thing that was stolen , absent a credible reason, as in this case, gives rise to the presumption that the person in possession of the stolen article is presumed to be guilty of taking the stolen article (People v. Zafra, 237 SCRA 664). As previously shown, at the time check no. 002524 was stolen, the said check was blank in its material aspect (as to the name of payee, the amount of the check, and the date of the check), but was already pre-signed by petitioner. In fact, complainant Ching himself admitted that check no. 002524 in his possession was a blank check (TSN, Jan. 7, 1998, pp. 24-27, Annex J, Petition). Moreover, since it has been established that check no. 002524 had been missing since 1995 (TSN, Sept. 9, 1998, pp. 14-15, Annex DD, Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE, Petition), it is abundantly clear that said check was never delivered to complainant Ching. Check no. 002524 was an incomplete and undelivered instrument when it was stolen and ended up in the hands of complainant Ching. Sections 15 and 16 of the Negotiable Instruments Law provide: xxxx In the case of check no. 002524, it is admitted by complainant Ching that said check in his possession was a blank check and was subsequently completed by him alone without authority from petitioner. Inasmuch as check no. 002524 was incomplete and undelivered in the hands of complainant Ching, he did not acquire any right or interest therein and cannot, therefore, assert any cause of action founded on said stolen check (Development Bank of the Philippines v. Sima We, 219 SCRA 736, 740). It goes without saying that since complainant Ching did not acquire any right or interest over check no. 002524 and cannot assert any cause of action founded on said check, petitioner has no obligation to make good the stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22.44

Page 521 of 1485

Anent the other ten (10) checks, the CA made the following findings: Evidence sufficiently shows that the loans secured by the ten (10) checks involved in the cases subject of this petition had already been paid. It is not controverted that petitioner gave Emma Nuguid a demand draft valued at P1,200,000 to pay for the loans guaranteed by said checks and other checks issued to her. Samson Ching admitted having received the demand draft which he deposited in his bank account. However, complainant Samson Ching claimed that the said demand draft represents payment for a previous obligation incurred by petitioner. However, complainant Ching failed to adduce any evidence to prove the existence of the alleged obligation of the petitioner prior to those secured by the subject checks. Apart from the payment to Emma Nuguid through said demand draft, it is also not disputed that petitioner made cash payments to Emma Nuguid who collected the payments almost daily at the Vignette Superstore. As of July 21, 1997, Emma Nuguid collected cash payments amounting to approximately P5,780,000.00. All of these cash payments were recorded at the back of cigarette cartons by Emma Nuguid in her own handwriting, the authenticity and accuracy of which were never denied by either complainant Ching or Emma Nuguid. Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in her own handwriting totaling P5,780,000.00 and the P1,200,000.00 demand draft received by Emma Nuguid, it would appear that petitioner had already made payments in the total amount of P6,980,000.00 for her loan in the total amount of P6,980,000.00 for her loan obligation of only P2,100,000.00 (P950,000.00 in the case at bar and P1,150,000.00 in CA-G.R. CR No. 23054).45 Generally checks may constitute evidence of indebtedness. 46 However, in view of the CAs findings relating to the eleven (11) checks - that the P20,000,000.00 was a stolen check and the obligations secured by the other ten (10) checks had already been fully paid by respondent Nicdao they can no longer be given credence to establish respondent Nicdaos civil liability to petitioner Ching. Such civil liability, therefore, must be established by preponderant evidence other than the discredited checks. After a careful examination of the records of the case, 47 the Court holds that the existence of respondent Nicdaos civil liability to petitioner Ching in the amount of P20,950,000.00 representing her unpaid obligations to the latter has not been sufficiently established by preponderant evidence. Petitioner Ching mainly relies on his testimony before the MCTC to establish the existence of these unpaid obligations. In gist, he testified that from October 1995 up to 1997, respondent Nicdao obtained loans from him in the total amount of P20,950,000.00. As security for her obligations, she issued eleven (11) checks which were invariably blank as to the date, amounts and payee. When respondent Nicdao allegedly refused to pay her obligations despite his due demand, petitioner filled up the checks in his possession with the corresponding amounts and date and deposited them in his account. They were subsequently dishonored by the HSLB for being "DAIF" and petitioner Ching accordingly filed the criminal complaints against respondent Nicdao for violation of BP 22. It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations Et incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio nulla sit (The proof lies upon him who affirms, not upon him who denies; since, by the nature of things, he who denies a fact cannot produce any proof). 48 In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater

Page 522 of 1485

weight of evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.49 Section 1, Rule 133 of the Revised Rules of Court offers the guidelines in determining preponderance of evidence: SEC. 1. Preponderance of evidence, how determined. In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. In determining where the preponderance or superior weight of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the witnesses manner of testifying, their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify, the probability or improbability of their testimony, their interest or want of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily with the greater number. Unfortunately, petitioner Chings testimony alone does not constitute preponderant evidence to establish respondent Nicdaos civil liability to him amounting to P20,950,000.00. Apart from the discredited checks, he failed to adduce any other documentary evidence to prove that respondent Nicdao still has unpaid obligations to him in the said amount. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under our Rules. 50 In contrast, respondent Nicdaos defense consisted in, among others, her allegation that she had already paid her obligations to petitioner Ching through Nuguid. In support thereof, she presented the Planters Bank demand draft for P1,200,000.00. The said demand draft was negotiated to petitioner Chings account and he admitted receipt of the value thereof. Petitioner Ching tried to controvert this by claiming that it was payment for a previous transaction between him and respondent Nicdao. However, other than his self-serving claim, petitioner Ching did not proffer any documentary evidence to prove the existence of the said previous transaction. Considering that the Planters Bank demand draft was dated August 13, 1996, it is logical to conclude that, absent any evidence to the contrary, it formed part of respondent Nicdaos payment to petitioner Ching on account of the loan obligations that she obtained from him since October 1995. Additionally, respondent Nicdao submitted as evidence the cigarette wrappers at the back of which were written the computations of the daily payments that she had made to Nuguid. The fact of the daily payments was corroborated by the other witnesses for the defense, namely, Jocelyn Nicdao and Tolentino. As found by the CA, based on these computations, respondent Nicdao had made a total payment of P5,780,000.00 to Nuguid as of July 21, 1997.51 Again, the payments made, as reflected at the back of these cigarette wrappers, were not disputed by petitioner Ching. Hence, these payments as well as the amount of the Planters Bank demand draft establish that respondent Nicdao already paid the total amount of P6,980,000.00 to Nuguid and petitioner Ching. The Court agrees with the CA that the daily payments made by respondent Nicdao amounting to P5,780,000.00 cannot be considered as interest payments only. Even respondent Nicdao testified that the daily payments that she made to Nuguid were for the interests due. However, as correctly ruled by the CA, no interests could be properly collected in the loan transactions between petitioner Ching and respondent Nicdao because there was no stipulation therefor in writing. To reiterate, under Article 1956 of the Civil Code, "no interest shall be due unless it has been expressly stipulated in writing."

Page 523 of 1485

Neither could respondent Nicdao be considered to be estopped from denying the validity of these interests. Estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.52 Clearly, the collection of interests without any stipulation therefor in writing is prohibited by law. Consequently, the daily payments made by respondent Nicdao amounting to P5,780,000.00 were properly considered by the CA as applying to the principal amount of her loan obligations. With respect to the P20,000,000.00 check, the defense of respondent Nicdao that it was stolen and that she never issued or delivered the same to petitioner Ching was corroborated by the other defense witnesses, namely, Tolentino and Jocelyn Nicdao. All told, as between petitioner Ching and respondent Nicdao, the requisite quantum of evidence - preponderance of evidence - indubitably lies with respondent Nicdao. As earlier intimated, she cannot be held civilly liable to petitioner Ching for her acquittal; under the circumstances which have just been discussed lengthily, such acquittal carried with it the extinction of her civil liability as well. The CA committed no reversible error in not consolidating CA-G.R. CR No. 23055 and CAG.R. CR No. 23054 During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054 in the CA, the pertinent provision of the RIRCA on consolidation of cases provided: SEC. 7. Consolidation of Cases. Whenever two or more allied cases are assigned to different Justices, they may be consolidated for study and report to a single Justice. (a) At the instance of any party or Justice to whom the case is assigned for study and report, and with the conformity of all the Justices concerned, the consolidation may be allowed when the cases to be consolidated involve the same parties and/or related questions of fact and/or law.53 The use of the word "may" denotes the permissive, not mandatory, nature of the above provision, Thus, no grave error could be imputed to the CA when it proceeded to render its decision in CA-G.R. CR No. 23055, without consolidating it with CA-G.R. CR No. 23054. WHEREFORE, premises considered, the Petition is DENIED for lack of merit. SO ORDERED. Republic SUPREME Manila FIRST DIVISION G.R. No. 160127 November 11, 2008 petitioner of the Philippines COURT

RAFAEL P. LUNARIA, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION

Page 524 of 1485

PUNO, C.J.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, to reverse and set aside the Decision of the Court of Appeals (CA), 1 and the Resolution which denied petitioner's motion for reconsideration. The CA affirmed the decision of the Regional Trial Court (RTC) of Valenzuela City, Branch 75,2 finding petitioner Rafael Lunaria guilty of one (1) count violation of Batas Pambansa (B.P.) Blg. 22. The Case Records3 show that sometime in October 1988, petitioner entered into a partnership agreement with private complainant Nemesio Artaiz, in the conduct of a money-lending business, with the former as industrial partner and the latter the financer. Petitioner, who was then a cashier of Far East Bank and Trust Company in Meycauayan, Bulacan, would offer loans to prospective borrowers which his branch was unable to accommodate. At the start of the business, petitioner would first inform Artaiz of the amount of the proposed loan, then the latter would issue a check charged against his account in the bank (proceeds of which will go to a borrower), while petitioner would in turn issue a check to Artaiz corresponding to the amount lent plus the agreed share of interest. The lending business progressed satisfactorily between the parties and sufficient trust was established between the parties that they both agreed to issue pre-signed checks to each other, for their mutual convenience. The checks were signed but had no payee's name, date or amount, and each was given the authority to fill these blanks based on each other's advice. The arrangement ended on November 1989, when Artaiz was no longer willing to continue the partnership.4 One of the checks issued by petitioner to Artaiz was dishonored for insufficient funds. 5 When Artaiz went to petitioner to ask why the latter's check had bounced, petitioner told Artaiz that he had been implicated in a murder case and therefore could not raise the money to fund the check. 6 Petitioner requested Artaiz not to deposit the other checks that would become due as he still had a case.7 Petitioner was charged with murder in December 1989 and detained until May 1990, when he was released on bail. He was eventually acquitted in December 1990. According to Artaiz, he went to petitioner in May 1990, after petitioner had been released on bail, and demanded payment for the money owed Artaiz. Petitioner again requested more time to prepare the money and collect on the loans. Artaiz agreed.8 In June 1990, petitioner allegedly went to Artaiz's residence where both had an accounting. It was supposedly agreed that petitioner owed Artaiz P844,000.00 and petitioner issued a check in that amount, post-dated to December 1990.9 When the check became due and demandable, Artaiz deposited it. The check was dishonored as the account had been closed. A demand letter was subsequently sent to petitioner, informing him of the dishonor of his check, with a demand that he pay the obligation.10 Artaiz also went to petitioner's house to get a settlement. According to Artaiz, petitioner proposed that his house and lot be given as security. But after Artaiz's lawyer had prepared the document, petitioner refused to sign. At this point, Artaiz filed the instant case.11 The RTC found petitioner guilty as charged and sentenced him to suffer the penalty of imprisonment of one (1) year, and to pay Artaiz the amount of P844,000.00, and the cost of suit.12

Page 525 of 1485

On appeal, the CA found no error and affirmed the decision in toto.13 The Issues In the petition before us, petitioner alleges that the CA gravely erred in: I. Not reversing the RTC decision convicting petitioner for violation of B.P. Bilang 22; II. Not holding that the prosecution failed to establish the elements of the crime of the violation of B.P. Bilang 22: 1. the prosecution failed to establish that the subject check was duly "made" or "drawn" and "issued" by petitioner; 2. the subject check was received by the private complainant without giving any consideration therefore; 3. the oral testimony of private complainant is full of serious inconsistencies and contradictions and should have been disregarded by the trial court; 4. private complainant's testimony should have been stricken off the records for being hearsay in nature; 5. the prosecution dismally failed to overcome the presumption of innocence of the accused in criminal cases; 6. to hold petitioner liable for violation of B.P. Blg. 22 in this case would result in a terrible injustice; III. In the alternative, in not applying in petitioner's favor the rule of preference in the imposition of penalties in B.P. Blg. 22 cases, i.e., the [CA] erred gravely in not deleting the penalty of imprisonment and imposing in lieu thereof a fine upon petitioner. The Ruling We affirm the conviction but with modification on the penalty. At the outset, the first and second grounds raised by petitioner are essentially factual in nature, impugning the finding of guilt by both the CA and the RTC. Petitioner would have this court re-evaluate and re-assess the facts, when it is beyond cavil that in an appeal by certiorari, the jurisdiction of this Court is confined to reviews of errors of law ascribed to the CA. This Court is not a trier of facts, and the findings of fact by the CA are conclusive, more so when it concurs with the factual findings of the RTC. Absent any showing that such findings are devoid of any substantiation on record, the finding of guilt is conclusive on us. 14 Moreover, we have gone over the records and find no error in the decision of the appellate court holding that the elements of the crime have been established by the prosecution, i.e., (1) the making, drawing, and issuance of any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for

Page 526 of 1485

insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. 15 Petitioner makes much of the argument that the check was not "made" or "drawn" within the contemplation of the law, nor was it for a consideration. The evidence on record belies these assertions. As correctly held by the CA: Under the first element, [petitioner] wants Us to believe that he did not draw and issue the check. Citing the Negotiable Instruments Law, he said the he could not have "drawn" and "issued" the subject check because "it was not complete in form at the time it was given to [Artaiz]." At the outset, it should be borne in mind that the exchange of the pre-signed checks without date and amount between the parties had been their practice for almost a year by virtue of their money-lending business. They had authority to fill up blanks upon information that a check can then be issued. Thus, under the Negotiable Instruments Law, Section 14 of which reads: "Blanks, when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has prima facie authority to complete it by filling up the blanks therein. xxx" [T]his practice is allowed. Because of the presumption of authority, the burden of proof that there was no authority or that authority granted was exceeded is carried by the person who questions such authority. Records show that [petitioner] had not proven lack of authority on the part of Artaiz to fill up such blanks. Having failed to prove lack of authority, it can be presumed that Artaiz was within his rights to fill up blanks on the check. xxx xxx xxx Under the second element, [petitioner] states that the making and issuing of the check was devoid of consideration. He claimed that the transaction for which the check was issued did not materialize. However, it should be noted that when lack of consideration is claimed, it pertains to total lack of consideration. In this case, records show that [petitioner] recognized that there was an amount due to Artaiz, such that he had his own version of computation with respect to the amount he owed to Artaiz.16 We also note that with respect to the second element of the crime, consideration was duly established in Artaiz's testimony.17 It bears repeating that the lack of criminal intent on the part of the accused is irrelevant. 18 The law has made the mere act of issuing a worthless check a malum prohibitum, an act proscribed by legislature for being deemed pernicious and inimical to public welfare. 19 In fact, even in cases where there had been payment, through compensation or some other means, there could still be prosecution for violation of B.P. 22. The gravamen of the offense

Page 527 of 1485

under this law is the act of issuing a worthless check or a check that is dishonored upon its presentment for payment, not the nonpayment of the obligation. 20 We now come to the penalty imposed. On this ground, we rule for petitioner. Since 1998,21 this Court has held that it would best serve the ends of criminal justice if, in fixing the penalty to be imposed for violation of B.P. 22, the same philosophy underlying the Indeterminate Sentence Law be observed, i.e., that of redeeming valuable human material and preventing unnecessary deprivation of personal liberty and economic usefulness with due regard to the protection of the social order. 22 This policy was embodied in Supreme Court Administrative Circular No. 12-2000, 23 authorizing the non-imposition of the penalty of imprisonment in B.P. 22 cases. We also clarified in Administrative Circular No. 13-2001, as explained in Tan v. Mendez,24 that we are not decriminalizing B.P. 22 violations, nor have we removed imprisonment as an alternative penalty. Needless to say, the determination of whether the 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 to be deemed a hindrance. Nevertheless, we note that ultimately, this case was a derivative of the breakdown of petitioner and Artaiz's partnership, which was precipitated by petitioner being implicated and detained for a murder charge, from which he was subsequently acquitted. Under the circumstances of the case, and bearing in mind the guidelines set in Administrative Circular No. 13-2004, we deem the imposition of a fine alone would best serve the interests of justice, pegged at the maximum amount provided for by law, which is two hundred thousand pesos (P200,000.00),25 with the proviso that subsidiary imprisonment will be meted out which shall not exceed six months in case of insolvency or nonpayment. Petitioner should also pay Artaiz the amount of P844,000.00, and the cost of suit. IN VIEW WHEREOF, the petition is DENIED and the Decision of the Court of Appeals in CAG.R. CR No. 20343 is AFFIRMED with MODIFICATION. Petitioner is ordered to indemnify Nemesio Artaiz in the amount of P844,000.00 and the cost of suit, with legal interest from date of judicial demand. The sentence of imprisonment of one (1) year is SET ASIDE and, in lieu thereof, a FINE in the amount of P200,000.00 is imposed upon petitioner, with subsidiary imprisonment not to exceed six months in case of insolvency or nonpayment. SO ORDERED. Republic SUPREME Manila SECOND DIVISION G.R. No. 158312 JOHN vs. PEOPLE OF respondents. DECISION November 14, 2008 DY, THE PHILIPPINES and The petitioner, HONORABLE COURT OF APPEALS, of the Philippines COURT

Page 528 of 1485

QUISUMBING, Acting C.J.: This appeal prays for the reversal of the Decision 1 dated January 23, 2003 and the Resolution2 dated May 14, 2003 of the Court of Appeals in CA-G.R. CR No. 23802. The appellate court affirmed with modification the Decision 3 dated November 17, 1999 of the Regional Trial Court (RTC), Branch 82 of Quezon City, which had convicted petitioner John Dy of two counts of estafa in Criminal Cases Nos. Q-93-46711 and Q-93-46713, and two counts of violation of Batas Pambansa Bilang 224 (B.P. Blg. 22) in Criminal Cases Nos. Q-93-46712 and Q-93-46714. The facts are undisputed: Since 1990, John Dy has been the distributor of W.L. Food Products (W.L. Foods) in Naga City, Bicol, under the business name Dyna Marketing. Dy would pay W.L. Foods in either cash or check upon pick up of stocks of snack foods at the latter's branch or main office in Quezon City. At times, he would entrust the payment to one of his drivers. On June 24, 1992, Dy's driver went to the branch office of W.L. Foods to pick up stocks of snack foods. He introduced himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's credit with the main office, gave him merchandise worth P106,579.60. In return, the driver handed her a blank Far East Bank and Trust Company (FEBTC) Check with Check No. 553602 postdated July 22, 1992. The check was signed by Dy though it did not indicate a specific amount. Yet again, on July 1, 1992, the same driver obtained snack foods from Maraca in the amount of P226,794.36 in exchange for a blank FEBTC Check with Check No. 553615 postdated July 31, 1992. In both instances, the driver was issued an unsigned delivery receipt. The amounts for the purchases were filled in later by Evelyn Ong, accountant of W.L. Foods, based on the value of the goods delivered. When presented for payment, FEBTC dishonored the checks for insufficiency of funds. Raul D. Gonzales, manager of FEBTC-Naga Branch, notified Atty. Rita Linda Jimeno, counsel of W.L. Foods, of the dishonor. Apparently, Dy only had an available balance of P2,000 as of July 22, 1992 and July 31, 1992. Later, Gonzales sent Atty. Jimeno another letter 5 advising her that FEBTC Check No. 553602 for P106,579.60 was returned to the drawee bank for the reasons stop payment order and drawn against uncollected deposit (DAUD), and not because it was drawn against insufficient funds as stated in the first letter. Dy's savings deposit account ledger reflected a balance of P160,659.39 as of July 22, 1992. This, however, included a regional clearing check for P55,000 which he deposited on July 20, 1992, and which took five (5) banking days to clear. Hence, the inward check was drawn against the yet uncollected deposit. When William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter explained that he could not pay since he had no funds yet. This prompted the former to send petitioner a demand letter, which the latter ignored. On July 16, 1993, Lim charged Dy with two counts of estafa under Article 315, paragraph 2(d)6 of the Revised Penal Code in two Informations, which except for the dates and amounts involved, similarly read as follows:

Page 529 of 1485

That on or about the 24th day of June, 1992, in Quezon City, Philippines, the said accused, did then and there [willfully] and feloniously defraud W.L. PRODUCTS, a corporation duly organized and existing under the laws of the Republic of the Philippines with business address at No. 531 Gen. Luis St., Novaliches, this City, in the following manner, to wit: the said accused, by means of false manifestations and fraudulent representation which he made to complainant to the effect that Far East Bank and Trust Co. check No. 553602 dated July 22, 1992 in the amount of P106,579.60, payable to W.L. Products is a good check and will be honored by the bank on its maturity date, and by means of other deceit of similar import, induced and succeeded in inducing the said complainant to receive and accept the aforesaid check in payment of snack foods, the said accused knowing fully well that all his manifestations and representations were false and untrue and were made solely for the purpose of obtaining, as in fact he did obtain the aforesaid snack foods valued at P106,579.60 from said complainant as upon presentation of said check to the bank for payment, the same was dishonored and payment thereof refused for the reason stop payment and the said accused, once in possession of the aforesaid snack foods, with intent to defraud, [willfully], unlawfully and feloniously misapplied, misappropriated and converted the same or the value thereof to his own personal use and benefit, to the damage and prejudice of said W.L. Products, herein represented by RODOLFO BORJAL, in the aforementioned amount of P106,579.60, Philippine Currency. Contrary to law.7 On even date, Lim also charged Dy with two counts of violation of B.P. Blg. 22 in two Informations which likewise save for the dates and amounts involved similarly read as follows: That on or about the 24th day of June, 1992, the said accused, did then and there [willfully], unlawfully and feloniously make or draw and issue to W.L. FOOD PRODUCTS to apply on account or for value a Far East Bank and Trust Co. Check no. 553602 dated July 22, 1992 payable to W.L. FOOD PRODUCTS in the amount of P106,579.60 Philippine Currency, said accused knowing fully well that at the time of issue he/she/they 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 90 days from the date thereof was subsequently dishonored by the drawee bank for the reason "Payment stopped" but the same would have been dishonored for insufficient funds had not the accused without any valid reason, ordered the bank to stop payment, the said accused despite receipt of notice of such dishonor, failed to pay said W.L. Food Products the amount of said check or to make arrangement for payment in full of the same within five (5) banking days after receiving said notice. CONTRARY TO LAW.8 On November 23, 1994, Dy was arrested in Naga City. On arraignment, he pleaded not guilty to all charges. Thereafter, the cases against him were tried jointly. On November 17, 1999 the RTC convicted Dy on two counts each of estafa and violation of B.P. Blg. 22. The trial court disposed of the case as follows: WHEREFORE, accused JOHN JERRY DY ALDEN (JOHN DY) is hereby found GUILTY beyond reasonable doubt of swindling (ESTAFA) as charged in the Informations in Criminal Case No. 93-46711 and in Criminal Case No. Q-93-46713, respectively.

Page 530 of 1485

Accordingly, after applying the provisions of the Indeterminate Sentence Law and P.D. No. 818, said accused is hereby sentenced to suffer the indeterminate penalty of ten (10) years and one (1) day to twelve (12) years of prision mayor, as minimum, to twenty (20) years of reclusion temporal, as maximum, in Criminal Case No. Q-9346711 and of ten (10) years and one (1) day to twelve (12) years of prision mayor, as minimum, to thirty (30) years of reclusion perpetua, as maximum, in Criminal Case No. Q-93-46713. Likewise, said accused is hereby found GUILTY beyond reasonable doubt of Violation of B.P. 22 as charged in the Informations in Criminal Case No. Q-93-46712 and in Criminal Case No. Q-93-46714 and is accordingly sentenced to imprisonment of one (1) year for each of the said offense and to pay a fine in the total amount of P333,373.96, with subsidiary imprisonment in case of insolvency. FINALLY, judgment is hereby rendered in favor of private complainant, W. L. Food Products, herein represented by Rodolfo Borjal, and against herein accused JOHN JERRY DY ALDEN (JOHN DY), ordering the latter to pay to the former the total sum of P333,373.96 plus interest thereon at the rate of 12% per annum from September 28, 1992 until fully paid; and, (2) the costs of this suit. SO ORDERED.9 Dy brought the case to the Court of Appeals. In the assailed Decision of January 23, 2003, the appellate court affirmed the RTC. It, however, modified the sentence and deleted the payment of interests in this wise: WHEREFORE, in view of the foregoing, the decision appealed from is hereby AFFIRMED with MODIFICATION. In Criminal Case No. Q-93-46711 (for estafa), the accused-appellant JOHN JERRY DY ALDEN (JOHN DY) is hereby sentenced to suffer an indeterminate penalty of imprisonment ranging from six (6) years and one (1) day of prision mayor as minimum to twenty (20) years of reclusion temporal as maximum plus eight (8) years in excess of [P]22,000.00. In Criminal Case No. Q93-46712 (for violation of BP 22) , accused-appellant is sentenced to suffer an imprisonment of one (1) year and to indemnify W.L. Food Products, represented by Rodolfo Borjal, the amount of ONE HUNDRED SIX THOUSAND FIVE HUNDRED SEVENTY NINE PESOS and 60/100 ([P]106,579.60). In Criminal Case No. Q-9346713 (for estafa), accused-appellant is hereby sentenced to suffer an indeterminate penalty of imprisonment ranging from eight (8) years and one (1) day of prision mayor as minimum to thirty (30) years as maximum. Finally, in Criminal Case No. Q-93-46714 (for violation of BP 22) , accused-appellant is sentenced to suffer an imprisonment of one (1) year and to indemnify W.L. Food Products, represented by Rodolfo Borjal, the amount of TWO HUNDRED TWENTY SIX THOUSAND SEVEN HUNDRED NINETY FOUR PESOS AND 36/100 ([P]226,794.36). SO ORDERED.10 Dy moved for reconsideration, but his motion was denied in the Resolution dated May 14, 2003. Hence, this petition which raises the following issues: I.

Page 531 of 1485

WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PROSECUTION HAS PROVEN THE GUILT OF ACCUSED BEYOND REASONABLE DOUBT OF ESTAFA ON TWO (2) COUNTS? II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PROSECUTION HAS PROVEN THE GUILT OF ACCUSED BEYOND REASONABLE DOUBT OF VIOLATION OF BP 22 ON TWO (2) COUNTS? III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AWARDING DAMAGES TO PRIVATE COMPLAINANT, W.L. FOOD PRODUCTS, THE TOTAL SUM OF [P]333,373.96?11 Essentially, the issue is whether John Dy is liable for estafa and for violation of B.P. Blg. 22. First, is petitioner guilty of estafa? Mainly, petitioner contends that the checks were ineffectively issued. He stresses that not only were the checks blank, but also that W.L. Foods' accountant had no authority to fill the amounts. Dy also claims failure of consideration to negate any obligation to W.L. Foods. Ultimately, petitioner denies having deceived Lim inasmuch as only the two checks bounced since he began dealing with him. He maintains that it was his long established business relationship with Lim that enabled him to obtain the goods, and not the checks issued in payment for them. Petitioner renounces personal liability on the checks since he was absent when the goods were delivered. The Office of the Solicitor General (OSG), for the State, avers that the delivery of the checks by Dy's driver to Maraca, constituted valid issuance. The OSG sustains Ong's prima facie authority to fill the checks based on the value of goods taken. It observes that nothing in the records showed that W.L. Foods' accountant filled up the checks in violation of Dy's instructions or their previous agreement. Finally, the OSG challenges the present petition as an inappropriate remedy to review the factual findings of the trial court. We find that the petition is partly meritorious. Before an accused can be held liable for estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885, 12 the following elements must concur: (1) postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; (2) insufficiency of funds to cover the check; and (3) damage to the payee thereof.13 These elements are present in the instant case. Section 191 of the Negotiable Instruments Law 14 defines "issue" as the first delivery of an instrument, complete in form, to a person who takes it as a holder. Significantly, delivery is the final act essential to the negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker or drawer coupled with an intention to convey title to the payee and recognize him as a holder. 15 It means more than handing over to another; it imports such transfer of the instrument to another as to enable the latter to hold it for himself.16

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In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid. When the checks were delivered to Lim, through his employee, he became a holder with prima facie authority to fill the blanks. This was, in fact, accomplished by Lim's accountant. The pertinent provisions of Section 14 of the Negotiable Instruments Law are instructive: SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. . (Emphasis supplied.) Hence, the law merely requires that the instrument be in the possession of a person other than the drawer or maker. From such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks. 17 Because of this, the burden of proving want of authority or that the authority granted was exceeded, is placed on the person questioning such authority. 18 Petitioner failed to fulfill this requirement. Next, petitioner claims failure of consideration. Nevertheless, in a letter 19 dated November 10, 1992, he expressed willingness to pay W.L. Foods, or to replace the dishonored checks. This was a clear acknowledgment of receipt of the goods, which gave rise to his duty to maintain or deposit sufficient funds to cover the amount of the checks. More significantly, we are not swayed by petitioner's arguments that the single incident of dishonor and his absence when the checks were delivered belie fraud. Indeed damage and deceit are essential elements of the offense and must be established with satisfactory proof to warrant conviction.20 Deceit as an element of estafa is a specie of fraud. It is actual fraud which consists in any misrepresentation or contrivance where a person deludes another, to his hurt. There is deceit when one is misled -- by guile, trickery or by other means -- to believe as true what is really false.21 Prima facie evidence of deceit was established against petitioner with regard to FEBTC Check No. 553615 which was dishonored for insufficiency of funds. The letter 22 of petitioner's counsel dated November 10, 1992 shows beyond reasonable doubt that petitioner received notice of the dishonor of the said check for insufficiency of funds. Petitioner, however, failed to deposit the amounts necessary to cover his check within three banking days from receipt of the notice of dishonor. Hence, as provided for by law, 23 the presence of deceit was sufficiently proven. Petitioner failed to overcome the said proof of deceit. The trial court found no pre-existing obligation between the parties. The existence of prior transactions between Lim and Dy alone did not rule out deceit because each transaction was separate, and had a different consideration from the others. Even as petitioner was absent when the goods were delivered, by the principle of agency, delivery of the checks by his driver was deemed as his act as the employer. The evidence shows that as a matter of course, Dy, or his employee, would pay W.L. Foods in either cash or check upon pick up of the stocks of snack foods at the latter's branch or main office. Despite their two-year standing business relations prior to the issuance of the subject check, W.L Foods employees would not have parted with the stocks were it not for the simultaneous delivery of the check issued by petitioner. 24 Aside from the existing business relations between petitioner and W.L. Foods, the primary

Page 533 of 1485

inducement for the latter to part with its stocks of snack foods was the issuance of the check in payment of the value of the said stocks. In a number of cases,25 the Court has considered good faith as a defense to a charge of estafa by postdating a check. This good faith may be manifested by making arrangements for payment with the creditor and exerting best efforts to make good the value of the checks. In the instant case petitioner presented no proof of good faith. Noticeably absent from the records is sufficient proof of sincere and best efforts on the part of petitioner for the payment of the value of the check that would constitute good faith and negate deceit. With the foregoing circumstances established, we find petitioner guilty of estafa with regard to FEBTC Check No. 553615 for P226,794.36. The same, however, does not hold true with respect to FEBTC Check No. 553602 for P106,579.60. This check was dishonored for the reason that it was drawn against uncollected deposit. Petitioner had P160,659.39 in his savings deposit account ledger as of July 22, 1992. We disagree with the conclusion of the RTC that since the balance included a regional clearing check worth P55,000 deposited on July 20, 1992, which cleared only five (5) days later, then petitioner had inadequate funds in this instance. Since petitioner technically and retroactively had sufficient funds at the time Check No. 553602 was presented for payment then the second element (insufficiency of funds to cover the check) of the crime is absent. Also there is no prima facie evidence of deceit in this instance because the check was not dishonored for lack or insufficiency of funds. Uncollected deposits are not the same as insufficient funds. The prima facie presumption of deceit arises only when a check has been dishonored for lack or insufficiency of funds. Notably, the law speaks of insufficiency of funds but not of uncollected deposits. Jurisprudence teaches that criminal laws are strictly construed against the Government and liberally in favor of the accused.26 Hence, in the instant case, the law cannot be interpreted or applied in such a way as to expand its provision to encompass the situation of uncollected deposits because it would make the law more onerous on the part of the accused. Clearly, the estafa punished under Article 315, paragraph 2(d) of the Revised Penal Code is committed when a check is dishonored for being drawn against insufficient funds or closed account, and not against uncollected deposit.27 Corollarily, the issuer of the check is not liable for estafa if the remaining balance and the uncollected deposit, which was duly collected, could satisfy the amount of the check when presented for payment. Second, did petitioner violate B.P. Blg. 22? Petitioner argues that the blank checks were not valid orders for the bank to pay the holder of such checks. He reiterates lack of knowledge of the insufficiency of funds and reasons that the checks could not have been issued to apply on account or for value as he did not obtain delivery of the goods. The OSG maintains that the guilt of petitioner has been proven beyond reasonable doubt. It cites pieces of evidence that point to Dy's culpability: Maraca's acknowledgment that the checks were issued to W.L. Foods as consideration for the snacks; Lim's testimony proving that Dy received a copy of the demand letter; the bank manager's confirmation that petitioner had insufficient balance to cover the checks; and Dy's failure to settle his obligation within five (5) days from dishonor of the checks. Once again, we find the petition to be meritorious in part.

Page 534 of 1485

The elements of the offense penalized under B.P. Blg. 22 are as follows: (1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.28 The case at bar satisfies all these elements. During the joint pre-trial conference of this case, Dy admitted that he issued the checks, and that the signatures appearing on them were his. 29 The facts reveal that the checks were issued in blank because of the uncertainty of the volume of products to be retrieved, the discount that can be availed of, and the deduction for bad orders. Nevertheless, we must stress that what the law punishes is simply the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating thereto. 30 If inquiry into the reason for which the checks are issued, or the terms and conditions of their issuance is required, the public's faith in the stability and commercial value of checks as currency substitutes will certainly erode.31 Moreover, the gravamen of the offense under B.P. Blg. 22 is the act of making or issuing a worthless check or a check that is dishonored upon presentment for payment. The act effectively declares the offense to be one of malum prohibitum. The only valid query, then, is whether the law has been breached, i.e., by the mere act of issuing a bad check, without so much regard as to the criminal intent of the issuer. 32 Indeed, non-fulfillment of the obligation is immaterial. Thus, petitioner's defense of failure of consideration must likewise fall. This is especially so since as stated above, Dy has acknowledged receipt of the goods. On the second element, petitioner disputes notice of insufficiency of funds on the basis of the check being issued in blank. He relies on Dingle v. Intermediate Appellate Court 33 and Lao v. Court of Appeals 34 as his authorities. In both actions, however, the accused were cosignatories, who were neither apprised of the particular transactions on which the blank checks were issued, nor given notice of their dishonor. In the latter case, Lao signed the checks without knowledge of the insufficiency of funds, knowledge she was not expected or obliged to possess under the organizational structure of the corporation. 35 Lao was only a minor employee who had nothing to do with the issuance, funding and delivery of checks. 36 In contrast, petitioner was the proprietor of Dyna Marketing and the sole signatory of the checks who received notice of their dishonor. Significantly, under Section 237 of B.P. Blg. 22, petitioner was prima facie presumed to know of the inadequacy of his funds with the bank when he did not pay the value of the goods or make arrangements for their payment in full within five (5) banking days upon notice. His letter dated November 10, 1992 to Lim fortified such presumption. Undoubtedly, Dy violated B.P. Blg. 22 for issuing FEBTC Check No. 553615. When said check was dishonored for insufficient funds and stop payment order, petitioner did not pay or make arrangements with the bank for its payment in full within five (5) banking days. Petitioner should be exonerated, however, for issuing FEBTC Check No. 553602, which was dishonored for the reason DAUD or drawn against uncollected deposit. When the check was presented for payment, it was dishonored by the bank because the check deposit made by petitioner, which would make petitioner's bank account balance more than enough to cover the face value of the subject check, had not been collected by the bank.

Page 535 of 1485

In Tan v. People,38 this Court acquitted the petitioner therein who was indicted under B.P. Blg. 22, upon a check which was dishonored for the reason DAUD, among others. We observed that: In the second place, even without relying on the credit line, petitioner's bank account covered the check she issued because even though there were some deposits that were still uncollected the deposits became "good" and the bank certified that the check was "funded."39 To be liable under Section 140 of B.P. Blg. 22, the check must be dishonored by the drawee bank for insufficiency of funds or credit or dishonored for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. In the instant case, even though the check which petitioner deposited on July 20, 1992 became good only five (5) days later, he was considered by the bank to retroactively have had P160,659.39 in his account on July 22, 1992. This was more than enough to cover the check he issued to respondent in the amount of P106,579.60. Under the circumstance obtaining in this case, we find the petitioner had issued the check, with full ability to abide by his commitment41 to pay his purchases. Significantly, like Article 315 of the Revised Penal Code, B.P. Blg. 22 also speaks only of insufficiency of funds and does not treat of uncollected deposits. To repeat, we cannot interpret the law in such a way as to expand its provision to encompass the situation of uncollected deposits because it would make the law more onerous on the part of the accused. Again, criminal statutes are strictly construed against the Government and liberally in favor of the accused.42 As regards petitioner's civil liability, this Court has previously ruled that an accused may be held civilly liable where the facts established by the evidence so warrant. 43 The rationale for this is simple. The criminal and civil liabilities of an accused are separate and distinct from each other. One is meant to punish the offender while the other is intended to repair the damage suffered by the aggrieved party. So, for the purpose of indemnifying the latter, the offense need not be proved beyond reasonable doubt but only by preponderance of evidence.44 We therefore sustain the appellate court's award of damages to W.L. Foods in the total amount of P333,373.96, representing the sum of the checks petitioner issued for goods admittedly delivered to his company. As to the appropriate penalty, petitioner was charged with estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Presidential Decree No. 818 45 (P.D. No. 818). Under Section 146 of P.D. No. 818, if the amount of the fraud exceeds P22,000, the penalty of reclusin temporal is imposed in its maximum period, adding one year for each additional P10,000 but the total penalty shall not exceed thirty (30) years, which shall be termed reclusin perpetua.47 Reclusin perpetua is not the prescribed penalty for the offense, but merely describes the penalty actually imposed on account of the amount of the fraud involved. WHEREFORE, the petition is PARTLY GRANTED. John Dy is hereby ACQUITTED in Criminal Case No. Q-93-46711 for estafa, and Criminal Case No. Q-93-46712 for violation of

Page 536 of 1485

B.P. Blg. 22, but he is ORDERED to pay W.L. Foods the amount of P106,579.60 for goods delivered to his company. In Criminal Case No. Q-93-46713 for estafa, the Decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner is sentenced to suffer an indeterminate penalty of twelve (12) years of prisin mayor, as minimum, to thirty (30) years of reclusin perpetua, as maximum. In Criminal Case No. Q-93-46714 for violation of B.P. Blg. 22, the Decision of the Court of Appeals is AFFIRMED, and John Dy is hereby sentenced to one (1) year imprisonment and ordered to indemnify W.L. Foods in the amount of P226,794.36. SO ORDERED. FIRST DIVISION

BANK OF AMERICA NT & SA, Petitioner,

G.R. No. 150228

Present:

PUNO, C.J., Chairperson, -versusCARPIO, CORONA, LEONARDO-DE CASTRO, and BERSAMIN, JJ.

Promulgated: PHILIPPINE RACING CLUB, Respondent. July 30, 2009

x-----------------------------------------------------------------------------------------x

Page 537 of 1485

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision798[1] promulgated on July 16, 2001 by the former Second Division of the Court of Appeals (CA), in CA-G.R. CV No. 45371 entitled Philippine Racing Club, Inc. v. Bank of America NT & SA, affirming the Decision799[2] dated March 17, 1994 of the Regional Trial Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. Likewise, the present petition assails the Resolution 800[3] promulgated on September 28, 2001, denying the Motion for Reconsideration of the CA Decision.

The facts of this case as narrated in the assailed CA Decision are as follows:

Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with different banks in the Metro Manila area. Among the accounts maintained was Current Account No. 58891-012 with defendantappellant BA (Paseo de Roxas Branch). The authorized joint signatories with respect to said Current Account were plaintiff-appellees President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes). On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee corporation were scheduled to go out of the country in connection with the corporations business. In order not to disrupt operations in their absence, they pre-signed several checks relating to Current Account No. 58891-012. The intention was to insure continuity of plaintiffappellees operations by making available cash/money especially to settle obligations that might become due. These checks were entrusted to the accountant with instruction to make use of the same as the need arose. The

798 799 800

Page 538 of 1485

internal arrangement was, in the event there was need to make use of the checks, the accountant would prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks. It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank for encashment a couple of plaintiff-appellee corporations checks (Nos. 401116 and 401117) with the indicated value of P110,000.00 each. It is admitted that these 2 checks were among those presigned by plaintiff-appellee corporations authorized signatories. The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on the upper line was the word CASH while the lower line had the following typewritten words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY. Despite the highly irregular entries on the face of the checks, defendantappellant bank, without as much as verifying and/or confirming the legitimacy of the checks considering the substantial amount involved and the obvious infirmity/defect of the checks on their faces, encashed said checks. A verification process, even by was of a telephone call to PRCI office, would have taken less than ten (10) minutes. But this was not done by BA. Investigation conducted by plaintiff-appellee corporation yielded the fact that there was no transaction involving PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to have come into the hands of an employee of PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who eventually completed without authority the entries on the pre-signed checks. PRCIs demand for defendant-appellant to pay fell on deaf ears. Hence, the complaint. 801[4]

After due proceedings, the trial court rendered a Decision in favor of respondent, the dispositive portion of which reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the defendant, and the latter is ordered to pay plaintiff: (1) The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with legal interest to be computed from date of the filing of the herein complaint; (2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorneys fees;

801

Page 539 of 1485

(3) The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses, and (4) To pay the costs of suit.

SO ORDERED.802[5]

Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said decision in toto in its July 16, 2001 Decision. Petitioners Motion for Reconsideration of the CA Decision was subsequently denied on September 28, 2001.

Petitioner now comes before this Court arguing that:

I.

The Court of Appeals gravely erred in holding that the proximate cause of respondents loss was petitioners encashment of the checks.

A.

The Court of Appeals gravely erred in holding that petitioner was liable for the amount of the checks despite the fact that petitioner was merely fulfilling its obligation under law and contract. The Court of Appeals gravely erred in holding that petitioner had a duty to verify the encashment, despite the absence of any obligation to do so. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable Instruments Law, despite its clear applicability to this case;

B.

C.

II.

The Court of Appeals gravely erred in not holding that the proximate cause of respondents loss was its own grossly negligent practice of pre-signing checks without payees and amounts and delivering these pre-signed checks to its employees (other than their signatories).

802

Page 540 of 1485

III.

The Court of Appeals gravely erred in affirming the trial courts award of attorneys fees despite the absence of any applicable ground under Article 2208 of the Civil Code.

IV.

The Court of Appeals gravely erred in not awarding attorneys fees, moral and exemplary damages, and costs of suit in favor of petitioner, who clearly deserves them.803[6]

From the discussions of both parties in their pleadings, the key issue to be resolved in the present case is whether the proximate cause of the wrongful encashment of the checks in question was due to (a) petitioners failure to make a verification regarding the said checks with the respondent in view of the misplacement of entries on the face of the checks or (b) the practice of the respondent of pre-signing blank checks and leaving the same with its employees.

Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid checks. Invoking Sections 126 804[7] and 185805[8] of the Negotiable Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer-client maintaining a checking account with it is to pay orders for checks bearing the drawerclients genuine signatures. The genuine signatures of the clients duly authorized signatories affixed on the checks signify the order for payment. Thus, pursuant to the said obligation, the drawee bank has the duty to determine whether the signatures appearing on the check are the drawer-clients or its duly authorized signatories. If the signatures are genuine, the bank has the unavoidable legal and contractual duty to pay. If the signatures are forged and falsified, the drawee bank has the corollary, but equally unavoidable legal and contractual, duty not to pay.806[9]

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Page 541 of 1485

Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the drawer before encashing a check only when the check bears a material alteration. A material alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable, the time or place of payment, the number or relations of the parties, the currency in which payment is to be made or one which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect. affirmed by the trial court itself.808[11] With respect to the checks at issue, petitioner points out that they do not contain any material alteration. 807[10] This is a fact which was

There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondents authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes who were respondents President and Vice-President for Finance, respectively. Both pre-signed the said checks since they were both scheduled to go abroad and it was apparently their practice to leave with the company accountant checks signed in black to answer for company obligations that might fall due during the signatories absence. It is likewise admitted that neither of the subject checks contains any material alteration or erasure.

However, on the blank space of each check reserved for the payee, the following typewritten words appear: ONE HUNDRED TEN THOUSAND PESOS ONLY. Above the same is the typewritten word, CASH. On the blank reserved for the amount, the same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check writer. cautious before proceeding to encash them which it did not do. The presence of these irregularities in each check should have alerted the petitioner to be

It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact

807 808

Page 542 of 1485

business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family. 809 [12]

Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below the typewritten word CASH, expressed in words, is the very same amount indicated in figures by means of a check writer on the amount portion of the check. The amount stated in words is, therefore, a mere reiteration of the amount stated in figures. Petitioner emphasizes that a reiteration of the amount in words is merely a repetition and that a repetition is not an alteration which if present and material would have enjoined it to commence verification with respondent. 810[13]

We do not agree with petitioners myopic view and carefully crafted defense. Although not in the strict sense material alterations, the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of respondent, it should have occurred to petitioners employees that it would be unlikely such mistakes would be made. All these circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up and encash the same. As noted by the CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to respondent due to the encashment of the stolen checks would have been prevented.

In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the authenticity of the subject checks or the accuracy of the

809 810

Page 543 of 1485

entries therein not only because of the presence of highly irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their encashment. Respondents witness testified that for checks in amounts greater than Twenty Thousand Pesos (P20,000.00) it is the companys practice to ensure that the payee is indicated by name in the check.811[14] such as in this case. This was not rebutted by petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to CASH for substantial amounts If each irregular circumstance in this case were taken singly or isolated, the banks employees might have been justified in ignoring them. However, the confluence of the irregularities on the face of the checks and circumstances that depart from the usual banking practice of respondent should have put petitioners employees on guard that the checks were possibly not issued by the respondent in due course of its business. Petitioners subtle sophistry cannot exculpate it from behavior that fell extremely short of the highest degree of care and diligence required of it as a banking institution.

Indeed, taking this with the testimony of petitioners operations manager that in case of an irregularity on the face of the check (such as when blanks were not properly filled out) the bank may or may not call the client depending on how busy the bank is on a particular day,812[15] we are even more convinced that petitioners safeguards to protect clients from check fraud are arbitrary and subjective. Every client should be treated equally by a banking institution regardless of the amount of his deposits and each client has the right to expect that every centavo he entrusts to a bank would be handled with the same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high standard of diligence expected of it as a banking institution.

In defense of its cashier/tellers questionable action, petitioner insists that pursuant to Sections 14813[16] and 16814[17] of the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the blanks had authority and that a valid and intentional delivery to the party presenting the checks had taken place. Thus, in petitioners

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Page 544 of 1485

view, the sole blame for this debacle should be shifted to respondent for having its signatories pre-sign and deliver the subject checks. 815[18] Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the gross negligence of respondents accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from claiming nondelivery of the instrument.816[19]

Petitioners contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good order. In that instance, there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly delivered to the person who encashed the same. In all, we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 15817[20] of the NIL applicable in this case.

However, we do agree with petitioner that respondents officers practice of presigning of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom the checks were entrusted.

Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner will still emerge as the party foremost liable in this case. In

815 816 817

Page 545 of 1485

instances where both parties are at fault, this Court has consistently applied the doctrine of last clear chance in order to assign liability.

In Westmont Bank v. Ong,818[21] we ruled:

[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the proper and regular banking procedures in clearing checks. As we had earlier ruled, the one who had a last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof.819[22] (emphasis ours)

In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks, the former had the last clear chance to avoid the loss. To reiterate, petitioners own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. Verily, petitioner had the final opportunity to avert the injury that befell the respondent. Failing to make the necessary verification due to the volume of banking transactions on that particular day is a flimsy and unacceptable excuse, considering that the banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost diligence. 820[23] the consequence of said negligence. Petitioners negligence has been undoubtedly established and, thus, pursuant to Art. 1170 of the NCC, 821[24] it must suffer

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Page 546 of 1485

In the interest of fairness, however, we believe it is proper to consider respondents own negligence to mitigate petitioners liability. Article 2179 of the Civil Code provides:

Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.

Explaining this provision in Lambert v. Heirs of Ray Castillon,822[25] the Court held:

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

As we previously stated, respondents practice of signing checks in blank whenever its authorized bank signatories would travel abroad was a dangerous policy, especially considering the lack of evidence on record that respondent had appropriate safeguards or internal controls to prevent the pre-signed blank checks from falling into the hands of unscrupulous individuals and being used to commit a fraud against the company. disruption of respondents business. We cannot believe that there was no other secure and reasonable way to guarantee the nonAs testified to by petitioners expert witness, other corporations would ordinarily have another set of authorized bank signatories who would be able to sign checks in the absence of the preferred signatories. 823[26] Indeed, if not for the fortunate happenstance that the thief failed to properly fill up the subject checks, respondent would expectedly take the blame for the entire loss since the defense of forgery of a drawers signature(s) would be unavailable to it. Considering that respondent

822 823

Page 547 of 1485

knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in the responsibility for the loss.

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

Following established jurisprudential precedents, 824[27] we believe the allocation of sixty percent (60%) of the actual damages involved in this case (represented by the amount of the checks with legal interest) to petitioner is proper under the premises. Respondent should, in light of its contributory negligence, bear forty percent (40%) of its own loss.

Finally, we find that the awards of attorneys fees and litigation expenses in favor of respondent are not justified under the circumstances and, thus, must be deleted. The power of the court to award attorneys fees and litigation expenses under Article 2208 of the NCC825[28] demands factual, legal, and equitable justification.

An adverse decision does not ipso facto justify an award of attorneys fees to the winning party.826[29] Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause.827[30]

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Page 548 of 1485

WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution dated September 28, 2001 are AFFIRMED with the following MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty Thousand Pesos (P220,000.00) with legal interest as awarded by the trial court and (b) the awards of attorneys fees and litigation expenses in favor of respondent are deleted.

Proportionate costs.

SO ORDERED.

Republic Supreme Manila

of

the

Philippines Court

SECOND DIVISION

RIZAL COMMERCIAL CORPORATION, Petitioner,

BANKING

G.R. No. 192413

Present:

versus

CARPIO, J., Chairperson, BRION, PEREZ,

Page 549 of 1485

HI-TRI DEVELOPMENT CORPORATION and LUZ R. BAKUNAWA, Respondents.

SERENO, and REYES, JJ.

x--------------------------------------------------x DECISION SERENO, J.: Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal Commercial Banking Corporation (RCBC) against respondents Hi-Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26 November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals (CA), 828[1] which reversed and set aside the 19 May 2008 Decision and 3 November 2008 Order of the Makati City Regional Trial Court (RTC) in Civil Case No. 06-244. 829[2] The case before the RTC involved the Complaint for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as amended by Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and unclaimed balances held by the branches of various banks in the Philippines. The trial court declared the amounts, subject of the special proceedings, escheated to the Republic and ordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in favor of the Republic. 830[3] The assailed RTC judgments included an unclaimed balance in the amount of 1,019,514.29, maintained by RCBC in its Ermita Business Center branch. We quote the narration of facts of the CA831[4] as follows: x x x Luz [R.] Bakunawa and her husband Manuel, now deceased (Spouses Bakunawa) are registered owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the Marikina Register of Deeds.

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These lots were sequestered by the Presidential Commission on Good Government [(PCGG)]. Sometime in 1990, a certain Teresita Millan (Millan), through her representative, Jerry Montemayor, offered to buy said lots for 6,724,085.71, with the promise that she will take care of clearing whatever preliminary obstacles there may[]be to effect a completion of the sale. The Spouses Bakunawa gave to Millan the Owners Copies of said TCTs and in turn, Millan made a down[]payment of 1,019,514.29 for the intended purchase. However, for one reason or another, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa rescinded the sale and offered to return to Millan her down[]payment of 1,019,514.29. However, Millan refused to accept back the 1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa, through their company, the Hi-Tri Development Corporation (Hi-Tri) took out on October 28, 1991, a Managers Check from RCBC-Ermita in the amount of 1,019,514.29, payable to Millans company Rosmil Realty and Development Corporation (Rosmil) c/o Teresita Millan and used this as one of their basis for a complaint against Millan and Montemayor which they filed with the Regional Trial Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991], praying that: 1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to return to plaintiffs spouses the Owners Copies of Transfer Certificates of Title Nos. 324985, 324986, 103724, 98827, 98828 and 98829; That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine Centavos (1,019,514.29); That the defendants be ordered to pay to plaintiffs spouses moral damages in the amount of 2,000,000.00; and That the defendants be ordered to pay plaintiffs attorneys fees in the amount of 50,000.00.

2.

3.

4.

Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-91-10719 that Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine [Centavos] (1,019,514.29)[], the Spouses Bakunawa, upon advice of their counsel, retained custody of RCBC Managers Check No. ER 034469 and refrained from canceling or negotiating it. All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for a possible settlement of the case, Millan was informed that the Managers Check was available for her withdrawal, she being the payee. On January 31, 2003, during the pendency of the abovementioned case and without the knowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC

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reported the 1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as among its unclaimed balances as of January 31, 2003. Allegedly, a copy of the Sworn Statement executed by Florentino N. Mendoza, Manager and Head of RCBCs Asset Management, Disbursement & Sundry Department (AMDSD) was posted within the premises of RCBC-Ermita. On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed with the RTC the action below for Escheat [(Civil Case No. 06-244)]. On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan. Instead of only the amount of 1,019,514.29, [Spouses Bakunawa] agreed to pay Rosmil and Millan the amount of 3,000,000.00, [which is] inclusive [of] the amount of []1,019,514.29. But during negotiations and evidently prior to said settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the availability of the 1,019,514.29 under RCBC Managers Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed when they were informed that the amount was already subject of the escheat proceedings before the RTC. On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz: We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in the Managers Check is currently the subject of escheat proceedings pending before Branch 150 of the Makati Regional Trial Court. Please note that it was our impression that the deposit would be taken from [Hi-Tris] RCBC bank account once an order to debit is issued upon the payees presentation of the Managers Check. Since the payee rejected the negotiated Managers Check, presentation of the Managers Check was never made. Consequently, the deposit that was supposed to be allocated for the payment of the Managers Check was supposed to remain part of the Corporation[s] RCBC bank account, which, thereafter, continued to be actively maintained and operated. For this reason, We hereby demand your confirmation that the amount of Php 1,019,514.29 continues to form part of the funds in the Corporations RCBC bank account, since pay-out of said amount was never ordered. We wish to point out that if there was any attempt on the part of RCBC to consider the amount indicated in the Managers Check separate from the Corporations bank account, RCBC would have issued a statement to that effect, and repeatedly reminded the Corporation that the deposit would be considered dormant absent any fund movement. Since the Corporation never received any statements of account from RCBC to that effect, and more importantly, never received any single letter from RCBC noting the absence of fund movement and advising the Corporation that the deposit would be treated as dormant.

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On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their position as above-quoted. In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa] that: The Banks Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Managers Check No. ER034469 in the escheat proceedings docketed as Civil Case No. 06-244, as well as the status thereof, between 28 January 2008 and 1 February 2008. xxx xxx xxx

Contrary to what Hi-Tri hopes for, the funds covered by the Managers Check No. ER034469 does not form part of the Banks own account. By simple operation of law, the funds covered by the managers check in issue became a deposit/credit susceptible for inclusion in the escheat case initiated by the OSG and/or Bureau of Treasury. xxx xxx xxx

Granting arguendo that the Bank was duty-bound to make good the check, the Banks obligation to do so prescribed as early as October 2001. (Emphases, citations, and annotations were omitted.)

The RTC Ruling

The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court rendered its assailed Decision declaring the deposits, credits, and unclaimed balances subject of Civil Case No. 06-244 escheated to the Republic. Among those included in the order of forfeiture was the amount of 1,019,514.29 held by RCBC as allocated funds intended for the payment of the Managers Check issued in favor of Rosmil. The trial court ordered the deposit of the escheated balances with the Treasurer and credited in favor of the Republic. Respondents claim that they were not able to participate in the trial, as they were not informed of the ongoing escheat proceedings.

Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partial reconsideration of the RTC Decision insofar as it escheated the fund allocated for the payment of the Managers Check. They asked that they be included as party-defendants or, in the alternative, allowed to intervene in the case and their motion considered as an answer-in-intervention. Respondents argued that they had meritorious grounds to ask reconsideration of the Decision or, alternatively, to seek intervention in the case. They alleged that the deposit was subject of an ongoing dispute (Civil Case No. Q-91-10719)

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between them and Rosmil since 1991, and that they were interested parties to that case. 832 [5]

On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trial court explained that the Republic had proven compliance with the requirements of publication and notice, which served as notice to all those who may be affected and prejudiced by the Complaint for Escheat. The RTC also found that the motion failed to point out the findings and conclusions that were not supported by the law or the evidence presented, as required by Rule 37 of the Rules of Court. Finally, it ruled that the alternative prayer to intervene was filed out of time.

The CA Ruling

On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decision and 3 November 2008 Order of the RTC. According to the appellate court, 833[6] RCBC failed to prove that the latter had communicated with the purchaser of the Managers Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil) immediately before the bank filed its Sworn Statement on the dormant accounts held therein. The CA ruled that the banks failure to notify respondents deprived them of an opportunity to intervene in the escheat proceedings and to present evidence to substantiate their claim, in violation of their right to due process. Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to issue individual notices directed to all persons claiming interest in the unclaimed balances, as well as to require them to appear after publication and show cause why the unclaimed balances should not be deposited with the Treasurer of the Philippines. It explained that the jurisdictional requirement of individual notice by personal service was distinct from the requirement of notice by publication. Consequently, the CA held that the Decision and Order of the RTC were void for want of jurisdiction.

Issue

After a perusal of the arguments presented by the parties, we cull the main issues as follows:

I. II. III.

Whether the Decision and Order of the RTC were void for failure to send separate notices to respondents by personal service Whether petitioner had the obligation to notify respondents immediately before it filed its Sworn Statement with the Treasurer Whether or not the allocated funds may be escheated in favor of the Republic

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Discussion

Petitioner bank assails834[7] the CA judgments insofar as they ruled that notice by personal service upon respondents is a jurisdictional requirement in escheat proceedings. Petitioner contends that respondents were not the owners of the unclaimed balances and were thus not entitled to notice from the RTC Clerk of Court. It hinges its claim on the theory that the funds represented by the Managers Check were deemed transferred to the credit of the payee or holder upon its issuance.

We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of processes, to wit:

Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence an action or actions in the name of the People of the Republic of the Philippines in the Court of First Instance of the province or city where the bank, building and loan association or trust corporation is located, in which shall be joined as parties the bank , building and loan association or trust corporation and all such creditors or depositors. All or any of such creditors or depositors or banks, building and loan association or trust corporations may be included in one action. Service of process in such action or actions shall be made by delivery of a copy of the complaint and summons to the president, cashier, or managing officer of each defendant bank, building and loan association or trust corporation and by publication of a copy of such summons in a newspaper of general circulation, either in English, in Filipino, or in a local dialect, published in the locality where the bank, building and loan association or trust corporation is situated, if there be any, and in case there is none, in the City of Manila, at such time as the court may order. Upon the trial, the court must hear all parties who have appeared therein , and if it be determined that such unclaimed balances in any defendant bank , building and loan association or trust corporation are unclaimed as hereinbefore stated, then the court shall render judgment in favor of the Government of the Republic of the Philippines , declaring that said unclaimed balances have escheated to the Government of the Republic of the Philippines and commanding said bank, building and loan association or trust corporation to forthwith deposit the same with the Treasurer of the Philippines to credit of the Government of the Republic of the Philippines to be used as the National Assembly may direct. At the time of issuing summons in the action above provided for, the clerk of court shall also issue a notice signed by him, giving the title and number of said action, and referring to the complaint therein, and directed to all persons, other than those named as defendants therein, claiming any interest in any unclaimed balance mentioned in said complaint, and requiring them to appear within sixty days after the publication or first publication, if there are several, of such summons, and show cause, if they have any, why the unclaimed balances involved in said action should not be deposited with the Treasurer of the

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Philippines as in this Act provided and notifying them that if they do not appear and show cause, the Government of the Republic of the Philippines will apply to the court for the relief demanded in the complaint. A copy of said notice shall be attached to, and published with the copy of, said summons required to be published as above, and at the end of the copy of such notice so published, there shall be a statement of the date of publication, or first publication, if there are several, of said summons and notice. Any person interested may appear in said action and become a party thereto. Upon the publication or the completion of the publication, if there are several, of the summons and notice, and the service of the summons on the defendant banks, building and loan associations or trust corporations, the court shall have full and complete jurisdiction in the Republic of the Philippines over the said unclaimed balances and over the persons having or claiming any interest in the said unclaimed balances, or any of them, and shall have full and complete jurisdiction to hear and determine the issues herein, and render the appropriate judgment thereon. (Emphasis supplied.)

Hence, insofar as banks are concerned, service of processes is made by delivery of a copy of the complaint and summons upon the president, cashier, or managing officer of the defendant bank.835[8] On the other hand, as to depositors or other claimants of the unclaimed balances, service is made by publication of a copy of the summons in a newspaper of general circulation in the locality where the institution is situated. 836[9] A notice about the forthcoming escheat proceedings must also be issued and published, directing and requiring all persons who may claim any interest in the unclaimed balances to appear before the court and show cause why the dormant accounts should not be deposited with the Treasurer.

Accordingly, the CA committed reversible error when it ruled that the issuance of individual notices upon respondents was a jurisdictional requirement, and that failure to effect personal service on them rendered the Decision and the Order of the RTC void for want of jurisdiction. Escheat proceedings are actions in rem,837[10] whereby an action is brought against the thing itself instead of the person. 838[11] Thus, an action may be instituted and carried to judgment without personal service upon the depositors or other claimants.839[12] Jurisdiction is secured by the power of the court over the res.840[13] Consequently, a judgment of escheat is conclusive upon persons notified by advertisement, as publication is considered a general and constructive notice to all persons interested. 841 [14]

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Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment of the Managers Check in the escheat proceedings.

Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty, steps in and claims abandoned, left vacant, or unclaimed property, without there being an interested person having a legal claim thereto. 842[15] In the case of dormant accounts, the state inquires into the status, custody, and ownership of the unclaimed balance to determine whether the inactivity was brought about by the fact of death or absence of or abandonment by the depositor. 843[16] If after the proceedings the property remains without a lawful owner interested to claim it, the property shall be reverted to the state to forestall an open invitation to self-service by the first comers. 844[17] However, if interested parties have come forward and lain claim to the property, the courts shall determine whether the credit or deposit should pass to the claimants or be forfeited in favor of the state.845[18] We emphasize that escheat is not a proceeding to penalize depositors for failing to deposit to or withdraw from their accounts. It is a proceeding whereby the state compels the surrender to it of unclaimed deposit balances when there is substantial ground for a belief that they have been abandoned, forgotten, or without an owner. 846[19]

Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other similar institutions in filing a sworn statement with the Treasurer concerning dormant accounts:

Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd year, all banks, building and loan associations, and trust corporations shall forward to the Treasurer of the Philippines a statement, under oath, of their respective managing officers, of all credits and deposits held by them in favor of persons known to be dead, or who have not made further deposits or withdrawals during the preceding ten years or more , arranged in alphabetical order according to the names of creditors and depositors, and showing: (a) The names and last known place of residence or post office addresses of the persons in whose favor such unclaimed balances stand;

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(b) The amount and the date of the outstanding unclaimed balance and whether the same is in money or in security, and if the latter, the nature of the same;

(c)

The date when the person in whose favor the unclaimed balance stands died, if known, or the date when he made his last deposit or withdrawal; and

(d)

The interest due on such unclaimed balance, if any, and the amount thereof.

A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank , building and loan association, or trust corporation concerned for at least sixty days from the date of filing thereof: Provided, That immediately before filing the above sworn statement, the bank, building and loan association, and trust corporation shall communicate with the person in whose favor the unclaimed balance stands at his last known place of residence or post office address. It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the existence of unclaimed balances held by banks, building and loan associations, and trust corporations. (Emphasis supplied.)

As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of unclaimed balances. This notification is meant to inform them that their deposit could be escheated if left unclaimed. Accordingly, before filing a sworn statement, banks and other similar institutions are under obligation to communicate with owners of dormant accounts. The purpose of this initial notice is for a bank to determine whether an inactive account has indeed been unclaimed, abandoned, forgotten, or left without an owner. If the depositor simply does not wish to touch the funds in the meantime, but still asserts ownership and dominion over the dormant account, then the bank is no longer obligated to include the account in its sworn statement. 847[20] It is not the intent of the law to force depositors into unnecessary litigation and defense of their rights, as the state is only interested in escheating balances that have been abandoned and left without an owner. In case the bank complies with the provisions of the law and the unclaimed balances are eventually escheated to the Republic, the bank shall not thereafter be liable to any person for the same and any action which may be brought by any person against in any bank xxx for unclaimed balances so deposited xxx shall be defended by the Solicitor General without cost to such bank. 848[21] Otherwise, should it fail to comply with the legally outlined

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procedure to the prejudice of the depositor, the bank may not raise the defense provided under Section 5 of Act No. 3936, as amended.

Petitioner asserts849[22] that the CA committed a reversible error when it required RCBC to send prior notices to respondents about the forthcoming escheat proceedings involving the funds allocated for the payment of the Managers Check. It explains that, pursuant to the law, only those whose favor such unclaimed balances stand are entitled to receive notices. Petitioner argues that, since the funds represented by the Managers Check were deemed transferred to the credit of the payee upon issuance of the check, the proper party entitled to the notices was the payee Rosmil and not respondents. Petitioner then contends that, in any event, it is not liable for failing to send a separate notice to the payee, because it did not have the address of Rosmil. Petitioner avers that it was not under any obligation to record the address of the payee of a Managers Check.

In contrast, respondents Hi-Tri and Bakunawa allege 850[23] that they have a legal interest in the fund allocated for the payment of the Managers Check. They reason that, since the funds were part of the Compromise Agreement between respondents and Rosmil in a separate civil case, the approval and eventual execution of the agreement effectively reverted the fund to the credit of respondents. Respondents further posit that their ownership of the funds was evidenced by their continued custody of the Managers Check.

An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee),851[24] requesting the latter to pay a person named therein (payee) or to the order of the payee or to the bearer, a named sum of money. 852[25] The issuance of the check does not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer.853[26] Here, the bank becomes liable only after it accepts or certifies the check.854[27] After the check is accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-drawer.

There are checks of a special type called managers or cashiers checks. These are bills of exchange drawn by the banks manager or cashier, in the name of the bank, against the bank itself.855[28] Typically, a managers or a cashiers check is procured from the bank by allocating a particular amount of funds to be debited from the depositors account or by

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directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance.856[29] Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand. 857[30]

Nevertheless, the mere issuance of a managers check does not ipso facto work as an automatic transfer of funds to the account of the payee. In case the procurer of the managers or cashiers check retains custody of the instrument, does not tender it to the intended payee, or fails to make an effective delivery, we find the following provision on undelivered instruments under the Negotiable Instruments Law applicable: 858[31]

Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. (Emphasis supplied.)

Petitioner acknowledges that the Managers Check was procured by respondents, and that the amount to be paid for the check would be sourced from the deposit account of HiTri.859[32] When Rosmil did not accept the Managers Check offered by respondents, the latter retained custody of the instrument instead of cancelling it. As the Managers Check neither went to the hands of Rosmil nor was it further negotiated to other persons, the instrument remained undelivered. Petitioner does not dispute the fact that respondents retained custody of the instrument.860[33]

Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the account of respondents was never made. In fact, petitioner confirms that the Managers Check was never negotiated or presented for payment to its Ermita Branch, and that the allocated fund is still held by the bank. 861[34] As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the

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Managers Check. The doctrine that the deposit represented by a managers check automatically passes to the payee is inapplicable, because the instrument although accepted in advance remains undelivered. Hence, respondents should have been informed that the deposit had been left inactive for more than 10 years, and that it may be subjected to escheat proceedings if left unclaimed.

After a careful review of the RTC records, we find that it is no longer necessary to remand the case for hearing to determine whether the claim of respondents was valid. There was no contention that they were the procurers of the Managers Check. It is undisputed that there was no effective delivery of the check, rendering the instrument incomplete. In addition, we have already settled that respondents retained ownership of the funds. As it is obvious from their foregoing actions that they have not abandoned their claim over the fund, we rule that the allocated deposit, subject of the Managers Check, should be excluded from the escheat proceedings. We reiterate our pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances. We further note that there is nothing in the records that would show that the OSG appealed the assailed CA judgments. We take this failure to appeal as an indication of disinterest in pursuing the escheat proceedings in favor of the Republic.

WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.

SO ORDERED. Republic SUPREME Manila FIRST DIVISION of the Philippines COURT

G.R. No. 112985 April 21, 1999 PEOPLE OF THE PHILIPPINES, plaintiff-appellee vs. MARTIN L. ROMERO and ERNESTO C. RODRIGUEZ, accused-appellants.

PARDO, J The case before the Court is an appeal of accused Martin L. Romero and Ernesto C. Rodriguez from the Joint Judgment 1 of the Regional Trial Court, Branch 2, Butuan City, convicting each of them of estafa under Article 315, par. 2 (d) of the Revised Penal Code, in relation to Presidential Decree No. 1689, for widescale swindling, and sentencing each of them to suffer the penalty of life imprisonment and to jointly and severally pay Ernesto A. Ruiz the amount of one hundred fifty thousand pesos (P150,000.00), with interest at the rate

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of twelve percent (12%) per annum, starting September 14, 1989, until fully paid, and to pay ten thousand pesos (P10,000.00), as moral damages. On October 25, 1989, Butuan City acting fiscal Ernesto M. Brocoy filed with the Regional Trial Court, Butuan City, in Information against the two (2) accused estafa, 2 as follows: That on or about September 14, 1989, at Butuan City, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused being the General Manager and Operation Manager which solicit funds from the general public for investment, conspiring, confederating together and mutually helping, one another, by means of deceit and false pretense, did then and there willfully, unlawfully and feloniously deliberately defraud one Ernesto A. Ruiz by convincing the latter to invest his money in the amount of P150,000.00 with a promise return of 800 % profit within 21 days and in the process caused the issuance of Butuan City Rural [sic] Bank Check No. 158181 postdated to October 5, 1989 in the amount of One Million Two Hundred Thousand Pesos (P1,200,000.00) Philippine Currency, that upon presentation of said check to the drawee bank for payment the same was dishonored and that notwithstanding repeated demands made on said accused to pay and/or change the check to cash, they consistently failed and refused and still fail and refuse to pay or redeem the check, to the damage and prejudice of the complainant in the aforestated amount of P1,200,000.00.
3

On the same day, the city fiscal filed with the same court another information against the two (2) accused for violation of Batas Pambansa Bilang 22, arising from the issuance of the same check. 4 On January 11, 1990, both accused were arraigned before the Regional Trial Court, Branch 5, 5 Butuan City, where they plead not guilty to both informations. The prosecution presented its evidence on January 10, 1991, with complainant, Ernesto A. Ruiz, and Daphne Parrocho, the usher/collector of the corporation being managed by accused, testifying for the prosecution. On August 12, 1991, the defense presented its only witness, accused Martin L. Romero. On November 13, 1992, the parties submitted a joint stipulation of facts, signed only by their respective counsels. Thereafter, the case was submitted for decision. On March 30, 1993, the trail court promulgated a Joint Judgment dated March 25, 1993. The trial court acquitted the accused in Criminal Case No. 3806 6 based on reasonable doubt, but convicted them in Criminal Case No. 3808 7 and accordingly sentenced each of them, as follows: IN VIEW OF THE FOREGOING, the Court hereby renders judgments, finding or declaring (a) Accused Martin L. Romero and Ernesto C. Rodriguez innocent on reasonable doubt in Criminal Case No. 3806, for violation of Batas Pambansa Bilang 22;

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(b) Accused Martin L. Romero and Ernesto C. Rodriguez guilty beyond reasonable doubt in Criminal Case No. 3808 for estafa under P.D. 1689 for wide scale [sic] swindling and accordingly sentences them to suffer life imprisonment (Section 1 P.D. 1689) and ordered jointly and severally to return to Ernesto A. Ruiz the amount of One Hundred Fifty Thousand Pesos (P150,000.00) with interest thereon at the rate of Twelve percent (12%) per annum starting from September 14, 1989 until fully paid and to pay the amount Of Ten Thousand Pesos (P10,000.00) as moral damages. In the service of their sentence, the accused pursuant to R.A. 6127, shall be credited for the preventive imprisonment they have undergone (PP vs. Ortencio, 38 Phil 941; PP vs. Gabriel, No. L-13750, October 30, 1959, cited in Gregorio's "Fundamentals of Criminal Law Review", P. 178, Seventh Edition, 1985). 8 On March 31, 1993, accused filed their notice of appeal, which the trial court gave due course on April 5, 1993. On March 16, 1994, this Court ordered the, accused to file their appellants' brief. Accused-appellants filed their brief on October 30, 1995, while the Solicitor General filed the appellee's brief on March 8, 1996. During the pendency of the appeal, on November 12, 1997, accused Ernesto Rodriguez died. 9 As a consequence of his death before final judgment, his criminal and civil liability ex delicto, were extinguished. 10 Complainant Ernesto A. Ruiz was a radio commentator of Radio DXRB, Butuan City. In August, 1989, he came to know the business of Surigao San Andres Industrial Development Corporation (SAIDECOR), when he interviewed accused Martin Romero and Ernesto Rodriguez regarding the corporation's investment operations in Butuan City and Agusan del Norte. Romero was the president and general manager of SAIDECOR, while Rodriguez was the operations manager. SAIDECOR started its operation on August 24, 1989 as a marketing business. Later, it engaged in soliciting funds and investments from the public. The corporation guaranteed an 800% return on investment within fifteen (15) or twenty one (21) days. Investors were given coupons containing the capital and the return on the capital collectible on the date agreed upon. It stopped operations in September, 1989. On September 14, 1989, complainant Ernesto A. Ruiz went to SAIDECOR office in Butuan City to make an investment, accompanied by his friend Jimmy Acebu, and SAIDECOR collection agent Daphne Parrocho. After handing over the amount of one hundred fifty thousand pesos (P150,000.00) to Ernesto Rodriguez, complainant received a postdated Butuan City Rural Bank check instead of the usual redeemable coupon. The check indicated P1,000,200.00 as the amount in words, but the amount in figures was for P1,200,000.00, as the return on the investment. Compliant did not notice the discrepancy. When the check was presented to the bank for payment on October 5, 1989, it was dishonored for insufficiency of funds, as evidenced by the check return slip issued by the bank. 11 Both accused could not be located and demand for payment was made only sometime in November 1989 during the preliminary investigation of this case. Accused responded that they had no money.

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Daphne Parrocho, 12 testified that on September 14, 1989, complainant, with his friend Jimmy Acebu, approached her to invest the amount of P150,000.00 at SAIDECOR. As she has reached her quota, and therefore, no longer authorized to receive the amount, she accompanied them to the office of SAIDECOR at Ong Yiu District, Butuan City. Accused Ernesto Rodriguez accepted the investment and issued the check signed by him and Martin Romero. For their defense, accused Martin Romero 13 testified that on September 14, 1989, he issued a check in the amount of P1,2000,000.00 corresponding to the total of the P150,000.00 investment and the 800% return thereon. He claimed that the corporation had a deposit of fourteen million pesos (P14,000,000.00) at the time of the issuance of the check and four million pesos (P4,000,000.00) at the time SAIDDECOR stopped operations. Romero knew these things because he used to monitor the funds of the corporation with the bank. He was not aware that the check he issued was dishonored because he never had the occasion to meet the complainant again after the September 14, 1989 transaction. He only came to know about this when the case was already filed in court sometime in the second or third week of January 1990. In this appeal, both accused did not deny that complainant made an investment with SAIDECOR in the amount of P150,000.00. However, they denied that deceit was employed in the transaction. They assigned as errors: (1) their conviction under P.D. 1689 due to the prosecution's failure to establish their guilt beyond reasonable doubt; and (2) the trial court's failure to consider the joint stipulation of facts in their favor. 15 There is no merit in this appeal. We sustain accused-appellant's conviction. Under paragraph 2 (d) of Article 315, as amended by R.A. 4885, 16 the elements of estafa are: (1) a check was postdated or issued in payment of an obligation contracted at the time it was issued; (2) lack or insufficiency of funds to cover the check; (3) damage to the payee thereof. 17 The prosecution has satisfactorily established all these elements. Fraud, in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal equitable duty, trust, or confidence justly reposed, resulting in damage to another, or by which an undue and unconscientious advantage is taken of another. 18 It is a generic term embracing all multifarious means which human ingenuity can device, and which are resorted to by one individual to secure an advantage over another by false suggestions or by suppression of truth and includes all surprise, trick, cunning, dissembling and any unfair way by which another is cheated. 19 Deceit is a specific of fraud. It is actual fraud, and consists in any false representation or contrivance whereby one person overreaches and misleads another, to his hurt. Deceit excludes the idea of mistake. 20 There is deceit when one is misled, either by guide or trickery or by other means, to believe to be true what is really false. 21 In this case, there was deception when accused fraudulently represented to complainant that his investment with the corporation would have an 800% return in 15 or 21 days. Upon receipt of the money, accused-appellant Martin Romero issued a postdated check. Although accused-appellant contends that sufficient funds were deposited in the bank when the check was issued, he presented no officer of the bank to substantiate the contention. The check was dishonored when presented for payment, and the check return slip submitted in evidence indicated that it was dishonored due to insufficiency of funds.

Page 564 of 1485

Even assuming for the sake of argument that the check was dishonored without any fraudulent pretense or fraudulent act of the drawer, the latter's failure to cover the amount within three days after notice creates a rebuttable presumption of fraud. 22 Admittedly (1) the check was dishonored for insufficiency of funds as evidenced by the check return slip; (2) complainant notified accused of the dishonor; and (3) accused failed to make good the check within three days. Presumption of deceit remained since accused failed to prove otherwise. Complainant sustained damage in the amount of P150,000.00. Accused-appellant also contends that had the trial court admitted the Admission and Stipulaion of Facts of November 9, 1992, it would prove that SAIDECOR had sufficient funds in the bank. Accused-appellant relies on the fact that there was a discrepancy between the amount in words and the amount in figures in the check that was dishonored. The amount in words was P1,000,200.00, while the amount in figures was P1,200,000.00. It is admitted that the corporation had in the bank P1,144,760.00 on September 28, 1989, and P1,124,307.14 on April 2, 1990. The check was presented for payment on October 5, 1989. The rule in the Negotiable Instruments Law is that when there is ambiguity in the amount in words and the amount in figures, it would be the amount in words that would prevail. 23 However, this rule of interpretation finds no application in the case. The agreement was perfectly clear that at the end of twenty one (21) days, the investment of P150,000.00 would become P1,200,000.00. Even if the trial court admitted the stipulation of facts, it would not be favorable to accused-appellant. The factual narration in this case established a kind of Ponzi scheme. 24 This is "an investment swindle in which high profits are promised from fictitious sources and early investors are paid off with funds raised from later ones." It is sometimes called a pyramid scheme because a broader base of gullible investors must support the structure as time passes. In the recent case of People vs. Priscilla Balasa , 25 this Court held that a transaction similar to the case at hand is not an investment strategy but a gullibility scheme, which works only as long as there is an ever increasing number of new investors joining the scheme. It is difficult to sustain over a long period of time because the operator needs an ever larger pool of later investors to continue paying the promised profits to early investors. The idea behind this type of swindle is that the "con-man" collects his money from his second or third round of investors and then absconds before anyone else shows up to collect. Necessarily, these schemes only last weeks, or months at most, just like what happened in this case. The Court notes that one of the accused-appellants, Ernesto Rodriguez, died pending appeal. Pursuant to the doctrine established in People vs. Bayotas, 26 the death of the accused pending appeal of his conviction extinguishes his criminal liability as well as the civil liability ex delicto. The criminal action is extinguished inasmuch as there is no longer a defendant to stand as the accused, the civil action instituted therein for recovery of civil liability ex delicto is ipso facto extinguished, grounded as it is on the criminal case. Corollarily, the claim for civil liability survives notwithstanding the death of the accused, if the same may also be predicted on a source of obligation other than delicit. 27 Thus, the outcome of this appeal pertains only remaining accused-appellant, Martin L. Romero. The trail court considered the swindling involved in this case as having been committed by a syndicate 28 and sentenced the accused to life imprisonment based on the

Page 565 of 1485

provisions of Presidential Decree 1689, which increased the penalty for certain forms of swindling or estafa. 29 However, the prosecution failed to clearly establish that the corporation was a syndicate, as defined under the law. The penalty of life imprisonment cannot be imposed. What would be applicable in the present case is the second paragraph of a Presidential Decree No. 1689, Section 1, which provides that: When not committed by a syndicate as above defined, the penalty imposable shall be reclusion temporal to reclusion perpetua if the amount of the fraud exceeds 100.000 pesos. Art. 77 of the Revised Penal Code on complex penalties provides that "whenever the penalty prescribed does not have one of the forms specially provided for in this Code, the periods shall be distributed, applying by analogy the prescribed rules," that is, those in Articles 61 and 76. 30 Hence, where as in this case, the penalty provided by Section 1 of Presidential Decree No. 1689 for estafa under Articles 315 and 316 of the Code is reclusion temporal to reclusion perpetua, the minimum period thereof is twelve (12) year and one (1) day to sixteen (16) years of reclusion temporal; the medium period is sixteen (16) years and one (1) day to twenty (20) years of reclusion temporal ; and the maximum period is reclusion perpetua. In the case at bar, no mitigating or aggravating circumstance has been alleged or proved. Applying the rules in the Revised Penal Code for graduating penalties by degreses 31 to determine the proper period, 32 the penalty for the offense of estafa under Article 315, 2(d) as amended by P.D. 1689 involving the amount of P150,000.00 is the medium of the period of the complex penalty in said Section 1, that is, sixteen (16) years and one (1) day to twenty (20) years. This penalty, being that which is to be actually imposed in accordance with the therefor and not merely imposable as a general prescription under the law, shall be the maximum range of the indeterminate sentence. 33 The minimum thereof shall be taken, as aforesaid, from any period of the penalty next lower in degree which is prision mayor. To enable the complainant to obtain means, diversion or amusements that will serve to alleviate the moral sufferings undergone by him, by reason of the failure of the accused to return his money, moral damages are imposed against accused-appellant Martin L. Romero in the amount of twenty thousand pesos (P20,000.00), 34 To serve as an example for the public good, exemplary damages are awarded against him in the amount of fifteen thousand pesos (P15,000. 00). 35 WHEREFORE, the Court hereby AFFIRMS WITH MODIFICATION the appealed judgment. The Court hereby sentences accused-appellant Martin Romero to suffer an indeterminate penalty of ten (10) years and one (1) day of prision mayor, as minimum, to sixteen (16) years and one (1) day of reclusion temporal, as maximum, to indemnify Ernesto A. Ruiz in the amount of one hundred fifty thousand pesos (P150,000.00) with interest thereon at six (6%) per centrum per annum from September 14, 1989, until fully paid, to pay twenty thousand pesos (P20,000.00) as moral damages and fifteen thousand pesos (P15,000.00), as exemplary damages, and the costs.1wphi1.nt SO ORDERED. Davide, Jr., C.J., Melo, Kapunan and Ynares-Santiago, JJ., concur. Republic SUPREME Manila of the Philippines COURT

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SECOND DIVISION

G.R. No. 128927 September 14, 1999 REMEDIOS NOTA SAPIERA, vs. COURT OF APPEALS and RAMON SUA, respondents. petitioner,

BELLOSILLO, J.: REMEDIOS NOTA SAPIERA appeals to us through this petition for review the Decision of the Court of Appeals 1 which acquitted her of the crime of estafa but held her liable nonetheless for the value of the checks she indorsed in favor of private respondent Ramon Sua.1wphi1.nt On several occasions petitioner Remedios Nota Sapiera, a sari-sari store owner, purchased from Monrico Mart certain grocery items, mostly cigarettes, and paid for them with checks issued by one Arturo de Guzman: (a) PCIB Check No. 157059 dated 26 February 1987 for P140,000.00; (b) PCIB Check No. 157073 dated 26 February 1987 for P28,000.00; (c) PCIB Check No. 157057 dated 27 February 1987 for P42,150.00; and, d) Metrobank Check No. DAG-045104758 PA dated 2 March 1987 for P125,000.00. These checks were signed at the back by petitioner. When presented for payment the checks were dishonored because the drawer's account was already closed. Private respondent Ramon Sua informed Arturo de Guzman and petitioner about the dishonor but both failed to pay the value of the checks. Hence, four (4) charges of estafa were filed against petitioner with the Regional Trial Court of Dagupan City, docketed as Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731. Arturo de Guzman was charged with two (2) counts of violation of B.P. Blg. 22, docketed as Crim. Cases Nos. D-8733 and D-8734. These cases against petitioner and de Guzman were consolidated and tried jointly. On 27 December 1989 the court a quo 2 acquitted petitioner of all the charges of estafa but did not rule on whether she could be held civilly liable for the checks she indorsed to private respondent. The trial court found Arturo de Guzman guilty of Violation of B.P. Blg. 22 on two (2) counts and sentenced him to suffer imprisonment of six (6) months and one (1) day in each of the cases, and to pay private respondent P167,150.00 as civil indemnity. Private respondent filed a notice of appeal with the trial court with regard to the civil aspect but the court refused to give due course to the appeal on the ground that the acquittal of petitioner was absolute. Private respondent then filed a petition for mandamus with the Court of Appeals, docketed as CA-GR SP No. 24626, praying that the court a quo be ordered to give due course to the appeal on the civil aspect of the decision. The Court of Appeals granted the petition and ruled that private respondent could appeal with respect to the civil aspect the judgment of acquittal by the trial court. On 22 January 1996, the Court of Appeals in CA-GR CV No. 36376 rendered the assailed Decision insofar as it sustained the appeal of private respondent on the civil aspect and ordering petitioner to pay private respondent P335,000.00 representing the aggregate face value of the four (4) checks indorsed by petitioner plus legal interest from the notice of dishonor.

Page 567 of 1485

Petitioner filed a motion for reconsideration of the Decision. On 19 March 1997 the Court of Appeals issued a Resolution noting the admission of both parties that private respondent had already collected the amount of P125,000.00 from Arturo de Guzman with regard to his civil liability in Crim. Cases Nos. 8733 and 8734. The appellate court noted that private respondent was the same offended party in the criminal cases against petitioner and against de Guzman. Criminal Cases Nos. 8733 and 8734 against De Guzman, and Crim. Cases Nos. 8730 and 8729 against petitioner, involved the same checks, to wit: PCIB Checks Nos. 157057 for P42,150.00 and Metrobank Check No. DAG-045104758 PA for P125,000.00. Thus, the Court of Appeals ruled that private respondent could not recover twice on the same checks. Since he had collected P125,000.00 as civil indemnity in Crim. Cases Nos. 8733 and 8734, this amount should be deducted from the sum total of the civil indemnity due him arising from the estafa cases against petitioner. The appellate court then corrected its previous award, which was erroneously placed, at P335,000,00, to P335,150,00 as the sum total of the amounts of the four (4) checks involved. Deducting the amount of P125,000.00 already collected by private respondent, petitioner was adjudged to pay P210,150.00 as civil liability to private respondent. Hence, this petition alleging that respondent Court of Appeals erred in holding petitioner civilly liable to private respondent because her acquittal by the trial court from charges of estafa in Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731 was absolute, the trial court having declared in its decision that the fact from which the civil liability might have arisen did not exist. We cannot sustain petitioner. The issue is whether respondent Court of Appeals committed reversible error in requiring petitioner to pay civil indemnity to private respondent after the trial court had acquitted of her of the criminal charges. Section 2, par. (b), of Rule 111 of the Rules of Court, as amended, specifically provides: "Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceed from a declaration in a final judgment that the fact from which the civil might arise did not exist." The judgment of acquittal extinguishes the liability of the accused for damages only when it includes a declaration that the fact from which the civil liability might arise did not exist. Thus, the civil liability is not extinguished by acquittal where: (a) the acquittal is based on reasonable doubt; (b) where the court expressly declares that the liability of the accused is not criminal but only civil in nature; and, (c) where the civil liability is not derived from or based on the criminal act of which the accused is acquitted. 3 Thus, under Art. 29 of the Civil Code When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a preponderance of evidence. Upon motion of the defendant, the court may require the plaintiff to file a bond to answer for damages in case the complaint should be found to be malicious. In a criminal case where the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any declaration to that effect, it may be inferred from the text of the decision whether or not acquittal is due to that ground. An examination of the decision in the criminal cases reveals these findings of the trial court

Page 568 of 1485

Evidence for the prosecution tends to show that on various occasions, Remedios Nota Sapiera purchased from Monrico Mart grocery items (mostly cigarettes) which purchases were paid with checks issued by Arturo de Guzman: that those purchases and payments with checks were as follows: (a) Sales Invoice No. 20104 dated February 26, 1987 in the amount of P28,000.00, that said items purchased were paid with PCIBank Check No. 157073 dated February 26, 1987; (b) Sales Invoice No. 20108 dated February 26, 1987 in the amount of P140,000.00; that said items purchased were paid with PCIBank No. 157059 dated February 26, 1987; (c) Sales Invoice No. 20120 dated February 27, 1987 in the amount of P42,150.00; that said items were paid with PCIBank Check No. 157057 dated February 27, 1987; (d) Sales Invoice No. 20148 and 20149 both dated March 2, 1987 in the amount of P120,103.75; said items were paid with Metrobank Check No. 045104758 dated March 2, 1987 in the amount of P125,000.00. That all these checks were deposited with the Consolidated Bank and Trust Company, Dagupan Branch, for collection from the drawee bank; That when presented for payment by the collecting bank to the drawee bank, said checks were dishonored due to account closed, as evidenced by check return slips; . . . . . From the evidence, the Court finds that accused Remedios Nota Sapiera is the owner of a sari-sari store inside the public market; that she sells can(ned) goods, candies and assorted grocery items; that she knows accused Arturo De Guzman, a customer since February 1987; that de Guzman purchases from her grocery items including cigarettes; that she knows Ramon Sua; that she has business dealings with him for 5 years; that her purchase orders were in clean sheets of paper; that she never pays in check; that Ramon Sua asked her to sign subject checks as identification of the signature of Arturo de Guzman; that she pays in cash; sometimes delayed by several days; that she signed the four (4) checks on the reverse side; that she did not know the subject invoices; that de Guzman made the purchases and he issued the checks; that the goods were delivered to de Guzman; that she was not informed of dishonored checks; and that counsel for Ramon Sua informed de Guzman and told him to pay . . . . In the case of accused Remedios Nota Sapiera, the prosecution failed to prove conspiracy. Based on the above findings of the trial court, the exoneration of petitioner of the charges of estafa was based on the failure of the prosecution to present sufficient evidence showing conspiracy between her and the other accused Arturo de Guzman in defrauding private respondent. However, by her own testimony, petitioner admitted having signed the four (4) checks in question on the reverse side. The evidence of the prosecution shows that petitioner purchased goods from the grocery store of private respondent as shown by the

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sales invoices issued by private respondent; that these purchases were paid with the four (4) subject checks issued by de Guzman; that petitioner signed the same checks on the reverse side; and when presented for payment, the checks were dishonored by the drawee bank due to the closure of the drawer's account; and, petitioner was informed of the dishonor.1wphi1.nt We affirm the findings of the Court of Appeals that despite the conflicting versions of the parties, it is undisputed that the four (4) checks issued by de Guzman were signed by petitioner at the back without any indication as to how she should be bound thereby and, therefore, she is deemed to be an indorser thereof. The Negotiable Instruments Law clearly provides Sec. 17. Construction where instrument is ambiguous . Where the language of the instrument is ambiguous, or there are admissions therein, the following rules of construction apply: . . . . (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is deemed an indorser. . . . Sec. 63. When person deemed indorser . A person placing his signature upon all instrument otherwise than as maker, drawer or acceptor, is deemed to be an indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity. Sec. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and (b) That the instrument is, at the time of the indorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it shall be accepted or paid or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. The dismissal of the criminal cases against petitioner did not erase her civil liability since the dismissal was due to insufficiency of evidence and not from a declaration from the court that the fact from which the civil action might arise did not exist. 4 An accused acquitted of estafa may be nevertheless be held civilly liable where the facts established by the evidence so warrant. The accused should be adjudged liable for the unpaid value of the checks signed by her in favor of the complainant. 5 The rationale behind the award of civil indemnity despite a judgment of acquittal when evidence is sufficient to sustain the award was explained by the Code Commission in connection with Art. 29 of the Civil Code, to wit: The old rule that the acquittal of the accused in a criminal case also releases him from civil liability is one of the most serious flaws in the Philippine legal system. It has given rise to numberless instances of miscarriage of justice, where the acquittal was due to a reasonable doubt in the mind of the court as to the guilt of the accused. The reasoning followed is that inasmuch as the civil responsibility is derived from the criminal offense, when the latter is not proved, civil liability cannot be demanded.

Page 570 of 1485

This is one of those cases where confused thinking leads to unfortunate and deplorable consequences. Such reasoning fails to draw a clear line of demarcation between criminal liability and civil responsibility, and to determine the logical result of the distinction. The two liabilities are separate and distinct from each other. One affects the social order and the other private rights. One is for punishment or correction of the offender while the other is for reparation of damages suffered by file aggrieved party . . . . It is just and proper that for the purposes of imprisonment of or fine upon the accused, the offense should be proved beyond reasonable doubt. But the purpose of indemnifying the complaining party, why should the offense also be proved beyond reasonable doubt? Is not the invasion or violation of every private right to be proved only by preponderance of evidence? Is the right of the aggrieved person any less private because the wrongful acts is also punishable by the criminal law? 6 Finally, with regard to the computation of the civil liability of petitioner, the finding of the Court of Appeals that petitioner is civilly liable for the aggregate value of the unpaid four (4) checks subject of the criminal cases in the sum of P335,150.00, less the amount of P125.000.00 already collected by private respondent pending appeal, resulting in the amount of P210,150.00 still due private respondent, is a factual matter which is binding and conclusive upon this Court. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 22 January 1996 as amended by its Resolution dated 19 March 1997 ordering petitioner Remedios Nota Sapiera to pay the private respondent Ramon Sua the remaining amount of P210,150.00 as civil liability, is AFFIRMED. Costs against petitioners.1wphi1.nt SO ORDERED. Mendoza, Quisumbing and Buena, JJ., concur. THIRD DIVISION [G.R. No. 148864. August 21, 2003] SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, petitioners, vs. MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMECS ** REALTY AND DEVELOPMENT CORP. and the REGISTER OF DEEDS OF BULACAN, respondents. DECISION PUNO, J.: Petitioners, Spouses Evangelista (Petitioners), are before this Court on a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, assailing the decision of the Court of Appeals dismissing their petition. Petitioners filed a complaint862[1] for annulment of titles against respondents, Mercator Finance Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation, and the

* 862

Page 571 of 1485

Register of Deeds of Bulacan. Petitioners claimed being the registered owners of five (5) parcels of land863[2] contained in the Real Estate Mortgage 864[3] executed by them and Embassy Farms, Inc. (Embassy Farms). They alleged that they executed the Real Estate Mortgage in favor of Mercator Financing Corporation (Mercator) only as officers of Embassy Farms. They did not receive the proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or credit accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage is void.865[4] With the void mortgage, they assailed the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same parcels of land to respondent Lydia P. Salazar (Salazar), and the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development Corporation (Lamecs). Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that on February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) PESOS, Philippine Currency and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x.866[5] It contended that since petitioners and Embassy Farms signed the promissory note867[6] as co-makers, aside from the Continuing Suretyship Agreement868[7] subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding promissory notes869[8] restructuring the loan, then petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid. Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of petitioners of the subject parcels of land, but alleged that they are the present registered owner. Both respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse of almost ten (10) years from the foreclosure of the property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches.870[9] During pre-trial, the parties agreed on the following issues:

863 864 865 866 867 868 869 870

Page 572 of 1485

a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant Mercator Finance Corp. is null and void; Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of land to satisfy the indebtedness of Embassy Farms, Inc. is (sic) null and void; Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia Salazar and that executed by the latter in favor of defendant Lamecs Realty and Development Corp. are null and void; Whether or not the parties are entitled to damages.871[10]

b.

c.

d.

After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the subsequent promissory notes restructuring the loan, hence, there is no genuine issue regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the complaint must be dismissed. 872[11] Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue, there is a need for a full-blown trial. 873[12] The RTC granted the motion for summary judgment and dismissed the complaint. It held: A reading of the promissory notes show ( sic) that the liability of the signatories thereto are solidary in view of the phrase jointly and severally. On the promissory note appears ( sic) the signatures of Eduardo B. Evangelista, Epifania C. Evangelista and another signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is crystal clear then that the plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms, Inc. but in their personal capacity as well(.) Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound themselves as solidary debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the amount of indebtedness. That the principal contract of loan is void for lack of consideration, in the light of the foregoing is untenable. 874 [13] Petitioners motion for reconsideration was denied for lack of merit. 875[14] Thus, petitioners went up to the Court of Appeals, but again were unsuccessful. The appellate court held: The appellants insistence that the loans secured by the mortgage they executed were not personally theirs but those of Embassy Farms, Inc. is clearly self-serving and misplaced. The fact that they signed the subject promissory notes in the(ir) personal capacities and as

871 872 873 874 875

Page 573 of 1485

officers of the said debtor corporation is manifest on the very face of the said documents of indebtedness (pp. 118, 128-131, Orig. Rec.). Even assuming arguendo that they did not, the appellants lose sight of the fact that third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property ( Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In constituting a mortgage over their own property in order to secure the purported corporate debt of Embassy Farms, Inc., the appellants undeniably assumed the personality of persons interested in the fulfillment of the principal obligation who, to save the subject realities from foreclosure and with a view towards being subrogated to the rights of the creditor, were free to discharge the same by payment (Articles 1302 [3] and 1303, Civil Code of the Philippines ).876[15] (emphases in the original) The appellate court also observed that if the appellants really felt aggrieved by the foreclosure of the subject mortgage and the subsequent sales of the realties to other parties, why then did they commence the suit only on August 12, 1997 (when the certificate of sale was issued on January 12, 1987, and the certificates of title in the name of Mercator on September 27, 1988)? Petitioners procrastination for about nine (9) years is difficult to understand. On so flimsy a ground as lack of consideration, (w)e may even venture to say that the complaint was not worth the time of the courts.877[16] A motion for reconsideration by petitioners was likewise denied for lack of merit. 878[17] Thus, this petition where they allege that: THE COURT A QUO ERRED AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING IN TOTO THE MAY 4, 1998 ORDER OF THE TRIAL COURT GRANTING RESPONDENTS MOTION FOR SUMMARY JUDGMENT DESPITE THE EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS AND ITS NON-ENTITLEMENT TO A JUDGMENT AS A MATTER OF LAW, THEREBY DECIDING THE CASE IN A WAY PROBABLY NOT IN ACCORD WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT. 879[18] We affirm. Summary judgment is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation. 880[19] The crucial question in a motion for summary judgment is whether the issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions or admissions accompanying the motion. A genuine issue means an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to constitute a genuine issue for trial.881[20] To forestall summary judgment, it is essential for the non-moving party to confirm the existence of genuine issues where he has substantial, plausible and fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict for the non-moving party. The proper inquiry

876 877 878 879 880 881

Page 574 of 1485

would therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact requiring a full-blown trial.882[21] In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that they obtained a loan from Mercator. They merely claim that they got the loan as officers of Embassy Farms without intending to personally bind themselves or their property. However, a simple perusal of the promissory note and the continuing suretyship agreement shows otherwise. These documentary evidence prove that petitioners are solidary obligors with Embassy Farms. The promissory note883[22] states: For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in installments as follows: September 16, 1982 October 16, 1982 November 16, 1982 December 16, 1982 January 16, 1983 February 16, 1983 xxx xxx x x x. P154,267.87 P154,267.87 P154,267.87 P154,267.87 P154,267.87 P154,267.87

The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C. Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it. The Continuing Suretyship Agreement884[23] also proves the solidary obligation of petitioners, viz: (Embassy Farms, Inc.) Principal (Eduardo B. Evangelista) Surety (Epifania C. Evangelista) Surety (Mercator Finance Corporation) Creditor To: MERCATOR FINANCE COPORATION (1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA (hereinafter called Surety), jointly and severally unconditionally guarantees (sic) to MERCATOR FINANCE COPORATION (hereinafter called Creditor), the full, faithful and

882 883 884

Page 575 of 1485

prompt payment and discharge of any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called Principal) to the Creditor. xxx xxx xxx

(3) The obligations hereunder are joint and several and independent of the obligations of the Principal. A separate action or actions may be brought and prosecuted against the Surety whether or not the action is also brought and prosecuted against the Principal and whether or not the Principal be joined in any such action or actions. xxx xxx x x x.

The agreement was signed by petitioners on February 16, 1982. The promissory notes 885[24] subsequently executed by petitioners and Embassy Farms, restructuring their loan, likewise prove that petitioners are solidarily liable with Embassy Farms. Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it. Courts can interpret a contract only if there is doubt in its letter. 886[25] But, an examination of the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz: SECTION 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. Petitioners also insist that the promissory note does not convey their true intent in executing the document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. 887[26] Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. 888[27] Having executed the suretyship agreement, there can be no dispute on the personal liability of petitioners.

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Page 576 of 1485

Lastly, the parol evidence rule does not apply in this case. 889[28] We held in Tarnate v. Court of Appeals,890[29] that where the parties admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments but raised the contention that they were misled by respondent bank to believe that the loans were long-term accommodations, then the parties could not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those stipulated in the loan documents because when they reduced their agreement in writing, it is presumed that they have made the writing the only repository and memorial of truth, and whatever is not found in the writing must be understood to have been waived and abandoned. IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners. SO ORDERED. Panganiban, and Sandoval-Gutierrez, JJ., concur. Corona, and Carpio-Morales, JJ., on official leave. Republic SUPREME Manila THIRD DIVISION of the Philippines COURT

G.R. No. 116320 November 29, 1999 ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS, HERBY COMMERCIAL & CONSTRUCTION CORPORATION AND JAIME C. ONG, respondents.

GONZAGA-REYES, J.: Assailed in this petition for review on certiorari is the decision 1 of the Court of Appeals affirming the decision 2 rendered by Branch 168 of the Regional Trial Court of Pasig in Civil Case No. 35231 in favor of private respondents. The controversy before this Court finds its origins in a Land Development and Construction Contract which was entered into on June 23, 1977 by A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Adalia Francisco (Francisco) is the president, and private respondent Herby Commercial & Construction Corporation (HCCC), represented by its President and General Manager private respondent Jaime C. Ong (Ong), pursuant to a housing project of AFRDC at San Jose del Monte, Bulacan, financed by the Government Service Insurance System (GSIS). Under the contract, HCCC agreed to undertake the

889 890

Page 577 of 1485

construction of 35 housing units and the development of 35 hectares of land. The payment of HCCC for its services was on a turn-key basis, that is, HCCC was to be paid on the basis of the completed houses and developed lands delivered to and accepted by AFRDC and the GSIS. To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable the latter to collect payments directly from the GSIS. Furthermore, the GSIS and AFRDC put up an Executive Committee Account with the Insular Bank of Asia & America (IBAA) in the amount of P4,000,000.00 from which checks would be issued and co-signed by petitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz). On February 10, 1978, HCCC filed a complaint 3 with the Regional Trial Court of Quezon City against Francisco, AFRDC and the GSIS for the collection of the unpaid balance under the Land Development and Construction Contract in the amount of P515,493.89 for completed and delivered housing units and land development. However, the parties eventually arrived at an amicable settlement of their differences, which was embodied in a Memorandum Agreement executed by HCCC and AFRDC on July 21, 1978. Under the agreement, the parties stipulated that HCCC had turned over 83 housing units which have been accepted and paid for by the GSIS. The GSIS acknowledged that it still owed HCCC P520,177.50 representing incomplete construction of housing units, incomplete land development and 5% retention, which amount will be discharged when the defects and deficiencies are finally completed by HCCC. It was also provided that HCCC was indebted to AFRDC in the amount of P180,234.91 which the former agreed would be paid out of the proceeds from the 40 housing units still to be turned over by HCCC or from any amount due to HCCC from the GSIS. Consequently, the trial court dismissed the case upon the filing by the parties of a joint motion to dismiss. Sometime in 1979, after an examination of the records of the GSIS, Ong discovered that Diaz and Francisco had executed and signed seven checks 4, of various dates and amounts, drawn against the IBAA and payable to HCCC for completed and delivered work under the contract. Ong, however, claims that these checks were never delivered to HCCC. Upon inquiry with Diaz, Ong learned that the GSIS gave Francisco custody of the checks since she promised that she would deliver the same to HCCC. Instead, Francisco forged the signature of Ong, without his knowledge or consent, at the dorsal portion of the said checks to make it appear that HCCC had indorsed the checks; Francisco then indorsed the checks for a second time by signing her name at the back of the checks and deposited the checks in her IBAA savings account. IBAA credited Francisco's account with the amount of the checks and the latter withdrew the amount so credited. On June 7, 1979, Ong filed complaints with the office of the city fiscal of Quezon City, charging Francisco with estafa thru falsification of commercial documents. Francisco denied having forged Ong's signature on the checks, claiming that Ong himself indorsed the seven checks in behalf of HCCC and delivered the same to Francisco in payment of the loans extended by Francisco to HCCC. According to Francisco, she agreed to grant HCCC the loans in the total amount of P585,000.00 and covered by eighteen promissory notes in order to obviate the risk of the non-completion of the project. As a means of repayment, Ong allegedly issued a Certification authorizing Francisco to collect HCCC's receivables from the GSIS. Assistant City Fiscal Ramon M. Gerona gave credence to Francisco's claims and accordingly, dismissed the complaints, which dismissal was affirmed by the Minister of Justice in a resolution issued on June 5, 1981. The present case was brought by private respondents on November 19, 1979 against Francisco and IBAA for the recovery of P370,475.00, representing the total value of the seven checks, and for damages, attorney's fees, expenses of litigation and costs. After trial on the merits, the trial court rendered its decision in favor of private respondents, the dispositive portion of which provides

Page 578 of 1485

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants INSULAR BANK OF ASIA & AMERICA and ATTY. ADALIA FRANCISCO, to jointly and severally pay the plaintiffs the amount of P370.475.00 plus interest thereon at the rate of 12% per annum from the date of the filing of the complaint until the full amount is paid; moral damages to plaintiff Jaime Ong in the sum of P50,000.00; exemplary damages of P50,000.00; litigation expenses of P5,000.00; and attorney's fees of P50,000.00. With respect to the cross-claim of the defendant IBAA against its co-defendant Atty. Adalia Francisco, the latter is ordered to reimburse the former for the sums that the Bank shall pay to the plaintiff on the forged checks including the interests paid thereon. Further, the defendants are ordered to pay the costs. Based upon the findings of handwriting experts from the National Bureau of Investigation (NBI), the trial court held that Francisco had indeed forged the signature of Ong to make it appear that he had indorsed the checks. Also, the court ruled that there were no loans extended, reasoning that it was unbelievable that HCCC was experiencing financial difficulties so as to compel it to obtain the loans from AFRDC in view of the fact that the GSIS had issued checks in favor of HCCC at about the same time that the alleged advances were made. The trial court stated that it was plausible that Francisco concealed the fact of issuance of the checks from private respondents in order to make it appear as if she were accommodating private respondents, when in truth she was lending HCCC its own money. With regards to the Memorandum Agreement entered into between AFRDC and HCCC in Civil Case No. Q-24628, the trial court held that the same did not make any mention of the forged checks since private respondents were as of yet unaware of their existence, that fact having been effectively concealed by Francisco, until private respondents acquired knowledge of Francisco's misdeeds in 1979. IBAA was held liable to private respondents for having honored the checks despite such obvious irregularities as the lack of initials to validate the alterations made on the check, the absence of the signature of a co-signatory in the corporate checks of HCCC and the deposit of the checks on a second indorsement in the savings account of Francisco. However, the trial court allowed IBAA recourse against Francisco, who was ordered to reimburse the IBAA for any sums it shall have to pay to private respondents. 5 Both Francisco and IBAA appealed the trial court's decision, but the Court of Appeals dismissed IBAA's appeal for its failure to file its brief within the 45-day extension granted by the appellate court. IBAA's motion for reconsideration and petition for review on certiorari filed with this Court were also similarly denied. On November 21, 1989, IBAA and HCCC entered into a Compromise Agreement which was approved by the trial court, wherein HCCC acknowledged receipt of the amount of P370,475.00 in full satisfaction of its claims against IBAA, without prejudice to the right of the latter to pursue its claims against Francisco. On June 29, 1992, the Court of Appeals affirmed the trial court's ruling, hence this petition for review on certiorari filed by petitioner, assigning the following errors to the appealed decision 1. The respondent Court of Appeals erred in concluding that private respondents did not owe Petitioner the sum covered by

Page 579 of 1485

the Promissory Notes Exh. 2-2-A-2-P (FRANCISCO). Such conclusion was based mainly on conjectures, surmises and speculation contrary to the unrebutted pleadings and evidence presented by petitioner. 2. The respondent Court of Appeals erred in holding that Petitioner falsified the signature of private respondent ONG on the checks in question without any authority therefor which is patently contradictory to the unrebutted pleading and evidence that petitioner was expressly authorized by respondent HERBY thru ONG to collect all receivables of HERBY from GSIS to pay the loans extended to them. (Exhibit 3). 3. That respondent Court of Appeals erred in holding that the seven checks in question were not taken up in the liquidation and reconciliation of all outstanding account between AFRDC and HERBY as acknowledged by the parties in Memorandum Agreement (Exh. 5) is a pure conjecture, surmise and speculation contrary to the unrebutted evidence presented by petitioners. It is an inference made which is manifestly mistaken. 4. The respondent Court of Appeals erred in affirming the decision of the lower court and dismissing the appeal. 6 The pivotal issue in this case is whether or not Francisco forged the signature of Ong on the seven checks. In this connection, we uphold the lower courts' finding that the subject matter of the present case, specifically the seven checks, drawn by GSIS and AFRDC, dated between October to November 1977, in the total amount of P370,475.00 and payable to HCCC, was not included in the Memorandum Agreement executed by HCCC and AFRDC in Civil Case No. Q-24628. As observed by the trial court, aside from there being absolutely no mention of the checks in the said agreement, the amounts represented by said checks could not have been included in the Memorandum Agreement executed in 1978 because private respondents only discovered Francisco's acts of forgery in 1979. The lower courts found that Francisco was able to easily conceal from private respondents even the fact of the issuance of the checks since she was a co-signatory thereof. 7 We also note that Francisco had custody of the checks, as proven by the check vouchers bearing her uncontested signature, 8 by which she, in effect, acknowledged having received the checks intended for HCCC. This contradicts Francisco's claims that the checks were issued to Ong who delivered them to Francisco already indorsed. 9 As regards the forgery, we concur with the lower courts', finding that Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed said checks and that, after indorsing the checks for a second time by signing her name at the back of the checks, Francisco deposited said checks in her savings account with IBAA. The forgery was satisfactorily established in the trial court upon the strength of the findings of the NBI handwriting expert. 10 Other than petitioner's self-serving denials, there is nothing in the records to rebut the NBI's findings. Well-entrenched is the rule that findings of trial courts which are factual in nature, especially when affirmed by the Court of Appeals, deserve to be respected and affirmed by the Supreme Court, provided it is supported by substantial evidence on record, 11 as it is in the case at bench.

Page 580 of 1485

Petitioner claims that she was, in any event, authorized to sign Ong's name on the checks by virtue of the Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the GSIS, including the questioned checks. 12 Petitioner's alternative defense must similarly fail. The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. 13 An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal; otherwise he shall be held personally liable. 14 Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's name, Francisco should have signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of forgery. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same. 15 Due to her forgery of Ong's signature which enabled her to deposit the checks in her own account, Francisco deprived HCCC of the money due it from the GSIS pursuant to the Land Development and Construction Contract. Thus, we affirm respondent court's award of compensatory damages in the amount of P370,475.00, but with a modification as to the interest rate which shall be six percent (6%) per annum, to be computed from the date of the filing of the complaint since the amount of damages was alleged in the complaint; 16 however, the rate of interest shall be twelve percent (12%) per annum from the time the judgment in this case becomes final and executory until its satisfaction and the basis for the computation of this twelve percent (12%) rate of interest shall be the amount of P370,475.00. This is in accordance with the doctrine enunciated in Eastern Shipping Lines, Inc. vs. Court of Appeals, et al., 17 which was reiterated in Philippine National Bank vs. Court of Appeals, 18 Philippine Airlines, Inc. vs. Court of Appeals 19 and in Keng Hua Paper Products Co., Inc. vs. Court of Appeals, 20 which provides that 1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of six percent (6%) per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be twelve percent (12%) per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. We also sustain the award of exemplary damages in the amount of P50,000.00. Under Article 2229 of the Civil Code, exemplary damages are imposed by way of example or

Page 581 of 1485

correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. Considering petitioner's fraudulent act, we hold that an award of P50,000.00 would be adequate, fair and reasonable. The grant of exemplary damages justifies the award of attorney's fees in the amount of P50,000.00, and the award of P5,000.00 for litigation expenses. 21 The appellate court's award of P50,000.00 in moral damages is warranted. Under Article 2217 of the Civil Code, moral damages may be granted upon proof of physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. 22 Ong testitified that he suffered sleepless nights, embarrassment, humiliation and anxiety upon discovering that the checks due his company were forged by petitioner and that petitioner had filed baseless criminal complaints against him before the fiscal's office of Quezon City which disrupted HCCC's business operations. 23 WHEREFORE, we AFFIRM the respondent court's decision promulgated on June 29, 1992, upholding the February 16, 1988 decision of the trial court in favor of private respondents, with the modification that the interest upon the actual damages awarded shall be at six percent (6%) per annum, which interest rate shall be computed from the time of the filing of the complaint on November 19, 1979. However, the interest rate shall be twelve percent (12%) per annum from the time the judgment in this case becomes final and executory and until such amount is fully paid. The basis for computation of the six percent and twelve percent rates of interest shall be the amount of P370,475.00. No pronouncement as to costs. SO ORDERED. Melo, Vitug, Panganiban and Purisima, JJ., concur. THIRD DIVISION [G.R. No. 153535. July 28, 2005] SOLIDBANK CORPORATION, petitioner, vs. MINDANAO FERROALLOY CORPORATION, Spouses JONG-WON HONG and SOO-OK KIM HONG,* TERESITA CU, and RICARDO P. GUEVARA and Spouse,** respondents. DECISION PANGANIBAN, J.: To justify an award for moral and exemplary damages under Articles 19 to 21 of the Civil Code (on human relations), the claimants must establish the other partys malice or bad faith by clear and convincing evidence. The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the December 21, 2001 Decision[2] and the May 15, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 67482. The CA disposed as follows:

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IN THE LIGHT OF ALL THE FOREGOING, the appeal is DISMISSED. The Decision appealed from is AFFIRMED.[4] The assailed Resolution, on the other hand, denied petitioners Motion for Reconsideration. The Facts The CA narrated the antecedents as follows: The Maria Cristina Chemical Industries (MCCI) and three (3) Korean corporations, namely, the Ssangyong Corporation, the Pohang Iron and Steel Company and the Dongil Industries Company, Ltd., decided to forge a joint venture and establish a corporation, under the name of the Mindanao Ferroalloy Corporation (Corporation for brevity) with principal offices in Iligan City. Ricardo P. Guevara was the President and Chairman of the Board of Directors of the Corporation. Jong-Won Hong, the General Manager of Ssangyong Corporation, was the Vice-President of the Corporation for Finance, Marketing and Administration. So was Teresita R. Cu. On November 26, 1990, the Board of Directors of the Corporation approved a Resolution authorizing its President and Chairman of the Board of Directors or Teresita R. Cu, acting together with Jong-Won Hong, to secure an omnibus line in the aggregate amount of P30,000,000.00 from the Solidbank x x x. xxx xxx xxx

In the meantime, the Corporation started its operations sometime in April, 1991. Its indebtedness ballooned to P200,453,686.69 compared to its assets of only P65,476,000.00. On May 21, 1991, the Corporation secured an ordinary time loan from the Solidbank in the amount of P3,200,000.00. Another ordinary time loan was granted by the Bank to the Corporation on May 28, 1991, in the amount of P1,800,000.00 or in the total amount of P5,000,000.00, due on July 15 and 26, 1991, respectively. However, the Corporation and the Bank agreed to consolidate and, at the same time, restructure the two (2) loan availments, the same payable on September 20, 1991. The Corporation executed Promissory Note No. 96-91-00865-6 in favor of the Bank evidencing its loan in the amount of P5,160,000.00, payable on September 20, 1991. Teresita Cu and Jong-Won Hong affixed their signatures on the note. To secure the payment of the said loan, the Corporation, through Jong-Won Hong and Teresita Cu, executed a Deed of Assignment in favor of the Bank covering its rights, title and interest to the following: The entire proceeds of drafts drawn under Irrevocable Letter of Credit No. M-S-041-2002080 opened with The Mitsubishi Bank Ltd. Tokyo dated June 13, 1991 for the account of Ssangyong Japan Corporation, 7F. Matsuoka-Tamura-Cho Bldg., 22-10, 5-Chome, Shimbashi, Minato-Ku, Tokyo, Japan up to the extent of US$197,679.00 The Corporation likewise executed a Quedan, by way of additional security, under which the Corporation bound and obliged to keep and hold, in trust for the Bank or its Order, Ferrosilicon for US$197,679.00. Jong-Won Hong and Teresita Cu affixed their signatures thereon for the Corporation. The Corporation, also, through Jong-Won Hong and Teresita Cu, executed a Trust Receipt Agreement, by way of additional security for said loan, the Corporation undertaking to hold in trust, for the Bank, as its property, the following: 1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-041-2002080 for account of Ssangyong Japan Corporation, Tokyo, Japan for US$197,679.00 Ferrosilicon to expire September 20, 1991.

Page 583 of 1485

2. SEC QUEDAN NO. 91-476 dated June 26, 1991 covering the following: Ferrosilicon for US$197,679.00 However, shortly after the execution of the said deeds, the Corporation stopped its operations. The Corporation failed to pay its loan availments from the Bank inclusive of accrued interest. On February 11, 1992, the Bank sent a letter to the Corporation demanding payment of its loan availments inclusive of interests due. The Corporation failed to comply with the demand of the Bank. On November 23, 1992, the Bank sent another letter to the [Corporation] demanding payment of its account which, by November 23, 1992, had amounted to P7,283,913.33. The Corporation again failed to comply with the demand of the Bank. On January 6, 1993, the Bank filed a complaint against the Corporation with the Regional Trial Court of Makati City, entitled and docketed as Solidbank Corporation vs. Mindanao Ferroalloy Corporation, Sps. Jong-Won Hong and the Sps. Teresita R. Cu, Civil Case No. 93038 for Sum of Money with a plea for the issuance of a writ of preliminary attachment. x x x xxx xxx xxx

Under its Amended Complaint, the Plaintiff alleged that it impleaded Ricardo Guevara and his wife as Defendants because, [among others]: Defendants JONG-WON HONG and TERESITA CU, are the Vice-Presidents of defendant corporation, and also members of the companys Board of Directors. They are impleaded as joint and solidary debtors of [petitioner] bank having signed the Promissory Note, Quedan, and Trust Receipt agreements with [petitioner], in this case. xxx xxx x x x

[Petitioner] likewise filed a criminal complaint x x x entitled and docketed as Solidbank Corporation vs. Ricardo Guevara, Teresita R. Cu and Jong Won Hong x x x for Violation of P.D. 115. On April 14, 1993, the investigating Prosecutor issued a Resolution finding no probable cause for violation of P.D. 115 against the Respondents as the goods covered by the quedan were nonexistent: xxx xxx xxx

In their Answer to the complaint [in the civil case], the Spouses Jong-Won Hong and Soo-ok Kim Hong alleged, inter alia, that [petitioner] had no cause of action against them as: x x x the clean loan of P5.1 M obtained was a corporate undertaking of defendant MINFACO executed through its duly authorized representatives, Ms. Teresita R. Cu and Mr. Jong-Won Hong, both Vice Presidents then of MINFACO. x x x. xxx xxx xxx

[On their part, respondents] Teresita Cu and Ricardo Guevara alleged that [petitioner] had no cause of action against them because: (a) Ricardo Guevara did not sign any of the documents in favor of [petitioner]; (b) Teresita Cu signed the Promissory Note, Deed of Assignment, Trust Receipt and Quedan in blank and merely as representative and,

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hence, for and in behalf of the Defendant Corporation and, hence, was not personally liable to [petitioner]. In the interim, the Corporation filed, on June 20, 1994, a Petition, with the Regional Trial Court of Iligan City, for Voluntary Insolvency x x x. xxx xxx xxx

Appended to the Petition was a list of its creditors, including [petitioner], for the amount of P8,144,916.05. The Court issued an Order, on July 12, 1994, finding the Petition sufficient in form and substance x x x. xxx xxx xxx

In view of said development, the Court issued an Order, in Civil Case No. 93-038, suspending the proceedings as against the Defendant Corporation but ordering the proceedings to proceed as against the individual defendants x x x. xxx xxx xxx

On December 10, 1999, the Court rendered a Decision dismissing the complaint for lack of cause of action of [petitioner] against the Spouses Jong-Won Hong, Teresita Cu and the Spouses Ricardo Guevara, x x x. xxx xxx xxx

In dismissing the complaint against the individual [respondents], the Court a quo found and declared that [petitioner] failed to adduce a morsel of evidence to prove the personal liability of the said [respondents] for the claims of [petitioner] and that the latter impleaded the [respondents], in its complaint and amended complaint, solely to put more pressure on the Defendant Corporation to pay its obligations to [petitioner]. [Petitioner] x x x interposed an appeal, from the Decision of the Court a quo and posed, for x x x resolution, the issue of whether or not the individual [respondents], are jointly and severally liable to [petitioner] for the loan availments of the [respondent] Corporation, inclusive of accrued interests and penalties. In the meantime, on motion of [petitioner], the Court set aside its Order, dated February 2, 1995, suspending the proceedings as against the [respondent] Corporation. [Petitioner] filed a Motion for Summary Judgment against the [respondent] Corporation. On February 28, 2000, the Court rendered a Summary Judgment against the [respondent] Corporation, the decretal portion of which reads as follows: WHEREFORE, premises considered, this Court hereby resolves to give due course to the motion for summary judgment filed by herein [petitioner]. Consequently, judgment is hereby rendered in favor of [Petitioner] SOLIDBANK CORPORATION and against [Respondent] MINDANAO FERROALLOY CORPORATION, ordering the latter to pay the former the amount of P7,086,686.70, representing the outstanding balance of the subject loan as of 24 September 1994, plus stipulated interest at the rate of 16% per annum to be computed from the aforesaid date until fully paid together with an amount equivalent to 12% of the total amount due each year from 24 September 1994 until fully paid. Lastly, said [respondent] is

Page 585 of 1485

hereby ordered to pay [petitioner] the amount of P25,000.00 to [petitioner] as reasonable attorneys fees as well as cost of litigation.[5] In its appeal, petitioner argued that (1) it had adduced the requisite evidence to prove the solidary liability of the individual respondents, and (2) it was not liable for their counterclaims for damages and attorneys fees. Ruling of the Court of Appeals Affirming the RTC, the appellate court ruled that the individual respondents were not solidarily liable with the Mindanao Ferroalloy Corporation, because they had acted merely as officers of the corporation, which was the real party in interest. Respondent Guevara was not even a signatory to the Promissory Note, the Trust Receipt Agreement, the Deed of Assignment or the Quedan; he was merely authorized to represent Minfaco to negotiate with and secure the loans from the bank. On the other hand, the CA noted that Respondents Cu and Hong had not signed the above documents as comakers, but as signatories in their representative capacities as officers of Minfaco. Likewise, the CA held that the individual respondents were not liable to petitioner for damages, simply because (1) they had not received the proceeds of the irrevocable Letter of Credit, which was the subject of the Deed of Assignment; and (2) the goods subject of the Trust Receipt Agreement had been found to be nonexistent. The appellate court took judicial notice of the practice of banks and financing institutions to investigate, examine and assess all properties offered by borrowers as collaterals, in order to determine the feasibility and advisability of granting loans. Before agreeing to the consolidation of Minfacos loans, it presumed that petitioner had done its homework. As to the award of damages to the individual respondents, the CA upheld the trial courts findings that it was clearly unfair on petitioners part to have impleaded the wives of Guevara and Hong, because the women were not privy to any of the transactions between petitioner and Minfaco. Under Articles 19, 20 and 2229 of the Civil Code, such reckless and wanton act of pressuring individual respondents to settle the corporations obligations is a ground to award moral and exemplary damages, as well as attorneys fees. Hence this Petition.[6] Issues In its Memorandum, petitioner raises the following issues: A. Whether or not there is ample evidence on record to support the joint and solidary liability of individual respondents with Mindanao Ferroalloy Corporation. B. In the absence of joint and solidary liability[,] will the provision of Article 1208 in relation to Article 1207 of the New Civil Code providing for joint liability be applicable to the case at bar. C. May bank practices be the proper subject of judicial notice under Sec. 1 [of] Rule 129 of the Rules of Court.

Page 586 of 1485

D. Whether or not there is evidence to sustain the claim that respondents were impleaded to apply pressure upon them to pay the obligations in lieu of MINFACO that is declared insolvent. E. Whether or not there are sufficient bases for the award of various kinds of and substantial amounts in damages including payment for attorneys fees. F. Whether or not respondents committed fraud and misrepresentations and acted in bad faith. G. Whether or not the inclusion of respondents spouses is proper under certain circumstances and supported by prevailing jurisprudence.[7] In sum, there are two main questions: (1) whether the individual respondents are liable, either jointly or solidarily, with the Mindanao Ferroalloy Corporation; and (2) whether the award of damages to the individual respondents is valid and legal. The Courts Ruling The Petition is partly meritorious. First Issue: Liability of Individual Respondents Petitioner argues that the individual respondents were jointly or solidarily liable with Minfaco, either because their participation in the loan contract and the loan documents made them comakers; or because they committed fraud and deception, which justifies the piercing of the corporate veil. The first contention hinges on certain factual determinations made by the trial and the appellate courts. These tribunals found that, although he had not signed any document in connection with the subject transaction, Respondent Guevara was authorized to represent Minfaco in negotiating for a P30 million loan from petitioner. As to Cu and Hong, it was determined, among others, that their signatures on the loan documents other than the Deed of Assignment were not prefaced with the word by, and that there were no other signatures to indicate who had signed for and on behalf of Minfaco, the principal borrower. In the Promissory Note, they signed above the printed name of the corporation -- on the space provided for Maker/Borrower, not on that provided for Co-maker. Petitioner has not shown any exceptional circumstance that sanctions the disregard of these findings of fact, which are thus deemed final and conclusive upon this Court and may not be reviewed on appeal.[8] No Personal Liability for Corporate Deeds Basic is the principle that a corporation is vested by law with a personality separate and distinct from that of each person composing[9] or representing it.[10] Equally fundamental is the general rule that corporate officers cannot be held personally liable for the consequences of their acts, for as long as these are for and on behalf of the corporation, within the scope of their authority and in good faith.[11] The separate corporate personality

Page 587 of 1485

is a shield against the personal liability of corporate officers, whose acts are properly attributed to the corporation.[12] Tramat Mercantile v. Court of Appeals[13] held thus: Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when 1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; 2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or

4. He is made, by a specific provision of law, to personally answer for his corporate action. Consistent with the foregoing principles, we sustain the CAs ruling that Respondent Guevara was not personally liable for the contracts. First, it is beyond cavil that he was duly authorized to act on behalf of the corporation; and that in negotiating the loans with petitioner, he did so in his official capacity. Second, no sufficient and specific evidence was presented to show that he had acted in bad faith or gross negligence in that negotiation. Third, he did not hold himself personally and solidarily liable with the corporation. Neither is there any specific provision of law making him personally answerable for the subject corporate acts. On the other hand, Respondents Cu and Hong signed the Promissory Note without the word by preceding their signatures, atop the designation Maker/Borrower and the printed name of the corporation, as follows: __(Sgd) Cu/Hong__ (Maker/Borrower) MINDANAO FERROALLOY While their signatures appear without qualification, the inference that they signed in their individual capacities is negated by the following facts: 1) the name and the address of the corporation appeared on the space provided for Maker/Borrower; 2) Respondents Cu and Hong had only one set of signatures on the instrument, when there should have been two, if indeed they had intended to be bound solidarily -- the first as representatives of the corporation, and the second as themselves in their individual capacities; 3) they did not sign under the spaces provided for Co-maker, and neither were their addresses reflected there; and 4) at the back of the Promissory Note, they signed above the words Authorized Representative. Solidary Liability Not Lightly Inferred Moreover, it is axiomatic that solidary liability cannot be lightly inferred.[14] Under Article 1207 of the Civil Code, there is a solidary liability only when the obligation expressly so

Page 588 of 1485

states, or when the law or the nature of the obligation requires solidarity. Since solidary liability is not clearly expressed in the Promissory Note and is not required by law or the nature of the obligation in this case, no conclusion of solidary liability can be made. Furthermore, nothing supports the alleged joint liability of the individual petitioners because, as correctly pointed out by the two lower courts, the evidence shows that there is only one debtor: the corporation. In a joint obligation, there must be at least two debtors, each of whom is liable only for a proportionate part of the debt; and the creditor is entitled only to a proportionate part of the credit.[15] Moreover, it is rather late in the day to raise the alleged joint liability, as this matter has not been pleaded before the trial and the appellate courts. Before the lower courts, petitioner anchored its claim solely on the alleged joint and several (or solidary) liability of the individual respondents. Petitioner must be reminded that an issue cannot be raised for the first time on appeal, but seasonably in the proceedings before the trial court.[16] So too, the Promissory Note in question is a negotiable instrument. Under Section 19 of the Negotiable Instruments Law, agents or representatives may sign for the principal. Their authority may be established, as in other cases of agency. Section 20 of the law provides that a person signing for and on behalf of a [disclosed] principal or in a representative capacity x x x is not liable on the instrument if he was duly authorized. The authority of Respondents Cu and Hong to sign for and on behalf of the corporation has been amply established by the Resolution of Minfacos Board of Directors, stating that Atty. Ricardo P. Guevara (President and Chairman), or Ms. Teresita R. Cu (Vice President), acting together with Mr. Jong Won Hong (Vice President), be as they are hereby authorized for and in behalf of the Corporation to: 1. Negotiate with and obtain from (petitioner) the extension of an omnibus line in the aggregate of P30 million x x x; and 2. Execute and deliver all documentation necessary to implement all of the foregoing.[17] Further, the agreement involved here is a contract of adhesion, which was prepared entirely by one party and offered to the other on a take it or leave it basis. Following the general rule, the contract must be read against petitioner, because it was the party that prepared it,[18] more so because a bank is held to high standards of care in the conduct of its business.[19] In the totality of the circumstances, we hold that Respondents Cu and Hong clearly signed the Note merely as representatives of Minfaco. No Reason to Pierce the Corporate Veil Under certain circumstances, courts may treat a corporation as a mere aggroupment of persons, to whom liability will directly attach. The distinct and separate corporate personality may be disregarded, inter alia, when the corporate identity is used to defeat public convenience, justify a wrong, protect a fraud, or defend a crime. Likewise, the corporate veil may be pierced when the corporation acts as a mere alter ego or business conduit of a person, or when it is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. [20] But to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established; it cannot be presumed.[21]

Page 589 of 1485

Petitioner contends that the corporation was used to protect the fraud foisted upon it by the individual respondents. It argues that the CA failed to consider the following badges of fraud and evident bad faith: 1) the individual respondents misrepresented the corporation as solvent and financially capable of paying its loan; 2) they knew that prices of ferrosilicon were declining in the world market when they secured the loan in June 1991; 3) not a single centavo was paid for the loan; and 4) the corporation suspended its operations shortly after the loan was granted.[22] Fraud refers to all kinds of deception -- whether through insidious machination, manipulation, concealment or misrepresentation -- that would lead an ordinarily prudent person into error after taking the circumstances into account.[23] In contracts, a fraud known as dolo causante or causal fraud[24] is basically a deception used by one party prior to or simultaneous with the contract, in order to secure the consent of the other.[25] Needless to say, the deceit employed must be serious. In contradistinction, only some particular or accident of the obligation is referred to by incidental fraud or dolo incidente, [26] or that which is not serious in character and without which the other party would have entered into the contract anyway.[27] Fraud must be established by clear and convincing evidence; mere preponderance evidence is not adequate.[28] Bad faith, on the other hand, imports a dishonest purpose some moral obliquity and conscious doing of a wrong, not simply bad judgment negligence.[29] It is synonymous with fraud, in that it involves a design to mislead deceive another.[30] of or or or

Unfortunately, petitioner was unable to establish clearly and precisely how the alleged fraud was committed. It failed to establish that it was deceived into granting the loans because of respondents misrepresentations and/or insidious actions. Quite the contrary, circumstances indicate the weakness of its submission. First, petitioner does not deny that the P5 million loan represented the consolidation of two loans,[31] granted long before the bank required the individual respondents to execute the Promissory Note, Trust Receipt Agreement, Quedan or Deed of Assignment. Hence, no words, acts or machinations arising from any of those instruments could have been used by them prior to or simultaneous with the execution of the contract, or even as some accident or particular of the obligation. Second, petitioner bank was in a position to verify for itself the solvency and trustworthiness of respondent corporation. In fact, ordinary business prudence required it to do so before granting the multimillion loans. It is of common knowledge that, as a matter of practice, banks conduct exhaustive investigations of the financial standing of an applicant debtor, as well as appraisals of collaterals offered as securities for loans to ensure their prompt and satisfactory payment. To uphold petitioners cry of fraud when it failed to verify the existence of the goods covered by the Trust Receipt Agreement and the Quedan is to condone its negligence. Judicial Notice of Bank Practices This point brings us to the alleged error of the appellate court in taking judicial notice of the practice of banks in conducting background checks on borrowers and sureties. While a court is not mandated to take judicial notice of this practice under Section 1 of Rule 129 of the Rules of Court, it nevertheless may do so under Section 2 of the same Rule. The latter Rule

Page 590 of 1485

provides that a court, in its discretion, may take judicial notice of matters which are of public knowledge, or ought to be known to judges because of their judicial functions. Thus, the Court has taken judicial notice of the practices of banks and other financial institutions. Precisely, it has noted that it is their uniform practice, before approving a loan, to investigate, examine and assess would-be borrowers credit standing or real estate[32] offered as security for the loan applied for. Second Issue: Award of Damages The individual respondents were awarded moral and exemplary damages as well as attorneys fees under Articles 19 to 21 of the Civil Code, on the basic premise that the suit was clearly malicious and intended merely to harass. Article 19 of the Civil Code expresses the fundamental principle of law on human conduct that a person must, in the exercise of his rights and in the performance of his duties, act with justice, give every one his due, and observe honesty and good faith. Under this basic postulate, the exercise of a right, though legal by itself, must nonetheless be done in accordance with the proper norm. When the right is exercised arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is committed for which the wrongdoer must be held responsible.[33] To be liable under the abuse-of-rights principle, three elements must concur: a) a legal right or duty, b) its exercise in bad faith, and c) the sole intent of prejudicing or injuring another. [34] Needless to say, absence of good faith[35] must be sufficiently established. Article 20 makes [e]very person who, contrary to law, willfully or negligently causes damage to another liable for damages. Upon the other hand, held liable for damages under Article 21 is one who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy. For damages to be properly awarded under the above provisions, it is necessary to demonstrate by clear and convincing evidence[36] that the action instituted by petitioner was clearly so unfounded and untenable as to amount to gross and evident bad faith.[37] To justify an award of damages for malicious prosecution, one must prove two elements: malice or sinister design to vex or humiliate and want of probable cause.[38] Petitioner was proven wrong in impleading Spouses Guevara and Hong. Beyond that fact, however, respondents have not established that the suit was so patently malicious as to warrant the award of damages under the Civil Codes Articles 19 to 21, which are grounded on malice or bad faith.[39] With the presumption of law on the side of good faith, and in the absence of adequate proof of malice, we find that petitioner impleaded the spouses because it honestly believed that the conjugal partnerships had benefited from the proceeds of the loan, as stated in their Complaint and subsequent pleadings. Its act does not amount to evident bad faith or malice; hence, an award for damages is not proper. The adverse result of an act per se neither makes the act wrongful nor subjects the actor to the payment of damages, because the law could not have meant to impose a penalty on the right to litigate. [40] For the same reason, attorneys fees cannot be granted. Article 2208 of the Civil Code states that in the absence of a stipulation, attorneys fees cannot be recovered, except in any of the following circumstances:

Page 591 of 1485

(1) When exemplary damages are awarded;

(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) (4) In criminal cases of malicious prosecution against the plaintiff; In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim; (6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) (9) In actions for indemnity under workmens compensation and employers liability laws; In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered. In the instant case, none of the enumerated grounds for recovery of attorneys fees are present. WHEREFORE, this Petition is PARTIALLY GRANTED. The assailed Decision is AFFIRMED, but the award of moral and exemplary damages as well as attorneys fees is DELETED. No costs. SO ORDERED. Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur. Republic SUPREME Manila FIRST DIVISION G.R. No. 109491 February 28, 2001 of the Philippines COURT

ATRIUM MANAGEMENT CORPORATION, petitioner, vs. COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR., AND HI-CEMENT CORPORATION, respondents. ----------------------------------------

Page 592 of 1485

G.R. No. 121794 February 28, 2001

LOURDES M. DE LEON, petitioner, vs. COURT OF APPEALS, ATRIUM MANAGEMENT CORPORATION, AND HI-CEMENT CORPORATION, respondents. PARDO, J.: What is before the Court are separate appeals from the decision of the Court of Appeals, 1 ruling that Hi-Cement Corporation is not liable for four checks amounting to P2 million issued to E.T. Henry and Co. and discounted to Atrium Management Corporation. On January 3, 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four postdated checks in the total amount of P2 million. Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de Leon,2 treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner Atrium Management Corporation for valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason "payment stopped". Atrium, thus, instituted this action after its demand for payment of the value of the checks was denied.3 After due proceedings, on July 20, 1989, the trial court rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay petitioner Atrium, jointly and severally, the amount of P2 million corresponding to the value of the four checks, plus interest and attorney's fees. 4 On appeal to the Court of Appeals, on March 17, 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court, absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the subject checks by Lourdes M. de Leon and the late Antonio de las Alas constituted ultra vires acts; and (3) The subject checks were not issued for valuable consideration.5 At the trial, Atrium presented as its witness Carlos C. Syquia who testified that in February 1981, Enrique Tan of E.T. Henry approached Atrium for financial assistance, offering to discount four RCBC checks in the total amount of P2 million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with HiCement the fact that the checks represented payment for petroleum products which E.T. Henry delivered to Hi-Cement. Carlos C. Syquia identified two letters, dated February 6, 1981 and February 9, 1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the issuance of the four checks in favor of E.T. Henry in payment for petroleum products.6 Respondent Hi-Cement presented as witness Ms. Erlinda Yap who testified that she was once a secretary to the treasurer of Hi-Cement, Lourdes M. de Leon, and as such she was familiar with the four RCBC checks as the postdated checks issued by Hi-Cement to E.T. Henry upon instructions of Ms. de Leon. She testified that E.T. Henry offered to give Hi-Cement a loan which the subject checks would secure as collateral. 7

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On July 20, 1989, the Regional Trial Court, Manila, Branch 09 rendered a decision, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing considerations, and plaintiff having proved its cause of action by preponderance of evidence, judgment is hereby rendered ordering all the defendants except defendant Antonio de las Alas to pay plaintiff jointly and severally the amount of TWO MILLION (P2,000,000.00) PESOS with the legal rate of interest from the filling of the complaint until fully paid, plus the sum of TWENTY THOUSAND (P20,000.00) PESOS as and for attorney's fees and the cost of suit." All other claims are, for lack of merit dismissed. SO ORDERED."8 In due time, both Lourdes M. de Leon and Hi-Cement appealed to the Court of Appeals. 9 Lourdes M. de Leon submitted that the trial court erred in ruling that she was solidarilly liable with Hi-Cement for the amount of the check. Also, that the trial court erred in ruling that Atrium was an ordinary holder, not a holder in due course of the rediscounted checks. 10 Hi-Cement on its part submitted that the trial court erred in ruling that even if Hi-Cement did not authorize the issuance of the checks, it could still be held liable for the checks. And assuming that the checks were issued with its authorization, the same was without any consideration, which is a defense against a holder in due course and that the liability shall be borne alone by E.T. Henry.11 On March 17, 1993, the Court of Appeals promulgated its decision modifying the ruling of the trial court, the dispositive portion of which reads: "Judgement is hereby rendered: (1) dismissing the plaintiff's complaint as against defendants Hi-Cement Corporation and Antonio De las Alas; (2) ordering the defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay the plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid, plus P20,000.00 for attorney's fees. (3) Ordering the plaintiff and defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay defendant Hi-Cement Corporation, the sum of P20,000.00 as and for attorney's fees. With cost in this instance against the appellee Atrium Management Corporation and appellant Lourdes Victoria M. de Leon. So ordered."12 Hence, the recourse to this Court.13 The issues raised are the following:

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In G. R. No. 109491 (Atrium, petitioner): 1. Whether the issuance of the questioned checks was an ultra vires act; 2. Whether Atrium was not a holder in due course and for value; and 3. Whether the Court of Appeals erred in dismissing the case against Hi-Cement and ordering it to pay P20,000.00 as attorney's fees.14 In G. R. No. 121794 (de Leon, petitioner): 1. Whether the Court of Appeals erred in holding petitioner personally liable for the Hi-Cement checks issued to E.T. Henry; 2. Whether the Court of Appeals erred in ruling that Atrium is a holder in due course; 3. Whether the Court of Appeals erred in ruling that petitioner Lourdes M. de Leon as signatory of the checks was personally liable for the value of the checks, which were declared to be issued without consideration; 4. Whether the Court of Appeals erred in ordering petitioner to pay Hi-Cement attorney's fees and costs.15 We affirm the decision of the Court of Appeals. We first resolve the issue of whether the issuance of the checks was an ultra vires act. The record reveals that Hi-Cement Corporation issued the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil delivered by E.T. Henry to Hi-Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry if the checks were in payment for hydro oil delivered by E.T. Henry to Hi-Cement? Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a "kiting operation" to raise funds for E.T. Henry, who admittedly was in need of financial assistance. The Court finds that there was no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. It is, however, our view that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act. "An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law"16 The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated."17

Page 595 of 1485

The next question to determine is whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check. "Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: "1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; "2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; "3. He agrees to hold himself personally and solidarily liable with the corporation; or "4. He is made, by a specific provision of law, to personally answer for his corporate action."18 In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payee's account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, "that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry". Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor.1wphi1.nt The next issue is whether or not petitioner Atrium was a holder of the checks in due course. The Negotiable Instruments Law, Section 52 defines a holder in due course, thus: "A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it." In the instant case, the checks were crossed checks and specifically indorsed for deposit to payee's account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.

Page 596 of 1485

However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course can not recover on the instrument. 19 The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. 20 One such defense is absence or failure of consideration.21 We need not rule on the other issues raised, as they merely follow as a consequence of the foregoing resolutions. WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the Court of Appeals in CA-G. R. CV No. 26686, are hereby AFFIRMED in toto. No costs. SO ORDERED. Davide, Jr., Puno, Kapunan, and Ynares-Santiago, JJ., concur. Republic SUPREME Manila FIRST DIVISION G.R. No. 109491 February 28, 2001 of the Philippines COURT

ATRIUM MANAGEMENT CORPORATION, petitioner, vs. COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR., AND HI-CEMENT CORPORATION, respondents. ---------------------------------------G.R. No. 121794 February 28, 2001

LOURDES M. DE LEON, petitioner, vs. COURT OF APPEALS, ATRIUM MANAGEMENT CORPORATION, AND HI-CEMENT CORPORATION, respondents. PARDO, J.: What is before the Court are separate appeals from the decision of the Court of Appeals, 1 ruling that Hi-Cement Corporation is not liable for four checks amounting to P2 million issued to E.T. Henry and Co. and discounted to Atrium Management Corporation.

Page 597 of 1485

On January 3, 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four postdated checks in the total amount of P2 million. Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de Leon,2 treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner Atrium Management Corporation for valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason "payment stopped". Atrium, thus, instituted this action after its demand for payment of the value of the checks was denied.3 After due proceedings, on July 20, 1989, the trial court rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay petitioner Atrium, jointly and severally, the amount of P2 million corresponding to the value of the four checks, plus interest and attorney's fees. 4 On appeal to the Court of Appeals, on March 17, 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court, absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the subject checks by Lourdes M. de Leon and the late Antonio de las Alas constituted ultra vires acts; and (3) The subject checks were not issued for valuable consideration.5 At the trial, Atrium presented as its witness Carlos C. Syquia who testified that in February 1981, Enrique Tan of E.T. Henry approached Atrium for financial assistance, offering to discount four RCBC checks in the total amount of P2 million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with HiCement the fact that the checks represented payment for petroleum products which E.T. Henry delivered to Hi-Cement. Carlos C. Syquia identified two letters, dated February 6, 1981 and February 9, 1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the issuance of the four checks in favor of E.T. Henry in payment for petroleum products.6 Respondent Hi-Cement presented as witness Ms. Erlinda Yap who testified that she was once a secretary to the treasurer of Hi-Cement, Lourdes M. de Leon, and as such she was familiar with the four RCBC checks as the postdated checks issued by Hi-Cement to E.T. Henry upon instructions of Ms. de Leon. She testified that E.T. Henry offered to give Hi-Cement a loan which the subject checks would secure as collateral. 7 On July 20, 1989, the Regional Trial Court, Manila, Branch 09 rendered a decision, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing considerations, and plaintiff having proved its cause of action by preponderance of evidence, judgment is hereby rendered ordering all the defendants except defendant Antonio de las Alas to pay plaintiff jointly and severally the amount of TWO MILLION (P2,000,000.00) PESOS with the legal rate of interest from the filling of the complaint until fully paid, plus the sum of TWENTY THOUSAND (P20,000.00) PESOS as and for attorney's fees and the cost of suit." All other claims are, for lack of merit dismissed. SO ORDERED."8

Page 598 of 1485

In due time, both Lourdes M. de Leon and Hi-Cement appealed to the Court of Appeals. 9 Lourdes M. de Leon submitted that the trial court erred in ruling that she was solidarilly liable with Hi-Cement for the amount of the check. Also, that the trial court erred in ruling that Atrium was an ordinary holder, not a holder in due course of the rediscounted checks. 10 Hi-Cement on its part submitted that the trial court erred in ruling that even if Hi-Cement did not authorize the issuance of the checks, it could still be held liable for the checks. And assuming that the checks were issued with its authorization, the same was without any consideration, which is a defense against a holder in due course and that the liability shall be borne alone by E.T. Henry.11 On March 17, 1993, the Court of Appeals promulgated its decision modifying the ruling of the trial court, the dispositive portion of which reads: "Judgement is hereby rendered: (1) dismissing the plaintiff's complaint as against defendants Hi-Cement Corporation and Antonio De las Alas; (2) ordering the defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay the plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid, plus P20,000.00 for attorney's fees. (3) Ordering the plaintiff and defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay defendant Hi-Cement Corporation, the sum of P20,000.00 as and for attorney's fees. With cost in this instance against the appellee Atrium Management Corporation and appellant Lourdes Victoria M. de Leon. So ordered."12 Hence, the recourse to this Court.13 The issues raised are the following: In G. R. No. 109491 (Atrium, petitioner): 1. Whether the issuance of the questioned checks was an ultra vires act; 2. Whether Atrium was not a holder in due course and for value; and 3. Whether the Court of Appeals erred in dismissing the case against Hi-Cement and ordering it to pay P20,000.00 as attorney's fees.14 In G. R. No. 121794 (de Leon, petitioner): 1. Whether the Court of Appeals erred in holding petitioner personally liable for the Hi-Cement checks issued to E.T. Henry;

Page 599 of 1485

2. Whether the Court of Appeals erred in ruling that Atrium is a holder in due course; 3. Whether the Court of Appeals erred in ruling that petitioner Lourdes M. de Leon as signatory of the checks was personally liable for the value of the checks, which were declared to be issued without consideration; 4. Whether the Court of Appeals erred in ordering petitioner to pay Hi-Cement attorney's fees and costs.15 We affirm the decision of the Court of Appeals. 1wphi1.nt We first resolve the issue of whether the issuance of the checks was an ultra vires act. The record reveals that Hi-Cement Corporation issued the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil delivered by E.T. Henry to Hi-Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry if the checks were in payment for hydro oil delivered by E.T. Henry to Hi-Cement? Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a "kiting operation" to raise funds for E.T. Henry, who admittedly was in need of financial assistance. The Court finds that there was no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. It is, however, our view that there is basis to rule that the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act. "An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law"16 The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated."17 The next question to determine is whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check. "Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: "1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; "2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; "3. He agrees to hold himself personally and solidarily liable with the corporation; or

Page 600 of 1485

"4. He is made, by a specific provision of law, to personally answer for his corporate action."18 In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payee's account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, "that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry". Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor. The next issue is whether or not petitioner Atrium was a holder of the checks in due course. The Negotiable Instruments Law, Section 52 defines a holder in due course, thus: "A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it." In the instant case, the checks were crossed checks and specifically indorsed for deposit to payee's account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course. However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course can not recover on the instrument. 19 The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. 20 One such defense is absence or failure of consideration.21 We need not rule on the other issues raised, as they merely follow as a consequence of the foregoing resolutions. WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the Court of Appeals in CA-G. R. CV No. 26686, are hereby AFFIRMED in toto. No costs.

Page 601 of 1485

SO ORDERED. Davide, Jr., Puno, Kapunan, and Ynares-Santiago, JJ., concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 107382/G.R. No. 107612 January 31, 1996 of the Philippines COURT

ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK, respondents. xxxxxxxxxxxxxxxxxxxxx G.R. No. 107612 January 31, 1996

PHILIPPINE NATIONAL BANK, petitioner, vs. HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents. DECISION ROMERO, J.: Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank? This is the main issue in these consolidated petitions for review assailing the decision of the Court of Appeals in "Province of Tarlac v. Philippine National Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No. 17962). 1 The facts of the case are as follows: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan. A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. 2 The allotment checks for said government hospital are drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier.

Page 602 of 1485

In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks drawn by the Province. On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on February 28, 1978, collected the questioned checks from the office of the Provincial Treasurer. He claimed to be assisting or helping the hospital follow up the release of the checks and had official receipts. 3 Pangilinan sought to encash the first check 4 with Associated Bank. However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the second check, in the amount of P5,000.00 and dated April 20, 1978, 5 as well as for twenty-eight other checks of various amounts and on various dates. The last check negotiated by Pangilinan was for f8,000.00 and dated February 10, 1981. 6 All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED BANK." Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that the checks were paid to him for certain projects with the hospital. 7 He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. While he admitted that his wife and Pangilinan's wife are first cousins, the manager denied having given Pangilinan preferential treatment on this account. 8 On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current account of the Province. 9 In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981. 10 As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as third-party defendant. The latter then filed a fourthparty complaint against Adena Canlas and Fausto Pangilinan. 11 After trial on the merits, the lower court rendered its decision on March 21, 1988, disposing as follows: WHEREFORE, in view of the foregoing, judgment is hereby rendered: 1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant Philippine National Bank (PNB), ordering the latter to pay to the former, the sum of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interest thereon from March 20, 1981 until fully paid;

Page 603 of 1485

2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine National Bank (PNB) and against third-party defendant/fourth-party plaintiff Associated Bank ordering the latter to reimburse to the former the amount of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interests thereon from March 20, 1981 until fully paid;. 3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of cause of action as against fourth-party defendant Adena Canlas and lack of jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against the latter. 4. On the counterclaims on the complaint, third-party complaint and fourth-party complaint, the same are hereby ordered dismissed for lack of merit. SO ORDERED.
12

PNB and Associated Bank appealed to the Court of Appeals. trial court's decision in toto on September 30, 1992.

13

Respondent court affirmed the

Hence these consolidated petitions which seek a reversal of respondent appellate court's decision. PNB assigned two errors. First, the bank contends that respondent court erred in exempting the Province of Tarlac from liability when, in fact, the latter was negligent because it delivered and released the questioned checks to Fausto Pangilinan who was then already retired as the hospital's cashier and administrative officer. PNB also maintains its innocence and alleges that as between two innocent persons, the one whose act was the cause of the loss, in this case the Province of Tarlac, bears the loss. Next, PNB asserts that it was error for the court to order it to pay the province and then seek reimbursement from Associated Bank. According to petitioner bank, respondent appellate Court should have directed Associated Bank to pay the adjudged liability directly to the Province of Tarlac to avoid circuity. 14 Associated Bank, on the other hand, argues that the order of liability should be totally reversed, with the drawee bank (PNB) solely and ultimately bearing the loss. Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules instead of Central Bank Circular No. 580, which, being an administrative regulation issued pursuant to law, has the force and effect of law. 15 The PCHC Rules are merely contractual stipulations among and between member-banks. As such, they cannot prevail over the aforesaid CB Circular. It likewise contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee of prior indorsements against Associated Bank, the collecting bank. In stamping the guarantee (for all prior indorsements), it merely followed a mandatory requirement for clearing and had no choice but to place the stamp of guarantee; otherwise, there would be no clearing. The bank will be in a "no-win" situation and will always bear the loss as against the drawee bank. 16 Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in question, it is now estopped from asserting the defense that Associated Bank

Page 604 of 1485

guaranteed prior indorsements. The drawee bank allegedly has the primary duty to verify the genuineness of payee's indorsement before paying the check. 17 While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the loss because it cleared and paid the forged checks. xxx xxx xxx

The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. They were properly issued and bear the genuine signatures of the drawer, the Province of Tarlac. The infirmity in the questioned checks lies in the payee's (Concepcion Emergency Hospital) indorsements which are forgeries. At the time of their indorsement, the checks were order instruments. Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer. Section 23 of the Negotiable Instruments Law (NIL) provides: Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged or made without 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. A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. 18 Section 23 does not avoid the instrument but only the forged signature. 19 Thus, a forged indorsement does not operate as the payee's indorsement. The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority." Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. 20 In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. 21 The checks involved in this case are order instruments, hence, the following discussion is made with reference to the effects of a forged indorsement on an instrument payable to order. Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. 22

Page 605 of 1485

An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting." 23 He cannot interpose the defense that signatures prior to him are forged. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer's instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer's (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. 24 The general rule then is that the drawee bank may not debit the drawer's account and is not entitled to indemnification from the drawer. 25 The risk of loss must perforce fall on the drawee bank. However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. 26 In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawer's signature since the latter is its customer. 27 In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. 28 In other words, the drawee bank canseek reimbursement or a return of the amount it paid from the presentor bank or person. 29 Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully. 30

Page 606 of 1485

More importantly, by reason of the statutory warranty of a general indorser in section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements." 31 The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness. of any indorsement. 32 The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. 33 Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital.

Page 607 of 1485

With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinan's retirement on February 28, 1978. After nearly three years, the Treasurer's office was still releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurer's office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinan's retirement and consequent dissociation from the hospital. Jose Meru, the Provincial Treasurer, testified:. ATTY. MORGA: Q Now, is it true that for a given month there were two releases of checks, one went to Mr. Pangilinan and one went to Miss Juco? JOSE MERU: A Yes, sir. Q Will you please tell us how at the time (sic) when the authorized representative of Concepcion Emergency Hospital is and was supposed to be Miss Juco? A Well, as far as my investigation show (sic) the assistant cashier told me that Pangilinan represented himself as also authorized to help in the release of these checks and we were apparently misled because they accepted the representation of Pangilinan that he was helping them in the release of the checks and besides according to them they were, Pangilinan, like the rest, was able to present an official receipt to acknowledge these receipts and according to them since this is a government check and believed that it will eventually go to the hospital following the standard procedure of negotiating government checks, they released the checks to Pangilinan aside from Miss Juco.34 The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total amount paid on the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. As earlier stated, PNB can recover from the collecting bank. In the case of Associated Bank v. CA, 35 six crossed checks with forged indorsements were deposited in the forger's account with the collecting bank and were later paid by four different drawee banks. The Court found the collecting bank (Associated) to be negligent and held: The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the private respondent's account. . . .

Page 608 of 1485

The situation in the case at bench is analogous to the above case, for it was not the payee who deposited the checks with the collecting bank. Here, the checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings account. Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of endorsements guaranteed) is merely a requirement forced upon it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior indorsements is not an empty rubric which a bank must fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated to it. It is within the bank's discretion to receive a check for no banking institution would consciously or deliberately accept a check bearing a forged indorsement. When a check is deposited with the collecting bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for checks deposited by its customers. A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement. It is here that Associated Bank's assignment of error concerning C.B. Circular No. 580 and Section 23 of the Philippine Clearing House Corporation Rules comes to fore. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-Sour (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the checks. The Court deems it unnecessary to discuss Associated Bank's assertions that CB Circular No. 580 is an administrative regulation issued pursuant to law and as such, must prevail over the PCHC rule. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In any event, the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982. The contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the forgery of the checks was discovered in 1981. The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to go after its depositor. The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks and conduct its own investigation. Thereafter, it requested the Provincial Treasurer's office on March 31, 1981 to

Page 609 of 1485

return the checks for verification. The Province of Tarlac returned the checks only on April 22, 1981. Two days later, Associated Bank received the checks from PNB. 36 Associated Bank was also furnished a copy of the Province's letter of demand to PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time, however, Pangilinan's account with Associated had only P24.63 in it. 37 Had Associated Bank decided to debit Pangilinan's account, it could not have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it did not present evidence against Pangilinan and even presented him as its rebuttal witness. 38 Hence, Associated Bank was not prejudiced by PNB's failure to comply with the twenty-four-hour return rule. Next, Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payee's Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee bank. 39 PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness of payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payee's indorsement. PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a clientor customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank. The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by the Province of Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Bank deposits are considered under the law as loans. 40 Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interest-bearing, by express contract, thus excluding them from the coverage of CB Circular No. 416. In this case, however, the actual interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial court's use of the legal interest rate, or six percent (6%) per annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. 41 The trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand. The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospital's real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including

Page 610 of 1485

that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement. IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The petition for review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The decision of the trial court is MODIFIED. The Philippine National Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from March 20, 1981 until the payment thereof. Associated Bank shall pay fifty percent (50%) of P203,300.00 to the Philippine National Bank, likewise, with legal interest from March 20, 1981 until payment is made. SO ORDERED. Regalado, Puno and Mendoza, JJ., concur. [G.R. No. 140980. March 1, 2000] SPS. FRANCISCO S. ANTONIO, et al. vs. SPS. TEODORICO C. OMNES, et al. SECOND DIVISION Gentlemen: Quoted hereunder, for your information, is a resolution of this Court dated MAR 1 2000. G.R. No. 140980 (SPS. Francisco S. Antonio and Amor W. Antonio vs. Sps. Teodorico C. Omnes and Alice Omnes and the Standard Chartered Bank.) This is a petition for review on certiorari of the decision, dated February 26, 1999, of the Court of Appeals. It appears that in 1988, Rarecrafts Philippines (Rarecrafts), a handicrafts export business owned by petitioners, hired respondent Alice Omnes as its accountant-bookkeeper. Her duties included the preparation of checks for the payment of bills to the suppliers of rarecrafts. Sometime in July 1991, petitioner Francisco S. Antonio received a telephone call from respondent Standard Chartered Bank seeking confirmation of the issuance of a check for P105,750.00 payable to cash. He then asked Mrs. Omnes about the check in question, after which he went back to his office, while she went to her desk, presumably to verify the issuance of the check from the records. When Mrs. Omnes failed to return after some time, Mr. Antonio decided to follow up the matter with her. As he was going out of his office, Mr. Antonio saw Mrs. Omnes crossing the street and taking a jeepney bound for Pasig. Alarmed, Mr. Antonio looked for the stub to the check, which he found and saw that the amount indicated therein was P335.15. Later on the same day, respondent bank called Mr. Antonio regarding a check for P97,500.00 payable to cash. Upon verification, Mr. Antonio found that the stub of the check indicated a different amount. It was found that the two checks were credited to the savings account of Mrs. Omnes at the Far East Bank and Trust Company, Tanay Branch. At the request of Mr. Antonio, respondent bank furnished him with photocopies of the two checks, which he denied having signed.

Page 611 of 1485

Subsequently, Mr. Antonio conducted an examination of the records pertaining to the issuance of checks from the time Mrs. Omnes was employed by Rarecrafts. He found that 70 checks, involving a total amount of P4,720,600.00, were issued for amounts different from those indicated in the corresponding stubs. Petitioners (Mr. Antonio and his wife Amor) filed an action against respondents with the trial court, and judgment was rendered in their favor. The dispositive portion of the trial court's decision reads: WHEREFORE, appreciating the preponderance of evidence sufficient to warrant favorable action on plaintiffs-spouses Francisco and Amor Antonio's stand, defendants Alice Omnes and the Standard Chartered Bank are hereby ordered to pay unto the herein plaintiffs, jointly and severally: 1. The amount of P3,349,550.00 with 12% interest thereon computed from the date of filing of the complaint, i.e., July 29, 1991 until the said sum is fully paid; 2. 3. 4. 5. The sum of P200,000.00 as moral damages; The sum of P100,000.00 as exemplary damages; The sum of P100,000.00 as attorney's fees; and Costs of suit.

On the cross-claim, cross-defendant Spouses Teodoro and Alice Omnes are hereby ordered to pay cross-plaintiff the Standard Chartered Bank the above-enumerated amounts. The counterclaims at the bar are hereby ordered DISMISSED for lack of factual basis. The writ of attachment is hereby made permanent. The 'Motion and Claim for Damages Against The Bond' filed by defendant Teodoro Omnes through counsel is hereby DENIED for lack of merit. On appeal, however, the Court of Appeals reversed the decision on the following grounds: (a) in concluding that the signatures in the checks and the standard signatures of Mr. Antonio were written by the same person, the handwriting expert presented by respondent bank, Atty. Desiderio Paqui, specified the similarities and the difference between the signatures in the checks and the standard signatures, while the handwriting experts of petitioners confined themselves to general statements regarding their alleged differences; and (b) the negligence of petitioners was the proximate cause of the loss. Petitioners now raise the following assignment of errors: a. The Court of Appeals had committed grave abuse of discretion in its appreciation of facts in the instant case. b. The findings of facts of the Court of Appeals, especially on the question of forgery of the drawer's signature on the questioned

Page 612 of 1485

checks, are at variance with that [of] the lower court, calling for review of the evidence to arrive at the correct findings based on the record, pursuant to the rule enunciated in the case of Roblesa v. Court of Appeals, 174 SCRA 354, 362 (1989), as an exception to the rule that findings of fact of the Court of Appeals are generally not subject to review on certiorari. c. And on the assumption that there was forgery, the Court of Appeals erred in its conclusion that respondent drawee bank was not liable when it honored the forged checks of petitioner Francisco Antonio as drawer therein under Section 23 of the Negotiable Instruments Law and pertinent jurisprudence in relation thereto. The petition is without merit. First. The Court of Appeals properly gave credence to Atty. Desiderio Paqui, the handwriting expert of respondent bank, rather than to the handwriting experts of petitioners. In his report, Atty. Paqui indicated in detail the similarities and the difference between the signatures in the checks and the standard signatures of Mr. Antonio. He cited eight important similarities and only one significant difference between the signatures in the checks and the standard signatures of Mr. Antonio. In contrasts, the handwriting experts of petitioners supported their finding that the signatures in the checks and the standard signatures of Mr. Antonio were written by different persons with mere generalizations, such as alleged differences in "manner of execution of strokes," "structural patterns of letters," and "minute identifying details." Thus, petitioners failed to meet the quantum of proof necessary to establish forgery, the existence of which cannot be presumed. (Metropolitan Waterworks and Sewerage System v. Court of Appeals, 143 SCRA 20 (1986)) Second. The Court of Appeals correctly observed that the failure of Mr. Antonio for over three years to detect the repeated commission of fraud within his business, which he claims eventually involved the total amount of P4,720,600.00, despite the fact that respondent bank sent monthly statements to Rarecrafts, is indicative of his extreme negligence. It appears that Mr. Antonio completely left to Mrs. Omnes the management of such an important aspect of his business. While the general rule is that a drawee bank which clears a forged check for payment should reimburse the drawer, this does not apply when the failure of the latter to exercise ordinary care made the loss possible. Hence, even is the signatures in the checks were forged, petitioners have no right of recourse against respondent bank. (Associated Bank v. Court of Appeals, 252 SCRA 620 (1996)) It is settled that if the factual conclusions of the Court of Appeals are borne out by the records, the same are binding on this Court, even when such are contrary to the findings of the trial court. (Uniland Resources v. Development Bank of the Philippines, 200 SCRA 751 (1991)) In the instant case, petitioners failed to show that the Court of Appeals committed a reversible error in the appreciation of the evidence presented by the parties. WHEREFORE, the petition is DENIED for lack of showing that the Court of Appeals committed a reversible error. Very truly yours, (Sgd.) DRIS TOMASITA M.

Page 613 of 1485

Clerk of Court [G.R. No. 145916.January 29, 2001] MBTC vs. SANVAR DEV'T CORP. SECOND DIVISION Gentlemen: Quoted hereunder, for your information, is a resolution of this Court dated JAN 29 2001. G.R. No. 145916(Metropolitan Bank & Trust Company vs. Sanvar Development Corp.) Isabela State University issued two Development Bank of the Philippines (DBP) checks to respondent Sanvar Development Corp. ("Sanvar c/o Engineer Jesus Urrea") as final payment for respondent's construction of the school's farm structures in Cabagan, Isabela. The two checks, amounting to P207,428.26 and P161,567.80, dated July 8, 1992 and July 10, 1992 respectively, were given to respondent's representative, Engr. Jesus Urrea, who in turn entrusted them to one Eduardo Talaue. Talaue was supposed to bring the two checks to respondent in order to enable him (Talaue) to clarify the alleged obligation one Isidro Calueng (respondent's sub-contractor) owed him. However, instead of forwarding the checks to respondent, Eduardo Talaue forged the indorsements of Engr. Jesus Urrea and deposited the checks with petitioner Metropolitan Bank & Trust Company (Metrobank) under the account of Lily Ballesteros. For failure of petitioner to pay the two checks amounting to P368,996.06, respondent filed a case for collection against petitioner and Eduardo Talaue with the Regional Trial Court, Branch 92, Quezon City. Respondent prayed that petitioner and Talaue be held jointly and severally liable for the amounts of P368,996.06, with interest thereon from September 1992 until fully paid, P50,000.00 as attorney's fees, and P100,000.00 as exemplary damages. Petitioner moved to dismiss respondent's complaint on the ground that it did not state a cause of action against it (petitioner bank). The trial court granted the motion, holding that petitioner credited the two checks to the account of Lily Ballesteros only after DBP (drawee bank) had accepted, cleared, and honored the same and that, under 62 of the Negotiable Instruments Law, DBP, as the acceptor/drawee bank, was primarily liable for accepting the checks. However, on appeal to the Court of Appeals, the decision was reversed and the case was remanded to the trial court for further proceedings. Hence, this present petition for review on certiorari. The issue in this case is whether respondent's complaint states a cause of action against petitioner bank, the collecting bank, as to the two checks. The answer is in the affirmative. Respondent's complaint alleges that Eduardo Talaue, instead of bringing the same to respondent's office in Quezon City and contrary to his representation, deposited the checks to Account No. 68-0867803-0 (account of Lily Ballesteros) with petitioner bank, by falsifying the indorsements of Engr. Urrea; that petitioner bank, despite the falsification of the indorsements of Engr. Urrea and the obvious irregularity of his alleged indorsements, accepted the deposit of the two checks to the account of Lily Ballesteros; and that by virtue of the negligent acts of petitioner bank,

Page 614 of 1485

together with that of Eduardo Talaue, respondent had been damaged and prejudiced in the total amount of P368,996.06. Petitioner contends that respondent's complaint does not state a cause of action against it, since the same does not allege that petitioner committed any wrongdoing or fraud but only alleges that petitioner agreed to act as collecting bank and did not honor the checks. This contention is without merit. Section 23 of the Negotiable Instruments Law provides that when a signature is forged or made without 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. In this case, it appears that Isabela State University issued two checks to "Sanvar c/o Engineer Jesus Urrea" which were later entrusted to Eduardo Talaue by Engr. Jesus Urrea. Eduardo Talaue, however, forged the indorsements of Engr. Urrea which allowed the former to deposit the checks to the account of Lily Ballesteros. The checks were then indorsed by petitioner Metrobank (as collecting bank) to DBP, as drawee bank. Petitioner acted as a general indorser when it stamped "all prior indorsements and/or lack of indorsements guaranteed" because it thereby warranted the genuineness of all prior indorsenients. Petitioner is thus liable to DBP for the two checks as a forged indorsement does not operate as the payee's indorsement. The appellate court correctly relied on Associated Bank v. Court of Appeals, 252 SCRA 620 (1996) in which it was held: By reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. The Court has consistently ruled that "the collecting bank or last indorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment had done its duty to ascertain the genuineness of the indorsements." The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. Petitioner alleges that the foregoing ruling does not apply where, as in this case, DBP, the drawee bank, failed to return the checks with the forged indorsements within the 24-hour clearing period. By reason thereof, petitioner should be absolved from liability pursuant to

Page 615 of 1485

4(c) of Central Bank Circular No. 9. The argument, however, is a matter of defense which is better threshed out in the proceedings before the trial court. For the foregoing reasons, the petition is DENIED for lack of showing that the Court of Appeals committed reversible error. Very truly yours, (Sgd.) Clerk of Court TOMASITA M. DRIS

SECOND DIVISION [G.R. No. 132560. January 30, 2002] WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner, vs. EUGENE ONG, respondent. DECISION QUISUMBING, J.: This is a petition for review of the decision lix[1] dated January 13, 1998, of the Court of Appeals in CA-G.R. CV No. 28304 ordering the petitioner to pay respondent P1,754,787.50 plus twelve percent (12%) interest per annum computed from October 7, 1977, the date of the first extrajudicial demand, plus damages. The facts of this case are undisputed. Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated Banking Corporation, but now known as Westmont Bank. Sometime in May 1976, he sold certain shares of stocks through Island Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific Banking Corporation managers checks, lx[2] both dated May 4, 1976, issued in the name of Eugene Ong as payee. Before Ong could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ongs signature and deposited these with petitioner, where Tanlimco was also a depositor. Even though Ongs specimen signature was on file, petitioner accepted and credited both checks to the account of Tanlimco, without verifying the signature indorsements appearing at the back thereof. Tanlimco then immediately withdrew the money and absconded. Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimcos family to recover the amount. Later, he reported the incident to the Central Bank, which like the first effort, unfortunately proved futile. It was only on October 7, 1977, about five (5) months from discovery of the fraud, did Ong cry foul and demanded in his complaint that petitioner pay the value of the two checks from the bank on whose gross negligence he imputed his loss. In his suit, he insisted that he did not deliver, negotiate, endorse or transfer to any person or entity the subject checks issued to him and asserted that the signatures on the back were spurious. lxi[3]

Page 616 of 1485

The bank did not present evidence to the contrary, but simply contended that since plaintiff Ong claimed to have never received the originals of the two (2) checks in question from Island Securities, much less to have authorized Tanlimco to receive the same, he never acquired ownership of these checks. Thus, he had no legal personality to sue as he is not a real party in interest. The bank then filed a demurrer to evidence which was denied. On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch 38, rendered a decision, thus: IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and against the defendant, and orders the defendant to pay the plaintiff: 1. The sum of P1,754,787.50 representing the total face value of the two checks in question, exhibits A and B, respectively, with interest thereon at the legal rate of twelve percent (12%) per annum computed from October 7, 1977 (the date of the first extrajudicial demand) up to and until the same shall have been paid in full; 2. Moral damages in the amount of P250,000.00;

3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or correction for the public good; 4. Attorneys fees of P50,000.00 and costs of suit.

Defendants counterclaims are dismissed for lack of merit. SO ORDERED.lxii[4] Petitioner elevated the case to the Court of Appeals without success. In its decision, the appellate court held: WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto.lxiii[5] Petitioner now comes before this Court on a petition for review, alleging that the Court of Appeals erred: I ... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT RESPONDENT HAS A CAUSE OF ACTION AGAINST THE PETITIONER. II ... IN AFFIRMING THE TRIAL COURTS DECISION FINDING PETITIONER LIABLE TO RESPONDENT AND DECLARING THAT THE LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND III ... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING PETITIONER FROM LIABILITY.

Page 617 of 1485

Essentially the issues in this case are: (1) whether or not respondent Ong has a cause of action against petitioner Westmont Bank; and (2) whether or not Ong is barred to recover the money from Westmont Bank due to laches. Respondent admitted that he was never in actual or physical possession of the two (2) checks of the Island Securities nor did he authorize Tanlimco or any of the latters representative to demand, accept and receive the same. For this reason, petitioner argues, respondent cannot sue petitioner because under Section 51 of the Negotiable Instruments Lawlxiv[6] it is only when a person becomes a holder of a negotiable instrument can he sue in his own name. Conversely, prior to his becoming a holder, he had no right or cause of action under such negotiable instrument. Petitioner further argues that since Section 191lxv[7] of the Negotiable Instruments Law defines a holder as the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof, in order to be a holder, it is a requirement that he be in possession of the instrument or the bearer thereof. Simply stated, since Ong never had possession of the checks nor did he authorize anybody, he did not become a holder thereof hence he cannot sue in his own name. lxvi[8] Petitioner also cites Article 1249 lxvii[9] of the Civil Code explaining that a check, even if it is a managers check, is not legal tender. Hence, the creditor cannot be compelled to accept payment thru this means.lxviii[10] It is petitioners position that for all intents and purposes, Island Securities has not yet tendered payment to respondent Ong, thus, any action by Ong should be directed towards collecting the amount from Island Securities. Petitioner claims that Ongs cause of action against it has not ripened as of yet. It may be that petitioner would be liable to the drawee bank - - but that is a matter between petitioner and draweebank, Pacific Banking Corporation.lxix[11] For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which held that the suit of Ong against the petitioner bank is a desirable shortcut to reach the party who ought in any event to be ultimately liable. lxx[12] It likewise cites the ruling of the courts a quo which held that according to the general rule, a bank who has obtained possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. The theory of said rule is that the collecting banks possession of such check is wrongful.lxxi[13] Respondent also cites Associated Bank vs. Court of Appealslxxii[14] which held that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements. The collecting bank is also made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. Hence, it is in a better position to detect forgery, fraud or irregularity in the indorsement.lxxiii[15] Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed by the Negotiable Instruments Law which is a special law and only in the absence of specific provisions or deficiency in the special law may the Civil Code be invoked. lxxiv[16] Considering the contentions of the parties and the evidence on record, we find no reversible error in the assailed decisions of the appellate and trial courts, hence there is no justifiable reason to grant the petition. Petitioners claim that respondent has no cause of action against the bank is clearly misplaced. As defined, a cause of action is the act or omission by which a party violates a right of another.lxxv[17] The essential elements of a cause of action are: (a) a legal right or

Page 618 of 1485

rights of the plaintiff, (b) a correlative obligation of the defendant, and (c) an act or omission of the defendant in violation of said legal right. lxxvi[18] The complaint filed before the trial court expressly alleged respondents right as payee of the managers checks to receive the amount involved, petitioners correlative duty as collecting bank to ensure that the amount gets to the rightful payee or his order, and a breach of that duty because of a blatant act of negligence on the part of petitioner which violated respondents rights.lxxvii[19] Under Section 23 of the Negotiable Instruments Law: 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. Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to recover from the collecting bank. The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check. lxxviii[20] As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained.lxxix[21] The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful, and when the money had been collected on the check, the bank or other person or corporation can be held as for moneys had and received, and the proceeds are held for the rightful owners who may recover them. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected the money without indorsement at all and the act of the bank amounts to conversion of the check.lxxx[22] Petitioners claim that since there was no delivery yet and respondent has never acquired possession of the checks, respondents remedy is with the drawer and not with petitioner bank. Petitioner relies on the view to the effect that where there is no delivery to the payee and no title vests in him, he ought not to be allowed to recover on the ground that he lost nothing because he never became the owner of the check and still retained his claim of debt against the drawer.lxxxi[23] However, another view in certain cases holds that even if the absence of delivery is considered, such consideration is not material. The rationale for this view is that in said cases the plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not.lxxxii[24]

Page 619 of 1485

Considering the circumstances in this case, in our view, petitioner could not escape liability for its negligent acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took place was a depositor of petitioner bank. Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. lxxxiii[25] They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.lxxxiv[26] In the present case, petitioner was held to be grossly negligent in performing its duties. As found by the trial court: xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimcos account by defendant bank, defendant bank, admittedly had in its files specimen signatures of plaintiff who maintained a current account with them (Exhibits L-1 and M-1; testimony of Emmanuel Torio). Given the substantial face value of the two checks, totalling P1,754,787.50, and the fact that they were being deposited by a person not the payee, the very least defendant bank should have done, as any reasonable prudent man would have done, was to verify the genuineness of the indorsements thereon. The Court cannot help but note that had defendant conducted even the most cursory comparison with plaintiffs specimen signatures in its files (Exhibit L-1 and M-1) it would have at once seen that the alleged indorsements were falsified and were not those of the plaintiff-payee. However, defendant apparently failed to make such a verification or, what is worse did so but, chose to disregard the obvious dissimilarity of the signatures. The first omission makes it guilty of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in question.lxxxv[27] These findings are binding and conclusive on the appellate and the reviewing courts. On the second issue, petitioner avers that respondent Ong is barred by laches for failing to assert his right for recovery from the bank as soon as he discovered the scam. The lapse of five months before he went to seek relief from the bank, according to petitioner, constitutes laches. In turn, respondent contends that petitioner presented no evidence to support its claim of laches. On the contrary, the established facts of the case as found by the trial court and affirmed by the Court of Appeals are that respondent left no stone unturned to obtain relief from his predicament. On the matter of delay in reporting the loss, respondent calls attention to the fact that the checks were issued on May 4, 1976, and on the very next day, May 5, 1976, these were already credited to the account of Paciano Tanlimco and presented for payment to Pacific Banking Corporation. So even if the theft of the checks were discovered and reported earlier, respondent argues, it would not have altered the situation as the encashment of the checks was consummated within twenty four hours and facilitated by the gross negligence of the petitioner bank.lxxxvi[28] Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled thereto has either abandoned or declined to assert it.lxxxvii[29] It concerns itself with whether or not by reason of long inaction or inexcusable neglect, a person claiming a right should be barred from asserting the same, because to allow him to do so would be unjust to the person against whom such right is sought to be enforced.lxxxviii[30]

Page 620 of 1485

In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of the forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the family of Tanlimco and through the CB, about five months after the unlawful transaction took place, did he resort to making the demand upon the petitioner and eventually before the court for recovery of the money value of the two checks. These acts cannot be construed as undue delay in or abandonment of the assertion of his rights. Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect responsibility for its negligent act. As explained by the appellate court, it is petitioner which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the proper and regular banking procedures in clearing checks.lxxxix[31] As we had earlier ruled, the one who had the last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof.xc[32] WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals, sustaining the judgment of the Regional Trial Court of Manila, is AFFIRMED. Costs against petitioner. SO ORDERED. Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur. Republic SUPREME Manila THIRD DIVISION G.R. No. 138510 October 10, 2002 of the Philippines COURT

TRADERS ROYAL BANK, petitioner, vs. RADIO PHILIPPINES NETWORK, INC., INTERCONTINENTAL BROADCASTING CORPORATION and BANAHAW BROADCASTING CORPORATION, through the BOARD OF ADMINISTRATORS, and SECURITY BANK AND TRUST COMPANY, respondents. DECISION CORONA, J.: Petitioner seeks the review and prays for the reversal of the Decision 1 of April 30, 1999 of Court of Appeals in CA-G.R. CV No. 54656, the dispositive portion of which reads: WHEREFORE, the appealed decision is AFFIRMED with modification in the sense that appellant SBTC is hereby absolved from any liability. Appellant TRB is solely liable to the

Page 621 of 1485

appellees for the damages and costs of suit specified in the dispositive portion of the appealed decision. Costs against appellant TRB. SO ORDERED.2 As found by the Court of Appeals, the antecedent facts of the case are as follows: On April 15, 1985, the Bureau of Internal Revenue (BIR) assessed plaintiffs Radio Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) of their tax obligations for the taxable years 1978 to 1983. On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs comptroller, sent a letter to the BIR requesting settlement of plaintiffs tax obligations. The BIR granted the request and accordingly, on June 26, 1986, plaintiffs purchased from defendant Traders Royal Bank (TRB) three (3) managers checks to be used as payment for their tax liabilities, to wit: Check Number 30652 30650 30796 Amount P4,155.835. 00 3,949,406.1 2 1,685,475.7 5

Defendant TRB, through Aida Nuez, TRB Branch Manager at Broadcast City Branch, turned over the checks to Mrs. Vera who was supposed to deliver the same to the BIR in payment of plaintiffs taxes. Sometime in September, 1988, the BIR again assessed plaintiffs for their tax liabilities for the years 1979-82. It was then they discovered that the three (3) managers checks (Nos. 30652, 30650 and 30796) intended as payment for their taxes were never delivered nor paid to the BIR by Mrs. Vera. Instead, the checks were presented for payment by unknown persons to defendant Security Bank and Trust Company (SBTC), Taytay Branch as shown by the banks routing symbol transit number (BRSTN 01140027) or clearing code stamped on the reverse sides of the checks. Meanwhile, for failure of the plaintiffs to settle their obligations, the BIR issued warrants of levy, distraint and garnishment against them. Thus, they were constrained to enter into a compromise and paid BIR P18,962,225.25 in settlement of their unpaid deficiency taxes. Thereafter, plaintiffs sent letters to both defendants, demanding that the amounts covered by the checks be reimbursed or credited to their account. The defendants refused, hence, the instant suit.3 On February 17, 1985, the trial court rendered its decision, thus:

Page 622 of 1485

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendants by : a) Condemning the defendant Traders Royal Bank to pay actual damages in the sum of Nine Million Seven Hundred Ninety Thousand and Seven Hundred Sixteen Pesos and Eighty-Seven Centavos (P9,790,716.87) broken down as follows: 1) To plaintiff RPN-9 - P4,155,835.00 2) To Plaintiff IBC-13 - P3,949,406.12 3) To Plaintiff BBC-2 - P1,685,475.72 plus interest at the legal rate from the filing of this case in court. b) Condemning the defendant Security Bank and Trust Company, being collecting bank, to reimburse the defendant Traders Royal Bank, all the amounts which the latter would pay to the aforenamed plaintiffs; c) Condemning both defendants to pay to each of the plaintiffs the sum of Three Hundred Thousand (P300,000.00) Pesos as exemplary damages and attorneys fees equivalent to twenty-five percent of the total amount recovered; and d) Costs of suit. SO ORDERED.4 Defendants Traders Royal Bank and Security Bank and Trust Company, Inc. both appealed the trial courts decision to the Court of Appeals. However, as quoted in the beginning hereof, the appellate court absolved defendant SBTC from any liability and held TRB solely liable to respondent networks for damages and costs of suit. In the instant petition for review on certiorari of the Court of Appeals decision, petitioner TRB assigns the following errors: (a) the Honorable Court of Appeals manifestly overlooked facts which would justify the conclusion that negligence on the part of RPN, IBC and BBC bars them from recovering anything from TRB, (b) the Honorable Court of Appeals plainly erred and misapprehended the facts in relieving SBTC of its liability to TRB as collecting bank and indorser by overturning the trial courts factual finding that SBTC did endorse the three (3) managers checks subject of the instant case, and (c) the Honorable Court of Appeals plainly misapplied the law in affirming the award of exemplary damages in favor of RPN, IBC and BBC. In reply, respondents RPN, IBC, and BBC assert that TRBs petition raises questions of fact in violation of Rule 45 of the 1997 Revised Rules on Civil Procedure which restricts petitions for review on certiorari of the decisions of the Court of Appeals on pure questions of law. RPN, IBC and BBC maintain that the issue of whether or not respondent networks had been negligent were already passed upon both by the trial and appellate courts, and that the factual findings of both courts are binding and conclusive upon this Court. Likewise, respondent SBTC denies liability on the ground that it had no participation in the negotiation of the checks, emphasizing that the BRSTN imprints at the back of the checks

Page 623 of 1485

cannot be considered as proof that respondent SBTC accepted the disputed checks and presented them to Philippine Clearing House Corporation for clearing. Setting aside the factual ramifications of the instant case, the threshold issue now is whether or not TRB should be held solely liable when it paid the amount of the checks in question to a person other than the payee indicated on the face of the check, the Bureau of Internal Revenue. "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."5 Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. In the instant case, the 3 checks were payable to the BIR. It was established, however, that said checks were never delivered or paid to the payee BIR but were in fact presented for payment by some unknown persons who, in order to receive payment therefor, forged the name of the payee. Despite this fraud, petitioner TRB paid the 3 checks in the total amount of P9,790,716.87. Petitioner ought to have known that, where a check is drawn payable to the order of one person and is presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check, it is the primary duty of petitioner to know that the check was duly indorsed by the original payee and, where it pays the amount of the check to a third person who has forged the signature of the payee, the loss falls upon petitioner who cashed the check. Its only remedy is against the person to whom it paid the money. 6 It should be noted further that one of the subject checks was crossed. The crossing of one of the subject checks should have put petitioner on guard; it was duty-bound to ascertain the indorsers title to the check or the nature of his possession. Petitioner should have known the effects of a crossed check: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank and (c) 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 he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.7 By encashing in favor of unknown persons checks which were on their face payable to the BIR, a government agency which can only act only through its agents, petitioner did so at its peril and must suffer the consequences of the unauthorized or wrongful endorsement. 8 In this light, petitioner TRB cannot exculpate itself from liability by claiming that respondent networks were themselves negligent. A bank is engaged in a business impressed with public interest and it is its duty to protect its many clients and depositors who transact business with it. It is under the obligation to treat the accounts of the depositors and clients with meticulous care, whether such accounts consist only of a few hundreds or millions of pesos.9 Petitioner argues that respondent SBTC, as the collecting bank and indorser, should be held responsible instead for the amount of the checks. The Court of Appeals addressed exactly the same issue and made the following findings and conclusions:

Page 624 of 1485

As to the alleged liability of appellant SBTC, a close examination of the records constrains us to deviate from the lower courts finding that SBTC, as a collecting bank, should similarly bear the loss. "A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank." To hold appellant SBTC liable, it is necessary to determine whether it is a party to the disputed transactions. Section 3 of the Negotiable Instruments Law reads: "SECTION 63. When person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be an indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity." Upon the other hand, the Philippine Clearing House Corporation (PCHC) rules provide: "Sec. 17.- BANK GUARANTEE. All checks cleared through the PCHC shall bear the guarantee affixed thereto by the Presenting Bank/Branch which shall read as follows: "Cleared thru the Philippine Clearing House Corporation. All prior endorsements and/or lack of endorsement guaranteed. NAME OF BANK/BRANCH BRSTN (Date of clearing)." Here, not one of the disputed checks bears the requisite endorsement of appellant SBTC. What appears to be a guarantee stamped at the back of the checks is that of the Philippine National Bank, Buendia Branch, thereby indicating that it was the latter Bank which received the same. It was likewise established during the trial that whenever appellant SBTC receives a check for deposit, its practice is to stamp on its face the words, "non-negotiable". Lana Echevarrias testimony is relevant: "ATTY. ROMANO: Could you tell us briefly the procedure you follow in receiving checks? "A: First of all, I verify the check itself, the place, the date, the amount in words and everything. And then, if all these things are in order and verified in the data sheet I stamp my non-negotiable stamp at the face of the check." Unfortunately, the words "non-negotiable" do not appear on the face of either of the three (3) disputed checks. Moreover, the aggregate amount of the checks is not reflected in the clearing documents of appellant SBTC. Section 19 of the Rules of the PCHC states: "Section 19 Regular Item Procedure:

Page 625 of 1485

Each clearing participant, through its authorized representatives, shall deliver to the PCHC fully qualified MICR checks grouped in 200 or less items to a batch and supported by an addlist, a batch control slip, and a delivery statement. It bears stressing that through the add-list, the PCHC can countercheck and determine which checks have been presented on a particular day by a particular bank for processing and clearing. In this case, however, the add-list submitted by appellant SBTC together with the checks it presented for clearing on August 3, 1987 does not show that Check No. 306502 in the sum of P3,949,406.12 was among those that passed for clearing with the PCHC on that date. The same is true with Check No. 30652 with a face amount of P4,155,835.00 presented for clearing on August 11, 1987 and Check No. 30796 with a face amount of P1,685,475.75. The foregoing circumstances taken altogether create a serious doubt on whether the disputed checks passed through the hands of appellant SBTC."10 We subscribe to the foregoing findings and conclusions of the Court of Appeals. A collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor. However, it is doubtful if the subject checks were ever presented to and accepted by SBTC so as to hold it liable as a collecting bank, as held by the Court of Appeals. Since TRB did not pay the rightful holder or other person or entity entitled to receive payment, it has no right to reimbursement. Petitioner TRB was remiss in its duty and obligation, and must therefore suffer the consequences of its own negligence and disregard of established banking rules and procedures. We agree with petitioner, however, that it should not be made to pay exemplary damages to RPN, IBC and BBC because its wrongful act was not done in bad faith, and it did not act in a wanton, fraudulent, reckless or malevolent manner. 11 We find the award of attorneys fees, 25% of P10 million, to be manifestly exorbitant. 12 Considering the nature and extent of the services rendered by respondent networks counsel, however, the Court deems it appropriate to award the amount of P100,000 as attorneys fees. WHEREFORE, the appealed decision is MODIFIED by deleting the award of exemplary damages. Further, respondent networks are granted the amount of P100,000 as attorneys fees. In all other respects, the Court of Appeals decision is hereby AFFIRMED. SO ORDERED. Puno, (Chairman), Panganiban, Sandoval-Gutierrez, J., no part. Republic SUPREME Manila SECOND DIVISION of and Morales, JJ., concur.

the

Philippines COURT

Page 626 of 1485

G.R. No. 139130 November 27, 2002

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA BANKING CORPORATION, respondents. DECISION QUISUMBING, J.: This petition for review seeks to reverse the decision 1 promulgated on January 28, 1999 by the Court of Appeals in CA-G.R. CV No. 47942, affirming the decision of the then Court of First Instance of Rizal, Branch XV (now the Regional Trial Court of Makati, Branch 138) dismissing Civil Case No. 43907, for damages. The facts as summarized by the Court of Appeals are as follows: Petitioner is a prominent businessman who, at the time material to this case, was the Managing Director of Multinational Investment Bancorporation and the Chairman and/or President of several other corporations. He was a depositor in good standing of respondent bank, the Manila Banking Corporation, under current Checking Account No. 06-09037-0. As he was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his secretary, Katherine 2 E. Eugenio, his credit cards and his checkbook with blank checks. It was also Eugenio who verified and reconciled the statements of said checking account.3 Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private respondent, through an affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint for estafa thru falsification of commercial documents against Eugenio on the basis of petitioners statement that his signatures in the checks were forged.4 Mr. Razons affidavit states: That I have examined and scrutinized the following checks in accordance with prescribed verification procedures with utmost care and diligence by comparing the signatures affixed thereat against the specimen signatures of Mr. Ramon K. Ilusorio which we have on file at our said office on such dates, xxx That the aforementioned checks were among those issued by Manilabank in favor of its client MR. RAMON K. ILUSORIO, That the same were personally encashed by KATHERINE E. ESTEBAN, an executive secretary of MR. RAMON K. ILUSORIO in said Investment Corporation; That I have met and known her as KATHERINE E. ESTEBAN the attending verifier when she personally encashed the above-mentioned checks at our said office;

Page 627 of 1485

That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his signature appearing on the checks further alleged to have not authorized the issuance and encashment of the same.5 Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but respondent bank refused. Hence, petitioner filed the instant case.6 At the trial, petitioner testified on his own behalf, attesting to the truth of the circumstances as narrated above, and how he discovered the alleged forgeries. Several employees of Manila Bank were also called to the witness stand as hostile witnesses. They testified that it is the banks standard operating procedure that whenever a check is presented for encashment or clearing, the signature on the check is first verified against the specimen signature cards on file with the bank. Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining the genuineness of the signatures appearing on the checks. However, in a letter dated March 25, 1987, the NBI informed the trial court that they could not conduct the desired examination for the reason that the standard specimens submitted were not sufficient for purposes of rendering a definitive opinion. The NBI then suggested that petitioner be asked to submit seven (7) or more additional standard signatures executed before or about, and immediately after the dates of the questioned checks. Petitioner, however, failed to comply with this request. After evaluating the evidence on both sides, the court a quo rendered judgment on May 12, 1994 with the following dispositive portion: WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant bank, in the light of the foregoing considerations and established facts, this case would have to be, as it is hereby DISMISSED. Defendants counterclaim is likewise DISMISSED for lack of sufficient basis. SO ORDERED.7 Aggrieved, petitioner elevated the case to the Court of Appeals by way of a petition for review but without success. The appellate court held that petitioners own negligence was the proximate cause of his loss. The appellate court disposed as follows: WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant. SO ORDERED.8 Before us, petitioner ascribes the following errors to the Court of Appeals: A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT BANK IS ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO FORGERY OF THE SIGNATURES OF THE PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF COMMERCIAL DOCUMENTS AGAINST KATHERINE EUGENIO USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT.9

Page 628 of 1485

B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE INSTRUMENTS LAW.10 C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF IS WITH THE RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO PREVENT DAMAGE, TO THE PETITIONER, AND THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES.11 D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT BANK SHOULD BEAR THE LOSS, AND SHOULD BE MADE TO PAY PETITIONER, WITH RECOURSE AGAINST KATHERINE EUGENIO ESTEBAN.12 Essentially the issues in this case are: (1) whether or not petitioner has a cause of action against private respondent; and (2) whether or not private respondent, in filing an estafa case against petitioners secretary, is barred from raising the defense that the fact of forgery was not established. Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks. He adds that as a general rule a bank which has obtained possession of a check upon an unauthorized or forged endorsement of the payees signature and which collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. Petitioner invokes the doctrine of estoppel, saying that having itself instituted a forgery case against Eugenio, Manila Bank is now estopped from asserting that the fact of forgery was never proven. For its part, Manila Bank contends that respondent appellate court did not depart from the accepted and usual course of judicial proceedings, hence there is no reason for the reversal of its ruling. Manila Bank additionally points out that Section 23 13 of the Negotiable Instruments Law is inapplicable, considering that the fact of forgery was never proven. Lastly, the bank negates petitioners claim of estoppel. 14 On the first issue, we find that petitioner has no cause of action against Manila Bank. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as requested by the National Bureau of Investigation from which to draw a conclusive finding regarding forgery. The Court of Appeals found that petitioner, by his own inaction, was precluded from setting up forgery. Said the appellate court: We cannot fault the court a quo for such declaration, considering that the plaintiffs evidence on the alleged forgery is not convincing enough. The burden to prove forgery was upon the plaintiff, which burden he failed to discharge. Aside from his own testimony, the appellant presented no other evidence to prove the fact of forgery. He did not even submit his own specimen signatures, taken on or about the date of the questioned checks, for examination and comparison with those of the subject checks. On the other hand, the appellee presented specimen signature cards of the appellant, taken at various years, namely, in 1976, 1979 and 1981 (Exhibits "1", "2", "3" and "7"), showing variances in the appellants unquestioned signatures. The evidence further shows that the appellee, as soon as it was informed by the appellant about his questioned signatures, sought to borrow the questioned checks from the appellant for purposes of analysis and examination (Exhibit "9"), but the same was denied by the appellant. It was also the former which sought the

Page 629 of 1485

assistance of the NBI for an expert analysis of the signatures on the questioned checks, but the same was unsuccessful for lack of sufficient specimen signatures. 15 Moreover, petitioners contention that Manila Bank was remiss in the exercise of its duty as drawee lacks factual basis. Consistently, the CA and the RTC found that Manila Bank employees exercised due diligence in cashing the checks. The banks employees in the present case did not have a hint as to Eugenios modus operandi because she was a regular customer of the bank, having been designated by petitioner himself to transact in his behalf. According to the appellate court, the employees of the bank exercised due diligence in the performance of their duties. Thus, it found that: The evidence on both sides indicates that TMBCs employees exercised due diligence before encashing the checks. Its verifiers first verified the drawers signatures thereon as against his specimen signature cards, and when in doubt, the verifier went further, such as by referring to a more experienced verifier for further verification. In some instances the verifier made a confirmation by calling the depositor by phone. It is only after taking such precautionary measures that the subject checks were given to the teller for payment. Of course it is possible that the verifiers of TMBC might have made a mistake in failing to detect any forgery -- if indeed there was. However, a mistake is not equivalent to negligence if they were honest mistakes. In the instant case, we believe and so hold that if there were mistakes, the same were not deliberate, since the bank took all the precautions. 16 As borne by the records, it was petitioner, not the bank, who was negligent. Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. 17 In the present case, it appears that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of cancelled checks and reconciliation of accounts. Said the Court of Appeals on this matter: Moreover, the appellant had introduced his secretary to the bank for purposes of reconciliation of his account, through a letter dated July 14, 1980 (Exhibit "8"). Thus, the said secretary became a familiar figure in the bank. What is worse, whenever the bank verifiers call the office of the appellant, it is the same secretary who answers and confirms the checks. The trouble is, the appellant had put so much trust and confidence in the said secretary, by entrusting not only his credit cards with her but also his checkbook with blank checks. He also entrusted to her the verification and reconciliation of his account. Further adding to his injury was the fact that while the bank was sending him the monthly Statements of Accounts, he was not personally checking the same. His testimony did not indicate that he was out of the country during the period covered by the checks. Thus, he had all the opportunities to verify his account as well as the cancelled checks issued thereunder -month after month. But he did not, until his partner asked him whether he had entrusted his credit card to his secretary because the said partner had seen her use the same. It was only then that he was minded to verify the records of his account. 18 The abovecited findings are binding upon the reviewing court. We stress the rule that the factual findings of a trial court, especially when affirmed by the appellate court, are binding upon us19 and entitled to utmost respect20 and even finality. We find no palpable error that would warrant a reversal of the appellate courts assessment of facts anchored upon the evidence on record.

Page 630 of 1485

Petitioners failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. 21 In the instant case, the bank was not shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the banks attention at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. In other words, petitioner had sufficient opportunity to prevent or detect any misappropriation by his secretary had he only reviewed the status of his accounts based on the bank statements sent to him regularly. In view of Article 2179 of the New Civil Code, 22 when the plaintiffs own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages. Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that Manila Bank had no authority to pay the forged checks. True, it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." In the instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. Petitioners reliance on Associated Bank vs. Court of Appeals 23 and Philippine Bank of Commerce vs. CA24 to buttress his contention that respondent Manila Bank as the collecting or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements is misplaced. In the cited cases, the fact of forgery was not in issue. In the present case, the fact of forgery was not established with certainty. In those cited cases, the collecting banks were held to be negligent for failing to observe precautionary measures to detect the forgery. In the case before us, both courts below uniformly found that Manila Banks personnel diligently performed their duties, having compared the signature in the checks from the specimen signatures on record and satisfied themselves that it was petitioners. On the second issue, the fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from asserting the fact that forgery has not been clearly established. Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action. In a criminal action, the State is the plaintiff, for the commission of a felony is an offense against the State. 25 Thus, under Section 2, Rule 110 of the Rules of Court the complaint or information filed in court is required to be brought in the name of the "People of the Philippines." 26 Further, as petitioner himself stated in his petition, respondent bank filed the estafa case against Eugenio on the basis of petitioners own affidavit, 27 but without admitting that he had any personal knowledge of the alleged forgery. It is, therefore, easy to understand that the filing of the estafa case by respondent bank was a last ditch effort to salvage its ties with the petitioner as a valuable client, by bolstering the estafa case which he filed against his secretary. All told, we find no reversible error that can be ascribed to the Court of Appeals.

Page 631 of 1485

WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED. Costs against petitioner. SO ORDERED. Bellosillo, Acting C.J., (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 141278 March 23, 2004 of the Philippines COURT

MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A., ASSOCIATED BANK and FRANK TAN, respondents.

DECISION

CALLEJO, SR., J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision1 of the Court of Appeals in CA-G.R. CV No. 49529 which affirmed in toto the Decision2 of the Regional Trial Court of Makati City, Branch 38, in Civil Case No. 91-538. As culled from the records, the appeal at bench stemmed from the following factual backdrop: On February 22, 1991, the petitioner filed with the Regional Trial Court of Makati an action for damages against the respondents Citibank, N.A. and Associated Bank. 3 The case was docketed as Civil Case No. 91-538. The complaint materially alleged that, on or about August 25, 1989, the petitioner purchased from the Citibank Managers Check No. 20015301 (the check for brevity) in the amount of P1,545,000 payable to respondent Frank Tan; the petitioner later received information that the aforesaid managers check was deposited with the respondent Associated Bank, Rosario Branch, to the account of a certain Julius Dizon under Savings Account No. 19877; the clearing and/or payment by the respondents of the check to an improper party and the absence of any indorsement by the payee thereof, respondent Frank Tan, is a clear violation of the respondents obligations under the Negotiable Instruments Law and standard banking practice; considering that the petitioners intended payee for the check, the respondent Frank Tan, did not receive the value thereof, the petitioner demanded from the respondents Citibank and the Associated Bank the payment or reimbursement of the value of the check; the respondents, however, obstinately refused to heed his repeated demands for payment and/or reimbursement of the

Page 632 of 1485

amount of the check; hence, the petitioner was compelled to file this complaint praying for the restitution of the amount of the check, and for moral damages and attorneys fees. On June 17, 1991, the petitioner, with leave of court, filed an Amended Complaint 4 impleading Frank Tan as an additional defendant. The petitioner averred therein that the check was purchased by him as a demand loan to respondent Frank Tan. Since apparently respondent Frank Tan did not receive the proceeds of the check, the petitioner might have no right to collect from respondent Frank Tan and is consequently left with no recourse but to seek payment or reimbursement from either or both respondents Citibank and/or Associated Bank. In its answer to the amended complaint, 5 the respondent Associated Bank alleged that the petitioner was not the real party-in-interest but respondent Frank Tan who was the payee of the check. The respondent also maintained that the check was deposited to the account of respondent Frank Tan, a.k.a. Julius Dizon, through its Ayala Head Office and was credited to the savings account of Julius Dizon; the Ayala office confirmed with the Rosario Branch that the account of Julius Dizon is also in reality that of respondent Frank Tan; it never committed any violation of its duties and responsibilities as the proceeds of the check went and was credited to respondent Frank Tan, a.k.a. Julius Dizon; the petitioners affirmative allegation of non-payment to the payee is self-serving; as such, the petitioners claim for damages is baseless, unfounded and without legal basis. On the other hand, the respondent Citibank, in answer to the amended complaint, 6 alleged that the payment of the check was made by it in due course and in the exercise of its regular banking function. Since a managers check is normally purchased in favor of a third party, the identity of whom in most cases is unknown to the issuing bank, its only responsibility when paying the check was to examine the genuineness of the check. It had no way of ascertaining the genuineness of the signature of the payee respondent Frank Tan who was a total stranger to it. If at all, the petitioner had a cause of action only against the respondent Associated Bank which, as depository or collecting bank, was obliged to make sure that the check in question was properly endorsed by the payee. It is not expected of the respondent Citibank to ascertain the genuineness of the indorsement of the payee or even the lack of indorsement by him, most especially when the check was presented for payment with the respondent Associated Banks guaranteeing all prior indorsements or lack thereof. On March 16, 1992, the trial court declared Frank Tan in default for failure to file his answer.7 On June 10, 1992, the pre-trial conference was concluded without the parties reaching an amicable settlement.8 Hence, trial on the merits ensued. After evaluating the evidence adduced by the parties, the trial court resolved that the preponderance of evidence supports the claim of the petitioner as against respondent Frank Tan only but not against respondents Banks. Hence, on February 21, 1995, the trial court rendered judgment in favor of the petitioner and against respondent Frank Tan. The complaints against the respondents Banks were dismissed. The dispositive portion of the decision reads: WHEREFORE, judgment is hereby rendered as follows : 1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One Million Five Hundred Forty-Five Thousand (P1,545,000.00) Pesos, Philippine Currency, with interest thereon at 12% per annum from January 1990, date of extra-judicial demand until the full amount is paid;

Page 633 of 1485

2. Dismissing the complaint against defendants Citibank and Associated Bank; 3. Dismissing the counter-claims and the cross-claim of Citibank against Associated Bank for lack of merit. With costs against defendant Frank Tan.9 The petitioner appealed the decision, 10 while respondent Frank Tan did not. On November 26, 1999, the appellate court rendered judgment affirming in toto the decision of the trial court. Aggrieved, the petitioner assailed the decision in his petition at bar. The petitioner contends that: I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND ASSOCIATED BANK LIABLE TO PETITIONER FOR THE ENCASHMENT OF CITIBANK MANAGERS CHECK NO. 20015301 BY JULIUS DIZON. II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND JULIUS DIZON ARE ONE AND THE SAME PERSON. III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY TO ASSOCIATED BANK AND WAS NOT BINDING ON PETITIONER. 11 The petition is denied. The petitioner asserts that the check was payable to the order of respondent Tan. However, the respondent Associated Bank ordered the check to be deposited to the account of one Julius Dizon, although the check was not endorsed by respondent Tan. As Julius Dizon was not a holder of the check in due course, he could not validly negotiate the check. The latter was not even a transferee in due course because respondent Tan, the payee, did not endorse the said check. The position of the respondent Bank is akin to that of a bank accepting a check for deposit wherein the signature of the payee or endorsee has been forged. The contention of the petitioner does not hold water. The fact of the matter is that the check was endorsed by "Julius Dizon" and was deposited and credited to Savings Account No. 19877 with the respondent Associated Bank. But the evidence on record shows that the said account was in the name of Frank Tan Guan Leng, which is the Chinese name of the respondent Frank Tan, who also uses the alias "Julius Dizon." As correctly ruled by the Court of Appeals: On the other hand, Associated satisfactorily proved that Tan is using and is also known by his alias of Julius Dizon. He signed the Agreement On Bills Purchased (Exh. "1") and Continuing Suretyship Agreement (Exh. "2) both acknowledged on January 16, 1989, where his full name is stated to be "FRANK Tan Guan Leng (aka JULIUS DIZON)." Exh. "1" also refers to his "Account No. SA#19877," the very same account to which the P1,545,000.00 from the managers check was deposited. Osmea countered that such use of an alias is illegal. That is but an irrelevant casuistry that does not detract from the fact that the payee Tan as Julius Dizon has encashed and deposited the P1,545,000.00.12

Page 634 of 1485

The respondent Associated Bank presented preponderant evidence to support its assertion that respondent Tan, the payee of the check, did receive the proceeds of the check. It adduced evidence that "Julius Dizon" and "Frank Tan" are one and the same person. Respondent Tan was a regular and trusted client or depositor of the respondent Associated Bank in its branch at Rosario, Binondo, Manila. As such, respondent Tan was allowed to maintain two (2) savings accounts therein. 13 The first is Savings Account No. 20161-3 under his name "Frank Tan."14 The other is Savings Account No. 19877 under his assumed Filipino name "Julius Dizon,"15 to which account the check was deposited in the instant case. Both witnesses for the respondent Associated Bank, Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk), testified that respondent Tan was using the alias "Julius Dizon," and that both names referred to one and the same person, as Frank Tan himself regularly transacted business at the bank under both names. 16 This is also evidenced by the "Agreement on Bills Purchased" 17 and the "Continuing Suretyship Agreement"18 executed between Frank Tan and the respondent Associated Bank on January 16, 1989. Frank Tans name appears in said document as "FRANK TAN GUAN LENG (a.k.a. JULIUS DIZON). 19 The same documentary evidence also made reference to Savings Account No. 19877, 20 the very same account to which the check was deposited and the entire P1,545,000 was credited. Additionally, Citibank Check No. 075713 21 which was presented by the petitioner to prove one of the loans previously extended to respondent Tan showed that the endorsement of respondent Tan at the dorsal side thereof 22 is strikingly similar to the signatures of "Frank Tan" appearing in said agreements. By seeking to recover the loan from respondent Tan, the petitioner admitted that respondent Tan received the amount of the check. This apprehension was not without any basis at all, for after the petitioner attempted to communicate with respondent Tan on January or February 1990, demanding payment for the loan, respondent Tan became elusive of the petitioner.23 As a matter of fact, respondent Tan did not file his answer to the amended complaint and was never seen or heard of by the petitioner. 24 Besides, if it were really a fact that respondent Tan did not receive the proceeds of the check, he could himself have initiated the instant complaint against respondents Banks, or in the remotest possibility, joined the petitioner in pursuing the instant claim. The petitioner initially sought to recover from the respondents Banks the amount of P1,545,000 corresponding to the loan obtained by respondent Tan from him, obviously because respondent Tan had no intent to pay the amount. The petitioner alleges that the respondents Banks were negligent in paying the amount to a certain Julius Dizon, in relation to the pertinent provisions of the Negotiable Instruments Law, without the proper indorsement of the payee, Frank Tan. The petitioner cites the ruling of the Court in Associated Bank v. Court of Appeals ,25 in which we outlined the respective responsibilities and liabilities of a drawee bank, such as the respondent Citibank, and a collecting bank, such as the defendant Associated Bank, in the event that payment of a check to a person not designated as the payee, or who is not a holder in due course, had been made. However, the ruling of the Court therein does not apply to the present case for, as has been amply demonstrated, the petitioner failed to establish that the proceeds of the check was indeed wrongfully paid by the respondents Banks to a person other than the intended payee. In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case.26 Moreover, the chain of events following the purported delivery of the check to respondent Tan renders even more dubious the petitioners claim that respondent Tan had not received the proceeds of the check. Thus, the petitioner never bothered to find out from the said respondent whether the latter received the check from his messenger. And if it were to be

Page 635 of 1485

supposed that respondent Tan did not receive the check, given that his need for the money was urgent, it strains credulity that respondent Tan never even made an effort to get in touch with the petitioner to inform the latter that he did not receive the check as agreed upon, and to inquire why the check had not been delivered to him. The petitioner and respondent Tan saw each other during social gatherings but they never took the chance to discuss details on the loan or the check. 27 Their actuations are not those to be usually expected of friends of 15 years who, as the petitioner would want to impress upon this Court, were transacting business on the basis of confidence. 28 In fact, the first time that the petitioner attempted to communicate with respondent Tan was on January or February 1990, almost five or six months after the expected delivery of the check, for the purpose of demanding payment for the loan. And it was only on that occasion that respondent Tan, as the petitioner insinuates, informed him that he (Frank Tan) had not received the proceeds of the check and refused to pay his loan. 29 All told, the petitioners allegation that respondent Tan did not receive the proceeds of the check30 is belied by the evidence on record and attendant circumstances. Conversely, the records would disclose that even the petitioner himself had misgivings about the truthfulness of his allegation that respondent Tan did not receive the amount of the check. This is made implicit by respondent Tans being made a party-defendant to the case when the petitioner filed his amended complaint. In his memorandum in the case below, the petitioner averred inter alia that: The amount of P1,545,000.00 is sought to be recovered from: 1. Frank Tan for his failure to pay the loan extended by plaintiff; and 2. Associated Bank and Citibank for having accepted for deposit and/or paid the Citibank managers check despite the absence of any signature/endorsement by the named payee, Frank Tan. The claim of the petitioner that respondent Tans use of an alias is illegal does not detract a whit from the fact that respondent Tan had been credited by the respondent Associated Bank for the amount of the check. Respondent Tan did not appeal the decision of the RTC. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision dated November 26, 1999 of the Court of Appeals in CA-G.R. CV No. 49529 is hereby AFFIRMED. Costs against the petitioner. SO ORDERED. Quisumbing, (Acting Chairman), Puno, (Chairman), J., on leave. Republic SUPREME Manila FIRST DIVISION G.R. No. 149454 May 28, 2004 of Austria-Martinez, and Tinga, JJ., concur.

the

Philippines COURT

Page 636 of 1485

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, respondents. x ----------------------------- x G.R. No. 149507 May 28, 2004 petitioner,

CASA MONTESSORI INTERNATIONALE, vs. BANK OF THE PHILIPPINE ISLANDS, respondent. DECISION PANGANIBAN, J.:

By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the right to expect high standards of integrity and performance from it. Among its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not estopped from questioning wrongful withdrawals, even if they have failed to question those errors in the statements sent by the bank to them for verification. The Case Before us are two Petitions for Review1 under Rule 45 of the Rules of Court, assailing the March 23, 2001 Decision2 and the August 17, 2001 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as follows: "WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the forged checks in the amount of P547,115.00 after deductions subject to REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay the other half to plaintiff corporation [Casa Montessori Internationale (CASA)]."4 The assailed Resolution denied all the parties Motions for Reconsideration. The Facts The facts of the case are narrated by the CA as follows: "On November 8, 1982, plaintiff CASA Montessori International 5 opened Current Account No. 0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its authorized signatories. "In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00, on the following dates and amounts: Check Date Amount

Page 637 of 1485

No. 1. 839700 April 1990 24, P 43,400.00

2. 839459 Nov. 2, 1990 110,500.00 3. 839609 Oct. 1990 17, 47,723.00

4. 839549 April 7, 1990 90,700.00 5. 839569 6. 729149 7. 729129 Sept. 1990 Mar. 1990 Mar. 1990 23, 22, 16, 52,277.00 148,000.00 51,015.00

8. 839684 Dec. 1, 1990 140,000.00 9. 729034 Mar. 2, 1990 98,985.00 Total -P 782,600.006

"It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks. "The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter. "On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank praying that the latter be ordered to reinstate the amount of P782,500.007 in the current and savings accounts of the plaintiff with interest at 6% per annum. "On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff."8 Ruling of the Court of Appeals Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA. The appellate court took into account CASAs contributory negligence that resulted in the undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the other half. It also disallowed attorneys fees and moral and exemplary damages. Hence, these Petitions.9 Issues

Page 638 of 1485

In GR No. 149454, Petitioner BPI submits the following issues for our consideration: "I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be proved by clear, positive and convincing evidence; and that the burden of proof lies on the party alleging the forgery. "II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its own negligence, from asserting its forgery claim against BPI, specially taking into account the absence of any negligence on the part of BPI." 10 In GR No. 149507, Petitioner CASA submits the following issues: "1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI], although negligent, acted in bad faith x x x thus denying the prayer for the award of attorneys fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred when it did not order [BPI] to pay interest on the amounts due to [CASA]. "2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in the case at bar, thus warranting its conclusion that the loss in the amount of P547,115.00 be apportioned between [CASA] and [BPI] x x x." 11 These issues can be narrowed down to three. First, was there forgery under the Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and therefore precluded from setting up forgery as a defense? Third, should moral and exemplary damages, attorneys fees, and interest be awarded? The Courts Ruling The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious. First Issue: Forged Signature Wholly Inoperative Section 23 of the NIL provides: "Section 23. Forged signature; effect of. -- 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 x x x 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."12 Under this provision, a forged signature is a real 13 or absolute defense,14 and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it. 15

Page 639 of 1485

The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud, is forgery.16 In the present case, we hold that there was forgery of the drawers signature on the check. First, both the CA17 and the RTC18 found that Respondent Yabut himself had voluntarily admitted, through an Affidavit, that he had forged the drawers signature and encashed the checks.19 He never refuted these findings. 20 That he had been coerced into admission was not corroborated by any evidence on record.21 Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the said checks,22 had concluded that the handwritings thereon -- compared to the standard signature of the drawer -- were not hers. 23 This conclusion was the same as that in the Report24 that the PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latters request. Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by the CA, since these are supported by substantial evidence on record. 25 Voluntary Admission Not Violative of Constitutional Rights The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2) against self-incrimination. In the first place, he was not under custodial investigation. 26 His Affidavit was executed in private and before private individuals. 27 The mantle of protection under Section 12 of Article III of the 1987 Constitution28 covers only the period "from the time a person is taken into custody for investigation of his possible participation in the commission of a crime or from the time he is singled out as a suspect in the commission of a crime although not yet in custody."29 Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of freedom, with "questions propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or any information." 30 The said constitutional provision does "not apply to spontaneous statements made in a voluntary manner" 31 whereby an individual orally admits to authorship of a crime. 32 "What the Constitution proscribes is the compulsory or coercive disclosure of incriminating facts." 33 Moreover, the right against self-incrimination 34 under Section 17 of Article III35 of the Constitution, which is ordinarily available only in criminal prosecutions, extends to all other government proceedings -- including civil actions, legislative investigations, 36 and administrative proceedings that possess a criminal or penal aspect 37 -- but not to private investigations done by private individuals. Even in such government proceedings, this right may be waived,38 provided the waiver is certain; unequivocal; and intelligently, understandingly and willingly made.39 If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of no moment that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the appropriate authorities or to the private individuals upon whom damage has been caused. As we shall also explain later, it is not mandatory for CASA -- the plaintiff below -- to implead Yabut in the civil case before the lower court.

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Under these two constitutional provisions, "[t]he Bill of Rights 40 does not concern itself with the relation between a private individual and another individual. It governs the relationship between the individual and the State." 41 Moreover, the Bill of Rights "is a charter of liberties for the individual and a limitation upon the power of the [S]tate." 42 These rights43 are guaranteed to preclude the slightest coercion by the State that may lead the accused "to admit something false, not prevent him from freely and voluntarily telling the truth." 44 Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights "does not automatically entitle him to the constitutional protection." 45 When he freely and voluntarily executed46 his Affidavit, the State was not even involved. Such Affidavit may therefore be admitted without violating his constitutional rights while under custodial investigation and against self-incrimination. Clear, Positive and Convincing Examination and Evidence The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing. Forgery "cannot be presumed."47 It must be established by clear, positive and convincing evidence.48 Under the best evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary evidence may inceptively be introduced, as the original writing itself must be produced in court. 49 But when, without bad faith on the part of the offeror, the original checks have already been destroyed or cannot be produced in court, secondary evidence may be produced. 50 Without bad faith on its part, CASA proved the loss or destruction of the original checks through the Affidavit of the one person who knew of that fact51 -- Yabut. He clearly admitted to discarding the paid checks to cover up his misdeed.52 In such a situation, secondary evidence like microfilm copies may be introduced in court. The drawers signatures on the microfilm copies were compared with the standard signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination that two different persons had written them.53 Although no conclusive report could be issued in the absence of the original checks,54 she affirmed that her findings were 90 percent conclusive.55 According to her, even if the microfilm copies were the only basis of comparison, the differences were evident. 56 Besides, the RTC explained that although the Report was inconclusive, no conclusive report could have been given by the PNP, anyway, in the absence of the original checks. 57 This explanation is valid; otherwise, no such report can ever be relied upon in court. Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document -- such as the drawers signature on a check -- is the subject of inquiry.58 As to whether the document has been actually executed, this rule does not apply; and testimonial as well as any other secondary evidence is admissible. 59 Carina Lebron herself, the drawers authorized signatory, testified many times that she had never signed those checks. Her testimonial evidence is admissible; the checks have not been actually executed. The genuineness of her handwriting is proved, not only through the courts comparison of the questioned handwritings and admittedly genuine specimens thereof, 60 but above all by her. The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of evidence61 nor creates an unfavorable inference against it.62 Such failure merely authorizes the introduction of secondary evidence 63 in the form of microfilm copies. Of no consequence is the fact that CASA did not present the signature card containing the

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signatures with which those on the checks were compared. 64 Specimens of standard signatures are not limited to such a card. Considering that it was not produced in evidence, other documents that bear the drawers authentic signature may be resorted to. 65 Besides, that card was in the possession of BPI -- the adverse party. We have held that without the original document containing the allegedly forged signature, one cannot make a definitive comparison that would establish forgery; 66 and that a comparison based on a mere reproduction of the document under controversy cannot produce reliable results.67 We have also said, however, that a judge cannot merely rely on a handwriting experts testimony,68 but should also exercise independent judgment in evaluating the authenticity of a signature under scrutiny. 69 In the present case, both the RTC and the CA conducted independent examinations of the evidence presented and arrived at reasonable and similar conclusions. Not only did they admit secondary evidence; they also appositely considered testimonial and other documentary evidence in the form of the Affidavit. The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been met.70 The result of examining a questioned handwriting, even with the aid of experts and scientific instruments, may be inconclusive; 71 but it is a non sequitur to say that such result is not clear, positive and convincing. The preponderance of evidence required in this case has been satisfied.72 Second Issue: Negligence Attributable to BPI Alone Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not appear on the negotiable instruments -cannot be held liable thereon. Neither is the latter precluded from setting up forgery as a real defense. Clear Negligence in Allowing Payment Under a Forged Signature We have repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence 73 is expected,74 and high standards of integrity and performance are even required, of it. 75 By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care, 76 always having in mind the fiduciary nature of their relationship." 77 BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures therein are verified to be the same with or similar to the specimen signatures on the signature cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence required 78 of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged." 79 In fact, BPI was the same bank involved when we issued this ruling seventy years ago. Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement

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The monthly statements issued by BPI to its clients contain a notice worded as follows: "If no error is reported in ten (10) days, account will be correct." 80 Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it estopped from questioning the mistake after the lapse of the ten-day period. This notice is a simple confirmation 81 or "circularization" -- in accounting parlance -- that requests client-depositors to affirm the accuracy of items recorded by the banks. 82 Its purpose is to obtain from the depositors a direct corroboration of the correctness of their account balances with their respective banks. 83 Internal or external auditors of a bank use it as a basic audit procedure84 -- the results of which its client-depositors are neither interested in nor privy to -- to test the details of transactions and balances in the banks records. 85 Evidential matter obtained from independent sources outside a bank only serves to provide greater assurance of reliability 86 than that obtained solely within it for purposes of an audit of its own financial statements, not those of its client-depositors. Furthermore, there is always the audit risk that errors would not be detected 87 for various reasons. One, materiality is a consideration in audit planning; 88 and two, the information obtained from such a substantive test is merely presumptive and cannot be the basis of a valid waiver.89 BPI has no right to impose a condition unilaterally and thereafter consider failure to meet such condition a waiver. Neither may CASA renounce a right 90 it has never possessed.91 Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement, the passive one is duty-bound to suffer such enforcement. 92 On the one hand, BPI could not have been an active subject, because it could not have demanded from CASA a response to its notice. Besides, the notice was a measly request worded as follows: "Please examine x x x and report x x x." 93 CASA, on the other hand, could not have been a passive subject, either, because it had no obligation to respond. It could -as it did -- choose not to respond. Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to that established as the truth, in legal contemplation. 94 Our rules on evidence even make a juris et de jure presumption95 that whenever one has, by ones own act or omission, intentionally and deliberately led another to believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or omission -- be permitted to falsify that supposed truth. 96 In the instant case, CASA never made any deed or representation that misled BPI. The formers omission, if any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise. 97 A person who has no knowledge of or consent to a transaction may not be estopped by it. 98 "Estoppel cannot be sustained by mere argument or doubtful inference x x x." 99 CASA is not barred from questioning BPIs error even after the lapse of the period given in the notice. Loss Borne by Proximate Source of Negligence For allowing payment100 on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to its depositor-drawer. Since the encashing bank is one of its branches,101 BPI can easily go after it and hold it liable for reimbursement. 102 It "may not debit the drawers account 103 and is not entitled to indemnification from the drawer." 104 In both law and equity, when one of two innocent persons "must suffer by the wrongful act of a

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third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong." 105 Proximate cause is determined by the facts of the case. 106 "It is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred."107 Pursuant to its prime duty to ascertain well the genuineness of the signatures of its clientdepositors on checks being encashed, BPI is "expected to use reasonable business prudence."108 In the performance of that obligation, it is bound by its internal banking rules and regulations that form part of the contract it enters into with its depositors. 109 Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches without privity;110 that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those on the signature card. Third, despite the examination procedures it conducted, the Central Verification Unit 111 of the bank even passed off these evidently different signatures as genuine. Without exercising the required prudence on its part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable112 for the "negligence of its officers or agents when acting within the course and scope of their employment."113 It must bear the loss. CASA Not Negligent in Its Financial Affairs In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception114 to the general rule that a forged signature is wholly inoperative. 115 Contrary to BPIs claim, however, we do not find CASA negligent in handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense. Role of Independent Auditor The major purpose of an independent audit is to investigate and determine objectively if the financial statements submitted for audit by a corporation have been prepared in accordance with the appropriate financial reporting practices 116 of private entities. The relationship that arises therefrom is both legal and moral. 117 It begins with the execution of the engagement letter118 that embodies the terms and conditions of the audit and ends with the fulfilled expectation of the auditors ethical119 and competent performance in all aspects of the audit.120 The financial statements are representations of the client; but it is the auditor who has the responsibility for the accuracy in the recording of data that underlies their preparation, their form of presentation, and the opinion 121 expressed therein.122 The auditor does not assume the role of employee or of management in the clients conduct of operations 123 and is never under the control or supervision124 of the client. Yabut was an independent auditor 125 hired by CASA. He handled its monthly bank reconciliations and had access to all relevant documents and checkbooks. 126 In him was reposed the clients127 trust and confidence128 that he would perform precisely those functions and apply the appropriate procedures in accordance with generally accepted auditing standards.129 Yet he did not meet these expectations. Nothing could be more horrible to a client than to discover later on that the person tasked to detect fraud was the same one who perpetrated it.

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Cash Balances Open to Manipulation It is a non sequitur to say that the person who receives the monthly bank statements, together with the cancelled checks and other debit/credit memoranda, shall examine the contents and give notice of any discrepancies within a reasonable time. Awareness is not equipollent with discernment. Besides, in the internal accounting control system prudently installed by CASA, 130 it was Yabut who should examine those documents in order to prepare the bank reconciliations. 131 He owned his working papers,132 and his output consisted of his opinion as well as the clients financial statements and accompanying notes thereto. CASA had every right to rely solely upon his output -- based on the terms of the audit engagement -- and could thus be unwittingly duped into believing that everything was in order. Besides, "[g]ood faith is always presumed and it is the burden of the party claiming otherwise to adduce clear and convincing evidence to the contrary."133 Moreover, there was a time gap between the period covered by the bank statement and the date of its actual receipt. Lebron personally received the December 1990 bank statement only in January 1991134 -- when she was also informed of the forgery for the first time, after which she immediately requested a "stop payment order." She cannot be faulted for the late detection of the forged December check. After all, the bank account with BPI was not personal but corporate, and she could not be expected to monitor closely all its finances. A preschool teacher charged with molding the minds of the youth cannot be burdened with the intricacies or complexities of corporate existence. There is also a cutoff period such that checks issued during a given month, but not presented for payment within that period, will not be reflected therein. 135 An experienced auditor with intent to defraud can easily conceal any devious scheme from a client unwary of the accounting processes involved by manipulating the cash balances on record -especially when bank transactions are numerous, large and frequent. CASA could only be blamed, if at all, for its unintelligent choice in the selection and appointment of an auditor -a fault that is not tantamount to negligence. Negligence is not presumed, but proven by whoever alleges it. 136 Its mere existence "is not sufficient without proof that it, and no other cause,"137 has given rise to damages.138 In addition, this fault is common to, if not prevalent among, small and medium-sized business entities, thus leading the Professional Regulation Commission (PRC), through the Board of Accountancy (BOA), to require today not only accreditation for the practice of public accountancy,139 but also the registration of firms in the practice thereof. In fact, among the attachments now required upon registration are the code of good governance 140 and a sworn statement on adequate and effective training. 141 The missing checks were certainly reported by the bookkeeper 142 to the accountant143 -- her immediate supervisor -- and by the latter to the auditor. However, both the accountant and the auditor, for reasons known only to them, assured the bookkeeper that there were no irregularities. The bookkeeper144 who had exclusive custody of the checkbooks 145 did not have to go directly to CASAs president or to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor a resolution of it was arrived at, precisely because the person at the top of the helm was the culprit. The vouchers, invoices and check stubs in support of all check disbursements could be concealed or fabricated -- even in collusion -and management would still have no way to verify its cash accountabilities.

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Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be held liable for breach of contract and negligence, 146 with all the more reason may they be charged with the perpetration of fraud upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or munificence or both. Money paid under a mistake may rightfully be recovered, 147 and under such terms as the injured party may choose. Third Issue: Award of Monetary Claims Moral Damages Denied We deny CASAs claim for moral damages. In the absence of a wrongful act or omission, 148 or of fraud or bad faith,149 moral damages cannot be awarded.150 The adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such damages.151 While no proof of pecuniary loss is necessary therefor -- with the amount to be awarded left to the courts discretion 152 -- the claimant must nonetheless satisfactorily prove the existence of its factual basis 153 and causal relation154 to the claimants act or omission.155 Regrettably, in this case CASA was unable to identify the particular instance -- enumerated in the Civil Code -- upon which its claim for moral damages is predicated. 156 Neither bad faith nor negligence so gross that it amounts to malice 157 can be imputed to BPI. Bad faith, under the law, "does not simply connote bad judgment or negligence; 158 it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud." 159 As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and having existence only in legal contemplation -- is not entitled to moral damages,160 because it cannot experience physical suffering and mental anguish. 161 However, for breach of the fiduciary duty required of a bank, a corporate client may claim such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom.162 CASA was unable to prove that BPI had debased the good reputation of,163 and consequently caused incalculable embarrassment to, the former. CASAs mere allegation or supposition thereof, without any sufficient evidence on record, 164 is not enough. Exemplary Damages Also Denied We also deny CASAs claim for exemplary damages. Imposed by way of correction 165 for the public good, 166 exemplary damages cannot be recovered as a matter of right.167 As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 168 The latter, having no right to moral damages, cannot demand exemplary damages. 169 Attorneys Fees Granted

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Although it is a sound policy not to set a premium on the right to litigate, 170 we find that CASA is entitled to reasonable attorneys fees based on "factual, legal, and equitable justification."171 When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latters interest,172 or where the court deems it just and equitable, 173 attorneys fees may be recovered. In the present case, BPI persistently denied the claim of CASA under the NIL to recredit the latters account for the value of the forged checks. This denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect its corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of negligence it had committed seventy years ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable to grant ten percent (10%) 174 of the total value adjudged to CASA as attorneys fees. Interest Allowed For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to obtain payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the filing 175 of the Complaint. 176 Since a court judgment is not a loan or a forbearance of recovery, the legal interest shall be at six percent (6%) per annum.177 "If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of x x x legal interest, which is six percent per annum."178 The actual base for its computation shall be "on the amount finally adjudged," 179 compounded180 annually to make up for the cost of money181 already lost to CASA. Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages awarded for breach of contract. 182 Because BPI evidently breached its contract of deposit with CASA, we award interest in addition to the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be "governed by the provisions of existing legislation or, in default thereof, by the rules of the law merchant." 183 Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its provisions and, "in their absence, by the usages of commerce generally observed in each place; and in the absence of both rules, by those of the civil law." 184 This law being silent, we look at Article 18 of the Civil Code, which states: "In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied" by its provisions. A perusal of these three statutes unmistakably shows that the award of interest under our civil law is justified. WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for P547,115, the total value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus interest at the legal rate of six percent (6%) per annum -- compounded annually, from the filing of the complaint until paid in full; and attorneys fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for the entire amount, excepting attorneys fees. Let a copy of this Decision be furnished the Board of Accountancy of the Professional Regulation Commission for such action as it may deem appropriate against Respondent Yabut. No costs. SO ORDERED. Davide, Jr.*, Ynares-Santiago**, Carpio, and Azcuna, JJ., concur.

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FIRST DIVISION [G.R. No. 149454. May 28, 2004] BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI INTERNATIONALE and LEONARDO T. YABUT, respondents. [G.R. No. 149507. May 28, 2004] CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, respondent. DECISION PANGANIBAN, J.: By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the right to expect high standards of integrity and performance from it. Among its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not estopped from questioning wrongful withdrawals, even if they have failed to question those errors in the statements sent by the bank to them for verification. The Case Before us are two Petitions for Review 891[1] under Rule 45 of the Rules of Court, assailing the March 23, 2001 Decision892[2] and the August 17, 2001 Resolution 893[3] of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as follows: WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the forged checks in the amount of P547,115.00 after deductions subject to REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay the other half to plaintiff corporation [Casa Montessori Internationale (CASA)]. 894[4] The assailed Resolution denied all the parties Motions for Reconsideration. The Facts The facts of the case are narrated by the CA as follows:

891 892 893 894

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On November 8, 1982, plaintiff CASA Montessori International 895[5] opened Current Account No. 0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its authorized signatories. In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00, on the following dates and amounts: Check No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 839700 839459 839609 839549 839569 729149 729129 839684 729034 Date April 24, 1990 Nov. 2, 1990 Oct. 17, 1990 April 7, 1990 Sept. 23, 1990 Mar. 22, 1990 Mar. 16, 1990 Dec. 1, 1990 Mar. 2, 1990 Total -P Amount P 43,400.00 110,500.00 47,723.00 90,700.00 52,277.00 148,000.00 51,015.00 140,000.00 98,985.00 782,600.00896[6]

It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks. The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter. On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank praying that the latter be ordered to reinstate the amount of P782,500.00897[7] in the current and savings accounts of the plaintiff with interest at 6% per annum.

895 896 897

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On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff.898[8] Ruling of the Court of Appeals Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA. The appellate court took into account CASAs contributory negligence that resulted in the undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the other half. It also disallowed attorneys fees and moral and exemplary damages. Hence, these Petitions.899[9] Issues In GR No. 149454, Petitioner BPI submits the following issues for our consideration: I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be proved by clear, positive and convincing evidence; and that the burden of proof lies on the party alleging the forgery. II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its own negligence, from asserting its forgery claim against BPI, specially taking into account the absence of any negligence on the part of BPI. 900[10] In GR No. 149507, Petitioner CASA submits the following issues: 1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI], although negligent, acted in bad faith x x x thus denying the prayer for the award of attorneys fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred when it did not order [BPI] to pay interest on the amounts due to [CASA]. 2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in the case at bar, thus warranting its conclusion that the loss in the amount of P547,115.00 be apportioned between [CASA] and [BPI] x x x. 901[11] These issues can be narrowed down to three. First, was there forgery under the Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and therefore precluded from setting up forgery as a defense? Third, should moral and exemplary damages, attorneys fees, and interest be awarded? The Courts Ruling

898 899 900 901

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The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious. First Issue: Forged Signature Wholly Inoperative Section 23 of the NIL provides: Section 23. Forged signature; effect of. -- 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 x x x 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. 902[12] Under this provision, a forged signature is a real 903[13] or absolute defense,904[14] and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it.905[15] The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud, is forgery.906[16] In the present case, we hold that there was forgery of the drawers signature on the check. First, both the CA907[17] and the RTC908[18] found that Respondent Yabut himself had voluntarily admitted, through an Affidavit, that he had forged the drawers signature and encashed the checks.909[19] He never refuted these findings. 910[20] That he had been coerced into admission was not corroborated by any evidence on record. 911[21] Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the said checks,912[22] had concluded that the handwritings thereon --

902 903 904 905 906 907 908 909 910 911

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compared to the standard signature of the drawer -- were not hers. 913[23] This conclusion was the same as that in the Report914[24] that the PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latters request. Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by the CA, since these are supported by substantial evidence on record. 915[25] Voluntary Admission Not Violative of Constitutional Rights The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2) against self-incrimination. In the first place, he was not under custodial investigation. 916[26] His Affidavit was executed in private and before private individuals. 917[27] The mantle of protection under Section 12 of Article III of the 1987 Constitution 918[28] covers only the period from the time a person is taken into custody for investigation of his possible participation in the commission of a crime or from the time he is singled out as a suspect in the commission of a crime although not yet in custody.919[29] Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of freedom, with questions propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or any information. 920[30] The said constitutional provision does not apply to spontaneous statements made in a voluntary manner921[31] whereby an individual orally admits to authorship of a crime. 922[32] What the Constitution proscribes is the compulsory or coercive disclosure of incriminating facts.923[33]

912 913 914 915 916 917 918 919 920 921 922 923

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Moreover, the right against self-incrimination 924[34] under Section 17 of Article III 925[35] of the Constitution, which is ordinarily available only in criminal prosecutions, extends to all other government proceedings -- including civil actions, legislative investigations, 926[36] and administrative proceedings that possess a criminal or penal aspect 927[37] -- but not to private investigations done by private individuals. Even in such government proceedings, this right may be waived,928[38] provided the waiver is certain; unequivocal; and intelligently, understandingly and willingly made.929[39] If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of no moment that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the appropriate authorities or to the private individuals upon whom damage has been caused. As we shall also explain later, it is not mandatory for CASA -- the plaintiff below -- to implead Yabut in the civil case before the lower court. Under these two constitutional provisions, [t]he Bill of Rights 930[40] does not concern itself with the relation between a private individual and another individual. It governs the relationship between the individual and the State. 931[41] Moreover, the Bill of Rights is a charter of liberties for the individual and a limitation upon the power of the [S]tate. 932[42] These rights933[43] are guaranteed to preclude the slightest coercion by the State that may lead the accused to admit something false, not prevent him from freely and voluntarily telling the truth.934[44] Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights does not automatically entitle him to the constitutional protection. 935[45] When he freely and voluntarily executed936[46] his Affidavit, the State was not even involved. Such Affidavit may therefore be admitted without violating his constitutional rights while under custodial investigation and against self-incrimination.

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Clear, Positive and Convincing Examination and Evidence The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing. Forgery cannot be presumed.937[47] It must be established by clear, positive and convincing evidence.938[48] Under the best evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary evidence may inceptively be introduced, as the original writing itself must be produced in court. 939[49] But when, without bad faith on the part of the offeror, the original checks have already been destroyed or cannot be produced in court, secondary evidence may be produced. 940[50] Without bad faith on its part, CASA proved the loss or destruction of the original checks through the Affidavit of the one person who knew of that fact 941[51] -- Yabut. He clearly admitted to discarding the paid checks to cover up his misdeed. 942[52] In such a situation, secondary evidence like microfilm copies may be introduced in court. The drawers signatures on the microfilm copies were compared with the standard signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination that two different persons had written them. 943[53] Although no conclusive report could be issued in the absence of the original checks, 944[54] she affirmed that her findings were 90 percent conclusive.945[55] According to her, even if the microfilm copies were the only basis of comparison, the differences were evident. 946[56] Besides, the RTC explained that although the Report was inconclusive, no conclusive report could have been given by the PNP, anyway, in the absence of the original checks. 947[57] This explanation is valid; otherwise, no such report can ever be relied upon in court. Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document -- such as the drawers signature on a check -- is the subject of inquiry.948[58] As to whether the document has been actually executed, this rule does not

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apply; and testimonial as well as any other secondary evidence is admissible. 949[59] Carina Lebron herself, the drawers authorized signatory, testified many times that she had never signed those checks. Her testimonial evidence is admissible; the checks have not been actually executed. The genuineness of her handwriting is proved, not only through the courts comparison of the questioned handwritings and admittedly genuine specimens thereof,950[60] but above all by her. The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of evidence951[61] nor creates an unfavorable inference against it.952[62] Such failure merely authorizes the introduction of secondary evidence 953[63] in the form of microfilm copies. Of no consequence is the fact that CASA did not present the signature card containing the signatures with which those on the checks were compared. 954[64] Specimens of standard signatures are not limited to such a card. Considering that it was not produced in evidence, other documents that bear the drawers authentic signature may be resorted to.955[65] Besides, that card was in the possession of BPI -- the adverse party. We have held that without the original document containing the allegedly forged signature, one cannot make a definitive comparison that would establish forgery; 956[66] and that a comparison based on a mere reproduction of the document under controversy cannot produce reliable results.957[67] We have also said, however, that a judge cannot merely rely on a handwriting experts testimony,958[68] but should also exercise independent judgment in evaluating the authenticity of a signature under scrutiny. 959[69] In the present case, both the RTC and the CA conducted independent examinations of the evidence presented and arrived at reasonable and similar conclusions. Not only did they admit secondary evidence; they also appositely considered testimonial and other documentary evidence in the form of the Affidavit.

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The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been met.960[70] The result of examining a questioned handwriting, even with the aid of experts and scientific instruments, may be inconclusive; 961[71] but it is a non sequitur to say that such result is not clear, positive and convincing. The preponderance of evidence required in this case has been satisfied.962[72] Second Issue: Negligence Attributable to BPI Alone Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not appear on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up forgery as a real defense. Clear Negligence in Allowing Payment Under a Forged Signature We have repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence 963[73] is expected,964[74] and high standards of integrity and performance are even required, of it. 965[75] By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care,966[76] always having in mind the fiduciary nature of their relationship. 967[77] BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures therein are verified to be the same with or similar to the specimen signatures on the signature cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence required 968[78] of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. 969[79] In fact, BPI was the same bank involved when we issued this ruling seventy years ago.

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Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement The monthly statements issued by BPI to its clients contain a notice worded as follows: If no error is reported in ten (10) days, account will be correct. 970[80] Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it estopped from questioning the mistake after the lapse of the ten-day period. This notice is a simple confirmation 971[81] or circularization -- in accounting parlance -that requests client-depositors to affirm the accuracy of items recorded by the banks. 972[82] Its purpose is to obtain from the depositors a direct corroboration of the correctness of their account balances with their respective banks. 973[83] Internal or external auditors of a bank use it as a basic audit procedure 974[84] -- the results of which its client-depositors are neither interested in nor privy to -- to test the details of transactions and balances in the banks records.975[85] Evidential matter obtained from independent sources outside a bank only serves to provide greater assurance of reliability 976[86] than that obtained solely within it for purposes of an audit of its own financial statements, not those of its client-depositors. Furthermore, there is always the audit risk that errors would not be detected 977[87] for various reasons. One, materiality is a consideration in audit planning; 978[88] and two, the information obtained from such a substantive test is merely presumptive and cannot be the basis of a valid waiver.979[89] BPI has no right to impose a condition unilaterally and thereafter consider failure to meet such condition a waiver. Neither may CASA renounce a right980[90] it has never possessed.981[91]

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Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement, the passive one is duty-bound to suffer such enforcement. 982[92] On the one hand, BPI could not have been an active subject, because it could not have demanded from CASA a response to its notice. Besides, the notice was a measly request worded as follows: Please examine x x x and report x x x. 983[93] CASA, on the other hand, could not have been a passive subject, either, because it had no obligation to respond. It could -- as it did -- choose not to respond. Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to that established as the truth, in legal contemplation. 984 [94] Our rules on evidence even make a juris et de jure presumption985[95] that whenever one has, by ones own act or omission, intentionally and deliberately led another to believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or omission -- be permitted to falsify that supposed truth. 986[96] In the instant case, CASA never made any deed or representation that misled BPI. The formers omission, if any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise. 987[97] A person who has no knowledge of or consent to a transaction may not be estopped by it. 988[98] Estoppel cannot be sustained by mere argument or doubtful inference x x x. 989[99] CASA is not barred from questioning BPIs error even after the lapse of the period given in the notice. Loss Borne by Proximate Source of Negligence For allowing payment990[100] on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to its depositor-drawer. Since the encashing bank is one of its branches,991[101] BPI can easily go after it and hold it liable for reimbursement. 992[102] It

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may not debit the drawers account993[103] and is not entitled to indemnification from the drawer.994[104] In both law and equity, when one of two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong.995[105] Proximate cause is determined by the facts of the case. 996[106] It is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.997[107] Pursuant to its prime duty to ascertain well the genuineness of the signatures of its clientdepositors on checks being encashed, BPI is expected to use reasonable business prudence.998[108] In the performance of that obligation, it is bound by its internal banking rules and regulations that form part of the contract it enters into with its depositors. 999[109] Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches without privity;1000[110] that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those on the signature card. Third, despite the examination procedures it conducted, the Central Verification Unit1001[111] of the bank even passed off these evidently different signatures as genuine. Without exercising the required prudence on its part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable 1002[112] for the negligence of its officers or agents when acting within the course and scope of their employment. 1003[113] It must bear the loss. CASA Not Negligent in Its Financial Affairs

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In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception1004[114] to the general rule that a forged signature is wholly inoperative. 1005[115] Contrary to BPIs claim, however, we do not find CASA negligent in handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense. Role of Independent Auditor The major purpose of an independent audit is to investigate and determine objectively if the financial statements submitted for audit by a corporation have been prepared in accordance with the appropriate financial reporting practices 1006[116] of private entities. The relationship that arises therefrom is both legal and moral. 1007[117] It begins with the execution of the engagement letter 1008[118] that embodies the terms and conditions of the audit and ends with the fulfilled expectation of the auditors ethical 1009[119] and competent performance in all aspects of the audit.1010[120] The financial statements are representations of the client; but it is the auditor who has the responsibility for the accuracy in the recording of data that underlies their preparation, their form of presentation, and the opinion 1011[121] expressed therein.1012[122] The auditor does not assume the role of employee or of management in the clients conduct of operations1013[123] and is never under the control or supervision1014[124] of the client. Yabut was an independent auditor1015[125] hired by CASA. He handled its monthly bank reconciliations and had access to all relevant documents and checkbooks. 1016[126] In him was reposed the clients1017[127] trust and confidence1018[128] that he would perform precisely those functions and apply the appropriate procedures in accordance with generally

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accepted auditing standards.1019[129] Yet he did not meet these expectations. Nothing could be more horrible to a client than to discover later on that the person tasked to detect fraud was the same one who perpetrated it. Cash Balances Open to Manipulation It is a non sequitur to say that the person who receives the monthly bank statements, together with the cancelled checks and other debit/credit memoranda, shall examine the contents and give notice of any discrepancies within a reasonable time. Awareness is not equipollent with discernment. Besides, in the internal accounting control system prudently installed by CASA, 1020[130] it was Yabut who should examine those documents in order to prepare the bank reconciliations.1021[131] He owned his working papers, 1022[132] and his output consisted of his opinion as well as the clients financial statements and accompanying notes thereto. CASA had every right to rely solely upon his output -- based on the terms of the audit engagement -- and could thus be unwittingly duped into believing that everything was in order. Besides, [g]ood faith is always presumed and it is the burden of the party claiming otherwise to adduce clear and convincing evidence to the contrary. 1023[133] Moreover, there was a time gap between the period covered by the bank statement and the date of its actual receipt. Lebron personally received the December 1990 bank statement only in January 19911024[134] -- when she was also informed of the forgery for the first time, after which she immediately requested a stop payment order. She cannot be faulted for the late detection of the forged December check. After all, the bank account with BPI was not personal but corporate, and she could not be expected to monitor closely all its finances. A preschool teacher charged with molding the minds of the youth cannot be burdened with the intricacies or complexities of corporate existence. There is also a cutoff period such that checks issued during a given month, but not presented for payment within that period, will not be reflected therein. 1025[135] An experienced auditor with intent to defraud can easily conceal any devious scheme from a client unwary of the accounting processes involved by manipulating the cash balances on record -- especially when bank transactions are numerous, large and frequent. CASA could only be blamed, if at all, for its unintelligent choice in the selection and appointment of an auditor -- a fault that is not tantamount to negligence.

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Negligence is not presumed, but proven by whoever alleges it. 1026[136] Its mere existence is not sufficient without proof that it, and no other cause, 1027[137] has given rise to damages.1028[138] In addition, this fault is common to, if not prevalent among, small and medium-sized business entities, thus leading the Professional Regulation Commission (PRC), through the Board of Accountancy (BOA), to require today not only accreditation for the practice of public accountancy, 1029[139] but also the registration of firms in the practice thereof. In fact, among the attachments now required upon registration are the code of good governance1030[140] and a sworn statement on adequate and effective training. 1031 [141] The missing checks were certainly reported by the bookkeeper 1032[142] to the accountant1033[143] -- her immediate supervisor -- and by the latter to the auditor. However, both the accountant and the auditor, for reasons known only to them, assured the bookkeeper that there were no irregularities. The bookkeeper1034[144] who had exclusive custody of the checkbooks 1035[145] did not have to go directly to CASAs president or to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor a resolution of it was arrived at, precisely because the person at the top of the helm was the culprit. The vouchers, invoices and check stubs in support of all check disbursements could be concealed or fabricated -- even in collusion -- and management would still have no way to verify its cash accountabilities. Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be held liable for breach of contract and negligence, 1036[146] with all the more reason may they be charged with the perpetration of fraud upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or munificence or both. Money paid under a mistake may rightfully be recovered, 1037[147] and under such terms as the injured party may choose.

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Third Issue: Award of Monetary Claims Moral Damages Denied We deny CASAs claim for moral damages. In the absence of a wrongful act or omission, 1038[148] or of fraud or bad faith,1039[149] moral damages cannot be awarded.1040[150] The adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such damages. 1041[151] While no proof of pecuniary loss is necessary therefor -with the amount to be awarded left to the courts discretion 1042[152] -- the claimant must nonetheless satisfactorily prove the existence of its factual basis 1043[153] and causal relation1044[154] to the claimants act or omission.1045[155] Regrettably, in this case CASA was unable to identify the particular instance -- enumerated in the Civil Code -- upon which its claim for moral damages is predicated. 1046[156] Neither bad faith nor negligence so gross that it amounts to malice 1047[157] can be imputed to BPI. Bad faith, under the law, does not simply connote bad judgment or negligence; 1048[158] it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud.1049[159] As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and having existence only in legal contemplation -- is not entitled to moral damages,1050[160] because it cannot experience physical suffering and mental anguish. 1051 [161] However, for breach of the fiduciary duty required of a bank, a corporate client may

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claim such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom.1052[162] CASA was unable to prove that BPI had debased the good reputation of,1053[163] and consequently caused incalculable embarrassment to, the former. CASAs mere allegation or supposition thereof, without any sufficient evidence on record,1054[164] is not enough. Exemplary Damages Also Denied We also deny CASAs claim for exemplary damages. Imposed by way of correction 1055[165] for the public good, 1056[166] exemplary damages cannot be recovered as a matter of right. 1057[167] As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.1058[168] The latter, having no right to moral damages, cannot demand exemplary damages.1059[169] Attorneys Fees Granted Although it is a sound policy not to set a premium on the right to litigate, 1060[170] we find that CASA is entitled to reasonable attorneys fees based on factual, legal, and equitable justification.1061[171] When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latters interest,1062[172] or where the court deems it just and equitable, 1063[173] attorneys fees may be recovered. In the present case, BPI persistently denied the claim of

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CASA under the NIL to recredit the latters account for the value of the forged checks. This denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect its corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of negligence it had committed seventy years ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable to grant ten percent (10%) 1064 [174] of the total value adjudged to CASA as attorneys fees. Interest Allowed For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to obtain payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the filing1065[175] of the Complaint.1066[176] Since a court judgment is not a loan or a forbearance of recovery, the legal interest shall be at six percent (6%) per annum.1067[177] If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of x x x legal interest, which is six percent per annum.1068[178] The actual base for its computation shall be on the amount finally adjudged, 1069[179] compounded1070[180] annually to make up for the cost of money 1071[181] already lost to CASA. Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages awarded for breach of contract. 1072[182] Because BPI evidently breached its contract of deposit with CASA, we award interest in addition to the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be governed by the provisions of existing legislation or, in default thereof, by the rules of the law merchant. 1073[183] Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its provisions and, in their absence, by the usages of commerce generally observed in each place; and in the absence of both rules, by those of the civil law. 1074[184] This law being silent, we look at Article 18 of the Civil Code, which states: In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied by

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its provisions. A perusal of these three statutes unmistakably shows that the award of interest under our civil law is justified. WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for P547,115, the total value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus interest at the legal rate of six percent (6%) per annum -- compounded annually, from the filing of the complaint until paid in full; and attorneys fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for the entire amount, excepting attorneys fees. Let a copy of this Decision be furnished the Board of Accountancy of the Professional Regulation Commission for such action as it may deem appropriate against Respondent Yabut. No costs. SO ORDERED. Ynares-Santiago, Carpio, and Azcuna, JJ., concur. Davide, Jr., C.J., (Chairman), on official leave. Republic SUPREME Manila SECOND DIVISION G.R. No. 129015 August 13, 2004 of the Philippines COURT

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.

DECISION

TINGA, J.: Called to fore in the present petition is a classic textbook question if a bank pays out on a forged check, is it liable to reimburse the drawer from whose account the funds were paid out? The Court of Appeals, in reversing a trial court decision adverse to the bank, invoked tenuous reasoning to acquit the bank of liability. We reverse, applying time-honored principles of law. The salient facts follow. Plaintiff Samsung Construction Company Philippines, Inc. ("Samsung Construction"), while based in Bian, Laguna, maintained a current account with defendant Far East Bank and Trust Company1 ("FEBTC") at the latters Bel-Air, Makati branch. 2 The sole signatory to Samsung Constructions account was Jong Kyu Lee ("Jong"), its Project Manager, 3 while the checks remained in the custody of the companys accountant, Kyu Yong Lee ("Kyu"). 4

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On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the banks branch in Bel-Air, Makati. The check, payable to cash and drawn against Samsung Constructions current account, was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of Samsung Constructions account. After ascertaining there were enough funds to cover the check, 5 she compared the signature appearing on the check with the specimen signature of Jong as contained in the specimen signature card with the bank. After comparing the two signatures, Justiani was satisfied as to the authenticity of the signature appearing on the check. She then asked Gonzaga to submit proof of his identity, and the latter presented three (3) identification cards.6 At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it was bank policy that two bank branch officers approve checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise counterchecked the signature on the check as against that on the signature card. He too concluded that the check was indeed signed by Jong. Velez then forwarded the check and signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III ("Sempio"), the assistant accountant of Samsung Construction, was also in the bank. Sempio was well-known to Syfu and the other bank officers, he being the assistant accountant of Samsung Construction. Syfu showed the check to Sempio, who vouched for the genuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase of equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the banks encashment of the check to Gonzaga. The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account and discovered that a check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been encashed. Aware that he had not prepared such a check for Jongs signature, Kyu perused the checkbook and found that the last blank check was missing. 7 He reported the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and realized that his signature had been forged. The Bank Manager reputedly told Jong that he would be reimbursed for the amount of the check.8 Jong proceeded to the police station and consulted with his lawyers. 9 Subsequently, a criminal case for qualified theft was filed against Sempio before the Laguna court.10 In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC credit to it the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), with interest.11 In response, FEBTC said that it was still conducting an investigation on the matter. Unsatisfied, Samsung Construction filed a Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments Law, and prayed for the payment of the amount debited as a result of the questioned check plus interest, and attorneys fees.12 The case was docketed as Civil Case No. 92-61506 before the Regional Trial Court ("RTC") of Manila, Branch 9.13 During the trial, both sides presented their respective expert witnesses to testify on the claim that Jongs signature was forged. Samsung Corporation, which had referred the check for investigation to the NBI, presented Senior NBI Document Examiner Roda B. Flores. She testified that based on her examination, she concluded that Jongs signature had been forged on the check. On the other hand, FEBTC, which had sought the assistance of the Philippine National Police (PNP),14 presented Rosario C. Perez, a document examiner from the PNP Crime Laboratory. She testified that her findings showed that Jongs signature on the check was genuine.15

Page 667 of 1485

Confronted with conflicting expert testimony, the RTC chose to believe the findings of the NBI expert. In a Decision dated 25 April 1994, the RTC held that Jongs signature on the check was forged and accordingly directed the bank to pay or credit back to Samsung Constructions account the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), together with interest tolled from the time the complaint was filed, and attorneys fees in the amount of Fifteen Thousand Pesos (P15,000.00). FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special Fourteenth Division of the Court of Appeals rendered a Decision,16 reversing the RTC Decision and absolving FEBTC from any liability. The Court of Appeals held that the contradictory findings of the NBI and the PNP created doubt as to whether there was forgery.17 Moreover, the appellate court also held that assuming there was forgery, it occurred due to the negligence of Samsung Construction, imputing blame on the accountant Kyu for lack of care and prudence in keeping the checks, which if observed would have prevented Sempio from gaining access thereto. 18 The Court of Appeals invoked the ruling in PNB v. National City Bank of New York 19 that, if a loss, which must be borne by one or two innocent persons, can be traced to the neglect or fault of either, such loss would be borne by the negligent party, even if innocent of intentional fraud. 20 Samsung Construction now argues that the Court of Appeals had seriously misapprehended the facts when it overturned the RTCs finding of forgery. It also contends that the appellate court erred in finding that it had been negligent in safekeeping the check, and in applying the equity principle enunciated in PNB v. National City Bank of New York. Since the trial court and the Court of Appeals arrived at contrary findings on questions of fact, the Court is obliged to examine the record to draw out the correct conclusions. Upon examination of the record, and based on the applicable laws and jurisprudence, we reverse the Court of Appeals. Section 23 of the Negotiable Instruments Law states: 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. (Emphasis supplied) The general rule is to the effect that a forged signature is "wholly inoperative," and payment made "through or under such signature" is ineffectual or does not discharge the instrument.21 If payment is made, the drawee cannot charge it to the drawers account. The traditional justification for the result is that the drawee is in a superior position to detect a forgery because he has the makers signature and is expected to know and compare it. 22 The rule has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. Moreover, the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes the drawee an ideal party to spread the risk to insurance. 23 Brady, in his treatise The Law of Forged and Altered Checks, elucidates: When a person deposits money in a general account in a bank, against which he has the privilege of drawing checks in the ordinary course of business, the relationship between the bank and the depositor is that of debtor and creditor. So far as the legal

Page 668 of 1485

relationship between the two is concerned, the situation is the same as though the bank had borrowed money from the depositor, agreeing to repay it on demand, or had bought goods from the depositor, agreeing to pay for them on demand. The bank owes the depositor money in the same sense that any debtor owes money to his creditor. Added to this, in the case of bank and depositor, there is, of course, the banks obligation to pay checks drawn by the depositor in proper form and presented in due course. When the bank receives the deposit, it impliedly agrees to pay only upon the depositors order. When the bank pays a check, on which the depositors signature is a forgery, it has failed to comply with its contract in this respect. Therefore, the bank is held liable. The fact that the forgery is a clever one is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And yet, if a bank pays the check, it is paying out its own money and not the depositors. The forgery may be committed by a trusted employee or confidential agent. The bank still must bear the loss. Even in a case where the forged check was drawn by the depositors partner, the loss was placed upon the bank. The case referred to is Robinson v. Security Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought suit against the defendant bank for money which had been deposited to the plaintiffs credit and which the bank had paid out on checks bearing forgeries of the plaintiffs signature. xxx It was held that the bank was liable. It was further held that the fact that the plaintiff waited eight or nine months after discovering the forgery, before notifying the bank, did not, as a matter of law, constitute a ratification of the payment, so as to preclude the plaintiff from holding the bank liable. xxx This rule of liability can be stated briefly in these words: "A bank is bound to know its depositors signature." The rule is variously expressed in the many decisions in which the question has been considered. But they all sum up to the proposition that a bank must know the signatures of those whose general deposits it carries. 24 By no means is the principle rendered obsolete with the advent of modern commercial transactions. Contemporary texts still affirm this well-entrenched standard. Nickles, in his book Negotiable Instruments and Other Related Commercial Paper wrote, thus: The deposit contract between a payor bank and its customer determines who can draw against the customers account by specifying whose signature is necessary on checks that are chargeable against the customers account. Therefore, a check drawn against the account of an individual customer that is signed by someone other than the customer, and without authority from her, is not properly payable and is not chargeable to the customers account, inasmuch as any "unauthorized signature on an instrument is ineffective" as the signature of the person whose name is signed. 25 Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose signature is forged. 26 On the premise that Jongs signature was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged check. Such liability attaches even if the bank exerts due diligence and care in preventing such faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has

Page 669 of 1485

suffered by its being deceived. 27 The forgery may be so near like the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the check.28 Thus, the first matter of inquiry is into whether the check was indeed forged. A document formally presented is presumed to be genuine until it is proved to be fraudulent. In a forgery trial, this presumption must be overcome but this can only be done by convincing testimony and effective illustrations. 29 In ruling that forgery was not duly proven, the Court of Appeals held: [There] is ground to doubt the findings of the trial court sustaining the alleged forgery in view of the conflicting conclusions made by handwriting experts from the NBI and the PNP, both agencies of the government. xxx These contradictory findings create doubt on whether there was indeed a forgery. In the case of Tenio-Obsequio v. Court of Appeals , 230 SCRA 550, the Supreme Court held that forgery cannot be presumed; it must be proved by clear, positive and convincing evidence. This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an opponents expert witness to stand uncontradicted, thus the spectacle of competing expert witnesses is not unusual. The trier of fact will have to decide which version to believe, and explain why or why not such version is more credible than the other. Reliance therefore cannot be placed merely on the fact that there are colliding opinions of two experts, both clothed with the presumption of official duty, in order to draw a conclusion, especially one which is extremely crucial. Doing so is tantamount to a jurisprudential cop-out. Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial hierarchy. This Court has long deferred to the appellate court as to its findings of fact in the understanding that it has the appropriate skill and competence to plough through the minutiae that scatters the factual field. In failing to thoroughly evaluate the evidence before it, and relying instead on presumptions haphazardly drawn, the Court of Appeals was sadly remiss. Of course, courts, like humans, are fallible, and not every error deserves a stern rebuke. Yet, the appellate courts error in this case warrants special attention, as it is absurd and even dangerous as a precedent. If this rationale were adopted as a governing standard by every court in the land, barely any actionable claim would prosper, defeated as it would be by the mere invocation of the existence of a contrary "expert" opinion. On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible than that of the PNP, and explained its reason behind the conclusion: After subjecting the evidence of both parties to a crucible of analysis, the court arrived at the conclusion that the testimony of the NBI document examiner is more credible because the testimony of the PNP Crime Laboratory Services document examiner reveals that there are a lot of differences in the questioned signature as compared to the standard specimen signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI expert, the manner of execution of the standard signatures used reveals that it is a free rapid continuous execution or stroke as shown by the tampering terminal stroke of the signatures whereas the questioned signature is a

Page 670 of 1485

hesitating slow drawn execution stroke. Clearly, the person who executed the questioned signature was hesitant when the signature was made. 30 During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that "apparently, there [are] differences on that questioned signature and the standard signatures." 31 This Court, in examining the signatures, makes a similar finding. The PNP expert excused the noted "differences" by asserting that they were mere "variations," which are normal deviations found in writing.32 Yet the RTC, which had the opportunity to examine the relevant documents and to personally observe the expert witness, clearly disbelieved the PNP expert. The Court similarly finds the testimony of the PNP expert as unconvincing. During the trial, she was confronted several times with apparent differences between strokes in the questioned signature and the genuine samples. Each time, she would just blandly assert that these differences were just "variations," 33 as if the mere conjuration of the word would sufficiently disquiet whatever doubts about the deviations. Such conclusion, standing alone, would be of little or no value unless supported by sufficiently cogent reasons which might amount almost to a demonstration.34 The most telling difference between the questioned and genuine signatures examined by the PNP is in the final upward stroke in the signature, or "the point to the short stroke of the terminal in the capital letter L," as referred to by the PNP examiner who had marked it in her comparison chart as "point no. 6." To the plain eye, such upward final stroke consists of a vertical line which forms a ninety degree (90) angle with the previous stroke. Of the twenty one (21) other genuine samples examined by the PNP, at least nine (9) ended with an upward stroke.35 However, unlike the questioned signature, the upward strokes of eight (8) of these signatures are looped, while the upward stroke of the seventh 36 forms a severe forty-five degree (45) with the previous stroke. The difference is glaring, and indeed, the PNP examiner was confronted with the inconsistency in point no. 6. Q: Now, in this questioned document point no. 6, the "s" stroke is directly upwards. A: Yes, sir. Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated or the last stroke "s" is pointing directly upwards? A: There is none in the standard signature, sir.37 Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned signature as a mere variation,38 the same excuse she proffered for the other marked differences noted by the Court and the counsel for petitioner.39 There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner, and not the PNP experts. The NBI expert, Rhoda Flores, clearly qualifies as an expert witness. A document examiner for fifteen years, she had been promoted to the rank of Senior Document Examiner with the NBI, and had held that rank for twelve years prior to her testimony. She had placed among the top five examinees in the Competitive Seminar in Question Document Examination, conducted by the NBI Academy, which qualified her as a document examiner.40 She had trained with the Royal Hongkong Police Laboratory and is a member of the International Association for Identification. 41 As of the time she testified, she had examined more than fifty to fifty-five thousand questioned documents, on an average of fifteen to twenty documents a day. 42 In comparison, PNP document examiner Perez admitted to having examined only around five hundred documents as of her testimony. 43

Page 671 of 1485

In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative examination method consisting of analysis, recognition, comparison and evaluation of the writing habits with the use of instruments such as a magnifying lense, a stereoscopic microscope, and varied lighting substances. She also prepared enlarged photographs of the signatures in order to facilitate the necessary comparisons. 44 She compared the questioned signature as against ten (10) other sample signatures of Jong. Five of these signatures were executed on checks previously issued by Jong, while the other five contained in business letters Jong had signed.45 The NBI found that there were significant differences in the handwriting characteristics existing between the questioned and the sample signatures, as to manner of execution, link/connecting strokes, proportion characteristics, and other identifying details.46 The RTC was sufficiently convinced by the NBI examiners testimony, and explained her reasons in its Decisions. While the Court of Appeals disagreed and upheld the findings of the PNP, it failed to convincingly demonstrate why such findings were more credible than those of the NBI expert. As a throwaway, the assailed Decision noted that the PNP, not the NBI, had the opportunity to examine the specimen signature card signed by Jong, which was relied upon by the employees of FEBTC in authenticating Jongs signature. The distinction is irrelevant in establishing forgery. Forgery can be established comparing the contested signatures as against those of any sample signature duly established as that of the persons whose signature was forged. FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned signature against the bank signature cards. The crucial fact in question is whether or not the check was forged, not whether the bank could have detected the forgery. The latter issue becomes relevant only if there is need to weigh the comparative negligence between the bank and the party whose signature was forged. At the same time, the Court of Appeals failed to assess the effect of Jongs testimony that the signature on the check was not his. 47 The assertion may seem self-serving at first blush, yet it cannot be ignored that Jong was in the best position to know whether or not the signature on the check was his. While his claim should not be taken at face value, any averments he would have on the matter, if adjudged as truthful, deserve primacy in consideration. Jongs testimony is supported by the findings of the NBI examiner. They are also backed by factual circumstances that support the conclusion that the assailed check was indeed forged. Judicial notice can be taken that is highly unusual in practice for a business establishment to draw a check for close to a million pesos and make it payable to cash or bearer, and not to order. Jong immediately reported the forgery upon its discovery. He filed the appropriate criminal charges against Sempio, the putative forger. 48 Now for determination is whether Samsung Construction was precluded from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law. The Court of Appeals concluded that Samsung Construction was negligent, and invoked the doctrines that "where a loss must be borne by one of two innocent person, can be traced to the neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded 49 or who put into the power of the third person to perpetuate the wrong." 50 Applying these rules, the Court of Appeals determined that it was the negligence of Samsung Construction that allowed the encashment of the forged check. In the case at bar, the forgery appears to have been made possible through the acts of one Jose Sempio III, an assistant accountant employed by the plaintiff Samsung [Construction] Co. Philippines, Inc. who supposedly stole the blank check and who presumably is responsible for its encashment through a forged signature of Jong Kyu

Page 672 of 1485

Lee. Sempio was assistant to the Korean accountant who was in possession of the blank checks and who through negligence, enabled Sempio to have access to the same. Had the Korean accountant been more careful and prudent in keeping the blank checks Sempio would not have had the chance to steal a page thereof and to effect the forgery. Besides, Sempio was an employee who appears to have had dealings with the defendant Bank in behalf of the plaintiff corporation and on the date the check was encashed, he was there to certify that it was a genuine check issued to purchase equipment for the company.51 We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence. 52 Yet, we are unable to conclude that Samsung Construction was guilty of negligence in this case. The appellate court failed to explain precisely how the Korean accountant was negligent or how more care and prudence on his part would have prevented the forgery. We cannot sustain this "tar and feathering" resorted to without any basis. The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply that such partys negligence was the cause for the forgery. Employers do not possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their employees. The Courts pronouncement in PCI Bank v. Court of Appeals53 applies in this case, to wit: [T]he mere fact that the forgery was committed by a drawer-payors confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.54 Admittedly, the record does not clearly establish what measures Samsung Construction employed to safeguard its blank checks. Jong did testify that his accountant, Kyu, kept the checks inside a "safety box,"55 and no contrary version was presented by FEBTC. However, such testimony cannot prove that the checks were indeed kept in a safety box, as Jongs testimony on that point is hearsay, since Kyu, and not Jong, would have the personal knowledge as to how the checks were kept. Still, in the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung Constructions part. The presumption remains that every person takes ordinary care of his concerns, 56 and that the ordinary course of business has been followed.57 Negligence is not presumed, but must be proven by him who alleges it. 58 While the complaint was lodged at the instance of Samsung Construction, the matter it had to prove was the claim it had alleged - whether the check was forged. It cannot be required as well to prove that it was not negligent, because the legal presumption remains that ordinary care was employed. Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction was negligent. While the payee, as in this case, may not have the personal knowledge as to the standard procedures observed by the drawer, it well has the means of disputing the presumption of regularity. Proving a negative fact may be "a difficult office," 59 but necessarily so, as it seeks to overcome a presumption in law. FEBTC was unable to dispute the presumption of ordinary care exercised by Samsung Construction, hence we cannot agree with the Court of Appeals finding of negligence.

Page 673 of 1485

The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that there was no negligence on the part of the bank in its acceptance and payment of the forged check. However, the degree of diligence exercised by the bank would be irrelevant if the drawer is not precluded from setting up the defense of forgery under Section 23 by his own negligence. The rule of equity enunciated in PNB v. National City Bank of New York, 60 as relied upon by the Court of Appeals, deserves careful examination. The point in issue has sometimes been said to be that of negligence. The drawee who has paid upon the forged signature is held to bear the loss, because he has been negligent in failing to recognize that the handwriting is not that of his customer. But it follows obviously that if the payee, holder, or presenter of the forged paper has himself been in default, if he has himself been guilty of a negligence prior to that of the banker, or if by any act of his own he has at all contributed to induce the banker's negligence, then he may lose his right to cast the loss upon the banker.61 (Emphasis supplied) Quite palpably, the general rule remains that the drawee who has paid upon the forged signature bears the loss. The exception to this rule arises only when negligence can be traced on the part of the drawer whose signature was forged, and the need arises to weigh the comparative negligence between the drawer and the drawee to determine who should bear the burden of loss. The Court finds no basis to conclude that Samsung Construction was negligent in the safekeeping of its checks. For one, the settled rule is that the mere fact that the depositor leaves his check book lying around does not constitute such negligence as will free the bank from liability to him, where a clerk of the depositor or other persons, taking advantage of the opportunity, abstract some of the check blanks, forges the depositors signature and collect on the checks from the bank. 62 And for another, in point of fact Samsung Construction was not negligent at all since it reported the forgery almost immediately upon discovery.63 It is also worth noting that the forged signatures in PNB v. National City Bank of New York were not of the drawer, but of indorsers. The same circumstance attends PNB v. Court of Appeals,64 which was also cited by the Court of Appeals. It is accepted that a forged signature of the drawer differs in treatment than a forged signature of the indorser. The justification for the distinction between forgery of the signature of the drawer and forgery of an indorsement is that the drawee is in a position to verify the drawers signature by comparison with one in his hands, but has ordinarily no opportunity to verify an indorsement.65 Thus, a drawee bank is generally liable to its depositor in paying a check which bears either a forgery of the drawers signature or a forged indorsement. But the bank may, as a general rule, recover back the money which it has paid on a check bearing a forged indorsement, whereas it has not this right to the same extent with reference to a check bearing a forgery of the drawers signature. 66 The general rule imputing liability on the drawee who paid out on the forgery holds in this case. Since FEBTC puts into issue the degree of care it exercised before paying out on the forged check, we might as well comment on the banks performance of its duty. It might be so that the bank complied with its own internal rules prior to paying out on the questionable check. Yet, there are several troubling circumstances that lead us to believe that the bank itself was remiss in its duty.

Page 674 of 1485

The fact that the check was made out in the amount of nearly one million pesos is unusual enough to require a higher degree of caution on the part of the bank. Indeed, FEBTC confirms this through its own internal procedures. Checks below twenty-five thousand pesos require only the approval of the teller; those between twenty-five thousand to one hundred thousand pesos necessitate the approval of one bank officer; and should the amount exceed one hundred thousand pesos, the concurrence of two bank officers is required. 67 In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash. That latter circumstance should have aroused the suspicion of the bank, as it is not ordinary business practice for a check for such large amount to be made payable to cash or to bearer, instead of to the order of a specified person. 68 Moreover, the check was presented for payment by one Roberto Gonzaga, who was not designated as the payee of the check, and who did not carry with him any written proof that he was authorized by Samsung Construction to encash the check. Gonzaga, a stranger to FEBTC, was not even an employee of Samsung Construction. 69 These circumstances are already suspicious if taken independently, much more so if they are evaluated in concurrence. Given the shadiness attending Gonzagas presentment of the check, it was not sufficient for FEBTC to have merely complied with its internal procedures, but mandatory that all earnest efforts be undertaken to ensure the validity of the check, and of the authority of Gonzaga to collect payment therefor. According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to contact Jong over the phone to verify the check. 70 She added that calling the issuer or drawer of the check to verify the same was not part of the standard procedure of the bank, but an "extra effort."71 Even assuming that such personal verification is tantamount to extraordinary diligence, it cannot be denied that FEBTC still paid out the check despite the absence of any proof of verification from the drawer. Instead, the bank seems to have relied heavily on the say-so of Sempio, who was present at the bank at the time the check was presented. FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly transacted with the bank in behalf of Samsung Construction. It was even claimed that everytime FEBTC would contact Jong about problems with his account, Jong would hand the phone over to Sempio.72 However, the only proof of such allegations is the testimony of Gemma Velez, who also testified that she did not know Sempio personally, 73 and had met Sempio for the first time only on the day the check was encashed. 74 In fact, Velez had to inquire with the other officers of the bank as to whether Sempio was actually known to the employees of the bank.75 Obviously, Velez had no personal knowledge as to the past relationship between FEBTC and Sempio, and any averments of her to that effect should be deemed hearsay evidence. Interestingly, FEBTC did not present as a witness any other employee of their Bel-Air branch, including those who supposedly had transacted with Sempio before. Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Construction, the irregular circumstances attending the presentment of the forged check should have put the bank on the highest degree of alert. The Court recently emphasized that the highest degree of care and diligence is required of banks. Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.76

Page 675 of 1485

Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that the signature in the questionable check was his. Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the bank as long as he or she is not precluded from setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the payment of a check can arise out of a forged signature. Since the drawer, Samsung Construction, is not precluded by negligence from setting up the forgery, the general rule should apply. Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. 77 A bank is liable, irrespective of its good faith, in paying a forged check.78 WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28 November 1996 is REVERSED, and the Decision of the Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is REINSTATED. Costs against respondent. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur. SECOND DIVISION

BPI FAMILY BANK, Petitioner, - versus EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Respondents. x--------------------------x EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Petitioners,

G.R. No. 148196

G.R. No. 148259 Present: PUNO, Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and CHICO-NAZARIO, JJ. Promulgated:

- versus -

BPI FAMILY BANK, Respondent.

September 30, 2005

x----------------------------------------------------------- x

Page 676 of 1485

DECISION

AUSTRIA-MARTINEZ, J.:

Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court assailing the Decision[1] of the Court of Appeals (CA) dated November 27, 2000 in CA-G.R. CV No. 53962, which affirmed with modification the Decision dated August 11, 1995 of the Regional Trial Court, Branch 25, Manila (Manila RTC); and the CA Resolution dated May 3, 2001, which denied the parties separate motions for reconsideration.

The factual background of the case is as follows:

On May 23, 1990, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.), all officers of the International Baptist Church and International Baptist Academy in Malabon, Metro Manila, filed a complaint for Reinstatement of Current Account/Release of Money plus Damages against BPI Family Bank (BPI-FB) before the Manila RTC, docketed as Civil Case No. 90-53154.[2]

They alleged that: on August 30, 1989, they accepted from Amado Franco BPI-FB Check No. 129004 dated August 29, 1989 in the amount of P500,000.00, jointly issued by Eladio Teves and Joseph Teves;[3] they opened Current Account No. 807-065314-0 with the

Page 677 of 1485

BPI-FB Branch at Bonifacio Market, Edsa, Caloocan City and deposited the check as initial deposit; the check was subsequently cleared and the amount was credited to their Current Account; on September 3, 1989, they drew a check in the amount of P10,171.50 and pursuant to normal banking procedure the check was honored and debited from their Current Account, leaving a balance of P490,328.50; on September 4, 1989, they drew another check in the amount of P46,189.60; instead of debiting the said amount against their Current Account, it was debited, without their knowledge and consent, against their Savings Account No. 08-95332-5 with the same branch; on September 9, 1989, they drew a check for P91,270.00 which, upon presentment for payment, was dishonored for the reason account closed, in spite of the balance in the Current Account of P490,328.50; they thereafter learned from BPI-FB that their Current Account had been frozen upon instruction of Severino P. Coronacion, Vice-President of BPI-FB on the ground that the source of fund was illegal or unauthorized; they demanded the reinstatement of the account, but BPI-FB refused.

On June 20, 1990, BPI-FB filed a motion to dismiss on the ground of litis pendentia, alleging that there is a pending case for recovery of sum of money arising from the BPI-FB Check No. 129004 dated August 29, 1989 before the Regional Trial Court (RTC), Branch 146, Makati[4] and Buenaventura is one of the defendants therein.[5] Buenaventura, et al. opposed the motion to dismiss on the ground that there is no identity of parties, rights asserted and reliefs prayed between the two cases.[6]

On October 10, 1990, the Manila RTC denied the motion to dismiss, ruling that there can be no res judicata between the two cases since the parties are different and the causes of action are not the same.[7]

Page 678 of 1485

On December 10, 1990, BPI-FB filed its answer alleging that: the check received by Buenaventura, et al. from Amado Franco was drawn by Eladio Teves and Joseph Teves against the Current Account of the Tevesteco Arrastre Stevedoring Co., Inc. (Tevesteco); the funds in the said Tevesteco account allegedly consisted mainly of funds in the amount of P80,000,000.00 transferred to it from another account belonging to the First Metro Investment Corporation (FMIC); such transfer of funds was effected on the basis of an Authority to Debit bearing the signatures of certain officers of FMIC; upon its investigation, BPI-FB found that the signatures in the Authority to Debit were forged; before this, however, Tevesteco had already issued several checks against its Current Account, one of which is the BPI-FB Check No. 129004 received by Buenaventura, et al. from Amado Franco, after a series of indorsements; it has the right to consider the Current Account of Buenaventura, et al., which is funded from BPI-FB Check No. 129004, as closed and to refuse any further withdrawal from the same; assuming that the forgery claim of FMIC is untrue and incorrect, it is the right of the BPI-FB, as a matter of protecting its interests, to freeze their account or to hold it in suspense and not to allow any withdrawals therefrom in the meantime that the issue of forgery remains unsettled; FMIC has instituted another civil action, presently pending appeal, against BPI-FB and several other defendants for the recovery of the P80,000,000.00 transferred from the formers account to Tevestecos account.[8]

Following trial on the merits, on August 11, 1995, the Manila RTC rendered its decision, finding that: BPI-FB had no right to unilaterally freeze the deposits of Buenaventura, et al. since the latter had no participation in any fraud that may have attended the prior fund transfers from FMIC to Tevesteco; as holders in good faith and for value of the BPI-FB Check No. 129004, their rights to the sum embodied in the said check should have been respected; BPI-FBs unilateral action of freezing the Current Account amounted to an unlawful confiscation of their property without due process. The dispositive portion of the RTC decision reads as follows:

Page 679 of 1485

WHEREFORE, in view of the foregoing judgment is rendered in favor of the plaintiff and against the defendant bank and the latter is ordered as follows: 1. To pay the plaintiff the sum of P490,328.50 representing the balance of the plaintiffs deposit under Account No. 807-065-313-0 which was unlawfully frozen by the bank and finally debited against said account with legal rate of interest from date of closure; 2. To pay the sum of P200,000.00 as moral damages; 3. To pay the amount of P200,000.00 as exemplary damages to serve as an example and lesson to serve as a deterrent for similar action which the bank may take against its depositors in the future; 4. To pay the sum of P50,000.00 as attorneys fees. SO ORDERED.[9]

Dissatisfied, BPI-FB appealed to the CA. It alleged that: the case should have been dismissed for lack of cause of action because it is the International Baptist Academy which is the owner of the funds deposited with BPI-FB and therefore the real party-in-interest, although the account is in the name of Buenaventura, et al.; the RTC should not have ordered the payment of the balance of the Current Account of Buenaventura, et al. because the latter were interested only in the reinstatement of their Current Account; the provisions of the Negotiable Instruments Law should not have been applied by the RTC to support its position that Buenaventura, et al. are the owners of the funds in their Current Account; BPIFB is entitled to freeze the account of Buenaventura, et al. and to disallow any withdrawals therefrom as a measure to protect its interest; BPI-FB, not Buenaventura, et al., is entitled to damages. On November 27, 2000, the CA affirmed the decision of the Manila RTC, holding that BPI-FB did not act in accordance with law.[10] It ruled that the relationship between the bank and the depositor is that of debtor and creditor and, as such, BPI-FB could not lawfully refuse to make payments on the checks drawn and issued by Buenaventura, et al., provided only that there are funds available in the latters deposit. It further declared that BPI-FB is not justified in freezing the amounts deposited by Buenaventura, et al. for suspicion of being illegal or unauthorized as a result of the claimed fraud perpetuated against FMIC because: (a) it has not been sufficiently shown that the funds in the account of

Page 680 of 1485

Buenaventura, et al. were derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted exclusively of the said P80,000,000.00 debited from FMICs account; and (b) there is no clear proof of any involvement of Buenaventura, et al., the International Baptist Church or International Baptist Academy in the alleged irregularities attending the fund transfer from FMIC to Tevesteco.

The CA also found unmeritorious BPI-FBs claim that Buenaventura, et al. have no cause of action since the International Baptist Academy is the real party-in-interest. It held that since it is undisputed that it is the Current Account of Buenaventura, et al. which was frozen and closed by BPI-FB, then the former are the parties-in-interest in the reopening of the said account. It found no error in the Manila RTCs order that BPI-FB pay the amount of P490,328.50 plus interest directly to Buenaventura, et al. since the reinstatement of the Current Account would mean the same thing as the payment of the balance; Buenaventura, et al. would necessarily have the right to withdraw their deposit if and when they see it fit. Furthermore, the CA held that the RTCs disposition falls under the general prayer of Buenaventura, et al. for such other reliefs as may be just and equitable under the attendant circumstances.

With regard to award of damages, the CA sustained the award of moral damages and attorneys fees, holding that BPI-FBs actuations were established to have caused Buenaventura, et al. to incur the distrust of their Baptist brethren, besides suffering mental anguish, serious anxiety, wounded feelings, and moral shock but found no basis for the award of exemplary damages of P200,000.00 for lack of showing that BPI-FB was not animated by any wanton, fraudulent, reckless, oppressive or malevolent intent.

Page 681 of 1485

Both parties filed separate motions for reconsideration. Buenaventura, et al. sought reconsideration of the deletion of the award of exemplary damages.[11] On the other hand, BPI-FB reiterated its argument that the International Baptist Academy is the real party-ininterest. It also assailed the findings and conclusions of the CA.[12]

On May 3, 2001, the CA denied both motions for reconsideration.[13]

Hence, the present two consolidated petitions for review on certiorari.

In G.R No. 148196, BPI-FB ascribes six errors upon the CA, to wit:

I. The Honorable Court of Appeals committed a reversible error in holding that the respondents are the real parties-in-interest in this case contrary to the admissions of respondents themselves that it is the International Baptist Academy who is the owner of the funds in question and hence it is and out to be the real party in interest in this case. II. The Honorable Court of Appeals committed a grave abuse of discretion in not dismissing respondents complaint for lack of cause of action. III. The Honorable Court of Appeals committed a reversible error in NOT holding, based on a misapprehension of facts that BPI-FB is entitled to freeze respondents account and to disallow any withdrawal therefrom as a measure to protect its interest. IV. The Honorable Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that it has not been sufficiently shown that the funds in deposit with BPI-FB under the name of the respondents were derived exclusively from the alleged 80 million pesos unlawfully transferred from the funds of FMIC or that the deposit under the

Page 682 of 1485

name of Tevesteco consisted exclusively of the said 80 million pesos debited from FMICs account. V. The Honorable Court of Appeals committed a grave abuse of discretion in NOT upholding the position of BPI-FB on the freezing of respondents current account when it held that there was no clear proof of any involvement by the respondents with the alleged irregularities attending the fund transfer from FMIC to Tevesteco. VI. The Honorable Court of Appeals committed a grave abuse of discretion, in holding, in effect, that there is nothing wrong with the Lower Courts order directing BPI-FB to pay to respondents directly the balance of their account plus interest although their prayer in their complaint was only to reinstate their current account.[14]

Anent the first and second grounds, BPI-FB maintains that the complaint should have been dismissed for lack of cause of action because Buenaventura et al. admit that the International Baptist Academy is the owner of the funds in question and therefore the real party-in-interest to prosecute the action.

On the third ground, BPI-FB asserts that it has the right to consider the account of Buenaventura, et al. as frozen and to refuse any withdrawals from the same because of the forgery claim of FMIC. Assuming the forgery claim of FMIC is true and correct, the amount transferred from FMICs account to Tevestecos account is the money of BPI-FB under the principle that a bank is deemed to have disbursed its own funds. It submits that as an original owner who is restored in possession of stolen property, it has a better right over such property than a mere transferee no matter how innocent the latter may be.

Page 683 of 1485

Concerning the fourth ground, BPI-FB submits that ample proof was presented by it that the deposit under the name of Tevesteco consisted exclusively of the P80,000,000.00 debited from FMICs account and the funds in deposit with BPI-FB under the name of Buenaventura, et al. were derived exclusively from the P80,000,000.00 unlawfully transferred from the funds of FMIC.

With regard to the fifth ground, BPI-FB concedes that there is no clear proof of any involvement by Buenaventura, et al. in the alleged irregularities attending the fund transfer from FMIC to Tevesteco. It insists, however, that the freezing of the account was triggered by the forgery claim of FMIC and the unauthorized fund transfer to Tevesteco based on the principle that a bank is deemed to have disbursed its own funds, and not its depositors, where the authority for such disbursement is a forgery and null and void. It had the right to set up its ownership of the money as against that of Buenaventura, et al. and to refuse to return the same to them.

As to the sixth ground, BPI-FB points out that Buenaventura, et al. originally prayed in the alternative for the reinstatement of their Current Account or for payment of the balance remaining in said account but they subsequently chose to delete that portion praying for the payment of the balance of their account. It submits that Buenaventura, et al. deliberately did this to sidestep the other pending case filed against the suspected perpetrators of the fraud, including Amado Franco and Buenaventura, before RTC, Branch 146, Makati.

In G.R. No. 148259, Buenaventura, et al. anchor their petition on a sole ground, to wit:

Page 684 of 1485

The Honorable Court of Appeals has decided the case in a way not in accord with law and applicable jurisprudence in the deletion of the award of exemplary damages granted by the court a quo.[15]

They submit that BPI-FB acted in a wanton, reckless, oppressive and malevolent manner in freezing, and subsequently closing, their account without prior notification. They insist that BPI-FB failed in its obligation, as an entity engaged in business affected with public interest, to treat the accounts of its depositors with meticulous care, having in mind the fiduciary nature of their relationship. Moreover, as if to compound its reckless conduct, BPI-FB declared itself the owner of the money which the depositors have placed in its care, freezing and later closing the depositors account, all before due notice and without first giving the latter the opportunity to properly present their side or at least sufficient time to direct their course of action, like refraining from issuing any check, to eventually save themselves from any embarrassment and/or possible criminal prosecution for estafa or violation of Batas Pambansa Blg. 22.

We rule in favor of Buenaventura, et al.

It is elementary that it is only in the name of a real party-in-interest that a civil suit may be prosecuted. Under Section 2, Rule 3 of the Rules of Civil Procedure, a real party-ininterest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. "Interest" within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest.[16] One having no right or interest to protect cannot invoke the jurisdiction of the court as a party plaintiff in an action.[17] To qualify a person to be a real party-in-interest in whose name an action must be prosecuted, he must appear to be the present real owner of the right sought to be

Page 685 of 1485

enforced.[18] Since a contract may be violated only by the parties thereto as against each other, in an action upon that contract, the real parties-in-interest, either as plaintiff or as defendant, must be parties to the said contract.[19]

In the present case, Buenaventura, et al. are the real parties-in-interest. They are the parties who contracted with BPI-FB with regard to the Current Account. While the funds were used for purposes of the International Baptist Church and the International Baptist Academy, it must be noted that the Current Account is in the name of Buenaventura, et al. They are the signatories of the check which was dishonored by BPI-FB upon presentment and the ones who will be held accountable for the nonpayment or dishonor of any check they issued. Thus, they are the real parties-in-interest to enforce the terms of the contract of deposit with BPI-FB.

Furthermore, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et al. based on the suspicion that the funds in the latters account are illegal or unauthorized having been sourced from the unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal therefrom to allegedly protect its interest.

Needless to stress, the contract between a bank and its depositor is governed by the provisions of the Civil Code on simple loan.[20] Thus, there is a debtor-creditor relationship between a bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings or current deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

Page 686 of 1485

Every bank that issues checks for the use of its customers should know whether or not the drawer's signature thereon is genuine, whether there are sufficient funds in the drawers account to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer's account, and it is supposed to be familiar with the drawer's signature . It should possess appropriate detecting devices for uncovering forgeries and/or alterations on these instruments. Unless a forgery or alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss.[21]

There is nothing inequitable in such a rule for if in the regular course of business the check comes to the drawee bank which, having the opportunity to ascertain its character, pronounces it to be valid and pays it, as in this case, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places upon it, and the result of its negligence must rest upon it.[22]

Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the loss and cant shift the blame to Buenaventura, et al. having failed to show any participation on their part in the forgery. BPI-FB fails to point any circumstance which should have put Buenaventura, et al. on inquiry as to the why and wherefore of the possession of the check by Amado Franco. Buenaventura, et al. were not privies to any transaction involving FMIC, Tevesteco or Franco. They thus had no obligation to ascertain from Franco what the nature of the latters title to the checks was, if any, or the nature of his possession. They cannot be guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Francos acquisition or possession of the check, which was payable to bearer.[23]

Page 687 of 1485

Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were allegedly derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of the said P80,000,000.00 debited from FMICs account is immaterial. These circumstances cannot be used against a party not privy to the forgery.

There is no merit to the claim that the CA erred in affirming the RTCs order directing BPI-FB to pay the balance of their account plus interest although the prayer was only to reinstate their Current Account. The complaint does contain a general prayer for such other relief as may be just and equitable in the premises. And this general prayer is broad enough to justify extension of a remedy different from or together with the specific remedy sought.[24] Indeed, a court may grant relief to a party, even if the party awarded did not pray for it in his pleadings.[25]

As to the prayer of Buenaventura, et al. for exemplary damages, the Court finds that the CA erred in deleting the award of exemplary damages. The law allows the grant of exemplary damages to set an example for the public good.[26] The business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and meticulousness in giving irreproachable service.[27] For this reason, the bank should guard against injury attributable to negligence or bad faith on its part.[28] The award of exemplary damages is proper as a warning to BPI-FB and all concerned not to recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors. However, the award should be in a reduced amount of P50,000.00 since exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.[29]

In summation, the Court reminds BPI-FB that the banking sector must at all times maintain a high level of meticulousness, always having in mind the fiduciary nature of its relationship with its depositors.[30] This fiduciary relationship means that the banks

Page 688 of 1485

obligation to observe high standards of integrity and performance is deemed written into every deposit agreement between a bank and its depositor. Failure to comply with this standard shall render a bank liable to its depositors for damages.

WHEREFORE, the petition in G.R. No. 148196 is DENIED and the petition in G.R. No. 148259 is GRANTED. The assailed Decision dated November 27, 2000 and Resolution dated May 3, 2001 of the Court of Appeals in CA-G.R. CV No. 53962, which affirmed with modification the Decision rendered by the Regional Trial Court, Branch 25, Manila, dated August 11, 1995 in Civil Case No. 90-53154, are hereby AFFIRMED with the MODIFICATION that BPI Family Bank is directed to pay Buenaventura, et al. the amount of P50,000.00 as exemplary damages. Costs against BPI Family Bank.

SO ORDERED. Republic SUPREME COURT SECOND DIVISION G.R. No. 148196 September 30, 2005 BPI FAMILY BANK, Petitioners, vs. EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Respondent. x--------------------------x G.R. No. 148259 EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Petitioners, vs. BPI FAMILY BANK, Respondent. DECISION AUSTRIA-MARTINEZ, J.: of the Philippines

Page 689 of 1485

Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court assailing the Decision1 of the Court of Appeals (CA) dated November 27, 2000 in CAG.R. CV No. 53962, which affirmed with modification the Decision dated August 11, 1995 of the Regional Trial Court, Branch 25, Manila (Manila RTC); and the CA Resolution dated May 3, 2001, which denied the parties separate motions for reconsideration. The factual background of the case is as follows: On May 23, 1990, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.), all officers of the International Baptist Church and International Baptist Academy in Malabon, Metro Manila, filed a complaint for "Reinstatement of Current Account/Release of Money plus Damages" against BPI Family Bank (BPI-FB) before the Manila RTC, docketed as Civil Case No. 90-53154.2 They alleged that: on August 30, 1989, they accepted from Amado Franco BPI-FB Check No. 129004 dated August 29, 1989 in the amount of P500,000.00, jointly issued by Eladio Teves and Joseph Teves;3 they opened Current Account No. 807-065314-0 with the BPI-FB Branch at Bonifacio Market, Edsa, Caloocan City and deposited the check as initial deposit; the check was subsequently cleared and the amount was credited to their Current Account; on September 3, 1989, they drew a check in the amount of P10,171.50 and pursuant to normal banking procedure the check was honored and debited from their Current Account, leaving a balance of P490,328.50; on September 4, 1989, they drew another check in the amount of P46,189.60; instead of debiting the said amount against their Current Account, it was debited, without their knowledge and consent, against their Savings Account No. 08-95332-5 with the same branch; on September 9, 1989, they drew a check for P91,270.00 which, upon presentment for payment, was dishonored for the reason "account closed," in spite of the balance in the Current Account of P490,328.50; they thereafter learned from BPI-FB that their Current Account had been frozen upon instruction of Severino P. Coronacion, Vice-President of BPI-FB on the ground that the source of fund was illegal or unauthorized; they demanded the reinstatement of the account, but BPI-FB refused. On June 20, 1990, BPI-FB filed a motion to dismiss on the ground of litis pendentia, alleging that there is a pending case for recovery of sum of money arising from the BPI-FB Check No. 129004 dated August 29, 1989 before the Regional Trial Court (RTC), Branch 146, Makati 4 and Buenaventura is one of the defendants therein. 5 Buenaventura, et al. opposed the motion to dismiss on the ground that there is no identity of parties, rights asserted and reliefs prayed between the two cases.6 On October 10, 1990, the Manila RTC denied the motion to dismiss, ruling that there can be no res judicata between the two cases since the parties are different and the causes of action are not the same.7 On December 10, 1990, BPI-FB filed its answer alleging that: the check received by Buenaventura, et al. from Amado Franco was drawn by Eladio Teves and Joseph Teves against the Current Account of the Tevesteco Arrastre Stevedoring Co., Inc. (Tevesteco); the funds in the said Tevesteco account allegedly consisted mainly of funds in the amount of P80,000,000.00 transferred to it from another account belonging to the First Metro Investment Corporation (FMIC); such transfer of funds was effected on the basis of an Authority to Debit bearing the signatures of certain officers of FMIC; upon its investigation, BPI-FB found that the signatures in the Authority to Debit were forged; before this, however,

Page 690 of 1485

Tevesteco had already issued several checks against its Current Account, one of which is the BPI-FB Check No. 129004 received by Buenaventura, et al. from Amado Franco, after a series of indorsements; it has the right to consider the Current Account of Buenaventura, et al., which is funded from BPI-FB Check No. 129004, as closed and to refuse any further withdrawal from the same; assuming that the forgery claim of FMIC is untrue and incorrect, it is the right of the BPI-FB, as a matter of protecting its interests, to freeze their account or to hold it in suspense and not to allow any withdrawals therefrom in the meantime that the issue of forgery remains unsettled; FMIC has instituted another civil action, presently pending appeal, against BPI-FB and several other defendants for the recovery of the P80,000,000.00 transferred from the formers account to Tevestecos account. 8 Following trial on the merits, on August 11, 1995, the Manila RTC rendered its decision, finding that: BPI-FB had no right to unilaterally freeze the deposits of Buenaventura, et al. since the latter had no participation in any fraud that may have attended the prior fund transfers from FMIC to Tevesteco; as holders in good faith and for value of the BPI-FB Check No. 129004, their rights to the sum embodied in the said check should have been respected; BPI-FBs unilateral action of freezing the Current Account amounted to an unlawful confiscation of their property without due process. The dispositive portion of the RTC decision reads as follows: WHEREFORE, in view of the foregoing judgment is rendered in favor of the plaintiff and against the defendant bank and the latter is ordered as follows: 1. To pay the plaintiff the sum of P490,328.50 representing the balance of the plaintiffs deposit under Account No. 807-065-313-0 which was unlawfully frozen by the bank and finally debited against said account with legal rate of interest from date of closure; 2. To pay the sum of P200,000.00 as moral damages; 3. To pay the amount of P200,000.00 as exemplary damages to serve as an example and lesson to serve as a deterrent for similar action which the bank may take against its depositors in the future; 4. To pay the sum of P50,000.00 as attorneys fees. SO ORDERED.9 Dissatisfied, BPI-FB appealed to the CA. It alleged that: the case should have been dismissed for lack of cause of action because it is the International Baptist Academy which is the owner of the funds deposited with BPI-FB and therefore the real party-in-interest, although the account is in the name of Buenaventura, et al.; the RTC should not have ordered the payment of the balance of the Current Account of Buenaventura, et al. because the latter were interested only in the reinstatement of their Current Account; the provisions of the Negotiable Instruments Law should not have been applied by the RTC to support its position that Buenaventura, et al. are the owners of the funds in their Current Account; BPI-FB is entitled to freeze the account of Buenaventura, et al. and to disallow any withdrawals therefrom as a measure to protect its interest; BPI-FB, not Buenaventura, et al., is entitled to damages. On November 27, 2000, the CA affirmed the decision of the Manila RTC, holding that BPI-FB did not act in accordance with law. 10 It ruled that the relationship between the bank and the depositor is that of debtor and creditor and, as such, BPI-FB could not lawfully refuse to make payments on the checks drawn and issued by Buenaventura, et al., provided only that

Page 691 of 1485

there are funds available in the latters deposit. It further declared that BPI-FB is not justified in freezing the amounts deposited by Buenaventura, et al. for suspicion of being "illegal" or "unauthorized" as a result of the claimed fraud perpetuated against FMIC because: (a) it has not been sufficiently shown that the funds in the account of Buenaventura, et al. were derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted exclusively of the said P80,000,000.00 debited from FMICs account; and (b) there is no clear proof of any involvement of Buenaventura, et al., the International Baptist Church or International Baptist Academy in the alleged irregularities attending the fund transfer from FMIC to Tevesteco. The CA also found unmeritorious BPI-FBs claim that Buenaventura, et al. have no cause of action since the International Baptist Academy is the real party-in-interest. It held that since it is undisputed that it is the Current Account of Buenaventura, et al. which was frozen and closed by BPI-FB, then the former are the parties-in-interest in the reopening of the said account. It found no error in the Manila RTCs order that BPI-FB pay the amount of P490,328.50 plus interest directly to Buenaventura, et al. since the reinstatement of the Current Account would mean the same thing as the payment of the balance; Buenaventura, et al. would necessarily have the right to withdraw their deposit if and when they see it fit. Furthermore, the CA held that the RTCs disposition falls under the general prayer of Buenaventura, et al. for such other reliefs as may be just and equitable under the attendant circumstances. With regard to award of damages, the CA sustained the award of moral damages and attorneys fees, holding that BPI-FBs actuations were established to have caused Buenaventura, et al. to incur the distrust of their Baptist brethren, besides suffering mental anguish, serious anxiety, wounded feelings, and moral shock but found no basis for the award of exemplary damages of P200,000.00 for lack of showing that BPI-FB was not animated by any wanton, fraudulent, reckless, oppressive or malevolent intent. Both parties filed separate motions for reconsideration. Buenaventura, et al. sought reconsideration of the deletion of the award of exemplary damages. 11 On the other hand, BPI-FB reiterated its argument that the International Baptist Academy is the real party-ininterest. It also assailed the findings and conclusions of the CA. 12 On May 3, 2001, the CA denied both motions for reconsideration. 13 Hence, the present two consolidated petitions for review on certiorari. In G.R No. 148196, BPI-FB ascribes six errors upon the CA, to wit: I. The Honorable Court of Appeals committed a reversible error in holding that the respondents are the real parties-in-interest in this case contrary to the admissions of respondents themselves that it is the International Baptist Academy who is the owner of the funds in question and hence it is and out to be the real party in interest in this case. II. The Honorable Court of Appeals committed a grave abuse of discretion in not dismissing respondents complaint for lack of cause of action. III. The Honorable Court of Appeals committed a reversible error in NOT holding, based on a misapprehension of facts that BPI-FB is entitled to freeze respondents account and to disallow any withdrawal therefrom as a measure to protect its interest.

Page 692 of 1485

IV. The Honorable Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that it has not been sufficiently shown that the funds in deposit with BPI-FB under the name of the respondents were derived exclusively from the alleged 80 million pesos unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted exclusively of the said 80 million pesos debited from FMICs account. V. The Honorable Court of Appeals committed a grave abuse of discretion in NOT upholding the position of BPI-FB on the freezing of respondents current account when it held that there was no clear proof of any involvement by the respondents with the alleged irregularities attending the fund transfer from FMIC to Tevesteco. VI. The Honorable Court of Appeals committed a grave abuse of discretion, in holding, in effect, that there is nothing wrong with the Lower Courts order directing BPI-FB to pay to respondents directly the balance of their account plus interest although their prayer in their complaint was only to reinstate their current account. 14 Anent the first and second grounds, BPI-FB maintains that the complaint should have been dismissed for lack of cause of action because Buenaventura et al. admit that the International Baptist Academy is the owner of the funds in question and therefore the real party-in-interest to prosecute the action. On the third ground, BPI-FB asserts that it has the right to consider the account of Buenaventura, et al. as frozen and to refuse any withdrawals from the same because of the forgery claim of FMIC. Assuming the forgery claim of FMIC is true and correct, the amount transferred from FMICs account to Tevestecos account is the money of BPI-FB under the principle that a bank is deemed to have disbursed its own funds. It submits that as an original owner who is restored in possession of stolen property, it has a better right over such property than a mere transferee no matter how innocent the latter may be. Concerning the fourth ground, BPI-FB submits that ample proof was presented by it that the deposit under the name of Tevesteco consisted exclusively of the P80,000,000.00 debited from FMICs account and the funds in deposit with BPI-FB under the name of Buenaventura, et al. were derived exclusively from the P80,000,000.00 unlawfully transferred from the funds of FMIC. With regard to the fifth ground, BPI-FB concedes that there is no clear proof of any involvement by Buenaventura, et al. in the alleged irregularities attending the fund transfer from FMIC to Tevesteco. It insists, however, that the freezing of the account was triggered by the forgery claim of FMIC and the unauthorized fund transfer to Tevesteco based on the principle that a bank is deemed to have disbursed its own funds, and not its depositors, where the authority for such disbursement is a forgery and null and void. It had the right to set up its ownership of the money as against that of Buenaventura, et al. and to refuse to return the same to them. As to the sixth ground, BPI-FB points out that Buenaventura, et al. originally prayed in the alternative for the reinstatement of their Current Account or for payment of the balance remaining in said account but they subsequently chose to delete that portion praying for the payment of the balance of their account. It submits that Buenaventura, et al. deliberately did this to sidestep the other pending case filed against the suspected perpetrators of the fraud, including Amado Franco and Buenaventura, before RTC, Branch 146, Makati.

Page 693 of 1485

In G.R. No. 148259, Buenaventura, et al. anchor their petition on a sole ground, to wit: The Honorable Court of Appeals has decided the case in a way not in accord with law and applicable jurisprudence in the deletion of the award of exemplary damages granted by the court a quo.15 They submit that BPI-FB acted in a wanton, reckless, oppressive and malevolent manner in freezing, and subsequently closing, their account without prior notification. They insist that BPI-FB failed in its obligation, as an entity engaged in business affected with public interest, to treat the accounts of its depositors with meticulous care, having in mind the fiduciary nature of their relationship. Moreover, as if to compound its reckless conduct, BPI-FB declared itself the owner of the money which the depositors have placed in its care, freezing and later closing the depositors account, all before due notice and without first giving the latter the opportunity to properly present their side or at least sufficient time to direct their course of action, like refraining from issuing any check, to eventually save themselves from any embarrassment and/or possible criminal prosecution for estafa or violation of Batas Pambansa Blg. 22. We rule in favor of Buenaventura, et al. It is elementary that it is only in the name of a real party-in-interest that a civil suit may be prosecuted. Under Section 2, Rule 3 of the Rules of Civil Procedure, a real party-in-interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. "Interest" within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest. 16 One having no right or interest to protect cannot invoke the jurisdiction of the court as a party plaintiff in an action.17 To qualify a person to be a real party-in-interest in whose name an action must be prosecuted, he must appear to be the present real owner of the right sought to be enforced.18 Since a contract may be violated only by the parties thereto as against each other, in an action upon that contract, the real parties-in-interest, either as plaintiff or as defendant, must be parties to the said contract. 19 In the present case, Buenaventura, et al. are the real parties-in-interest. They are the parties who contracted with BPI-FB with regard to the Current Account. While the funds were used for purposes of the International Baptist Church and the International Baptist Academy, it must be noted that the Current Account is in the name of Buenaventura, et al. They are the signatories of the check which was dishonored by BPI-FB upon presentment and the ones who will be held accountable for the nonpayment or dishonor of any check they issued. Thus, they are the real parties-in-interest to enforce the terms of the contract of deposit with BPI-FB. Furthermore, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et al. based on the suspicion that the funds in the latters account are illegal or unauthorized having been sourced from the unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal therefrom to allegedly protect its interest. Needless to stress, the contract between a bank and its depositor is governed by the provisions of the Civil Code on simple loan. 20 Thus, there is a debtor-creditor relationship between a bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand.

Page 694 of 1485

The savings or current deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. Every bank that issues checks for the use of its customers should know whether or not the drawer's signature thereon is genuine, whether there are sufficient funds in the drawers account to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer's account, and it is supposed to be familiar with the drawer's signature. It should possess appropriate detecting devices for uncovering forgeries and/or alterations on these instruments. Unless a forgery or alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. 21 There is nothing inequitable in such a rule for if in the regular course of business the check comes to the drawee bank which, having the opportunity to ascertain its character, pronounces it to be valid and pays it, as in this case, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places upon it, and the result of its negligence must rest upon it.22 Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the loss and cant shift the blame to Buenaventura, et al. having failed to show any participation on their part in the forgery. BPI-FB fails to point any circumstance which should have put Buenaventura, et al. on inquiry as to the why and wherefore of the possession of the check by Amado Franco. Buenaventura, et al. were not privies to any transaction involving FMIC, Tevesteco or Franco. They thus had no obligation to ascertain from Franco what the nature of the latters title to the checks was, if any, or the nature of his possession. They cannot be guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Francos acquisition or possession of the check, which was payable to bearer.23 Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were allegedly derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of the said P80,000,000.00 debited from FMICs account is immaterial. These circumstances cannot be used against a party not privy to the forgery. There is no merit to the claim that the CA erred in affirming the RTCs order directing BPI-FB to pay the balance of their account plus interest although the prayer was only to reinstate their Current Account. The complaint does contain a general prayer "for such other relief as may be just and equitable in the premises." And this general prayer is broad enough "to justify extension of a remedy different from or together with the specific remedy sought." 24 Indeed, a court may grant relief to a party, even if the party awarded did not pray for it in his pleadings.25 As to the prayer of Buenaventura, et al. for exemplary damages, the Court finds that the CA erred in deleting the award of exemplary damages. The law allows the grant of exemplary damages to set an example for the public good. 26 The business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and meticulousness in giving irreproachable service.27 For this reason, the bank should guard against injury attributable to negligence or bad faith on its part.28 The award of exemplary damages is proper as a warning to BPI-FB and all concerned not to recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors. However, the award should be

Page 695 of 1485

in a reduced amount of P50,000.00 since exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.29 In summation, the Court reminds BPI-FB that the banking sector must at all times maintain a high level of meticulousness, always having in mind the fiduciary nature of its relationship with its depositors.30 This fiduciary relationship means that the banks obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. Failure to comply with this standard shall render a bank liable to its depositors for damages. WHEREFORE, the petition in G.R. No. 148196 is DENIED and the petition in G.R. No. 148259 is GRANTED. The assailed Decision dated November 27, 2000 and Resolution dated May 3, 2001 of the Court of Appeals in CA-G.R. CV No. 53962, which affirmed with modification the Decision rendered by the Regional Trial Court, Branch 25, Manila, dated August 11, 1995 in Civil Case No. 90-53154, are hereby AFFIRMED with the modification that BPI Family Bank is directed to pay Buenaventura, et al. the amount of P50,000.00 as exemplary damages. Costs against BPI Family Bank. SO ORDERED. Republic SUPREME Manila EN BANC of the Philippines COURT

G.R. No. 133197 January 27, 1999 PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, petitioner, vs. EDUARDO COJUANGCO, JR., AGR'L. CONSULTANCY SERV., INC., ARCHIPELAGO REALTY CORP., BALETE RANCH, INC., BLACK STALLION RANCH, INC., CHRISTENSEN PLANTATION COMPANY, DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO RANCH, INC., FAR EAST RANCH, INC., FIRST UNITED TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT, INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYUG AIR TERMINALS, INC., LANDAIR INT'L. MARKETING CORP., LHL CATTLE CORPORATION, LUCENA OIL FACTORY, INC., MEADOW LARK PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN AGRI'L. CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN CARRIERS CORPORATION, OCEANSIDE MARITIME ENT., INC., ORO VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONG-BAYAN HOUSING DEV'T. CORP., PURA ELECTRIC COMPANY, INC., RADIO AUDIENCE DEVELOPERS., INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORPORATION, RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN ESTEBAN DEVELOPMENT, INC., SILVER LEAF PLANTATIONS, INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE ONE RESORTS CORP., UNEXPLORED LAND DEVELOPERS, INC., VERDANT PLANTATIONS, INC., VESTA AGRICULTURAL CORP., WINGS RESORTS CORPORATION, SAN MIGUEL CORPORATION and SANDIGANBAYAN, respondents.

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MARTINEZ, J.: Private respondents (herein respondent Stockholders) other than San Miguel Corporation (SMC) are registered Stockholders of the latter corporation. A stockholders meeting was scheduled on April 21, 1998 at 2 p.m. During the pendency of the sequestration suit involving the sequestered shares of SMC, respondent stockholders filed a motion before the Sandiganbayan (SB) to enjoin petitioner Presidential Commission on Good Government (PCGG) from voting the PCGG-sequestered shares of stock and instead allow the movants a quo to vote those shares. Subject to the posting of a bond, the SB granted the motion in a resolution dated April 20, 1998, the dispositive portion of which reads: IN VIEW OF THE FOREGOING, there being no legal basis for preventing the defendants/movants from voting their sequestered shares of stock in the San Miguel Corporation, the plaintiff Presidential Commission on Good Government, its assignees, agents, representatives or servants are enjoined from voting the shares of stock of herein defendants/movants at the scheduled stockholders meeting of said corporation scheduled for April 21, 1998 at 2:00 p.m. or at any other time to which said stockholders meeting may be continued or reset. The chairman of the meeting and the secretary thereof will acknowledge the right of the following stockholders to vote the shares of stock registered in their names: (names of respondent stockholders deleted) The movants shall post a bond of TWO HUNDRED AND FIFTY THOUSAND PESOS (P250,000.00) to answer for any undue damage that the plaintiff or the San Miguel Corporation shall suffer by reason of the sequestered shares of stock having been voted by or for said movants. SO ORDERED.
1

Due to the urgency of the matter and for lack of material time, petitioner, without filing a motion for reconsideration, assailed the said resolution before this Court thru a petition for certiorari and mandamus with application for issuance of a temporary restraining order (TRO). The petition was filed on April 20, 1998 before the Supreme Court office in Baguio City during its summer session. 2 Petitioner attached thereto a fax copy of the said SB resolution, although a certified copy was submitted later. The next day, the Court required respondents to file their Comment but declined to issue the TRO prayed for. 3 With the denial of the TRO, respondent stockholders were able to elect in said stockholders meeting three (3) nominees to the SMC Board of Directors (BOD). 4 Before proceeding to the main issue, the Court notes that an uncertified fax 5 copy of the assailed resolution appended to the petition cannot be considered as compliance with the requirement of Rule 65 of the Rules of Court that a certified true copy must be attached and is sufficient reason to warrant the outright dismissal of the petition. However, due to the extraordinary situation of the case, particularly the date of the promulgation of the SB resolution, the date of the stockholders meeting, the summer session of the Supreme Court in Baguio City, and the subsequent submission by petitioner of a certified copy of the assailed SB resolution suffice to relax that particular rule of procedure.

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The only query in this petition may be simplified as follows: In the SMC stockholders meeting of April 20, 1998 who between petitioner and respondent stockholders should vote the sequestered shares of stock. Since 1986, petitioner had been voting the sequestered SMC shares and continued to exercise such right until 1997, except for some period in the year 1991. During the latter year, the Court in the case of Cojuangco, Jr. vs. Roxas, 6 on which both respondent stockholders and SB anchor their position in this case, ruled that the PCGG had no right to vote the said shares. As said by the Court: The PCGG cannot perform acts of strict ownership of sequestered property. It is mere conservator. It may not vote the shares in a corporation and elect the members of the board of directors. The only conceivable exception is in a case of a takeover of a business belonging to the government or whose capitalization comes from public funds, but which landed in private hands as in BASECO. The constitutional right against deprivation of life, liberty and property without due process of law is so well-known and too precious so that the hand of the PCGG must be stayed in its indiscriminate takeover of and voting of shares allegedly ill-gotten in these cases. It is only after appropriate judicial proceedings when a clear determination is made that said shares are truly ill-gotten when such a takeover and exercise of acts of strict ownership by the PCGG are justified. In the light of the foregoing discussion, the Court finds and so holds that the PCGG has no right to vote the sequestered shares of petitioners including the sequestered corporate shares. Only their owners, duly authorized representatives or proxies may vote the said shares. The Roxas case was disposed by the Court as follows: WHEREFORE, the Petitions are GIVEN DUE COURSE and GRANTED. Private respondents Adolfo Azcuna, Edison Coseteng and Patricio Pineda are hereby DIRECTED to vacate their respective offices as members of the Board of Directors of the SMC as soon as this decision is implemented. Contemporaneously with the installation of the safeguards above-required to enable the PCGG to perform its statutory role as conservator of the sequestered shares of stock or assets, the respondent SMC is hereby ORDERED to allow the petitioners to vote their shares in person or by proxy and to be voted for as members of the Board of Directors of the SMC and otherwise to enjoy the rights and privileges of shareholders: and the PCGG is hereby ENJOINED from voting the sequestered shares of stock except as otherwise authorized in the safeguards above-required. The questioned order of the Sandiganbayan dated 16 November 1989 is hereby SET ASIDE; however, the implementation of this decision shall be carried out under the supervision and control of the Sandiganbayan. The Court makes no pronouncement as to costs. SO ORDERED. In 1995, however, the Court en banc promulgated the consolidated sequestration cases which includes PCGG v. Sandiganbayan. 7 Among others, the Court nullified in the latter case an earlier resolution issued by the SB lifting the sequestration over the shares of stock in the name of said stockholders. The respondents in the latter case and in this case are the same

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because the former case is merely an offshot of the main sequestration suit. The fact that the sequestration remains does not automatically deprive the stockholders of their right to vote those shares which is basic feature of their ownership although questioned. But in resolving who should vote the sequestered shares, necessitates a determination of the alleged ill-gotten character of those shares and consequently the rightful ownership thereof, which issue is still the subject of the main case still pending in the courts. In any case, what is involved herein is merely an incident of the main case and is limited only to the stockholders meeting scheduled for April 20, 1998. This resolution is without prejudice to the final disposition of the merits of the main suit. Until the main sequestration suit is resolved, the right to vote the SMC sequestered shares depends on whether the two-tiered test set by the Court in its June 10, 1993 Resolution in G.R. No. 115352 (Cojuangco v. Calpo) concurs. Those guidelines must be observed by the SB in resolving similar motions involving the right to vote the said shares, which are: 1. whether there is prima facie evidence showing that the said shares are illgotten and thus belong to the state; and 2. whether there is an immediate danger of dissipation thus necessitating their continued sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan. There is therefore "a need for some factual moorings" to resolve the issues raised herein and since the Court is not a trier of facts, it is proper to refer the matter to the appropriate tribunal. With respect to the bond, it appears that the same is too minimal if compared to the value of the subject shares of stock and the voting power of the members of the BOD represented/elected by such shares. It is just but fair that the bond should reasonably be increased. ACCORDING, the case is REMANDED to the Sandiganbayan for further proceedings. However, respondent stockholders are ORDERED to furnish an additional bond upon receipt of notice hereof, which is herein set at TWENTY-FIVE MILLION PESOS (P25,000,000.00) for the same purpose as mentioned by the Sandiganbayan, which shall strictly enforce this resolution.1wphi1.nt SO ORDERED. Davide, Jr., C.J., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Purisima, Pardo, Buena and Gonzaga-Reyes, JJ., concur. THIRD DIVISION [G.R. No. 106214. September 5, 1997] TERESITA VILLALUZ, CHIT ILAGAN, Spouses ADOR and TESS TABERNA and MARIO LLAMAS, petitioner, vs. THE HONORABLE COURT OF APPEALS and SPOUSES REYNALDO AND ZENAIDA ANZURES, respondents. DECISION FRANCISCO, J.:

Page 699 of 1485

This petition assails the decision of the Court of Appeals (CA) in two consolidated cases involving (i) the civil aspect of a criminal case for violation of Batas Pambansa No. 22 xci[1] (CA G.R. No. 28780) and (ii) an ejectment suit (CA G.R. S.P. No. 20055). xcii[2] Both cases arose from the following undisputed facts given credence by the CA: CA G.R. No. 28780.xciii[3] Complainant (private respondent) Reynaldo Anzures, his wife, Zenaida Anzures, accused Teresita Villaluz and her husband, Romeo Villaluz, have known each other for quite sometime. As a matter of fact, they were friends and have undertaken business transactions together. Complainant Reynaldo Anzures was the registered owner of a vessel, ROTA FLOAT, per Certificate of Philippine Register (Katibayan ng Pagpapatala sa Pilipinas) (Exhibit B). On April 30, 1987, in Hongkong, complainant sold the vessel to accused ( petitioner) Teresita Villaluz for and in consideration of the sum of HK$ 750,000.00, as evidenced by a Bill of Sale (Exhibit C) and an agreement and Certificate of payment and Delivery (Exhibit D). Despite the fact that complainant, in the Certificate of Payment and Delivery (Exhibit D-2), acknowledged receipt of the purchase price, the purchase price was not actually paid. Instead, they agreed that the payment would be made in Manila right after they arrived in said place. Complainant arrived in Manila on September 18, 1987. Accused, however, failed to pay complainant, in violation of what they agreed upon. Thus, complainant, for at least ten times, visited accused and demanded the payment of the price from her. On the 18th of November, 1987, accused issued a Producers Bank Check, payable to Reynaldo Anzures, in the amount of Two Million One Hundred Twenty Three Thousand Four Hundred (P2,123,400.00) Pesos, postdated December 18, 1987. On November 15, 1987, accused sold to complainants wife an Isuzu crew cab worth P100,000.00 (Exhibit 4). On November 17, 1987, accused sold to complainant parcels of land and a house located at San Gregorio, Pasay City, in the amount of P1,500,000.00 (Exhibit 5 & 6). Also on November 18, 1987, accused sold a sala set valued at P120,000.00 to complainant. The purchase prices of said properties were, nevertheless, not paid because their agreement was to deduct the same from an indebtedness of the accused to complainant and his wife. Thereafter, complainant deposited the check with the China Banking Corporation, Balut Branch, but it bounced for the reason that the account of the accused with the drawee bank, Producers Bank, was already closed as of November 16, 1987, per notice sent by China Banking Corporation to complainants wife, dated February 10, 1988 (Exhibit E-1). On May 30, 1988 complainant, thru lawyer, sent a letter to accused asking the latter to discuss and settle the matter with him, but in vain (Exhibit F). On July 11, 1988, complainant sent another letter, this time demanding from the accused the replacement of the dishonored check, in the amount of P2,123,400.00, plus interest (Exhibit G), Still, accused did not heed complainants demand. Therefore, on August 26, 1988, complainant instituted a complaint against accused for violation of B.P. 22. xciv[4] The corresponding criminal information was filed before the Regional Trial Court (RTC). Later, by order of said court issued on July 3, 1989, and upon motion of private respondents who posted an attachment bond furnished by an insurance company, the sheriff attached certain properties of petitioner.xcv[5] The attachments were duly annotated on petitioners

Page 700 of 1485

certificates of title on the attached properties. xcvi[6] After trial, the court a quo rendered judgment acquitting petitioner Villaluz of the crime charged, but held her civilly liable and ordered her to: pay complainant Reynaldo Anzures the sum of TWO MILLION ONE HUNDRED TWENTY THREE THOUSAND FOUR HUNDRED (P2,123,400.00) PESOS with legal rate of interest from December 18, 1987 until fully paid, the sum of P50,000.00 as attorneys fees and the cost of suit.xcvii[7] Petitioner Villaluz appealed to the CA (docketed as CA G.R. No. 28780) questioning her adjudged civil liability. CA G.R. No. 20055.xcviii[8] Plaintiffs (private respondents Anzures) are the owners of a lot and a building located at 20 Apollo Street, San Gregorio Village, Pasay city, which they bought from Mrs. Teresita Estacio Villaluz, as evidenced by Annexes A and A-1 (Deed of Absolute sale) and B (TCT No. 127633) of the complaint. Defendants (petitioners Ilagan, the spouses Taberna and Llamas ) are all employees of Mrs. Villaluz and they are occupying the aforesaid premises by virtue of their employment with Mrs. Villaluz. One of the conditions of the sale between plaintiffs and Mrs. Villaluz was that all the employees of Mrs. Villaluz who occupies (sic) the premises will (sic) have to vacate the same on or before March 31, 1988. This is evidenced by a Memorandum of Agreement signed by plaintiffs and Mr. Pepito Garcia, a treasurer of a corporation of Mrs. Villaluz (Annex D of the complaint). Plaintiffs are seeking the ejectment of the defendants from the premises because the latter have failed and refused and still continuously fail and refuse to vacate the premises despite verbal and written demands the last of which was on March 11, 1989, as evidenced by Annexes E, F, G and H of the complaint. xcix[9] Petitioners (other than Villaluz) filed with the Metropolitan Trial Court (MTC) a motion to dismiss the ejectment suit on the ground of lack of jurisdiction, arguing that the complaint was filed beyond the prescribed one (1) year period for instituting an action for unlawful detainer. After trial, the MTC rendered judgment ordering: defendant and all persons claiming rights under them to vacate the subject premises at 20 Apollo Street, San Gregorio Village, Pasay City, and to surrender the peaceful possession thereof to petitioners plaintiffs; ordering the said defendants jointly and severally to pay the sum of P10,000.00 a month from April 1, 1988 representing reasonable rentals on the premises, until the said premises is finally vacated; ordering the defendants to pay plaintiffs the sum of P10,000.00 as and by way of attorneys fees and to pay the costs. c[10] However, in a petition for certiorari, prohibition and mandamus with prayer for TRO and preliminary injunction, the RTC reversed the MTC ruling. Private respondents questioned before the CA (docketed as CA G.R. 20055) the RTC decision via a petition for review. The CA, after consolidating the appeal (CA G.R. 28780) and petition (CA G.R. 20055), rendered judgment, affirming the trial courts ruling on the civil aspect of the B.P. 22 case,

Page 701 of 1485

but set aside the judgment in the ejectment suit. The dispositive portion of the CA decision reads: WHEREFORE, in CA-G.R. CV NO. 28780, the Decision of the Regional Trial Court of Manila, Branch 9, dated May 25, 1990, as to the civil aspect of Criminal Case No. 89-69257, is hereby AFFIRMED, in all respects. On the other hand, in CA-G.R. SP NO. 20055, the Resolution of the Regional Trial Court of Pasay City, Branch 142, dated February 6, 1990, is hereby SET ASIDE. Defendants-respondents and all persons claiming rights under them are ORDERED to vacate the subject premises at 20 Apollo Street, San Gregorio Village, Pasay City; to surrender the peaceful possession thereof to plaintiffs-petitioners; and to pay the sum of P10,000.00 a month from April 1, 1988, representing the reasonable compensation for the use of the premises, until said premises have been fully vacated, and the amount of P10,000.00 as attorneys fees. Costs against defendants-respondents. IT IS SO ORDERED.ci[11] Hence, this petition whereby petitioner Villaluz assails the finding of the appellate court concerning her civil liability on the B.P. 22 case, claiming that the trial court ruled that she has no liability to private respondents. Alternatively, petitioner Villaluz argues that if she is so liable, the price of the properties she sold to the latter should be set-off with said obligation. She also questions the award of attorneys fees to private respondents. cii[12] The other petitioners contend that the civil case in B.P. 22 constitutes a pre-judicial question to the ejectment case and that the one-year period for filing the latter suit had already prescribed. During the pendency of this petition, a counter-attachment bond was filed by petitioner Villaluz before this Court to discharge the attachment earlier issued by the trial court. Said bond amounting to P2.5million was furnished by Security Pacific Assurance, Corp. which agreed to bind itself jointly and severally with petitioner for any judgment that may be recovered by private respondent against the former. Upon review of the case, the Court finds the petition unmeritorious. First, the contention of petitioner Villaluz essentially strikes at a factual question. It is wellsettled, however, that cases brought to this Court from the CA are limited to a review of questions of law, as the factual findings thereon are conclusive on this Court. ciii[13] In addition, it is also well-settled that the factual findings of the trial court if supported by substantial evidence on record are likewise conclusive on this Court and even carries more weight when affirmed by the CA.civ[14] These doctrines find applicability in this case considering that the assailed findings do not fall under any of the recognized exceptions where the lower courts factual findings are not binding on this Court. cv[15] No adequate reason appears for the Court to disturb the following ruling of the trial court, to wit: But the court is convinced the amount reflected in the check was the total obligation due the complainant from the accused at the time it was issued.cvi[16] as well as those of the appellate court that: It could not be doubted, however, that accused (petitioner Villaluz) bought a vessel from complainant (Anzures); that accused did not pay the purchase price of the vessel; and that accused issued a check in favor of complainant, in the amount of P2,123,400.00, which, certainly, was the amount of accuseds indebtedness to complainant. cvii[17]

Page 702 of 1485

Moreover, it is totally misleading for petitioner Villaluzs to say that the trial court found that she has no liability to private respondents. The mere fact that the trial court as affirmed by the CA ordered her to pay P2,123,400.00 to private respondents belies her claim. In addition, it is absurd for her to issue checks cviii[18] in such a huge amount to private respondents had this not been for the satisfaction of a monetary obligation. It is well to emphasize at this point, that though petitioner was acquitted of the criminal offense, she may still be held civilly liable for the checks she issued. Such pronouncement as to her civil liability is sanctioned under Section 2 of Rule 120 which provides in part: In case of acquittal, unless there is a clear showing that the act from which the civil liability might arise did not exist, the judgment shall make a finding on the civil liability of the accused in favor of the offended party. It is not also disputed that petitioner Villaluz bought a vessel from private respondents where they agreed that payment shall be made upon their arrival in Manila for which the former issued the checks. In turn, petitioner Villaluz allegedly sold to the latter certain properties where the payment thereof will be set-off for the value of the vessel. These circumstances show that petitioner Villaluz is indeed obliged to private respondents for the value of the checks. She cannot claim that the checks were worthless for being issued without consideration. As a negotiable instrument, the checks were presumed to have been issued for some valuable consideration, cix[19] which presumption petitioner Villaluz failed to controvert. As for the set-off of obligations, the Court cannot rule on such issue for as the CA appropriately ruled: neither the accused (petitioner) nor the complainant (private respondents) offered sufficient evidence to support or substantiate their respective allegations. And we could not speculate on matters which were not duly proven. Moreover, it is beyond our competence to take into account and determine said claims and counterclaims. We are only concerned about the civil aspect of the criminal case instituted against accused, for violation of B.P. 22 wherein the civil liability is limited to the face value of the subject check. cx[20] With respect to the issue of attorneys fees and costs, the CA correctly disposed of the same as follows: The award of attorneys fees, and the costs of suit in favor of complainant is justified under Article 2208 of the New Civil Code, the provisions of which are as follows: Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except: xxx xxx xxx

(2) When the defendants acts or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; xxx xxx xxx

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs valid, just and demandable claim;

Page 703 of 1485

considering that accused ignored complainants demands for her to pay the purchase price of the vessel, which she bought from complainant, and considering further that the check she issued, not until after several demands made to her, in payment of her obligation bounced for reason of account closed, and that she did not make good of said check.cxi[21] Anent the ejectment case, the one-year reglementary period under Section 1, Rule 70 cxii[22] for filing an unlawful detainer case is counted from the time of the unlawful deprivation or withholding of possession. Such unlawful deprivation occurs upon expiration or termination of the right to hold possession. And such right legally expires or terminates upon receipt of the last demand to vacate.cxiii[23] In this case, although possession by petitioners (other than Villaluz) lasted beyond March 31, 1988 (the date they were supposed to vacate the premises in accordance with the agreement between petitioner Villaluz and private respondents), cxiv[24] nevertheless their continued possession from April 1, 1988 up to the time they received the demand to vacate on February 23, 1989,cxv[25] is considered as possession by tolerance. Said petitioners are not lessees but their status is analogous to that of a lessee or tenant whose term of lease has expired but whose occupancy continued by tolerance of the owner. Their right of possession of the said property stems from their being employees of petitioner Villaluz who only allowed them to occupy the premises for a certain period. As such, their possession depends upon the possession of petitioner Villaluz. Having merely stepped into the shoes of the latter, said petitioners cannot acquire superior rights than that of petitioner Villaluz. It has been ruled, that the person who occupies the land of another at the latters tolerance or permission, without any contract between them, is necessarily bound by an implied promise that he will vacate the same upon demand, otherwise the remedy of ejectment may be availed to oust him from the premises.cxvi[26] In such case, the one year prescriptive period for filing the appropriate action to remedy the unlawful withholding of possession is to be counted from the date of receipt of the last demand to vacate cxvii[27] because it is only from that time that possession becomes illegal. cxviii[28] Accordingly, since the complaint for ejectment was instituted on July 12, 1989,cxix[29] or a mere four (4) months from the time of the last demand to vacate, the same was timely filed within the prescriptive period. Finally, petitioners (other than Villaluz) argue that the civil aspect in the B.P. 22 case constitutes a pre-judicial question to the ejectment suit because the ownership of the premises subject of the latter suit is allegedly being disputed in the former case. The argument is not meritorious. The ejectment suit can stand on its own regardless of the outcome of the civil case in B.P. 22. The resolution of either is not determinative of the other. This is so because private respondents were already the owners of the properties subject of the ejectment suit by virtue of the Deeds of Sale executed between the former and petitioner Villaluz.cxx[30] The certificates of title issued in their name further confirm their ownership.cxxi[31] As owners, they may initiate legal action to recover possession thereof from an occupant who can show no right to occupy the same. WHEREFORE, premises considered, the decision of the Court of Appeals in the assailed consolidated case is hereby AFFIRMED in toto. SO ORDERED. Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Panganiban, JJ., concur. FIRST DIVISION

Page 704 of 1485

[G.R. No. 139006. November 27, 2000] REMIGIO S. ONG, petitioner, vs. PEOPLE OF THE PHILIPPINES and COURT OF APPEALS (EIGHTH DIVISION), respondents. RESOLUTION KAPUNAN, J.: At bar is a petition for certiorari under Rule 45 of the 1997 Rules of Civil Procedure, filed by petitioner Remigio S. Ong seeking to reverse and set aside the Decision, dated March 19, 1999; and, Resolution, dated June 3, 1999, of the Honorable Court of Appeals in CA-G.R. No. 18421 entitled "People of the Philippines vs. Remigio S. Ong." The antecedent facts, as found by the trial court are quoted hereunder, as follows: That private complainant Marcial de Jesus and accused Remigio Ong are both businessmen who came to know each other since 1988 as supplier(s) of some companies. Marcial de Jesus owns the Sevrin Integrated Resources located at 3184 E. Rivera St., Pasay City, and accused Remigio Ong, the Master Metal Craft with business address at 562 Tomas Mapua St., Sta. Cruz, Manila. Remigio Ong, in fact at one time retained the services of Marcial de Jesus as adviser on technical and financial matters and as President of Erocool Industries, a company controlled by the former. That on December 17, 1992, Remigio Ong approached Marcial de Jesus in his place of work in Pasay City and requested to be accommodated a loan of P130,000.00 which he needed to pay the 13th month pay of his employees at the Master Metal Craft. Complainant De Jesus obliged by issuing Ong Producers Bank check No. 489427 (Exh. "A") payable to Ong's Master Metal Craft. In order to insure the repayment, complainant required Mr. Ong to issue a postdated check for the same amount to become due on January 16, 1993. Mr. Ong therefore issued FEBTC Check No. 381937, dated January 16, 1993 (Exh. "B"). Exh. "A-4" show(s) that Remigio Ong negotiated the Producers Bank Check issued to him by De Jesus on the same day, December 17, 1992, although this is at variance with Exh. "F-6" (FEBTC statement of account of Remigio Ong) which show(s) that the check was deposited in Ong's account only on May 26, 1993 and debited for the said amount of P130,000.00. At any rate, whatever the date the loan check was encashed by Remigio Ong, what is certain was that the check was encashed for value and debited to Ong's account as shown by Exh. "F-6." In the meanwhile, Ong's FEBTC check (Exh. "B") dated January 16, 1993 was deposited by Marcial De Jesus in his account at Producers Bank on May 26, 1993 (same date Remigio Ong deposited De Jesus' check) which was promptly returned the following day by FEBTC for reason that it was drawn against insufficient funds (DAIF), meaning, the check was dishonored by FEBTC for lack of sufficient funds (Exh. "B" and "C" - check No. 381937 and Return advise, respectively). That thereafter, De Jesus verbally notified Remigio Ong of his bounced check several times but unacted (sic) until made a written formal demand (Exh. "D") on September 10, 1993. For failure of Ong to make arrangement for the payment or replacement of the bounced check, De Jesus filed this case. cxxii[1] After trial on the merits, the court a quo rendered a decision, the dispositive portion of which reads as follows: WHEREFORE, the Court finds the accused, Remigio Ong y Salinas, guilty beyond reasonable doubt for Violation of Section 1, Batas Pambansa Blg. 22, otherwise known as the Bouncing

Page 705 of 1485

Check Law, and sentences him to suffer a straight penalty of six (6) months and one (1) day of imprisonment, to pay a fine of P150,000.00 without subsidiary imprisonment in case of insolvency and to pay the costs. The accused is likewise ordered to pay civil indemnity in the amount of P130,000.00. SO ORDERED.cxxiii[2] On appeal, petitioner alleged that the subject check was not issued "on account or for value;" and, that a mere photocopy of the demand letter is not admissible in evidence. The Court of Appeals, however, dismissed the appeal for lack of merit and affirmed the trial court's decision, dated May 5, 1995, in toto.cxxiv[3] Hence, the instant petition for certiorari wherein petitioner makes the following assignment of errors: I THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT CONVICTING PETITIONER OF THE CHARGE OF VIOLATION OF BATAS PAMBANSA BLG. 22 WHEN THE QUESTIONED FEBTC CHECK WAS ONLY A CONTINGENT PAYMENT OF PETITIONER'S COMPANY LOAN WHICH WAS NOT BEEN (sic) PROVEN TO HAVE BEEN EXTENDED AND ACTUALLY USED, THUS, THE SAID CHECK WAS NOT ISSUED "TO APPLY ON ACCOUNT OR FOR VALUE" WITHIN THE CONTEMPLATION OF THE LAW. II THE HONORABLE COURT OF APPEALS LIKEWISE SERIOUSLY ERRED IN AFFIRMING THE LOWER COURT'S DECISION CONVICTING PETITIONER ON THE BASIS OF MERE XEROX DEMAND LETER (sic) CONTRARY TO SECTION 4, RULE 130, REVISED RULES OF COURT AND PROOF OF SUCH DEMAND IS JURISDICTIONAL REQUIREMENT IN BATAS PAMBANSA BLD. (sic) 22.cxxv[4] In gist, petitioner contends that the Court of Appeals affirmed the judgment of conviction of the lower court despite the lack of evidence of receipt of the proceeds of the loan obligation from complainant Company. In other words, there was no evidence that the Producers Bank check issued by private complainant in his favor was ever encashed by him. Therefore, he alleges, the subject check cannot be considered drawn and issued "to apply on account or for value." Furthermore, according to petitioner, the Court of Appeals erroneously affirmed the conviction in complete disregard of the basic and mandatory practice of companies in executing vouchers and/or invoice as proof of receipt of the loan obligation which is clearly lacking and absent in the case at bar. Hence, he reiterates, that the bounced check was not drawn and issued to apply on account or for value.cxxvi[5] Petitioner further asseverates that the Court of Appeals erred in affirming the trial court's decision on the basis of a mere photocopy of the demand letter and without proof of loss of the original as required by law. He contends that proof of demand is jurisdictional. cxxvii[6] Petitioner's contentions are devoid of merit. The trial court as well as the Court of Appeals have found that the prosecution clearly established the existence of the loan and the subsequent encashment of the Producers Bank check. It has also been established that petitioner issued the subject FEBTC check, and that

Page 706 of 1485

said check was subsequently dishonored for being drawn against insufficient funds. These facts irretrievably bring petitioner within the purview of Section 1 of B.P. Blg. 22. On petitioner's contention that the check was not drawn on account or for value, the law and jurisprudence is clear on this matter. In the case of Cruz vs. Court of Appeals,cxxviii[7] this Court had occasion to rule that: 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. The gravamen of the offense punished by B.P. 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment. It is not the non-payment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and putting them in circulation. cxxix[8] Petitioner's argument that the subject check was issued without consideration is inconsequential. The law invariably declares the mere act of issuing a worthless check as malum prohibitum. We quote with approval the appellate court's findings on this matter: In actions based upon a negotiable instrument, it is unnecessary to aver or prove consideration, for consideration is imported and presumed from the fact that it is a negotiable instrument. The presumption exists whether the words "value received" appear on the instrument or not (Agbayani, A.F., Commentaries and Jurisprudence on the Commercial Laws of the Philippines, 1989 Ed., Vol. 1, p. 227, emphasis supplied). Furthermore, such contention is also inconsequential in Batas Pambansa Blg. 22. xxx In Que vs. People (154 SCRA 161), the Supreme Court stated that it is the clear intention of the framers of Batas Pambansa Blg. 22 to make the mere act of issuing a worthless check malum prohibitum. In prosecutions for violation of B.P. Blg. 22, therefore, prejudice or damage is not a pre-requisite for conviction. In the more recent case of People vs. Nitafan (215 SCRA 79), the Supreme Court ruled that the argument surrounding the issuance of the checks need not be first looked into, since the law clearly provides that the mere issuance of any kind of check, regardless of the intent of the parties; i.e., whether the check was intended merely to serve as a guarantee or deposit, but which check was subsequently dishonored, makes the person who issued the check liable. The intent of the law is to curb the proliferation of worthless checks and to protect the stability and integrity of checks as a means of payment of obligation (Lazaro vs. Court of Appeals, 227 SCRA 723, 726-727). cxxx[9] Petitioner claims that the Court of Appeals erred in affirming the trial court's decision on the basis of a photocopy of the demand letter, arguing that the prosecution failed to produce the original thereof. A perusal of the trial court's decision, however, will reveal that it had satisfactorily ruled on this issue, thus: In regards to the alleged inadmissibility of a Xerox copy of the demand letter (Exh. "D") in the absence of proof of loss of the original, said objection is unavailing in the light of the fact that the original has already been shown and identified in Court when complainant Marcial De Jesus testified on it on direct examination (TSN: Febre, p. 17, Aug. 2, 1994) and cross examined on it by defense counsel Atty. Bihag, thus --

Page 707 of 1485

Atty. Bihag: Q: In other words, George De Ocampo that time you sent this demand letter was a member of Euro Cool Craft? (TSN: Febre, p. 27, Aug. 2, 1994). cxxxi[10] It is well-settled in criminal jurisprudence that where the issue is one of credibility of witnesses, the appellate court will generally not disturb the findings of the trial court, considering it was in a better position to settle such issue. Indeed, the trial court has the advantage of hearing the witness and observing his conduct during trial, circumstances which carry a great weight in appreciating his credibility. cxxxii[11] In the case at bar, the trial court had seen the original copy of the demand letter and had been satisfied with the identification thereof by complainant Marcial De Jesus. We are not inclined to disturb said court's findings. In light, however, of the rulings in the recent cases of Vaca v. Court of Appeals cxxxiii[12] and Rosa Lim v. People,cxxxiv[13] the Court deems it best in the instant case, to limit the penalty for violation of B.P. Blg. 22 to payment of a fine in the amount of P150,000.00. Following our rationale in the aforesaid cases, the Court believes that it would best serve the ends of criminal justice if in fixing the penalty within the range of discretion allowed by Sec. 1, par. 1, the same philosophy underlying the Indeterminate Sentence Law is observed, namely, that of redeeming valuable human material and preventing unnecessary deprivation of personal liberty and economic usefulness with due regard to the protection of the social order.cxxxv[14] Consequently, we delete the prison sentence of six (6) months and one (1) day. The imposition of a fine of P150,000.00 and payment of civil indemnity in the amount of P130,000.00, as well as the costs of the suit, are appropriate and sufficient. WHEREFORE, in view of the foregoing, we AFFIRM the decision of the Court of Appeals WITH THE MODIFICATION that the sentence of imprisonment is DELETED. Petitioner is hereby ordered to pay a fine of P150,000.00. He is likewise ordered to pay civil indemnity in the amount of P130,000.00, and the costs of the suit. SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 117857 February 2, 2001 of the Philippines COURT

LUIS S. WONG, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. QUISUMBING, J.:

Page 708 of 1485

For review on certiorari is the decision dated October 28, 1994 of the Court of Appeals in C.A. G.R. CR 118561 which affirmed the decision of the Regional Trial Court of Cebu City, Branch 17, convicting petitioner on three (3) counts of Batas Pambansa Blg. 22 (the Bouncing Checks Law) violations, and sentencing him to imprisonment of four (4) months for each count, and to pay private respondent the amounts of P5,500.00, P6,410.00 and P3,375.00, respectively, corresponding to the value of the checks involved, with the legal rate of interest from the time of filing of the criminal charges, as well as to pay the costs.1wphi1.nt The factual antecedents of the case are as follows: Petitioner Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of calendars. LPI would print sample calendars, then give them to agents to present to customers. The agents would get the purchase orders of customers and forward them to LPI. After printing the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come around to collect the payments. Petitioner, however, had a history of unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed with his wife.2 Hence, petitioners customers were required to issue postdated checks before LPI would accept their purchase orders. In early December 1985, Wong issued six (6) postdated checks totaling P18,025.00, all dated December 30, 1985 and drawn payable to the order of LPI, as follows: (1) Allied Banking Corporation (ABC) Check No. 660143464-C for P6,410.00 (Exh. "B"); (2) ABC Check No. 660143460-C for P540.00 (Exh. "C"); (3) ABC Check No. PA660143451-C for P5,500.00 (Exh. "D"); (4) ABC Check No. PA660143465-C for P1,100.00 (Exh. "E"); (5) ABC Check No. PA660143463-C for P3,375.00 (Exh. "F"); (6) ABC Check No. PA660143452-C for P1,100.00 (Exh. "G"). These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioners unremitted collections for 1984 amounting to P18,077.07. 3 LPI waived the P52.07 difference. Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for the reason "account closed." The dishonor of the checks was evidenced by the RCBC return slip. On June 20, 1986, complainant through counsel notified the petitioner of the dishonor. Petitioner failed to make arrangements for payment within five (5) banking days.

Page 709 of 1485

On November 6, 1987, petitioner was charged with three (3) counts of violation of B.P. Blg. 224 under three separate Informations for the three checks amounting to P5,500.00, P3,375.00, and P6,410.00.5 The Information in Criminal Case No. CBU-12055 reads as follows: 6 That on or about the 30th day of December, 1985 and for sometime subsequent thereto, in the City of Cebu, Philippines, and within the jurisdiction of this Honorable Court, the said accused, knowing at the time of issue of the check she/he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, with deliberate intent, with intent of gain and of causing damage, did then and there issue, make or draw Allied Banking Corporation Check No. 660143451 dated 12-30-85 in the amount of P5,500.00 payable to Manuel T. Limtong which check was issued in payment of an obligation of said accused, but when the said check was presented with said bank, the same was dishonored for reason ACCOUNT CLOSED and despite notice and demands made to redeem or make good said check, said accused failed and refused, and up to the present time still fails and refuses to do so, to the damage and prejudice of said Manuel T. Limtong in the amount of P5,500.00 Philippine Currency. Contrary to law. Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No. 660143463 in the amount of P3,375.00, and in Criminal Case No. 12058 for ABC Check No. 660143464 for P6,410.00. Both cases were raffled to the same trial court. Upon arraignment, Wong pleaded not guilty. Trial ensued. Manuel T. Limtong, general manager of LPI, testified on behalf of the company, Limtong averred that he refused to accept the personal checks of petitioner since it was against company policy to accept personal checks from agents. Hence, he and petitioner simply agreed to use the checks to pay petitioners unremitted collections to LPI. According to Limtong, a few days before maturity of the checks, Wong requested him to defer the deposit of said checks for lack of funds. Wong promised to replace them within thirty days, but failed to do so. Hence, upon advice of counsel, he deposited the checks which were subsequently returned on the ground of "account closed." The version of the defense is that petitioner issued the six (6) checks to guarantee the 1985 calendar bookings of his customers. According to petitioner, he issued the checks not as payment for any obligation, but to guarantee the orders of his customers. In fact, the face value of the six (6) postdated checks tallied with the total amount of the calendar orders of the six (6) customers of the accused, namely, Golden Friendship Supermarket, Inc. (P6,410.00), New Society Rice and Corn Mill (P5,500.00), Cuesta Enterprises (P540.00), Pelrico Marketing (P1,100.00), New Asia Restaurant P3,375.00), and New China Restaurant (P1,100.00). Although these customers had already paid their respective orders, petitioner claimed LPI did not return the said checks to him. On August 30, 1990, the trial court issued its decision, disposing as follows: 7 "Wherefore, premises considered, this Court finds the accused Luis S. Wong GUILTY beyond reasonable doubt of the offense of Violations of Section 1 of Batas Pambansa Bilang 22 in THREE (3) Counts and is hereby sentenced to serve an imprisonment of FOUR (4) MONTHS for each count; to pay Private Complainant Manuel T. Limtong the

Page 710 of 1485

sums of Five Thousand Five Hundred (P5,500.00) Pesos, Six Thousand Four Hundred Ten (P6,410.00) Pesos and Three Thousand Three Hundred Seventy-Five (P3,375.00) Pesos corresponding to the amounts indicated in Allied Banking Checks Nos. 660143451, 66[0]143464 and 660143463 all issued on December 30, 1985 together with the legal rate of interest from the time of the filing of the criminal charges in Court and pay the costs."8 Petitioner appealed his conviction to the Court of Appeals. On October 28, 1994, it affirmed the trial courts decision in toto.9 Hence, the present petition.10 Petitioner raises the following questions of law -11 May a complainant successfully prosecute a case under BP 22 --- if there is no more consideration or price or value ever the binding tie that it is in contracts in general and in negotiable instruments in particular behind the checks? if even before he deposits the checks, he has ceased to be a holder for value because the purchase orders (POs) guaranteed by the checks were already paid? Given the fact that the checks lost their reason for being, as above stated, is it not then the duty of complainant knowing he is no longer a holder for value to return the checks and not to deposit them ever? Upon what legal basis then may such a holder deposit them and get paid twice? Is petitioner, as the drawer of the guarantee checks which lost their reason for being, still bound under BP 22 to maintain his account long after 90 days from maturity of the checks? May the prosecution apply the prima facie presumption of "knowledge of lack of funds" against the drawer if the checks were belatedly deposited by the complainant 157 days after maturity, or will it be then necessary for the prosecution to show actual proof of "lack of funds" during the 90-day term? Petitioner insists that the checks were issued as guarantees for the 1985 purchase orders (POs) of his customers. He contends that private respondent is not a "holder for value" considering that the checks were deposited by private respondent after the customers already paid their orders. Instead of depositing the checks, private respondent should have returned the checks to him. Petitioner further assails the credibility of complainant considering that his answers to cross-examination questions included: "I cannot recall, anymore" and "We have no more record." In his Comment,12 the Solicitor General concedes that the checks might have been initially intended by petitioner to guarantee payments due from customers, but upon the refusal of LPI to accept said personal checks per company policy, the parties had agreed that the checks would be used to pay off petitioners unremitted collections. Petitioners contention that he did not demand the return of the checks because he trusted LPIs good faith is contrary to human nature and sound business practice, according to the Solicitor General. The issue as to whether the checks were issued merely as guarantee or for payment of petitioners unremitted collections is a factual issue involving as it does the credibility of witnesses. Said factual issue has been settled by the trial court and Court of Appeals. Although initially intended to be used as guarantee for the purchase orders of customers, they found the checks were eventually used to settle the remaining obligations of petitioner with LPI. Although Manuel Limtong was the sole witness for the prosecution, his testimony

Page 711 of 1485

was found sufficient to prove all the elements of the offense charged. 13 We find no cogent reason to depart from findings of both the trial and appellate courts. In cases elevated from the Court of Appeals, our review is confined to allege errors of law. Its findings of fact are generally conclusive. Absent any showing that the findings by the respondent court are entirely devoid of any substantiation on record, the same must stand. 14 The lack of accounting between the parties is not the issue in this case. As repeatedly held, this Court is not a trier of facts. 15 Moreover, in Llamado v. Court of Appeals ,16 we held that "[t]o determine the reason 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. So 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. The mere act of issuing a worthless check is malum prohibitum." Nothing herein persuades us to hold otherwise. The only issue for our resolution now is whether or not the prosecution was able to establish beyond reasonable doubt all the elements of the offense penalized under B.P. Blg. 22. There are two (2) ways of violating B.P. Blg. 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 is 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 therein or credit with said bank to cover the full amount of the check when presented to the drawee bank within a period of ninety (90) days.17 The elements of B.P. Blg. 22 under the first situation, pertinent to the present case, are: 18 "(1) The making, drawing and issuance of any check to apply for account or for value; (2) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment." Petitioner contends that the first element does not exist because the checks were not issued to apply for account or for value. He attempts to distinguish his situation from the usual "cut-and-dried" B.P. 22 case by claiming that the checks were issued as guarantee and the obligations they were supposed to guarantee were already paid. This flawed argument has no factual basis, the RTC and CA having both ruled that the checks were in payment for unremitted collections, and not as guarantee. Likewise, the argument has no legal basis, for what B.P. Blg. 22 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. 19 As to the second element, B.P. Blg. 22 creates a presumption juris tantum that the second element prima facie exists when the first and third elements of the offense are present. 20 Thus, the makers knowledge is presumed from the dishonor of the check for insufficiency of funds.21 Petitioner avers that since the complainant deposited the checks on June 5, 1986, or 157 days after the December 30, 1985 maturity date, the presumption of knowledge of lack of

Page 712 of 1485

funds under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should not be expected to keep his bank account active and funded beyond the ninety-day period. Section 2 of B.P. Blg. 22 provides: Evidence of knowledge of insufficient funds . The making, drawing and issuance of a check payment of which is refused by the drawee 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. An essential element of the offense is "knowledge" on the part of the maker or drawer of the check of the insufficiency of his funds in or credit with the bank to cover the check upon its presentment. Since this involves a state of mind difficult to establish, the statute itself creates a prima facie presumption of such knowledge where payment of the check "is refused by the drawee because of insufficient funds in or credit with such bank when presented within ninety (90) days from the date of the check." To mitigate the harshness of the law in its application, the statute provides that such presumption shall not arise if within five (5) banking days from receipt of the notice of dishonor, the maker or drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the check.22 Contrary to petitioners assertions, nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the following conditions (1) presentment within 90 days from date of the check, and (2) the dishonor of the check and failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. That the check must be deposited within ninety (90) days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof. Under Section 186 of the Negotiable Instruments Law, "a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay." By current banking practice, a check becomes stale after more than six (6) months, 23 or 180 days. Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found by the trial court, private respondent did not deposit the checks because of the reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were dishonored, petitioner was duly notified of such fact but failed to make arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. And despite petitioners insistent plea of innocence, we find no error in the respondent courts affirmance of his conviction by the trial court for violations of the Bouncing Checks Law. However, pursuant to the policy guidelines in Administrative Circular No. 12-2000 , which took effect on November 21, 2000, the penalty imposed on petitioner should now be

Page 713 of 1485

modified to a fine of not less than but not more than double the amount of the checks that were dishonored. WHEREFORE, the petition is DENIED. Petitioner Luis S. Wong is found liable for violation of Batas Pambansa Blg. 22 but the penalty imposed on him is hereby MODIFIED so that the sentence of imprisonment is deleted. Petitioner is ORDERED to pay a FINE of (1) P6,750.00, equivalent to double the amount of the check involved in Criminal Case No. CBU-12057, (2) P12,820.00, equivalent to double the amount of the check involved in Criminal Case No. CBU-12058, and (3) P11,000.00, equivalent to double the amount of the check involved in Criminal Case No. CBU-12055, with subsidiary imprisonment 24 in case of insolvency to pay the aforesaid fines. Finally, as civil indemnity, petitioner is also ordered to pay to LPI the face value of said checks totaling P18,025.00 with legal interest thereon from the time of filing the criminal charges in court, as well as to pay the costs.1wphi1.nt SO ORDERED. Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur. SECOND DIVISION [G.R. NO. 117913. February 1, 2002] CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO CO, petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents. [G.R. NO. 117914. February 1, 2002] MICO METALS CORPORATION, petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents. DECISION DE LEON, JR., J: Before us is the joint and consolidated petition for review of the Decision cxxxvi[1] dated June 15, 1994 of the Court of Appeals in CA-G.R. CV No. 27480 entitled, Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, which reversed the decision of the Regional Trial Court (RTC) of Manila, Branch 55 dismissing the complaint for a sum of money filed by private respondent Philippine Bank of Communications against herein petitioners, Mico Metals Corporation (MICO, for brevity), Charles Lee, Chua Siok Suy, cxxxvii[2] Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co. cxxxviii[3] The dispositive portion of the said Decision of the Court of Appeals, reads: WHEREFORE, the decision of the Regional Trial Court is hereby reversed and in lieu thereof, a new one is entered: a) Ordering the defendants-appellees jointly and severally to pay plaintiff PBCom the sum of Five million four hundred fifty-one thousand six hundred sixty-three pesos and ninety centavos (P5,451,663.90) representing defendants-appellees unpaid obligations arising from ordinary loans granted by the plaintiff plus legal interest until fully paid.

Page 714 of 1485

b) Ordering defendants-appellees jointly and severally to pay PBCom the sum of Four hundred sixty-one thousand six hundred pesos and sixty-six centavos (P46 1,600.66) representing defendants-appellees unpaid obligations arising from their letters of credit and trust receipt transactions with plaintiff PBCom plus legal interest until fully paid. c) Ordering defendants-appellees jointly and severally to pay PBCom the sum of P50,000.00 as attorneys fees. No pronouncement as to costs. The facts of the case are as follows: On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the purpose of carrying out MICOs line of business as well as to maintain its volume of business. On the same day, Charles Lee requested for another discounting loan/credit line of Three Million Pesos (P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust receipts. In connection with the requests for discounting loan/credit lines, PBCom was furnished by MICO the following resolution which was adopted unanimously by MICOs Board of Directors: RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General Manager, Mr. Mariano A. Sio, singly or jointly, be and they are duly authorized and empowered for and in behalf of this Corporation to apply for, negotiate and secure the approval of commercial loans and other banking facilities and accommodations, such as, but not limited to discount loans, letters of credit, trust receipts, lines for marginal deposits on foreign and domestic letters of credit, negotiate out-of-town checks, etc. from the Philippine Bank of Communications, 216 Juan Luna, Manila in such sums as they shall deem advantageous, the principal of all of which shall not exceed the total amount of TEN MILLION PESOS (P10,000,000.00), Philippine Currency, plus any interests that may be agreed upon with said Bank in such loans and other credit lines of the same kind and such further terms and conditions as may, upon granting of said loans and other banking facilities, be imposed by the Bank; and to make, execute, sign and deliver any contracts of mortgage, pledge or sale of one, some or all of the properties of the Company, or any other agreements or documents of whatever nature or kind, including the signing, indorsing, cashing, negotiation and execution of promissory notes, checks, money orders or other negotiable instruments, which may be necessary and proper in connection with said loans and other banking facilities, or with their amendments, renewals and extensions of payment of the whole or any part thereof.cxxxix[4] On March 26, 1979, MICO availed of the first loan of One Million Pesos (P1,000,000.00) from PBCom. Upon maturity of the loan, MICO caused the same to be renewed, the last renewal of which was made on May 21, 1982 under Promissory Note BNA No. 26218. cxl[5] Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO from PBCom which was likewise later on renewed, the last renewal of which was made on May 21, 1982 under Promissory Note BNA No. 26219.cxli[6] To complete MICOs availment of Three Million Pesos (P3,000,000.00) discounting loan/credit line with PBCom, MICO availed of another loan from PBCom in the sum of One Million Pesos (P1,000,000.00) on May 24, 1979. As in

Page 715 of 1485

previous loans, this was rolled over or renewed, the last renewal of which was made on May 25, 1982 under Promissory Note BNA No. 26253.cxlii[7] As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio, executed on May 16, 1979 a Deed of Real Estate Mortgage over its properties situated in Pasig, Metro Manila covered by Transfer Certificates of Title (TCT) Nos. 11248 and 11250. On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal capacities executed a Surety Agreement cxliii[8] in favor of PBCom whereby the petitioners jointly and severally, guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature, for which MICO may be held accountable by PBCom. It was provided, however, that the liability of the sureties shall not at any one time exceed the principal amount of Three Million Pesos (P3,000,000.00) plus interest, costs, losses, charges and expenses including attorneys fees incurred by PBCom in connection therewith. On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote PBCom and applied for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The loan was intended for the expansion and modernization of the companys machineries. Upon approval of the said application for loan, MICO availed of the additional loan of Four Million Pesos (P4,000,000.00) as evidenced by Promissory Note TA No. 094.cxliv[9] As per agreement, the proceeds of all the loan availments were credited to MICOs current checking account with PBCom. To induce the PBCom to increase the credit line of MICO, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co (hereinafter referred to as petitioners-sureties), executed another surety agreement cxlv[10] in favor of PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and all other obligations of any kind and nature for which MICO may be held accountable by PBCom. It was provided, however, that their liability shall not at any one time exceed the sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) including interest, costs, charges, expenses and attorneys fees incurred by MICO in connection therewith. On July 29, 1980, MICO furnished PBCom with a notarized certification issued by its corporate secretary, Atty. P.B. Barrera, that Chua Siok Suy was duly authorized by the Board of Directors to negotiate on behalf of MICO for loans and other credit availments from PBCom. Indicated in the certification was the following resolution unanimously approved by the Board of Directors: RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is hereby authorized and empowered, on behalf of MICO METALS CORPORATION from time to time, to borrow money and obtain other credit facilities, with or without security, from the PHILIPPINE BANK OF COMMUNICATIONS in such amount(s) and under such terms and conditions as he may determine, with full power and authority to execute, sign and deliver such contracts, instruments and papers in connection therewith, including real estate and chattel mortgages, pledges and assignments over the properties of the Corporation; and to renew and/or extend and/or roll-over and/or reavail of the credit facilities granted thereunder, either for lesser or for greater amount(s), the intention being that such credit facilities and all securities of whatever kind given as collaterals therefor shall be a continuing security.

Page 716 of 1485

RESOLVED FURTHER, That said bank is hereby authorized, empowered and directed to rely on the authority given hereunder, the same to continue in full force and effect until written notice of its revocation shall be received by said Bank.cxlvi[11] On July 2, 1981, MICO filed with PBCom an application for a domestic letter of credit in the sum of Three Hundred Forty-Eight Thousand Pesos (P348,000.00).cxlvii[12] The corresponding irrevocable letter of credit was approved and opened under LC No. L-16060. cxlviii[13] Thereafter, the domestic letter of credit was negotiated and accepted by MICO as evidenced by the corresponding bank draft issued for the purpose. cxlix[14] After the supplier of the merchandise was paid, a trust receipt upon MICOs own initiative, was executed in favor of PBCom.cl[15] On September 14, 1981, MICO applied for another domestic letter of credit with PBCom in the sum of Two Hundred Ninety Thousand Pesos (P290,000.00).cli[16] The corresponding irrevocable letter of credit was issued on September 22, 1981 under LC No. L-16334. clii[17] After the beneficiary of the said letter of credit was paid by PBCom for the price of the merchandise, the goods were delivered to MICO which executed a corresponding trust receiptcliii[18] in favor of PBCom. On November 10, 1981, MICO applied for authority to open a foreign letter of credit in favor of Ta Jih Enterprises Co., Ltd., cliv[19] and thus, the corresponding letter of credit clv[20] was then issued by PBCom with a cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that said beneficiary may draw funds from the account of PBCom in its correspondent banks New York Office. clvi[21] PBCom also informed its corresponding bank in Taiwan, the Irving Trust Company, of the approved letter of credit. The correspondent bank acknowledged PBComs advice through a confirmation letter clvii[22] and by debiting from PBComs account with the said correspondent bank the sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11 ,960.00). clviii[23] As in past transactions, MICO executed in favor of PBCom a corresponding trust receipt.clix[24] On January 4, 1982, MICO applied, for authority to open a foreign letter of credit in the sum of One Thousand Nine Hundred US Dollars ($1,900.00), with PBCom. clx[25] Upon approval, the corresponding letter of credit denominated as LC No. 62293 clxi[26] was issued whereupon PBCom advised its correspondent bank and MICO clxii[27] of the same. Negotiation and proper acceptance of the letter of credit were then made by MICO. Again, a corresponding trust receiptclxiii[28] was executed by MICO in favor of PBCom. In all the transactions involving foreign letters of credit, PBCom turned over to MICO the necessary documents such as the bills of lading and commercial invoices to enable the latter to withdraw the goods from the port of Manila. On May 21, 1982 MICO obtained from PBCom another loan in the sum of Three Hundred Seventy-Seven Thousand Pesos (P377,000.00) covered by Promissory Note BA No. 7458. clxiv [29] Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment.clxv[30] For failure of petitioner MICO to pay the obligations incurred despite repeated demands, private respondent PBCom extrajudicially foreclosed MICOs real estate mortgage and sold the said mortgaged properties in a public auction sale held on November 23, 1982. Private respondent PBCom which emerged as the highest bidder in the auction sale, applied the proceeds of the purchase price at public auction of Three Million Pesos (P3,000,000.00) to the expenses of the foreclosure, interest and charges and part of the principal of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-One

Page 717 of 1485

Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90) exclusive of penalty and interest charges. Aside from the unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90), MICO likewise had another standing obligation in the sum of Four Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos (P461,600.06) representing its trust receipts liabilities to private respondent. PBCom then demanded the settlement of the aforesaid obligations from herein petitioners-sureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements. Hence, PBCom filed a complaint with prayer for writ of preliminary attachment before the Regional Trial Court of Manila, which was raffled to Branch 55, alleging that MICO was no longer in operation and had no properties to answer for its obligations. PBCom further alleged that petitioner Charles Lee has disposed or concealed his properties with intent to defraud his creditors. Except for MICO and Charles Lee, the sheriff of the RTC failed to serve the summons on herein petitioners-sureties since they were all reportedly abroad at the time. An alias summons was later issued but the sheriff was not able to serve the same to petitioners Alfonso Co and Chua Siok Suy who was already sickly at the time and reportedly in Taiwan where he later died. Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the alleged grant of loans and the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void. The trial court gave credence to the testimonies of herein petitioners and dismissed the complaint filed by PBCom. The trial court likewise declared the real estate mortgage and its foreclosure null and void. In ruling for herein petitioners, the trial court said that PBCom failed to adequately prove that the proceeds of the loans were ever delivered to MICO. The trial court pointed out, among others, that while PBCom claimed that the proceeds of the Four Million Pesos (P4,000,000.00) loan covered by promissory note TA 094 were deposited to the current account of petitioner MICO, PBCom failed to produce the ledger account showing such deposit. The trial court added that while PBCom may have loaned to MICO the other sums of Three Hundred Forty-Eight Thousand Pesos (P348,000.00) and Two Hundred Ninety Thousand Pesos (P290,000.00), no proof has been adduced as to the existence of the goods covered and paid by the said amounts. Hence, inasmuch as no consideration ever passed from PBCom to MICO, all the documents involved therein, such as the promissory notes, real estate mortgage including the surety agreements were all void or nonexistent for lack of cause or consideration. The trial court said that the lack of proof as regards the existence of the merchandise covered by the letters of credit bolstered the claim of herein petitioners that no purchases of the goods were really made and that the letters of credit transactions were simply resorted to by the PBCom and Chua Siok Suy to accommodate the latter in his financial requirements. The Court of Appeals reversed the ruling of the trial court, saying that the latter committed an erroneous application and appreciation of the rules governing the burden of proof. Citing Section 24 of the Negotiable Instruments Law which provides that Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value, the Court of Appeals said that while the subject promissory notes and letters of credit issued by the PBCom made no mention of delivery of cash, it is presumed

Page 718 of 1485

that said negotiable instruments were issued for valuable consideration. The Court of Appeals also cited the case of Gatmaitan vs. Court of Appealsclxvi[31] which holds that "there is a presumption that an instrument sets out the true agreement of the parties thereto and that it was executed for valuable consideration . The appellate court noted and found that a notarized Certification was issued by MICOs corporate secretary, P.B. Barrera, that Chua Siok Suy, was duly authorized by the Board of Directors of MICO to borrow money and obtain credit facilities from PBCom. Petitioners filed a motion for reconsideration of the challenged decision of the Court of Appeals but this was denied in a Resolution dated November 7, 1994 issued by its Former Second Division. Petitioners-sureties then filed a petition for review on certiorari with this Court, docketed as G.R. No. 117913, assailing the decision of the Court of Appeals. MICO likewise filed a separate petition for review on certiorari, docketed as G.R. No. 117914, with this Court assailing the same decision rendered by the Court of Appeals. Upon motion filed by petitioners, the two (2) petitions were consolidated on January 11, 1995. clxvii[32] Petitioners contend that there was no proof that the proceeds of the loans or the goods under the trust receipts were ever delivered to and received by MICO. But the record shows otherwise. Petitioners-sureties further contend that assuming that there was delivery by PBCom of the proceeds of the loans and the goods, the contracts were executed by an unauthorized person, more specifically Chua Siok Suy who acted fraudulently and in collusion with PBCom to defraud MICO. The pertinent issues raised in the consolidated cases at bar are: a) whether or not the proceeds of the loans and letters of credit transactions were ever delivered to MICO, and b) whether or not the individual petitioners, as sureties, may be held liable under the two (2) Surety Agreements executed on March 26, 1979 and July 28, 1980. In civil cases, the party having the burden of proof must establish his case by preponderance of evidence.clxviii[33] Preponderance of evidence means evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto. Petitioners contend that the alleged promissory notes, trust receipts and surety agreements attached to the complaint filed by PBCom did not ripen into valid and binding contracts inasmuch as there is no evidence of the delivery of money or loan proceeds to MICO or to any of the petitioners-sureties. Petitioners claim that under normal banking practice, borrowers are required to accomplish promissory notes in blank even before the grant of the loans applied for and such documents become valid written contracts only when the loans are actually released to the borrower. We are not convinced. During the trial of an action, the party who has the burden of proof upon an issue may be aided in establishing his claim or defense by the operation of a presumption, or, expressed differently, by the probative value which the law attaches to a specific state of facts. A presumption may operate against his adversary who has not introduced proof to rebut the presumption. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby, and which if no proof to the contrary is presented and offered, will prevail. The burden of proof remains where it is, but by the presumption the one who has that burden is relieved for the time being from introducing evidence in support of his averment, because the presumption stands in the place of evidence unless rebutted.

Page 719 of 1485

Under Section 3, Rule 131 of the Rules of Court the following presumptions, among others, are satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b) That a negotiable instrument was given or indorsed for sufficient consideration. As observed by the Court of Appeals, a similar presumption is found in Section 24 of the Negotiable Instruments Law which provides that every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party for value. Negotiable instruments which are meant to be substitutes for money, must conform to the following requisites to be considered as such a) it must be in writing; b) it must be signed by the maker or drawer; c) it must contain an unconditional promise or order to pay a sum certain in money; d) it must be payable on demand or at a fixed or determinable future time; e) it must be payable to order or bearer; and f) where it is a bill of exchange, the drawee must be named or otherwise indicated with reasonable certainty. Negotiable instruments include promissory notes, bills of exchange and checks. Letters of credit and trust receipts are, however, not negotiable instruments. But drafts issued in connection with letters of credit are negotiable instruments. Private respondent PBCom presented the following documentary evidence to prove petitioners credit availments and liabilities: 1) Promissory Note No. BNA 26218 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom. 2) Promissory Note No. BNA 26219 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom. 3) Promissory Note No. BNA 26253 dated May 25, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom. 4) Promissory Note No. BNA 7458 dated May 21, 1982 in the sum of P377,000.00 executed by MICO in favor of PBCom. 5) Promissory Note No. TA 094 dated July 29, 1980 in the sum of P4,000.000.00 executed by MICO in favor of PBCom. 6) Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in favor of Perez Battery Center for account of Mico Metals Corp. 7) Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez Battery Center, beneficiary of irrevocable Letter of Credit No. No. L-16060 and accepted by MICO Metals corporation. 8) Letter dated July 2, 1981 from Perez Battery Center addressed to private respondent PBCom showing that proceeds of the irrevocable letter of credit No. L- 16060 was received by Mr. Moises Rosete, representative of Perez Battery Center. 9) Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom covering the merchandise purchased under Letter of Credit No. 16060. 10) Irrevocable letter of credit No. L-16334 dated September 22, 1981 issued in favor of Perez Battery Center for account of MICO Metals Corp.

Page 720 of 1485

11) Draft dated September 22, 1981 in the sum of P290,000.00 issued by Perez Battery Center and accepted by MICO. 12) Letter dated September 17, 1981 from Perez Battery addressed to PBCom showing that the proceeds of credit no. L-16344 was received by Mr. Moises Rosete, a representative of Perez Battery Center. 13) Trust Receipt dated September 22, 1981 executed by MICO in favor of PBCom covering the merchandise under Letter of Credit No. L-16334. 14) Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for US$11,960.00 issued by PBCom in favor of TA JIH Enterprises Co. Ltd., through its correspondent bank, Irving Trust Company of Taipei, Taiwan. 15) Trust Receipt dated December 15, 9181 executed by MICO in favor of PBCom showing that possession of the merchandise covered by Irrevocable Letter of Credit no. 61873 was released by PBCom to MICO. 16) Letters dated March 2, 1979 from MICO signed by its president, Charles Lee, showing that MICO sought credit line from PBCom in the form of loans, letters of credit and trust receipt in the sum of P7,500,000.00. 17) Letter dated July 14, 1980 from MICO signed by its president, Charles Lee, showing that MICO requested for additional financial assistance in the sum of P4,000,000.00. 18) Board resolution dated March 6, 1979 of MICO authorizing Charles Lee and Mariano Sio singly or jointly to act and sign for and in behalf of MICO relative to the obtention of credit facilities from PBCom. 19) Duly notarized Deed of Mortgage dated May 16, 1979 executed by MICO in favor of PBCom over MICO s real properties covered by TCT Nos. 11248 and 11250 located in Pasig. 20) Duly notarized Surety Agreement dated March 26, 1979 executed by herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom. 21) Duly notarized Surety Agreement dated July 28, 1980 executed by herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom. 22) Duly notarized certification dated July 28, 1980 issued by MICO s corporate secretary, Mr. P.B. Barrera, attesting to the adoption of a board resolution authorizing Chua Siok Suy to sign, for and in behalf of MICO, all the necessary documents including contracts, loan instruments and mortgages relative to the obtention of various credit facilities from PBCom. The above-cited documents presented have not merely created a prima facie case but have actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in favor of respondent PBCom. While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts and letters of credit, the presumption that the drafts drawn in connection with the letters of credit have sufficient consideration. Under Section 3(r), Rule 131 of the Rules of Court there is also a presumption

Page 721 of 1485

that sufficient consideration was given in a contract. Hence, petitioners should have presented credible evidence to rebut that presumption as well as the evidence presented by private respondent PBCom. The letters of credit show that the pertinent materials/merchandise have been received by MICO. The drafts signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved that said suppliers were paid by PBCom for the account of MICO. On the other hand, aside from their bare denials petitioners did not present sufficient and competent evidence to rebut the evidence of private respondent PBCom. Petitioner MICO did not proffer a single piece of evidence, apart from its bare denials, to support its allegation that the loan transactions, real estate mortgage, letters of credit and trust receipts were issued allegedly without any consideration. Petitioners-sureties, for their part, presented the By-Laws clxix[34] of Mico Metals Corporation (MICO) to prove that only the president of MICO is authorized to borrow money, arrange letters of credit, execute trust receipts, and promissory notes and consequently, that the loan transactions, letters of credit, promissory notes and trust receipts, most of which were executed by Chua Siok Suy in representation of MICO were not allegedly authorized and hence, are not binding upon MICO. A perusal of the By-Laws of MICO, however, shows that the power to borrow money for the company and issue mortgages, bonds, deeds of trust and negotiable instruments or securities, secured by mortgages or pledges of property belonging to the company is not confined solely to the president of the corporation. The Board of Directors of MICO can also borrow money, arrange letters of credit, execute trust receipts and promissory notes on behalf of the corporation. clxx[35] Significantly, this power of the Board of Directors according to the by-laws of MICO, may be delegated to any of its standing committee, officer or agent.clxxi[36] Hence, PBCom had every right to rely on the Certification issued by MICO's corporate secretary, P.B. Barrera, that Chua Siok Suy was duly authorized by its Board of Directors to borrow money and obtain credit facilities in behalf of MICO from PBCom. Petitioners-sureties also presented a letter of their counsel dated October 9, 1982, addressed to private respondent PBCom purportedly to show that PBCom knew that Chua Siok Suy allegedly used the credit and good names of the petitioner-sureties for his benefit, and that petitioner-sureties were made to sign blank documents and were furnished copies of the same. The letter, however, is in fact merely a reply of petitioners-sureties counsel to PBComs demand for payment of MICOs obligations, and appears to be an inconsequential piece of self-serving evidence. In addition to the foregoing, MICO and petitioners-sureties cited the decision of the trial court which stated that there was no proof that the proceeds of the loans were ever delivered to MICO. Although the private respondents witness, Mr. Gardiola, testified that the proceeds of the loans were deposited in MICOs current account with PBCom, his testimony was allegedly not supported by any bank record, note or memorandum. A careful scrutiny of the record including the transcript of stenographic notes reveals, however, that although private respondent PBCom was willing to produce the corresponding account ledger showing that the proceeds of the loans were credited to MICOs current account with PBCom, MICO in fact vigorously objected to the presentation of said document. That point is shown in the testimony of PBComs witness, Gardiola, thus: Q: Now, all of these promissory note Exhibits I and J which as you have said previously (sic) availed originally by defendant Mico Metals Corp. sometime in 1979, my question now is, do you know what happened to the proceeds of the original availment? A: Well, it was credited to the current account of Mico Metals Corp.

Page 722 of 1485

Q: A: Why did it was credited to the proceeds to the account of Mico Metals Corp? (sic) Well, that is our understanding.

ATTY. DURAN: Your honor, may we be given a chance to object, the best evidence is the so-called current account... COURT: Can you produce the ledger account? A: Yes, Your Honor, I will bring.

COURT: The ledger or record of the current account of Mico Metals Corp. A: Yes, Your Honor.

ATTY. ACEJAS: Your Honor, these are a confidential record, and they might not be disclosed without the consent of the person concerned. (sic) ATTY. SANTOS: Well, you are the one who is asking that. ATTY. DURAN: Your Honor, Im precisely want to show for the ... (sic) COURT: But the amount covered by the current account of defendant Mico Metals Corp. is the subject matter of this case. xxx Q: A: Q: A: xxx xxx

Are those availments were release? (sic) Yes, Your Honor, to the defendant corporation. By what means? By the credit to their current account.

ATTY. ACEJAS:

Page 723 of 1485

We object to that, your Honor, because the disclose is the secrecy of the bank deposit. (sic) xxx xxx xxx

Q: Before the recess Mr. Gardiola, you stated that the proceeds of the three (3) promissory notes were credited to the accounts of Mico Metals Corporation, now do you know what kind of current account was that which you are referring to? ATTY. ACEJAS: Objection your Honor, that is the disclose of the deposit of defendant Mico Metals Corporation and it cannot disclosed without the authority of the depositor. (sic) clxxii[37] That proceeds of the loans which were originally availed of in 1979 were delivered to MICO is bolstered by the fact that more than a year later, specifically on July 14, 1980, MICO through its president, petitioner-surety Charles Lee, requested for an additional loan of Four Million Pesos (P4,000,000.00) from PBCom. The fact that MICO was requesting for an additional loan implied that it has already availed of earlier loans from PBCom. Petitioners allege that PBCom presented no evidence that it remitted payments to cover the domestic and foreign letters of credit. Petitioners placed much reliance on the erroneous decision of the trial court which stated that private respondent PBCom allegedly failed to prove that it actually made payments under the letters of credit since the bank drafts presented as evidence show that they were made in favor of the Bank of Taiwan and First Commercial Bank. Petitioners allegations are untenable. Modern letters of credit are usually not made between natural persons. They involve bank to bank transactions. Historically, the letter of credit was developed to facilitate the sale of goods between, distant and unfamiliar buyers and sellers. It was an arrangement under which a bank, whose credit was acceptable to the seller, would at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that certain documents are presented such as bills of lading accompanied the corresponding drafts. Expansion in the use of letters of credit was a natural development in commercial banking. clxxiii[38] Parties to a commercial letter of credit include (a) the buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the opening bank which is usually the buyers bank which actually issues the letter of credit, (d) the notifying bank which is the correspondent bank of the opening bank through which it advises the beneficiary of the letter of credit, (e) negotiating bank which is usually any bank in the city of the beneficiary. The services of the notifying bank must always be utilized if the letter of credit is to be advised to the beneficiary through cable, (f) the paying bank which buys or discounts the drafts contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on another designated bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are used, the beneficiary is supposed to present his drafts to the notifying bank for negotiation and (g) the confirming bank which, upon the request of the beneficiary, confirms the letter of credit issued by the opening bank. From the foregoing, it is clear that letters of credit, being usually bank to bank transactions, involve more than just one bank. Consequently, there is nothing unusual in the fact that the drafts presented in evidence by respondent bank were not made payable to PBCom. As explained by respondent bank, a draft was drawn on the Bank of Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan, supplier of the goods covered by the foreign letter of credit.

Page 724 of 1485

Having paid the supplier, the Bank of Taiwan then presented the bank draft for reimbursement by PBComs correspondent bank in Taiwan, the Irving Trust Company which explains the reason why on its face, the draft was made payable to the Bank of Taiwan. Irving Trust Company accepted and endorsed the draft to PBCom. The draft was later transmitted to PBCom to support the latters claim for payment from MICO. MICO accepted the draft upon presentment and negotiated it to PBCom. Petitioners further aver that MICO never requested that legal possession of the merchandise be transferred to PBCom by way of trust receipts. Petitioners insist that assuming that MICO transferred possession of the merchandise to PBCom by way of trust receipts, the same would be illegal since PBCom, being a banking institution, is not authorized by law to engage in the business of importing and selling goods. A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased. clxxiv[39] A trust receipt, therefor, is a document of security pursuant to which a bank acquires a security interest in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, and a security feature which is in the covering trust receipt which secures an indebtedness. Petitioners averments with regard to the second issue are no less incredulous. Petitioners contend that the letters of credit, surety agreements and loan transactions did not ripen into valid and binding contracts since no part of the proceeds of the loan transactions were delivered to MICO or to any of the petitioners-sureties. Petitioners-sureties allege that Chua Siok Suy was the beneficiary of the proceeds of the loans and that the latter made them sign the surety agreements in blank. Thus, they maintain that they should not be held accountable for any liability that might arise therefrom. It has not escaped our notice that it was petitioner-surety Charles Lee, as president of MICO Metals Corporation, who first requested for a discounting loan of Three Million Pesos (P3,000,000.00) from PBCom as evidenced by his letter dated March 2, 1979. clxxv[40] On the same day, Charles Lee, as President of MICO, requested for a Letter of Credit and Trust Receipt line in the sum of Three Million Pesos (P3,000,000.00).clxxvi[41] Still, on the same day, Charles Lee again as President of MICO, wrote another letter to PBCOM requesting for a financing line in the sum of One Million Five Hundred Thousand Pesos (P1,500,000.00) to be used exclusively as marginal deposit for the opening of MICOs foreign and local letters of credit with PBCom.clxxvii[42] More than a year later, it was also Charles Lee, again in his capacity as president of MICO, who asked for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The claim therefore of petitioners that it was Chua Siok Suy, in connivance with the respondent PBCom, who applied for and obtained the loan transactions and letters of credit strains credulity considering that even the Deed of the Real Estate Mortgage in favor of PBCom was executed by petitioner-surety Mariano Sio in his capacity as general manager of MICOclxxviii[43] to secure the loan accommodations obtained by MICO from PBCom. Petitioners-sureties allege that they were made to sign the surety agreements in blank by Chua Siok Suy. Petitioner Alfonso Yap, the corporate treasurer, for his part testified that he signed booklets of checks, surety agreements and promissory notes in blank; that he signed the documents in blank despite his misgivings since Chua Siok Suy assured him that the transaction can easily be taken cared of since Chua Siok Suy personally knew the Chairman of the Board of PBCom; that he was not receiving salary as treasurer of Mico Metals and

Page 725 of 1485

since Chua Siok Suy had a direct hand in the management of Malayan Sales Corporation, of which Yap is an employee, he (Yap) signed the documents in blank as consideration for his continued employment in Malayan Sales Corporation. Petitioner Antonio Co testified that he worked as office manager for MICO from 1978-1982. As office manager, he was the one in charge of transacting business like purchasing, selling and paying the salary of the employees. He was also in charge of the handling of documents pertaining to surety agreements, trust receipts and promissory notes;clxxix[44] that when he first joined MICO Metals Corporation, he was able to read the by-laws of the corporation and he came to know that only the chairman and the president can borrow money in behalf of the corporation; that Chua Siok Suy once called him up and told him to secure an invoice so that a credit line can be opened in the bank with a local letter of credit; that when the invoice was secured, he (Co) brought it together with the application for a credit line to Chua Siok Suy, and that he questioned the authority of Chua Siok Suy pointing out that he (Co) is not empowered to sign the document inasmuch as only the latter, as president, was authorized to do so. However, Chua Siok Suy allegedly just said that he had already talked with the Chairman of the Board of PBCom; and that Chua Siok Suy reportedly said that he needed the money to finance a project that he had with the Taipei government. Co also testified that he knew of the application for domestic letter of credit in the sum of Three Hundred Forty-Eight Thousand Pesos (P348,000.00); and that a certain Moises Rosete was authorized to claim the check covering the Three Hundred Forty-Eight Thousand Pesos (P348,000.00) from PBCom; and that after claiming the check Rosete brought it to Perez Battery Center for indorsement after which the same was deposited to the personal account of Chua Siok Suy.clxxx[45] We consider as incredible and unacceptable the claim of petitioners-sureties that the Board of Directors of MICO was so careless about the business affairs of MICO as well as about their own personal reputation and money that they simply relied on the say so of Chua Siok Suy on matters involving millions of pesos. Under Section 3 (d), Rule 131 of the Rules of Court, it is presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is that one does not sign a document without first informing himself of its contents and consequences. Said presumption acquires greater force in the case at bar where not only one but several documents were executed at different times and at different places by the petitioner sureties and Chua Siok Suy as president of MICO. MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly authorized to negotiate for loans in behalf of MICO from PBCom. Petitioners allegation, however, is belied by the July 28, 1980 Certification issued by the corporate secretary of PBCom, Atty. P.B. Barrera, that MICO's Board of Directors gave Chua Siok Suy full authority to negotiate for loans in behalf of MICO with PBCom. In fact, the Certification even provided that Chua Siok Suys authority continues until and unless PBCom is notified in writing of the withdrawal thereof by the said Board. Notably, petitioners failed to contest the genuineness of the said Certification which is notarized and to show any written proof of any alleged withdrawal of the said authority given by the Board of Directors to Chua Siok Suy to negotiate for loans in behalf of MICO. There was no need for PBCom to personally inform the petitioners-sureties individually about the terms of the loans, letters of credit and other loan documents. The petitioners-sureties themselves happen to comprise the Board of Directors of MICO, which gave full authority to Chua Siok Suy to negotiate for loans in behalf of MICO. Notice to MICOs authorized representative, Chua Siok Suy, was notice to MICO. The Certification issued by PBComs corporate secretary, Atty. P.B. Barrera, indicated that Chua Siok Suy had full authority to negotiate and sign the necessary documents, in behalf of MICO for loans from PBCom. Respondent PBCom therefore had the right to rely on the said notarized Certification of MICOs Corporate Secretary.

Page 726 of 1485

Anent petitioners-sureties contention that they obtained no consideration whatsoever on the surety agreements, we need only point out that the consideration for the sureties is the very consideration for the principal obligor, MICO, in the contracts of loan. In the case of Willex Plastic Industries Corporation vs. Court of Appeals, clxxxi[46] we ruled that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract effective between the parties thereto. It is not necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal. Petitioners placed too much reliance on the rule in evidence that the burden of proof does not shift whereas the burden of going forward with the evidence does pass from party to party. It is true that said rule is not changed by the fact that the party having the burden of proof has introduced evidence which established prima facie his assertion because such evidence does not shift the burden of proof; it merely puts the adversary to the necessity of producing evidence to meet the prima facie case. Where the defendant merely denies, either generally or otherwise, the allegations of the plaintiffs pleadings, the burden of proof continues to rest on the plaintiff throughout the trial and does not shift to the defendant until the plaintiffs evidence has been presented and duly offered. The defendant has then no burden except to produce evidence sufficient to create a state of equipoise between his proof and that of the plaintiff to defeat the latter, whereas the plaintiff has the burden, as in the beginning, of establishing his case by a preponderance of evidence. clxxxii[47] But where the defendant has failed to present and marshall evidence sufficient to create a state of equipoise between his proof and that of plaintiff, the prima facie case presented by the plaintiff will prevail. In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact presented sufficient documentary and testimonial evidence that proved by preponderance of evidence its subject collection case against the defendants who are the petitioners herein. In view of all the foregoing, the Court of Appeals committed no reversible error in its appealed Decision. WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480 entitled, Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, is AFFIRMED in toto. Costs against the petitioners. SO ORDERED. Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur. Republic SUPREME Manila THIRD DIVISION G.R. No. 127745 April 22, 2003 of the Philippines COURT

FELICITO G. SANSON, CELEDONIA SANSON-SAQUIN, ANGELES A. MONTINOLA, EDUARDO A. MONTINOLA, JR., petitioners-appellants, vs.

Page 727 of 1485

HONORABLE COURT OF APPEALS, FOURTH DIVISION and MELECIA T. SY, as Administratrix of the Intestate Estate of the Late Juan Bon Fing Sy, respondentsappellees. CARPIO MORALES, J.: Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of Appeals Decision of May 31, 1996 and Resolution of December 9, 1996. On February 7, 1990, herein petitioner-appellant Felicito G. Sanson (Sanson), in his capacity as creditor, filed before the Regional Trial Court (RTC) of Iloilo City a petition, docketed as Special Proceedings No. 4497, for the settlement of the estate of Juan Bon Fing Sy (the deceased) who died on January 10, 1990. Sanson claimed that the deceased was indebted to him in the amount of P603,000.00 and to his sister Celedonia Sanson-Saquin (Celedonia) in the amount of P360,000.00.1 Petitioners-appellants Eduardo Montinola, Jr. and his mother Angeles Montinola (Angeles) later filed separate claims against the estate, alleging that the deceased owed them P50,000.00 and P150,000.00, respectively.2 By Order of February 12, 1991, Branch 28 of the Iloilo RTC to which the petition was raffled, appointed Melecia T. Sy, surviving spouse of the deceased, as administratrix of his estate, following which she was issued letters of administration. 3 During the hearing of the claims against the estate, Sanson, Celedonia, and Jade Montinola, wife of claimant Eduardo Montinola, Jr., testified on the transactions that gave rise thereto, over the objection of the administratrix who invoked Section 23, Rule 130 of the Revised Rules of Court otherwise known as the Dead Mans Statute which reads: SEC. 23. Disqualification by reason of death or insanity of adverse party .Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an executor or administrator or other representative of a deceased person, or against a person of unsound mind, upon a claim or demand against the estate of such deceased person or against such person of unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased person or before such person became of unsound mind. (Emphasis supplied) Sanson, in support of the claim of his sister Celedonia, testified that she had a transaction with the deceased which is evidenced by six checks 4 issued by him before his death; before the deceased died, Celedonia tried to enforce settlement of the checks from his (the deceaseds) son Jerry who told her that his father would settle them once he got well but he never did; and after the death of the deceased, Celedonia presented the checks to the bank for payment but were dishonored5 due to the closure of his account.6 Celedonia, in support of the claim of her brother Sanson, testified that she knew that the deceased issued five checks7 to Sanson in settlement of a debt; and after the death of the deceased, Sanson presented the checks to the bank for payment but were returned due to the closure of his account.8 Jade, in support of the claims of her husband Eduardo Montinola, Jr. and mother-in-law Angeles, testified that on separate occasions, the deceased borrowed P50,000 and P150,000 from her husband and mother-in-law, respectively, as shown by three checks issued by the

Page 728 of 1485

deceased,9 two to Angeles and the other 10 to Eduardo Montinola, Jr.; before the deceased died or sometime in August 1989, they advised him that they would be depositing the checks, but he told them not to as he would pay them cash, but he never did; and after the deceased died on January 10, 1990, they deposited the checks but were dishonored as the account against which they were drawn was closed, 11 hence, their legal counsel sent a demand letter12 dated February 6, 1990 addressed to the deceaseds heirs Melicia, James, Mini and Jerry Sy, and Symmels I & II but the checks have remained unsettled. 13 The administratrix, denying having any knowledge or information sufficient to form a belief as to the truth of the claims, nevertheless alleged that if they ever existed, they had been paid and extinguished, are usurious and illegal and are, in any event, barred by prescription.14 And she objected to the admission of the checks and check return slipsexhibits offered in evidence by the claimants upon the ground that the witnesses who testified thereon are disqualified under the Dead Mans Statute. Specifically with respect to the checks-exhibits identified by Jade, the administratrix asserted that they are inadmissible because Jade is the daughter-in-law of claimant Angeles and wife of claimant Eduardo Montinola, Jr., hence, she is covered by the above-said rule on disqualification. At all events, the administratrix denied that the checks-exhibits were issued by the deceased and that the return slips were issued by the depository/clearing bank. 15 After the claimants rested their case, the administratrix filed four separate manifestations informing the trial court that she was dispensing with the presentation of evidence against their claims.16 Finding that the Dead Mans Statute does not apply to the witnesses who testified in support of the subject claims against the estate, the trial court issued an Order of December 8, 1993,17 the dispositive portion of which reads: WHEREFORE, Judicial Administratrix Melecia T. Sy, is hereby ordered, to pay, in due course of administration, creditors-claimants Felicito G. Sanson, in the amount of P603,500.00; Celedonia S. Saquin, in the amount of P315,000.00; 18 Angeles A. Montinola, in the amount of P150,000.00 and Eduardo Montinola, Jr., in the amount of P50,000.00, from the assets and/or properties of the above-entitled intestate estate. On appeal by the administratrix upon the following assignment of errors: I. THE LOWER COURT ERRED IN NOT DISMISSING THE CLAIM[S] FOR FAILURE TO PAY THE FILING FEES THEREON II. THE LOWER COURT ERRED IN NOT DISMISSING THE CLAIM[S] BECAUSE [THEY ARE] ALREADY BARRED BY THE LAW OF LIMITATIONS OR STATUTE OF NON-CLAIMS III.

Page 729 of 1485

THE LOWER COURT ERRED IN NOT HOLDING THAT CLAIMANT[S] EVIDENCE OF THE CLAIM IS INCOMPETENT UNDER THE DEAD MANS STATUTE, AND INADMISSIBLE IV. THE ALLEGED CHECKS ARE INADMISSIBLE AS PRIVATE DOCUMENTS, 19 the Court of Appeals set aside the December 8, 1993 Order of the trial court, by Decision of May 31, 1996, disposing as follows: WHEREFORE, the order appealed from is hereby set aside and another order is entered dismissing the claims of: 1. Felicito G. Sanson, in the amount of P603,500.00; 2. Celdonia S. Saquin, in the amount of P315,000.00;20 3. Angeles A. Montinola, in the amount of P150,000.00; and 4. Eduardo Montinola, Jr., in the amount of P50,000.00 against the estate of the deceased JUAN BON FING SY. No pronouncement as to costs. SO ORDERED. (Italics supplied) The claimants Motion for Reconsideration 21 of the Court of Appeals decision having been denied by Resolution of December 9, 1996, 22 they filed the present petition anchored on the following assigned errors: FIRST ASSIGNED ERROR RESPONDENT COURT OF APPEALS, 4TH DIVISION, ERRED IN FINDING THAT THE TESTIMONY OF JADE MONTINOLA IS INSUFFICIENT TO PROVE THE CLAIMS OF CLAIMANTS ANGELES A. MONTINOLA AND EDUARDO A. MONTINOLA, JR.. SECOND ASSIGNED ERROR RESPONDENT COURT OF APPEALS, 4TH DIVISION, ERRED IN FINDING THAT CLAIMANT FELICITO G. SANSON IS DISQUALIFIED TO TESTIFY [ON] THE CLAIM OF CELEDONIA SANSON-SA[Q]UIN AND VI[C]E VERSA. (Underscoring in the original)23 With respect to the first assigned error, petitioners argue that since the administratrix did not deny the testimony of Jade nor present any evidence to controvert it, and neither did she deny the execution and genuineness of the checks issued by the deceased (as well as the check return slips issued by the clearing bank), it was error for the Court of Appeals to find the evidence of the Montinolas insufficient to prove their claims. The administratrix counters that the due execution and authenticity of the checks-exhibits of the Montinolas were not duly proven since Jade did not categorically state that she saw the filling up and signing of the checks by the deceased, hence, her testimony is self-serving;

Page 730 of 1485

besides, as Jade had identical and unitary interest with her husband and mother-in-law, her testimony was a circumvention of the Dead Mans Statute. 24 The administratrixs counter-argument does not lie. Relationship to a party has never been recognized as an adverse factor in determining either the credibility of the witness or subject only to well recognized exceptions none of which is here presentthe admissibility of the testimony. At most, closeness of relationship to a party, or bias, may indicate the need for a little more caution in the assessment of a witness testimony but is not necessarily a negative element which should be taken as diminishing the credit otherwise accorded to it.25 Jades testimony on the genuineness of the deceaseds signature on the checks-exhibits of the Montinolas is clear: xxx Q: Showing to you this check dated July 16, 1989, Far East Bank and Trust Company Check No. 84262, in the amount of P100,000.00, is this the check you are referring to? A: Q: A: Q: A: check. Yes, sir. There appears a signature in the face of the check. Whose signature is this? That is the signature of Mr. Sy. Why do you know that this is the signature of Mr. Sy? Because he signed this check I was . . . I was present when he signed this

xxx Q: Showing to you this check dated September 8, 1989, is this the check you are referring to? A: Q: A: Yes, sir. Why do you know that this is his signature ? I was there when he signed the same. xxx Q: Showing to you this Far East Bank and Trust Company Check No. 84262 dated July 6, 1989, in the amount of P50,000.00, in the name of Eduardo Montinola, are you referring to this check? A: Q: Yes, sir. Whose signature is this appearing on the face of this check?

Page 731 of 1485

A: Q: A: Mr. Sys signature. Why do you know that it is his signature ? I was there when he signed the same. x x x26 (Emphasis supplied) The genuineness of the deceaseds signature having been shown, he is prima facie presumed to have become a party to the check for value, following Section 24 of the Negotiable Instruments Law which reads: Section 24. Presumption of Consideration. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. (Underscoring and italics in the original; emphasis supplied), Since, with respect to the checks issued to the Montinolas, the prima facie presumption was not rebutted or contradicted by the administratrix who expressly manifested that she was dispensing with the presentation of evidence against their claims, it has become conclusive. As for the administratrixs invocation of the Dead Mans Statute, the same does not likewise lie. The rule renders incompetent: 1) parties to a case; 2) their assignors; or 3) persons in whose behalf a case is prosecuted. xxx The rule is exclusive and cannot be construed to extend its scope by implication so as to disqualify persons not mentioned therein. Mere witnesses who are not included in the above enumeration are not prohibited from testifying as to a conversation or transaction between the deceased and a third person, if he took no active part therein. x x x27 (Italics supplied) Jade is not a party to the case. Neither is she an assignor nor a person in whose behalf the case is being prosecuted. She testified as a witness to the transaction. In transactions similar to those involved in the case at bar, the witnesses are commonly family members or relatives of the parties. Should their testimonies be excluded due to their apparent interest as a result of their relationship to the parties, there would be a dearth of evidence to prove the transactions. In any event, as will be discussed later, independently of the testimony of Jade, the claims of the Montinolas would still prosper on the basis of their documentary evidencethe checks. As to the second assigned error, petitioners argue that the testimonies of Sanson and Celedonia as witnesses to each others claim against the deceased are not covered by the Dead Mans Statute;28 besides, the administratrix waived the application of the law when she cross-examined them. The administratrix, on the other hand, cites the ruling of the Court of Appeals in its decision on review, the pertinent portion of which reads:

Page 732 of 1485

The more logical interpretation is to prohibit parties to a case, with like interest, from testifying in each others favor as to acts occurring prior to the death of the deceased. Since the law disqualifies parties to a case or assignors to a case without distinguishing between testimony in his own behalf and that in behalf of others, he should be disqualified from testifying for his co-parties. The law speaks of " parties or assignors of parties to a case ." Apparently, the testimonies of Sanson and Saquin on each others behalf, as co-parties to the same case, falls under the prohibition. (Citation omitted; underscoring in the original and emphasis supplied) But Sansons and Celedonias claims against the same estate arose from separate transactions. Sanson is a third party with respect to Celedonias claim. And Celedonia is a third party with respect to Sansons claim. One is not thus disqualified to testify on the others transaction. In any event, what the Dead Mans Statute proscribes is the admission of testimonial evidence upon a claim which arose before the death of the deceased. The incompetency is confined to the giving of testimony.29 Since the separate claims of Sanson and Celedonia are supported by checks-documentary evidence, their claims can be prosecuted on the bases of said checks. This brings this Court to the matter of the authenticity of the signature of the deceased appearing on the checks issued to Sanson and Celedonia. By Celedonias account, she "knows" the signature of the deceased. xxx Q: Showing to you these checks already marked as Exhibit "A" to "E", please go over these checks if you know the signatures of the late Juan Bon Fing Sy? on these checks? A: Q: A: Q: A: Yes, sir. Insofar as the amount that he borrowed from you, he also issued checks? Yes, sir. And therefore, you know his signature? Yes, sir. x x x30 Sanson testified too that he "knows" the signature of the deceased: xxx Q: I show you now checks which were already marked as Exhibit "A" to "G-1" Saquin, please go over this if these are the checks that you said was issued by the late Juan Bon Fing Sy in favor of your sister?

Page 733 of 1485

A: Q: A: Q: A: Yes, these are the same che[c]ks. Do you know the signature of the late Juan Bon Fing Sy? Yes, sir. And these signatures are the same signatures that you know? Yes, sir. x x x31 While the foregoing testimonies of the Sanson siblings have not faithfully discharged the quantum of proof under Section 22, Rule 132 of the Revised Rules on Evidence which reads: Section 22. How genuineness of handwriting proved. The handwriting of a person may be proved by any witness who believes it to be the handwriting of such person because he has seen the person write, or has seen writing purporting to be his upon which the witness has acted or been charged and has thus acquired knowledge of the handwriting of such person. x x x, not only did the administratrix fail to controvert the same; from a comparison 32 with the naked eye of the deceaseds signature appearing on each of the checks-exhibits of the Montinolas with that of the checks-exhibits of the Sanson siblings all of which checks were drawn from the same account, they appear to have been affixed by one and the same hand. In fine, as the claimants-herein petitioners have, by their evidence, substantiated their claims against the estate of the deceased, the burden of evidence had shifted to the administratrix who, however, expressly opted not to discharge the same when she manifested that she was dispensing with the presentation of evidence against the claims. WHEREFORE, the impugned May 31, 1996 Decision of the Court of Appeals is hereby SET ASIDE and another rendered ordering the intestate estate of the late Juan Bon Fing Sy, through Administratrix Melecia T. Sy, to pay: 1) Felicito G. Sanson, the amount of P603,500.00; 2) Celedonia S. Saquin, the amount of P315.000.00;33 3) Angeles Montinola, the amount of P150,000.00; and 4) Eduardo Montinola, Jr., the amount of P50,000.00. representing unsettled checks issued by the deceased. SO ORDERED. Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Corona, JJ., concur. SECOND DIVISION

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[G.R. No. 154947. August 11, 2004] LEODEGARIO BAYANI, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1075[1] of the Court of Appeals in CAG.R. CR No. 22861 affirming on appeal the Decision 1076[2] of the Regional Trial Court of Lucena City, Branch 59, in Criminal Case No. 93-135 convicting the accused therein, now the petitioner, for violation of Batas Pambansa (B.P.) Blg. 22. On February 9, 1993, Leodegario Bayani was charged with violation of B.P. Blg. 22 in an Information which reads: That on or about the 20th day of August 1992, in the Municipality of Candelaria, Province of Quezon, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused did then and there willfully, unlawfully and feloniously issue and make out Check No. 054936 dated August 29, 1992, in the amount of FIFTY-FIVE THOUSAND PESOS (P55,000.00) Philippine Currency, drawn against the PSBank, Candelaria Branch, Candelaria, Quezon, payable to Cash and give the said check to one Dolores Evangelista in exchange for cash although the said accused knew fully well at the time of issuance of said check that he did not have sufficient funds in or credit with the drawee bank for payment of said check in full upon presentment; that upon presentation of said check to the bank for payment, the same was dishonored and refused payment for the reason that the drawer thereof, the herein accused, had no sufficient fund therein, and that despite due notice, said accused failed to deposit the necessary amount to cover said check or to pay in full the amount of said check, to the damage and prejudice of said Dolores Evangelista in the aforesaid amount. Contrary to law.1077[3] The Case for the Prosecution At about noon on August 20, 1992, Alicia Rubia arrived at the grocery store of Dolores Evangelista in Candelaria, Quezon, and asked the latter to rediscount Philippine Savings Bank (PSBank) Check No. 054936 in the amount of P55,000.00. The check was drawn by Leodegario Bayani against his account with the PSBank and postdated August 29, 1992. 1078 [4] Rubia told Evangelista that Bayani asked her to rediscount the check for him because he needed the money.1079[5] Considering that Rubia and Bayani were long-time customers at the store and she knew Bayani to be a good man, Evangelista agreed to rediscount the check.1080[6] After Rubia endorsed the check, Evangelista gave her the amount of

1075 1076 1077 1078 1079

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P55,000.00.1081[7] However, when Evangelista deposited the check in her account with the Far East Bank & Trust Company on September 11, 1992, it was dishonored by the drawee bank for the reason that on September 1, 1992, Bayani closed his account with the PSBank.1082[8] The reason for the dishonor of the check was stamped at its dorsal portion. As of August 27, 1992, the balance of Bayanis account with the bank was P2,414.96.1083[9] Evangelista then informed Rubia of the dishonor of the check and demanded the return of her P55,000.00. Rubia replied that she was only requested by Bayani to have the check rediscounted and advised Evangelista to see him. When Evangelista talked to Bayani, she was told that Rubia borrowed the check from him. 1084[10] Thereafter, Evangelista, Rubia, Bayani and his wife, Aniceta, had a conference in the office of Atty. Emmanuel Velasco, Evangelistas lawyer. Later, in the Office of the Barangay Captain Nestor Baera, Evangelista showed Bayani a photocopy of the dishonored check and demanded payment thereof. Bayani and Aniceta, on one hand, and Rubia, on the other, pointed to each other and denied liability thereon. Aniceta told Rubia that she should be the one to pay since the P55,000.00 was with her, but the latter insisted that the said amount was in payment of the pieces of jewelry Aniceta purchased from her. 1085[11] Upon Atty. Velascos prodding, Evangelista suggested Bayani and Rubio to pay P25,000.00 each. Still, Bayani and Rubio pointed to the other as the one solely liable for the amount of the check.1086[12] Rubia reminded Aniceta that she was given the check as payment of the pieces of jewelry Aniceta bought from her. The Case for the Petitioner Bayani testified that he was the proprietor of a funeral parlor in Candelaria, Quezon. He maintained an account with the PSBank in Candelaria, Quezon, and was issued a checkbook which was kept by his wife, Aniceta Bayani. Sometime in 1992, he changed his residence. In the process, his wife lost four (4) blank checks, one of which was Check No. 0549361087[13] which formed part of the checks in the checkbook issued to him by the PSBank.1088[14] He did not report the loss to the police authorities. He reported such loss to the bank after Evangelista demanded the refund of the P55,000.00 from his wife.1089[15] He then closed his account with the bank on September 11, 1992, but was informed that he had

1080 1081 1082 1083 1084 1085 1086 1087 1088 1089

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closed his account much earlier. He denied ever receiving the amount of P55,000.00 from Rubia.1090[16] Bayani further testified that his wife discovered the loss of the checks when he brought his wife to the office of Atty. Emmanuel Velasco.1091[17] He did not see Evangelista in the office of the lawyer, and was only later informed by his wife that she had a conference with Evangelista. His wife narrated that according to Evangelista, Rubia had rediscounted a check he issued, which turned out to be the check she (Aniceta) had lost. He was also told that Evangelista had demanded the refund of the amount of the check. 1092[18] He later tried to contact Rubia but failed. He finally testified that he could not recall having affixed his signature on the check.1093[19] Aniceta Bayani corroborated the testimony of her husband. She testified that she was invited to go to the office of Atty. Velasco where she, Rubia and Evangelista had a conference. It was only then that she met Evangelista. Rubia admitted that she rediscounted the complainants check with Evangelista. When Evangelista asked her to pay the amount of the check, she asked that the check be shown to her, but Evangelista refused to do so. She further testified that her husband was not with her and was in their office at the time. At the conclusion of the trial, the court rendered judgment finding Bayani guilty beyond reasonable doubt of violation of Section 1 of B.P. Blg. 22. The decretal portion of the decision reads: WHEREFORE, premises considered, the Court finds the accused Leodegario Bayani guilty beyond reasonable doubt of violation of Section 1, Batas Pambansa Bilang 22 and hereby sentences him to suffer an imprisonment of ONE (1) YEAR, or to pay a fine of ONE HUNDRED TEN THOUSAND PESOS (P110,000.00), to pay to complaining witness Dolores Evangelista the sum of FIFTY-FIVE THOUSAND PESOS (P55,000.00), the value of the check and to pay the costs. SO ORDERED.1094[20] On appeal, the petitioner averred that the prosecution failed to adduce evidence that he affixed his signature on the check, or received from Rubia the amount of P55,000.00, thus negating his guilt of the crime charged. The petitioner asserts that even Teresita Macabulag, the bank manager of PSB who authenticated his specimen signatures on the signature card he submitted upon opening his account with the bank, failed to testify that the signature on the check was his genuine signature.

1090 1091 1092 1093 1094

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On January 30, 2002, the Court of Appeals rendered judgment 1095[21] affirming the decision of the RTC with modification as to the penalty imposed on the petitioner. The petitioner asserts in the petition at bar that THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH MODIFICATION THE CONVICTION OF PETITIONER BY THE TRIAL COURT FOR ALLEGED VIOLATION OF BATAS PAMBANSA BLG. 22 NOTWITHSTANDING THAT THE PROSECUTION MISERABLY FAILED TO PROVE THAT THE CHECK WAS ISSUED FOR A VALUABLE CONSIDERATION. 1096[22] The petitioner contends that the prosecution failed to prove all the essential elements of the crime of violation of Section 1, B.P. Blg. 22. He asserts that the prosecution failed to prove that he issued the check. He avers that even assuming that he issued the check, the prosecution failed to prove that it was issued for valuable consideration, and that he received the amount of P55,000.00 from Rubia. Hence, in light of the ruling of this Court in Magno vs. Court of Appeals,1097[23] he is entitled to an acquittal on such grounds. The petitioner further contends that Evangelistas testimony, that Rubia told her that it was the petitioner who asked her to have the check rediscounted, is hearsay and, as such, even if he did not object thereto is inadmissible in evidence against him. He avers that the prosecution failed to present Rubia as a witness, depriving him of his right to cross-examine her. He contends that any declaration made by Rubia to Evangelista is inadmissible in evidence against him. The petition is denied. We agree with the submission of the petitioner that Evangelistas testimony, that Rubia told her that the petitioner requested that the subject check be rediscounted, is hearsay. Evangelista had no personal knowledge of such request of the petitioner to Rubia. Neither is the information relayed by Rubia to Evangelista as to the petitioners request admissible in evidence against the latter, because the prosecution failed to present Rubia as a witness, thus, depriving the petitioner of his right of cross-examination. However, the evidence belies the petitioners assertion that the prosecution failed to adduce evidence that he issued the subject check. Evangelista testified that when she talked to the petitioner upon Rubias suggestion, the petitioner admitted that he gave the check to Rubia, but claimed that the latter borrowed the check from him. Q When this check in question was returned to you because of the closed account, what did you do, if you did anything? A Q A I talked to Alicia Rubia, Sir. And what did Alicia Rubia tell you in connection with the check in question? Alicia Rubia told me that she was just requested by Leodegario Bayani, Sir.

1095 1096 1097

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Q A Q A Q A And what else did she tell you? She advised me to go to Leodegario Bayani, Sir. Did you go to Leodegario Bayani as per instruction of Alicia Rubia? Yes, Sir. And what did Leodegario Bayani tell you in connection with this check? He told me that Alicia Rubia borrowed the check from him, Sir. 1098[24]

Evangelista testified that she showed to the petitioner and his wife, Aniceta, a photocopy of the subject check in the office of Atty. Velasco, where they admitted to her that they owned the check: ATTY. ALZAGA (TO WITNESS) Q When you shown (sic) the check to Leodegario Bayani and his wife in the law office of Atty. Velasco, what did they tell you? ATTY. VELASCO: Misleading. The question is misleading because according to the question, Your Honor, he had shown the check but that was not the testimony. The testimony was the xerox copy of the check was the one shown. ATTY. ALZAGA The xerox copy of the check. COURT As modified, answer the question. WITNESS A They told me they owned the check but they were pointing to each other as to who will pay the amount, Sir.1099[25] The petitioner cannot escape criminal liability by denying that he received the amount of P55,000.00 from Rubia after he issued the check to her. As we ruled in Lozano vs. Martinez:1100[26]

1098 1099 1100

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The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment. It is not the nonpayment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on the public interest, the practice is proscribed by the law. The law punishes the act not as an offense against property, but an offense against public order. 1101 [27] The evidence on record shows that Evangelista rediscounted the check and gave P55,000.00 to Rubia after the latter endorsed the same. As such, Evangelista is a holder of the check in due course.1102[28] Under Section 28 of the Negotiable Instruments Law (NIL), absence or failure of consideration is a matter of defense only as against any person not a holder in due course, thus: SECTION 28. Effect of want of consideration. Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. Moreover, Section 24 of the NIL provides the presumption of consideration, viz: SECTION 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. Such presumption cannot be overcome by the petitioners bare denial of receipt of the amount of P55,000.00 from Rubia. The petitioner cannot, likewise, seek refuge in the ruling of this Court in Magno vs. Court of Appeals1103[29] because the facts and issues raised therein are substantially different from those extant in this case. Indeed, the Court ruled in the said case that: It is intriguing to realize that Mrs. Teng did not want the petitioner to know that it was she who accommodated petitioners request for Joey Gomez, to source out the needed funds for the warranty deposit. Thus, it unfolds the kind of transaction that is shrouded with mystery, gimmickry and doubtful legality. It is in simple language, a scheme whereby Mrs. Teng as the supplier of the equipment in the name of her corporation, Mancor, would be able to sell or lease its goods as in this case, and at the same time, privately financing those who desperately need petty accommodations as this one. This modus operandi has in so many instances victimized unsuspecting businessmen, who likewise need protection from the law, by availing of the deceptively called warranty deposit not realizing that they also fall prey to leasing equipment under the guise of lease-purchase agreement when it is a scheme designed to skim off business clients. 1104[30]

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Equally futile is the petitioners contention that the prosecution failed to prove the crime charged. For the accused to be guilty of violation of Section 1 of B.P. Blg. 22, the prosecution is mandated to prove the essential elements thereof, to wit: 1. That a person makes or draws and issues any check. 2. That the check is made or drawn and issued to apply on account or for value. 3. That the person who makes or draws and issues the check 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. 4. That 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 reason, ordered the bank to stop payment.1105[31] In this case, the prosecution adduced documentary evidence that when the petitioner issued the subject check on or about August 20, 1992, the balance of his account with the drawee bank was only P2,414.96. During the conference in the office of Atty. Emmanuel Velasco, Evangelista showed to the petitioner and his wife a photocopy of the subject check, with the notation at its dorsal portion that it was dishonored for the reason account closed. Despite Evangelistas demands, the petitioner refused to pay the amount of the check and, with his wife, pointed to Rubia as the one liable for the amount. The collective evidence of the prosecution points to the fact that at the time the petitioner drew and issued the check, he knew that the residue of the funds in his account with the drawee bank was insufficient to pay the amount of the check. IN LIGHT OF ALL THE FOREOING, the petition is DENIED DUE COURSE. The decision of the Court of Appeals is AFFIRMED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 149275 September 27, 2004 petitioner, of the Philippines COURT

VICKY C. TY, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION

1105

Page 741 of 1485

TINGA, J.: Petitioner Vicky C. Ty ("Ty") filed the instant Petition for Review under Rule 45, seeking to set aside the Decision1 of the Court of Appeals Eighth Division in CA-G.R. CR No. 20995, promulgated on 31 July 2001. The Decision affirmed 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. 93130459 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 No. 93-130459 93-130460 93-130461 93-130462 93-130463 93-130464 93-130465 Case Check No. 487710 487711 487709 487707 487706 487708 487712 Postdated 30 March 1993 30 April 1993 01 March 1993 Amount P30,000.0 0 P30,000.0 0 P30,000.0 0

30 December P30,000.0 1992 0 30 November P30,000.0 1992 0 30 January 1993 30 May 1993 P30,000.0 0 P30,000.0 04

Page 742 of 1485

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 Account 7 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. 12 Thus, 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

Page 743 of 1485

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 Appeals 18 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

Page 744 of 1485

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

Page 745 of 1485

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 Case 35 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.

Page 746 of 1485

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 consideration 38 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. 43 The 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.

Page 747 of 1485

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 Appeals 49 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 lessorsupplier 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 Appeals 51 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

Page 748 of 1485

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 with MODIFICATIONS. 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. Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario*, JJ., concur. FIRST DIVISION [G.R. No. 156169. August 12, 2005] VICTOR ONGSON, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION YNARES-SANTIAGO, J.: The instant petition for review seeks to annul and set aside the June 27, 2002 decision [1] of the Court of Appeals in CA-G.R. CR No. 18662 which affirmed with modification the March 8, 1995 decision[2] of the Regional Trial Court of Quezon City, Branch 97, in Criminal Case Nos. Q-93-43435 to Q-43442, finding petitioner Victor Ongson guilty beyond reasonable doubt of eight (8) counts of violation of Batas Pambansa Blg. 22 (B.P. 22). The evidence for the prosecution shows that on separate occasions, private complainant Samson Uy extended loans to petitioner and as payment therefor, he issued to Uy eight (8) post dated checks. Upon presentment, the checks were dishonored and despite demands, petitioner failed to make good the bounced checks. On April 15, 1993, eight (8) separate Informations were filed against petitioner and docketed as follows: Criminal Case No. Q-9343435[3] Check No. Date Amount Drawee Bank PSB Reason for dishonor the

119789[4]

Nov. 23, 1992

P200,000.00

Payment Stopped/Drawn Against Insufficient Funds (DAIF)

Page 749 of 1485

Q-9343436[5] Q-9343437[7] Q-9343438[9] Q-9343439[11] Q-9343440[13] Q-9343441[15] Q-9343442[17]

492837[6]

Nov. 4, 1992

24,000.00

FBTC

Account Closed DAIF

492615[8]

Oct. 15, 1992 3,117.00

FBTC

492319[10] Oct. 15, 1992

11,887.10

FBTC

DAIF

492482[12] Oct. 15, 1992

50,000.00

FBTC

DAIF

492581[14] Oct. 4, 1992

25,500.00

FBTC

DAIF

492666[16] Oct. 2, 1992

200,000.00

FBTC

DAIF

492580[18] Sept. 28, 199268,145.62

FBTC

DAIF

Except as to the check's drawee bank, number, amount and date of issue, the Informations were similarly worded in this wise: That on or about the 23rd day of November, 1992, in Quezon City, Philippines, the said accused did then and there willfully, unlawfully and feloniously make or draw and issue to SAMSON UY to apply on account or for value Philippine Savings Bank Check No. 119789 dated November 23, 1992 payable to Cash in the amount of P200,000.00, Philippine Currency, said accused well knowing that at the time of issue she/he/they 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 was subsequently dishonored by the drawee bank for insufficiency of funds/Account Closed and despite receipt of notice of such dishonor, said accused failed to pay said Samson Uy the amount of said check or to make arrangement for full payment of the same within five (5) banking days after receiving said notice. CONTRARY TO LAW.[19] Upon arraignment, petitioner entered a plea of not guilty. At the pre-trial, petitioner admitted the authenticity of his signatures on the checks, the stamps of dishonored deposit, the dates thereof and reasons for dishonor.[20] After the prosecution rested its case, the defense presented Rowena Carbon but since she failed to appear for continuation of the cross-examination,[21] the trial court ordered her testimony stricken off the record.[22] The defense also presented Evelyn Villareal who testified that Liana's Supermarket, where Uy was sole distributor of petitioner's beverage products, issued check vouchers to Uy.[23]

Page 750 of 1485

On March 8, 1995, the trial court rendered a one-page decision finding petitioner guilty as charged, the full text of which reads: The consolidated Informations, above-numbered, for violation of Batas Pambansa Blg. 22, for eight (8) counts are on record. Upon arraignment accused pleaded Not Guilty and at the pre-trial, he agreed to and signed the Pre-trial order on Page 108, dated July 14th, 1993, wherein accused admitted the authenticity of the signatures on the checks in question, Exh "B", Exh "C", "D", "E", "F", "G", "H", "I" and submarkings thereon, showing the fact of dishonor, the reason therefor and the dates thereof, reserving only for trial on the merits the issue of the correctness of the amounts and the consideration. The private complainant testified as to the consideration, which is also presumed under the law, unless rebutted by accused, which he failed to do, convincing the court beyond reasonable doubt of his guilt as charged herein. WHEREFORE, accused Victor Ongson is hereby declared GUILTY of Violations of Batas Pambansa Blg. 22 on eight (8) counts and sentenced to serve 6 months imprisonment for each of the eight (8) counts and to pay a fine equivalent to the amount of the said checks mentioned in the above-numbered informations or a total of P582,149.72, and to indemnify, as actual and compensatory damages, the private complainant Samson Uy in the same amount of the said checks, or P582,149.72 plus interest at 12% from the date of this decision. SO ORDERED.[24] Petitioner appealed to the Court of Appeals contending he was denied due process and that the trial court's decision violated the Constitution and the Rules of Court. In the assailed decision of June 27, 2002, the Court of Appeals found no infirmity in the trial court's decision and affirmed the conviction of petitioner, but modified the penalty as follows: WHEREFORE, with the MODIFICATIONS that the penalty of fine is hereby DELETED and appellant sentenced to a prison term of thirty (30) days in each of the eight (8) counts whereof he was found guilty by the lower court, the decision appealed from is hereby AFFIRMED and this appeal DISMISSED. No pronouncement as to costs. SO ORDERED.[25] Petitioner filed a motion for reconsideration but was denied. Hence, the instant petition. The issues for resolution are: 1) Was the decision of the trial court violative of the requirements of the Constitution and the Rules of Court? 2) Was the conviction of petitioner proper?

Section 14, Article VIII of the Constitution, as well as Section 1 of Rule 36 and Section 1, Rule 120 of the Rules on Civil Procedure, similarly state that a decision, judgment or final order determining the merits of the case shall state, clearly and distinctly, the facts and the law on

Page 751 of 1485

which it is based. Pertinently, the Court issued on January 28, 1988 Administrative Circular No. 1, which requires judges to make complete findings of facts in their decision, and scrutinize closely the legal aspects of the case in the light of the evidence presented, and avoid the tendency to generalize and to form conclusion without detailing the facts from which such conclusions are deduced. We emphasized in Velarde v. Social Justice Society,[26] citing Yao v. Court of Appeals,[27] that: "Faithful adherence to the requirements of Section 14, Article VIII of the Constitution is indisputably a paramount component of due process and fair play. It is likewise demanded by the due process clause of the Constitution. The parties to a litigation should be informed of how it was decided, with an explanation of the factual and legal reasons that led to the conclusions of the court. The court cannot simply say that judgment is rendered in favor of X and against Y and just leave it at that without any justification whatsoever for its action. The losing party is entitled to know why he lost, so he may appeal to the higher court, if permitted, should he believe that the decision should be reversed. A decision that does not clearly and distinctly state the facts and the law on which it is based leaves the parties in the dark as to how it was reached and is precisely prejudicial to the losing party, who is unable to pinpoint the possible errors of the court for review by a higher tribunal. More than that, the requirement is an assurance to the parties that, in reaching judgment, the judge did so through the processes of legal reasoning. It is, thus, a safeguard against the impetuosity of the judge, preventing him from deciding ipse dixit. Vouchsafed neither the sword nor the purse by the Constitution but nonetheless vested with the sovereign prerogative of passing judgment on the life, liberty or property of his fellowmen, the judge must ultimately depend on the power of reason for sustained public confidence in the justness of his decision." In the present case, it is starkly obvious that the assailed Decision contains no statement of facts - much less an assessment or analysis thereof - or of the court's findings as to the probable facts. The assailed Decision begins with a statement of the nature of the action and the question or issue presented. Then follows a brief explanation of the constitutional provisions involved, and what the Petition sought to achieve. Thereafter, the ensuing procedural incidents before the trial court are tracked. The Decision proceeds to a full-length opinion on the nature and the extent of the separation of church and state. Without expressly stating the final conclusion she has reached or specifying the relief granted or denied, the trial judge ends her "Decision" with the clause "SO ORDERED." What were the antecedents that necessitated the filing of the Petition? What exactly were the distinct facts that gave rise to the question sought to be resolved by SJS? More important, what were the factual findings and analysis on which the trial court based its legal findings and conclusions? None were stated or implied. Indeed, the RTC's Decision cannot be upheld for its failure to express clearly and distinctly the facts on which it was based. Thus, the trial court clearly transgressed the constitutional directive. The significance of factual findings lies in the value of the decision as a precedent. How can it be so if one cannot apply the ruling to similar circumstances, simply because such circumstances are unknown? Otherwise stated, how will the ruling be applied in the future, if there is no point of factual comparison?

Page 752 of 1485

Based on the foregoing considerations, we find that the trial court's decision in the case at bar did not state the material facts, i.e., the transaction that led to the issuance of the checks, their respective amounts, the date and reason for dishonor. The decision likewise failed to discuss the elements of B.P. 22 and other pertinent facts. Clearly, the absence of relevant antecedents as well as the lack of evaluation of the evidence adduced by the parties and justification for its conclusion render the instant decision void. The Court would ordinarily remand this case to the court a quo for compliance with the constitutional requirements. However, we deem it proper to resolve the case on the merits to avoid further delay.[28] Section 1 of B.P. 22, states: 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. The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. The elements of violation of B.P. 22 are: (1) making, drawing, and issuance of any check to apply on account or for value; (2) knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.[29] The first element, i.e., making, drawing, and issuance of any check, requires that the check be properly described in the Information to inform the accused of the nature and cause of the accusation against him. Without a sufficient identification of the dishonored check in the Information, the conviction of the accused should be set aside for being violative of the constitutional requirement of due process.[30] In the instant case, petitioner should be acquitted in Criminal Case Nos. Q-93-43437 and Q93-43442, because the date of the check and the amount thereof as stated in the Informations vary with the exhibits submitted by the prosecution, which inconsistencies violate petitioner's constitutional right to be informed of the nature of the offense charged. The Information[31] in Criminal Case No. Q-93-43437, described Check No. 492615 as dated October 15, 1992, for P3,117.00. The records, however, show that said check differ from

Page 753 of 1485

Exhibit "I," because the date and amount stated therein are October 17, 1992 and 3,117.50, respectively. Likewise in Criminal Case No. Q-93-43442, the date of Check No. 492580 as reflected in the Information[32] is September 28, 1992, while Exhibit "D" shows October 2, 1992. As held in Dico v. Court of Appeals, [33] citing Alonto v. People,[34] these inconsistencies justify the acquittal of the accused. Thus In the information filed by Felipe C. Belcina, Prosecutor II, the check involved is described as Far East Bank and Trust Company (FEBTC) Check No. 364903 dated 12 May 1993 in the amount of P100,000 payable to Equitable Banking Corporation. However, after going over the records of the case, the parties, including the courts, overlooked the fact that the check being identified in court was different from that described in the information. The prosecution marked as its Exhibit "B" FEBTC Check No. 369403 dated 12 May 1993 in the amount of P100,000 payable to Equitable Banking Corporation. The issue as to the identity of the check, though not raised as an error, should be considered in favor of the petitioner. The variance in the identity of the check nullifies petitioner's conviction. The identity of the check enters into the first element of the offense under Section 1 of B.P. Blg. 22 - that a person draws or issues a check on account or for value. There being a discrepancy in the identity of the checks described in the information and that presented in court, petitioner's constitutional right to be informed of the nature of the offense charged will be violated if his conviction is upheld. In the case of Alonto v. People, this Court had this to say when there was a variance involving the date as regards the check described in the information and that adduced in evidence: This Court notes, however, that under the third count, the information alleged that petitioner issued a check dated 14 May 1992 whereas the documentary evidence presented and duly marked as Exhibit "I" was BPI Check No. 831258 in the amount of P25,000 dated 05 April 1992. Prosecution witness Fernando Sardes confirmed petitioner's issuance of the three BPI checks (Exhibits G, H, and I), but categorically stated that the third check (BPI Check No. 831258) was dated 14 May 1992, which was contrary to that testified to by private complainant Violeta Tizon, i.e., BPI check No. 831258 dated 05 April 1992. In view of this variance, the conviction of petitioner on the third count (Criminal Case No. Q-93-41751) cannot be sustained. It is on this ground that petitioner's fourth assignment of error is tenable, in that the prosecution's exhibit, i.e., Exhibit "I" (BPI Check No. 831258 dated 05 April 1992 in the amount of P25,000) is excluded by the law and the rules on evidence. Since the identity of the check enters into the first essential element of the offense under Section 1 of B.P. 22, that is, that a person makes, draws or issues a check on account or for value, and the date thereof involves its second element, namely, that at the time of issue the maker, drawer or issuer knew that he or she did not have sufficient funds to cover the same, there is a violation of petitioner's constitutional right to be informed of the nature of the offense charged in view of the aforesaid variance, thereby rendering the conviction for the third count fatally defective. With respect to Criminal Case Nos. Q-93-43435, Q-93-43436, Q-93-43438, Q-93-43439, Q93-43440 and Q-93-43441, the judgment of conviction should be affirmed. There is no merit in petitioner's contention that the checks were issued without valuable consideration. We have held that upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable consideration, which may

Page 754 of 1485

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 side. It is an obligation to do, or not to do in favor of the party who makes the contract, such as the maker or endorser.[35] In the case at bar, the prosecution established beyond reasonable doubt that petitioner received money in various amounts from private complainant. Whether the amounts were loans or investment in the business of petitioner, the checks were issued for valuable consideration. Either way, petitioner is under obligation to pay private complainant. Likewise, the prosecution proved that some of the checks were payment for private complainant's commission from selling the products of petitioner. Hence, the latter cannot successfully claim that the issuance of the checks were not for a valuable consideration. Interestingly, while petitioner denied existence of consideration, he at the same time admitted that his obligation was P358,872.72 and not P582,149.72.[36] It appears from Rowena Carbon's testimony that, as sole distributor of petitioner's product to Liana's Supermarket, private complainant received from the latter 3 checks in the amounts of P41,748.00, P78,840.00 and P105,209.00, but were not remitted to petitioner.[37] Hence, Carbon claimed that the total unremitted amount of the checks should be deducted from the indebtedness of the latter. These declarations of Carbon, however, will not warrant the acquittal of petitioner because Carbon's testimony was stricken off the record by the trial court. Even if Carbon's testimony was retained, the alleged receipt by private complainant of the P41,748.00 and P78,840.00 checks will not warrant the acquittal of petitioner because the same were without documentary basis;[38] and while the amount of P105,209.00 was supported with a voucher dated July 29, 1992,[39] petitioner failed to positively show that private complainant did not remit said amount. Likewise, Carbon did not specify whether the check was drawn to cash or to the order of Beverly Food Ventures Corporation. If it was drawn to cash, then it is petitioner's burden to prove that the payment was intended for Beverly Food Ventures Corporation and not for private complainant. If it was paid to the order of the corporation, then the latter must at least establish that private complainant was able to encash and profit from said check. Moreover, Evelyn Villareal never validated the alleged receipt by private complainant of the P41,748.00, P78,840.00 and P105,209.00 checks. While she declared that Liana's Supermarket issued checks to petitioner, the subject 3 checks were not specified in her testimony. Then too, the gravamen of the offense punished by B.P. 22 is the act of making and issuing a worthless check, that is, a check that is dishonored upon its presentation for payment. The mere act of issuing a worthless check is malum prohibitum. So also, it is not the nonpayment of the obligation that is being punished, but the making of worthless checks. [40] What the law punishes is such issuance of a bum check and not the purpose for which the check was issued nor the terms or conditions relating to its issuance.[41] Thus, even if there had been payment through compensation or some other means, there could still be prosecution for violation of B.P. 22.[42] As to the second element, we have held that knowledge involves a state of mind which is difficult to establish, thus the statute itself creates a prima facie presumption that the drawer had knowledge of the insufficiency of his funds in or credit with the bank at the time of the issuance and on the check's presentment for payment if he fails to pay the amount of the check within five (5) banking days from notice of dishonor.[43] Sec. 2 of B.P. 22, provides:

Page 755 of 1485

SEC. 2. Evidence of knowledge of insufficient funds. - The making, drawing and issuance of a check payment of which is refused by the drawee 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. For this presumption to arise, the prosecution must prove the following: (a) the check is presented within ninety (90) days from the date of the check; (b) the drawer or maker of the check receives notice that such check has not been paid by the drawee; and (c) the drawer or maker of the check fails to pay the holder of the check the amount due thereon, or make arrangements for payment in full within five (5) banking days after receiving notice that such check has not been paid by the drawee. In other words, the presumption is brought into existence only after it is proved that the issuer had received a notice of dishonor and that within five days from receipt thereof, he failed to pay the amount of the check or to make arrangements for its payment. The presumption or prima facie evidence as provided in this section cannot arise, if such notice of nonpayment by the drawee bank is not sent to the maker or drawer, or if there is no proof as to when such notice was received by the drawer, since there would simply be no way of reckoning the crucial 5-day period. [44] Furthermore, the notice of dishonor must be in writing; a verbal notice is not enough.[45] In the instant case, petitioner through counsel, admitted receipt of private complainant's demand letters sent via registered mail, informing him of the dishonor of the checks and the reason therefor; and demanding that the value of the check be paid in cash. Pertinent portion of the transcript of stenographic notes, reads: ATTY. YABUT [private respondent's counsel]: ... Exh. "J" is the demand letter dated November 27, 1992 and the signature of the counsel therein marked as Exh. "J-1" to prove that a demand letter was sent to the accused and to his wife, Mrs. Grace Tiu Ongson, demanding therein that the said dishonored check be encashed or be replaced and the Registry Receipt which is Exh. "J-2" and Registry Return Receipt which is Exh. "J-3" is being offered to prove that the said demand letter was sent by registered mail and the same was sent as per Exh. "J-2" and received [on December 7, 1992] by the accused thru his representative which is Exh. "J-3" ; and Exh. "K" is the same demand letter dated November 27, 1992 and signed by the counsel which is marked as Exh. "K-1" addressed to the accused and/or his wife, Mrs. Grace Tiu Ongson and demanding therein that the said check which is stated in the said demand letter which bounced be replaced with cash; Exh. "K-2" which is the Registry Receipt; and Exh. "K-3" which is the Registry Return Receipt is being offered to prove that the demand letter was sent to the accused by registered mail and that the same was received [on December 7, 1992] by his authorized representative ; Exh. "L" is the demand letter dated December 3, 1992 addressed to the accused demanding therein that the said check contained in the demand letter be replaced with cash or be made good and the signature therein of the lawyer which is Exh. "L-1" is being offered to prove that the demand letter was sent by the lawyer and that the registry receipt marked as Exh. "L-2" and the Registry Return Receipt, Exh. "L-3" is being offered to prove that it was sent by registered mail and that the same was received by the accused [on December 7, 1992]; Exh. "M" which is a demand letter dated December 15, 1992 sent to the accused demanding therein that the check bounced and that the same should be replaced with cash or be made good accordingly, and the signature of the lawyer which is Exh. "M-1" to prove that the said lawyer sent a demand letter to the accused; and the Registry Receipt marked as Exh. "M-2" and the Registry Return Receipt Exh. "M-3" to prove that the demand

Page 756 of 1485

letter was sent to the accused and received by his representative [on December 18, 1992]; we are therefore offering for the admission of this Honorable Court the exhibits from Exh. "A" to Exh. "M" accordingly and the testimony of the private complainant to this Honorable Court. COURT: Any comments? ATTY. GIRONELLA [petitioner's counsel]: With the kind permission of the Honorable Court. COURT: Proceed. ATTY. GIRONELLA: With respect to the various demand letters marked as Exhs. "H", "J", "K", "L" and "M", we admit them insofar as we intend to prove that there was such a demand letter and demand these letters were received by the accused (sic);[46] In King v. People,[47] it was held that the accused's admission through counsel, made during the trial, binds the client. Similarly, in Rigor v. People,[48] the Court ruled that the accused cannot pretend that he did not receive the notice of dishonor of the check because the transcript of records shows that the accused admitted knowledge of the dishonor of his check through a demand letter received by him. Section 4 of Rule 129, states: SEC. 4. Judicial admissions. - An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. That only a representative of petitioner signed the registry return receipt in the case at bar is of no consequence because of the unqualified admission by the latter that he received private complainant's demand letter with notice of dishonor. Said admission binds him considering that he never denied receipt of the notice of dishonor. Neither did he contradict said judicial admission of receipt of the notice nor alleged a palpable mistake in making the same. Thus, petitioner's receipt of the notice of dishonor without paying the value of the checks or making arrangements for its payment within five (5) days from receipt of said notice, established the prima facie presumption that he had knowledge of the insufficiency of his funds in or credit with the bank at the time of the issuance of the checks. Failing to overcome this legal presumption, the findings of the courts below must be sustained. The third element of violation of B.P. 22, i.e., the dishonor of the check by the drawee bank, is also attendant in the present case as shown by the reason for the dishonor as stamped in the dorsal portion of the checks which are also prima facie presumptions of such dishonor and the reasons therefor.[49] In Garcia v. Court of Appeals,[50] it was held that while it is true that the presumption is merely prima facie, the accused must, nonetheless, present

Page 757 of 1485

proof to the contrary to overcome this presumption. Here, other than the bare allegations of petitioner, he presented no well-grounded defense to prove that the subject checks were not dishonored by the drawee banks. Likewise, in Recuerdo v. People,[51] the court emphasized that it is not required much less indispensable, for the prosecution to present the drawee bank's representative as a witness to testify on the dishonor of the checks. The prosecution may present, as it did in this case, only private complainant as a witness to prove all the elements of the offense charged. Said witness is competent and qualified to testify that upon presentment for payment, the subject checks were dishonored by the drawee bank. Furthermore, the dishonor was bolstered by the pre-trial order duly signed by petitioner where he admitted dishonor of the subject checks.[52] Incidentally, there is no merit in petitioner's contention that the pre-trial was irregular because it was held in his absence and before arraignment. Records show that the May 17, 1993 pre-trial held in the absence of petitioner was annulled by the trial court.[53] Pre-trial was re-set and conducted on July 14, 1993, after arraignment in the presence of petitioner,[54] who affixed his signature in the pre-trial order with the assistance of counsel. All told, the Court finds that all the elements of violation of B.P. 22 had been established beyond reasonable doubt by the prosecution. Nevertheless, the penalty imposed by the Court of Appeals should be modified. Under Administrative Circular No. 12-2000, imprisonment need not be imposed on those found guilty of violating B.P. Blg. 22. Administrative Circular No. 13-2001, issued on February 14, 2001, vests in the courts the discretion to determine, taking into consideration the peculiar circumstances of each case, whether the imposition of fine (of not less than but not more than double the amount of the check, but in no case exceeding P200,000.00), would best serve the interest of justice, or whether forbearing to impose imprisonment would depreciate the seriousness of the offense, work violence on the social order, or otherwise contrary to the imperatives of justice.[55] In Recuerdo v. People, and Young v. Court of Appeals,[56] it was held that where there is neither proof nor allegation that the accused is not a first time offender, imposition of the penalty of fine instead of imprisonment is proper. Likewise, in Lee v. Court of Appeals,[57] we ruled that the policy laid down in Vaca v. Court of Appeals, [58] and Lim v. People,[59] of redeeming valuable human material and preventing unnecessary deprivation of personal liberty and economic usefulness, should be considered in favor of the accused who is not shown to be a habitual delinquent or a recidivist. Said doctrines squarely apply in the instant case there being no proof or allegation that petitioner is not a first time offender. Finally, petitioner should be ordered to pay interest of 12% per annum pursuant to Cabrera v. People,[60] that when an obligation is breached, and it consists in the payment of a sum of money, the interest due should be that which may have been stipulated in writing. In the absence of such stipulation, the rate shall be 12% per annum computed from judicial or extrajudicial demand. In this case, there was no stipulated interest on petitioner's obligation to pay the value of the dishonored checks. Demand for payment was made extrajudicially as evidenced by petitioner's receipt of private complainant's demand letter with notice of dishonor. The applicable interest rate is therefore 12% per annum from the date of receipt of the demand letter on December 7, 1992 for Check Nos. 492666, 492482, 492581 and 492319; December 10, 1992 for Check No. 119789; and December 18, 1992 for Check No. 492837 until finality of this decision. From the finality of this decision, the total amount of

Page 758 of 1485

the dishonored checks inclusive of interest shall further earn 12% interest per annum until fully paid. WHEREFORE, the petition is PARTIALLY GRANTED. The June 27, 2002 decision of the Court of Appeals in CA-G.R. CR No. 18662 is AFFIRMED with MODIFICATIONS. In Criminal Case Nos. Q-93-43437 and Q-93-43442, petitioner Victor Ongson is ACQUITTED of violation of B.P. Blg. 22 on the ground that his guilt has not been proved beyond reasonable doubt. In Criminal Case Nos. Q-93-43435, Q-93-43436, Q-93-43438, Q-93-43439, Q-93-43440 and Q-93-43441 petitioner is found guilty beyond reasonable doubt of violation of B.P. Blg. 22 and is sentenced as follows: (1) In Criminal Case No. Q-93-43435, petitioner is sentenced to pay a fine of P200,000.00 and to indemnify private complainant Samson Uy in the amount of P200,000.00 with 12% interest per annum from the date of receipt of the demand letter on December 10, 1992, until the finality of this Decision; (2) In Criminal Case No. Q-93-43436, petitioner is sentenced to pay a fine of P48,000.00 and to indemnify private complainant Samson Uy in the amount of P24,000.00 with 12% interest per annum from the date of receipt of the demand letter on December 18, 1992, until the finality of this Decision; (3) In Criminal Case No. Q-93-43438, petitioner is sentenced to pay a fine of P23,774.20 and to indemnify private complainant Samson Uy in the amount of P11,887.10 with 12% interest per annum from the date of receipt of the demand letter on December 7, 1992, until the finality of this Decision; (4) In Criminal Case No. Q-93-43439, petitioner is sentenced to pay a fine of P100,000.00 and to indemnify private complainant Samson Uy in the amount of P50,000.00 with 12% interest per annum from the date of receipt of the demand letter on December 7, 1992, until the finality of this Decision; (5) In Criminal Case No. Q-93-43440, petitioner is sentenced to pay a fine of P51,000.00 and to indemnify private complainant Samson Uy in the amount of P25,500.00 with 12% interest per annum from the date of receipt of the demand letter on December 7, 1992, until the finality of this Decision; and (6) In Criminal Case No. Q-93-43441, petitioner is sentenced to pay a fine of P200,000.00 and to indemnify private complainant Samson Uy in the amount of P200,000.00 with 12% interest per annum from the date of receipt of the demand letter on December 7, 1992, until the finality of this Decision. The total amount of the dishonored checks inclusive of interest shall further earn 12% interest per annum from the finality of the decision until fully paid. No pronouncement as to costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.

Page 759 of 1485

Republic of the Philippines Supreme Court Manila

THIRD DIVISION

LEODEGARIO BAYANI, Petitioner,

G.R. No. 155619 Present:

- versus -

YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ.

PEOPLE OF THE PHILIPPINES, Respondent.

Promulgated: August 14, 2007

x----------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

Page 760 of 1485

Leodegario Bayani (petitioner) was charged with Violation of Batas Pambansa Blg. 22 in an Information, to wit:

That on or about the 20th day of August 1992, in the Municipality of Candelaria, Province of Quezon, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused did then and there willfully, unlawfully and feloniously issue and make out Check No. 054924 dated August 26, 1992, in the amount of TEN THOUSAND PESOS (P10,000.00) Philippine Currency, drawn against the PS Bank, Candelaria Branch, Candelaria, Quezon, payable to Cash and give the said check to one Dolores Evangelista in exchange for cash although the said accused knew fully well at the time of issuance of said check that he did not have sufficient funds in or credit with the drawee bank for payment, the same was dishonored and refused payment for the reason that the drawer thereof, the herein accused, had no sufficient funds therein, and that despite due notice said accused failed to deposit the necessary amount to cover said check, or to pay in full the amount of said check, to the damage and prejudice of said Dolores Evangelista in the aforesaid amount.

Contrary to law.1106[1]

After trial, petitioner was convicted by the Regional Trial Court (RTC) of Lucena City, Branch 55, in a Decision rendered on November 20, 1995, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing considerations, this Court finds the accused Leodegario S. Bayani, GUILTY beyond reasonable doubt of violating Section 1, Batas Pambansa Blg. 22, and hereby sentences him to suffer one (1) year imprisonment and a fine of Five Thousand (P5,000.00) Pesos, with subsidiary imprisonment in case of insolvency. He shall likewise pay the complaining witness, Dolores Evangelista, the sum of P10,000.00, the value of Check No. 054924 he issued and drew against PS Bank, Candelaria Branch, which was subsequently dishonored by the said drawee bank for insufficiency of funds.

The accused Leodegario Bayani is further ordered to pay Dolores Evangelista the amount of P5,000.00 representing attorney's fees. He shall also pay double the cost of this suit.

SO ORDERED.1107[2]

1106

Page 761 of 1485

In convicting petitioner, the trial court made the following findings of facts:

1. That the Philippine Savings Bank, Candelaria Branch, has issued to the accused check booklet (Exh. C) on December 12, 1991, with the Check No. 054924 as one of those included in said booklet of checks;

2. That the said Check No. 054924 dated August 26, 1992, was drawn and issued payable to Cash in the amount of P10,000.00; said drawn check was made to apply to the account of the accused, Leodegario S. Bayani whose name appears therein in bold print at the upper portion of the said check;

3. That said Check No. 054924, is a post-dated check, was subsequently dishonored by the drawee bank, PS Bank, Candelaria Branch, for insufficiency of funds; 4. That the checking account of the accused Leodegario S. Bayani with PS Bank, Candelaria Branch, was closed on September 1, 1992 (Exh. B-3), which at the time had only remaining deposit in the amount of P2,414.96 (Exh. B-4).1108[3]

The trial court also made the following findings:

The check in question is postdated, issued and drawn on August 20, 1992, and dated August 26, 1992. It was presented to complaining witness, Dolores Evangelista, for encashment by Alicia Rubia whom the former knows. After the check was deposited with the bank, it was returned to Evangelista for insufficiency of funds (Exh. A-5). Thereafter, she pursued the following events to demand payment of the value of the check:

xxxx

After the confrontation at the office of Atty. Emmanuel Velasco, Evangelista has had another confrontation with the accused Bayani and Alicia Rubia at Candelaria municipal building before Brgy. Captain Nestor Baera, but

1107 1108

Page 762 of 1485

again the accused and Rubia pointed to each other for the settlement of the amount involved in the check in question.

Of these two (2) confrontations Evangelista had with the accused Bayani and Alicia Rubia, including the chances to have met or known the complaining witness Evangelista since 1977 up to the filing of the instant case in the Municipal Trial Court of Candelaria, all what the accused Leodegario Bayani could say were flat denials of having talked with, or otherwise met Evangelista, regarding the latters claim of payment of the value of Check No. 054924, admittedly from the check booklet of the said accused Bayani issued by PS Bank, Candelaria Branch.1109[4]

On appeal, the Court of Appeals (CA)1110[5] affirmed in toto the trial courts decision. The CAs Decision dated January 30, 2002 provides for the following dispositive portion:

WHEREFORE, and it appearing from the circumstances of both the offense and the offender which does not indicate good faith or a clear mistake of fact in accordance with the Administrative Circular No. 13-2001, the judgment appealed from is AFFIRMED in toto, with costs.

SO ORDERED.1111[6]

Thus, herein petition for review on certiorari under Rule 45, Rules of Court, with the following assignment of errors:

THE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN REFUSING TO ACQUIT THE ACCUSED DESPITE THE CONVICTION OF THE TRIAL COURT IS UTTERLY BASED ON HEARSAY EVIDENCE;

1109 1110 1111

Page 763 of 1485

THE COURT OF APPEALS ERRED IN CONVICTING THE ACCUSED DESPITE CONSIDERATION FOR THE ISSUANCE OF THE CHECK WAS NOT DULY ESTABLISHED; THE

THE TRIAL COURT AND THE COURT OF APPEALS ERRED WHEN THEY CONVICTED THE ACCUSED BASED ON THE WEAKNESS OF THE LATTER'S EVIDENCE AND NOT ON THE STRENGTH OF PROSECUTION'S EVIDENCE;

THE TRIAL COURT AND THE COURT OF APPEALED (sic) ERRED IN CONVICTING THE ACCUSED SOLELY ON THE BASES OF PRESUMPTIONS.1112[7]

On the other hand, the Office of the Solicitor General (OSG), representing respondent, argues that: (1) petitioners denial of his liability for Check No. 05492 cannot overcome the primordial fact that his signature appears on the face of such check; (2) want of consideration is a personal defense and is not available against a holder in due course; and (3) the constitutional presumption of innocence was overcome by the requisite quantum of proof.1113[8]

Well-settled is the rule that the factual findings and conclusions of the trial court and the CA 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. Jurisdiction of this Court over cases elevated from the CA is limited to reviewing or revising errors of law ascribed to the CA, 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.1114[9]

The Court sustains the CA in affirming petitioners conviction by the RTC.

Petitioner denies having issued the check subject of this case. He argues that the evidence pinpointing him as the signatory on the check is merely hearsay.

1112 1113 1114

Page 764 of 1485

Section 36 of Rule 130 of the Rules of Court provides for the rule on hearsay evidence, to wit:

Sec. 36. Testimony generally confined to personal knowledge; hearsay excluded. - A witness can testify only to those facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in these rules.

Under the above rule, any evidence whether oral or documentary is hearsay if its probative value is not based on the personal knowledge of the witness, but on that of some other person who is not on the witness stand. Hence, information that is relayed to the former by the latter before it reaches the court is considered hearsay. 1115[10]

In the present case, complainant Evangelista testified that she was approached by Alicia Rubia who told her that she was requested by petitioner to have the check exchanged for cash, as he needed money badly.1116[11] Obviously, Evangelistas testimony is hearsay since she had no personal knowledge of the fact that petitioner indeed requested Rubia to have the check exchanged for cash, as she was not personally present when petitioner supposedly made this request. What she testified to, therefore, was a matter that was not derived from her own perception but from Rubias.

However, petitioner is barred from questioning the admission of Evangelistas testimony even if the same is hearsay. Section 34, Rule 132 of the Rules of Court requires that the trial court shall not consider any evidence which has not been finally offered. Section 35 of the same Rule provides that as regards the testimony of a witness, the offer must be made at the time the witness is asked to testify. And under Section 36 of the same Rule, objection to a question propounded in the course of the oral examination of a witness shall be made as soon as the ground therefor becomes reasonably apparent.

Thus, it has been held that in failing to object to the testimony on the ground that it was hearsay, the evidence offered may be admitted. 1117[12] Since no objection to the admissibility of Evangelistas testimony was timely made from the time her testimony was

1115 1116 1117

Page 765 of 1485

offered1118[13] and up to the time her direct examination was conducted 1119[14] then petitioner has effectively waived 1120[15] any objection to the admissibility thereof and his belated attempts to have her testimony excluded for being hearsay has no ground to stand on. While Evangelistas statement may be admitted in evidence, it does not necessarily follow that the same should be given evidentiary weight. Admissibility of evidence should not be equated with weight of evidence. 1121[16] In this regard, it has been held that although hearsay evidence may be admitted because of lack of objection by the adverse partys counsel, it is nonetheless without probative value, 1122[17] unless the proponent can show that the evidence falls within the exception to the hearsay evidence rule. 1123[18]

In this case, Evangelistas testimony may be considered as an independently relevant statement, an exception to the hearsay rule, the purpose of which is merely to establish the fact that the statement was made or the tenor of such statement. Independent of the truth or the falsity of the statement, the fact that it has been made is relevant. 1124[19] When Evangelista said that Rubia told her that it was petitioner who requested that the check be exchanged for cash, Evangelista was only testifying that Rubia told her of such request . It does not establish the truth or veracity of Rubias statement since it is merely hearsay, as Rubia was not presented in court to attest to such utterance. On this score, evidence regarding the making of such independently relevant statement is not secondary but primary, because the statement itself may (a) constitute a fact in issue or (2) be circumstantially relevant as to the existence of that fact. 1125[20] Indeed, independent of its truth or falsehood, Evangelistas statement is relevant to the issues of petitioners falsehood, his authorship of the check in question and consequently, his culpability of the offense charged.

In any event, petitioners conviction did not rest solely on Evangelistas testimony. There are other pieces of evidence on record that established his guilt, to wit: the subject check was included in the booklet of checks issued by the PSBank to petitioner; the subject check was made to apply to the account of petitioner whose name appears on the upper

1118 1119 1120 1121 1122 1123 1124 1125

Page 766 of 1485

portion of the said check; and most telling is that petitioner never categorically denied that the signature appearing on the check was his. What petitioner claimed was that the signature on the check was similar to his signature, although there were differences, viz.:

Q:

A: Q: A: Q: A: Q: A:

I am showing to you a certain document purpurting (sic) to be PSB Check No. 054924, will you please look at this particular document and tell this Honorable Court if this particular check is one of those issued to you by the Philippine Savings Bank? Yes, sir. Now, there appears a signature above a line located at the bottom of the said check which appears to be Leodegario Bayani, please tell this Honorable Court if you know this particular signature? Although it is similar to my signature I could not tell if this is my signature, sir. Please explain to this Honorable Court why is it so? Because there are some differences, sir. Please tell this Honorable Court the particular differences you are referring to? At the middle of the signature I usually put my middle initial and also the beginning of my family name is almost connected with each other, sir.1126[21]

Neither did petitioner claim that the signature was a forgery. Had he done so, then a forensic examination of the signature in appearing on the check and his signature would have been made in order to determine the genuineness or authenticity of the signature appearing on the check.

All these pieces of evidence, taken together, inevitably support the finding of petitioners guilt beyond reasonable doubt of the offense charged.

Petitioner also argues that he cannot be convicted due to the prosecutions failure to prove that the subject check was issued to apply on account or for value.

The elements of the offense penalized by Batas Pambansa Blg. 22 are:

(1)

the making, drawing, and issuance of any check to apply for account or for value;

1126

Page 767 of 1485

(2) the knowledge of the maker, drawer, or issuer that at the time of issue there are no sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.1127[22]

(3)

As regards the first element, it is presumed, upon issuance of the checks and in the absence of evidence to the contrary, that the sam e was issued for valuable consideration. 1128 [23] Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquired the same for a consideration or for value.1129[24] In alleging that there was no consideration for the subject check, it devolved upon petitioner to present convincing evidence to overthrow the

1127 1128 1129

Page 768 of 1485

presumption and prove that the check was issued without consideration.

Valuable consideration may consist either of some right, interest, profit or benefit accruing to the party who makes the contract; or some forbearance, detriment, loss of some responsibility to act; or labor or service given, suffered or undertaken by the other side. It is an obligation to do or not to do, in favor of the party who makes the contract, such as the maker or indorser.1130[25] It was shown in this case that the check was issued and exchanged for cash. This was the valuable consideration for which the check was issued.

At any rate, what the law punishes is the mere act of issuing a bouncing check, not the purpose for which it was issued or the terms and conditions relating to its issuance. The law does not make any distinction on whether the checks within its contemplation are issued in payment of an obligation or to merely guarantee the obligation. The thrust of the law is to prohibit the making of worthless checks and putting them in circulation. 1131[26]

Thus, the Court cannot sustain petitioners stance that the prosecution failed to prove his guilt. As ruled in Lee v. Court of Appeals:

Proof beyond reasonable doubt does not mean absolute certainty. Suffice it to say the law requires only moral certainty or that degree of proof which produces conviction in a prejudiced mind.1132[27]

1130 1131 1132

Page 769 of 1485

After going over the evidence presented by the prosecution and the defense in this case, the Court finds no reason to overturn the judgment of conviction rendered by the RTC, as affirmed by the CA, as the prosecution sufficiently proved petitioner's guilt beyond reasonable doubt.

WHEREFORE, the petition is DENIED.

SO ORDERED. THIRD DIVISION

ISIDRO PABLITO M. PALANA, Petitioner,

G.R. No. 149995

Present: Ynares-Santiago, J. (Chairperson), - versus Austria-Martinez, Chico-Nazario, Nachura, and Reyes, JJ. PEOPLE OF THE PHILIPPINES, Respondent. Promulgated:

September 28, 2007

x ---------------------------------------------------------------------------------------- x

DECISION

Page 770 of 1485

YNARES-SANTIAGO, J.:

For review is the Decision of the Court of Appeals in CA-G.R. CR No. 21879 dated September 17, 2001,1133[1] affirming the September 23, 1997 Decision of the Regional Trial Court of Makati City, Branch 63, in Criminal Case No. 91-5617 convicting petitioner Isidro Pablito Palana with violation of Batas Pambansa (B.P.) Blg. 22 otherwise known as the Bouncing Checks Law.

On August 19, 1991, petitioner was charged with violation of B.P. Blg. 22 in an Information which reads as follows:

1133

Page 771 of 1485

That on or about September 1987, in the Municipality of Makati, Metro Manila, Philippines, a place within the jurisdiction of this Honorable Court, the above-named accused did, then and there, willfully, unlawfully and knowingly make or draw and issue to Alex B. Carlos to apply on account or for the value the check described below: Check No. Drawn Against In the amount of Postdated Payable to : : : : : 326317PR Asian Savings Bank Paseo de Roxas Branch P590,000.00 February 15, 1988 Dr. Alex B. Carlos

said accused well knowing that at the time of issue, he did not have sufficient funds in or credit with the drawee bank for the payment in full of the face amount of such check when presented for payment within (90) days from the date thereof, was subsequently dishonored by the drawee bank for the reason Drawn Against Insufficient Funds and despite receipt of notice of such dishonor, the accused failed to pay said payee the face amount of said check or make arrangement for full payment within five (5) banking days after receiving notice.1134[2]

On January 30, 1992, the case was archived due to petitioners non-apprehension despite the issuance of a warrant for his arrest.1135[3] On June 27, 1995, the warrant of arrest was recalled and set aside 1136[4] after petitioner posted the required bail. He was arraigned on July 25, 1995 when he pleaded not guilty to the offense charged. 1137[5]

Private complainant Alex B. Carlos testified that sometime in September 1987, petitioner and his wife borrowed money from him in the amount of P590,000.00. To secure the payment of the loan, petitioner issued a postdated check for the same amount in favor of the complainant. 1138[6] However, when the check was presented for payment, it was

1134 1135 1136 1137 1138

Page 772 of 1485

dishonored by the bank for insufficiency of funds. Subsequent demand notwithstanding,

petitioner failed to make good the said dishonored check. 1139[7]

1139

Page 773 of 1485

Petitioner alleged that the amounts given to him by private complainant was an investment by the latter who was his business partner. He argued that the subject check was not issued in September 1987 to guarantee the payment of a loan since his checking account was opened only on December 1, 1987.1140[8] He claimed that private complainant cajoled him to issue a check in his favor allegedly to be shown to a textile supplier who would provide the partnership with the necessary raw materials. same was not funded.1142[10] Petitioner alleged that when the check was issued sometime in February 1988, 1141[9] complainant knew that the

After trial on the merits, the Regional Trial Court rendered on September 23, 1997 a Decision1143[11] finding petitioner guilty as charged, the dispositive portion of which reads:

Wherefore, this court finds the accused Isidro Pablito M. Palana guilty as charged and sentences him to a prison term of Six (6) months and to indemnify the private complainant the sum of P590,000.00 plus legal interest from filing of this case until full payment. SO ORDERED.

Petitioner appealed but it was dismissed by the Court of Appeals which affirmed the trial courts decision in toto.1144[12]

1140 1141 1142 1143 1144

Page 774 of 1485

Both the trial court and the Court of Appeals found that the check was issued as a guaranty for the loan, thereby rejecting petitioners investment theory. In ruling against the existence of a partnership between them, the trial court noted that the so-called partnership venture, Palanas General Merchandising, was registered on December 1, 1987 only in the name of petitioner.1145[13] The Court of Appeals also held that the act of lending money does not necessarily amount to an investment of capital.

Hence, the instant petition raising the following issues:

I. THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDING OF THE LOWER COURT DISREGARDING THE DEFENSE OF THE ACCUSED THAT THE ISSUANCE OF THE SUBJECT ASIAN BANK CHECK, WAS NOT FOR A CONSIDERATION OR FOR VALUE, AS THE ACCUSED WAS ONLY TRICKED BY THE PRIVATE COMPLAINANT TO ISSUE THE SAID CHECK AS A MEANS OF BINDING THE ACCUSED TO RETURN HIS INVESTMENT IN THE PARTNERSHIP WHICH WAS THEN SUFFERING FROM BUSINESS REVERSALS. II. THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE LOWER COURT THAT THE REGIONAL TRIAL COURT HAS JURISDICTION OVER THE CASE, DESPITE THE FACT THAT AT THE TIME THE ACCUSED WAS ARRAIGNED ON JULY 25, 1995 R.A. 7691 EXPANDING THE JURISDICTION OF THE METROPOLITAN TRIAL COURT WAS ALREADY IN EFFECT.1146[14]

The issues to be resolved are: 1) whether petitioner was guilty of violation of B.P. Blg. 22; and 2) whether the Regional Trial Court has jurisdiction over the case.

Petitioners argument that it is the Metropolitan Trial Court and not the Regional Trial Court which has jurisdiction over the case pursuant to R.A. 7691 is without merit.

1145 1146

Page 775 of 1485

It is hornbook doctrine that jurisdiction to try a criminal action is determined by the law in force at the time of the institution of the action1147[15] and not during the arraignment of the accused. The Information charging petitioner with violation of B.P. Blg. 22 was filed on August 19, 1991. At that time, the governing law determinative of jurisdiction is B.P. Blg. 1291148[16] which provides:

Sec. 20. Jurisdiction in criminal cases. Regional Trial Courts shall exercise exclusive original jurisdiction in all criminal cases not within the exclusive jurisdiction of any court , tribunal or body, except those now falling under the exclusive and concurrent jurisdiction of the Sandiganbayan which shall hereafter be exclusively taken cognizance by the latter. xxxx Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Criminal Cases . Except in cases falling within the exclusive original jurisdiction of Regional Trial Courts and the Sandiganbayan, the Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise: xxxx (2) Exclusive original jurisdiction over all offenses punishable with imprisonment of not exceeding four years and two months, or a fine of not more than four thousand pesos , or both such fine and imprisonment, regardless of other imposable accessory or other penalties, including the civil liability arising from such offenses or predicated thereon, irrespective of kind, nature, value or amount thereof: Provided, however, That in offenses involving damage to property through criminal negligence they shall have exclusive original jurisdiction where the imposable fine does not exceed twenty thousand pesos.

Violation of B.P. Blg. 22 is punishable with imprisonment of not less than 30 days but not more than one 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 P200,000.00, or both fine and imprisonment1149[17] at the discretion of the court. In the present case, the fine imposable is P200,000.00 hence, the Regional Trial Court properly acquired jurisdiction over the case. 1150
[18]

The Metropolitan Trial Court could not acquire jurisdiction over the criminal action

1147 1148 1149

Page 776 of 1485

because its jurisdiction is only for offenses punishable with a fine of not more than P4,000.00.

The subsequent amendment of B.P. 129 by R.A. No. 7691, An Act Expanding the Jurisdiction of the Municipal Trial Courts, Municipal Circuit Trial Courts and the Metropolitan Trial Court1151[19] on June 15, 1994 cannot divest the Regional Trial Court of jurisdiction over petitioners case. Where a court has already obtained and is exercising jurisdiction over a controversy, its jurisdiction to proceed to the final determination of the cause is not affected by new legislation placing jurisdiction over such proceedings in another tribunal unless the statute expressly provides, or is construed to the effect that it is intended to operate on actions pending before its enactment. Indeed, R.A. No. 7691 contains retroactive provisions. However, these only apply to civil cases that have not yet reached the pre-trial stage. Neither from an express proviso nor by implication can it be construed that R.A. No. 7691 has retroactive application to criminal cases pending or decided by the Regional Trial Courts prior to its effectivity.1152[20] The jurisdiction of the RTC over the case attached upon the commencement of the action by the filing of the Information and could not be ousted by the passage of R.A. No. 7691 reapportioning the jurisdiction of inferior courts, the application of which to criminal cases is prospective in nature. 1153[21]

After a careful review of the records, this Court sustains petitioners conviction for violation of B.P. Blg. 22. The elements of the offense penalized under B.P. Blg. 22 are as follows: (1) the accused makes, draws, or issues any check to apply on account or for value; (2) the accused 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 reason, ordered the bank to stop payment.

1150 1151 1152 1153

Page 777 of 1485

Each element of the offense was duly proven by the prosecution. Petitioner admitted that at the time he issued the subject check, he knew that he does not have sufficient funds in or credit with the drawee bank for payment of such check. Consequently, when the check was presented for payment, it was dishonored by the drawee bank for insufficiency of funds. Thereafter, he received demand letters to pay the amount of the check from private complainant but he did not comply with it.1154[22]

In ruling that the amount of the check was for consideration or value, both the trial court and the Court of Appeals upheld private complainants claim that the check was issued as a guaranty for the loan and rejected petitioners investment theory. The issue as to whether the amount of the subject check represents the amount of the money loaned by private complainant to petitioner or as an investment in the alleged partnership is a factual question involving the credibility of witnesses. Where the issue is one of credibility, the appellate court will not generally disturb the findings of the lower court considering that it is in a better position to settle that issue since it had the advantage of hearing the witnesses and observing their conduct during the trial, which circumstances carry great weight in assessing their credibility. In the present case, we see no reason to reverse the finding of the trial court as affirmed by the Court of Appeals that the amount of the subject check was a loan and not an investment.1155[23]

Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable consideration, which may 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 side. Since it was established that petitioner received money from private complainant in various amounts, 1156[24] petitioner cannot now claim that the checks were not issued for value.1157[25]

1154 1155 1156

Page 778 of 1485

The allegation that the check was intended to be shown to potential suppliers is not a valid defense. In Cueme v. People,1158[26] the Court held thus:

The allegation of petitioner that the checks were merely intended to be shown to prospective investors of her corporation is, to say the least, not a defense. The gravamen of the offense punished under B.P. Blg. 22 is the act of making or issuing a worthless check or a check that is dishonored upon its presentment for payment. The law has made the mere act of issuing a bad check malum prohibitum, an act proscribed by the legislature for being deemed pernicious and inimical to public welfare. Considering the rule in mala prohibita cases, the only inquiry is whether the law has been breached. Criminal intent becomes unnecessary where the acts are prohibited for reasons of public policy, and the defenses of good faith and absence of criminal intent are unavailing. The checks issued, even assuming they were not intended to be encashed or deposited in a bank, produce the same effect as ordinary checks. What the law punishes is the issuance of a rubber check itself and not the purpose for which the check was issued nor the terms and conditions relating to its issuance. This is not without good reasons. To determine the purpose as well as the terms and conditions for which checks are issued will greatly erode the faith the public reposes in the stability and commercial value of checks as currency substitutes, and bring about havoc in the trading and banking communities. Besides, the law does not make any distinction as to the kind of checks which are the subject of its provisions, hence, no such distinction can be made by means of interpretation or application. What is important is the fact that petitioner deliberately issued the checks in question and those checks were dishonored upon presentment for payment.

Hence, the agreement surrounding the issuance of a check is irrelevant to the prosecution and conviction of the petitioner.1159[27]

The alleged inconsistency in the date of issuance of the subject check is likewise immaterial. Issuance, as defined under the Negotiable Instruments Law, is the first delivery

1157 1158 1159

Page 779 of 1485

of the check.1160[28] In the case at bar, the Information alleged that the check was During trial,

postdated February 15, 1988 although issued in or about September 1987. that the check was issued sometime in February 1988.

petitioner testified that the Checking Account was opened only on December 1, 1987 and

The rule is that a variance between the allegation in the information and proof adduced during trial shall be fatal to the criminal case if it is material and prejudicial to the accused so much so that it affects his substantial rights. 1161[29] In a prosecution for violation of B.P. 22, the time of the issuance of the subject check is material since it forms part of the second element of the offense that at the time of its issuance, petitioner knew of the insufficiency of funds. However, it cannot be said that petitioner was prejudiced by such variance nor was surprised by it. Records show that petitioner knew at the time he issued the check that he does not have sufficient funds in the bank to cover the amount of the check. Yet, he proceeded to issue the same claiming that the same would only be shown to prospective suppliers, a defense which is not valid.

Moreover, there is no merit in petitioners allegation that private complainant knew that the check is not funded. Both the trial court and the Court of Appeals found that the subject check was issued as guaranty for payment of the loan hence, was intended to apply for account or for value. As such, it was incumbent upon petitioner to see to it that the check is duly covered when presented for payment.

Pursuant to Supreme Court Administrative Circular No. 12-2000, as clarified by Administrative Circular No. 13-2001, the alternative penalty of fine may be imposed in lieu of imprisonment considering that the prosecution failed to prove or allege that petitioner is not a first-time offender.1162[30] Hence, in lieu of imprisonment, a fine of P200,000.00 shall be imposed upon petitioner.1163[31]

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Page 780 of 1485

WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CR No. 21879 dated September 17, 2001, finding petitioner ISIDRO PABLITO M. PALANA guilty of violating Batas Pambansa Blg. 22, is AFFIRMED with MODIFICATION . Petitioner is ordered to pay private complainant the amount of P590,000.00, representing the value of the check, with six (6%) percent interest from date of filing of the Information until the finality of the decision, the amount of which, inclusive of the interest, is subject to twelve percent (12%) interest, from finality of the decision until fully paid. In lieu of imprisonment, petitioner is ordered to pay a fine of P200,000.00.

SO ORDERED. Republic SUPREME Manila THIRD DIVISION G.R. No. 176084 April 30, 2008 CARIO, petitioner, of the Philippines COURT

CARMENCITA G. vs. MERLIN DE CASTRO, respondent. DECISION YNARES-SANTIAGO, J.:

This petition for review on certiorari seeks to annul and set aside the August 18, 2006 Decision1 of the Court of Appeals in CA-G.R. CR No. 29523 dismissing the petition as well as the December 29, 2006 Resolution2 denying the Motion for Reconsideration. Petitioner Carmencita G. Cario filed a complaint-affidavit for violation of Batas Pambansa Blg. 22 (BP 22) against respondent Merlin de Castro before the Office of the City Prosecutor of Manila. After conducting preliminary investigation, Assistant City Prosecutor Manuel B. Sta. Cruz, Jr., issued a Resolution finding prima facie evidence and recommending respondent's indictment. Accordingly, respondent was charged with five (5) counts of violation of BP 22 before the Metropolitan Trial Court of Manila, Branch 13. During arraignment, respondent manifested her intention to file a Motion for Preliminary Determination of Existence of Probable Cause which was granted. Accordingly, respondent's arraignment was deferred. Petitioner was required to file comment on the Motion for

1163

Page 781 of 1485

Preliminary Determination of Existence of Probable Cause. However, instead of a comment, petitioner filed a motion for extension which was denied for being a prohibited pleading under the Rule on Summary Procedure. In an Order3 dated August 30, 2004, the Metropolitan Trial Court of Manila, Branch 13 found that the checks were issued by respondent without valuable consideration; that petitioner was not authorized to collect rental payments from respondent; and that consequently, respondent can legally refuse payment on the ground that said checks were issued without valuable and legal consideration. The dispositive portion of the Order reads: WHEREFORE, finding no probable cause against the accused for violation of Batas Pambansa Bilang 22, the instant cases are DISMISSED. IT IS SO ORDERED.4 Petitioner appealed to the Regional Trial Court. In a Decision 5 dated February 28, 2005, the Regional Trial Court of Manila, Branch 40, affirmed the Decision of the court a quo and dismissed the appeal for lack of merit. It held that petitioner failed to controvert the JointAffidavit executed by the owners of the property that they did not authorize petitioner to lease their property and to collect rentals thereon. Hence, the checks were issued for a nonexisting account or without legal and valuable consideration. Petitioner filed a motion for reconsideration but it was denied by the Regional Trial Court in an Order6 dated August 15, 2005. Thereafter, petitioner, through counsel and with the conformity of Asst. City Prosecutor, Sawadjaan Issan, filed a petition for review before the Court of Appeals. However, in the assailed Decision dated August 18, 2006, the Court of Appeals dismissed the petition because it was filed only by the private prosecutor and not by the Office of the Solicitor General as mandated by law. The appellate court ruled thus: We note that the instant petition for review suffers from a basic infirmity of having been filed merely by the private prosecutor or counsel of the private complainant, though with the conformity of the Assistant City Prosecutor, and not by the authorized representative of the People of the Philippines - the Solicitor General. Hence, it is dismissible on said ground alone. We emphasize that the authority to represent the State in appeals of criminal cases before the Court of Appeals and the Supreme Court is solely vested in the Office of the Solicitor General. Section 35(1), Chapter 12, Title III of Book IV of the 1987 Administrative Code explicitly provides, viz.: "SEC. 35. Powers and Functions. - The Office of the Solicitor General shall represent the Government of the Philippines, its agencies and instrumentalities and its officials and agents in any litigation, proceeding, investigation or matter requiring the services of lawyers. x x x It shall have the following specific powers and functions: (1) Represent the Government in the Supreme Court and the Court of Appeals in all criminal proceedings; represent the Government and its officers in the Supreme Court and Court of Appeals, and all other courts or tribunals in all civil actions and special proceedings in which the Government or any officer thereof in his official capacity is a party."

Page 782 of 1485

Jurisprudence has been consistent on this point so much so that in the City Fiscal of Tacloban vs. Espina, it was held: "Under Section 5, Rule 110 of the Rules of Court all criminal actions commenced by complaint or information shall be prosecuted under the direction and control of the fiscal. The fiscal represents the People of the Philippines in the prosecution of offenses before the trial courts at the metropolitan trial courts, municipal trial courts, municipal circuit trial courts and the regional trial courts. However, when such criminal actions are brought to the Court of Appeals or (to) this Court, it is the Solicitor General who must represent the People of the Philippines not the fiscal. As succinctly observed by the Solicitor General, petitioner has no authority to file the petition in this Court. It is only the Solicitor General who can bring or defend such actions on behalf of the Republic of the Philippines or the People of the Philippines. And such actions not initiated by the Solicitor General should be summarily dismissed."7 Petitioner filed a Motion for Reconsideration. On October 3, 2006, the Court of Appeals required the Office of the Solicitor General (OSG) to file comment. 8 In its Comment,9 the OSG noted thus: 1. A thorough examination of petitioner's Motion for Reconsideration and an assiduous re-evaluation of the records and the applicable laws and jurisprudence reveal that there is no basis, in fact or in law, there being no new and substantial matter not already considered and ruled upon by this Honorable Court is pleaded that would warrant a re-examination, much less, the modification or reversal of the Decision dated August 18, 2006 of this Honorable Court which dismissed petitioner's petition for review dated August 31, 2005. Said petition was filed merely by the private prosecutor, and not by the authorized representative of the People of the Philippines - the Office of the Solicitor General which is solely vested with the authority to represent the People in appeals of criminal cases before the Court of Appeals and the Supreme Court, pursuant to Section 35(1), Chapter 12, Title III of Book IV of the 1987 Administrative Code. 2. Petitioner's Motion for Reconsideration is just a reiteration and rehash of the errors assigned and discussed in the petition for review dated August 31, 2005, which were already resolved in the Decision sought to be reconsidered. It would be a useless ritual of this Honorable Court to reiterate itself. 3. Considering that this Honorable Court had carefully scrutinized and studied the records as well as weighed and assessed the arguments of both parties before rendering the assailed Decision, petitioner's motion has no leg to stand on. Hence, this Honorable Court is correct in dismissing the petition.10 On December 29, 2006, the Court of Appeals denied the Motion for Reconsideration; hence, the instant petition raising the following issues: I. THE COURT OF APPEALS ERRED IN ISSUING THE DECISION PROMULGATED ON AUGUST 18, 2006 AND THE RESOLUTION PROMULGATED ON DECEMBER 29, 2006 IN

Page 783 of 1485

NOT RECTIFYING THE ERROR OF LAW COMMITTED BY THE BRANCH 40 REGIONAL TRIAL OF MANILA AND BRANCH 13 OF THE METROPOLITAN TRIAL COURT OF MANILA. II. THE ABOVE-MENTIONED DECISION AND RESOLUTION OF THE COURT OF APPEALS ARE NOT IN ACCORD WITH LAW AND APPLICABLE JURISPRUDENCE OF THIS MOST HONORABLE COURT.11 The petition lacks merit. In criminal proceedings on appeal in the Court of Appeals or in the Supreme Court, the authority to represent the People is vested solely in the Solicitor General. Under Presidential Decree No. 478, among the specific powers and functions of the OSG was to "represent the government in the Supreme Court and the Court of Appeals in all criminal proceedings." This provision has been carried over to the Revised Administrative Code particularly in Book IV, Title III, Chapter 12 thereof.12 Without doubt, the OSG is the appellate counsel of the People of the Philippines in all criminal cases.13 Although the petition for review before the Court of Appeals was filed with the conformity of the Assistant City Prosecutor, such conformity is insufficient, as the rules and jurisprudence mandate that the same should be filed by the Solicitor General. While a private prosecutor may be allowed to intervene in criminal proceedings on appeal in the Court of Appeals or the Supreme Court, his participation is subordinate to the interest of the People, hence, he cannot be permitted to adopt a position contrary to that of the Solicitor General. To do so would be tantamount to giving the private prosecutor the direction and control of the criminal proceeding, contrary to the provisions of law. 14 In the instant case, the Solicitor General opined that petitioner had no legal standing to file the petition for review and that the Court of Appeals correctly dismissed the petition. As such, the Assistant City Prosecutor or the private prosecutor cannot take a contrary view. We are cognizant of our ruling in the cases of Perez v. Hagonoy,15 Mobilia Products, Inc. v. Umezawa,16 People v. Santiago,17 and Narciso v. Sta. Romana-Cruz,18 where we held that only the OSG can bring or defend actions on behalf of the Republic or represent the People or state in criminal proceedings pending in the Supreme Court and the Court of Appeals. At the same time, we acknowledged in those cases that a private offended party, in the interest of substantial justice, and where there appears to be a grave error committed by the judge, or where there is lack of due process, may allow and give due course to the petition filed. However, the special circumstances prevailing in the abovementioned cases are not present in the instant case. In those cases, the petitioners availed of petition for certiorari under Rule 65. In the instant case, the petition was filed under Rule 45. Moreover, both the Metropolitan Trial Court and the Regional Trial Court found that petitioner was not duly authorized by the owner of the subject property to collect and receive rentals thereon. Thus, not only were the checks without valuable consideration; they were also issued for a non-existing account. With these undisputed findings, we cannot reconcile petitioner's allegation that she is the aggrieved party. Finally, petitioner cannot validly claim that she was denied due process considering that she availed of every opportunity to present her case. Thus, we find no grave abuse of discretion on the part of the lower courts in dismissing the complaints.

Page 784 of 1485

WHEREFORE, the petition for review is DENIED. The Decision of the Court of Appeals dated August 18, 2006 dismissing the petition as well as the Resolution dated December 29, 2006 denying the motion for reconsideration, are AFFIRMED. SO ORDERED. THIRD DIVISION

SIAIN ENTERPRISES, INC., Petitioner,

G.R. No. 170782

Present:

YNARES-SANTIAGO, J., Chairperson, - versus CHICO-NAZARIO, VELASCO, JR., NACHURA, and PERALTA, JJ.

CUPERTINO REALTY CORP. and EDWIN R. CATACUTAN, Respondents.

Promulgated:

June 22, 2009

x------------------------------------------------------------------------------------x

DECISION

Page 785 of 1485

NACHURA, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals in CA-G.R. CV No. 71424 1164[1] which affirmed the decision of the Regional Trial Court, Branch 29, Iloilo City in Civil Case No. 23244. 1165[2]

On April 10, 1995, petitioner Siain Enterprises, Inc. obtained a loan of P37,000,000.00 from respondent Cupertino Realty Corporation (Cupertino) covered by a promissory note signed by both petitioners and Cupertinos respective presidents, Cua Le Leng and Wilfredo Lua. The promissory note authorizes Cupertino, as the creditor, to place in escrow the loan proceeds of P37,000,000.00 with Metropolitan Bank & Trust Company to pay off petitioners loan obligation with Development Bank of the Philippines (DBP). To secure the loan, petitioner, on the same date, executed a real estate mortgage over two (2) parcels of land and other immovables, such as equipment and machineries.

Two (2) days thereafter, or on April 12, 1995, the parties executed an amendment to promissory note which provided for a seventeen percent (17%) interest per annum on the P37,000,000.00 loan.1166[3] The amendment to promissory note was likewise signed by Cua Le Leng and Wilfredo Lua on behalf of petitioner and Cupertino, respectively.

On August 16, 1995, Cua Le Leng signed a second promissory note in favor of Cupertino for P160,000,000.00. Cua Le Leng signed the second promissory note as maker, on behalf of petitioner, and as co-maker, liable to Cupertino in her personal capacity. This second promissory note provides:

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PROMISSORY NOTE AMOUNT ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00) DATE: AUGUST 16, 1995

FOR VALUE RECEIVED, after one (1) year from this date on or August 16, 1996, WE, SIAIN ENTERPRISES INC. with Metro Manila office address at 306 J.P. Rizal St., Mandaluyong City, represented herein by its duly authorized President, Ms. LELENG CUA, (a copy of her authority is hereto attached as Annex A) and Ms. LELENG CUA in her personal capacity, a resident of ILOILO CITY, jointly and severally, unconditionally promise to pay CUPERTINO REALTY CORPORATION, or order, an existing corporation duly organized under Philippine laws, the amount/sum of ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00), Philippine Currency, without further need of any demand, at the office of CUPERTINO REALTY CORPORATION; The amount/sum of ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00) shall earn a compounding interest of 30% per annum which interest shall be payable to CUPERTINO REALTY CORPORATION at its above given address ON THE FIRST DAY OF EVERY MONTH WITHOUT THE NEED OF DEMAND. In case We fail to pay the principal amount of this note at maturity or in the event of bankruptcy or insolvency, receivership, levy of execution, garnishment or attachment or in case of conviction for a criminal offense carrying with it the penalty of civil interdiction or in any of the cases covered by Article 1198 of the Civil Code of the Philippines, then the entire principal of this note and other interests and penalties due thereon shall, at the option of CUPERTINO REALTY CORPORATION, immediately become due and payable and We jointly and severally agree to pay additionally a penalty at the rate of THREE PERCENT (3%) per month on the total amount/sum due until fully paid. Furthermore, We jointly and severally agree to pay an additional sum equivalent to 20% of the total amount due but in no case less than PHP 100,000.00 as and for attorneys fees in addition to expenses and costs of suit. We hereby authorize and empower CUPERTINO REALTY CORPORATION at its option at any time, without notice, to apply to the payment of this note and or any other particular obligation or obligations of all or any one of us to CUPERTINO REALTY CORPORATION, as it may select, irrespective of the dates of maturity, whether or not said obligations are then due, any and all moneys, checks, securities and things of value which are now or which may hereafter be in its hand on deposit or otherwise to the credit of, or belonging to, both or any one of us, and CUPERTINO REALTY CORPORATION is hereby authorized to sell at public or private sale such checks, securities, or things of value for the purpose of applying the proceeds thereof to such payments of this note. We hereby expressly consent to any extension and/or renewals hereof in whole or in part and/or partial payment on account which may be requested by and granted to us or any one of us for the payment of this note as long as the remaining unpaid balance shall earn an interest of THREE percent (3%) a

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month until fully paid. Such renewals or extensions shall, in no case, be understood as a novation of this note or any provision thereof and We will thereby continue to be liable for the payment of this note. We submit to the jurisdiction of the Courts of the City of Manila or of the place of execution of this note, at the option of CUPERTINO REALTY CORPORATION without divesting any other court of the its jurisdiction, for any legal action which may arise out of this note. In case of judical execution of this obligation, or any part of it, we hereby waive all our rights under the provisions of Rule 39, section 12 of the Rules of Court. We, who are justly indebted to CUPERTINO REALTY CORPORATION, agree to execute respectively a real estate mortgage and a pledge or a chattel mortgage covering securities to serve as collaterals for this loan and to execute likewise an irrevocable proxy to allow representatives of the creditor to be able to monitor acts of management so as to prevent any premature call of this loan. We further undertake to execute any other kind of document which CUPERTINO REALTY CORPORATION may solely believe is necessary in order to effect any security over any collateral. For this purpose, Ms. LELENG CUA, upon the foregoing promissory note, has this 16th day of Aug 1995, pledged her shares of stocks in SIAIN ENTERPRISES, INC., worth PHP 1,800,000.00 which she hereby confesses as representing 80% of the total outstanding shares of the said company. In default of payment of said note or any part thereof at maturity, Ms. LELENG CUA hereby authorizes CUPERTINO REALTY CORPORATION or its assigns, to dispose of said security or any part thereof at public sale. The proceeds of such sale or sales shall, after payment of all expenses and commissions attending said sale or sales, be applied to this promissory note and the balance, if any, after payment of this promissory note and interest thereon, shall be returned to the undersigned, her heirs, successors and administrators; it shall be optional for the owner of the promissory note to bid for and purchase the securities or any part thereof. (signed) LELENG CUA In her personal capacity CO-MAKER

SIAIN ENTERPRISES, INC.

By:

(signed) LELENG CUA MAKER

WITNESSES: (signed) EDGARDO LUA (signed)

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ROSE MARIE RAGODON1167[4]

Parenthetically, on even date, the parties executed an amendment of real estate mortgage, providing in pertinent part:

WHEREAS, on 10 April 1995, the [petitioner] executed, signed and delivered a Real Estate Mortgage to and in favor of [Cupertino] on certain real estate properties to secure the payment to [Cupertino] of a loan in the amount of THIRTY SEVEN MILLION PESOS (P37,000,000.00) Philippine Currency, granted by [Cupertino] was ratified (sic) on 10 April 1995 before Constancio Mangoba, Jr., Notary Public in Makati City, as Doc. No. 242; in Page No. 50; Book No., XVI; Series of 1995, and duly recorded in the Office of the Register of Deeds for the said City of Iloilo; WHEREAS, the [petitioner] has increased its loan payable to [Cupertino] which now amounts to ONE HUNDRED NINETY SEVEN MILLION PESOS (197,000,000.00); and WHEREAS, the [petitioner] and [Cupertino] intend to amend the said Real Estate Mortgage in order to reflect the current total loan secured by the said Real Estate Mortgage; NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereto have agreed and by these presents do hereby agree to amend said Real Estate Mortgage dated 10 April 1995 mentioned above by substituting the total amount of the loan secured by said Real Estate Mortgage from P37,000,000.00 to P197,000,000.00. It is hereby expressly understood that with the foregoing amendment, all other terms and conditions of said Real Estate Mortgage dated 10 April 1995 are hereby confirmed, ratified and continued to be in full force and effect, and that this agreement be made an integral part of said Real Estate Mortgage.1168[5]

Curiously however, and contrary to the tenor of the foregoing loan documents, petitioner, on March 11, 1996, through counsel, wrote Cupertino and demanded the release of the P160,000,000.00 loan increase covered by the amendment of real estate mortgage.1169[6] In the demand letter, petitioners counsel stated that despite repeated

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verbal demands, Cupertino had yet to release the P160,000,000.00 loan. On May 17, 1996, petitioner demanded anew from Cupertino the release of the P160,000,000.00 loan.1170[7]

In complete refutation, Cupertino, likewise through counsel, responded and denied that it had yet to release the P160,000,000.00 loan. Cupertino maintained that petitioner had long obtained the proceeds of the aforesaid loan. Cupertino declared petitioners demand as made to abscond from a just and valid obligation, a mere afterthought, following Cupertinos letter demanding payment of the P37,000,000.00 loan covered by the first promissory note which became overdue on March 5, 1996.

Not surprisingly, Cupertino instituted extrajudicial foreclosure proceedings over the properties subject of the amended real estate mortgage. The auction sale was scheduled on October 11, 1996 with respondent Notary Public Edwin R. Catacutan commissioned to conduct the same. This prompted petitioner to file a complaint with a prayer for a restraining order to enjoin Notary Public Catacutan from proceeding with the public auction.

The following are the parties conflicting claims, summarized by the RTC, and quoted verbatim by the CA in its decision:

The verified complaint alleges that [petitioner] is engaged in the manufacturing and retailing/wholesaling business. On the other hand, Cupertino is engaged in the realty business. That on April 10, 1995, [petitioner] executed a Real Estate Mortgage over its real properties covered by Transfer Certificates of title Nos. T-75109 and T-73481 (the mortgage properties) of the Register of Deeds of Iloilo in favor of Cupertino to secure the formers loan obligation to the latter in the amount of Php37,000,000.00. That it has been the agreement between [petitioner] and Cupertino that the aforesaid loan will be non-interest bearing. Accordingly, the parties saw to it that the promissory note (evidencing their loan agreement) did not provide any stipulation with respect to interest. On several occasions thereafter, [petitioner] made partial payments to Cupertino in respect of the aforesaid loan obligation by the former to the latter in the total amount of Php7,985,039.08, thereby leaving a balance of Php29,014,960.92. On August 16, 1995, [petitioner] and Cupertino executed an amendment of Real Estate Mortgage (Annex C) increasing the

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total loan covered by the aforesaid REM from Php37,000,000.00 to P197,000,000.00. This amendment to REM was executed preparatory to the promised release by Cupertino of additional loan proceeds to [petitioner] in the total amount of Php160,000,000.00. However, despite the execution of the said amendment to REM and its subsequent registration with the Register of Deeds of Iloilo City and notwithstanding the clear agreement between [petitioner] and Cupertino and the latter will release and deliver to the former the aforesaid additional loan proceeds of P160,000,000.00 after the signing of pertinent documents and the registration of the amendment of REM, Cupertino failed and refused to release the said additional amount for no apparent reason at all, contrary to its repeated promises which [petitioner] continuously relied on. On account of Cupertinos unfulfilled promises, [petitioner] repeatedly demanded from Cupertino the release and/or delivery of the said Php160,000,000.00 to the former. However, Cupertino still failed and refused and continuously fails and refuses to release and/or deliver the Php160,000,000.00 to [petitioner]. When [petitioner] tendered payment of the amount of Php29,014,960.92 which is the remaining balance of the Php37,000,000.00 loan subject of the REM, in order to discharge the same, Cupertino unreasonably and unjustifiably refused acceptance thereof on the ground that the previous payment amounting to Php7,985,039.08, was applied by Cupertino to alleged interests and not to principal amount, despite the fact that, as earlier stated, the aforesaid loan by agreement of the parties, is noninterest bearing. Worst, unknown to [petitioner], Cupertino was already making arrangements with [respondent] Notary Public for the extrajudicial sale of the mortgage properties even as [petitioner] is more than willing to pay the Php29,014,960.92 which is the remaining balance of the Php37,000,000.00 loan and notwithstanding Cupertinos unjustified refusal and failure to deliver to [petitioner] the amount of Php160,000,000.00. In fact, a notarial sale of the mortgaged properties is already scheduled on 04 October 1996 by [respondent] Notary Public at his office located at Rm. 100, Iloilo Casa Plaza, Gen Luna St., Iloilo City. In view of the foregoing, Cupertino has no legal right to foreclose the mortgaged properties. In any event, Cupertino cannot extrajudicially cause the foreclosure by notarial sale of the mortgage properties by [respondent] Notary Public as there is nothing in the REM (dated 10 April 1995) or in the amendment thereto that grants Cupertino the said right. xxxx [Respondents] finally filed an answer to the complaint, alleging that the loan have (sic) an interest of 17% per annum: that no payment was ever made by [petitioner], that [petitioner] has already received the amount of the loan prior to the execution of the promissory note and amendment of Real Estate Mortgage, xxx. [Petitioner] filed a supplemental complaint alleging subsequent acts made by defendants causing the subsequent auction sale and registering the Certificates of Auction Sale praying that said auction sale be declared null and void and ordering the Register of Deeds to cancel the registration and annotation of the Certificate of Notarial Sale. Thereafter, the Pre-Trial conference was set. Both parties submitted their respective Brief and the following facts were admitted, viz: 1. Execution of the mortgage dated April 10, 1995;

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2. Amendment of Real Estate Mortgage dated August 16, 1995; 3. Execution of an Extra-Judicial Foreclosure by the [Cupertino]; 4. Existence of two (2) promissory notes; 5. Existence but not the contents of the demand letter March 11, 1996 addressed to Mr. Wilfredo Lua and receipt of the same by [Cupertino]; and 6. Notice of Extra-Judicial Foreclosure Sale. For failing to arrive at an amicable settlement, trial on the merits ensued. The parties presented oral and documentary evidence to support their claims and contentions. [Petitioner] insisted that she never received the proceeds of Php160,000,000.00, thus, the foreclosure of the subject properties is null and void. [Cupertino] on the other hand claimed otherwise.1171[8]

After trial, the RTC rendered a decision dismissing petitioners complaint and ordering it to pay Cupertino P100,000.00 each for actual and exemplary damages, and P500,000.00 as attorneys fees. The RTC recalled and set aside its previous order declaring the notarial foreclosure of the mortgaged properties as null and void. On appeal, the CA, as previously adverted to, affirmed the RTCs ruling.

In dismissing petitioners complaint and finding for Cupertino, both the lower courts upheld the validity of the amended real estate mortgage. The RTC found, as did the CA, that although the amended real estate mortgage fell within the exceptions to the parol evidence rule under Section 9, Rule 130 of the Rules of Court, petitioner still failed to overcome and debunk Cupertinos evidence that the amended real estate mortgage had a consideration, and petitioner did receive the amount of P160,000,000.00 representing its incurred obligation to Cupertino. Both courts ruled that as between petitioners bare denial and negative evidence of non-receipt of the P160,000,000.00, and Cupertinos affirmative evidence on the existence of the consideration, the latter must be given more weight and value. In all, the lower courts gave credence to Cupertinos evidence that the P160,000,000.00 proceeds were the total amount received by petitioner and its affiliate companies over the years from Wilfredo Lua, Cupertinos president. In this regard, the lower courts applied the doctrine of piercing the veil of corporate fiction to preclude petitioner from disavowing receipt of the P160,000,000.00 and paying its obligation under the amended real estate mortgage.

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Undaunted, petitioner filed this appeal insisting on the nullity of the amended real estate mortgage. Petitioner is adamant that the amended real estate mortgage is void as it did not receive the agreed consideration therefor i.e. P160,000,000.00. Petitioner avers that the amended real estate mortgage does not accurately reflect the agreement between the parties as, at the time it signed the document, it actually had yet to receive the amount of P160,000,000.00. Lastly, petitioner asseverates that the lower courts erroneously applied the doctrine of piercing the veil of corporate fiction when both gave credence to Cupertinos evidence showing that petitioners affiliates were the previous recipients of part of the P160,000,000.00 indebtedness of petitioner to Cupertino.

We are in complete accord with the lower courts rulings.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are considered conclusive between the parties. 1172[9] A review of such findings by this Court is not warranted except upon a showing of highly meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on speculation, surmises or conjectures; (2) when a lower courts inference from its factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence, or are contradicted by evidence on record. 1173[10] None of these exceptions necessitating a reversal of the assailed decision obtains in this instance.

Conversely, we cannot subscribe to petitioners faulty reasoning.

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First.

All the loan documents, on their face, unequivocally declare petitioners

indebtedness to Cupertino:

1.

Promissory Note dated April 10, 1995, prefaced with a [f]or value received,

and the escrow arrangement for the release of the P37,000,000.00 obligation in favor of DBP, another creditor of petitioner.

2.

Mortgage likewise dated April 10, 1995 executed by petitioner to secure its

P37,000,000.00 loan obligation with Cupertino.

3.

Amendment to Promissory Note for P37,000,000.00 dated April 12, 1995

which tentatively sets the interest rate at seventeen percent (17%) per annum.

4.

Promissory Note dated August 16, 1995, likewise prefaced with [f]or value

received, and unconditionally promising to pay Cupertino P160,000,000.00 with a stipulation on compounding interest at thirty percent (30%) per annum. The Promissory Note requires, among others, the execution of a real estate mortgage to serve as collateral therefor. In case of default in payment, petitioner, specifically, through its president, Cua Le Leng, authorizes Cupertino to dispose of said security or any part thereof at [a] public sale.

5.

Amendment of Real Estate Mortgage also dated August 16, 1995 with a

recital that the mortgagor, herein petitioner, has increased its loan payable to the mortgagee, Cupertino, from P37,000,000.00 to P197,000,000.00. In connection with the increase in loan obligation, the parties confirmed and ratified the Real Estate Mortgage dated April 10, 1995.

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Unmistakably, from the foregoing chain of transactions, a presumption has arisen that the loan documents were supported by a consideration.

Rule 131, Section 3 of the Rules of Court specifies that a disputable presumption is satisfactory if uncontradicted and not overcome by other evidence. Corollary thereto, paragraphs (r) and (s) thereof and Section 24 of the Negotiable Instruments Law read:

SEC. 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence: xxxx

(r)

That there was sufficient consideration for a contract;

(s) That a negotiable instrument was given or indorsed for a sufficient consideration;

xxx

SEC. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

Second. The foregoing notwithstanding, petitioner insists that the Amended Real Estate Mortgage was not supported by a consideration, asserting non-receipt of the P160,000,000.00 loan increase reflected in the Amended Real Estate Mortgage. However, petitioners bare-faced assertion does not even dent, much less, overcome the aforesaid presumptions on consideration for a contract. As deftly pointed out by the trial court:

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x x x In this case, this Court finds that the [petitioner] has not been able to establish its claim of non-receipt by a preponderance of evidence. Rather, the Court is inclined to give more weight and credence to the affirmative and straightforward testimony of [Cupertino] explaining in plain and categorical words that the Php197,000,000.00 loan represented by the amended REM was the total sum of the debit memo, the checks, the real estate mortgage and the amended real estate mortgage, the pledges of jewelries, the trucks and the condominiums plus the interests that will be incurred which all in all amounted to Php197,000,000.00. It is a basic axiom in this jurisdiction that as between the plaintiffs negative evidence of denial and the defendants affirmative evidence on the existence of the consideration, the latter must be given more weight and value. Moreover, [Cupertinos] foregoing testimony on the existence of the consideration of the Php160,000,000.00 promissory note has never been refuted nor denied by the [petitioner], who while initially having manifested that it will present rebuttal evidence eventually failed to do so, despite all available opportunities accorded to it. By such failure to present rebutting evidence, [Cupertinos] testimony on the existence of the consideration of the amended real estate mortgage does not only become impliedly admitted by the [petitioner], more significantly, to the mind of this Court, it is a clear indication that [petitioner] has no counter evidence to overcome and defeat the [Cupertinos] evidence on the matter. Otherwise, there is no logic for [petitioner] to withhold it if available. Assuming that indeed it exists, it may be safely assumed that such evidence having been willfully suppressed is adverse if produced. The presentation by [petitioner] of its cash Journal Receipt Book as proof that it did not receive the proceeds of the Php160,000,000.00 promissory note does not likewise persuade the Court. In the first place, the subject cash receipt journal only contained cash receipts for the year 1995. But as appearing from the various checks and debit memos issued by Wilfredo Lua and his wife, Vicky Lua and from the formers unrebutted testimony in Court, the issuance of the checks, debit memos, pledges of jewelries, condominium units, trucks and the other components of the Php197,000,000.00 amended real estate mortgage had all taken place prior to the year 1995, hence, they could not have been recorded therein. What is more, the said cash receipt journal appears to be prepared solely at the behest of the [petitioner], hence, can be considered as emanating from a poisonous tree therefore self-serving and cannot be given any serious credibility.1174[11]

Significantly, petitioner asseverates that the parol evidence rule, which excludes other evidence, apart from the written agreement, to prove the terms agreed upon by the parties contained therein,1175[12] is not applicable to the Amended Real Estate Mortgage. Both the trial and appellate courts agreed with petitioner and did not apply the parol

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evidence rule. Yet, despite the allowance to present evidence and prove the invalidity of the Amended Real Estate Mortgage, petitioner still failed to substantiate its claim of non-receipt of the proceeds of the P160,000,000.00 loan increase.

Moreover, petitioner was the plaintiff in the trial court, the party that brought suit against respondent. Accordingly, it had the burden of proof, the duty to present a preponderance of evidence to establish its claim.1176[13] However, petitioners evidence consisted only of a barefaced denial of receipt and a vaguely drawn theory that in their previous loan transaction with respondent covered by the first promissory note, it did not receive the proceeds of the P37,000,000.00. Petitioner conveniently ignores that this particular promissory note secured by the real estate mortgage was under an escrow arrangement and taken out to pay its obligation to DBP. Thus, petitioner, quite obviously, would not be in possession of the proceeds of the loan. Contrary to petitioners contention, there is no precedent to explain its stance that respondent undertook to release the P160,000,000.00 loan only after it had first signed the Amended Real Estate Mortgage.

Third. Petitioner bewails the lower courts application of the doctrine of piercing the veil of corporate fiction.

As a general rule, a corporation will be deemed a separate legal entity until sufficient reason to the contrary appears.1177[14] But the rule is not absolute. A corporations separate and distinct legal personality may be disregarded and the veil of corporate fiction pierced when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.1178[15]

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In this case, Cupertino presented overwhelming evidence that petitioner and its affiliate corporations had received the proceeds of the P160,000,000.00 loan increase which was then made the consideration for the Amended Real Estate Mortgage. We quote with favor the RTCs and the CAs disquisitions on this matter:

That the checks, debit memos and the pledges of the jewelries, condominium units and trucks were constituted not exclusively in the name of [petitioner] but also either in the name of Yuyek Manufacturing Corporation, Siain Transport, Inc., Cua Leleng and Alberto Lim is of no moment. For the facts established in the case at bar has convinced the Court of the propriety to apply the principle known as piercing the veil of the corporate entity by virtue of which, the juridical personalities of the various corporations involved are disregarded and the ensuing liability of the corporation to attach directly to its responsible officers and stockholders. x x x xxxx The conjunction of the identity of the [petitioner] corporation in relation to Siain Transport, Inc. (Siain Transport), Yuyek Manufacturing Corp. (Yuyek), as well as the individual personalities of Cua Leleng and Alberto Lim has been indubitably shown in the instant case by the following established considerations, to wit: 1. Siain and Yuyek have [a] common [incorporators], stockholders and board of directors; set of

2. They have the same internal bookkeeper and accountant in the person of Rosemarie Ragodon; 3. They have the same office address at 306 Jose Rizal St., Mandaluyong City; 4. They have the same majority stockholder and president in the person of Cua Le Leng; and 5. In relation to Siain Transport, Cua Le Leng had the unlimited authority by and on herself, without authority from the Board of Directors, to use the funds of Siain Trucking to pay the obligation incurred by the [petitioner] corporation. Thus, it is crystal clear that [petitioner] corporation, Yuyek and Siain Transport are characterized by oneness of operations vested in the person of their common president, Cua Le Leng, and unity in the keeping and maintenance of their corporate books and records through their common accountant and bookkeeper, Rosemarie Ragodon. Consequently, these corporations are proven to be the mere alter-ego of their president Cua Leleng, and considering that Cua Leleng and Alberto Lim have been living together as common law spouses with three children, this Court believes that while Alberto Lim

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does not appear to be an officer of Siain and Yuyek, nonetheless, his receipt of certain checks and debit memos from Willie Lua and Victoria Lua was actually for the account of his common-law wife, Cua Leleng and her alter ego corporations. While this Court agrees with Siain that a corporation has a personality separate and distinct from its individual stockholders or members, this legal fiction cannot, however, be applied to its benefit in this case where to do so would result to injustice and evasion of a valid obligation, for well settled is the rule in this jurisdiction that the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice, or for purposes that could not have been intended by the law that created it; or to justify wrong, or for evasion of an existing obligation. Resultantly, the obligation incurred and/or the transactions entered into either by Yuyek, or by Siain Trucking, or by Cua Leleng, or by Alberto Lim with Cupertino are deemed to be that of the [petitioner] itself. The same principle equally applies to Cupertino. Thus, while it appears that the issuance of the checks and the debit memos as well as the pledges of the condominium units, the jewelries, and the trucks had occurred prior to March 2, 1995, the date when Cupertino was incorporated, the same does not affect the validity of the subject transactions because applying again the principle of piercing the corporate veil, the transactions entered into by Cupertino Realty Corporation, it being merely the alter ego of Wilfredo Lua, are deemed to be the latters personal transactions and vice-versa. 1179[16] xxxx x x x Firstly. As can be viewed from the extant record of the instant case, Cua Leleng is the majority stockholder of the three (3) corporations namely, Yuyek Manufacturing Corporation, Siain Transport, Inc., and Siain Enterprises Inc., at the same time the President thereof. Second. Being the majority stockholder and the president, Cua Le leng has the unlimited power, control and authority without the approval from the board of directors to obtain for and in behalf of the [petitioner] corporation from [Cupertino] thereby mortgaging her jewelries, the condominiums of her common law husband, Alberto Lim, the trucks registered in the name of [petitioner] corporations sister company, Siain Transport Inc., the subject lots registered in the name of [petitioner] corporation and her oil mill property at Iloilo City. And, to apply the proceeds thereof in whatever way she wants, to the prejudice of the public. As such, [petitioner] corporation is now estopped from denying the above apparent authorities of Cua Le Leng who holds herself to the public as possessing the power to do those acts, against any person who dealt in good faith as in the case of Cupertino.1180[17]

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WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 71424 is AFFIRMED. Costs against the petitioner.

SO ORDERED. FIRST DIVISION

ENGR. JOSE E. CAYANAN, Petitioner,

G.R. No. 172954

Present:

CORONA, C.J., Chairperson, - versus LEONARDO-DE CASTRO, BERSAMIN, DEL CASTILLO, and VILLARAMA, JR., JJ.

NORTH STAR INTERNATIONAL TRAVEL, INC., Respondent.

Promulgated:

October 5, 2011 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION VILLARAMA, JR., J.:

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Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision 1181[1] of the Court of Appeals (CA) in CA-G.R. SP No. 65538 finding him civilly liable for the value of the five checks which are the subject of Criminal Case Nos. 166549-53. The antecedent facts are as follows: North Star International Travel Incorporated (North Star) is a corporation engaged in the travel agency business while petitioner is the owner/general manager of JEAC International Management and Contractor Services, a recruitment agency. On March 17,1182[2] 1994, Virginia Balagtas, the General Manager of North Star, in accommodation and upon the instruction of its client, petitioner herein, sent the amount of US$60,0001183[3] to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by Likewise, on various telegraphic transfer,1184[4] with US$15,000 coming from petitioner.

dates, North Star extended credit to petitioner for the airplane tickets of his clients, with the total amount of such indebtedness under the credit extensions eventually reaching P510,035.47.1185[5] To cover payment of the foregoing obligations, petitioner issued the following five checks to North Star: Check No Drawn Against Amount Dated/Postdated Payable to : : : : : 246822 Republic Planters Bank P695,000.00 May 15, 1994 North Star International Travel, Inc.

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Page 801 of 1485

Check No Drawn Against Amount Dated/Postdated Payable to : : : : : 246823 Republic Planters Bank P278,000.00 May 15, 1994 North Star International Travel, Inc.

Check No Drawn Against Amount Dated/Postdated Payable to

: : : : :

246824 Republic Planters Bank P22,703.00 May 15, 1994 North Star International Travel, Inc.

Check No Drawn Against Amount Dated/Postdated Payable to

: : : : :

687803 PCIB P1,500,000.00 April 14, 1994 North Star International Travel, Inc.

Check No Drawn Against Amount Dated/Postdated Payable to

: : : : :

687804 PCIB P35,000.00 April 14, 1994 North Star International Travel, Inc.1186[6]

1186

Page 802 of 1485

When presented for payment, the checks in the amount of P1,500,000 and P35,000 were dishonored for insufficiency of funds while the other three checks were dishonored because of a stop payment order from petitioner. 1187[7] wrote petitioner on September 14, 1994 been dishonored.
1188

North Star, through its counsel,

[8] informing him that the checks he issued had

North Star demanded payment, but petitioner failed to settle his

obligations. Hence, North Star instituted Criminal Case Nos. 166549-53 charging petitioner with violation of Batas Pambansa Blg. 22, or the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of Makati City. The Informations,1189[9] which were similarly worded except as to the check numbers, the dates and amounts of the checks, alleged: That on or about and during the month of March 1994 in the Municipality of Makati, Metro Manila, Philippines, a place within the jurisdiction of this Honorable Court, the above-named accused, being the authorized signatory of [JEAC] Intl Mgt & Cont. Serv. did then and there willfully, unlawfully and feloniously make out[,] draw and issue to North Star Intl. Travel Inc. herein rep. by Virginia D. Balagtas to apply on account or for value the checks described below: xxxx said accused well knowing that at the time of issue thereof, did not have sufficient funds in or credit with the drawee bank for the payment in full of the face amount of such check upon its presentment, which check when presented for payment within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for the reason PAYMENT STOPPED/DAIF and despite receipt of notice of such dishonor the accused failed to pay the payee the face amount of said check or to make arrangement for full payment thereof within five (5) banking days after receiving notice. Contrary to law. Upon arraignment, petitioner pleaded not guilty to the charges. After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation of B.P. 22. Thus:

1187 1188 1189

Page 803 of 1485

WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY beyond reasonable doubt of Violation of Batas Pambansa Blg. 22 he is hereby sentenced to suffer imprisonment of one (1) year for each of the offense committed. Accused is likewise ordered to indemnify the complainant North Star International Travel, Inc. represented in this case by Virginia Balagtas, the sum of TWO MILLION FIVE HUNDRED THIRTY THOUSAND AND SEVEN HUNDRED THREE PESOS (P2,530,703.00) representing the total value of the checks in [question] plus FOUR HUNDRED EIGHTY[-]FOUR THOUSAND SEVENTY[-]EIGHT PESOS AND FORTY[-]TWO CENTAVOS (P484,078.42) as interest of the value of the checks subject matter of the instant case, deducting therefrom the amount of TWO HUNDRED TWENTY THOUSAND PESOS (P220,000.00) paid by the accused as interest on the value of the checks duly receipted by the complainant and marked as Exhibit FF of the record. xxxx SO ORDERED.1190[10] On appeal, the Regional Trial Court (RTC) acquitted petitioner of the criminal charges. The RTC also held that there is no basis for the imposition of the civil liability on petitioner. The RTC ratiocinated that: In the instant cases, the checks issued by the accused were presented beyond the period of NINETY (90) DAYS and therefore, there is no violation of the provision of Batas Pambansa Blg. 22 and the accused is not considered to have committed the offense. There being no offense committed, accused is not criminally liable and there would be no basis for the imposition of the civil liability arising from the offense.1191[11] Aggrieved, North Star elevated the case to the CA. On May 31, 2006, the CA

reversed the decision of the RTC insofar as the civil aspect is concerned and held petitioner civilly liable for the value of the subject checks. The fallo of the CA decision reads:

WHEREFORE, the petition is GRANTED. The assailed Decision of the RTC insofar as Cayanan's civil liability is concerned, is NULLIFIED and SET

1190 1191

Page 804 of 1485

ASIDE. The indemnity awarded by the MeTC in its September 1, 1999 Decision is REINSTATED. SO ORDERED.1192[12] The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be held civilly liable for the checks he issued since he never denied having issued the five postdated checks which were dishonored. Petitioner now assails the CA decision raising the lone issue of whether the CA erred in holding him civilly liable to North Star for the value of the checks. 1193[13] Petitioner argues that the CA erred in holding him civilly liable to North Star for the value of the checks since North Star did not give any valuable consideration for the checks. He insists that the US$85,000 sent to View Sea Ventures was not sent for the account of North Star but for the account of Virginia as her investment. He points out that said amount was taken from Virginias personal dollar account in Citibank and not from North Stars corporate account. Respondent North Star, for its part, counters that petitioner is liable for the value of the five subject checks as they were issued for value. Respondent insists that petitioner owes North Star P2,530,703 plus interest of P264,078.45, and that the P220,000 petitioner paid to North Star is conclusive proof that the checks were issued for value. The petition is bereft of merit. We have held that upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable consideration which may 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 side. 1194[14] consideration or for value.1195[15] Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a As petitioner alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to present convincing evidence to

1192 1193 1194

Page 805 of 1485

overthrow the presumption and prove that the checks were in fact issued without valuable consideration.1196[16] Sadly, however, petitioner has not presented any credible evidence to rebut the presumption, as well as North Stars assertion, that the checks were issued as payment for the US$85,000 petitioner owed. Notably, petitioner anchors his defense of lack of consideration on the fact that he did not personally receive the US$85,000 from Virginia. However, we note that in his pleadings, he never denied having instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently, Virginia sent the money upon the agreement that petitioner will give to North Star the peso equivalent of the amount remitted plus interest. As testified to by Virginia, Check No. 246822 dated May 15, 1994 in the amount of P695,000.00 is equivalent to US$25,000; Check No. 246823 dated May 15, 1994 in the amount of P278,000 is equivalent to US$10,000; Check No. 246824 in the amount of P22,703 represents the one month interest for P695,000 and P278,000 at the rate of twenty-eight (28%) percent per annum;1197[17] Check No. 687803 dated April 14, 1994 in the amount of P1,500,000 is equivalent to US$50,000 and Check No. 687804 dated 14 April 1994 in the amount of P35,000 represents the one month interest for P1,500,000 at the rate of twenty-eight (28%) percent per annum.1198[18] Petitioner has not substantially refuted these averments. Concomitantly, petitioners assertion that the dollars sent to Nigeria was for the account of Virginia Balagtas and as her own investment with View Sea Ventures deserves no credence. Virginia has not been shown to have any business transactions with View Sea Ventures and from all indications, she only remitted the money upon the request and in accordance with petitioners instructions. The evidence shows that it was petitioner who had a contract with View Sea Ventures as he was sending contract workers to Nigeria; Virginia Balagtass participation was merely to send the money through telegraphic transfer in exchange for the checks issued by petitioner to North Star. Indeed, the transaction

1195 1196 1197 1198

Page 806 of 1485

between petitioner and North Star is actually in the nature of a loan and the checks were issued as payment of the principal and the interest. As aptly found by the trial court: It is to be noted that the checks subject matter of the instant case were issued in the name of North Star International Inc., represented by private complainant Virginia Balagtas in replacement of the amount of dollars remitted by the latter to Vie[w] Sea Ventures in Nigeria. x x x But Virginia Balagtas has no business transaction with Vie[w] Sea Ventures where accused has been sending his contract workers and the North Star provided the trip tickets for said workers sent by the accused. North Star International has no participation at all in the transaction between accused and the Vie[w] Sea Ventures except in providing plane ticket used by the contract workers of the accused upon its understanding with the latter. The contention of the accused that the dollars were sent by Virginia Balagtas to Nigeria as business investment has not been shown by any proof to set aside the foregoing negative presumptions, thus negates accused contentions regarding the absence of consideration for the issuance of checks. x x x1199[19] Petitioner claims that North Star did not give any valuable consideration for the checks since the US$85,000 was taken from the personal dollar account of Virginia and not the corporate funds of North Star. The contention, however, deserves scant consideration. The subject checks, bearing petitioners signature, speak for themselves. The fact that petitioner himself specifically named North Star as the payee of the checks is an admission of his liability to North Star and not to Virginia Balagtas, who as manager merely facilitated the transfer of funds. Indeed, it is highly inconceivable that an experienced businessman like petitioner would issue various checks in sizeable amounts to a payee if these are without consideration. Affidavit
1200

Moreover, we note that Virginia Balagtas averred in her

[20] that North Star caused the payment of the US$60,000 and US$25,000 to

View Sea Ventures to accommodate petitioner, which statement petitioner failed to refute. In addition, petitioner did not question the Statement of Account No. 8639 1201[21] dated August 31, 1994 issued by North Star which contained itemized amounts including the US$60,000 and US$25,000 sent through telegraphic transfer to View Sea Ventures per his instruction. Thus, the inevitable conclusion is that when petitioner issued the subject checks to North Star as payee, he did so to settle his obligation with North Star for the US$85,000. And since the only payment petitioner made to North Star was in the amount of

1199 1200 1201

Page 807 of 1485

P220,000.00, which was applied to interest due, his liability is not extinguished. Having

failed to fully settle his obligation under the checks, the appellate court was correct in holding petitioner liable to pay the value of the five checks he issued in favor of North Star. WHEREFORE, the present appeal by way of a petition for review on certiorari is DENIED for lack of merit. The Decision dated May 31, 2006 of the Court of Appeals in CAG.R. SP No. 65538 is AFFIRMED. With costs against petitioner. SO ORDERED. [G.R. No. 146663.March 14, 2001] PERPETUAL SAVINGS BANK vs. BRONDIAL, et al. FIRST DIVISION Gentlemen: Quoted hereunder, for your information, is a resolution of this Court dated MAR 14 2001. G.R. No. 146663(Perpetual Savings Bank vs. Dolores Brondial, et al.) - Petitioner Bank filed a complaint for sum of money against respondent Dolores Brondial and her husband. Petitioner Bank alleged that, for value received, respondent Dolores executed a promissory note (PN) in the amount of P826,315.00 in favor of petitioner Bank payable in lump sum on 11 February 1984 plus interests. The PN had allegedly long matured but respondents failed to pay the amount thereon. Among others, respondents raised the defense of lack of consideration for the PN. According to respondent Dolores, she was required to sign the loan instruments and execute the PN by petitioner Bank as condition to her appointment as Senior Manager of Perpetual Capital Investments & Finance Corp. an affiliate of petitioner Bank. Both the RTC and CA ruled in favor of respondents upon the following factual findings: petitioner Bank was originally named Perpetual Savings Loan and Association. On 8 February 1983, it changed its name to Perpetual Savings Bank under the management of Danilo Natividad, President; Crisanto Norofla, Executive Vice-President; Zoilo Gabriel, Vice-President for Operations. Petitioner Bank designated Metropolitan Batik, Baclaran Branch as its depository bank with Account No. 070-15004-9. Natividad, Norofla and Gabriel were the authorized check signatories. These three officers, together with Roberto and Adora Baes, also had a joint account with the same bank under Account No. 070-00490-5. The authorized check signatories were the same bank officers. On 11 February 1983, respondent Dolores purportedly applied for a loan and simultaneously executed the subject PN. Earlier, on 10 February 1983, City Estate Developers, Inc. executed a real estate mortgage of several parcels of land to secure, among others, the loan of respondent Dolores. The check issued to respondent Dolores as proceeds of the loan was

Page 808 of 1485

endorsed and deposited on 14 February 1983 to Metro Bank Account No. 070-00490-5, the personal account of Natividad., Norofia, Gabriel and the Baeses. The other documentary evidence further showed that the personal account of Natividad, et al. (Account No. 070-00490-5) was used to transfer the purported loan of respondent Dolores to petitioner Bank's account (Account No. 070-15004-9). Thus, the CA ruled that petitioner Bank as holder of the check, is not a holder in due course and accordingly, not entitled to enforce or collect payment from the maker (respondent Dolores) because of absence or lack of consideration. Absence or lack of consideration is a valid defense against any person not a holder in due course (Section 28, Negotiable Interests Law). It was further held that contrary to petitioner Bank's insistence, respondent Dolores is not liable as an "accommodation maker." Section 29 of the NIL defines the term as x x x one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. As held by the CA, it was petitioner Bank who was accommodated by respondent Dolores when she executed the PN, thus, petitioner Bank cannot collect from respondent Dolores. In this petition, petitioner Bank avers that the CA erred in, among others, not according the presumption of regularity in the execution by respondent Dolores of the subject PN; the CA erred in ruling that petitioner Bank is not a holder in due course and that respondent Dolores is not liable as "accommodation maker;" and the CA erred in awarding the counterclaims of respondents. Petitioner Bank has failed to show any cogent reasons to deviate from the general rule that factual findings of the lower court are accorded great weight. In this case, both the RTC and CA found that there was no consideration for the issuance by respondent Dolores of the PN. Upon appreciation of the evidence presented by the parties, the RTC and CA found that respondent Dolores was not indebted to petitioner Bank because the amounts (P826,315.00) she purportedly received were returned to and received by petitioner Bank on the very day the checks were released. Respondent Dolores did not receive a single centavo from the loan. Contrary to petitioner Bank's position, the presumption of regularity in the issuance of the PN had been sufficiently overthrown upon showing that the checks released to respondent Dolores as proceeds of the loan were immediately deposited to the personal account of Natividad et al, the officers of petitioner Bank. Thereafter, the funds in this account were credited to the account of petitioner Bank. WHEREFORE, the petition is DENIED for lack of merit. Very truly yours, VIRGINIA Clerk of Court (Sgd.) ENRIQUETA ESGUERRA-VIDAL ANCHETA-SORIANO

Page 809 of 1485

Asst. Clerk of Court SECOND DIVISION [G.R. No. 130570. May 19, 1998] SPOUSES GIL AND NOELLI GARDOSE, petitioners, vs. REYNALDO S. TARROZA, respondent. DECISION PUNO, J.: This is a petition for review on certiorari assailing the Decision of the Court of Appeals dated April 29, 1997 and its Resolution dated September 10, 1997 in CA-G.R. CV No. 45046. On September 20, 1989, private respondent filed a complaint for a sum of money with preliminary attachment against the petitioners, spouses Gil and Noelli Gardose, and a certain Cecilia "Baby" Cacnio. The case was docketed as Civil Case No. Q-89-3500 and raffled to Branch 92 of the RTC of Quezon City, presided by then Judge Pacita Canizares-Nye. On February 7, 1990, private respondent was allowed to summon by publication the petitioners who were abroad. On August 28, 1990, the complaint against the petitioners was dismissed for failure of the private respondent to have the summons published in a newspaper of general circulation within a reasonable time, amounting to failure to prosecute. The case against Cacnio was also later dismissed for failure of private respondent to file a pre-trial brief. The orders of dismissal became final and executory. On February 13, 1991, private respondent filed a new complaint for a sum of money against the petitioners. The case was raffled to Branch 78 of the RTC of Quezon City and docketed as Civil Case No. Q-91-7959. The complaint contained the same allegations as the complaint in Civil Case No. Q-89-3500 except that it excluded Baby Cacnio as defendant. On April 25, 1991, petitioners filed their Answer with Counterclaim. They invoked the principle of res judicata. They also alleged that Noelli Gardose issued the checks in question merely to guarantee the loans of Cacnio. Petitioners moved to dismiss the complaint on the ground of res judicata but failed. The case was set for hearing on the merits. It appears that petitioners' counsel failed to appear in the hearing of March 31, 1992. trial court allowed private respondent to present his evidence ex-parte but reset continuation of the case to May 26, 1992 for cross-examination of the witness. petitioners challenged the action of the trial court via a petition for certiorari but challenge was dismissed by this Court on April 27, 1992. The the The the

The May 26, 1992 hearing for cross-examination of witness was reset to September 10, 1992 on motion of the petitioners. Again, petitioners failed to appear on September 10, 1992. The trial court considered petitioners' right of cross-examination waived and allowed private respondent to make a formal offer of his evidence. Still, the case was reset to October 15, 1992 to receive petitioners' evidence. Through a new counsel, petitioners again moved for a reconsideration of the order denying their motion for dismissal on the ground of res judicata. They also insisted that they be allowed to cross-examine the private respondent. In the hearing of October 15, 1992, the

Page 810 of 1485

trial court denied the reiterated motion to dismiss. It reinstated petitioners' right to crossexamine but their new counsel refused to exercise the right during said hearing. It then ordered petitioners to present their evidence but said counsel sought a resetting of the case as he has yet to familiarize himself with its facts. The trial court ruled that petitioners have waived their right to cross-examine and right to present evidence. The case was deemed submitted for decision. Petitioners' motion for reconsideration was denied on March 15, 1993. They went to the Court of Appeals on certiorari, injunction and prohibition.clxxxiii[1] Their petition was denied on May 31, 1993. On January 11, 1994, the trial court rendered its Decision in favor of the private respondent. It ordered: "WHEREFORE, judgment is rendered ordering defendants to pay plaintiff the following: 1. P70,000.00 plus interest thereon at 12% per annum from the date of the filing of the complaint until fully paid; 2. P50,000.00 plus interest thereon at 12% per annum from the date of the filing of the complaint until fully paid; 3. P200,000.00 plus interest thereon at 12% per annum from the date of the filing of the complaint until fully paid; 4. 5. P50,000.00 as and for attorney's fees; and Cost of suit."

Petitioners again appealed to the Court of Appeals.clxxxiv[2] On April 29, 1997, the appellate court affirmed the decision of the trial court. clxxxv[3] Petitioners' motion for reconsideration was denied on September 10, 1997. Petitioners now contend: I The Court of Appeals gravely erred in not holding that the dismissal in the first case for failure to prosecute and for lack of interest had the effect of an adjudication on the merits and operates as res judicata to the second case. II The Court of Appeals gravely erred in not holding that the filing of the second case after dismissal of the first case for failure to prosecute and lack of interest constitutes forum shopping. III The Court of Appeals seriously erred in holding that since petitioners failed to include forum shopping as one of the grounds in their omnibus motion, they cannot now raise the said issue on appeal.

Page 811 of 1485

IV The Court of Appeals gravely erred in holding that the petitioners were not denied procedural due process and they were not denied of their right to cross-examine private respondent and present their evidence. V The Court of Appeals gravely erred in considering petitioner Noelli Gardose as an accommodation party primarily and unconditionally liable to the private respondent for the three dishonored checks. VI The Court of Appeals gravely erred in awarding 12% interest on petitioners' alleged obligation to the private respondent as well as attorney's fees. The petition is unmeritorious. Firstly, the principle of res judicata cannot be invoked. The principle is enunciated in Section 49 (b) and (c) of Rule 39, viz: "Sec. 49. Effects of judgments. -- The effect of a judgment or final order rendered by a court or judge of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows: "xxx xxx xxx

"(b) In other cases, the judgment or order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; "(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto." The rule in Section 49 (b) is known as "bar by former judgment" while the rule embodied in paragraph (c) of the same section is known as "conclusiveness of judgment". There are four (4) requisites which must concur in order for res judicata as a "bar by former judgment" to attach, viz: (1) the former judgment must be final; (2) it must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) it must be a judgment or order on the merits; and (4) there must be between the first and second action identity of parties, identity of subject matter and identity of causes of action. The Court of Appeals correctly ruled that petitioners cannot rely on the principle of bar by former judgment. Civil Case No. Q-89-3500 was dismissed for the continuing failure of private respondent to effect service of summons by publication on the petitioners. In other words, the dismissal was made before the trial court acquired jurisdiction over the petitioners. In Republic Planters Bank vs. Molina,clxxxvi[4] we held:

Page 812 of 1485

"xxx xxx xxx

"The questioned orders of the trial court in Civil Case No. 129829 supporting private respondent's motion to dismiss on the ground of res judicata are without cogent basis. We sustain petitioner's claim that respondent trial judge acted without or in excess of jurisdiction when he issued said orders because he thereby traversed the constitutional precept that `no person shall be deprived of property without due process of law' and that jurisdiction is vitally essential for any order or adjudication to be binding. Justice cannot be sacrificed for technicality. Originally, the action for collection of the loan, evidenced by a promissory note, was only for P100,000.00 but petitioner claims that as of March 5, 1981, the obligation was already P429,219.74. It is a cardinal rule that no one must be allowed to enrich himself at the expense of another without just cause. "In the very order of dismissal of Civil Case No. 116028, the trial court admitted that it did not acquire jurisdiction over the persons of private respondents and yet, it held that it was of no moment as to the dismissal of the case. We disagree. For the court to have authority to dispose of the case on the merits, it must acquire jurisdiction over the subject matter and the parties. If it did not acquire jurisdiction over the private respondents as parties to Civil Case No. 116028, it cannot render any binding decision, favorable or adverse to them, or dismiss the case with prejudice which, in effect, is an adjudication on the merits. The controverted orders in Civil Case No. 116028 disregarded the fundamental principles of remedial law and the meaning and the effect of jurisdiction. A judgment, to be considered res judicata, must be binding, and must be rendered by a court of competent jurisdiction. Otherwise, the judgment is a nullity. "The order of dismissal in Civil Case No. 116028 does not have the effect of an adjudication on the merits of the case because the court that rendered the same did not have the requisite jurisdiction over the persons of the defendants therein. This being so, it cannot be the basis of res judicata and it cannot be a bar to a lawful claim. If at all, such a dismissal may be considered as one without prejudice." Secondly, petitioners' charge of forum shopping is baseless. To start with, petitioners did not raise the issue in the trial court. Moreover, Revised Circular No. 28-91, the anti-forum shopping rule, took effect on January 1, 1992, and it initially applied only to the Court of Appeals. Administrative Circular No. 04-94, which extended the application of the rule to trial courts and administrative agencies, took effect only on April 1, 1994. The second case against petitioners, Civil Case No. Q-91-7959, was filed on February 13, 1991 or before the effectivity of the rules on forum shopping on trial courts. Thirdly, petitioners cannot claim denial of due process. The essence of due process is a fair opportunity to be heard. Petitioners were given all the opportunities to cross-examine the private respondent and to present their evidence. They failed to make use of these opportunities either through negligence or unpreparedness of their counsel. The right of private respondent to speedy justice is just as valuable as the right of petitioners to due process. Fourthly, petitioner Noelli's defense that she was merely an accommodation party was rightly rejected by the Court of Appeals which ruled: "xxx xxx xxx

Page 813 of 1485

"Appellants persistently insist that when appellant Noelli Gardose issued the three (3) checks to appellee she merely acted as a guarantor and therefore should not be held primarily liable to appellee. "We disagree, the mere fact that appellant Noelli Gardose issued the three (3) checks to appellee make her liable to the latter without the need for the appellee to first go after Cecilia Cacnio because the relationship between an accommodation party and the party accommodated is in effect one of principal and surety (Coneda, Jr. vs. Court of Appeals, 181 SCRA 673; Prudencio vs. Court of Appeals, 143 SCRA 7). In the recent case of Town Savings & Loan Bank, Inc. vs. Court of Appeals, 223 SCRA 459, the Supreme Court held: An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another (The Phil. Bank of Commerce vs. Aruego, 102 SCRA 530, 539, 540). "From the foregoing pronouncement of the Supreme Court, it is clear that appellant Noelli Gardose as an accommodation party is primarily and unconditionally liable to appellee for the three (3) checks that were dishonored by the drawee bank. Hence, the lower court did not err in ordering appellants to pay appellee the amount of THREE HUNDRED TWENTY THOUSAND P(320,000.00) PESOS with interest at 12% per annum counted from the filing of the complaint. Under Section 151 of the Negotiable Instruments Law, when a bill is dishonored by non-acceptance, an immediate right of recourse against the drawers and indorsers accrues to the holder (Travel On, Inc. vs. Court of Appeals, G.R. No. L-56169, June 26, 1992). The drawer of a negotiable instrument engages that, on due presentment, the instrument will be accepted or paid, or both, and if dishonored, he will pay the amount thereof to the holder. x x x" Lastly, petitioners cannot assert that the award of 12% interest and attorney's fees to private respondent is not justified. The Court of Appeals correctly affirmed the trial court's monetary award to private respondent, viz: "x x x The lower court was likewise correct in ordering appellants to pay interest at the legal rate of 12% per annum counted from the filing of the complaint. This is in accordance with Article 2209 of the Civil Code which provides that if the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, should be the payment of the interest agreed upon, and in the absence of stipulation, the legal rate of interest which is now 12 percent per annum. (National Power Corporation vs. Agnar, G.R. No. 60225-26, May 8, 1992). The trial court was likewise correct in granting attorney's fees in the amount of P50,000.00. As found by the court a quo, appellants acted in gross evident bad faith in refusing to pay appellee's just and demandable claim (Reyes v. Zubirri, 208 SCRA 561; Maersk Line vs. Court of Appeals, 222 SCRA 108)." IN VIEW WHEREOF, the petition is dismissed. Costs against the petitioners. SO ORDERED. Regalado, (Chairman), Melo, Mendoza, and Martinez, JJ., concur.

Page 814 of 1485

SECOND DIVISION [G.R. No. 117660. December 18, 2000] AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners, vs. THE HON. COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC., respondents. DECISION QUISUMBING, J.: This is a petition for review challenging the decision clxxxvii[1] dated October 17, 1994 of the Court of Appeals in CA-G.R. No. 32933, which affirmed in toto the judgment of the Manila Regional Trial Court, Branch 27, in consolidated Cases Nos. 86-37374, 86-37388, 86-37543. This petition springs from three complaints for sums of money filed by respondent bank against herein petitioners. In the decision of the Court of Appeals, petitioners were ordered to pay respondent bank, as follows: Wherefore, judgment is hereby rendered in favor of plaintiff and against defendants, as follows: 1) In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered jointly and severally, to pay to plaintiff the amount of P78,212.29, together with interest and service charge thereon, at the rates of 14% and 3% per annum, respectively, computed from November 10, 1982, until fully paid, plus stipulated penalty on unpaid principal at the rate of 6% per annum, computed from November 10, 1982, plus 15% as liquidated damage plus 10% of the total amount due, as attorneys fees, plus costs; 2) In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the amount of P632,911.39, together with interest and service charge thereon at the rate of 14% and 3% per annum, respectively, computed from January 15, 1983, until fully paid, plus stipulated penalty on unpaid principal at the rate of 6% per annum, computed from January 15, 1983, plus liquidated damages equivalent to 15% of the total amount due, plus attorneys fees equivalent to 10% of the total amount due, plus costs; and 3) In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the first cause of action, the amount of P510,000.00, together with interest and service charge thereon, at the rates of 14% and 2% per annum, respectively, computed from March 13, 1983, until fully paid, plus a penalty of 6% per annum, based on the outstanding principal of the loan, computed from March 13, 1983, until fully paid; and on the second cause of action, the amount of P494,936.71, together with interest and service charge thereon at the rates of 14% and 2%, per annum, respectively, computed from March 30, 1983, until fully paid, plus a penalty charge of 6% per annum, based on the unpaid principal, computed from March 30, 1983, until fully paid, plus (on both causes of action) an amount equal to 15% of the total amounts due, as liquidated damages, plus attorneys fees equal to 10% of the total amounts due, plus costs.clxxxviii[2] Based on the records, the following are the factual antecedents.

Page 815 of 1485

On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to Wonderland Food Industries, Inc. In their Memorandum of Agreement, clxxxix[3] the parties covenanted that the purchase price of Five Million (P5,000,000.00) Pesos would be settled by the vendee, under the following terms and conditions: (1) One Million (P1,000,000.00) Pesos shall be paid in cash upon the signing of the agreement; (2) Two Million (P2,000,000.00) Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.; and (3) The balance of P2,000,000.00 shall be paid in four equal installments, the first installment falling due, 180 days after the signing of the agreement and every six months thereafter, with an interest rate of 18% per annum, to be advanced by the vendee upon the signing of the agreement. On July 19, 1982, the vendor, the vendee, and the respondent bank Regent Savings & Loan Bank (formerly Summa Savings & Loan Association), executed an Addendum cxc[4]to the previous Memorandum of Agreement. The new arrangement pertained to the revision of settlement of the initial payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of P2,000,000.00) as follows: Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS. WHEREFORE, in consideration of the mutual covenant and agreement of the parties, they do further covenant and agree as follows: 1. That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS in cash, hereby authorizes the VENDOR to obtain a loan from Summa Savings and Loan Association with office address at Valenzuela, Metro Manila, being represented herein by its President, Mr. Jaime Cario and referred to hereafter as Financier; in the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00)PESOS, plus interest thereon at such rate as the VENDEE and the Financier may agree, which amount shall cover the ONE MILLION (P1,000,000.00) PESOS cash which was agreed to be paid upon signing of the Memorandum of Agreement, plus 18% interest on the balance of two million pesos stipulated upon in Item No. 1(c) of the said agreement; provided however, that said loan shall be made for and in the name of the VENDOR. 2. The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS be paid directly to the VENDOR; however, the VENDEE hereby undertakes to pay the full amount of the said loan to the Financier on such terms and conditions agreed upon by the Financier and the VENDOR, it being understood that while the loan will be secured from and in the name of the VENDOR, the VENDEE will be the one liable to pay the entire proceeds thereof including interest and other charges. cxci[5] This addendum was not notarized. Consequently, petitioner Mario Soriano signed as maker several promissory notes, cxcii[6] payable to the respondent bank. Thereafter, the bank released the proceeds of the loan to petitioners. However, petitioners failed to meet their obligations as they fell due. During that time, the bank was experiencing financial turmoil and was under the supervision of the Central Bank. Central Bank examiner and liquidator Cordula de Jesus, endorsed the subject promissory notes to the banks counsel for collection. The bank gave petitioners opportunity to settle their account by extending payment due dates. Mario Soriano manifested his intention to re-structure the loan, yet did not show up nor submit his formal written request.

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Respondent bank filed three separate complaints before the Regional Trial Court of Manila for Collection of Sums of money. The corresponding case histories are illustrated in the table below: Date Loan ofAmount Paymen Payment t DueExtensio Date n Dates 8, 9, 7,

Civil Case 86-P Nov. 10,Feb. 37374 78,212.2 1982 1983 August9 May 12, 1982 1983 Aug. 1983

Civil Case 86-P Jan. May 16, 37388 632,911. 15, 1983 1983 July 19,39 Aug. 14, 1982 1983 Civil Case 86-P March June 11, 37543 510,000. 13, 1983 1983 Septem00 Sept. 9, ber 14, 1983 1982 March P 30, 1983 June 28, 494,936. 1983 Octobe71 Sept. 26, r 1, 1982 1983 In their answer, petitioners interposed the defense of novation and insisted there was a valid substitution of debtor. They alleged that the addendum specifically states that although the promissory notes were in their names, Wonderland shall be responsible for the payment thereof. The trial court held that petitioners are liable, to wit: The evidences, however, disclose that Wonderland did not comply with its obligation under said Addendum (Exh. S) as the agreement to turn over the farmland to it, did not materialize (57 tsn, May 29, 1990), and there was, actually no sale of the land (58 tsn, ibid). Hence, Wonderland is not answerable. And since the loans obtained under the four promissory notes (Exhs. A, C, G, and E) have not been paid, despite opportunities given by plaintiff to defendants to make payments, it stands to reason that defendants are liable to pay their obligations thereunder to plaintiff. In fact, defendants failed to file a third-party complaint against Wonderland, which shows the weakness of its stand that Wonderland is answerable to make said payments.cxciii[7] Petitioners appealed to the Court of Appeals. The trial courts decision was affirmed by the appellate court. Hence, this recourse, wherein petitioners raise the sole issue of:

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WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM, SIGNED BY THE PETITIONERS, RESPONDENT BANK AND WONDERLAND INC., CONSTITUTES A NOVATION OF THE CONTRACT BY SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES. Revealed by the facts on record, the conflict among the parties started from a contract of sale of a farmland between petitioners and Wonderland Food Industries, Inc. As found by the trial court, no such sale materialized. A contract of sale is a reciprocal transaction. The obligation or promise of each party is the cause or consideration for the obligation or promise by the other. The vendee is obliged to pay the price, while the vendor must deliver actual possession of the land. In the instant case the original plan was that the initial payments would be paid in cash. Subsequently, the parties (with the participation of respondent bank) executed an addendum providing instead, that the petitioners would secure a loan in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the settlement of said loan would be assumed by Wonderland. Thereafter, petitioner Soriano signed several promissory notes and received the proceeds in behalf of petitioner-company. By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation party. An accommodation party is a person who has signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person and is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party. cxciv[8] He has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them has in effect become one of principal and surety, the accommodation party being the surety.cxcv[9] Suretyship is defined as the relation which exists where one person has undertaken an obligation and another person is also under the obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform. cxcvi[10] The suretys liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. cxcvii[11] And the creditor may proceed against any one of the solidary debtors.cxcviii[12] We do not give credence to petitioners assertion that, as provided by the addendum, their obligation to pay the promissory notes was novated by substitution of a new debtor, Wonderland. Contrary to petitioners contention, the attendant facts herein do not make a case of novation. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. cxcix[13] In order that a novation can take place, the concurrence of the following requisites cc[14] are indispensable: 1) There must be a previous valid obligation; 2) There must be an agreement of the parties concerned to a new contract; 3) There must be the extinguishment of the old contract; and

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4) There must be the validity of the new contract. In the instant case, the first requisite for a valid novation is lacking. There was no novation by substitution of debtor because there was no prior obligation which was substituted by a new contract. It will be noted that the promissory notes, which bound the petitioners to pay, were executed after the addendum. The addendum modified the contract of sale, not the stipulations in the promissory notes which pertain to the surety contract. At this instance, Wonderland apparently assured the payment of future debts to be incurred by the petitioners. Consequently, only a contract of surety arose. It was wrong for petitioners to presume a novation had taken place. The well-settled rule is that novation is never presumed,cci[15] it must be clearly and unequivocally shown.ccii[16] As it turned out, the contract of surety between Wonderland and the petitioners was extinguished by the rescission of the contract of sale of the farmland. With the rescission, there was confusion or merger in the persons of the principal obligor and the surety, namely the petitioners herein. The addendum which was dependent thereon likewise lost its efficacy. It is true that the basic and fundamental rule in the interpretation of contract is that, if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning shall control. However, in order to judge the intention of the parties, their contemporaneous and subsequent acts should be considered.cciii[17] The contract of sale between Wonderland and petitioners did not materialize. But it was admitted that petitioners received the proceeds of the promissory notes obtained from respondent bank. Sec. 22 of the Civil Code provides: Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of private respondent. Neither could petitioners excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract. If petitioners sustained damages as a result of the rescission, they should have impleaded Wonderland and asked damages. The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party. cciv[18] But respondent appellate court did not err in holding that petitioners are duty-bound under the law to pay the claims of respondent bank from whom they had obtained the loan proceeds. WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated October 17, 1994 is AFFIRMED. Costs against petitioners. SO ORDERED. Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur. [G.R. No. 147920.April 3, 2002]

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MAJESTIC FINANCE CO., INC. vs. BONIFACIO FIRST DIVISION Gentlemen: Quoted hereunder, for your information, is a resolution of this Court dated 03 APR 2002. G.R. No. 147920 (Majestic Finance & Investment Co., Inc. vs. Amelia L. Bonifacio .) This petition for review on certiorari assails the Decision of the Court of Appeals in CA-G.R. CV No. 60662[1]cralaw which affirmed the Decision of the Regional Trial Court of Pasig City in Civil Case No. 62277, and the Resolution dated April 23, 2001 which denied petitioner Majestic Finance & Investment Co., Inc.'s motion for reconsideration. On December 6, 1989, petitioner entered into a Contract of Lease with Japanese nationals Yasutsugu Uoyama and Hiroyuki Shibutani (the "lessees") for the lease of Condominium Unit No. 5-K of the Legaspi Towers located at Roxas Boulevard corner Vito Cruz St. , Manila. The term of the lease was for one (1) year. Respondent Amelia Bonifacio, the girlfriend of T. Sakamoto who in turn was the friend of the lessees, actively participated in negotiating the terms of the contract of lease because the lessees could hardly speak English or Tagalog. On that same day (December 6, 1989), the lessees paid petitioner One Hundred Ninety Two Thousand Pesos (P192,000.00) to cover the deposit of P48,000.00 and the advance rentals for the first six months of the lease period, from December, 1989 to June, 1990 amounting to P148,000.00. Upon request of the lessees, respondent issued in petitioner's favor a postdated United Coconut Planters Bank (Puyat-Bautista Branch) Check No. PUB 285072 in the amount of One Hundred Forty Four Thousand Pesos (P144,000.00) to guarantee the payment of the rentals for last six months of the lease, from July to December, 1990. On April 24, 1990, petitioner's counsel received a letter from respondent and the lessees that the latter were vacating the condominium by May 1, 1990. Respondent also requested that the postdated check which she had earlier issued in petitioner's favor be returned to her since there was no longer any need for the said check to be in petitioner's possession. However, petitioner refused to return the check and instead deposited the same in its account with the Philippine Commercial International Bank. The check was later dishonored and returned pursuant to the stop payment order made by respondent. On August 4, 1992, petitioner filed with the Regional Trial Court of Pasig City (RTC) a complaint for collection of sum of money with prayer for the issuance of a writ of preliminary attachment against respondent due to the latter's refusal to make good her check.

Page 820 of 1485

On September 30, 1997, the RTC issued its Decision dismissing the case against respondent. Petitioner thereafter filed a motion for reconsideration but the same was dismissed by the trial court in an Order dated January 22, 1998. Not satisfied with the decision of the trial court, petitioner filed an appeal thereof with the Court of Appeals. On February 13, 2001, the Court of Appeals promulgated its Decision affirming the RTC's Decision. The appellate court ruled that respondent is an accommodation party and may be held solidarily liable for the amount of the check under Section 29 of the Negotiable Instruments Law, subject to reimbursement from the lessees. However, it ruled that the respondent was not under any obligation to pay the P144,000.00 corresponding to advance rental payments for the months of July to December 1990 because the lease contract did not authorize the petitioner as lessor to automatically forfeit the advance rentals for the last six months of the lease period should the lessees terminate the lease before the end of said period. The appellate court also dismissed petitioner's motion for reconsideration in a Resolution dated April 23, 2001. Hence, this petition. Petitioner contends that the Court of Appeals misapplied and misinterpreted the real import of the automatic forfeiture clause in relation to pars. "3.a" and "3.b" of the Contract of Lease, and that even without the automatic forfeiture clause, it can still recover the amount of P144,000.00 corresponding to the rent of the condominium unit for the last six months of the lease period because the lessees breached their contract with petitioner. [2]cralaw On July 25, 2001, the Court resolved to require respondent to file her Comment to the petition[3]cralaw but respondent failed to file the same. In a Manifestation filed with the Court on December 13, 2001, respondent's counsel of record explained that he had lost contact with respondent even while the case was still pending before the trial court. He likewise prayed that the case be decided based on the records of the case. There is no merit in the petition. Both the Court of Appeals and the trial court found that what the Contract of Lease stipulated under paragraph 4 thereof was that if the lessees terminated the lease before the expiration of the one-year period, the lessor may automatically forfeit the deposit of P48,000.00 and the advance rental of P144,000.00 for the first six months of the lease period. The pertinent portions of the Contract of Lease state: 3.RENTAL - The parties herein agree that the monthly rental of the leased premises and the listed furnishings and equipment shall be TWENTY FOUR THOUSAND PESOS (P24,000.00) Philippine Currency, net of any withholding tax (BIR's Official receipts of which LESSEE shall furnished the LESSOR), payable within the first five days of every calendar month without need of demand. Failure to pay the agreed monthly rental, the LESSOR shall forfeit the two (2) months deposit as penalty.All furnitures and equipments listed in

[ [

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Annex "A" belong to the LESSOR. The LESSOR and the LESSEE mutually agree that the amount of ONE HUNDRED NINETY TWO THOUSAND PESOS (P192,000.00) Philippine Currency, which the LESSEE now tenders and pays to the LESSOR represents as follows: a) ONE HUNDRED FORTY FOUR THOUSAND PESOS (P144,000.00) as advance rental for the first six (6) months covering the period from December 6, 1989 to June 5, 1990. b) FORTY EIGHT THOUSAND PESOS (P48,000.00) fixed noninterest bearing deposit applicable to Item No. 4. 4. DEPOSIT - Upon signing of this contract LESSEE shall deposit in cash the amount of FORTY EIGHT THOUSAND PESOS (P48,000.00) Philippine Currency which shall be non-interest bearing guaranty for the faithful compliance by LESSEE of all covenants and conditions of this Contract and to answer for any unpaid bills for association dues and special assessments, water, gas, electricity, telephone and other utilities and damages suffered by LESSOR, and other momentary liabilities or obligations of LESSEE under this Contract for the leased premises, said deposit can't be applied by LESSEE to any unpaid rent and shall be kept intact throughout the life of this Contract. It shall be returned to LESSEE ninety days after LESSEE shall have completely and satisfactorily vacated and delivered the leased premises to LESSOR in the same condition the unit is first delivered to the LESSEE: less whatever amount the LESSEE may owe LESSOR at the time of said termination or expiration. Provided, that if LESSEE shall terminate this lease contract before the expiration thereof, then said deposit and advanced rental paid shall be automatically forfeited in favor of LESSOR since the parties herein agree that time is of the essence and the period for payment of rent, as well as the period of this contract, as fixed for the benefit of LESSOR, PROVIDED, further that the LESSEE liability for any breach of this Contract or any obligation to the amount of said deposit. (Emphasis supplied.) [4]cralaw There is nothing in the said contract which allows the petitioner as lessor to automatically forfeit the advance rental for the last six months of the lease period from July to December, 1990. Since the amount covered by respondent's postdated check pertained to the rentals for the last six months of the lease period, the appellate court was correct in holding that she was under no obligation as accommodation party of the lessees to make good her check. Considering the foregoing, no reversible error was committed by the Court of Appeals in affirming the decision of the trial court dismissing the complaint for collection filed by petitioner against respondent. WHEREFORE, the petition is hereby DENIED for lack of merit and the assailed Decision dated February 13, 2001 and the Resolution dated April 23, 2001 in CA-G.R. CV No. 60662 are hereby AFFIRMED.PUNO, J., on official leave. Very truly yours,

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(Sgd.) VIRGINIA ANCHETA-SORIANO Clerk of Court Republic SUPREME Manila SECOND DIVISION G.R. No. 163720 December 16, 2004 petitioner, of the Philippines COURT

GENEVIEVE LIM, vs. FLORENCIO SABAN, respondents.

DECISION

TINGA, J.: Before the Court is a Petition for Review on Certiorari assailing the Decision1 dated October 27, 2003 of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392. 2 The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the "lot"), entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes, transfer of title and other expenses incident to the sale, as well as Sabans commission for the sale.3 Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).4 It appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers commission.5 Lim also issued in the name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00.

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Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez asked Lim to cancel all the checks issued by her in Sabans favor and to "extend another partial payment" for the lot in his (Ybaezs) favor.6 After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection of sum of money and damages against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu City on August 3, 1994. 7 The case was assigned to Branch 20 of the RTC. In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00 allegedly went to Lims agent, and P113,257.00 was given to Saban to cover taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks8 in favor of Saban for the remaining P236,743.00.9 Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed the actual selling price of the lot from Ybaez and because he was not a licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks. Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by withholding payment of the first three checks. He also claimed that Lim failed to make good the fourth check which was dishonored because the account against which it was drawn was closed. In his Answer, Ybaez claimed that Saban was not entitled to any commission because he concealed the actual selling price from him and because he was not a licensed real estate broker. Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and that she issued stop payment orders for the three checks because Ybaez requested her to pay the purchase price directly to him, instead of coursing it through Saban. She also alleged that she agreed with Ybaez that the purchase price of the lot was only P200,000.00. Ybaez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial court dismissed the case only against him without any objection from the other parties.10 On May 14, 1997, the RTC rendered its Decision11 dismissing Sabans complaint, declaring the four (4) checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability towards Saban. Saban appealed the trial courts Decision to the Court of Appeals. On October 27, 2003, the appellate court promulgated its Decision12 reversing the trial courts ruling. It held that Saban was entitled to his commission amounting to P236,743.00.13 The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was invalid because the agency was coupled with an interest and Ybaez effected the

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revocation in bad faith in order to deprive Saban of his commission and to keep the profits for himself.14 The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It declared that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding to his commission because she issued the four checks knowing that the total amount thereof corresponded to Sabans commission for the sale, as the agent of Ybaez. The appellate court further ruled that, in issuing the checks in payment of Sabans commission, Lim acted as an accommodation party. She signed the checks as drawer, without receiving value therefor, for the purpose of lending her name to a third person. As such, she is liable to pay Saban as the holder for value of the checks. 15 Lim filed a Motion for Reconsideration of the appellate courts Decision, but her Motion was denied by the Court of Appeals in a Resolution dated May 6, 2004.16 Not satisfied with the decision of the Court of Appeals, Lim filed the present petition. Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban the amounts due for taxes and transfer of title, she paid the balance of the purchase price directly to Ybaez.17 She further contends that she is not liable for Ybaezs debt to Saban under the Agency Agreement as she is not privy thereto, and that Saban has no one but himself to blame for consenting to the dismissal of the case against Ybaez and not moving for his substitution by his heirs.18 Lim also assails the findings of the appellate court that she issued the checks as an accommodation party for Ybaez and that she connived with the latter to deprive Saban of his commission.19 Lim prays that should she be found liable to pay Saban the amount of his commission, she should only be held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses Lim) who should share such liability. 20 In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted of the P200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes and other expenses incidental to the sale and Sabans commission as broker for Ybaez. According to Saban, Lim assumed the obligation to pay him his commission. He insists that Lim and Ybaez connived to unjustly deprive him of his commission from the negotiation of the sale.21 The issues for the Courts resolution are whether Saban is entitled to receive his commission from the sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales commission. The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals. The Court affirms the appellate courts finding that the agency was not revoked since Ybaez requested that Lim make stop payment orders for the checks payable to Saban only after the consummation of the sale on March 10, 1994. At that time, Saban had already

Page 825 of 1485

performed his obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim. To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency with Ybaez which expressly states that Saban would be entitled to any excess in the purchase price after deducting the P200,000.00 due to Ybaez and the transfer taxes and other incidental expenses of the sale.22 In Macondray & Co. v. Sellner ,23 the Court recognized the right of a broker to his commission for finding a suitable buyer for the sellers property even though the seller himself consummated the sale with the buyer. 24 The Court held that it would be in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when he had already reaped the benefits of the brokers efforts. In Infante v. Cunanan, et al.,25 the Court upheld the right of the brokers to their commissions although the seller revoked their authority to act in his behalf after they had found a buyer for his properties and negotiated the sale directly with the buyer whom he met through the brokers efforts. The Court ruled that the sellers withdrawal in bad faith of the brokers authority cannot unjustly deprive the brokers of their commissions as the sellers duly constituted agents. The pronouncements of the Court in the aforecited cases are applicable to the present case, especially considering that Saban had completely performed his obligations under his contract of agency with Ybaez by finding a suitable buyer to preparing the Deed of Absolute Sale between Ybaez and Lim and her co-vendees. Moreover, the contract of agency very clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybaezs share of P200,000.00 and the taxes and other incidental expenses of the sale. However, the Court does not agree with the appellate courts pronouncement that Sabans agency was one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, or for the interest of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. In an agency coupled with an interest, the agents interest must be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation. When an agents interest is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agents interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship.26 Sabans entitlement to his commission having been settled, the Court must now determine whether Lim is the proper party against whom Saban should address his claim. Sabans right to receive compensation for negotiating as broker for Ybaez arises from the Agency Agreement between them. Lim is not a party to the contract. However, the record reveals that she had knowledge of the fact that Ybaez set the price of the lot at P200,000.00 and that the P600,000.00the price agreed upon by her and Sabanwas more

Page 826 of 1485

than the amount set by Ybaez because it included the amount for payment of taxes and for Sabans commission as broker for Ybaez. According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00).27 Lim, on the other hand, claims that on March 10, 1994, the date of execution of the Deed of Absolute Sale, she paid directly to Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for payment of taxes and P50,000.00 as his commission,28 and One Hundred Thirty Thousand Pesos (P130,000.00) on June 28, 1994,29 or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was the full amount for the sale of the lot. 30 It thus appears that he received P100,000.00 on March 10, 1994, acknowledged receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybaez. Apparently, although the amount actually paid by Lim was P393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference. Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her claim that she and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there would be no reason for her to issue those checks which is the balance of P600,000.00 less the amounts of P200,000.00 (due to Ybaez), P50,000.00 (commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed her mind about agreeing to purchase the lot at P600,000.00 after talking to Ybaez and ultimately realizing that Sabans commission is even more than what Ybaez received as his share of the purchase price as vendor. Obviously, this change of mind resulted to the prejudice of Saban whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This the Court cannot countenance. The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are similar to the circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer for her two lots and the house built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five percent (5%) of the purchase price plus whatever overprice they may obtain for the property. Cunanan and Mijares offered the properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan and Mijares thereafter introduced Noche to Infante. However, the latter told Cunanan and Mijares that she was no longer interested in selling the property and asked them to sign a document stating that their written authority to act as her agents for the sale of the properties was already cancelled. Subsequently, Infante sold the properties directly to Noche for Thirty One Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining that [Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the situation varies if one of the parties takes advantage of the benevolence of the other and acts in a manner that would promote his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without according the party prejudiced the reward which is due him. This is the situation in which [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and Mijares], but believing that she could evade payment of their commission, she made use of a ruse by inducing them to sign the deed of cancellation.This act of subversion cannot be sanctioned

Page 827 of 1485

and cannot serve as basis for [Infante] to escape payment of the commission agreed upon.31 The appellate court therefore had sufficient basis for concluding that Ybaez and Lim connived to deprive Saban of his commission by dealing with each other directly and reducing the purchase price of the lot and leaving nothing to compensate Saban for his efforts. Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid the balance of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay Saban the balance of P200,000.00. Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his asking price of P200,000.00, Saban may claim such excess from Ybaezs estate, if that remedy is still available, 32 in view of the trial courts dismissal of Sabans complaint as against Ybaez, with Sabans express consent, due to the latters demise on November 11, 1994.33 The appellate court however erred in ruling that Lim is liable on the checks because she issued them as an accommodation party. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the negotiable instrument as maker, drawer, acceptor or indorser, without receiving value therefor, for the purpose of lending his name to some other person." The accommodation party is liable on the instrument to a holder for value even though the holder at the time of taking the instrument knew him or her to be merely an accommodation party. The accommodation party may of course seek reimbursement from the party accommodated. 34 As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of lending his name to some other person. In the case at bar, while Lim signed as drawer of the checks she did not satisfy the two other remaining requisites. The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the checks in question on account of her transaction, along with the other purchasers, with Ybaez which was a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of the balance of the purchase price of the lot subject of the transaction. And she had to pay the agreed purchase price in consideration for the sale of the lot to her and her co-vendees. In other words, the amounts covered by the checks form part of the cause or consideration from Ybaezs end, as vendor, while the lot represented the cause or consideration on the side of Lim, as vendee. 35 Ergo, Lim received value for her signature on the checks. Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or any other person for that matter, to obtain credit or to raise money, thereby totally debunking the presence of the third requisite of an accommodation party. WHEREFORE, in view of the foregoing, the petition is DISMISSED. SO ORDERED.

Page 828 of 1485

Puno, J., Chairman, Callejo, Sr., on leave. Republic SUPREME Manila FIRST DIVISION G.R. No. 146511 September 5, 2007 of Austria-Martinez, Chico-Nazario, JJ. concur.

the

Philippines COURT

TOMAS ANG, petitioner, vs. ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, respondents. DECISION AZCUNA, J.: This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review October 9, 2000 Decision1 and December 26, 2000 Resolution 2 of the Court of Appeals in G.R. CV No. 53413 which reversed and set aside the January 5, 1996 Decision 3 of Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing complaint filed by respondents for collection of a sum of money. the CAthe the

On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation and now known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they executed as principal debtor and co-maker, respectively. In the Complaint,4 respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained a loan of P50,000, evidenced by a promissory note bearing PN-No. DVO-78-382, and P30,000, evidenced by a promissory note bearing PN-No. DVO-78-390. As agreed, the loan would be payable, jointly and severally, on January 31, 1979 and December 8, 1978, respectively. In addition, subsequent amendments 5 to the promissory notes as well as the disclosure statements6 stipulated that the loan would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty charge per month from due date until fully paid, and attorney's fees equivalent to 20% of the outstanding obligation. Despite repeated demands for payment, the latest of which were on September 13, 1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively, respondent Bank claimed that the defendants failed and refused to settle their obligation, resulting in a total indebtedness of P539,638.96 as of July 31, 1990, broken down as follows: PN-No. DVO-78-382 PN-No. DVO-78-390 P50,000.00 P30,000.00 Past due charges for 4,199 Past due charges for 4,253 days (from 01-31-79 to 07-31- days (from 12-8-78 to 07-3190) 90) P203,538.98 P125,334.41 P11,663.89 P7,088.34 P69,983.34 P42,530.00

Outstanding Balance Add 14% Interest 2% Service Charge 12% Overdue Charge

Page 829 of 1485

Total Less: Charges paid Amount Due P285,186.21 P500.00 P334,686.21 P174,952.75 None P204,952.75

In his Answer,7 Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000. He pleaded though that the bank "be ordered to submit a more reasonable computation" considering that there had been "no correct and reasonable statement of account" sent to him by the bank, which was allegedly collecting excessive interest, penalty charges, and attorney's fees despite knowledge that his business was destroyed by fire, hence, he had no source of income for several years. For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-claim. 8 He interposed the affirmative defenses that: the bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as an accommodation party; he accepted the promissory notes in blank, with only the printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it was the bank which completed the notes upon the orders, instructions, or representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of or contrary to the authority given by him to his co-defendant who represented that he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390 was procured through fraudulent means when his co-defendant claimed that his first loan did not push through; the promissory notes did not indicate in what capacity he was intended to be bound; the bank granted his co-defendant successive extensions of time within which to pay, without his (Tomas Ang) knowledge and consent; the bank imposed new and additional stipulations on interest, penalties, services charges and attorney's fees more onerous than the terms of the notes, without his knowledge and consent, in the absence of legal and factual basis and in violation of the Usury Law; the bank caused the inclusion in the promissory notes of stipulations such as waiver of presentment for payment and notice of dishonor which are against public policy; and the notes had been impaired since they were never presented for payment and demands were made only several years after they fell due when his co-defendant could no longer pay them. Regarding his counterclaim, Tomas Ang argued that by reason of the bank's acts or omissions, it should be held liable for the amount of P50,000 for attorney's fees and expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng Liong, he averred that he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's fees, respectively. In its Reply,9 respondent Bank countered that it is the real party in interest and is the holder of the notes since the Associated Banking Corporation and Associated Citizens Bank are its predecessors-in-interest. The fact that Tomas Ang never received any moneys in consideration of the two (2) loans and that such was known to the bank are immaterial because, as an accommodation maker, he is considered as a solidary debtor who is primarily liable for the payment of the promissory notes. Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that absence or failure of consideration is not a matter of defense; neither is the fact that the holder knew him to be only an accommodation party. Respondent Bank likewise retorted that the promissory notes were completely filled up at the time of their delivery. Assuming that such was not the case, Sec. 14 of the NIL provides that the bank has the prima facie authority to complete the blank form. Moreover, it is

Page 830 of 1485

presumed that one who has signed as a maker acted with care and had signed the document with full knowledge of its content. The bank noted that Tomas Ang is a prominent businessman in Davao City who has been engaged in the auto parts business for several years, hence, certainly he is not so nave as to sign the notes without knowing or bothering to verify the amounts of the loans covered by them. Further, he is already in estoppel since despite receipt of several demand letters there was not a single protest raised by him that he signed for only one note in the amount of P30,000. It was denied by the bank that there were extensions of time for payment accorded to Antonio Ang Eng Liong. Granting that such were the case, it said that the same would not relieve Tomas Ang from liability as he would still be liable for the whole obligation less the share of his co-debtor who received the extended term. The bank also asserted that there were no additional or new stipulations imposed other than those agreed upon. The penalty charge, service charge, and attorney's fees were reflected in the amendments to the promissory notes and disclosure statements. Reference to the Usury Law was misplaced as usury is legally non-existent; at present, interest can be charged depending on the agreement of the lender and the borrower. Lastly, the bank contended that the provisions on presentment for payment and notice of dishonor were expressly waived by Tomas Ang and that such waiver is not against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity therefor since being a solidary debtor he is absolutely required to pay and primarily liable on both promissory notes. On October 19, 1990, the trial court issued a preliminary pre-trial order directing the parties to submit their respective pre-trial guide. 10 When Antonio Ang Eng Liong failed to submit his brief, the bank filed an ex-parte motion to declare him in default. 11 Per Order of November 23, 1990, the court granted the motion and set the ex-parte hearing for the presentation of the bank's evidence.12 Despite Tomas Ang's motion13 to modify the Order so as to exclude or cancel the ex-parte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the Revised Rules on Civil Procedure), the hearing nonetheless proceeded.14 Eventually, a decision15 was rendered by the trial court on February 21, 1991. For his supposed bad faith and obstinate refusal despite several demands from the bank, Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service charge per annum. The overdue penalty charge and attorney's fees were, however, reduced for being excessive, thus: WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor of plaintiff, ordering the former to pay the latter: On the first cause of action: 1) the amount of P50,000.00 representing the principal obligation with 14% interest per annum from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid; 2) P11,663.89 as accrued service charge; and 3) P34,991.67 as accrued overdue penalty charge.

Page 831 of 1485

On the second cause of action: 1) the amount of P50,000.00 (sic) representing the principal account with 14% interest from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid; 2) P7,088.34 representing accrued service charge; 3) P21,265.00 as accrued overdue penalty charge; 4) the amount of P10,000.00 as attorney's fees; and 5) the amount of P620.00 as litigation expenses and to pay the costs. SO ORDERED.16 The decision became final and executory as no appeal was taken therefrom. Upon the bank's ex-parte motion, the court accordingly issued a writ of execution on April 5, 1991. 17 Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and Tomas Ang,18 who, in turn, filed a Motion to Dismiss 19 on the ground of lack of jurisdiction over the case in view of the alleged finality of the February 21, 1991 Decision. He contended that Sec. 4, Rule 18 of the old Rules sanctions only one judgment in case of several defendants, one of whom is declared in default. Moreover, in his Supplemental Motion to Dismiss,20 Tomas Ang maintained that he is released from his obligation as a solidary guarantor and accommodation party because, by the bank's actions, he is now precluded from asserting his cross-claim against Antonio Ang Eng Liong, upon whom a final and executory judgment had already been issued. The court denied the motion as well as the motion for reconsideration thereon. 21 Tomas Ang subsequently filed a petition for certiorari and prohibition before this Court, which, however, resolved to refer the same to the Court of Appeals. 22 In accordance with the prayer of Tomas Ang, the appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which annulled and set aside the portion of the Order dated November 23, 1990 setting the ex-parte presentation of the bank's evidence against Antonio Ang Eng Liong, the Decision dated February 21, 1991 rendered against him based on such evidence, and the Writ of Execution issued on April 5, 1991.23 Trial then ensued between the bank and Tomas Ang. Upon the latter's motion during the pre-trial conference, Antonio Ang Eng Liong was again declared in default for his failure to answer the cross-claim within the reglementary period. 24 When Tomas Ang was about to present evidence in his behalf, he filed a Motion for Production of Documents,25 reasoning: xxx 2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need for him to examine original records in the custody and possession of plaintiff, viz:

Page 832 of 1485

a. original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;] b. original of Disclosure Statement in reference to PN # DVO-78-382; c. original of PN # DVO-78-390 dated October 9, 1978; d. original of Disclosure Statement in reference to PN # DVO-78-390; e. Statement or Record of Account with the Associated Banking Corporation or its successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank records, withdrawal slips, notices, other papers and relevant dates relative to the overdraft of Antonio Eng Liong in CA No. 470; f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos. DVO-78-382 and DVO-78-390 (supra); g. Other supporting papers and documents submitted by Antonio Ang Eng Liong relative to his loan application vis--vis PN. Nos. DVO-78-382 and DVO78-390 such as financial statements, income tax returns, etc. as required by the Central Bank or bank rules and regulations. 3. That the above matters are very material to the defenses of defendant Tomas Ang, viz: - the bank is not a holder in due course when it accepted the [PNs] in blank. - The real borrower is Antonio Ang Eng Liong which fact is known to the bank. - That the PAYEE not being a holder in due course and knowing that defendant Tomas Ang is merely an accommodation party, the latter may raise against such payee or holder or successor-in-interest (of the notes) PERSONAL and EQUITABLE DEFENSES such as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in delaying collection despite Eng Liong's OVERDRAFT in C.A. No. 470, etc. 26 In its Order dated May 16, 1994, 27 the court denied the motion stating that the promissory notes and the disclosure statements have already been shown to and inspected by Tomas Ang during the trial, as in fact he has already copies of the same; the Statements or Records of Account of Antonio Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial since, pursuant to the previous ruling of the court, he is being sued for the notes and not for the overdraft which is personal to Antonio Ang Eng Liong; and besides its non-existence in the bank's records, there would be legal obstacle for the production and inspection of the income tax return of Antonio Ang Eng Liong if done without his consent. When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a petition for certiorari and prohibition with application for preliminary injunction and restraining order before the Court of Appeals docketed as CA G.R. SP No. 34840. 28 On August 17, 1994, however, the Court of Appeals denied the issuance of a Temporary Restraining Order.29

Page 833 of 1485

Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived his right to present evidence for failure to appear during the pendency of his petition before the Court of Appeals, the trial court decided to continue with the hearing of the case. 30 After the trial, Tomas Ang offered in evidence several documents, which included a copy of the Trust Agreement between the Republic of the Philippines and the Asset Privatization Trust, as certified by the notary public, and news clippings from the Manila Bulletin dated May 18, 1994 and May 30, 1994. 31 All the documentary exhibits were admitted for failure of the bank to submit its comment to the formal offer. 32 Thereafter, Tomas Ang elected to withdraw his petition in CA G.R. SP No. 34840 before the Court of Appeals, which was then granted.33 On January 5, 1996, the trial court rendered judgment against the bank, dismissing the complaint for lack of cause of action.34 It held that: Exh. "9" and its [sub-markings], the Trust Agreement dated 27 February 1987 for the defense shows that: the Associated Bank as of June 30, 1986 is one of DBP's or Development Bank of the [Philippines'] non-performing accounts for transfer; on February 27, 1987 through Deeds of Transfer executed by and between the Philippine National Bank and Development Bank of the Philippines and the National Government, both financial institutions assigned, transferred and conveyed their nonperforming assets to the National Government; the National Government in turn and as TRUSTOR, transferred, conveyed and assigned by way of trust unto the Asset Privatization Trust said non-performing assets, [which] took title to and possession of, [to] conserve, provisionally manage and dispose[,] of said assets identified for privatization or disposition; one of the powers and duties of the APT with respect to trust properties consisting of receivables is to handle the administration, collection and enforcement of the receivables; to bring suit to enforce payment of the obligations or any installment thereof or to settle or compromise any of such obligations, or any other claim or demand which the government may have against any person or persons[.] The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. "9-A", "9-B", "9-C", and "9-D", show that the Monetary Board of the Bangko Sentral ng Pilipinas approved the rehabilitation plan of the Associated Bank. One main feature of the rehabilitation plan included the financial assistance for the bank by the Philippine Deposit Insurance Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945 billion subject to a buy-back arrangement over a 10 year period. The PDIC had approved of the rehab scheme, which included the purchase of AB's bad loans worth P1.86 at 25% discount. This will then be paid by AB within a 10-year period plus a yield comparable to the prevailing market rates x x x. Based then on the evidence presented by the defendant Tomas Ang, it would readily appear that at the time this suit for Sum of Money was filed which was on August [28], 1990, the notes were held by the Asset Privatization Trust by virtue of the Deeds of Transfer and Trust Agreement, which was empowered to bring suit to enforce payment of the obligations. Consequently, defendant Tomas Ang has sufficiently established that plaintiff at the time this suit was filed was not the holder of the notes to warrant the dismissal of the complaint. 35 Respondent Bank then elevated the case to the Court of Appeals. In the appellant's brief captioned, "ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and

Page 834 of 1485

TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee," the following errors were alleged: I. THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTER'S DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS. II. THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT'S COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL NOTICE.36 The bank stressed that it has established the causes of action outlined in its Complaint by a preponderance of evidence. As regards the Deed of Transfer and Trust Agreement, it contended that the same were never authenticated by any witness in the course of the trial; the Agreement, which was not even legible, did not mention the promissory notes subject of the Complaint; the bank is not a party to the Agreement, which showed that it was between the Government of the Philippines, acting through the Committee on Privatization represented by the Secretary of Finance as trustor and the Asset Privatization Trust, which was created by virtue of Proclamation No. 50; and the Agreement did not reflect the signatures of the contracting parties. Lastly, the bank averred that the news items appearing in the Manila Bulletin could not be the subject of judicial notice since they were completely hearsay in character.37 On October 9, 2000, the Court of Appeals reversed and set aside the trial court's ruling. The dispositive portion of the Decision38 reads: WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another one entered ordering defendant-appellee Tomas Ang to pay plaintiffappellant Associated Bank the following: 1. P50,000.00 representing the principal amount of the loan under PN-No. DVO-78382 plus 14% interest thereon per annum computed from January 31, 1979 until the full amount thereof is paid; 2. P30,000.00 representing the principal amount of the loan under PN-No. DVO-78390 plus 14% interest thereon per annum computed from December 8, 1978 until the full amount thereof is paid; All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis. Defendant-appellee's counterclaim is likewise DISMISSED for lack of legal and factual bases. No pronouncement as to costs. SO ORDERED.39

Page 835 of 1485

The appellate court disregarded the bank's first assigned error for being "irrelevant in the final determination of the case" and found its second assigned error as "not meritorious." Instead, it posed for resolution the issue of whether the trial court erred in dismissing the complaint for collection of sum of money for lack of cause of action as the bank was said to be not the "holder" of the notes at the time the collection case was filed. In answering the lone issue, the Court of Appeals held that the bank is a "holder" under Sec. 191 of the NIL. It concluded that despite the execution of the Deeds of Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as the "holder" of the subject promissory notes for the reason that it is neither the payee or indorsee of the notes in possession thereof nor is it the bearer of said notes. The Court of Appeals observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes continued to remain with the bank until the institution of the collection suit. With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is accountable therefor in his capacity as an accommodation party. Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latter's knowledge, at the time of taking the notes, that he is only an accommodation party. Moreover, as a co-maker who agreed to be jointly and severally liable on the promissory notes, Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the fact that the loan was granted to the principal debtor already constitutes a sufficient consideration. Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in business rendered it implausible that he would just sign the promissory notes as a co-maker without even checking the real amount of the debt to be incurred, or that he merely acted on the belief that the first loan application was cancelled. According to the appellate court, it is apparent that he was negligent in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate him from his responsibility under the notes. Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and overdue charges as well as attorney's fees on the ground that the promissory notes made no mention of such charges/fees. In his motion for reconsideration,40 Tomas Ang raised for the first time the assigned errors as follows: xxx 2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently discovered that upon the filing of the complaint on August 28, 1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bank fraudulently failed to specify the amount of compounded interest at 14% per annum, service charges at 2% per annum and overdue penalty charges at 12% per annum in the prayer of the complaint as of the time of its filing, paying a total of only P640.00(!!!) as filing and court docket fees although the total sum involved as of that time was P647,566.75 including 20% attorney's fees. In fact, the stated interest in the body of the complaint alone amount to P328,373.39 (which is actually compounded and capitalized) in both causes of action and the total service and overdue penalties and charges and attorney's fees further amount to P239,193.36 in both causes of action, as of July 31, 1990, the time of filing of the complaint. Significantly, appellant fraudulently misled the Court, describing the 14% imposition as interest, when in fact the same was capitalized as principal by appellant bank every month to earn more interest, as

Page 836 of 1485

stated in the notes. In view thereof, the trial court never acquired jurisdiction over the case and the same may not be now corrected by the filing of deficiency fees because the causes of action had already prescribed and more importantly, the jurisdiction of the Municipal Trial Court had been increased to P100,000.00 in principal claims last March 20, 1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I of the 1987 Administrative Code. In other words, as of today, jurisdiction over the subject falls within the exclusive jurisdiction of the MTC, particularly if the bank foregoes capitalization of the stipulated interest. 3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT WHICH LEFT OUT TOMAS ANG'S CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas Ang's right of subrogation against Ang Eng Liong, expressed in his cross-claim, is now SEVERAL TIMES foreclosed because of the fault or negligence of appellant bank since 1979 up to its insistence of an ex-parte trial, and now when it failed to serve notice of appeal and appellant's brief upon him. Accordingly, appellee Tomas Ang should be released from his suretyship obligation pursuant to Art. 2080 of the Civil Code. The above is related to the issues above-stated. 4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit of appellant bank which defrauded the judiciary by the payment of deficient docket fees.41 Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals denied the motion in its Resolution dated December 26, 2000.42 Petitioner now submits the following issues for resolution: 1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as accommodation maker or surety because of the failure of [private] respondent bank to serve its notice of appeal upon the principal debtor, respondent Eng Liong? 2. Did the trial court have jurisdiction over the case at all? 3. Did the Court of Appeals [commit] error in assigning its own error and raising its own issue? 4. Are petitioner's other real and personal defenses such as successive extensions coupled with fraudulent collusion to hide Eng Liong's default, the payee's grant of additional burdens, coupled with the insolvency of the principal debtor, and the defense of incomplete but delivered instrument, meritorious? 43 Petitioner allegedly learned after the promulgation of the Court of Appeals' decision that, pursuant to the parties' agreement on the compounding of interest with the principal amount (per month in case of default), the interest on the promissory notes as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382 (instead of P203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead of P125,334.41) while the principal debt as of said date should increase to P647,566.75 (instead of P539,638.96). He submits that the bank carefully and shrewdly hid the fact by describing the amounts as interest instead of being part of either the principal or penalty in order to pay a lesser amount of docket fees. According to him, the total fees that should have been paid at the time of the filing of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a shortage of 71%.

Page 837 of 1485

Petitioner contends that the bank may not now pay the deficiency because the last demand letter sent to him was dated September 9, 1986, or more than twenty years have elapsed such that prescription had already set in. Consequently, the bank's claim must be dismissed as the trial court loses jurisdiction over the case. Petitioner also argues that the Court of Appeals should not have assigned its own error and raised it as an issue of the case, contending that no question should be entertained on appeal unless it has been advanced in the court below or is within the issues made by the parties in the pleadings. At any rate, he opines that the appellate court's decision that the bank is the real party in interest because it is the payee named in the note or the holder thereof is too simplistic since: (1) the power and control of Asset Privatization Trust over the bank are clear from the explicit terms of the duly certified trust documents and deeds of transfer and are confirmed by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking Act, where a corporation or a bank is under receivership, conservation or rehabilitation, it is only the representative (liquidator, receiver, trustee or conservator) who may properly act for said entity, and, in this case, the bank was held by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say that the payee who has not indorsed the notes in all cases is the real party in interest because the rights of the payee may be subject of an assignment of incorporeal rights under Articles 1624 and 1625 of the Civil Code. Lastly, petitioner maintains that when respondent Bank served its notice of appeal and appellant's brief only on him, it rendered the judgment of the trial court final and executory with respect to Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong) from any and all liability under the promissory notes and, thereby, foreclosed petitioner's cross-claims. By such act, the bank, even if it be the "holder" of the promissory notes, allegedly discharged a simple contract for the payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a surety like petitioner from being subrogated in the shoes of his principal (Article 2080, Civil Code), and impaired the notes, producing the effect of payment (Article 1249, Civil Code). The petition is unmeritorious. Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems proper under the circumstances obtaining, error/s not assigned on an appealed case. In Mendoza v. Bautista,44 this Court recognized the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned, thus: As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration. Higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on appeal. However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our rules recognize the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the Rules of Court provides: SEC. 8. Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered, unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors.

Page 838 of 1485

Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on appeal but upon which the determination of a question properly assigned is dependent. (Citations omitted)45 To the Court's mind, even if the Court of Appeals regarded petitioner's two assigned errors as "irrelevant" and "not meritorious," the issue of whether the trial court erred in dismissing the complaint for collection of sum of money for lack of cause of action (on the ground that the bank was not the "holder" of the notes at the time of the filing of the action) is in reality closely related to and determinant of the resolution of whether the lower court correctly ruled in not holding Antonio Ang Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite documentary exhibits allegedly proving their obligations and in dismissing the complaint based on newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on this point. Now, the more relevant question is: who is the real party in interest at the time of the institution of the complaint, is it the bank or the Asset Privatization Trust? To answer the query, a brief history on the creation of the Asset Privatization Trust is proper. Taking into account the imperative need of formally launching a program for the rationalization of the government corporate sector, then President Corazon C. Aquino issued Proclamation No. 5046 on December 8, 1986. As one of the twin cornerstones of the program was to establish the privatization of a good number of government corporations, the proclamation created the Asset Privatization Trust, which would, for the benefit of the National Government, take title to and possession of, conserve, provisionally manage and dispose of transferred assets that were identified for privatization or disposition. 47 In accordance with the provisions of Section 23 48 of the proclamation, then President Aquino subsequently issued Administrative Order No. 14 on February 3, 1987, which approved the identification of and transfer to the National Government of certain assets (consisting of loans, equity investments, accrued interest receivables, acquired assets and other assets) and liabilities (consisting of deposits, borrowings, other liabilities and contingent guarantees) of the Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets was implemented through a Deed of Transfer executed on February 27, 1987 between the National Government, on one hand, and the DBP and PNB, on the other. In turn, the National Government designated the Asset Privatization Trust to act as its trustee through a Trust Agreement, whereby the non-performing accounts of DBP and PNB, including, among others, the DBP's equity with respondent Bank, were entrusted to the Asset Privatization Trust.49 As provided for in the Agreement, among the powers and duties of the Asset Privatization Trust with respect to the trust properties consisting of receivables was to handle their administration and collection by bringing suit to enforce payment of the obligations or any installment thereof or settling or compromising any of such obligations or any other claim or demand which the Government may have against any person or persons, and to do all acts, institute all proceedings, and to exercise all other rights, powers, and

Page 839 of 1485

privileges of ownership that an absolute owner of the properties would otherwise have the right to do.50 Incidentally, the existence of the Asset Privatization Trust would have expired five (5) years from the date of issuance of Proclamation No. 50.51 However, its original term was extended from December 8, 1991 up to August 31, 1992,52 and again from December 31, 1993 until June 30, 1995,53 and then from July 1, 1995 up to December 31, 1999, 54 and further from January 1, 2000 until December 31, 2000.55 Thenceforth, the Privatization and Management Office was established and took over, among others, the powers, duties and functions of the Asset Privatization Trust under the proclamation.56 Based on the above backdrop, respondent Bank does not appear to be the real party in interest when it instituted the collection suit on August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had the authority to enforce its claims against both debtors. In fact, during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was under the trusteeship of the Asset Privatization Trust. 57 The Asset Privatization Trust, which should have been represented by the Office of the Government Corporate Counsel, had the authority to file and prosecute the case. The foregoing notwithstanding, this Court can not, at present, readily subscribe to petitioner's insistence that the case must be dismissed. Significantly, it stands without refute, both in the pleadings as well as in the evidence presented during the trial and up to the time this case reached the Court, that the issue had been rendered moot with the occurrence of a supervening event the "buy-back" of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from the Asset Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could rightfully qualify as a "holder"58 thereof under the NIL. Notably, Section 29 of the NIL defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person.59 An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. 60 The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation.61 As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and surety the accommodation party being the surety.62 As such, he is deemed an original promisor and debtor from the beginning; 63 he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable.64 Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the surety's liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. 65 As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.66

Page 840 of 1485

Contrary to petitioner's adamant stand, however, Article 2080 67 of the Civil Code does not apply in a contract of suretyship.68 Art. 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and solidary obligations) shall govern the relationship of petitioner with the bank. The case of Inciong, Jr. v. CA69 is illuminating: Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which provides that: "The guarantors, even though they be solidary, are released from their obligation whenever by come act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter." It is to be noted, however, that petitioner signed the promissory note as a solidary comaker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows: "Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid." A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. On the other hand, Article 2047 of the Civil Code states: "By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a suretyship." (Italics supplied.) While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains: "A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of rights of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code."

Page 841 of 1485

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarily liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection. (Citations omitted) 70 In the instant case, petitioner agreed to be "jointly and severally" liable under the two promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is completely immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng Liong or both of them since the law confers upon the creditor the prerogative to choose whether to enforce the entire obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an accommodation party, may seek reimbursement from Antonio Ang Eng Liong, being the party accommodated. 71 It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice of appeal and appellant's brief to Antonio Ang Eng Liong, the trial court's judgment, in effect, became final and executory as against the latter and, thereby, bars his (petitioner's) cross-claims against him: First, although no notice of appeal and appellant's brief were served to Antonio Ang Eng Liong, he was nonetheless impleaded in the case since his name appeared in the caption of both the notice and the brief as one of the defendantsappellees;72 Second, despite including in the caption of the appellee's brief his co-debtor as one of the defendants-appellees, petitioner did not also serve him a copy thereof; 73 Third, in the caption of the Court of Appeals' decision, Antonio Ang Eng Liong was expressly named as one of the defendants-appellees;74 and Fourth, it was only in his motion for reconsideration from the adverse judgment of the Court of Appeals that petitioner belatedly chose to serve notice to the counsel of his co-defendant-appellee. 75 Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his "special appearance" through counsel, that the Court of Appeals, much less this Court, already lacked jurisdiction over his person or over the subject matter relating to him because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact that he had twice put himself in default one, in not filing a pre-trial brief and another, in not filing his answer to petitioner's cross-claims. As a matter of course, Antonio Ang Eng Liong, being a party declared in default, already waived his right to take part in the trial proceedings and had to contend with the judgment rendered by the court based on the evidence presented by the bank and petitioner. Moreover, even without considering these default judgments, Antonio Ang Eng Liong even categorically admitted having secured a loan totaling P80,000. In his Answer to the complaint, he did not deny such liability but merely pleaded that the bank "be ordered to submit a more reasonable computation" instead of collecting excessive interest, penalty charges, and attorney's fees. For failing to tender an issue and in not denying the material allegations stated in the complaint, a judgment on the pleadings 76 would have also been proper since not a single issue was generated by the Answer he filed. As the promissory notes were not discharged or impaired through any act or omission of the bank, Sections 119 (d)77 and 12278 of the NIL as well as Art. 1249 79 of the Civil Code would necessarily find no application. Again, neither was petitioner's right of reimbursement barred nor was the bank's right to proceed against Antonio Ang Eng Liong expressly renounced by

Page 842 of 1485

the omission to serve notice of appeal and appellant's brief to a party already declared in default. Consequently, in issuing the two promissory notes, petitioner as accommodating party warranted to the holder in due course that he would pay the same according to its tenor. 80 It is no defense to state on his part that he did not receive any value therefor 81 because the phrase "without receiving value therefor" used in Sec. 29 of the NIL means "without receiving value by virtue of the instrument" and not as it is apparently supposed to mean, "without receiving payment for lending his name." 82 Stated differently, when a third person advances the face value of the note to the accommodated party at the time of its creation, the consideration for the note as regards its maker is the money advanced to the accommodated party. It is enough that value was given for the note at the time of its creation.83 As in the instant case, a sum of money was received by virtue of the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in payment of the use of his name. 84 Under the law, upon the maturity of the note, a surety may pay the debt, demand the collateral security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate himself in the place of the creditor with the right to enforce the guaranty against the other signers of the note for the reimbursement of what he is entitled to recover from them.85 Regrettably, none of these were prudently done by petitioner. When he was first notified by the bank sometime in 1982 regarding his accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang Eng Liong, who represented that he would take care of the matter, instead of directly communicating with the bank for its settlement. 86 Thus, petitioner cannot now claim that he was prejudiced by the supposed "extension of time" given by the bank to his co-debtor. Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor. 87 In Clark v. Sellner,88 this Court held: x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired his action against the defendant. It should not be lost sight of that the defendant's signature on the note is an assurance to the creditor that the collateral guaranty will remain good, and that otherwise, he, the defendant, will be personally responsible for the payment. True, that if the creditor had done any act whereby the guaranty was impaired in its value, or discharged, such an act would have wholly or partially released the surety; but it must be born in mind that it is a recognized doctrine in the matter of suretyship that with respect to the surety, the creditor is under no obligation to display any diligence in the enforcement of his rights as a creditor. His mere inaction indulgence, passiveness, or delay in proceeding against the principal debtor, or the fact that he did not enforce the guaranty or apply on the payment of such funds as were available, constitute no defense at all for the surety, unless the contract expressly requires diligence and promptness on the part of the creditor, which is not the case in the present action. There is in some decisions a tendency toward holding that the creditor's laches may discharge the surety, meaning by laches a negligent forbearance. This theory, however, is not generally accepted and the courts almost universally consider it essentially inconsistent with the relation of the parties to the note. (21 R.C.L., 1032-1034)89

Page 843 of 1485

Neither can petitioner benefit from the alleged "insolvency" of Antonio Ang Eng Liong for want of clear and convincing evidence proving the same. Assuming it to be true, he also did not exercise diligence in demanding security to protect himself from the danger thereof in the event that he (petitioner) would eventually be sued by the bank. Further, whether petitioner may or may not obtain security from Antonio Ang Eng Liong cannot in any manner affect his liability to the bank; the said remedy is a matter of concern exclusively between themselves as accommodation party and accommodated party. The fact that petitioner stands only as a surety in relation to Antonio Ang Eng Liong is immaterial to the claim of the bank and does not a whit diminish nor defeat the rights of the latter as a holder for value. To sanction his theory is to give unwarranted legal recognition to the patent absurdity of a situation where a co-maker, when sued on an instrument by a holder in due course and for value, can escape liability by the convenient expedient of interposing the defense that he is a merely an accommodation party.90 In sum, as regards the other issues and errors alleged in this petition, the Court notes that these were the very same questions of fact raised on appeal before the Court of Appeals, although at times couched in different terms and explained more lengthily in the petition. Suffice it to say that the same, being factual, have been satisfactorily passed upon and considered both by the trial and appellate courts. It is doctrinal that only errors of law and not of fact are reviewable by this Court in petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the most cogent and compelling reason, it is not our function under the rule to examine, evaluate or weigh the probative value of the evidence presented by the parties all over again.91 WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is DENIED for lack of merit. No costs. SO ORDERED. Puno, C.J., Chairperson, Sandoval-Gutierrez, Corona, Garcia, JJ., concur. THIRD [G.R. No. RAMA 154740, CO, Petitioner, DIVISION April vs. ADMIRAL 16, UNITED 2008] SAVINGS BANK,

HENRY DELA Respondent. DECISION NACHURA, J.:

On appeal is the February 19, 2002 Decision [1] of the Court of Appeals (CA) in CA-G.R. CV No. 42167, setting aside the May 18, 1991 Decision [2] of the Regional Trial Court (RTC) of Quezon City, Branch 100, as well as its subsequent Resolution, [3] denying petitioner's motion for reconsideration. On February 28, 1983, Admiral United Savings Bank (ADMIRAL) extended a loan of Five Hundred Thousand Pesos (P500,000.00) to petitioner Henry Dela Rama Co (Co), with Leocadio O. Isip (Isip) as co-maker. The loan was evidenced by Promissory Note No. A1-

Page 844 of 1485

041[4] dated February 28, 1983 and payable on or before February 23, 1984, with interest at the rate of 18% per annum and service charge of 10% per annum. The note also provided for liquidated damages at the rate of 3% per month plus incidental cost of collection and/or legal fees/cost, in the event of non-payment on due date. Co and Isip failed to pay the loan when it became due and demandable. Demands for payment were made by ADMIRAL, but these were not heeded. Consequently, ADMIRAL filed a collection case against Co and Isip with the RTC of Quezon City, docketed as Civil Case No. Q-48543. Co answered the complaint alleging that the promissory note was sham and frivolous; hence, void ab initio. He denied receiving any benefits from the loan transaction, claiming that ADMIRAL merely induced him into executing a promissory note. He also claimed that the obligations, if any, had been paid, waived or otherwise extinguished. Co allegedly ceded several vehicles to ADMIRAL, the value of which was more than enough to cover the alleged obligation. He added that there was condonation of debt and novation of the obligation. ADMIRAL was also guilty of laches in prosecuting the case. Finally, he argued that the case was prematurely filed and was not prosecuted against the real parties-in-interest. [5] Pending resolution of the case, Isip died. Accordingly, he was dropped from the complaint. Co then filed a third party complaint against Metropolitan Rentals & Sales, Inc. (METRO RENT). He averred that the incorporators and officers of METRO RENT were the ones who prodded him in obtaining a loan of P500,000.00 from ADMIRAL. The proceeds of the loan were given to the directors and officers of METRO RENT, who assured him of prompt payment of the loan obligation. METRO RENT also assured him that he would be discharged from all liabilities under the promissory note, but it did not make good its promise. Co, thus, prayed that METRO RENT be adjudged liable to ADMIRAL for the payment of the obligation under the promissory note.[6] Traversing the third party complaint, METRO RENT denied receiving the loan proceeds from Co. It claimed that the loan was Co's personal loan from which METRO RENT derived no benefit, thus, it cannot be held liable for the payment of the same. [7] In due course and after hearing, the RTC rendered a Decision [8] on May 18, 1991, dismissing the complaint on the ground that the obligation had already been paid or otherwise extinguished. It primarily relied on the release of mortgage executed by the officers of ADMIRAL, and on Co's testimony that METRO RENT already paid the loan. The RTC also dismissed Co's third party complaint against METRO RENT, as well as his counterclaim against ADMIRAL for lack of basis. ADMIRAL appealed the dismissal of the complaint to the CA. [9] On February 19, 2002, the CA rendered the assailed decision.[10] Reversing the RTC, the CA found preponderance of evidence to hold Co liable for the payment of his loan obligation to ADMIRAL. It rejected Co's assertion that he merely acted as an accommodation party for METRO RENT, declaring that Co's liability under the note was apparent in his express, absolute and unconditional promise to pay the loan upon maturity. The CA further held that whatever agreement Co had with METRO RENT cannot bind ADMIRAL since there is no showing that the latter was aware of the agreement, let alone consented to it. The CA also rejected Co's alternative defense that METRO RENT already paid the loan, finding the testimonial evidence in support of the assertion as pure hearsay. The CA disposed, thus: UPON THE VIEW WE TAKE OF THIS CASE, THUS , the judgment appealed from must be as it hereby is, REVERSED and SET ASIDE, and a new one entered CONDEMNING

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[petitioner] Henry Dela Rama Co to pay [respondent] Admiral United Savings Bank: (1) the sum of FIVE HUNDRED THOUSAND (P500,000.00) PESOS, Philippine Currency, with interest at eighteen percent (18%) per annum, and charges of ten percent (10%) per annum, reckoned from 28 February 1984, until fully paid; (2) the sum equivalent to three percent (3%) per month from said due date until fully paid, by way of liquidated damages; and, (3) the sum equivalent to twenty-five percent (25%) of the total amount due in the concept of attorney's fees. For insufficiency of evidence, the third party complaint against third party defendant Metropolitan Rental and Sales, Incorporated, is DISMISSED. Without costs. SO ORDERED.[11] Co filed a motion for reconsideration, but the CA denied the same on August 7, 2002. [12] Hence, The this appeal by Co faulting the CA for reversing the RTC. merit.

appeal

lacks

Co has not denied the authenticity and due execution of the promissory note. He, however, asserts that he is not legally bound by said document because he merely acted as an accommodation party for METRO RENT. He claimed the he signed the note only for the purpose of lending his name to METRO RENT, without receiving value therefor. The argument fails to persuade.

The document, bearing Co's signature, speaks for itself. To repeat, Co has not questioned the genuineness and due execution of the note. By signing the promissory note, Co acknowledged receipt of the loan amounting to P500,000.00, and undertook to pay the same, plus interest, to ADMIRAL on or before February 28, 1984. Thus, he cannot validly set up the defense that he did not receive the value of the note or any consideration therefor. At any rate, Co's assertion that he merely acted as an accommodation party for METRO RENT cannot release him from liability under the note. An accommodation party who lends his name to enable the accommodated party to obtain credit or raise money is liable on the instrument to a holder for value even if he receives no part of the consideration. [13] He assumes the obligation to the other party and binds himself to pay the note on its due date. By signing the note, Co thus became liable for the debt even if he had no direct personal interest in the obligation or did not receive any benefit therefrom. In Sierra v. Court of Appeals,[14] we held that: A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation. Co is not unfamiliar with commercial transactions. He is a certified public accountant, who obtained his bachelor's degree in accountancy from De La Salle University. Certainly, he fully understood the import and consequences of what he was doing when he signed the promissory note. He even mortgaged his own properties to secure payment of the loan. His disclaimer, therefore, does not inspire belief. Co also offered the alternative defense that the loan had already been extinguished by payment. He testified that METRO RENT paid the loan a week before April 11, 1983.[15]

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In Alonzo v. San Juan,[16] we held that the receipts of payment, although not exclusive, were deemed to be the best evidence of the fact of payment. In this case, no receipt was presented to substantiate the claim of payment. Instead, Co presented a Release of Real Estate Mortgage [17] dated April 11, 1983 to prove his assertion. But a cancellation of mortgage is not conclusive proof of payment of a loan, even as it may serve as basis for an inference that payment of the principal obligation had been made. Unfortunately for Co, no such inference can be made from the deed he presented. The Release of Real Estate Mortgage reads: The ADMIRAL UNITED SAVINGS BANK, a banking institution duly organized and existing under and by virtue of the laws of the Philippines, with offices at S. Medalla Building, EDSA corner Gen. MacArthur, Cubao, Quezon City, Metro-Manila, represented in this act by its First Vice-President, MR. EMMANUEL ALMANZOR, and its Asst. Vice President, MR. ROSSINI PETER G. GAMALINDA, the mortgagee of the properties described in Transfer Certificates of Title Nos. 3478 and 95759 of the Registry of Deeds of Laguna in the MORTGAGE executed on February 24, 1983 and acknowledged on the same date before Atty. Benjamin Baens del Rosario, Notary Public for and in Quezon City, Metro Manila who entered in his notarial protocol as Doc. No. 70, Page No. 15, Book No. IV, Series of 1983, in favor of the said Bank, by HENRY DE[LA] RAMA CO, hereby RELEASES and DISCHARGES the mortgage on the aforesaid Transfer Certificates of Title Nos. 3478 and 95759 of the Registry of Deeds of Laguna.[18] The record is bereft of any showing that the promissory note was secured by a mortgage over properties covered by TCT Nos. 3478 and 95759. Thus, it cannot be assumed that the mortgage executed on February 28, 1983, and released on April 11, 1983, was the security for the subject promissory note. In addition, TCT Nos. 3478 and 95759, the supposed collaterals for the loan, are still with the bank.[19] If indeed there was payment of the principal obligation and cancellation of the mortgage in 1983, Co should have immediately demanded for the return of the TCTs. This he failed to do.[20] It was only on June 11, 1987, after the filing of the complaint with the RTC, that Co demanded for the return of TCT Nos. 3478 and 95759. [21] Co's inaction militates against his assertion. Jurisprudence is replete with rulings that in civil cases, the party who alleges a fact has the burden of proving it. Burden of proof is the duty of a party to present evidence on the facts in issue necessary to prove the truth of his claim or defense by the amount of evidence required by law.[22] Thus, a party who pleads payment as a defense has the burden of proving that such payment had, in fact, been made. When the plaintiff alleges nonpayment, still, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.[23] Verily, Co failed to discharge this burden. His bare testimonial assertion that METRO RENT paid the loan a week before April 11, 1983 or forty-five (45) days after [the] release of the loan, cannot be characterized as adequate and competent proof of payment. Accordingly, the CA rightly rejected his alternative defense of payment. Similarly, Co's protestation that the cancellation of the real estate mortgage extinguished his obligation to pay the loan cannot be sustained. We perceive it as a strained attempt to rationalize his untenable position. A real estate mortgage is but an accessory contract to secure the loan in the promissory note. Its cancellation does not automatically result in the extinguishment of the loan. Being the principal contract, the loan is unaffected by the release or cancellation of the mortgage. Certainly, a debt may subsist even without a mortgage. Thus, in the case at bench,

Page 847 of 1485

ADMIRAL can still run after Co for the payment of the loan under the promissory note, even after the release of the mortgage on the properties, especially because there was no showing that the mortgage was constituted as a security for the loan covered by the promissory note. In sum, the CA committed no reversible error in holding Co liable for the payment of the loan. However, we find a need to modify the damages awarded in favor of ADMIRAL. The CA, in conformity with the terms of the promissory note, awarded to ADMIRAL the amount of P500,000.00 with interest at 18% per annum, and service charge at the rate of 10% per annum, computed from February 28, 1984 until fully paid. It also awarded the sum equivalent to three percent (3%) per month from said due date until fully paid, by way of liquidated damages, and the sum equivalent to twenty-five (25%) of the total amount due in the concept of attorney's fees .[24] We sustain the interest rate of 18% per annum for being fair and reasonable. However, equity dictates that we reduce the service charge, liquidated damages and attorney's fees awarded in favor of ADMIRAL. In L.M. Handicraft Manufacturing Corporation v. Court of Appeals ,[25] we held that a bank is only entitled to a maximum of 2% per annum service charge for amounts not over P500,000.00. We, therefore, modify the amount of service charge from 10% to 2%, or P10,000.00 per annum beginning February 28, 1984 until full payment of the loan obligation. As to the awards of liquidated damages and attorney's fees, we acknowledge that the law allows a party to recover liquidated damages and attorney's fees under a written agreement, thus: [T]he attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorney's fees so provided are awarded in favor of the litigant, not his counsel. On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach. A stipulation on liquidated damages is a penalty clause where the obligor assumes a greater liability in case of breach of an obligation. The obligor is bound to pay the stipulated amount without need for proof on the existence and on the measure of damages caused by the breach.[26] Nonetheless, courts are empowered to reduce such penalty if the same is iniquitous or unconscionable. Article 1229 of the Civil Code states: ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. This sentiment is echoed in Article 2227 of the same Code: ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. ADMIRAL is more than adequately protected from a possible breach of contract because of the stipulations on the payment of interest, service fee, liquidated damages and attorney's fees. Thus, this Court finds the award of liquidated damages and attorney's fees by the CA exorbitant. After all, liquidated damages and attorney's fees serve the same purpose, that is, as penalty for breach of contract. [27] Accordingly, we reduce the liquidated damages to P150,000.00, and attorney's fees to 10% of the principal loan or P50,000.00.

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WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals in CAG.R. CV No. 42167 is AFFIRMED with MODIFICATIONS. Petitioner Henry Dela Rama Co is ordered to pay Admiral United Savings Bank P500,000.00, with interest at 18% per annum from February 28, 1984 until the loan is fully paid. In addition, Co is adjudged liable to pay ADMIRAL a service charge equivalent to 2% of the principal loan, or P10,000.00 per year also from February 28, 1984 until the full payment of the loan; P150,000.00, as liquidated damages; and P50,000.00, as attorney's fees. SO ORDERED. SECOND DIVISION

CLAUDE P. BAUTISTA, Petitioner,

G.R. No. 166405

Present:

QUISUMBING, J., Chairperson, - versus PUNO, C.J., TINGA, VELASCO, JR., and BRION, JJ.

AUTO PLUS TRADERS, INCORPORATED and COURT OF APPEALS (Twenty-First Division), Respondents.

Promulgated:

August 6, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION

QUISUMBING, J.:

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This petition for review on certiorari assails the Decision 1202[1] dated August 10, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 and the Resolution 1203[2] dated October 29, 2004, which denied petitioners motion for reconsideration. The Court of Appeals affirmed the February 24, 2004 Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao City, Branch 16, in Criminal Case Nos. 52633-03 and 52634-03. The antecedent facts are as follows: Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequently dishonored. Private respondent then executed an affidavitcomplaint for violation of Batas Pambansa Blg. 221204[3] against petitioner. Consequently, two Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against the petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-2001. The Informations 1205[4] read: Criminal Case No. 102,004-B-2001: The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as follows: That on or about December 15, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 058832, dated December 15, 2000, in the amount of P151,200.00, in favor of Auto Plus Traders, Inc., 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, accused failed and refused to make payment to the damage and prejudice of herein complainant. CONTRARY TO LAW. Criminal Case No. 102,005-B-2001:

1202 1203 1204 1205

Page 850 of 1485

The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as follows: That on or about October 30, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 059049, dated October 30, 2000, in the amount of P97,500.00, in favor of Auto Plus Traders, [Inc.], 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, accused failed and refused to make payment, to the damage and prejudice of herein complainant. CONTRARY TO LAW. Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecutions evidence, petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC granted the demurrer, thus: WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the guilt of the accused. Cruiser Bus Line[s] and Transport Corporation, through the accused is directed to pay the complainant the sum of P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the account is paid in full; ordering further Cruiser Bus Line[s] and Transport Corporation, through the accused, to reimburse complainant the expense representing filing fees amounting to P1,780.00 and costs of litigation which this Court hereby fixed at P5,000.00. SO ORDERED.1206[5] Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both parties appealed to the RTC. On February 24, 2004, the trial court ruled: WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as follows: Accused is directed to pay and/or reimburse the complainant the following sums: (1) P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the account is paid in full; (2) P1,780.00 for filing fees and P5,000.00 as cost of litigation. SO ORDERED.1207[6]

1206 1207

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Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner elevated the case to the Court of Appeals, which affirmed the February 24, 2004 Decision and May 11, 2004 Order of the RTC: WHEREFORE, premises considered, the instant petition is DENIED. The assailed Decision of the Regional Trial Court, Branch 16, Davao City, dated February 24, 2004 and its Order dated May 11, 2004 are AFFIRMED. SO ORDERED.1208[7] Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in upholding the RTCs ruling that petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent for the value of the two checks. 1209 [8] Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that the corporation, which has a separate personality from its officers, is solely liable for the value of the two checks. Private respondent counters that petitioner should be held personally liable for both checks. Private respondent alleged that petitioner issued two postdated checks: a personal check in his name for the amount of P151,200 and a corporation check under the account of Cruiser Bus Lines and Transport Corporation for the amount of P97,500. According to private respondent, petitioner, by issuing his check to cover the obligation of the corporation, became an accommodation party. Under Section 29 1210[9] of the Negotiable Instruments Law, an accommodation party is liable on the instrument to a holder for value. Private respondent adds that petitioner should also be liable for the value of the corporation check because instituting another civil action against the corporation would result in multiplicity of suits and delay. At the outset, we note that private respondents allegation that petitioner issued a personal check disputes the factual findings of the MTCC. The MTCC found that the two checks belong to Cruiser Bus Lines and Transport Corporation while the RTC found that one of the checks was a personal check of the petitioner. Generally this Court, in a petition for

1208 1209 1210

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review on certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But, considering that the findings of the MTCC and the RTC are at variance, 1211[10] we are compelled to settle this issue. A perusal of the two check return slips 1212[11] in conjunction with the Current Account Statements1213[12] would show that the check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus Lines and Transport Corporation. factual finding of the RTC. Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding petitioner liable for the value of the checks considering that petitioner was acquitted of the crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines and Transport Corporation should be held liable. Juridical entities have personalities separate and distinct from its officers and the persons composing it.1214[13] Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice. 1215[14] These situations, however, do not exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation that has obligations to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held liable for the corporations obligations in his personal capacity. Hence, he cannot be held liable for the value of the two checks issued in payment for the corporations obligation in the total amount of P248,700. Likewise, contrary to private respondents contentions, petitioner cannot be considered liable as an accommodation party for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. As gleaned from the text, an Hence, we sustain the

1211 1212 1213 1214 1215

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accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person.1216[15] An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. 1217[16] case to show the presence of the third requisite. The first two elements are present here, however there is insufficient evidence presented in the instant All that the evidence shows is that petitioner signed Check No. 58832, which is drawn against his personal account. The said check, dated December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000. 1218[17] showing of when petitioner issued the check and in what capacity. There is no In the absence of

concrete evidence it cannot just be assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered as an accommodation party. Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence that the debts covered by the subject checks have been paid. WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 are REVERSED and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03 are DISMISSED, without prejudice to the right of private respondent Auto Plus Traders, Inc., to file the proper civil action against Cruiser Bus Lines and Transport Corporation for the value of the two checks. No pronouncement as to costs. SO ORDERED. Republic SUPREME Manila of the Philippines COURT

1216 1217 1218

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FIRST DIVISION G.R. No. 136202 January 25, 2007

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 Resolution 2 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, thirdparty 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. 02010588-48 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. 0201-058848 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 of P267,692.50 and argued that said payment was to correct the malicious

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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 Trading 5 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.

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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 thirdparty 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

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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 pre-trial, 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 of P154,800.00; (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;

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(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 defendantappellant 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.13 Factual 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

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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 pre-trial 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

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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 holder thereof. 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

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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. 27 The 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. 02010588-48 will remain frozen or untouched until herein [Salazar] has settled matters with

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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 of P267,692.50 (Exhibit "8") and debited said amount from Ms. Arcillas account No. 02010588-48 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, plaintiffappellee 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 is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED. No costs. SO ORDERED. THIRD [G.R. No. 168274, DIVISION August 20, 2008]

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FAR EAST BANK & TRUST COMPANY, PETITIONER, VS. GOLD PALACE JEWELLERY CO., AS REPRESENTED BY JUDY L. YANG, JULIE YANG-GO AND KHO SOON HUAT, RESPONDENT. DECISION NACHURA, J.: For the review of the Court through a Rule 45 petition are the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 71858: (1) the March 15, 2005 Decision [1] which reversed the trial court's ruling, and (2) the May 26, 2005 Resolution [2] which denied the motion for reconsideration of the said CA decision. The instant controversy traces its roots to a transaction consummated sometime in June 1998, when a foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace Jewellery Co.'s (Gold Palace's) store at SM-North EDSA several pieces of jewelry valued at P258,000.00.[3] In payment of the same, he offered Foreign Draft No. M-069670 issued by the United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the Land Bank of the Philippines, Manila (LBP), and payable to the respondent company for P380,000.00.[4] Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold Palace, inquired from petitioner Far East Bank & Trust Company's (Far East's) SM North EDSA Branch, its neighbor mall tenant, the nature of the draft. The teller informed her that the same was similar to a manager's check, but advised her not to release the pieces of jewelry until the draft had been cleared. [5] Following the bank's advice, Yang issued Cash Invoice No. 1609[6] to the foreigner, asked him to come back, and informed him that the pieces of jewelry would be released when the draft had already been cleared. [7] Respondent Julie Yang-Go, the manager of Gold Palace, consequently deposited the draft in the company's account with the aforementioned Far East branch on June 2, 1998. [8] When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the latter cleared the same [9]--UOB's account with LBP was debited, [10] and Gold Palace's account with Far East was credited with the amount stated in the draft. [11] The foreigner eventually returned to respondent's store on June 6, 1998 to claim the purchased goods. After ascertaining that the draft had been cleared, respondent Yang released the pieces of jewelry to Samuel Tagoe; and because the amount in the draft was more than the value of the goods purchased, she issued, as his change, Far East Check No. 1730881[12] for P122,000.00.[13] This check was later presented for encashment and was, in fact, paid by the said bank.[14] On June 26, 1998, or after around three weeks, LBP informed Far East that the amount in Foreign Draft No. M-069670 had been materially altered from P300.00 to P380,000.00 and that it was returning the same. Attached to its official correspondence were Special Clearing Receipt No. 002593 and the duly notarized and consul-authenticated affidavit of a corporate officer of the drawer, UOB.[15] It is noted at this point that the material alteration was discovered by UOB after LBP had informed it that its funds were being depleted following the encashment of the subject draft. [16] Intending to debit the amount from respondent's account, Far East subsequently refunded the P380,000.00 earlier paid by LBP. Gold Palace, in the meantime, had already utilized portions of the amount. Thus, on July 20, 1998, as the outstanding balance of its account was already inadequate, Far East was able to debit only P168,053.36,[17] but this was done without a prior written notice to the account holder.[18] Far East only notified by phone the representatives of the respondent company. [19]

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On August 12, 1998, petitioner demanded from respondents the payment of P211,946.64 or the difference between the amount in the materially altered draft and the amount debited from the respondent company's account.[20] Because Gold Palace did not heed the demand, Far East consequently instituted Civil Case No. 99-296 for sum of money and damages before the Regional Trial Court (RTC), Branch 64 of Makati City. [21] In their Answer, respondents specifically denied the material allegations in the complaint and interposed as a defense that the complaint states no cause of action--the subject foreign draft having been cleared and the respondent not being the party who made the material alteration. Respondents further counterclaimed for actual damages, moral and exemplary damages, and attorney's fees considering, among others, that the petitioner had confiscated without basis Gold Palace's balance in its account resulting in operational loss, and had maliciously imputed to the latter the act of alteration. [22] After trial on the merits, the RTC rendered its July 30, 2001 Decision [23] in favor of Far East, ordering Gold Palace to pay the former P211,946.64 as actual damages and P50,000.00 as attorney's fees.[24] The trial court ruled that, on the basis of its warranties as a general indorser, Gold Palace was liable to Far East.[25] On appeal, the CA, in the assailed March 15, 2005 Decision, [26] reversed the ruling of the trial court and awarded respondents' counterclaim. It ruled in the main that Far East failed to undergo the proceedings on the protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an indorser.[27] The appellate court further ruled that the drawee bank had cleared the check, and its remedy should be against the party responsible for the alteration. Considering that, in this case, Gold Palace neither altered the draft nor knew of the alteration, it could not be held liable.[28] The dispositive portion of the CA decision reads: WHEREFORE, premises considered, the appeal is GRANTED; the assailed Decision dated 30 July 2001 of the Regional Trial Court of Makati City, Branch 64 is hereby REVERSED and SET ASIDE; the Complaint dated January 1999 is DISMISSED; and appellee Far East Bank and Trust Company is hereby ordered to pay appellant Gold Palace Jewellery Company the amount of Php168,053.36 for actual damages plus legal interest of 12% per annum from 20 July 1998, Php50,000.00 for exemplary damages, and Php50,000.00 for attorney's fees. Costs against appellee Far East Bank and Trust Company. [29] The appellate court, in the further challenged May 26, 2005 Resolution, [30] denied petitioner's Motion for Reconsideration, [31] which prompted the petitioner to institute before the Court the instant Petition for Review on Certiorari.[32] We deny the petition.

Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance.[33] This provision applies with equal force in case the drawee pays a bill without having previously accepted it. His actual payment of the amount in the check implies not only his assent to the order of the drawer and a recognition of his corresponding obligation to pay the aforementioned sum, but also, his clear compliance with that obligation. [34] Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay. The payment of a check includes its acceptance. [35] Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the collecting bank. The latter then credited to Gold Palace's account the payment it received. Following the plain language of the law, the drawee, by the said payment, recognized and complied with its obligation to pay in accordance with the tenor of his acceptance. The tenor of the acceptance is determined by

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the terms of the bill as it is when the drawee accepts. [36] Stated simply, LBP was liable on its payment of the check according to the tenor of the check at the time of payment, which was the raised amount. Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a due course holder. We note at this point that Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due course--it received the draft complete and regular on its face, before it became overdue and without notice of any dishonor, in good faith and for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the person negotiating it. [37] Having relied on the drawee bank's clearance and payment of the draft and not being negligent (it delivered the purchased jewelry only when the draft was cleared and paid), respondent is amply protected by the said Section 62. Commercial policy favors the protection of any one who, in due course, changes his position on the faith of the drawee bank's clearance and payment of a check or draft.[38] This construction and application of the law gives effect to the plain language of the NIL [39] and is in line with the sound principle that where one of two innocent parties must suffer a loss, the law will leave the loss where it finds it. [40] It further reasserts the usefulness, stability and currency of negotiable paper without seriously endangering accepted banking practices. Indeed, banking institutions can readily protect themselves against liability on altered instruments either by qualifying their acceptance or certification, or by relying on forgery insurance and special paper which will make alterations obvious. [41] This is not to mention, but we state nevertheless for emphasis, that the drawee bank, in most cases, is in a better position, compared to the holder, to verify with the drawer the matters stated in the instrument. As we have observed in this case, were it not for LBP's communication with the drawer that its account in the Philippines was being depleted after the subject foreign draft had been encashed, then, the alteration would not have been discovered. What we cannot understand is why LBP, having the most convenient means to correspond with UOB, did not first verify the amount of the draft before it cleared and paid the same. Gold Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true amount in the draft. It was left with no option but to rely on the representations of LBP that the draft was good. In arriving at this conclusion, the Court is not closing its eyes to the other view espoused in common law jurisdictions that a drawee bank, having paid to an innocent holder the amount of an uncertified, altered check in good faith and without negligence which contributed to the loss, could recover from the person to whom payment was made as for money paid by mistake.[42] However, given the foregoing discussion, we find no compelling reason to apply the principle to the instant case. The Court is also aware that under the Uniform Commercial Code in the United States of America, if an unaccepted draft is presented to a drawee for payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of presentment, and a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that the draft has not been altered.[43] Nonetheless, absent any similar provision in our law, we cannot extend the same preferential treatment to the paying bank. Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East, should not have debited the money paid by the drawee bank from respondent company's account. When Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the provisions of the NIL, became an agent of the former for the collection of the amount in the draft. [44] The subsequent payment by the drawee bank and the collection of the amount by the collecting bank closed the transaction

Page 866 of 1485

insofar as the drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher,[45] and, as already discussed, foreclosed the recovery by the drawee of the amount paid. This closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank at some future time will call on the payee for the return of the money paid to him on the check. [46] As the transaction in this case had been closed and the principal-agent relationship between the payee and the collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting on its own and should now be responsible for its own actions. Neither can petitioner be considered to have acted as the representative of the drawee bank when it debited respondent's account, because, as already explained, the drawee bank had no right to recover what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement. [47] It did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due course,[48] these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it refunded to the drawee bank. The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit the account of Gold Palace, and for doing so, it must return what it had erroneously taken. Far East's remedy under the law is not against Gold Palace but against the drawee-bank or the person responsible for the alteration. That, however, is another issue which we do not find necessary to discuss in this case. However, we delete the exemplary damages awarded by the appellate court. Respondents have not shown that they are entitled to moral, temperate or compensatory damages. [49] Neither was petitioner impelled by malice or bad faith in debiting the account of the respondent company and in pursuing its cause. [50] On the contrary, petitioner was honestly convinced of the propriety of the debit. We also delete the award of attorney's fees for, in a plethora of cases, we have ruled that it is not a sound public policy to place a premium on the right to litigate. No damages can be charged to those who exercise such precious right in good faith, even if done erroneously. [51] WHEREFORE, premises considered, the March 15, 2005 Decision and the May 26, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 71858 are AFFIRMED WITH THE MODIFICATION that the award of exemplary damages and attorney's fees is DELETED. SO ORDERED.

Ynares-Santiago, (Chairperson), Austria-Martinez, Chico-Nazario, and Reyes, JJ., concur. FIRST DIVISION

METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK

G.R. No.

179952

Page 867 of 1485

CORPORATION), Petitioner, Present:

PUNO, C.J., Chairperson, CARPIO MORALES, LEONARDO-DE CASTRO, BERSAMIN, and VILLARAMA, JR., JJ.

- versus -

BA FINANCE CORPORATION and MALAYAN INSURANCE CO., INC., Respondents.

Promulgated:

December 4, 2009

x------------------------------------------------- x

DECISION

CARPIO MORALES, J.:

Page 868 of 1485

Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a P329,2801219[1] loan to secure which, he mortgaged his car to respondent BA Finance.1220[2] The mortgage contained the following stipulation:

The MORTGAGOR covenants and agrees that he/it will cause the property(ies) hereinabove mortgaged to be insured against loss or damage by accident, theft and fire for a period of one year from date hereof with an insurance company or companies acceptable to the MORTGAGEE in an amount not less than the outstanding balance of mortgage obligations and that he/it will make all loss, if any, under such policy or policies, payable to the MORTGAGEE or its assigns as its interest may appear x x x. 1221[3] (emphasis and underscoring supplied)

Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan Insurance)1222[4] which issued a policy stipulating that, inter alia,

Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is hereby expressly understood that this policy or any renewal thereof, shall not be cancelled without prior notification and conformity by BA FINANCE CORPORATION. 1223[5] (emphasis and underscoring supplied)

The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500, drawn against China Banking Corporation (China Bank). Deposit Payees Account Only.
1224

The check was crossed with the notation For

[6]

1219 1220 1221 1222 1223 1224

Page 869 of 1485

Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with the Asianbank Corporation (Asianbank), now merged with herein petitioner Metropolitan Bank and Trust Company (Metrobank). withdrew the entire proceeds of the check. Bitanga subsequently

In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it.

BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed check payable to it and Bitanga, and of Bitangas depositing it in his account at Asianbank and withdrawing the entire proceeds thereof.

BA Finance thereupon demanded the payment of the value of the check from Asianbank1225[7] but to no avail, prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of money and damages against Asianbank and Bitanga,1226[8] alleging that, inter alia, it is entitled to the entire proceeds of the check.

In its Answer with Counterclaim,1227[9] Asianbank alleged that BA Finance instituted [the] complaint in bad faith to coerce [it] into paying the whole amount of the CHECK knowing fully well that its rightful claim, if any, is against Malayan [Insurance]. 1228[10]

1225 1226 1227 1228

Page 870 of 1485

Asianbank thereafter filed a cross-claim against Bitanga,1229[11] alleging that he fraudulently induced its personnel to release to him the full amount of the check; and that on being later informed that the entire amount of the check did not belong to Bitanga, it took steps to get in touch with him but he had changed residence without leaving any forwarding address.1230[12]

And Asianbank filed a third-party complaint against Malayan Insurance,1231[13] alleging that Malayan Insurance was grossly negligent in issuing the check payable to both Bitanga and BA Finance and delivering it to Bitanga without the consent of BA Finance. 1232 [14]

Bitanga was declared in default in Asianbanks cross-claim. 1233[15]

Branch 137 of the Makati RTC, finding that Malayan Insurance was not privy to the contract between BA Finance and Bitanga, and noting the claim of Malayan Insurance that it is its policy to issue checks to both the insured and the financing company, held that Malayan Insurance cannot be faulted for negligence for issuing the check payable to both BA Finance and Bitanga.

The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed it or authorized him to indorse it in its behalf, 1234[16] found

1229 1230 1231 1232 1233 1234

Page 871 of 1485

Asianbank and Bitanga jointly and severally liable to BA Finance following Section 41 of the Negotiable Instruments Law and Associated Bank v. Court of Appeals.1235[17]

Thus the trial court disposed:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Asian Bank Corporation and Lamberto Bitanga: 1) 2) 3) To pay plaintiff jointly and severally the sum of P224,500.00 with interest thereon at the rate of 12% from September 25, 1992 until fully paid; To pay plaintiff the sum of P50,000.00 as exemplary damages; P20,000.00 as actual damages; P30,000.00 as attorneys fee; and To pay the costs of suit.

Asianbanks and Bitangas [sic] counterclaims are dismissed. The third party complaint of defendant/third party plaintiff against third-party defendant Malayan Insurance, Co., Inc. is hereby dismissed. Asianbank is ordered to pay Malayan attorneys fee of P50,000.00 and a per appearance fee of P500.00. On the cross-claim of defendant Asianbank, co-defendant Lamberto Bitanga is ordered to pay the former the amounts the latter is ordered to pay the plaintiff in Nos. 1, 2 and 3 abovementioned. SO ORDERED.1236[18] (emphasis and underscoring supplied)

Before the Court of Appeals, Asianbank, in its Appellants Brief, submitted the following issues for consideration:

3.01.1.1 Asianbank.

Whether BA Finance has a cause of action against

1235 1236

Page 872 of 1485

3.01.1.2 Assuming that BA Finance has a valid cause of action, may it claim from Asianbank more than one-half of the value of the check considering that it is a mere co-payee or joint payee of the check?

3.01.1.3 Whether BA Finance is liable to Asianbank for actual and exemplary damages for wrongfully bringing the case to court.

3.01.1.4 Whether Malayan is liable to Asianbank for reimbursement of any sum of money which this Honorable Court may award to BA Finance in this case.1237[19] (underscoring supplied)

And it proffered the following arguments:

A. BA Finance has no cause of action against Asianbank as it has no legal right and title to the check considering that the check was not delivered to BA Finance. Hence, BA Finance is not a holder thereof under the Negotiable Instruments Law. B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of contract between them. C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the intermediary between the payee and the drawee Chinabank, it merely acted on the instructions of drawee Chinabank to pay the amount of the check to Bitanga, hence, the consequent damage to BA Finance was due to the negligence of Chinabank. D. Malayans act of issuing and delivering the check solely to Bitanga in violation of the loss payee clause in the Policy, is the proximate cause of the alleged damage to BA Finance. E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest on the check as it is a joint payee thereof. F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust enrichment or solutio indebiti.

1237

Page 873 of 1485

G. BA Finance is liable to pay Asianbank actual and exemplary damages.1238[20] (underscoring supplied)

The appellate court, summarizing the errors attributed to the trial court by Asianbank to be whetherBA Finance has a cause of action against [it] even if the subject check had not been delivered toBA Finance by the issuer itself, held in the affirmative and accordingly affirmed the trial courts decision but deleted the award of P20,000 as actual damages.1239[21]

Hence, the present Petition for Review on Certiorari 1240[22] filed by Metrobank (hereafter petitioner) to which Asianbank was, as earlier stated, merged, faulting the appellate court

I.

II. III. IV. V.

VII.

x x x in applying the case of Associated Bank v. Court of Appeals, in the absence of factual similarity and of the legal relationships necessary for the application of the desirable shortcut rule. x x x x x x in not finding that x x x the general rule that the payee has no cause of action against the collecting bank absent delivery to him must be applied. x x x in finding that all the elements of a cause of action by BA Finance Corporation against Asianbank Corporation are present. x x x in finding that Article 1208 of the Civil Code is not applicable. x x x in awarding of exemplary damages even in the absence of moral, temperate, liquidated or compensatory damages and a finding of fact that Asianbank acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. xxxx x x x in dismissing Asianbanks counterclaim and Third Party complaint [against Malayan Insurance].1241[23] (italics in the original; underscoring supplied)

1238 1239 1240 1241

Page 874 of 1485

Petitioner proffers the following arguments against the application of Associated Bank v. CA to the case:

x x x [T]he rule established in the Associated Bank case has provided a speedier remedy for the payee to recover from erring collecting banks despite the absence of delivery of the negotiable instrument. However, the application of the rule demands careful consideration of the factual settings and issues raised in the case x x x. One of the relevant circumstances raised in Associated Bank is the existence of forgery or unauthorized indorsement. x x x xxxx In the case at bar, Bitanga is authorized to indorse the check as the drawer names him as one of the payees. Moreover, his signature is not a forgery nor has he or anyone forged the signature of the representative of BA Finance Corporation. No unauthorized indorsement appears on the check. xxxx Absent the indispensable fact of forgery or unauthorized indorsement, the desirable shortcut rule cannot be applied, 1242[24] (underscoring supplied)

The petition fails.

Section 41 of the Negotiable Instruments Law provides:

Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others. (emphasis and underscoring supplied)

1242

Page 875 of 1485

Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its behalf.1243[25] Denying any irregularity in accepting the check, petitioner maintains that it followed normal banking procedure. The testimony of Imelda Cruz, Asianbanks then accounting head, shows otherwise, however, viz:

Q A Q A

Now, could you be familiar with a particular policy of the bank with respect to checks with joined (sic) payees? Yes, sir. And what would be the particular policy of the bank regarding this transaction? The bank policy and procedure regarding the joint checks. Once it is deposited to a single account, we are not accepting joint checks for single account, depositing to a single account (sic). What happened to the bank employee who allowed this particular transaction to occur? Once the branch personnel, the bank personnel (sic) accepted it, he is liable. What do you mean by the branch personnel being held liable? Because since (sic) the bank policy, we are not supposed to accept joint checks to a [single] account, so we mean that personnel would be held liable in the sense that (sic) once it is withdrawn or encashed, it will not be allowed. In your experience, have you encountered any bank employee who was subjected to disciplinary action by not following bank policies? The one that happened in that case, since I really dont know who that personnel is, he is no longer connected with the bank. What about in general, do you know of any disciplinary action, Madam witness? Since theres a negligence on the part of the bank personnel, it will be a ground for his separation [from] the bank.1244[26] (emphasis, italics and underscoring supplied)

Q A Q A

Q A

Q A

1243 1244

Page 876 of 1485

Admittedly, petitioner dismissed the employee who allowed the deposit of the check in Bitangas account.

Petitioners argument that since there was neither forgery, nor unauthorized indorsement because Bitanga was a co-payee in the subject check, the dictum in Associated Bank v. CA does not apply in the present case fails. The payment of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement 1245[27] or an unauthorized indorsement in itself in the case of joint payees.1246[28]

Clearly, petitioner, through its employee, was negligent when it allowed the deposit of the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the check did not, it bears repeating, carry the indorsement of BA Finance. 1247[29]

As has been repeatedly emphasized, the banking business is imbued with public interest such that the highest degree of diligence and highest standards of integrity and performance are expected of banks in order to maintain the trust and confidence of the public in general in the banking sector.1248[30] action against petitioner. Undoubtedly, BA Finance has a cause of

Is petitioner liable to BA Finance for the full value of the check?

Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the amount covered by the check as there is no indication in the check that Bitanga and BA

1245 1246 1247 1248

Page 877 of 1485

Finance are solidary creditors to thus make them presumptively joint creditors under Articles 1207 and 1208 of the Civil Code which respectively provide:

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestations. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Art. 1208. If from the law, or the nature or wording of the obligations to which the preceding article refers to the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the debts or credits being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.

Petitioners argument is flawed.

The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide definitive justification for petitioners full liability on the value of the check.

To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee bank, is an indorser. 1249[31] This is because in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the
1250

phrase

all

prior

endorsements

and/or

lack

of

endorsement

guaranteed

[32] and, for all intents and purposes, treats the check as a negotiable assumes the warranty of an indorser. 1251[33] Without Asianbanks

instrument, hence,

1249 1250 1251

Page 878 of 1485

warranty, the drawee bank (China Bank in this case) would not have paid the value of the subject check.

Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of prior indorsements. 1252[34]

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the check.1253[35]

It bears noting that in petitioners cross-claim against Bitanga, the

trial court

ordered Bitanga to return to petitioner the entire value of the check P224,500.00 with interest as well as damages and cost of suit. Petitioner never questioned this aspect of the trial courts disposition, yet it now prays for the modification of its liability to BA Finance to only one-half of said amount. To pander to petitioners supplication would certainly amount to unjust enrichment at BA Finances expense. lies with Bitanga. Petitioners remedywhich is the reimbursement for the full amount of the check from the perpetrator of the irregularity

Articles 1207 and 1208 of the Civil Code cannot be applied to the present case as these are completely irrelevant. The drawer, Malayan Insurance in this case, issued the check to answer for an underlying contractual obligation (payment of insurance proceeds). The obligation is merely reflected in the instrument and whether the payees would jointly share in the proceeds or not is beside the point.

1252 1253

Page 879 of 1485

Moreover, granting petitioners appeal for partial liability would run counter to the existing principles on the liabilities of parties on negotiable instruments, particularly on Section 68 of the Negotiable Instruments Law which instructs that joint payees who indorse are deemed to indorse jointly and severally.1254[36] Recall that when the maker dishonors the instrument, the holder thereof can turn to those secondarily liable the indorser for recovery.1255[37] And since the law explicitly mandates a solidary liability on the part of the joint payees who indorse the instrument, the holder thereof (assuming the check was further negotiated) can turn to either Bitanga or BA Finance for full recompense.

Respecting petitioners challenge to the award by the appellate court of exemplary damages to BA Finance, the same fails. Contrary to petitioners claim that no moral, temperate, liquidated or compensatory damages were awarded by the trial court, 1256[38] the RTC did in fact award compensatory or actual damages of P224,500, the value of the check, plus interest thereon.

Petitioner argues, however, that assuming arguendo that compensatory damages had been awarded, the same contravened Article 2232 of the Civil Code which provides that in contracts or quasi-contracts, the court may award exemplary damages only if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Since, so petitioner concludes, there was no finding that it acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner,1257[39] it is not liable for exemplary damages.

The argument fails. the parties.1258[40]

To reiterate, petitioners liability is based not on contract or

quasi-contract but on quasi-delict since there is no pre-existing contractual relation between Article 2231 of the Civil Code, which provides that in quasi-delict, exemplary damages may be granted if the defendant acted with gross negligence, thus applies. For gross negligence implies a want or absence of or failure to exercise even

1254 1255 1256 1257 1258

Page 880 of 1485

slight care or diligence, or the entire absence of care, 1259[41] evincing a thoughtless

disregard of consequences without exerting any effort to avoid them.1260[42]

x x x The law allows the grant of exemplary damages to set an example for the public good. The business of a bank is affected with public interest; thus it makes a sworn profession of diligence and meticulousness in giving irreproachable service. For this reason, the bank should guard against in injury attributable to negligence or bad faith on its part. The award of exemplary damages is proper as a warning to [the petitioner] and all concerned not to recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors.1261[43] (Italics and underscoring supplied)

As for the dismissal by the appellate court of petitioners third-party complaint against Malayan Insurance, the same is well-taken. Petitioner based its third-party complaint on Malayan Insurances alleged gross negligence in issuing the check payable to both BA Finance and Bitanga, despite the stipulation in the mortgage and in the insurance policy that liability for loss shall be payable to BA Finance. 1262[44] however, that it Malayan Insurance countered,

x x x paid the amount of P224,500 to BA Finance Corporation and Lamberto Bitanga in compliance with the decision in the case of Lamberto Bitanga versus Malayan Insurance Co., Inc., Civil Case No. 88-2802, RTCMakati Br. 132, and affirmed on appeal by the Supreme Court [3 rd Division], G.R. no. 101964, April 8, 1992 x x x.1263[45] (underscoring supplied)

It is noted that Malayan Insurance, which stated that it was a matter of company policy to issue checks in the name of the insured and the financing company, presented a witness to rebut its supposed negligence.
1264

[46] Perforce, it thus wrote a crossed check

1259 1260 1261 1262 1263

Page 881 of 1485

with joint payees so as to serve warning that the check was issued for a definite purpose.1265 [47] Petitioner never ever disputed these assertions.

The Court takes exception, however, to the appellate courts affirmance of the trial courts grant of legal interest of 12% per annum on the value of the check. While Article 1980 of the Civil Code provides that: For the obligation in this case did not arise out of a loan or forbearance of money, goods or credit.

Fixed savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan,

said provision does not find application in this case since the nature of the relationship between BA Finance and petitioner is one of agency whereby petitioner, as collecting bank, is to collect for BA Finance the corresponding proceeds from the check. 1266[48] Not being a loan or forbearance of money, the interest should be 6% per annum computed from the date of extrajudicial demand on September 25, 1992 until finality of judgment; and 12% per annum from finality of judgment until payment, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.1267[49]

WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007 is AFFIRMED with MODIFICATION in that the rate of interest on the judgment obligation of P224,500 should be 6% per annum, computed from the time of extrajudicial demand on September 25, 1992 until its full payment before finality of judgment; thereafter, if the

1264 1265 1266 1267

Page 882 of 1485

amount adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time the judgment becomes final and executory until fully satisfied.

Costs against petitioner.

SO ORDERED. Republic SUPREME Manila FIRST DIVISION of the Philippines COURT

G.R. No. 123871 August 31, 1998 ALLIED BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, INC., respondents.

PANGANIBAN, J.: As a general rule, a trial court that has established jurisdiction over the main action also acquires jurisdiction over a third-party complaint, even if it could not have done so had the latter been filed as an independent action. This rule, however, does not apply to banks that have agreed to submit their disputes over check clearings to arbitration under the rules of the Philippine Clearing House Corporation. In that event, primary recourse should be to the PCHC Arbitration Committee, without prejudice to an appeal to the trial courts. In other words, without first resorting to the PCHC, the third-party complaint would be premature. The Case Before us is a petition for review on certiorari under Rule 45, assailing the Decision dated February 12, 1996 promulgated by the Court of Appeals 1 in CA-GR CV No. 44804; which affirmed the trial court's Order dated September 16, 1991, dismissing petitioner's third-party complaint against private respondent. 2 Facts of the Case The facts are undisputed. Reproduced hereunder is Respondent Court's narration:

Page 883 of 1485

Hyatt Terraces Baguio issued two crossed checks drawn against Allied Banking Corp. (hereinafter, ALLIED) in favor of appellee Meszellen Commodities Services, Inc. (hereinafter, MESZELLEN). Said checks were deposited on August 5, 1980 and August 18, 1980, respectively, with the now defunct Commercial Bank and Trust Company (hereinafter, COMTRUST). Upon receipt of the above checks, COMTRUST stamped at the back thereof the warranty "All prior endorsements and/or lack of endorsements guaranteed." After the checks were cleared through the Philippine Clearing House Corporation (hereinafter, PCHC), ALLIED BANK paid the proceeds of said checks to COMTRUST as the collecting bank. On March 17, 1981, the payee, MESZELLEN, sued the drawee, ALLIED BANK, for damages which it allegedly suffered when the value[s] of the checks were paid not to it but to some other person. Almost ten years later, or on January 10, 1991, before defendant ALLIED BANK could finish presenting its evidence, it filed a third party complaint against Bank of the Philippine Islands (hereinafter, BPI, appellee herein) as successorin-interest of COMTRUST, for reimbursement in the event that it would be adjudged liable in the main case to pay plaintiff, MESZELLEN. The third party complaint was admitted [in] an Order dated May 16, 1991 issued by the Regional Trial Court of Pasig, Branch 162. On July 16, 1991, BPI filed a motion to dismiss said third party complaint grounded on the following: 1) that the court ha[d] no jurisdiction over the nature of the action; and 2) that the cause of action of the third party plaintiff ha[d] already prescribed. On September 16, 1991, the trial court issued an order dismissing the third party complaint. Defendant-third party plaintiff's motion for reconsideration of this order was subsequently denied. 3 Respondent Court's Ruling Respondent Court affirmed the trial court thus: . . . Appellant's submission that the cause of action of the third party plaintiff against the third party defendant accrued only when the complaint in the original case was filed on March 17, 1981 is untenable. As earlier discussed, the defendant has a separate cause of action (in respect of plaintiff's complaint) against a third party in the original and principal case. Reviewing the third-party complaint below, that cause of action is the supposed erroneous endorsement made by COMTRUST for which ALLIED BANK is being held liable for damages by the payee-appellee. Without COMTRUST's warranties as a general endorser, ALLIED BANK allegedly would not have paid on the checks. Should such warranties prove to be false and inaccurate, COMTRUST may be held liable for any damage arising out of the falsity of its representation. Based on the records the subject endorsement of COMTRUST was made in August 1980[;] and in the same period, ALLIED BANK paid on the subject checks. From that moment, ALLIED BANK could have instituted an action against COMTRUST. It is the legal possibility of bringing the action which determines the starting point for the computation of the period (Tolentino, Civil Code of the Philippines, Vol. IV, p. 41, citing Manresa). This is the moment

Page 884 of 1485

when a cause of action may be deemed to accrue. Thus, considering that the third party complaint was filed more than ten years from August 1980, specifically on January 10, 1991, the same can no longer be entertained. Even granting arguendo that the lower court had jurisdiction over the third party complaint and the cause of action thereof had not yet prescribed, the filing of the third party complaint should nevertheless be disallowed considering that defendant has already presented several witnesses and is about ready to rest its case because, then, the allowance of the third party complaint would only delay the resolution of the original case. (Firestone Tire and Rubber Co. of the Phil. vs. Tempengko, supra, p. 423). A final word. We have noted the curious situation here where, instead of the payee suing its bank, i.e., the collecting bank (which is COMTRUST), it opted to sue the drawee bank (ALLIED BANK). It is, however, up to the trial court to rule on the propriety of the latter complaint. 4 Not satisfied with the above ruling, petitioner filed the present petition before this Court. 5 The Issues Petitioner raises the following issues:
6

I. The Respondent Honorable Court of Appeals erred in holding that the cause of action of the third-party complaint ha[d] already prescribed. II. The Respondent Honorable Court of Appeals erred in holding that the filing of the third party complaint should be disallowed as it would only delay the resolution of the case. On the other hand, private respondent argues that the trial court had no authority to admit a third-party claim that was filed by one bank against another and involved a check cleared through the Philippine Clearing House Corporation (PCHC). To the mind of the Court, this is the critical issue. The Court's Ruling The petition is bereft of merit. Critical Issue: Mandatory Recourse to PCHC To buttress its claim, private respondent contends that petitioner's remedy rests with the PCHC, of which both Allied and BPI are members, in consonance with the Clearing House Rules and Regulations which, in part, states: Sec. 38 Arbitration Any dispute or controversy between two or more clearing participants involving any check/item cleared thru PCHC shall be submitted to the Arbitration Committee, upon written complaint of any involved participant by filing the same with the PCHC serving the same upon the other party or

Page 885 of 1485

parties, who shall within fifteen (15) days after receipt thereof file with the Arbitration Committee its written answer to such written complaint and also within the same period serve the same upon the complaining participant, . . . . Private respondent cites Banco de Oro Sayings and Mortgage Bank v. Equitable Banking Corporation 7 and Associated Bank v. Court of Appeals , 8 which upheld the right of the PCHC to settle and adjudicate disputes between member banks. In Banco de Oro, the Court ruled: The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their submission to its jurisdiction. Secs. 3 and 36.6 of the PCHC-CHRR clearing rules and regulations provide: Sec. 3. AGREEMENT TO THESE RULES. It is the general agreement and understanding that any participant in the Philippine Clearing House Corporation, MICR clearing operations[,] by the mere fact of their participation, thereby manifests its agreement to these Rules and Regulations and its subsequent amendments. Sec. 36.6. (ARBITRATION) The fact that a bank participates in the clearing operations of the PCHC shall be deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with section 4 of (the) Republic Act. No. 876, otherwise known as the Arbitration Law. Further[,] Section 2 of the Arbitration Law mandates: Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing between them at the time of the submission and which may be the subject of any action, or the parties of any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid and irrevocable, save upon grounds as exist at law for the revocation of any contract. Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be collateral, incidental, precedent or subsequent to any issue between the parties. (Emphasis supplied.) Associated Bank also disallowed a similar third-party complaint, ruling thus: Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by the body. Since claims relating to the regularity of checks cleared by banking institutions are among those claims

Page 886 of 1485

which should first be submitted for resolution by the PCHC's Arbitration Committee, petitioner Associated Bank, having voluntarily bound itself to abide by such rules and regulations, is estopped from seeking relief from the Regional Trial Court on the coattails of a private claim and in the guise of a third party complaint without first having obtained a decision adverse to its claim from the said body. It cannot bypass the arbitration process on the basis of its averment that its third party complaint is inextricably linked to the original complaint in the Regional Trial Court. xxx xxx xxx Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under their obligation to first seek redress of their disputes and grievances [from] the PCHC before going to the trial court. Finally, the contention that the third party complaint should not have been dismissed for being a necessary and inseparable offshoot of the main case over which the court a quo had already exercised jurisdiction misses the fundamental point about such pleading. A third party complaint is a mere procedural device which under the Rules of Court is allowed only with the court's permission. It is an action "actually independent of, separate and distinct from the plaintiffs' complaint" (s)uch that, were it not for the Rules of Court, it would be necessary to file the action separately from the original complaint by the defendant against the third party. (Emphasis supplied.) Banco de Oro and Associated Bank are clear and unequivocal: a third-party complaint of one bank against another involving a check cleared through the PCHC is unavailing, unless the third-party claimant has first exhausted the arbitral authority of the PCHC Arbitration Committee and obtained a decision from said body adverse to its claim. Recognizing the role of the PCHC in the arbitration of disputes between participating banks, the Court in Associated Bank further held: "Pursuant to its function involving the clearing of checks and other clearing items, the PCHC has adopted rules and regulations designed to provide member banks with a procedure whereby disputes involving the clearance of checks and other negotiable instruments undergo a process of arbitration prior to submission to the courts below. This procedure not only ensures a uniformity of rulings relating to factual disputes involving checks and other negotiable instruments but also provides a mechanism for settling minor disputes among participating and member banks which would otherwise go directly to the trial courts." We defer to the primary authority of PCHC over the present dispute, because its technical expertise in this field enables it to better resolve questions of this nature. This is not prejudicial to the interest of any party, since primary recourse to the PCHC does not preclude an appeal to the regional trial courts on questions of law. Section 13 of the PCHC Rules reads: Sec. 13. The findings of facts of the decision or award rendered by the Arbitration Committee or by the sole Arbitrator as the case may be shall be final and conclusive upon all the parties in said arbitration dispute. The

Page 887 of 1485

decision or award of the Arbitration Committee or of the Sole Arbitrator shall be appealable only on questions of law to any of the Regional Trial Courts in the National Capital Judicial Region where the Head Office of any of the parties is located. The appellant shall perfect his appeal by filing a notice of appeal to the Arbitration Secretariat and filing a Petition with the Regional Trial Court of the National Capital Region . . . . Furthermore, when the error is so patent, gross and prejudicial as to constitute grave abuse of discretion, courts may address questions of fact already decided by the arbitrator. 9 We are not unaware of the rule that a trial court, which has jurisdiction over the main action, also has jurisdiction over the third-party complaint, even if the said court would have had no jurisdiction over it had it been filed as an independent action. 10 However, this doctrine does not apply in the case of banks, which have given written and subscribed consent to arbitration under the auspices of the PCHC. By participating in the clearing operations of the PCHC, petitioner agreed to submit disputes of this nature to arbitration. Accordingly, it cannot invoke the jurisdiction of the trial courts without a prior recourse to the PCHC Arbitration Committee. Having given its free and voluntary consent to the arbitration clause, petitioner cannot unilaterally take it back according to its whim. In the world of commerce, especially in the field of banking, the promised word is crucial. Once given, it may no longer be broken. Upon the other hand, arbitration as an alternative method of dispute resolution is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes. In view of the foregoing, a discussion of the issues raised by the petitioners is unnecessary. WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner. SO ORDERED. Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur. SECOND DIVISION [G.R. No. 138074. August 15, 2003] CELY YANG, petitioner, vs. HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and FERNANDO DAVID, respondents. DECISION QUISUMBING, J.: For review on certiorari is the decision1268[1] of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398, which affirmed with modification the joint decision of the Regional

1268

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Trial Court (RTC) of Pasay City, Branch 117, dated July 4, 1995, in Civil Cases Nos. 54791269[2] and 5492.1270[3] The trial court dismissed the complaint against herein respondents Far East Bank & Trust Company (FEBTC), Equitable Banking Corporation (Equitable), and Philippine Commercial International Bank (PCIB) and ruled in favor of respondent Fernando David as to the proceeds of the two cashiers checks, including the earnings thereof pendente lite. Petitioner Cely Yang was ordered to pay David moral damages of P100,000.00 and attorneys fees also in the amount of P100,000.00. The facts of this case are not disputed, to wit: On or before December 22, 1987, petitioner Cely Yang and private respondent Prem Chandiramani entered into an agreement whereby the latter was to give Yang a PCIB managers check in the amount of P4.2 million in exchange for two (2) of Yangs managers checks, each in the amount of P2.087 million, both payable to the order of private respondent Fernando David. Yang and Chandiramani agreed that the difference of P26,000.00 in the exchange would be their profit to be divided equally between them. Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB FCDU Account No. 419501165-2, which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong. Accordingly, on December 22, 1987, Yang procured the following: a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated December 22, 1987, payable to the order of Fernando David; FEBTC Cashiers Check No. 287078, in the amount of P2,087,000.00, dated December 22, 1987, likewise payable to the order of Fernando David; and FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, dated December 22, 1987, payable to PCIB FCDU Account No. 4195-01165-2.

b)

c)

At about one oclock in the afternoon of the same day, Yang gave the aforementioned cashiers checks and dollar drafts to her business associate, Albert Liong, to be delivered to Chandiramani by Liongs messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati City, Metro Manila where he would turn over Yangs cashiers checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB managers check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange. Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashiers checks and the dollar draft bought by petitioner. Ranigo reported the alleged loss of the checks and the dollar draft to Liong at half past four in the afternoon of December 22, 1987. Liong, in turn, informed Yang, and the loss was then reported to the police. It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said instruments, without delivering the exchange consideration

1269 1270

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consisting of the PCIB managers check and the Hang Seng Bank dollar draft. At three oclock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to meet in Makati City, Chandiramani delivered to respondent Fernando David at China Banking Corporation branch in San Fernando City, Pampanga, the following: (a) FEBTC Cashiers Check No. 287078, dated December 22, 1987, in the sum of P2.087 million; and (b) Equitable Cashiers Check No. CCPS 14-009467, dated December 22, 1987, also in the amount of P2.087 million. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU Account No. 124 with the United Coconut Planters Bank branch in Greenhills, San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon the Chemical Bank, New York for US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on the same date. Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both banks complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus enabling the holder of PCIB FCDU Account No. 4195-01165-2 to receive the amount of US$200,000.00. On December 28, 1987, herein petitioner Yang lodged a Complaint 1271[4] for injunction and damages against Equitable, Chandiramani, and David, with prayer for a temporary restraining order, with the Regional Trial Court of Pasay City. The Complaint was docketed as Civil Case No. 5479. The Complaint was subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million, with interest thereon until fully paid.1272[5] On January 12, 1988, Yang filed a separate case for injunction and damages, with prayer for a writ of preliminary injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to include a prayer that defendants therein return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft No. 4771, with interest at 18% annually until fully paid. 1273[6] On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Case No. 5479. A writ of preliminary injunction was subsequently issued in Civil Case No. 5492 also. Meanwhile, herein respondent David moved for dismissal of the cases against him and for reconsideration of the Orders granting the writ of preliminary injunction, but these motions were denied. David then elevated the matter to the Court of Appeals in a special civil action for certiorari docketed as CA-G.R. SP No. 14843, which was dismissed by the appellate court. As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court then conducted pre-trial and trial of the two cases, but the proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the courts.

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After the records were reconstituted, the proceedings resumed and the parties agreed that the money in dispute be invested in Treasury Bills to be awarded in favor of the prevailing side. It was also agreed by the parties to limit the issues at the trial to the following: 1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking Corporation (EBC) Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00 dated December 22, 1987, and Far East Bank and Trust Company (FEBTC) Cashiers Check No. 287078 in the sum of P2,087,000.00 dated December 22, 1987, together with the earnings derived therefrom pendente lite? 2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the encashment of FEBTC Dollar Draft No. 4771, in the sum of US$200,000.00 plus interest thereon despite the stop payment order of Cely Yang? 1274[7] On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to wit: WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the plaintiff Cely Yang and declaring the former entitled to the proceeds of the two (2) cashiers checks, together with the earnings derived therefrom pendente lite; ordering the plaintiff to pay the defendant Fernando David moral damages in the amount of P100,000.00; attorneys fees in the amount of P100,000.00 and to pay the costs. The complaint against Far East Bank and Trust Company (FEBTC), Philippine Commercial International Bank (PCIB) and Equitable Banking Corporation (EBC) is dismissed. The decision is without prejudice to whatever action plaintiff Cely Yang will file against defendant Prem Chandiramani for reimbursement of the amounts received by him from defendant Fernando David. SO ORDERED.1275[8] In finding for David, the trial court ratiocinated: The evidence shows that defendant David was a holder in due course for the reason that the cashiers checks were complete on their face when they were negotiated to him. They were not yet overdue when he became the holder thereof and he had no notice that said checks were previously dishonored; he took the cashiers checks in good faith and for value. He parted some $200,000.00 for the two (2) cashiers checks which were given to defendant Chandiramani; he had also no notice of any infirmity in the cashiers checks or defect in the title of the drawer. As a matter of fact, he asked the manager of the China Banking Corporation to inquire as to the genuineness of the cashiers checks (tsn, February 5, 1988, p. 21, September 20, 1991, pp. 13-14). Another proof that defendant David is a holder in due course is the fact that the stop payment order on [the] FEBTC cashiers check was lifted upon his inquiry at the head office (tsn, September 20, 1991, pp. 24-25). The apparent reason for lifting the stop payment order was because of the fact that FEBTC realized that the checks were not actually lost but indeed reached the payee defendant David. 1276[9] Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of September 20, 1995.

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In the belief that the trial court misunderstood the concept of a holder in due course and misapprehended the factual milieu, Yang seasonably filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 52398. On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in this wise: WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and hereby orders the plaintiff-appellant to pay defendant-appellant PCIB the amount of Twenty-Five Thousand Pesos (P25,000.00). SO ORDERED.1277[10] In affirming the trial courts judgment with respect to herein respondent David, the appellate court found that: In this case, defendant-appellee had taken the necessary precautions to verify, through his bank, China Banking Corporation, the genuineness of whether (sic) the cashiers checks he received from Chandiramani. As no stop payment order was made yet (at) the time of the inquiry, defendant-appellee had no notice of what had transpired earlier between the plaintiff-appellant and Chandiramani. All he knew was that the checks were issued to Chandiramani with whom he was he had (sic) a transaction. Further on, David received the checks in question in due course because Chandiramani, who at the time the checks were delivered to David, was acting as Yangs agent. David had no notice, real or constructive, cogent for him to make further inquiry as to any infirmity in the instrument(s) and defect of title of the holder. To mandate that each holder inquire about every aspect on how the instrument came about will unduly impede commercial transactions, Although negotiable instruments do not constitute legal tender, they often take the place of money as a means of payment . The mere fact that David and Chandiramani knew one another for a long time is not sufficient to establish that they connived with each other to defraud Yang. There was no concrete proof presented by Yang to support her theory.1278[11] The appellate court awarded P25,000.00 in attorneys fees to PCIB as it found the action filed by Yang against said bank to be clearly unfounded and baseless. Since PCIB was compelled to litigate to protect itself, then it was entitled under Article 2208 1279[12] of the Civil Code to attorneys fees and litigation expenses. Hence, the instant recourse wherein petitioner submits the following issues for resolution: aWHETHER THE PETITIONER; CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY

b-

WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI AND FERNANDO DAVID IS LEGITIMATE OR A SCHEME BY BOTH PRIVATE RESPONDENTS TO SWINDLE PETITIONER;

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cWHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00 OR JUST A FRACTION OF THE AMOUNT REPRESENTING HIS SHARE OF THE LOOT; WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE ENTITLED TO DAMAGES AND ATTORNEYS FEES.1280[13]

d-

At the outset, we must stress that this is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure. It is basic that in petitions for review under Rule 45, the jurisdiction of this Court is limited to reviewing questions of law, questions of fact are not entertained absent a showing that the factual findings complained of are totally devoid of support in the record or are glaringly erroneous. 1281[14] Given the facts in the instant case, despite petitioners formulation, we find that the following are the pertinent issues to be resolved: a) Whether the Court of Appeals erred in holding herein respondent Fernando David to be a holder in due course; and Whether the appellate court committed a reversible error in awarding damages and attorneys fees to David and PCIB.

b)

On the first issue, petitioner Yang contends that private respondent Fernando David is not a holder in due course of the checks in question. While it is true that he was named the payee thereof, David failed to inquire from Chandiramani about how the latter acquired possession of said checks. Given his failure to do so, it cannot be said that David was unaware of any defect or infirmity in the title of Chandiramani to the checks at the time of their negotiation. Moreover, inasmuch as the checks were crossed, then David should have, pursuant to our ruling in Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643, been put on guard that the checks were issued for a definite purpose and accordingly, made inquiries to determine if he received the checks pursuant to that purpose. His failure to do so negates the finding in the proceedings below that he was a holder in due course. Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani any consideration of value in exchange for the aforementioned checks. Private respondent Fernando David counters that the evidence on record shows that when he received the checks, he verified their genuineness with his bank, and only after said verification did he deposit them. David stresses that he had no notice of previous dishonor or any infirmity that would have aroused his suspicions, the instruments being complete and regular upon their face. David stresses that the checks in question were cashiers checks. From the very nature of cashiers checks, it is highly unlikely that he would have suspected that something was amiss. David also stresses negotiable instruments are presumed to have been issued for valuable consideration, and he who alleges otherwise must controvert the presumption with sufficient evidence. The petitioner failed to discharge this burden, according to David. He points out that the checks were delivered to him as the payee, and he took them as holder and payee thereof. Clearly, he concludes, he should be deemed to be their holder in due course. We shall now resolve the first issue.

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Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law, 1282[15] meaning a payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the view that a payee may be a holder in due course. 1283 [16] Hence, the presumption that he is a prima facie holder in due course applies in his favor. However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the conditions provided for in Section 521284[17] of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in Davids case, otherwise he cannot be deemed a holder in due course. We find that the petitioners challenge to Davids status as a holder in due course hinges on two arguments: (1) the lack of proof to show that David tendered any valuable consideration for the disputed checks; and (2) Davids failure to inquire from Chandiramani as to how the latter acquired possession of the checks, thus resulting in Davids intentional ignorance tantamount to bad faith. In sum, petitioner posits that the last two requisites of Section 52 are missing, thereby preventing David from being considered a holder in due course. Unfortunately for the petitioner, her arguments on this score are less than meritorious and far from persuasive. First, with respect to consideration, Section 24 1285[18] of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration1286[19] or for value.1287[20] Thus, the law itself creates a presumption in Davids favor that he gave valuable consideration for the checks in question. In alleging otherwise, the petitioner has the onus to prove that David got hold of the checks absent said consideration. In other words, the petitioner must present convincing evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner failed to discharge her burden of proof. The petitioners averment that David did not give valuable consideration when he took possession of the checks is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found that David did not receive the checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court; they carry great weight when the factual findings of the trial court are affirmed by the appellate court. 1288[21] Second, petitioner fails to point any circumstance which should have put David on inquiry as to the why and wherefore of the possession of the checks by Chandiramani. David was not privy to the transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was precisely Chandiramanis duty to deliver the

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checks to David as payee. The evidence shows that Chandiramani performed said task to the letter. Petitioner admits that David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being assured that there was nothing wrong with said checks. At that time, David was not aware of any stop payment order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the latters title to the checks was, if any, or the nature of his possession. Thus, we cannot hold him guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiramanis acquisition or possession of the checks. David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on his part that the action in taking the instruments amounted to bad faith.1289[22] Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings below, petitioner now claims that David should have been put on alert as the instruments in question were crossed checks. Pursuant to Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, David should at least have inquired as to whether he was acquiring said checks for the purpose for which they were issued, according to petitioners submission. Petitioners reliance on the Bataan Cigar case, however, is misplaced. The facts in the present case are not on all fours with Bataan Cigar. In the latter case, the crossed checks were negotiated and sold at a discount by the payee, while in the instant case, the payee did not negotiate further the checks in question but promptly deposited them in his bank account. The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce1290[23] makes reference to such instruments. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and not converted into cash. 1291[24] The effects of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee knowingly violated the avowed intention of crossing the check. Thus, in accepting the cross checks and paying cash for them, despite the warning of the crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due course. Our ruling in Bataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian.1292[25] The factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. For here, there is no dispute that the crossed checks were delivered and duly deposited by David, the payee named therein, in his bank account. In other words, the purpose behind the crossing of the checks was satisfied by the payee. Proceeding to the issue of damages, petitioner merely argues that respondents David and PCIB are not entitled to damages, attorneys fees, and costs of suit as both acted in bad faith towards her, as shown by her version of the facts which gave rise to the instant case.

1289 1290 1291 1292

Page 895 of 1485

Respondent David counters that he was maliciously and unceremoniously dragged into this suit for reasons which have nothing to do with him at all, but which arose from petitioners failure to receive her share of the profit promised her by Chandiramani. Moreover, in filing this suit which has lasted for over a decade now, the petitioner deprived David of the rightful enjoyment of the two checks, to which he is entitled, under the law, compelled him to hire the services of counsel to vindicate his rights, and subjected him to social humiliation and besmirched reputation, thus harming his standing as a person of good repute in the business community of Pampanga. David thus contends that it is but proper that moral damages, attorneys fees, and costs of suit be awarded him. For its part, respondent PCIB stresses that it was established by both the trial court and the appellate court that it was needlessly dragged into this case. Hence, no error was committed by the appellate court in declaring PCIB entitled to attorneys fees as it was compelled to litigate to protect itself. We have thoroughly perused the records of this case and find no reason to disagree with the finding of the trial court, as affirmed by the appellate court, that: [D]efendant David is entitled to [the] award of moral damages as he has been needlessly and unceremoniously dragged into this case which should have been brought only between the plaintiff and defendant Chandiramani.1293[26] A careful reading of the findings of facts made by both the trial court and appellate court clearly shows that the petitioner, in including David as a party in these proceedings, is barking up the wrong tree. It is apparent from the factual findings that David had no dealings with the petitioner and was not privy to the agreement of the latter with Chandiramani. Moreover, any loss which the petitioner incurred was apparently due to the acts or omissions of Chandiramani, and hence, her recourse should have been against him and not against David. By needlessly dragging David into this case all because he and Chandiramani knew each other, the petitioner not only unduly delayed David from obtaining the value of the checks, but also caused him anxiety and injured his business reputation while waiting for its outcome. Recall that under Article 2217 1294[27] of the Civil Code, moral damages include mental anguish, serious anxiety, besmirched reputation, wounded feelings, social humiliation, and similar injury. Hence, we find the award of moral damages to be in order. The appellate court likewise found that like David, PCIB was dragged into this case on unfounded and baseless grounds. Both were thus compelled to litigate to protect their interests, which makes an award of attorneys fees justified under Article 2208 (2) 1295[28] of the Civil Code. Hence, we rule that the award of attorneys fees to David and PCIB was proper. WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398 is AFFIRMED. Costs against the petitioner. SO ORDERED.

1293 1294 1295

Page 896 of 1485

Bellosillo, (Chairman), Austria-Martinez, and Tinga, JJ., concur. Callejo, Sr., J., on leave.

Republic SUPREME Manila FIRST DIVISION G.R. No. 156207

of

the

Philippines COURT

September 15, 2006

EQUITABLE PCI BANK (the Banking Entity into which Philippine Commercial International Bank was merged), petitioner, vs. ROWENA ONG, respondent. DECISION CHICO-NAZARIO, J.: On 29 November 1991, Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank Magsaysay Avenue, Santa Ana District, Davao City Branch, under Account No. 8502-00347-6, a PCI Bank General Santos City Branch, TCBT 1 Check No. 0249188 in the amount of P225,000.00. Upon inquiry by Serande at PCI Bank on 5 December 1991 on whether TCBT Check No. 0249188 had been cleared, she received an affirmative answer. Relying on this assurance, she issued two checks drawn against the proceeds of TCBT Check No. 0249188. One of these was PCI Bank Check No. 073661 dated 5 December 1991 for P132,000.00 which Sarande issued to respondent Rowena Ong Owing to a business transaction. On the same day, Ong presented to PCI Bank Magsaysay Avenue Branch said Check No. 073661, and instead of encashing it, requested PCI Bank to convert the proceeds thereof into a manager's check, which the PCI Bank obliged. Whereupon, Ong was issued PCI Bank Manager's Check No. 10983 dated 5 December 1991 for the sum of P132,000.00, the value of Check No. 073661. The next day, 6 December 1991, Ong deposited PCI Bank Manager's Check No. 10983 in her account with Equitable Banking Corporation Davao City Branch. On 9 December 1991, she received a check return-slip informing her that PCI Bank had stopped the payment of the said check on the ground of irregular issuance. Despite several demands made by her to PCI Bank for the payment of the amount in PCI Bank Manager's Check No. 10983, the same was met with refusal; thus, Ong was constrained to file a Complaint for sum of money, damages and attorney's fees against PCI Bank.2 From PCI Bank's version, TCBT-General Santos City Check No. 0249188 was returned on 5 December 1991 at 5:00 pm on the ground that the account against which it was drawn was already closed. According to PCI Bank, it immediately gave notice to Sarande and Ong about the return of Check No. 0249188 and requested Ong to return PCI Bank Manager's Check No. 10983 inasmuch as the return of Check No. 0249188 on the ground that the account

Page 897 of 1485

from which it was drawn had already been closed resulted in a failure or want of consideration for the issuance of PCI Bank Manager's Check No. 10983. 3 After the pre-trial conference, Ong filed a motion for summary judgment. 4 Though they were duly furnished with a copy of the motion for summary judgment, PCI Bank and its counsel failed to appear at the scheduled hearing. 5 Neither did they file any written comment or opposition thereto. The trial court thereafter ordered Ong to formally offer her exhibits in writing, furnishing copies of the same to PCI Bank which was directed to file its comment or objection.6 Ong complied with the Order of the trial court, but PCI Bank failed to file any comment or objection within the period given to it despite receipt of the same order. 7 The trial court then granted the motion for summary judgment and in its Order dated 2 March 1995, it held: IN THE LIGHT OF THE FOREGOING, the motion for summary judgment is GRANTED, ordering defendant Philippine Commercial International Bank to pay the plaintiff the amount of ONE HUNDRED THIRTY-TWO THOUSAND PESOS (P132,000.00) equivalent to the amount of PCIB Manager's Check No. 10983. Set the reception of the plaintiff's evidence with respect to the damages claimed in the complaint.8 PCI Bank filed a Motion for Reconsideration which the trial court denied in its Order dated 11 April 1996.9 After the reception of Ong's evidence in support of her claim for damages, the trial court rendered its Decision10 dated 3 May 1999 wherein it ruled: IN LIGHT OF THE FOREGOIN CONSIDERATION, and as plaintiff has preponderantly established by competent evidence her claims in the Complaint, judgment in hereby rendered for the plaintiff against the defendant-bank ordering the latter: 1. To pay the plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) in the concept of moral damages; 2. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as exemplary damages; 3. To pay the plaintiff the sum of THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00) representing actual expenses; 4. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as and for attorney's fee's; and 5. To pay the costs.11 From this decision, PCI Bank sought recourse before the Court of Appeals. In a Decision 12 dated 29 October 2002, the appellate court denied the appeal of PCI Bank and affirmed the orders and decision of the trial court. Unperturbed, PCI Bank then filed the present petition for review before this Court and raised the following issues:

Page 898 of 1485

1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A GRAVE AND REVERSIBLE ERROR WHEN IT SUSTAINED THE LOWER COURT'S ORDER DATED 2 MARCH 1999 GRANTING RESPONDENT'S MOTION FOR SUMMARY JUDGMENT NOTWITHSTANDING THE GLARING FACT THAT THERE ARE GENUINE, MATERIAL AND FACTUAL ISSUES WHICH REQUIRE THE PRESENTATION OF EVIDENCE. 2. WHETHER OR NOT THE COURT OF APPEALS WAS IN ERROR WHEN IT SUSTAINED THE LOWER COURT'S DECISION DATED 3 MAY 1999 GRANTING THE RELIEFS PRAYED FOR IN RESPONDENT ONG'S COMPLAINT INSPITE OF THE FACT THAT RESPONDENT ONG WOULD BE "UNJUSTLY ENRICHED" AT THE EXPENSE OF PETITIONER BANK, IF PETITIONER BANK WOULD BE REQUIRED TO PAY AN UNFUNDED CHECK. 3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERRORS WHEN IT AFFIRMED THE COURT A QUO'S DECISIION DATED 3 MAY 1999 AWARDING DAMAGES TO RESPONDENT ONG AND HOLDING THAT RESPONDENT ONG HAD PREPONDERANTLY ESTABLISHED BY COMPETENT EVIDENCE HER CLAIMS IN THE COMPLAINT INSPITE OF THE FACT THAT THE EVIDENCE ON RECORD DOES NOT JUSTIFY THE AWARD OF DAMAGES. 4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT AFFIRMED THE LOWER COURT'S FACTUAL FINDING IN ITS DECISION DATED 3 MAY 1999 HOLDING RESPONDENT ONG A "HOLDER IN DUE COURSE" INSPITE OF THE FACT THAT THE REQUISITE OF "GOOD FAITH" AND FOR VALUE IS LACKING AND DESPITE THE ABSENCE OF A PROPER TRIAL TO DETERMINE SUCH FACTUAL ISSUE. 5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT UPHELD THE LOWER COURT'S DECISION DATED 3 MAY 1999 DENYING PETITIONER EPCI BANK'S COUNTERCLAIM INSPITE OF THE FACT THAT IT WAS SHOWN THAT RESPONDENT ONG'S COMPLAINT LACKS MERIT.13 We affirm the Decision of the trial court and the Court of Appeals. The provision on summary judgment is found in Section 1, Rule 35 of the 1997 Rules of Court: SECTION 1. Summary judgment for claimant. A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the pleading in answer thereto has been served, move with supporting affidavits, depositions or admissions for a summary judgment in his favor upon all or any part thereof. Thus, it has been held that a summary judgment is proper where, upon a motion filed after the issues had been joined and on the basis of the pleadings and papers filed, the court finds that there is no genuine issue as to any material fact to except as to the amount of damages. A genuine issue has been defined as an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is sham, fictitious, contrived and patently unsubstantial so as not to constitute a genuine issue for trial. 14 A court may grant summary judgment to settle expeditiously a case if, on motion of either party, there appears from the pleadings, depositions, admissions, and affidavits that no important issues of fact are involved, except the amount of damages. 15 Rule 35, Section 3, of the Rules of Court provides two requisites for summary judgment to be proper: (1) there must be no genuine issue as to any material fact, except for the amount of damages; and

Page 899 of 1485

(2) the party presenting the motion for summary judgment must be entitled to a judgment as a matter of law.16 Certainly, when the facts as pleaded appear uncontested or undisputed, then there's no real or genuine issue or question as to the facts, and summary judgment is called for. 17 By admitting it committed an error, clearing the check of Sarande and issuing in favor of Ong not just any check but a manager's check for that matter, PCI Bank's liability is fixed. Under the circumstances, we find that summary judgment was proper and a hearing would serve no purpose. That summary judgment is appropriate was incisively expounded by the trial court when it made the following observation: [D]efendant-bank had certified plaintiff's PCIB Check No. 073661 and since certification is equivalent to acceptance, defendant-bank as drawee bank is bound on the instrument upon certification and it is immaterial to such liability in favor of the plaintiff who is a holder in due course whether the drawer (Warliza Sarande) had funds or not with the defendant-bank (Security vs. State Bank, 154 N.W. 282) or the drawer was indebted to the bank for more than the amount of the check (Nat. Bank vs. Schmelz, Nat. Bank, 116 S.E. 880) as the certifying bank as all the liabilities under Sec. 62 of the Negotiable Instruments Law which refers to liability of acceptor (Title Guarantee vs. Emadee Realty Corp., 240 N.Y. 36). It may be true that plaintiff's PCIB Check No. 073661 for P132,000.00 which was paid to her by Warliza Sarande was actually not funded but since plaintiff became a holder in due course, defendant-bank cannot interpose a defense of want or lack of consideration because that defense is equitable or personal and cannot prosper against a holder in due course pursuant to Section 28 of the Negotiable Instruments Law. Therefore, when the aforementioned check was endorsed and presented by the plaintiff and certified to and accepted by defendant-bank in the purchase of PCIB Manager's Check No. 1983 in the amount of P132,000.00, there was a valid consideration.18 The property of summary judgment was further explained by this Court when it pronounced that: The theory of summary judgment is that although an answer may on its face appear to tender issues requiring trial yet if it is demonstrated by affidavits, depositions, or admissions that those issues are not genuine, but sham or fictitious, the Court is unjustified in dispensing with the trial and rendering summary judgment for plaintiff. The court is expected to act chiefly on the basis of the affidavits, depositions, admissions submitted by the movant, and those of the other party in opposition thereto. The hearing contemplated (with 10-day notice) is for the purpose of determining whether the issues are genuine or not, not to receive evidence on the issues set up in the pleadings. A hearing is not thus de riguer. The matter may be resolved, and usually is, on the basis of affidavits, depositions, admissions. This is not to say that a hearing may be regarded as a superfluity. It is not, and the Court has plenary discretion to determine the necessity therefore.19 The second and fourth issues are inter-related and so they shall be resolved together. The second issue has reference to PCI Bank's claim of unjust enrichment on the part of Ong if it would be compelled to make good the manager's check it had issued. As asserted by PCI Bank under the fourth issue, Ong is not a holder in due course because the manager's check was drawn against a closed account; therefore, the same was issued without consideration.

Page 900 of 1485

On the matter of unjust enrichment, the fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. The elements of this doctrine are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself at the expense of another.20 It is based on the equitable postulate that it is unjust for a person to retain benefit without paying for it.21 It is well to stress that the check of Sarande had been cleared by the PCI Bank for which reason the former issued the check to Ong. A check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. 22 Having cleared the check earlier, PCI Bank, therefore, became liable to Ong and it cannot allege want or failure of consideration between it and Sarande. Under settled jurisprudence, Ong is a stranger as regards the transaction between PCI Bank and Sarande. 23 PCI Bank next insists that since there was no consideration for the issuance of the manager's check, ergo, Ong is not a holder in due course. This claim is equally without basis. Pertinent provisions of the Negotiable Instruments Law are hereunder quoted: SECTION 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: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. The same law provides further: Sec. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. Sec. 26. What constitutes holder for value . Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. Sec. 28. Effect of want of consideration . Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a manager's check. A manager's check is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its issuance. By its peculiar character and general use in commerce, a manager's check is regarded substantially to be as good as the money it represents. 24

Page 901 of 1485

A manager's check stands on the same footing as a certified check. 25 The effect of certification is found in Section 187, Negotiable Instruments Law. Sec. 187. Certification of check; effect of. Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance. 26 The effect of issuing a manager's check was incontrovertibly elucidated when we declared that: A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the bank's own check and may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. x x x. 27 In the case of New Pacific Timber & Supply Co., Inc. v. Seneris28: [S]ince the said check had been certified by the drawee bank, by the certification, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. Said certification "implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an understanding that the check is good then, and shall continue good, and this agreement is as binding on the bank as its notes circulation, a certificate of deposit payable to the order of depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money." When the holder procures the check to be certified, "the check operates as an assignment of a part of the funds to the creditors." Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect "that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account" shall apply in this case x x x. By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a manager's check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under Section 62 of the Negotiable Instruments Law which states: Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages that he will pay it according to the tenor of his acceptance; and admits (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse.

Page 902 of 1485

With the above jurisprudential basis, the issues on Ong being not a holder in due course and failure or want of consideration for PCI Bank's issuance of the manager's check is out of sync. Section 2, of Republic Act No. 8791, The General Banking Law of 2000 decrees: SEC. 2. Declaration of Policy. The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. In Associated Bank v. Tan,29 it was reiterated: "x x x the degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned." Indeed, the banking business is vested with the trust and confidence of the public; hence the "appropriate standard of diligence must be very high, if not the highest degree of diligence." Measured against these standards, the next question that needs to be addressed is: Did PCI Bank exercise the requisite degree of diligence required of it? From all indications, it did not. PCI Bank distinctly made the following uncontested admission: 1. On 29 November 1991, one Warliza Sarande deposited to her savings account with PCI Bank's Magsaysay Avenue Branch, TCBT-General Santos Branch Check No. 0249188 for P225,000.00. Said check, however, was inadvertently sent by PCI Bank through local clearing when it should have been sent through interregional clearing since the check was drawn at TCBT-General Santos City. 2. On 5 December 1991, Warliza Sarande inquired whether TCBT Check No. 0249188 had been cleared. Not having received any advice from the drawee bank within the regular clearing period for the return of locally cleared checks, and unaware then of the error of not having sent the check through inter-regional clearing, PCI Bank advised her that Check No. 024188 is treated as cleared. x x x. 30 (Emphasis supplied.) From the foregoing, it is palpable and readily apparent that PCI Bank failed to exercise the highest degree of care31 required of it under the law. In the case of Philippine National Bank v. Court of Appeals,32 we declared: The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Having settled the other issues, we now resolve the question on the award of moral and exemplary damages by the trial court to the respondent.

Page 903 of 1485

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission. 33 The requisites for an award of moral damages are well-defined, thus, firstly, evidence of besmirched reputation or physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned by Article 2219 34 and Article 222035 of the Civil Code. All these elements are present in the instant case. 36 In the first place, by refusing to make good the manager's check it has issued, Ong suffered embarrassment and humiliation arising from the dishonor of the said check. 37 Secondly, the culpable act of PCI Bank in having cleared the check of Serande and issuing the manager's check to Ong is undeniable. Thirdly, the proximate cause of the loss is attributable to PCI Bank. Proximate cause is defined as that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.38 In this case, the proximate cause of the loss is the act of PCI Bank in having cleared the check of Sarande and its failure to exercise that degree of diligence required of it under the law which resulted in the loss to Ong. On exemplary damages, Article 2229 of the Civil Code states: Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. The law allows the grant of exemplary damages to set an example for the public good. The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence. For this reason, banks should guard against injury attributable to negligence or bad faith on its part. 39 Without a doubt, it has been repeatedly emphasized that since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. 40 Having failed in this respect, the award of exemplary damages is warranted. Article 2216 of the Civil Code provides: ART. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the circumstances of each case. Based on the above provision, the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court according to the circumstances of each case.41 In the case before us, we find that the award of moral damages in the amount of P50,000.00 and exemplary damages in the amount of P20,000.00 is reasonable and justified.

Page 904 of 1485

With the above disquisition, there is no necessity of further discussing the last issue on the PCI Bank's counterclaim based on the supposed lack of merit of Ong's complaint. WHEREFORE, premises considered, the Petition is DENIED and the Decision of the Court of Appeals dated 29 October 2002 in CA-G.R. CV No. 65000 affirming the Decision dated 3 may 1999, of the Regional Trial Court of Davao City, Branch 14, in Civil Case No. 21458-92, are AFFIRMED. SO ORDERED. Panganiban, C.J., Chairperson, Ynares-Santiago, Austria-Martinez, Callejo, Sr., J.J., concur. FIRST DIVISION

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

G.R. No. 157833

Present:

PUNO, C.J., Chairperson, -versusSANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ.

GREGORIO C. ROXAS, Respondent.

Promulgated:

October 15, 2007 x-----------------------------------------------------------------------------------------x

Page 905 of 1485

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari assailing the Decision1296[1] of the Court of Appeals (Fourth Division) dated February 13, 2003 in CA-G.R. CV No. 67980.

The facts of the case, as found by the trial court and affirmed by the Court of Appeals, are:

Gregorio C. Roxas, respondent, is a trader. Sometime in March 1993, he delivered stocks of vegetable oil to spouses Rodrigo and Marissa Cawili. As payment therefor, spouses Cawili issued a personal check in the amount of P348,805.50. However, when respondent Spouses Cawili then tried to encash the check, it was dishonored by the drawee bank. Bank of the Philippine Islands (BPI), petitioner.

assured him that they would replace the bounced check with a cashiers check from the

On March 31, 1993, respondent and Rodrigo Cawili went to petitioners branch at Shaw Boulevard, Mandaluyong City where Elma Capistrano, the branch manager, personally attended to them. Upon Elmas instructions, Lita Sagun, the bank teller, prepared BPI Cashiers Check No. 14428 in the amount of P348,805.50, drawn against the account of Marissa Cawili, payable to respondent. Rodrigo then handed the check to respondent in the presence of Elma.

1296

Page 906 of 1485

The following day, April 1, 1993, respondent returned to petitioners branch at Shaw Boulevard to encash the cashiers check but it was dishonored. Marissas account was closed on that date. Elma informed him that

Despite respondents insistence, the bank officers refused to encash the check and tried to retrieve it from respondent. He then called his lawyer who advised him to deposit However, the check the check in his (respondents) account at Citytrust, Ortigas Avenue. was dishonored on the ground Account Closed.

On September 23, 1993, respondent filed with the Regional Trial Court, Branch 263, Pasig City a complaint for sum of money against petitioner, docketed as Civil Case No. 63663. Respondent prayed that petitioner be ordered to pay the amount of the check, damages and cost of the suit.

In its answer, petitioner specifically denied the allegations in the complaint, claiming that it issued the check by mistake in good faith; that its dishonor was due to lack of consideration; and that respondents remedy was to sue Rodrigo Cawili who purchased the check. As a counterclaim, petitioner prayed that respondent be ordered to pay attorneys fees and expenses of litigation.

Petitioner filed a third-party complaint against spouses Cawili. declared in default for their failure to file their answer.

They were later

After trial, the RTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment in favor of herein plaintiff and orders the defendant, Bank of the Philippine Islands, to pay Gerardo C. Roxas: 1) The sum of P348,805.50, the face value of the cashiers check, with legal interest thereon computed from April 1, 1993 until the amount is fully paid; The sum of P50,000.00 for moral damages;

2)

Page 907 of 1485

3) 4) 5) The sum of P50,000.00 as exemplary damages to serve as an example for the public good; The sum of P25,000.00 for and as attorneys fees; and the Costs of suit.

As to the third-party complaint, third-party defendants Spouses Rodrigo and Marissa Cawili are hereby ordered to indemnify defendant Bank of the Philippine Islands such amount(s) adjudged and actually paid by it to herein plaintiff Gregorio C. Roxas, including the costs of suit. SO ORDERED.

On appeal, the Court of Appeals, in its Decision, affirmed the trial courts judgment.

Hence, this petition.

Petitioner ascribes to the Court of Appeals the following errors: (1) in finding that respondent is a holder in due course; and (2) in holding that it (petitioner) is liable to respondent for the amount of the cashiers check.

Section 52 of the Negotiable Instruments Law provides:

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: (a) (b) (c) (d) That it is complete and regular upon its face; That he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact; That he took it in good faith and for value; That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of person negotiating it.

Page 908 of 1485

As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due course. One who claims otherwise has the onus probandi to prove that one or more of the conditions required to constitute a holder in due course are lacking. respondent could not be a holder in due course. In this case, petitioner contends that the element of value is not present, therefore,

Petitioners contention lacks merit. Section 25 of the same law states:

SEC. 25. Value, what constitutes. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a future time.

In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South Sea Surety & Insurance Co., Inc.,1297[2] this Court ruled that value in general terms may be some right, interest, profit or benefit to the party who makes the contract or some forbearance, detriment, loan, responsibility, etc. on the other side. Here, there is no dispute that respondent received Rodrigo Cawilis cashiers check as payment for the formers vegetable oil. The fact that it was Rodrigo who purchased the cashiers check from petitioner will not affect respondents status as a holder for value since the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily, the Court of Appeals did not err in concluding that respondent is a holder in due course of the cashiers check.

Furthermore, it bears emphasis that the disputed check is a cashiers check.

In

International Corporate Bank v. Spouses Gueco,1298[3] this Court held that a cashiers check is really the banks own check and may be treated as a promissory note with the bank as the maker. The check becomes the primary obligation of the bank which issues it and In New Pacific Timber & Supply constitutes a written promise to pay upon demand .

1297 1298

Page 909 of 1485

Co. Inc. v. Seeris,1299[4] this Court took judicial notice of the well-known and accepted practice in the business sector that a cashiers check is deemed as cash. This is because the mere issuance of a cashiers check is considered acceptance thereof .

In view of the above pronouncements, petitioner bank became liable to respondent from the moment it issued the cashiers check. by the former. Having been accepted by respondent, subject to no condition whatsoever, petitioner should have paid the same upon presentment

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals (Fourth Division) in CA-G.R. CV No. 67980 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

1299

Page 910 of 1485

SPS. PEDRO VIOLAGO, AND FLORENCIA G.R. No. 158262

Petitioners, Present:

QUISUMBING, J., Chairperson, YNARES-SANTIAGO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

- versus -

BA FINANCE CORPORATION AVELINO VIOLAGO, Respondents.

and Promulgated:

July 21, 2008 x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

This is a Petition for Review on Certiorari of the August 20, 2002 Decision 1300[1] and May 15, 2003 Resolution1301[2] of the Court of Appeals (CA) in CA-G.R. CV No. 48489 entitled

* 1300 1301

Page 911 of 1485

BA Finance Corporation, Plaintiff-Appellee v. Sps. Pedro and Florencia Violago, Defendants and Third Party Plaintiffs-Appellants v. Avelino Violago, Third Party Defendant-Appellant . Petitioners-spouses Pedro and Florencia Violago pray for the reversal of the appellate courts ruling which held them liable to respondent BA Finance Corporation (BA Finance) under a promissory note and a chattel mortgage. Petitioners likewise pray that respondent Avelino Violago be adjudged directly liable to BA Finance. The Facts

Sometime in 1983, Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a car to his cousin, Pedro F. Violago, and the latters wife, Florencia. Avelino explained that he needed to sell a vehicle to increase the sales quota of VMSC, and that the spouses would just have to pay a down payment of PhP 60,500 while the balance would be financed by respondent BA Finance. The spouses would pay the monthly installments to BA Finance while Avelino would take care of the documentation and approval of financing of the car. Under these terms, the spouses then agreed to purchase a Toyota Cressida Model 1983 from VMSC.1302[3]

On August 4, 1983, the spouses and Avelino signed a promissory note under which they bound themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a month, the first installment to be due and payable on September 16, 1983. Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed the net purchase price of the vehicle, down payment, balance, and finance charges. VMSC then issued a sales invoice in favor of the spouses with a detailed description of the Toyota Cressida car. 209,601. recourse. In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for the amount of PhP VMSC, through Avelino, endorsed the promissory note to BA Finance without After receiving the amount of PhP 209,601, VMSC executed a Deed of

Assignment of its rights and interests under the promissory note and chattel mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP 60,500 to VMSC through Avelino.1303[4]

1302 1303

Page 912 of 1485

The sales invoice was filed with the Land Transportation Office (LTO)-Baliwag Branch, which issued Certificate of Registration No. 0137032 in the name of Pedro on August 8, 1983. The spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago, another cousin of Avelino, and registered in Esmeraldos name by the LTO-San Rafael Branch. Despite the spouses demand for the car and Avelinos repeated assurances, there was no delivery of the vehicle. Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance.
1304

[5]

On March 1, 1984, BA Finance filed with the Regional Trial Court (RTC), Branch 116 in Pasay City a complaint for Replevin with Damages against the spouses. The complaint, docketed as Civil Case No. 1628-P, prayed for the delivery of the vehicle in favor of BA Finance or, if delivery cannot be effected, for the payment of PhP 199,049.41 plus penalty at the rate of 3% per month from February 15, 1984 until fully paid. BA Finance also asked for the payment of attorneys fees, liquidated damages, replevin bond premium, expenses in the seizure of the vehicle, and costs of suit. The RTC issued an Order of Replevin on March 28, 1984. The Violago spouses, as defendants a quo, were declared in default for failing to file an answer. Eventually, the RTC rendered on December 3, 1984 a decision in favor of BA Finance. A writ of execution was thereafter issued on January 11, 1985, followed by an alias writ of execution.1305[6]

In the meantime, Esmeraldo conveyed the vehicle to Jose V. Olvido who was then issued Certificate of Registration No. 0014830-4 by the LTO-Cebu City Branch on April 29, 1985. On May 8, 1987, Jose executed a Chattel Mortgage over the vehicle in favor of Generoso Lopez as security for a loan covered by a promissory note in the amount of PhP 260,664. This promissory note was later endorsed to BA Finance, Cebu City branch. 1306[7]

1304 1305 1306

Page 913 of 1485

On August 21, 1989, the spouses Violago filed a Motion for Reconsideration and Motion to Quash Writ of Execution on the basis of lack of a valid service of summons on them, among other reasons. The RTC denied the motions; hence, the spouses filed a This CA decision became final and petition for certiorari under Rule 65 before the CA, docketed as CA G.R. No. 2002-SP. On May 31, 1991, the CA nullified the RTCs order. executory.

On January 28, 1992, the spouses filed their Answer before the RTC, alleging the following: they never received the vehicle from VMSC; the vehicle was previously sold to Esmeraldo; BA Finance was not a holder in due course under Section 59 of the Negotiable Instruments Law (NIL); and the recourse of BA Finance should be against VMSC. On February 25, 1995, the Violago spouses, with prior leave of court, filed a Third Party Complaint against Avelino praying that he be held liable to them in the event that they be held liable to BA Finance, as well as for damages. VMSC was not impleaded as third party defendant. In his Motion to Dismiss and Answer, Avelino contended that he was not a party to the transaction personally, but VMSC. Avelinos motion was denied and the third party complaint against him was entertained by the trial court. Subsequently, the spouses belabored to prove that they affixed their signatures on the promissory note and chattel mortgage in favor of VMSC in blank.1307[8]

The RTC rendered a Decision on March 5, 1994, finding for BA Finance but against the Violago spouses. The RTC, however, declared that they are entitled to be indemnified by Avelino. The dispositive portion of the RTCs decision reads:

WHEREFORE, defendant-[third]-party plaintiffs spouses Pedro F. Violago and Florencia R. Violago are ordered to deliver to plaintiff BA Finance Corporation, at its principal office the BAFC Building, Gamboa St., Legaspi Village, Makati, Metro Manila the Toyota Cressida car, model 1983, bearing Engine No. 21R-02854117, and with Serial No. RX60-804614, covered by the deed of chattel mortgage dated August 4, 1983; or if such delivery cannot be

1307

Page 914 of 1485

made, to pay, jointly and severally, to the plaintiff the sum of P198,003.06 together with the penalty [thereon] at three percent (3%) a month, from March 1, 1984, until the amount is fully paid. In either case, the defendant-third-party plaintiffs are required to pay, jointly and severally, to the plaintiff a sum equivalent to twenty-five percent (25%) of P198,003.06 as attorneys fees, and another amount also equivalent to twenty five percent (25%) of the said unpaid balance, as liquidated damages. The defendant-third party-plaintiffs are also required to shoulder the litigation expenses and costs. As indemnification, third-party defendant Avelino Violago is ordered to deliver to defendants-third-party plaintiffs spouses Pedro F. Violago and Florencia R. Violago the aforedescribed motor vehicle; or if such delivery is not possible, to pay to the said spouses the sum of P198,003.06, together with the penalty thereon at three (3%) a month from March 1, 1984, until the amount is entirely paid. In either case, the third-party defendant should pay to the defendantthird-party plaintiffs spouses a sum equivalent to twenty-five percent (25%) of P198,003.06 as attorneys fees, and another sum equivalent also to twentyfive percent (25%) of the said unpaid balance, as liquidated damages. Third-party defendant Avelino Violago is further ordered to return to the third-party plaintiffs the sum of P60,500.00 they paid to him as down payment for the car; and to pay them P15,000.00 as moral damages; P10,000.00 as exemplary damages; and reimburse them for all the expenses and costs of the suit. The counterclaims of the defendants and third-party defendant, for lack of merit, are dismissed.1308[9]

The Ruling of the CA

Petitioners-spouses and Avelino appealed to the CA. The spouses argued that the promissory note is a negotiable instrument; hence, the trial court should have applied the NIL and not the Civil Code. The spouses also asserted that since VMSC was not the owner of the vehicle at the time of sale, the sale was null and void for the failure in the cause or consideration of the promissory note, which in this case was the sale and delivery of the vehicle. The spouses also alleged that BA Finance was not a holder in due course of the note since it knew, through its Cebu City branch, that the car was never delivered to the spouses.1309[10] On the other hand, Avelino prayed for the dismissal of the complaint

1308

Page 915 of 1485

against him because he was not a party to the transaction, and for an order to the spouses to pay him moral damages and costs of suit.

The appellate court ruled that the promissory note was a negotiable instrument and that BA Finance was a holder in due course, applying Secs. 8, 24, and 52 of the NIL. The CA faulted petitioners for failing to implead VMSC, the seller of the vehicle and creditor in the promissory note, as a party in their Third Party Complaint. judgment will not bind it or be enforced against it. Citing Salas v. Court of Appeals,1310[11] the appellate court reasoned that since VMSC is an indispensable party, any The absence of VMSC rendered the proceedings in the RTC and the judgment in the Third Party Complaint null and void, not only as to the absent party but also to the present parties, namely the DefendantsAppellants (petitioners herein) and the Third-Party-Defendant-Appellant (Avelino Violago). The CA set aside the trial courts order holding Avelino liable for damages to the spouses without prejudice to the action of the spouses against VMSC and Avelino in a separate action.1311[12]

The dispositive portion of the August 20, 2002 CA Decision reads:

IN THE LIGHT OF ALL THE FOREGOING , the appeal of the PlaintiffsAppellants is DISMISSED. The appeal of the Third-Party-Defendant-Appellant is GRANTED. The Decision of the Court a quo is AFFIRMED, with the modification that the Third-Party Complaint against the Third-PartyDefendant-appellant is DISMISSED, without prejudice. The counterclaims of the Third-Party Defendant Appellant against the Defendants-Appellants are DISMISSED, also without prejudice.1312[13]

1309 1310 1311 1312

Page 916 of 1485

The spouses Violago sought but were denied reconsideration by the CA per its Resolution of May 15, 2003.

The Issues

Petitioners raise the following issues:

WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE PROMISSORY NOTE MAY BE CONSIDERED A HOLDER IN DUE COURSE WHETHER OR NOT A CHATTEL MORTGAGE SHOULD BE CONSIDERED VALID DESPITE VITIATION OF CONSENT OF, AND THE FRAUD COMMITTED ON, THE MORTGAGORS BY AVELINO, AND THE CLEAR ABSENCE OF OBJECT CERTAIN WHETHER OR NOT THE VEIL OF CORPORATE ENTITY MAY BE INVOKED AND SUSTAINED DESPITE THE FRAUD AND DECEPTION OF AVELINO

The Courts Ruling

The ruling of the appellate court is set aside insofar as it dismissed, without prejudice, the third party complaint of petitioners against Avelino thereby effectively absolving Avelino from any liability under the third party complaint.

In addressing the threshold issue of whether BA Finance is a holder in due course of the promissory note, we must determine whether the note is a negotiable instrument and, hence, covered by the NIL. In their appeal to the CA, petitioners argued that the promissory note is a negotiable instrument and that the provisions of the NIL, not the Civil Code, should

Page 917 of 1485

be applied. In the present petition, however, petitioners claim that Article 1318 of the Civil Code1313[14] should be applied since their consent was vitiated by fraud, and, thus, the promissory note does not carry any legal effect despite its negotiation. petitioners arguments deserve no merit. Either way, the

The promissory note is clearly negotiable. The appellate court was correct in finding all the requisites of a negotiable instrument present. The NIL provides:

Section 1. Form of Negotiable Instruments. An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

The promissory note signed by petitioners reads:

209,601.00

Makati, Metro Manila, Philippines, August 4, 1983

For value received, I/we, jointly and severally, promise to pay to the order of VIOLAGO MOTOR SALES CORPORATION, its office, the principal sum of TWO HUNDRED NINE THOUSAND SIX HUNDRED ONE ONLY Pesos (P209,601.00), Philippines Currency, with interest at the rate stipulated herein below, in installments as follows: Thirty Six (36) successive monthly installments of P5,822.25, the first installment to be paid on 9-16-83, and the succeeding monthly installments on the 16th day of each and every succeeding month thereafter until the account is fully paid, provided that the penalty charge of three (3%) per cent per month or a fraction thereof shall be added on each unpaid installment from maturity thereof until fully paid. xxxx

1313

Page 918 of 1485

Notice of demand, presentment, dishonor and protest are hereby waived. (Sgd.) PEDRO F. VIOLAGO 763 Constancia St., Sampaloc, Manila (Address) (Sgd.) Marivic Avaria (WITNESS) (Sgd.) FLORENCIA R. VIOLAGO same (Address) (Sgd.) Jesus Tuazon (WITNESS)

PAY TO THE ORDER OF BA FINANCE CORPORATION WITHOUT RECOURSE VIOLAGO MOTOR SALES CORPORATION By: (Sgd.) AVELINO A. VIOLAGO, Pres. 1314[15]

The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is in writing; signed by the Violago spouses; has an unconditional promise to pay a certain amount, i.e., PhP 209,601, on specific dates in the future which could be determined from the terms of the note; made payable to the order of VMSC; and names the drawees with certainty. The indorsement by VMSC to BA Finance appears likewise to be valid and regular.

The more important issue now is whether or not BA Finance is a holder in due course. The resolution of this issue will determine whether petitioners defense of fraud and nullity of the sale could validly be raised against respondent corporation. provides: Sec. 52 of the NIL

Section 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: (a) That it is complete and regular upon its face;

1314

Page 919 of 1485

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

The law presumes that a holder of a negotiable instrument is a holder thereof in due course.
1315

[16]

In this case, the CA is correct in finding that BA Finance meets all the

foregoing requisites: In the present recourse, on its face, (a) the Promissory Note, Exhibit A, is complete and regular; (b) the Promissory Note was endorsed by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee was never informed, before and at the time the Promissory Note was endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights over the Chattel Mortgage by the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in due course.1316[17]

In the hands of one other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. 1317[18] A holder in due course, however, holds the instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. 1318[19] Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and nullity of the sale against the corporation. The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration. 1319[20] In Salas, we held that a party holding an instrument may enforce payment of the instrument for the full amount thereof. As such,

1315 1316 1317 1318 1319

Page 920 of 1485

the maker cannot set up the defense of nullity of the contract of sale. 1320[21] Thus,

petitioners are liable to respondent corporation for the payment of the amount stated in the instrument.

From the third party complaint to the present petition, however, petitioners pray that the veil of corporate fiction be set aside and Avelino be adjudged directly liable to BA Finance. Petitioners likewise pray for damages for the fraud committed upon them. In Concept Builders, Inc. v. NLRC, we held: It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. xxxx The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust acts in contravention of plaintiffs legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.1321[22]

This case meets the foregoing test. VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling the vehicle to petitioners, a Nowhere in the vehicle that was previously sold to Avelinos other cousin, Esmeraldo.

1320 1321

Page 921 of 1485

pleadings did Avelino refute the fact that the vehicle in this case was already previously sold to Esmeraldo; he merely insisted that he cannot be held liable because he was not a party to the transaction. The fact that Avelino and Pedro are cousins, and that Avelino claimed to have a need to increase the sales quota, was likely among the factors which motivated the spouses to buy the car. Avelino, knowing fully well that the vehicle was already sold, and with abuse of his relationship with the spouses, still proceeded with the sale and collected the down payment from petitioners. The trial court found that the vehicle was not delivered to the spouses. Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners loss. He cannot now hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court in favor of petitioners.

The fact that VMSC was not included as defendant in petitioners third party complaint does not preclude recovery by petitioners from Avelino; neither would such noninclusion constitute a bar to the application of the piercing-of-the-corporate-veil doctrine. We suggested as much in Arcilla v. Court of Appeals, an appellate proceeding involving petitioner Arcillas bid to avoid the adverse CA decision on the argument that he is not personally liable for the amount adjudged since the same constitutes a corporate liability which nevertheless cannot even be enforced against the corporation which has not been impleaded as a party below. In that case, the Court found as well-taken the CAs act of disregarding the separate juridical personality of the corporation and holding its president, Arcilla, liable for the obligations incurred in the name of the corporation although it was not a party to the collection suit before the trial court. An excerpt from Arcilla:

x x x In short, even if We are to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and alter ego. The fiction of separate juridical personality conferred upon such corporation by law should be disregarded. Significantly, petitioner does not seriously challenge the [CAs] application of the doctrine which permits the piercing of the corporate veil and the disregarding of the fiction of a separate juridical personality; this is because he knows only too well that from the beginning, he merely used the corporation for his personal purposes.1322[23]

1322

Page 922 of 1485

WHEREFORE, the CAs August 20, 2002 Decision and May 15, 2003 Resolution in CA-G.R. CV No. 48489 are SET ASIDE insofar as they dismissed without prejudice the third party complaint of petitioners-spouses Pedro and Florencia Violago against respondent Avelino Violago. The March 5, 1994 Decision of the RTC is REINSTATED and AFFIRMED. Costs against Avelino Violago.

SO ORDERED. Republic SUPREME Manila FIRST DIVISION G.R. No. 112392 February 29, 2000 petitioner, of the Philippines COURT

BANK OF THE PHILIPPINE ISLANDS, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents. YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial Court of Makati, Branch 139, 2 which dismissed the complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C. Napiza for sum of money. On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-1873 which he maintained in petitioner bank's Buendia Avenue Extension Branch, Continental Bank Manager's Check No. 00014757 4 dated August 17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side. 5 It appears that the check belonged to a certain Henry who went to the office of private respondent and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private respondent's presentation to the bank of his passbook. Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo.6 On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New York that the said check deposited by private respondent was a

Page 923 of 1485

counterfeit check7 because it was "not of the type or style of checks issued by Continental Bank International."8 Consequently, Mr. Ariel Reyes, the manager of petitioner's Buendia Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is private respondent's son, to inform his father that the check bounced. 9 Reyes himself sent a telegram to private respondent regarding the dishonor of the check. In turn, private respondent's son wrote to Reyes stating that the check been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father immediately tried to contact Chan but the latter was out of town. 10 Private respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes reminded private respondent of his son's promise and warned that should he fail to return that amount within seven (7) days, the matter would be referred to the bank's lawyers for appropriate action to protect the bank's interest. 11 This was followed by a letter of the bank's lawyer dated April 8, 1985 demanding the return of the $2,500.00.12 In reply, private respondent wrote petitioner's counsel on April 20, 1985 13 stating that he deposited the check "for clearing purposes" only to accommodate Chan. He added: Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may not be amiss to mention here that I merely signed an authority to withdraw said deposit subject to its clearing, the reason why the transaction is not reflected in the passbook of the account. Besides, I did not receive its proceeds as may be gleaned from the withdrawal slip under the captioned signature of recipient.1wphi1.nt If at all, my obligation on the transaction is moral in nature, which ( sic) I have been and is (sic) still exerting utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable under the circumstances. xxx xxx xxx

On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount of $2,500.00 or the prevailing peso equivalent plus legal interest from date of demand to date of full payment, a sum equivalent to 20% of the total amount due as attorney's fees, and litigation and/or costs of suit. Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be withdrawn only after the check in question has been cleared. He likewise alleged that he instructed the party to whom he issued the signed blank withdrawal slip to return it to him after the bank draft's clearance so that he could lend that party his passbook for the purpose of withdrawing the amount of $2,500.00. However, without his knowledge, said party was able to withdraw the amount of $2,541.67 from his dollar savings account through collusion with one of petitioner's employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the bank draft in question." Petitioner should have disallowed the withdrawal because his passbook was not presented. He claimed that petitioner had no one to blame except itself "for being grossly negligent;" in fact, it had allegedly admitted having paid the amount in the check "by mistake" . . . "if not altogether due to collusion and/or bad faith on the part of (its) employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of counterclaim, private respondent prayed

Page 924 of 1485

for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorney's fees of 30% of whatever amount that would be awarded to him plus an honorarium of P500.00 per appearance in court. Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without private respondent's passbook. Thus, private respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorney's fees of P5,000.00 plus P300.00 honorarium per appearance. Petitioner filed a comment on the motion for leave of court to admit the third party complaint, whenever it asserted that per paragraph 2 of the Rules and Regulations governing BPI savings accounts, private respondent alone was liable "for the value of the credit given on account of the draft or check deposited." It contended that private respondent was estopped from disclaiming liability because he himself authorized the withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as not to unduly delay the disposition of the main case asserting that private respondent's claim could be ventilated in another case. Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the motion to admit third party complaint should be granted. Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987 directing private respondent to actively participate in locating Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed the third party complaint without prejudice. On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner could not hold private respondent liable based on the check's face value alone. To so hold him liable "would render inutile the requirement of "clearance" from the drawee bank before the value of a particular foreign check or draft can be credited to the account of a depositor making such deposit." The lower court further held that "it was incumbent upon the petitioner to credit the value of the check in question to the account of the private respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from the latter's account of the value or proceeds of the check." Having admitted that it committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the resultant loss. On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that petitioner committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondent's passbook and, before the check was cleared and in crediting the amount indicated therein in private respondent's account. It stressed that the mere deposit of a check in private respondent's account did not mean that the check was already private respondent's property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the bank's rules and regulations. Furthermore, petitioner's contention that private respondent warranted the check's genuineness by endorsing it is untenable for it would render useless the clearance requirement. Likewise, the requirement of presentation of a passbook to ascertain the propriety of the accounting reflected would be a meaningless exercise. After all, these requirements are designed to protect the bank from deception or fraud. The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC ,14 where this Court stated that a personal check is not legal tender or money, and held that the check

Page 925 of 1485

deposited in this case must be cleared before its value could be properly transferred to private respondent's account. Without filing a motion for the reconsideration of the Court of Appeals' Decision, petitioner filed this petition for review on certiorari, raising the following issues: 1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER. 2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON. 3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL. Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in accordance with the following provision of the Negotiable Instruments Law (Act No. 2031): Sec. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent holders in due course (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) That the instrument is at the time of his indorsement, valid and subsisting. And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. Sec. 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties had capacity to contract. 15 In People v. Maniego,16 this Court described the liabilities of an indorser as follows: Appellant's contention that as mere indorser, she may not be liable on account of the dishonor of the checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable instrument has the right "to enforce payment of the instrument for the full amount thereof against all parties liable thereon. Among the "parties liable thereon." Is an indorser of the instrument, i.e., "a person placing his signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his intention to be bound in some other capacity." Such an indorser "who indorses without qualification," inter alia "engages that on due presentment, * * (the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or any subsequent indorser who may be compelled to pay it." Maniego may also be deemed an "accommodation party" in the light of the facts, i.e., a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without

Page 926 of 1485

receiving value thereof, and for the purpose of lending his name to some other person." As such, she is under the law "liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew * * (her) to be only an accommodation party," although she has the right, after paying the holder, to obtain reimbursement from the party accommodated, "since the relation between them is in effect that of principal and surety, the accommodation party being the surety. It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party. 17 However, to hold private respondent liable for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. The interest of justice thus demands looking into the events that led to the encashment of the check. Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the withdrawal of the amount in question." Petitioner relied "on the genuine signature on the withdrawal slip, the personality of private respondent's son and the lapse of more than fifty (50) days from date of deposit of the Continental Bank draft, without the same being returned yet."18 We hold, however, that the propriety of the withdrawal should be gauged by compliance with the rules thereon that both petitioner bank and its depositors are duty-bound to observe. In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits appear: 4. Withdrawals must be made by the depositor personally but in some exceptional circumstances, the Bank may allow withdrawal by another upon the depositor's written authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositor's savings passbook, in which the amount deposited withdrawn shall be entered only by the Bank. 5. Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the request of the depositor in writing on the withdrawal slip or by authenticated cable. Such request must indicate the name of the payee/s, amount and the place where the funds are to be paid. Any stamp, transmission and other charges related to such withdrawals shall be for the account of the depositor and shall be paid by him/her upon demand. Withdrawals may also be made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills are allowed subject however, to their (availability). 6. Deposits shall not be subject to withdrawal by check, and may be withdrawal only in the manner above provided, upon presentation of the depositor's savings passbook and with the withdrawal form supplied by the Bank at the counter. 19 Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign currency deposit system, two requisites must be presented to petitioner bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the depositor's passbook. Private respondent admits he signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the payee, the amount to be withdrawn and the place where such withdrawal should be made. That the withdrawal slip was in fact a blank one with only private respondent's two signatures affixed on the proper spaces is buttressed by petitioner's allegation in the instant

Page 927 of 1485

petition that had private respondent indicated therein the person authorized to receive the money, then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner contends that "(I)n failing to do so (i.e., naming his authorized agent), he practically authorized any possessor thereof to write any amount and to collect the same."20 Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioner's personnel should have been duly warned that Gayon, who was also employed in petitioner's Buendia Ave. Extension branch, 21 was not the proper payee of the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of course, at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can withdraw the amount indicated in the check. Private respondent does not deny having signed such authority. However, considering petitioner's clear admission that the withdrawal slip was a blank one except for private respondent's signature, the unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever was allowed by petitioner to withdraw the amount. Under these facts, there could not have been a principal-agent relationship between private respondent and Gayon so as to render the former liable for the amount withdrawn. Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding foreign currency savings passbook by the depositor in person. For withdrawals thru a representative, depositor should accomplish the authority at the back." The requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service even though the person making the withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so that, for the protection of the bank's interest and as a reminder to the depositor, the withdrawal shall be entered in the depositor's passbook. The fact that private respondent's passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with the bank was on September 3, 1984, the date he deposited the controversial check in the amount of $2,500.00. 22 In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus: 2. All deposits will be received as current funds and will be repaid in the same manner; provided, however, that deposits of drafts, checks, money orders, etc. will be accented as subject to collection only and credited to the account only upon receipt of the notice of final payment . Collection charges by the Bank's foreign correspondent in effecting such collection shall be for the account of the depositor. If the account has sufficient balance, the collection shall be debited by the Bank against the account. If, for any reason, the proceeds of the deposited checks, drafts, money orders, etc., cannot be collected or if the Bank is required to return such proceeds, the provisional entry therefor made by the Bank in the savings passbook and its records shall be deemed automatically cancelled regardless of the time that has elapsed, and whether or not the defective items can be returned to the depositor; and the Bank is hereby authorized to execute immediately the necessary corrections, amendments or changes in its record, as well as on the savings passbook at the first opportunity to reflect such cancellation. (Emphasis and underlining supplied.) As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the outright owner of the amount stated therein. Under the

Page 928 of 1485

above rule, by depositing the check with petitioner, private respondent was, in a way, merely designating petitioner as the collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or ordinary check, is not legal tender.23 As such, after receiving the deposit, under its own rules, petitioner shall credit the amount in private respondent's account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in accordance with ordinary banking practices and with this Court's pronouncement that "the collecting bank or last endorser generally suffers the loss because has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements." 24 The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a manager's check.25 In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts represented in three (3) checks to Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so without previously clearing the checks with the drawee bank, the Philippine National Bank in New York, on account of the "special treatment" that Boncan received from the personnel of Banco Atlantico's foreign department. The Court held that the encashment of the checks without prior clearance is "contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large." Accordingly, the Court approved the Auditor General's denial of Banco Atlantico's claim for payment of the value of the checks that was withdrawn by Boncan. Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their relationship."27 As such, in dealing with its depositors, a bank should exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of care.28 In the case at bar, petitioner, in allowing the withdrawal of private respondent's deposit, failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioner's personnel negligently handled private respondent's account to petitioner's detriment. As this Court once said on this matter: Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. The seventyeight (78)-year-old, yet still relevant, case of Picart v. Smith, provides that test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater-familias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that. 29 Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondent's dollar deposits that had yet

Page 929 of 1485

to be cleared. The bank's ledger on private respondent's account shows that before he deposited $2,500.00, private respondent had a balance of only $750.00. 30 Upon private respondent's deposit of $2,500.00 on September 3, 1984, that amount was credited in his ledger as a deposit resulting in the corresponding total balance of $3,250.00. 31 On September 10, 1984, the amount of $600.00 and the additional charges of $10.00 were indicated therein as withdrawn thereby leaving a balance $2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was entered as withdrawn with a balance of $109.92. 32 On November 19, 1984 the word "hold" was written beside the balance of $109.92. 33 That must have been the time when Reyes, petitioner's branch manager, was informed unofficially of the fact that the check deposited was a counterfeit, but petitioner's Buendia Ave. Extension Branch received a copy of the communication thereon from Wells Fargo Bank International in New York the following day, November 20, 1984.34 According to Reyes, Wells Fargo Bank International handled the clearing of checks drawn against U.S. banks that were deposited with petitioner.35 From these facts on record, it is at once apparent that petitioner's personnel allowed the withdrawal of an amount bigger than the original deposit of $750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet received notice from the clearing bank in the United States on whether or not the check was funded. Reyes' contention that after the lapse of the 35-day period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon, otherwise it could take a long time before a depositor could make a withdrawal, 36 is untenable. Said practice amounts to a disregard of the clearance requirement of the banking system. While it is true that private respondent's having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check, the negligence of petitioner's personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred." 37 The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioner's part was its personnel's negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage. 1wphi1.nt WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED. SO ORDERED. Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 118492 August 15, 2001 of the Philippines COURT

Page 930 of 1485

GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents. DE LEON, JR., J.: Before us is a petition for review of the Decision 1 dated July 22, 1994 and Resolution 2 dated December 29, 1994 of the Court of Appeals 3 affirming with modification the Decision4 dated November 12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch 64, which dismissed the complaint for damages of petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and Trust Company. The undisputed facts of the case are as follows: In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to the respondent bank to apply for a foreign exchange demand draft in Australian dollars. Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a demand draft in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He was attended to by respondent bank's assistant cashier, Mr. Yasis, who at first denied the application for the reason that respondent bank did not have an Australian dollar account in any bank in Sydney. Godofredo asked if there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of effecting the requested remittance to Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A. (Westpac-New York for brevity). This arrangement has been customarily resorted to since the 1960's and the procedure has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this arrangement or approach in order to effect the urgent transfer of Australian dollars payable to the Secretariat of the 20 th Asian Racing Conference. On July 28, 1988, the respondent bank approved the said application of PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00), payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed to WestpacSydney as the drawee bank.1wphi1.nt On August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor stating the following: "xxx No account held with Westpac." Meanwhile, on August 16, 1988, Wespac-New York sent a cable to respondent bank informing the latter that its dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00) was debited. On August 19, 1988, in response to PRCI's complaint about the dishonor of the said foreign exchange demand draft, respondent bank informed Westpac-Sydney of the issuance of the said demand draft FXDD No. 209968, drawn against the Wespac-Sydney and informing the latter to be reimbursed from the respondent bank's dollar account in Westpac-

Page 931 of 1485

New York. The respondent bank on the same day likewise informed Wespac-New York requesting the latter to honor the reimbursement claim of Wespac-Sydney. On September 14, 1988, upon its second presentment for payment, FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason, that is, that the respondent bank has no deposit dollar account with the drawee Wespac-Sydney. On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At the registration desk, in the presence of other delegates from various member of the conference secretariat that he could not register because the foreign exchange demand draft for his registration fee had been dishonored for the second time. A discussion ensued in the presence and within the hearing of many delegates who were also registering. Feeling terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady member of the conference secretariat that he be shown the subject foreign exchange demand draft that had been dishonored as well as the covering letter after which he promised that he would pay the registration fees in cash. In the meantime he demanded that he be given his name plate and conference kit. The lady member of the conference secretariat relented and gave him his name plate and conference kit. It was only two (2) days later, or on September 20, 1988, that he was given the dishonored demand draft and a covering letter. It was then that he actually paid in cash the registration fees as he had earlier promised. Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney. She too was embarassed and humiliated at the registration desk of the conference secretariat when she was told in the presence and within the hearing of other delegates that she could not be registered due to the dishonor of the subject foreign exchange demand draft. She felt herself trembling and unable to look at the people around her. Fortunately, she saw her husband, coming toward her. He saved the situation for her by telling the secretariat member that he had already arranged for the payment of the registration fee in cash once he was shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given her name plate and conference kit. At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of the House of Representatives representing the lone Congressional District of Makati, Metro Manila. She has been an officer of the Manila Banking Corporation and was cited by Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with her conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary service as the Society's campaign chairman for the ninth (9th) consecutive year. On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the respondent bank due to the dishonor of the said foreign exchange demand draft issued by the respondent bank. The petitioners claim that as a result of the dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the presence of an international audience. On November 12, 1992, the trial court rendered judgment in favor of the defendant (respondent bank) and against the plaintiffs (herein petitioners), the dispositive portion of which states:

Page 932 of 1485

WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiff's complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, the amount of P50,000.00, as reasonable attorney's fees. Costs against the plaintiff. SO ORDERED.5 The petitioners appealed the decision of the trial court to the Court of Appeals. On July 22, 1994, the appellate court affirmed the decision of the trial court but in effect deleted the award of attorney's fees to the defendant (herein respondent bank) and the pronouncement as to the costs. The decretal portion of the decision of the appellate court states: WHEREFORE, the judgment appealed from, insofar as it dismissed plaintiff's complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all other respect. No special pronouncement as to costs. SO ORDERED.6 According to the appellate court, there is no basis to hold the respondent bank liable for damages for the reason that it exerted every effort for the subject foreign exchange demand draft to be honored. The appellate court found and declared that: xxx xxx xxx

Thus, the Bank had every reason to believe that the transaction finally went through smoothly, considering that its New York account had been debited and that there was no miscommunication between it and Westpac-New York. SWIFT is a world wide association used by almost all banks and is known to be the most reliable mode of communication in the international banking business. Besides, the above procedure, with the Bank as drawer and Westpac-Sydney as drawee, and with Westpac-New York as the reimbursement Bank had been in place since 1960s and there was no reason for the Bank to suspect that this particular demand draft would not be honored by Westpac-Sydney. From the evidence, it appears that the root cause of the miscommunications of the Bank's SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Bank's SWIFT message as an MT799 format. However, a closer look at the Bank's Exhs. "6" and "7" would show that despite what appears to be an asterick written over the figure before "99", the figure can still be distinctly seen as a number "1" and not number "7", to the effect that Westpac-Sydney was responsible for the dishonor and not the Bank. Moreover, it is not said asterisk that caused the misleading on the part of the Westpac-Sydney of the numbers "1" to "7", since Exhs. "6" and "7" are just documentary copies of the cable message sent to Wespac-Sydney. Hence, if there was mistake committed by Westpac-Sydney in decoding the cable message which caused the Bank's message to be sent to the wrong department, the mistake was Westpac's, not the Bank's. The Bank had done what an ordinary prudent person is required to do in the particular situation, although appellants expect the Bank to have done more. The Bank having done everything necessary or usual in the ordinary course of banking transaction, it cannot be held liable for any embarrassment and corresponding damage that appellants may have incurred.7 xxx xxx xxx

Page 933 of 1485

Hence, this petition, anchored on the following assignment of errors: I THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN "ORDINARY PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE BANKS. II THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF PRIVATE RESPONDENT'S WARRANTY AS THE DRAWER THEREOF. III THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE DRAWEE BANK. 8 The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its clients, the respondent should have exercised a higher degree of diligence than that expected of an ordinary prudent person in the handling of its affairs as in the case at bar. The appellate court, according to petitioners, erred in applying the standard of diligence of an ordinary prudent person only. Petitioners also claim that the respondent bank violate Section 61 of the Negotiable Instruments Law9 which provides the warranty of a drawer that "xxx on due presentment, the instrument will be accepted or paid, or both, according to its tenor xxx." Thus, the petitioners argue that respondent bank should be held liable for damages for violation of this warranty. The petitioners pray this Court to reexamine the facts to cite certain instances of negligence. It is our view and we hold that there is no reversible error in the decision of the appellate court. Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he petition (for review) shall raise only questions of law which must be distinctly set forth." Thus, we have ruled that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court.10 The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with Westpac-Sydney. Respondent bank's assistant cashier explained to Godofredo Reyes, representing PRCI and petitioner Gregorio H. Reyes, how the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a dollar account to Westpac-Sydney where the subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the payee, the 20 th Asian Racing Conference Secretariat. PRCI and its Vice-President for finance, petitioner Gregorio H. Reyes, through their said representative, agreed to that arrangement or procedure. In other words, the petitioners are estopped from denying the said arrangement or procedure. Similar arrangements have been a long standing practice in banking to facilitate international commercial transactions. In fact, the SWIFT cable message sent by respondent bank to the

Page 934 of 1485

drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York branch, Westpac-New York, where respondent bank has a deposit dollar account. The facts as found by the courts a quo show that respondent bank did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft. An employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as "MT799" instead of as "MT199". As a result, Westpac-Sydney construed the said cable message as a format for a letter of credit, and not for a demand draft. The appellate court correct found that "the figure before '99' can still be distinctly seen as a number '1' and not number '7'." Indeed, the line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus, the number "1" in "MT199" cannot be construed as "7". 11 The evidence also shows that the respondent bank exercised that degree of diligence expected of an ordinary prudent person under the circumstances obtaining. Prior to the first dishonor of the subject foreign exchange demand draft, the respondent bank advised Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit the dollar account12 of respondent bank with the former. As soon as the demand draft was dishonored, the respondent bank, thinking that the problem was with the reimbursement and without any idea that it was due to miscommunication, re-confirmed the authority of Westpac-New York to debit its dollar account for the purpose of reimbursing WestpacSydney.13 Respondent bank also sent two (2) more cable messages to Westpac-New York inquiring why the demand draft was not honored. 14 With these established facts, we now determine the degree of diligence that banks are required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of Appeals15 upholding a long standing doctrine, we ruled that the degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors. Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of petitioners' deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20 th Asian Racing conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign exchange demand draft was intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney. The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not have been foreseen by the respondent bank. Being unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover for the amount of One Thousand Six Hundred Ten Australian Dollar (AU $1610.00) indicated in the foreign exchange demand draft. Thus, the respondent bank had the impression that Westpac-New York had not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient

Page 935 of 1485

deposit dollar account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of the said demand draft. In view of all the foregoing, and considering that the dishonor of the subject foreign exchange demand draft is not attributable to any fault of the respondent bank, whereas the petitioners appeared to be under estoppel as earlier mentioned, it is no longer necessary to discuss the alleged application of Section 61 of the Negotiable Instruments Law to the case at bar. In any event, it was established that the respondent bank acted in good faith and that it did not cause the embarrassment of the petitioners in Sydney, Australia. Hence, the Court of Appeals did not commit any reversable error in its challenged decision. WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of Appeals is AFFIRMED. Costs against the petitioners. SO ORDERED.1wphi1.nt Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur. Republic SUPREME Manila THIRD DIVISION G.R. No. 156940 December 14, 2004 WESTMONT BANK), petitioner, of the Philippines COURT

ASSOCIATED BANK (Now vs. VICENTE HENRY TAN, respondent.

DECISION

PANGANIBAN, J.: While banks are granted by law the right to debit the value of a dishonored check from a depositors account, they must do so with the highest degree of care, so as not to prejudice the depositor unduly. The Case Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the January 27, 2003 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as follows:

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"WHEREFORE, premises considered, the Decision dated December 3, 1996, of the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case No. 892-AF is hereby AFFIRMED. Costs against the [petitioner]." 3 The Facts The CA narrated the antecedents as follows: "Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the Associated Bank (hereinafter referred to as the BANK). Sometime in September 1990, he deposited a postdated UCPB check with the said BANK in the amount of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record thereby making his balance in the amount of P297,000.00, as of October 1, 1990, from his original deposit of P196,000.00. Allegedly, upon advice and instruction of the BANK that the P101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the same date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited the amount of P50,000.00 making his existing balance in the amount of P107,793.45, because he has issued several checks to his business partners, to wit: CHECK NUMBERS a. 138814 b. 138804 c. 138787 d. 138847 e. 167054 f. 138792 ` g. 138774 h. 167072 i. 168802 DATE Sept. 29, 1990 Oct. 8, 1990 Sept. 30, 1990 Sept. 29, 1990 Sept. 29, 1990 Sept. 29, 1990 Oct. 2, 1990 Oct. 10, 1990 Oct. 10, 1990 AMOUNT P9,000.00 9,350.00 6,360.00 21,850.00 4,093.40 3,546.00 6,600.00 9,908.00 3,650.00

"However, his suppliers and business partners went back to him alleging that the checks he issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to take positive steps regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK did not bother nor offer any apology regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages on December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case No. 892AF, against the BANK, as defendant. "In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject checks and alleged that his suppliers decreased in number for lack of trust. As he has been in the business community for quite a time and has established a good record of reputation and probity, plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation, mental anxieties and sleepless nights because of the said unfortunate incident. [Respondent] further averred that he continuously lost profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by way of moral damages, P250,000.00 as lost profits, P50,000.00 as attorneys fees plus 25% of the amount claimed including P1,000.00 per court appearance.

Page 937 of 1485

"Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was denied for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK on March 20, 1991 filed its Answer denying, among others, the allegations of [respondent] and alleged that no banking institution would give an assurance to any of its client/depositor that the check deposited by him had already been cleared and backed up by sufficient funds but it could only presume that the same has been honored by the drawee bank in view of the lapse of time that ordinarily takes for a check to be cleared. For its part, [petitioner] alleged that on October 2, 1990, it gave notice to the [respondent] as to the return of his UCPB check deposit in the amount of P101,000.00, hence, on even date, [respondent] deposited the amount of P50,000.00 to cover the returned check. "By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action against it and argued that it has all the right to debit the account of the [respondent] by reason of the dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its clearing. [Petitioner] further averred that it has no liability with respect to the clearing of deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the] check deposit, it merely obligates itself as depositors collecting agent subject to actual payment by the drawee bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee plus P500.00 per appearance and by way of attorneys fees. "Considering that Westmont Bank has taken over the management of the affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating substantially his allegations in the original complaint, except that the name of the previous defendant ASSOCIATED BANK is now WESTMONT BANK. "Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of the [respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum of P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00 as attorneys fees, plus the costs of this suit. In making said ruling, it was shown that [respondent] was not officially informed about the debiting of the P101,000.00 [from] his existing balance and that the BANK merely allowed the [respondent] to use the fund prior to clearing merely for accommodation because the BANK considered him as one of its valued clients. The trial court ruled that the bank manager was negligent in handling the particular checking account of the [respondent] stating that such lapses caused all the inconveniences to the [respondent]. The trial court also took into consideration that [respondents] mother was originally maintaining with the x x x BANK [a] current account as well as [a] time deposit, but [o]n one occasion, although his mother made a deposit, the same was not credited in her favor but in the name of another." 4 Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank, to debit the account of its client for a dishonored check; and whether it had informed respondent about the dishonor prior to debiting his account. Ruling of the Court of Appeals Affirming the trial court, the CA ruled that the bank should not have authorized the withdrawal of the value of the deposited check prior to its clearing. Having done so, contrary to its obligation to treat respondents account with meticulous care, the bank violated its own policy. It thereby took upon itself the obligation to officially inform respondent of the

Page 938 of 1485

status of his account before unilaterally debiting the amount of P101,000. Without such notice, it is estopped from blaming him for failing to fund his account. The CA opined that, had the P101,000 not been debited, respondent would have had sufficient funds for the postdated checks he had issued. Thus, the supposed accommodation accorded by petitioner to him is the proximate cause of his business woes and shame, for which it is liable for damages. Because of the banks negligence, the CA awarded respondent moral damages of P100,000. It also granted him exemplary damages of P75,000 and attorneys fees of P25,000. Hence this Petition.5 Issue In its Memorandum, petitioner raises the sole issue of "whether or not the petitioner, which is acting as a collecting bank, has the right to debit the account of its client for a check deposit which was dishonored by the drawee bank." 6 The Courts Ruling The Petition has no merit. Sole Issue: Debit of Depositors Account Petitioner-bank contends that its rights and obligations under the present set of facts were misappreciated by the CA. It insists that its right to debit the amount of the dishonored check from the account of respondent is clear and unmistakable. Even assuming that it did not give him notice that the check had been dishonored, such right remains immediately enforceable. In particular, petitioner argues that the check deposit slip accomplished by respondent on September 17, 1990, expressly stipulated that the bank was obligating itself merely as the depositors collecting agent and -- until such time as actual payment would be made to it -it was reserving the right to charge against the depositors account any amount previously credited. Respondent was allowed to withdraw the amount of the check prior to clearing, merely as an act of accommodation, it added. At the outset, we stress that the trial courts factual findings that were affirmed by the CA are not subject to review by this Court. 7 As petitioner itself takes no issue with those findings, we need only to determine the legal consequence, based on the established facts. Right of Setoff A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals on the part of a depositor. 8 The right of a collecting bank to debit a clients 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."

Page 939 of 1485

Hence, the relationship between banks and depositors has been held to be that of creditor and debtor.9 Thus, legal compensation under Article 1278 10 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," 11 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." 12 Nonetheless, the real issue here is not so much the right of petitioner to debit respondents account but, rather, the manner in which it exercised such right. The Court has held that even while the right of setoff is conceded, separate is the question of whether that remedy has properly been exercised.13 The liability of petitioner in this case ultimately revolves around the issue of whether it properly exercised its right of setoff. The determination thereof hinges, in turn, on the banks role and obligations, first, as respondents depositary bank; and second, as collecting agent for the check in question. Obligation Depositary Bank as

In BPI v. Casa Montessori ,14 the Court has emphasized that the banking business is impressed with public interest. "Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care."15 Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals 16 has held that "the degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned." 17 Indeed, the banking business is vested with the trust and confidence of the public; hence the "appropriate standard of diligence must be very high, if not the highest, degree of diligence."18 The standard applies, regardless of whether the account consists of only a few hundred pesos or of millions.19 The fiduciary nature of banking, previously imposed by case law, 20 is now enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." Did petitioner treat respondents account with the highest degree of care? From all indications, it did not.

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It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued client, petitioner allowed the withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded the clearance requirement of the banking system. Such a practice is unusual, because a check is not legal tender or money; 21 and its value can properly be transferred to a depositors account only after the check has been cleared by the drawee bank.22 Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the amount to a depositors account; or infuse value to that account only after the drawee bank shall have paid such amount. 23 Before the check shall have been cleared for deposit, the collecting bank can only "assume" at its own risk -- as herein petitioner did -that the check would be cleared and paid out. Reasonable business practice and prudence, moreover, dictated that petitioner should not have authorized the withdrawal by respondent of P240,000 on October 1, 1990, as this amount was over and above his outstanding cleared balance of P196,793.45.24 Hence, the lower courts correctly appreciated the evidence in his favor. Obligation Collecting Agent Indeed, the bank deposit slip expressed this reservation: "In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent, assuming no responsibility beyond carefulness in selecting correspondents, and until such time as actual payments shall have come to its possession, this Bank reserves the right to charge back to the Depositors account any amounts previously credited whether or not the deposited item is returned. x x x."25 However, this reservation is not enough to insulate the bank from any liability. In the past, we have expressed doubt about the binding force of such conditions unilaterally imposed by a bank without the consent of the depositor. 26 It is indeed arguable that "in signing the deposit slip, the depositor does so only to identify himself and not to agree to the conditions set forth at the back of the deposit slip."27 Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as respondents agent, consonant with the well-settled rule that the relationship between the payee or holder of a commercial paper and the collecting bank is that of principal and agent.28 Under Article 190929 of the Civil Code, such bank could be held liable not only for fraud, but also for negligence. As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. 30 Due to the very nature of their business, banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. 31 Jurisprudence has established that the lack of diligence of a servant is imputed to the negligence of the employer, when the negligent or wrongful act of the former proximately results in an injury to a third person; 32 in this case, the depositor. The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically admitted that she and the employees under her control had breached bank policies. They admittedly breached those policies when, without clearance from the drawee bank in Baguio, they as

Page 941 of 1485

allowed respondent to withdraw on October 1, 1990, the amount of the check deposited. Santiago testified that respondent "was not officially informed about the debiting of the P101,000 from his existing balance of P170,000 on October 2, 1990 x x x."33 Being the branch manager, Santiago clearly acted within the scope of her authority in authorizing the withdrawal and the subsequent debiting without notice. Accordingly, what remains to be determined is whether her actions proximately caused respondents injury. Proximate cause is that which -- in a natural and continuous sequence, unbroken by any efficient intervening cause --produces the injury, and without which the result would not have occurred.34 Let us go back to the facts as they unfolded. It is undeniable that the banks premature authorization of the withdrawal by respondent on October 1, 1990, triggered -- in rapid succession and in a natural sequence -- the debiting of his account, the fall of his account balance to insufficient levels, and the subsequent dishonor of his own checks for lack of funds. The CA correctly noted thus: "x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money was already cleared. Without such advice, [respondent] would not have withdrawn the sum of P240,000.00. Therefore, it cannot be denied that it was [petitioners] fault which allowed [respondent] to withdraw a huge sum which he believed was already his. "To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had the P101,000.00 not [been] debited, the subject checks would not have been dishonored. Hence, we can say that [respondents] injury arose from the dishonor of his well-funded checks. x x x."35 Aggravating matters, petitioner failed to show that it had immediately and duly informed respondent of the debiting of his account. Nonetheless, it argues that the giving of notice was discernible from his act of depositing P50,000 on October 2, 1990, to augment his account and allow the debiting. This argument deserves short shrift. First, notice was proper and ought to be expected. By the bank managers account, respondent was considered a "valued client" whose checks had always been sufficiently funded from 1987 to 1990,36 until the October imbroglio. Thus, he deserved nothing less than an official notice of the precarious condition of his account. Second, under the provisions of the Negotiable Instruments Law regarding the liability of a general indorser37 and the procedure for a notice of dishonor, 38 it was incumbent on the bank to give proper notice to respondent. In Gullas v. National Bank,39 the Court emphasized: "x x x [A] general indorser of a negotiable instrument engages that if the instrument the check in this case is dishonored and the necessary proceedings for its dishonor are duly taken, he will pay the amount thereof to the holder (Sec. 66) It has been held by a long line of authorities that notice of dishonor is necessary to charge an indorser and that the right of action against him does not accrue until the notice is given. "x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. At this point

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recall that Gullas was merely an indorser and had issued checks in good faith. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the situation is different, and notice should actually have been given him in order that he might protect his interests."40 Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully subscribe to the CAs observations that it was not unusual for a well-reputed businessman like him, who "ordinarily takes note of the amount of money he takes and releases," to immediately deposit money in his current account to answer for the postdated checks he had issued.41 Damages Inasmuch as petitioner does not contest the basis for the award of damages and attorneys fees, we will no longer address these matters. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED. Sandoval-Gutierrez, Corona, J., on leave. Republic SUPREME Manila THIRD DIVISION G.R. No. 152720 February 17, 2005 petitioner, Carpio-Morales, and Garcia, JJ., concur.

of

the

Philippines COURT

SOLIDBANK CORPORATION, vs. Spouses TEODULFO and CARMEN ARRIETA, respondents. DECISION PANGANIBAN, J.:

A banks gross negligence in dishonoring a well-funded check, aggravated by its unreasonable delay in repairing the error, calls for an award of moral and exemplary damages. The resulting injury to the check writers reputation and peace of mind needs to be recognized and compensated. The Case

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Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to reverse and set aside the March 28, 2001 Decision 2 and the February 5, 2002 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 55002. The assailed Decision disposed as follows: "WHEREFORE, the appeal is DISMISSED, with costs against defendant-appellant."4 The CA denied reconsideration in its February 5, 2002 Resolution. The Facts The facts are summarized by the CA as follows: "Carmen Arrieta is a bank depositor of Solidbank Corporation under Checking Account No. 123-1996. On March 1990, Carmen issued SBC Check No. 0293984 (Exh. A) in the amount of P330.00 in the name of Lopues Department Store in payment of her purchases from said store. When the check was deposited by the store to its account, the same was dishonored due to Account Closed (Exh. B) despite the fact that at the time the check was presented for payment, Carmens checking account was still active and backed up by a deposit of P1,275.20. "As a consequence of the checks dishonor, Lopues Department Store sent a demand letter to Carmen (Exh. C) threatening her with criminal prosecution unless she redeemed the check within five (5) days. To avoid criminal prosecution, Carmen paid P330.00 in cash to the store, plus a surcharge of P33.00 for the bouncing check, or a total of P363.00 (Exh. F). "Thereupon, Carmen filed a complaint against Solidbank Corporation for damages alleging that the bank, by its carelessness and recklessness in certifying that her account was closed despite the fact that it was still very much active and sufficiently funded, had destroyed her good name and reputation and prejudiced not only herself but also her family in the form of mental anguish, sleepless nights, wounded feelings and social humiliation. She prayed that she be awarded moral and exemplary damages as well as attorneys fees. "In its answer, the bank claimed that Carmen, contrary to her undertaking as a depositor, failed to maintain the required balance of at least P1,000.00 on any day of the month. Moreover, she did not handle her account in a manner satisfactory to the bank. In view of her violations of the general terms and conditions governing the establishment and operation of a current account, Carmens account was recommended for closure. In any event, the bank claimed good faith in declaring her account closed since one of the clerks, who substituted for the regular clerk, committed an honest mistake when he thought that the subject account was already closed when the ledger containing the said account could not be found.1awphi1.nt "After trial, the lower court rendered its decision holding that Solidbank Corporation was grossly negligent in failing to check whether or not Carmens account was still open and viable at the time the transaction in question was made. Hence, the bank was liable to Carmen for moral and exemplary damages, as well as attorneys fees. It held that the bank was remiss in its duty to treat Carmens account with the highest degree of care, considering the fiduciary nature of their relationship. The dispositive portion of the decision reads: "WHEREFORE, the Court hereby renders judgment in favor of the plaintiff as against the defendant-bank, and defendant-bank is ordered to pay moral damages of P150,000.00; exemplary damages of P50,000.00; and attorneys fees of P20,000.00, plus costs.

Page 944 of 1485

SO ORDERED."5 Ruling of the Court of Appeals The CA debunked the contention of the bank that the latter was not liable. According to petitioner, the dishonor of the check by reason of "Account Closed" was an honest mistake of its employee. The appellate court held that the error committed by the bank employee was imputable to the bank. Banks are obliged to treat the accounts of their depositors with meticulous care, regardless of the amount of the deposit. Failing in this duty, petitioner was found grossly negligent. The failure of the bank to immediately notify Respondent Carmen Arrieta of its unilateral closure of her account manifested bad faith, added the CA.1awphi1.nt The appellate court likewise affirmed the award of moral damages. It held that the banks wrongful act was the proximate cause of Carmens moral suffering. The CA ruled that the lack of malice and bad faith on the part of petitioner did not suffice to exculpate the latter from liability; the banks gross negligence amounted to a wilful act. The trial courts award of exemplary damages and attorneys fees was sustained in view of respondents entitlement to moral damages. Hence, this Petition.6 Issues Petitioner raises the following issues for our consideration: "I. Whether or not x x x respondents are entitled to recovery of moral and exemplary damages and attorneys fees. "II. Whether or not the award of moral and exemplary damages and attorneys fees is excessive, arbitrary and contrary to prevailing jurisprudence." 7 The Courts Ruling The Petition is partly meritorious. Main Issue: Petitioners Liability for Damages Petitioner contends that the award of moral damages was erroneous because of the failure of Respondent Carmen to establish that the dishonor of Check No. 0293984 on March 30, 1990 was the direct and only cause of the "social humiliation, extreme mental anguish, sleepless nights, and wounded feelings suffered by [her]." It referred to an occasion fifteen days before, on March 15, 1990, during which another check (Check No. 0293983) she had issued had likewise been dishonored.

Page 945 of 1485

According to petitioner, highly illogical was her claim that extreme mental anguish and social humiliation resulted from the dishonor of Check No. 0293984, as she claimed none from that of her prior Check No. 0293983, which had allegedly been deposited by mistake by the payees wife. Given the circumstances, petitioner adds that the dishonor of the check -- subject of the present case -- did not really cause respondent mental anguish, sleepless nights and besmirched reputation; and that her institution of this case was clearly motivated by opportunism. We are not persuaded. The fact that another check Carmen had issued was previously dishonored does not necessarily imply that the dishonor of a succeeding check can no longer cause moral injury and personal hurt for which the aggrieved party may claim damages. Such prior occurrence does not prove that respondent does not have a good reputation that can be besmirched. 8 The reasons for and the circumstances surrounding the previous issuance and eventual dishonor of Check No. 0293983 are totally separate -- the payee of the prior check was different -- from that of Check No. 0293984, subject of present case. Carmen had issued the earlier check to accommodate a relative,9 and the succeeding one to pay for goods purchased from Lopues Department Store. That she might not have suffered damages as a result of the first dishonored check does not necessarily hold true for the second. In the light of sufficient evidence showing that she indeed suffered damages as a result of the dishonor of Check No. 0293984, petitioner may not be exonerated from liability. Case law10 lays out the following conditions for the award of moral damages: (1) there is an injury -- whether physical, mental or psychological -- clearly sustained by the claimant; (2) the culpable act or omission is factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award of damages is predicated on any of the cases stated in Article 2219 11 of the Civil Code. In the instant case, all four requisites have been established. l^vvphi1.net First, these were the findings of the appellate court: "Carmen Arrieta is a bank depositor of Solidbank Corporation of long standing. She works with the Central Negros Electric Cooperative, Inc. (CENECO), as an executive secretary and later as department secretary. She is a deaconess of the Christian Alliance Church in Bacolod City. These are positions which no doubt elevate her social standing in the community." Understandably -- and as sufficiently proven by her testimony -- she suffered mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation; and she suffered thus when the people she worked with -her friends, her family and even her daughters classmates -- learned and talked about her bounced check. Second, it is undisputed that the subject check was adequately funded, but that petitioner wrongfully dishonored it. Third, Respondent Carmen was able to prove that petitioners wrongful dishonor of her check was the proximate cause of her embarrassment and humiliation in her workplace, in her own home, and in the church where she served as deaconess. Proximate cause has been defined as "any cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the result complained of and without which would not have occurred x x x." 12 It is determined from the facts of each case upon combined considerations of logic, common sense, policy and precedent. 13 Clearly, had the bank accepted and honored the check, Carmen would not have had to face the questions of

Page 946 of 1485

-- and explain her predicament to -- her office mates, her daughters, and the leaders and members of her church. Furthermore, the CA was in agreement with the trial court in ruling that her injury arose from the gross negligence of petitioner in dishonoring her well-funded check. Unanimity of the CA and the trial court in their factual ascertainment of this point bars us from supplanting their finding and substituting it with our own. Settled is the doctrine that the factual determinations of the lower courts are conclusive and binding upon this Court. 14 Verily, the review of cases brought before the Supreme Court from the Court of Appeals is limited to errors of law.15 None of the recognized exceptions to this principle has been shown to exist. Fourth, treating Carmens account as closed, merely because the ledger could not be found was a reckless act that could not simply be brushed off as an honest mistake. We have repeatedly emphasized that the banking industry is impressed with public interest. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care and always to have in mind the fiduciary nature of its relationship with them. 16 Petitioners negligence here was so gross as to amount to a wilful injury to Respondent Carmen. Article 21 of the Civil Code states that "any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." Further, Article 2219 provides for the recovery of moral damages for acts referred to in the aforementioned Article 21. Hence, the bank is liable for moral damages to respondent. 17 The foregoing notwithstanding, we find the sum of P150,000 awarded by the lower courts excessive. Moral damages are not intended to enrich the complainant at the expense of the defendant.18 Rather, these are awarded only to enable the injured party to obtain "means, diversions or amusements" that will serve to alleviate the moral suffering that resulted by reason of the defendants culpable action. 19 The purpose of such damages is essentially indemnity or reparation, not punishment or correction. 20 In other words, the award thereof is aimed at a restoration within the limits of the possible, of the spiritual status quo ante;21 therefore, it must always reasonably approximate the extent of injury and be proportional to the wrong committed.22 Accordingly, the award of moral damages must be reduced to P20,000,23 an amount commensurate with the alleviation of the suffering caused by the dishonored check that was issued for the amount of P330. The law allows the grant of exemplary damages to set an example for the public good. 24 The business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and meticulousness in giving irreproachable service. 25 For this reason, the bank should guard against injury attributable to negligence or bad faith on its part. 26 The banking sector must at all times maintain a high level of meticulousness. The grant of exemplary damages is justified27 by the initial carelessness of petitioner, aggravated by its lack of promptness in repairing its error. It was only on August 30, 1990, or a period of five months from the erroneous dishonor of the check, when it wrote Lopues Department Store a letter acknowledging the banks mistake.28 In our view, however, the award of P50,000 is excessive and should accordingly be reduced to P20,000.29

Page 947 of 1485

The award of attorneys fees in the amount of P20,000 is proper, for respondents were compelled to litigate to protect their rights. 30 WHEREFORE, the Petition is PARTLY GRANTED and the assailed Decision MODIFIED. Petitioners are ORDERED to pay respondents P20,000 as moral damages, P20,000 as exemplary damages, and P20,000 as attorneys fees. SO ORDERED. Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur. Garcia, J., no part. Concurred in the assailed decision. THIRD DIVISION

MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO and MARY T. BUENAVENTURA,

G.R. No. 156262

Present:

Petitioners,

Panganiban, J., Chairman, Sandoval-Gutierrez, Corona,

- versus -

Carpio Morales, and Garcia, JJ

Promulgated: HEIRS OF BARTOLOME RAMOS, Respondents. July 14, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x

Page 948 of 1485

DECISION

PANGANIBAN, J.:

tripped of nonessentials, the present case involves the collection of a sum of money. Specifically, this case arose from the failure of petitioners to pay predecessor-in-interest. This fact was shown by the non-

respondents S

encashment of checks issued by a third person, but indorsed by herein Petitioner

Maria Tuazon in favor of the said predecessor. Under these circumstances, to enable respondents to collect on the indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit is directed, not against the drawer, but against the debtor who indorsed the checks in payment of the obligation.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the July 31, 2002 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal portion of the assailed Decision reads:

WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED.

Page 949 of 1485

On the other hand, the affirmed Decision[3] of Branch 34 of the Regional Trial Court (RTC) of Gapan, Nueva Ecija, disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows: 1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint; 2. The sum of P50,000.00, as attorneys fees; 3. The sum of P20,000.00, as moral damages 4. And to pay the costs of suit. xxx xxx x x x[4]

The Facts

The facts are narrated by the CA as follows:

[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos [predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the spouses Tuazon issued x x x [several] Traders Royal Bank checks. xxx xxx xxx

[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds. [Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had no available fund to

Page 950 of 1485

support the checks, and they failed to provide for the payment of these despite repeated demands made on them. [Respondents] averred that because spouses Tuazon anticipated that they would be sued, they conspired with the other [defendants] to defraud them as creditors by executing x x x fictitious sales of their properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija, and another simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land Transportation Office of Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located at Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988 in favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of these properties issued in the names of spouses Tuazon were cancelled and new ones were issued in favor of the [co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly, by the said ante-dated and simulated sales and the corresponding transfers there was no more property left registered in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of [respondents]. For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise and Maria Tuazon was merely her agent. They argued that it was Evangeline Santos who was the buyer of the rice and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the checks were received [by petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not funded. And it is for this reason that [petitioners] have been insisting on the inclusion of Evangeline Santos as an indispensable party, and her noninclusion was a fatal error. Refuting that the sale of several properties were fictitious or simulated, spouses Tuazon contended that these were sold because they were then meeting financial difficulties but the disposals were made for value and in good faith and done before the filing of the instant suit. To dispute the contention of plaintiffs that they were the buyers of the rice, they argued that there was no sales invoice, official receipts or like evidence to prove this. They assert that they were merely agents and should not be held answerable.[5]

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those cases were later consolidated and amended to include Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon as additional

Page 951 of 1485

defendants. Having passed away before the pretrial, Bartolome Ramos was substituted by his heirs, herein respondents.

Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a third-party complaint against her. Allegedly, she was primarily liable to respondents, because she was the one who had purchased the merchandise from their predecessor, as evidenced by the fact that the checks had been drawn in her name. The RTC, however, denied petitioners Motion.

Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they appealed only its decision finding them civilly liable to respondents.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency between respondents and Spouses Tuazon. The appellate court disbelieved petitioners contention that Evangeline Santos should have been impleaded as an indispensable party. Inasmuch as all the checks had been indorsed by Maria Tuazon, who thereby became liable to subsequent holders for the amounts stated in those checks, there was no need to implead Santos.

Hence, this Petition.[6]

Page 952 of 1485

Issues

Petitioners raise the following issues for our consideration:

1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the respondents. 2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners despite x x x the failure of the respondents to include in their action Evangeline Santos, an indispensable party to the suit.[7]

The Courts Ruling

The Petition is unmeritorious.

First Issue: Agency

Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is limited to reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial court, especially when affirmed by the CA, are conclusive on the parties and this Court.[8] Petitioners have not given us sufficient reasons to deviate from this rule.

Page 953 of 1485

In a contract of agency, one binds oneself to render some service or to do something in representation or on behalf of another, with the latters consent or authority. [9] The following are the elements of agency: (1) the parties consent, express or implied, to establish the relationship; (2) the object, which is the execution of a juridical act in relation to a third person; (3) the representation, by which the one who acts as an agent does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of his or her authority.[10] As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an intention naturally inferable from the principals words or actions. In the same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is generally no agency.[11]

This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers themselves; they were not mere agents of respondents in their rice dealership. The question of whether a contract is one of sale or of agency depends on the intention of the parties.[12]

The declarations of agents alone are generally insufficient to establish the fact or extent of their authority.[13] The law makes no presumption of agency; proving its

existence, nature and extent is incumbent upon the person alleging it.[14] In the present case, petitioners raise the fact of agency as an affirmative defense, yet fail to prove its existence.

Page 954 of 1485

The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated with the current one. If, as they claim, they were mere agents of respondents, petitioners should have brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2 of Rule 3 of the Rules on Civil Procedure.[15] Their filing a suit against her in their own names negates their claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.

Page 955 of 1485

Second Issue: Indispensable Party

Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an indispensable party. They insist that respondents Complaint against them is based on the bouncing checks she issued; hence, they point to her as the person primarily liable for the obligation.

We hold that respondents cause of action is clearly founded on petitioners failure to pay the purchase price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in favor of respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law.[16] That Santos was the drawer of the checks is thus immaterial to the respondents cause of action.

As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would pay the corresponding amount.[17] After an instrument is dishonored by nonpayment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of the original obligor. The holder of a negotiable instrument need not even proceed against the maker before suing the indorser.[18] Clearly, Evangeline Santos -- as the drawer of the checks -- is not an

indispensable party in an action against Maria Tuazon, the indorser of the checks.

Page 956 of 1485

Indispensable parties are defined as parties in interest without whom no final determination can be had.[19] The instant case was originally one for the collection of the purchase price of the rice bought by Maria Tuazon from respondents predecessor. In this case, it is clear that there is no privity of contract between respondents and Santos. Hence, a final determination of the rights and interest of the parties may be made without any need to implead her.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioners.

SO ORDERED. Republic SUPREME Manila SECOND DIVISION G.R. No. 148211 July 25, 2006 VILLANUEVA, petitioner, of the Philippines COURT

SINCERE Z. vs. MARLYN P. NITE,* respondent. DECISION CORONA, J.:

In this petition for review on certiorari under Rule 45, petitioner submits that the Court of Appeals (CA) erred in annulling and setting aside the Regional Trial Court (RTC) decision on the ground of extrinsic fraud. The facts follow.1 Respondent allegedly took out a loan of P409,000 from petitioner. To secure the loan, respondent issued petitioner an Asian Bank Corporation (ABC) check (Check No. AYA 020195) in the amount of P325,500 dated February 8, 1994. The date was later changed to June 8, 1994 with the consent and concurrence of petitioner.

Page 957 of 1485

The check was, however, dishonored due to a material alteration when petitioner deposited the check on due date. On August 24, 1994, respondent, through her representative Emily P. Abojada, remitted P235,000 to petitioner as partial payment of the loan. The balance of P174, 000 was due on or before December 8, 1994. On August 24, 1994, however, petitioner filed an action for a sum of money and damages (Civil Case No. Q-94-21495) against ABC for the full amount of the dishonored check. And in a decision dated May 23, 1997, the RTC of Quezon City, Branch 101 ruled in his favor. 2 When respondent went to ABC Salcedo Village Branch on June 30, 1997 to withdraw money from her account, she was unable to do so because the trial court had ordered ABC to pay petitioner the value of respondents ABC check. On August 25, 1997, ABC remitted to the sheriff a managers check amounting to P325,500 drawn on respondents account. The check was duly received by petitioner on the same date. Respondent then filed a petition in the CA seeking to annul and set aside the trial courts decision ordering ABC to pay petitioner the value of the ABC check. 3 The CA ruled: WHEREFORE, premises considered, the petition is GRANTED and the Decision dated May 23, 1997 of the public respondent is hereby ANNULLED and SET ASIDE for extrinsic fraud. [Petitioner] Villanueva is hereby ordered to pay [Nite] 1) the sum of [P146,500] as actual damages plus interest at 12% per annum from August 25, 1997 until full payment; 2) the sum of [P75,000] as moral damages; 3) the sum of [P50,000] as exemplary damages; and 4) the sum of [P50,000] as attorneys fees and cost of suit. SO ORDERED.4 Thus, this petition. We find for respondent. Annulment of judgment is a remedy in law independent of the case where the judgment sought to be annulled is promulgated. It can be filed by one who was not a party to the case in which the assailed judgment was rendered. Section 1 of Rule 47 provides: Section 1. Coverage. This Rule shall govern the annulment by the Court of Appeals of judgments or final orders and resolutions in civil actions of Regional Trial Courts for which the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies are no longer available through no fault of the petitioner. Respondent may avail of the remedy of annulment of judgment under Rule 47. The ordinary remedies of new trial, appeal and petition for relief were not available to her for the simple reason that she was not made a party to the suit against ABC. Thus, she was neither able to participate in the original proceedings nor resort to the other remedies because the case was filed when she was abroad.

Page 958 of 1485

Annulment of judgment may be based only on extrinsic fraud and lack of jurisdiction. 5 Extrinsic or collateral fraud pertains to such fraud which prevents the aggrieved party from having a trial or presenting his case to the court, or is used to procure the judgment without fair submission of the controversy.6 This refers to acts intended to keep the unsuccessful party away from the courts as when there is a false promise of compromise or when one is kept in ignorance of the suit.7 We uphold the appellate courts finding of extrinsic fraud: Barely 6 days after receipt of the partial payment of P235,000.00 and agreeing that the balance of P174,000.00 shall be paid on or before December 8, 1994, [Sincere] filed his complaint against [ABC] for the full amount of the dishonored check in the sum of P320,500.00 without impleading petitioner. The apparent haste by which [Sincere] filed his complaint and his failure to implead [Marlyn] clearly shows his intent to prevent [Marlyn] from opposing his action. [A]t the time news about [Marlyn] having left the country was widespread, appearing even in print media as early as May 1994, [Marlyn] paid [Sincere] the amount of P235,000.00 as partial payment on [August 18, 1994], through a representative. Notwithstanding the foregoing, SIX (6) days later or on [August 24, 1994, Sincere] instituted an action for collection with damages for the whole amount of the issued check. [Sincere] does not deny knowledge of such payment neither of the fact that he concurred in settling the balance of P174,000.00 on December 8, 1994. [His] actuation and pronouncement shows not only bad faith on his part but also of his fraudulent intention to completely exclude [Marlyn] from the proceedings in the court a quo. By doing what he did he prevented the [trial court] from fully appreciating the particulars of the case.8 In any event, the RTC decision may be annulled for lack of jurisdiction over the person of respondent. The pertinent provisions of the Negotiable Instruments Law are enlightening: SEC. 185. Check, defined. A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check. 9 (emphasis ours) SEC. 189. When check operates as an assignment. A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check. (emphasis ours) If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot, in view of the cited sections, sue the bank. The payee should instead sue the drawer who might in turn sue the bank. Section 189 is sound law based on logic and established legal principles: no privity of contract exists between the drawee-bank and the payee. Indeed, in this case, there was no such privity of contract between ABC and petitioner. Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract

Page 959 of 1485

are not transmissible by their nature, or by stipulation or by provision of law. 10 None of the foregoing exceptions to the relativity of contracts applies in this case. The contract of loan was between petitioner and respondent. No collection suit could prosper without respondent who was an indispensable party. Rule 3, Sec. 7 of the Rules of Court states: Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. (emphasis ours) An indispensable party is one whose interest in the controversy is such that a final decree will necessarily affect his rights. The court cannot proceed without his presence. 11 If an indispensable party is not impleaded, any judgment is ineffective. 12 On this, Aracelona v. Court of Appeals13 declared: Rule 3, Section 7 of the Rules of Court defines indispensable parties as parties-ininterest without whom there can be no final determination of an action. As such, they must be joined either as plaintiffs or as defendants. The general rule with reference to the making of parties in a civil action requires, of course, the joinder of all necessary parties where possible, and the joinder of all indispensable parties under any and all conditions, their presence being sine qua non for the exercise of judicial power. It is precisely "when an indispensable party is not before the court (that) the action should be dismissed." The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present. WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CAG.R. SP No. 44971 is AFFIRMED in toto. Costs against petitioner. SO ORDERED. Puno, Chairperson, Sandoval-Gutierrez, Azcuna, Garcia, J.J., concur. SECOND DIVISION

Page 960 of 1485

MELVA THERESA ALVIAR GONZALES, Petitioner, Present: G.R. No. 156294

- versus -

PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, CORONA,

RIZAL COMMERCIAL CORPORATION,

BANKING

AZCUNA, and GARCIA, JJ.

Respondent. Promulgated:

November 29, 2006 x-----------------------------------------------x

DECISION

GARCIA, J.: An action for a sum of money originating from the Regional Trial Court (RTC) of Makati City, Branch 61, thereat docketed as Civil Case No. 88-1502, was decided in favor of therein plaintiff, now respondent Rizal Commercial Banking Corporation (RCBC). On appeal to the Court of Appeals (CA) in CA-G.R. CV No. 48596, that court, in a decision1323[1] dated August 30, 2002, affirmed the RTC minus the award of attorneys fees. Upon the instance of herein petitioner Melva Theresa Alviar Gonzales, the case is now before this Court via this petition for review on certiorari, based on the following undisputed facts as unanimously found by the RTC and the CA, which the latter summarized as follows: Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New Accounts Clerk in the Retail Banking Department at its Head Office.

1323

Page 961 of 1485

A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade Medical Group with address at 569 Western Avenue, Los Angeles, California, against the drawee bank Wilshire Center Bank, N.A., of Los Angeles, California, U.S.A., and payable to Gonzales mother, defendant Eva Alviar (or Alviar). Alviar then endorsed this check. Since RCBC gives special accommodations to its employees to receive the checks value without awaiting the clearing period, Gonzales presented the foreign check to Olivia Gomez, the RCBCs Head of Retail Banking. After examining this, Olivia Gomez requested Gonzales to endorse it which she did. Olivia Gomez then acquiesced to the early encashment of the check and signed the check but indicated thereon her authority of up to P17,500.00 only. Afterwards, Olivia Gomez directed Gonzales to present the check to RCBC employee Carlos Ramos and procure his signature. After inspecting the check, Carlos Ramos also signed it with an ok annotation. After getting the said signatures Gonzales presented the check to Rolando Zornosa, Supervisor of the Remittance section of the Foreign Department of the RCBC Head Office, who after scrutinizing the entries and signatures therein authorized its encashment. Gonzales then received its peso equivalent of P155,270.85. RCBC then tried to collect the amount of the check with the drawee bank by the latter through its correspondent bank, the First Interstate Bank of California, on two occasions dishonored the check because of END. IRREG or irregular indorsement. Insisting, RCBC again sent the check to the drawee bank, but this time the check was returned due to account closed. Unable to collect, RCBC demanded from Gonzales the payment of the peso equivalent of the check that she received. Gonzales settled the matter by agreeing that payment be made thru salary deduction. This temporary arrangement for salary deductions was communicated by Gonzales to RCBC through a letter dated November 27, 1987 xxx xxx xxx xxx

The deductions was implemented starting October 1987. On March 7, 1988 RCBC sent a demand letter to Alviar for the payment of her obligation but this fell on deaf ears as RCBC did not receive any response from Alviar. Taking further action to collect, RCBC then conveyed the matter to its counsel and on June 16, 1988, a letter was sent to Gonzales reminding her of her liability as an indorser of the subject check and that for her to avoid litigation she has to fulfill her commitment to settle her obligation as assured in her said letter. On July 1988 Gonzales resigned from RCBC. What had been deducted from her salary was only P12,822.20 covering ten months.

It was against the foregoing factual backdrop that RCBC filed a complaint for a sum of money against Eva Alviar, Melva Theresa Alviar-Gonzales and the latters husband Gino Gonzales. The spouses Gonzales filed an Answer with Counterclaim praying for the

Page 962 of 1485

dismissal of the complaint as well as payment of P10,822.20 as actual damages, P20,000.00 as moral damages, P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and litigation expenses. Defendant Eva Alviar, on the other hand, was declared in default for having filed her Answer out of time.

After trial, the RTC, in its three-page decision, 1324[2] held two of the three defendants liable as follows: WHEREFORE, premises above considered and plaintiff having established its case against the defendants as above stated, judgment is hereby rendered for plaintiff and as against defendant EVA. P. ALVIAR as principal debtor and defendants MELVA THERESA ALVIAR GONZLAES as guarantor as follows: 1. To pay plaintiff the amount of P142,648.65 (P155,270.85 less the amount of P12,622.20, as salary deduction of [Gonzales]), representing the outstanding obligation of the defendants with interest of 12% per annum starting February 1987 until fully paid; 2. to 3. Pay the costs of this suit. To pay the amount of P40,000.00 as and for attorneys fees; and

SO ORDERED.

On appeal, the CA, except for the award of attorneys fees, affirmed the RTC judgment.

Hence, this recourse by the petitioner on her submission that the CA erred

XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO RCBC AS GUARANTOR;

XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC EMPLOYEE, DOES NOT CONSTITUTE AS AN ENDORSEMENT BUT ONLY AN INTER-BANK APPROVAL OF SIGNATURE NECESSARY FOR THE ENCASHMENT OF THE CHECK;

1324

Page 963 of 1485

XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF [THE PETITIONER].

The recourse is impressed with merit.

The dollar-check1325[3] in question in the amount of $7,500.00 drawn by Don Zapanta of Ade Medical Group (U.S.A.) against a Los Angeles, California bank, Wilshire Center Bank N.A., was dishonored because of End. Irregular, i.e., an irregular endorsement. While the foreign drawee bank did not specifically state which among the four signatures found on the dorsal portion of the check made the check irregularly endorsed, it is absolutely undeniable that only the signature of Olivia Gomez, an RCBC employee, was a qualified endorsement because of the phrase up to P17,500.00 only. There can be no other acceptable explanation for the dishonor of the foreign check than this signature of Olivia Gomez with the phrase up to P17,500.00 only accompanying it. This Court definitely agrees with the petitioner that the foreign drawee bank would not have dishonored the check had it not been for this signature of Gomez with the same phrase written by her.

The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez. It is, therefore, a useless piece of paper if returned in that state to its original payee, Eva Alviar.

There is no doubt in the mind of the Court that a subsequent party which caused the defect in the instrument cannot have any recourse against any of the prior endorsers in good faith. Eva Alviars and the petitioners liability to subsequent holders of the foreign check is governed by the Negotiable Instruments Law as follows: Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due course; (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) That the instrument is, at the time of his indorsement, valid and subsisting;

1325

Page 964 of 1485

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the following: (a) That the instrument is genuine and in all respects what it purports to be; (b) (c) That That he all has a good had title to to it;

prior

parties

capacity

contract;

Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of subsequent endorsers extend only to the state of the instrument at the time of their endorsements, specifically, that the instrument is genuine and in all respects what it purports to be; that they have good title thereto; that all prior parties had capacity to contract; and that the instrument, at the time of their endorsements , is valid and subsisting. This provision, however, cannot be used by the party which introduced a defect on the instrument, such as respondent RCBC in this case, which qualifiedly endorsed the same, to hold prior endorsers liable on the instrument because it results in the absurd situation whereby a subsequent party may render an instrument useless and inutile and let innocent parties bear the loss while he himself gets away scot-free. It cannot be overstressed that had it not been for the qualified endorsement (up to P17,500.00 only) of Olivia Gomez, who is the employee of RCBC, there would have been no reason for the dishonor of the check, and full payment by drawee bank therefor would have taken place as a matter of course.

Section 66 of the Negotiable Instruments Law which further states that the general endorser additionally engages that, on due presentment, the instrument shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and

Page 965 of 1485

the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent endorser who may be compelled to pay it, must be read in the light of the rule in equity requiring that those who come to court should come with clean hands. The holder or subsequent endorser who tries to claim under the instrument which had been dishonored for irregular endorsement must not be the irregular endorser himself who gave cause for the dishonor. Otherwise, a clear injustice results when any subsequent party to the instrument may simply make the instrument defective and later claim from prior endorsers who have no knowledge or participation in causing or introducing said defect to the instrument, which thereby caused its dishonor.

Courts in this jurisdiction are not only courts of law but also of equity, and therefore cannot unqualifiedly apply a provision of law so as to cause clear injustice which the framers of the law could not have intended to so deliberately cause. In Carceller v. Court of Appeals,1326[4] this Court had occasion to stress: Courts of law, being also courts of equity, may not countenance such grossly unfair results without doing violence to its solemn obligation to administer fair and equal justice for all.

RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the qualified endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable on the instrument.

Moreover, it is a well-established principle in law that as between two parties, he who, by his acts, caused the loss shall bear the same. 1327[5] therefore bear the loss. RCBC, in this instance, should

Relative to the petitioners counterclaim against RCBC for the amount of P12,822.20 which it admittedly deducted from petitioners salary, the Court must order the return thereof to the petitioner, with legal interest of 12% per annum, notwithstanding the

1326 1327

Page 966 of 1485

petitioners apparent acquiescence to such an arrangement. It must be noted that

petitioner is not any ordinary client or depositor with whom RCBC had this isolated transaction. Petitioner was a rank-and-file employee of RCBC, being a new accounts clerk thereat. It is easy to understand how a vulnerable Gonzales, who is financially dependent upon RCBC, would rather bite the bullet, so to speak, and expectedly opt for salary deduction rather than lose her job and her entire salary altogether. In this sense, we cannot take petitioners apparent acquiescence to the salary deduction as being an entirely free and voluntary act on her part. Additionally, under the obtaining facts and circumstances surrounding the present complaint for collection of sum of money by RCBC against its employee, which may be deemed tantamount to harassment, and the fact that RCBC itself was the one, acting through its employee, Olivia Gomez, which gave reason for the dishonor of the dollar-check in question, RCBC may likewise be held liable for moral and exemplary damages and attorneys fees by way of damages, in the amount of P20,000.00 for each.

WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED and SET ASIDE and the Complaint in this case DISMISSED for lack of merit. Petitioners counterclaim is GRANTED, ordering the respondent RCBC to reimburse petitioner the amount P12,822.20, with legal interest computed from the time of salary deduction up to actual payment, and to pay petitioner the total amount of P60,000.00 as moral and exemplary damages, and attorneys fees.

Costs against the respondent.

SO ORDERED.

SECOND DIVISION

Page 967 of 1485

GEMMA ILAGAN, Petitioner,

G.R. No. 166873

- versus -

QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

PEOPLE OF THE PHILIPPINES, Respondent.

x------------------------------------------x G.R. No. 168069 ALBERT CORDERO SY, Petitioner, -versus-

PEOPLE OF THE PHILIPPINES, Respondent.

x------------------------------------------x G.R. No. 168543 JAIME TAN, Petitioner,

Page 968 of 1485

-versusPromulgated: PEOPLE OF THE PHILIPPINES, Respondent.

April 27, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO MORALES, J.:

Petitioners Gemma Ilagan, Albert Cordero Sy, and Jaime Tan, who have separately filed the subject petitions which have been consolidated, were charged, in an Information filed before the Regional Trial Court (RTC) of Manila on January 30, 2002, for Estafa under Art. 315, paragraph 2(d), alleged to have been committed as follows:

That on or about July 1, 2001, in the City of Manila, Philippines, the said accused, conspiring and confederating together and helping one another, the said accused, did then and there willfully, unlawfully and feloniously defraud ROSITA TAN in the following manner, to wit: the said accused, by means of false manifestations and fraudulent representations which they made to said ROSITA TAN to the effect that the following checks, to wit: BANK/CHEC K NO. RCBC A0514808 REASON FOR DISHONOR Account Closed PAYABLE TO Jazshirt Trdg.

DATE Sept. 2000 30,

AMOUNT P70,000.0 0

Page 969 of 1485

RCBC A0514816 RCBC A0514810 FEBTC P8069954

Sept. 2000 Oct. 2000 Aug. 2000

16,

P88,350.0 0 P180,000. 00 P152,000. 00

Account Closed Account Closed

Jazshirt Trdg. Jazshirt Trdg. Jazshirt Trdg.

31,

15,

DAIF

issued by Gemma Ilagan, is a [ sic] good checks covered by sufficient funds and would be honored by the drawee bank on its maturity date, and by means of other similar deceits, induced and succeeded in inducing Rosita Tan to accept said checks in exchange for cash in the amount of P470,350.00; that however, when said checks were presented to the drawee bank for payment, the same were dishonored and payment thereof refused for the reason ACCOUNT CLOSED and DRAWN AGAINST INSUFFICIENT FUNDS, and that said accused knew fully well that said manifestations and representations were made for the purpose of inducing the said ROSITA TAN to part with the said amount of P470,350.00, to the damage and prejudice of the said ROSITA TAN in the aforesaid amount of P470,350.00, Philippine Currency. CONTRARY TO LAW.1328[1] (Underscoring supplied)

Private complainant Rosita Tan (Rosita) gave her account 1329[2] of the circumstances that led her to encash the checks subject of the case as follows:

In the morning of July 1, 2000, the accused-petitioners Alberto Cordero Sy (Sy) and Jaime Tan (Tan) repaired to her residence/office address at Binondo for the purpose of encashing the subject four (4) post-dated checks which had a total amount of P490,350 issued by petitioner Gemma Ilagan (Gemma) payable to the order of Jazshirt Trading, of which petitioner Sy is the registered owner and petitioner Tan is the general manager.

Agreeing to accommodate petitioners because of their promise that the checks will be good on due date and during that time they will have money and they being her

1328 1329

Page 970 of 1485

relatives, Rosita asked them to return. Tan to go back to her address. For the purpose of encashing the checks, she

immediately borrowed money from her friend Juanito Tan after which she advised petitioner

Thus, in the early afternoon also of July 1, 2000, petitioners Sy and Tan repaired back to Rositas address during which they told [her] not to worry because during that time they will have that amount of money hence, she changed the checks with cash in the amount of around P480,000. She was not sure of the exact amount, however, after P20,0001330[3] was deducted representing interest for Juanito Tan from July 1, 2000 up to the dates of maturity of the checks.

On their respective dates of maturity, as the above-quoted Information shows, the first three checks were, on presentment, dishonored due to Account Closed. check was dishonored due to DAIF or Drawn Against Insufficiency of Funds. The fourth

Rosita thereupon advised petitioners of the dishonor of the checks but was told that they still dont have the money to settle.

As despite several demands, petitioners failed to settle their obligation, Rosita filed the complaint-basis of the filing of the Information against them.

Juanito Tan corroborated Rositas testimony relative to her borrowing money for the purpose of changing the checks to cash.1331[4]

The accused-petitioners, denying the charge, gave their respective versions as follows:

1330 1331

Page 971 of 1485

Petitioner Sy, who is the nephew of Rosita, denied knowledge about the transaction. He surmised that Rosita, the sister of his father, implicated him in the case following an altercation in his presence, which occurred in their house, between Rosita, his mother, and his sister in which he sided with his mother. Despite his apology and request for Rosita to drop him from the case, as after all he was no longer involved in Jazshirt Trading, the payee of the checks, she denied his request, she telling him to force his herein co-petitioner uncle Tan, whose wife is also a sister of Rosita, to pay her.1332[5]

For his part, petitioner Tan denied having gone to Rositas house on July 1, 2000. He admitted having indorsed the post-dated checks to her, however, by just calling her up by telephone,1333[6] without any intention of defrauding her, he having had several similar transactions of rediscounting with her in the past. When the checks were dishonored, he called her up and asked her to give us some time because our business is not doing well and the interest is going up thus we cannot afford [to pay]. 1334[7] He had in fact already sent her a check for P75,321 in partial settlement of the dishonored checks.1335[8]

During his direct examination, petitioner Tan, when asked to enlighten what he meant by re-discounting, declared:

xxxx A If we received postdated checks, we find persons who are interested to change the check if there are people who would like to change the same we show it to that person and if he agree he will compute the check depending upon the date and amount of checks and interest and we would deduct the interest, maam.

1332 1333 1334 1335

Page 972 of 1485

x x x x1336[9] (Underscoring supplied)

As for petitioner Gemma, she admitted issuing the post-dated checks payable to Jazshirt Trading where she works as secretary and accounting clerk, which checks represented payment for goods she obtained from Jazshirt Trading. She was unable to resell the goods; however, hence, she returned them to Jazshirt Trading, hoping to recover the checks. Petitioner Tan later informed her that he had indorsed the checks to Rosita, and that he would settle the amounts of the checks so that Rosita would return them and he (petitioner Tan) would in turn return them to her (Gemma) upon which she would reimburse him the P75,300 he had paid to Rosita. The arrangement did not materialize, however, Rosita having allegedly mingled the checks with other checks which had been on different occasions indorsed to her by Jazshirt Trading. 1337[10]

Branch 21 of the Manila RTC, by Decision 1338[11] of February 18, 2003, convicted petitioners. It ratiocinated:

x x x Even if the checks in question were issued by accused Gemma Ilagan, it was [the] accused Jaime Tan and Albert Cordero Sy being the manager and registered owners of Jazshirt Trading who directly and personally benefited from the postdated checks exchanged into cash by Rosita. Negotiating directly and personally the postdated checks issued by Gemma Ilagan and obtaining their cash value from Rosita Tan through deceit and misrepresentation that the checks would be funded upon maturity when in fact they were not, may be construed as the efficient cause which constitutes the crime of estafa as defined and penalized under par. 2(d) of Art. 315 of the Revised Penal Code. Rosita was deprived of disposing of the amount covered by the check. There was disturbance of property rights sufficient to cause damage satisfying the element of estafa. While admittedly Jaime Tan and Albert Cordero Sy did not issue the postdated checks, the act of negotiating and receiving the cash equivalent indicate the presence of conspiracy as charged in the information filed against them.

1336 1337 1338

Page 973 of 1485

As early as 1935, this issue has already been resolved by the Court in People v. Isleta and Nueno (61 Phil. 33[2]) cited in Zagado v. CA ([1]78 SCRA 146) when it held: It is true that the testimony of Isleta should be carefully scrutinized as there is no reason to believe that he was not such an innocent drawer as he pretends to be, but we are of the opinion that, apart from the weight which may be given to said testimony, the bad faith of appellant [Nueno] has been clearly demonstrated. Whether a conspiracy existed between appellant and Isleta, we do not need here to decide. The fact remains and this is sufficient to support the conviction of appellant that the latter had guilty knowledge of the fact that Isleta had no funds in the bank when he negotiated the check in question.

Assessing the evidence on record, the Court is convinced that accused are guilty of the crime charged. Accused therefore must be held liable not only criminally but likewise civilly for the damages they have caused private complainant as persons criminally liable are also civilly liable (Art. 100, Revised Penal Code).1339[12] (Emphasis and underscoring supplied)

Thus the trial court disposed:

WHEREFORE, premises considered, the Court finds accused JAIME TAN, ALBERT CORDERO SY, and GEMMA ILAGAN GUILTY beyond reasonable doubt as principals of the crime charged and are hereby sentenced to suffer the penalty of SIX (6) YEARS and ONE (1) day of prision correccional to EIGHT (8) YEARS and ONE (1) DAY of prision mayor and to indemnify jointly and severally the complainant Rosita Tan, the amount of P470,350.00 with legal interest from the finality of the decision until fully satisfied without subsidiary imprisonment in case of insolvency and to pay the costs. Accordingly, the bond posted for provisional CANCELLED.1340[13] (Emphasis and underscoring supplied) liberty is

1339 1340

Page 974 of 1485

On appeal, the Court of Appeals affirmed the trial courts decision. It discredited the claim of the defense that Rosita was engaged in the business of rediscounting in the absence of evidence establishing this claim. It quoted with approval the trial courts abovequoted ratio decidendi in affirming the decision of the trial court. It modified the penalty and civil liability imposed by the trial court, however. The dispositive portion of the Court of Appeals Decision1341[14] dated September 22, 2004, reads:

WHEREFORE, premises considered, the Court hereby AFFIRMS the decision of the trial court in Criminal Case No. 02-199044 WITH MODIFICATION with respect to the penalty imposed. Thus, this Court finds the accused Jaime Tan, Albert Cordero Sy, and Gemma Ilagan guilty beyond reasonable doubt of ESTAFA, defined and penalized under Article 315, paragraph 2(d) of the Revised Penal Code, and hereby sentences each of them to suffer an indeterminate penalty of ten (10) years of prision mayor, as minimum, to thirty (30) years of reclusion perpetua, as maximum, and to indemnify the private complainant in the amount of P470,350.00.1342[15] (Underscoring supplied)

Petitioners Sy and Tans motions for reconsiderations were denied on the merits, 1343 [16] while that of petitioner Gemma was denied for having been filed out of time. 1344[17]

Hence, the separate petitions for review of petitioners.

Petitioner Gemma assigns the following errors to the appellate court:

1341 1342 1343 1344

Page 975 of 1485

I. . . . DENYING ACCUSED-PETITIONERS MOTION FOR RECONSIDERATION TO THE DECISION DATED SEPTEMBER 22, 2004 ON A MERE TECHNICAL GROUND. . . . MISAPPREHEND[ING] THE ESTABLISHED FACTS OF THE CASE THAT CLEARLY INDICATE THE ABSENCE OF ANY CRIMINAL INTENT ON THE PART OF ACCUSED-PETITIONER TO COMMIT THE CRIME CHARGED. . . . RULING THAT ACCUSED-PETITIONER CONSPIRED WITH COACCUSED JAIME TAN AND ALBERT CORDERO SY TO DEFRAUD PRIVATE COMPLAINANT ROSITA TAN.1345[18] (Underscoring supplied)

II.

III.

Petitioner Sy ascribes the following errors to the appellate court:

I.

. . . HOLDING THAT PETITIONER IS LIABLE FOR ESTAFA UNDER ART. 315, PAR. 2[d], REVISED PENAL CODE, ALTHOUGH HE WAS NOT THE DRAWER/ISSUER OF THE CHECKS IN QUESTION AND DID NOT KNOW OR COULD NOT HAVE KNOWN OF THE INSUFFICIENCY OF FUNDS TO COVER THE CHECKS. . . . HOLDING THAT PETITIONER COMMITTED FRAUD BY INDUCING THE PRIVATE COMPLAINANT TO ENCASH THE CHECKS BY GUARANTEEING THAT SAID CHECKS WOULD BE HONORED UPON MATURITY. . . . HOLDING THAT THERE WAS AN IMPLIED CONSPIRACY AMONG THE THREE ACCUSED TO COMMIT THE OFFENSE. . . . NOT HOLDING THAT THE PETITIONERS CONSTITUTIONAL PRESUMPTION OF INNOCENCE WAS NOT OVERCOME BY PROOF BEYOND A REASONABLE DOUBT, FOR WHICH ACCORDINGLY, HE SHOULD BE ACQUITTED OF THE CHARGE. 1346[19] (Underscoring supplied)

II.

III. IV.

As for petitioner Tan, he raises the following issues:

1345 1346

Page 976 of 1485

I. WHETHER OR NOT THE TRANSACTIONS BETWEEN PETITIONER AND PRIVATE COMPLAINANT ROSITA TAN WAS PURELY MONEY LOANS BETTER KNOWN IN THE BUSINESS COMMUNITY AS REDISCOUNTING WHETHER OR NOT THERE WAS A PARTIAL PAYMENT MADE BY THE PETITIONER TO ROSITA TAN IN THE AMOUNT OF Php75,321.00 PRIOR TO THE FILING OF THE CASE WHETHER OR NOT THERE WAS DECEIT ON THE PART OF THE PETITIONER WHEN HE ENDORSED THE SUBJECT CHECKS TO PRIVATE COMPLAINANT WHETHER OR NOT A MERE ENDORSER OF A CHECK WHO ASSUMES THE WARRANTIES UNDER THE NEGOTIABLE INSTRUMENT[S] LAW INCURS CRIMINAL LIABILITY BY REASON OF SUCH ENDORSEMENT. 1347[20] (Underscoring supplied)

II.

III.

IV.

Petitioner Gemmas belated filing of her motion for reconsideration before the appellate court notwithstanding, the Office of the Solicitor General interposes no objection to this Courts giving due course to her petition.

The petitions are impressed with merit.

Art. 315, par. 2(d) of the Revise Penal Code under which petitioners were indicted provides:

ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: xxxx 2. By means of any of the following false pretenses or fraudulent acts executed prior or simultaneously with the commission of the fraud. xxxx

1347

Page 977 of 1485

(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent. x x x x (Emphasis and underscoring supplied)

Deceit and damage are the essential elements of estafa. Deceit to constitute estafa under above-quoted Article 315 2(d) of the Revised Penal Code must be the efficient cause of the defraudation. There must be concomitance: the issuance of the check should be the means to obtain money or property from the payer.1348[21]

By Rositas own admission, she and petitioner Tan had, prior to the transaction in question, been engaged in rediscounting or discounting transactions for four (4) years in which she charged interests which varied because she sourced the cash for the purpose from different persons.

COURT: Q Was this the first time the three (3) accused approached you? A No, your honor, there were several times already.

ATTY. MAFUCAR [Defense counsel]: Q Madam witness, you also stated that you gave in exchanged [ sic] of post-dated [checks] an amount more or less of P480,000.00 in cash, is that correct? A Yes, more or less.

ATTY. MAFUCAR: May we just total the amount of checks, your honor. If you will believe with [sic] me, madam witness, the total of the checks is P490,350. x x x x1349[22]

1348 1349

Page 978 of 1485

ATTY. MAFUCAR: xxxx Q In your Affidavit Complaint Exhibit 3 you stated that you only handed over P470,000.00 while the total amount of the check is P490,000.00 plus, why is it so? I can not remember the exact amount my friend charged me P20,000.00 for the encashment of the check. In other words, madam witness, the difference is the interest? Yes maam. So for the loan of P490,000.00 [sic] an interest of P20,000.00 was charged more or less?

A Q A Q

COURT

Per month or per year?

ATTY. MAFUCAR: That was initial charge, your honor, for discounting. WITNESS: Yes. xxxx Q You stated madam witness, on the question of the Honorable Court that this was not the only time that you len[t] money to the accused. So, where did you base your computation on the interest on the previous loans if you do not know [sic]?

xxxx A Hindi po pare-pareho. xxxx Q Madam witness, in the previous transaction which you already testified to that there were previous transaction with the three (3) accused, how long a time, did this transaction [sic], the period of time?

xxxx A Actually, I can not remember.

COURT: Q How long have you been transacting with these three (3) accused? A More or less four (4) years.

Page 979 of 1485

Q A Q

In all these transaction[s], madam witness, did you charge them interest? Yes kasi kinukuha ko rin po sa iba iyon[sic]. In other words, madam witness, you are saying that your basis for the computation of the interest that you are charging with the accused in your previous dealings and in this present transaction you only based on what is told to you? Yes maam.

x x x x1350[23] (Emphasis and underscoring supplied)

Given the admitted previous 4-year period of rediscounting transactions between Rosita and petitioner Tan, if he indeed assured her that the checks in question would be sufficiently funded on maturity, the same was unnecessary to convince her to change them with cash, not unlike in People v. Ong1351[24] where this Court acquitted the accused for estafa, the Bank [therein having,] on its own, accorded [the accused] a [D]rawn [A]gainst [U]ncollected [D]eposit (DAUD) privilege without the need of any pretensions on his part.1352[25] In other words, any such assurance was not the efficient cause which induced Rosita to change the checks with cash. It is in this light that this Court credits the disclaimer of petitioner Sy of having gone with petitioner Tan to Rositas house to negotiate the checks and assure her that they would be sufficiently funded on maturity.

At all events, there was no proof, unlike that in People v. Isleta1353[26] which was relied upon by the trial court, that petitioner Tan had guilty knowledge that [the] petitioner Gemma, the issuer of the checks, had no funds in the bank. 1354[27]

1350 1351 1352 1353 1354

Page 980 of 1485

Petitioners acquittal of the crime charged is thus in order.

Respecting the civil aspect of the case, petitioner Tan presented a check for P75,321 (PCIB Check No. 0000180015) in favor of Rosita and a corresponding check voucher dated December 18, 2000 bearing the signature of Samuel Balansang, Rositas employee, acknowledging receipt thereof.1355[28] By his claim, the check represented partial settlement of the dishonored checks. Rosita claimed, however, that the same check and voucher . . . had also been attached [to] a different case involving the same personalities to prove partial payments made.1356[29]

The defense of partial payment was rejected by the appellate court, because of petitioner Tans failure to present proof that the check, the alleged partial payment, had been encashed.1357[30]

Indeed, the delivery of the P75,321 check to Rosita did not produce the effect of partial payment of the checks, absent a showing that it was intended as such and that it had been encashed. If it was encashed, petitioner Tan should have presented the check, but he did not.

The lack of criminal liability of petitioners then notwithstanding, they are civilly liable in the amount of P470,350, to bear 12% interest from the filing of the information on January 30, 2002 up to the time it is fully paid.1358[31]

1355 1356 1357 1358

Page 981 of 1485

WHEREFORE, the challenged decision of the Court of Appeals convicting petitioners Gemma Ilagan, Albert Cordero Sy, and Jaime Tan is REVERSED and SET ASIDE. Petitioners are thus ACQUITTED of the crime charged.

The decision on the civil aspect of the case is MODIFIED. Petitioner Jaime Tan is ordered to pay private complainant, Rosita Tan, the amount of P470,350, to bear 12% interest from the filing of the Information on January 30, 2002 up to the time it is fully paid.

SO ORDERED. SECOND DIVISION

GEMMA ILAGAN, Petitioner,

G.R. No. 166873

- versus -

QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

PEOPLE OF THE PHILIPPINES, Respondent.

x------------------------------------------x G.R. No. 168069 ALBERT CORDERO SY,

Page 982 of 1485

Petitioner, -versus-

PEOPLE OF THE PHILIPPINES, Respondent.

x------------------------------------------x

G.R. No. 168543

JAIME TAN, Petitioner,

-versus-

Promulgated:

PEOPLE OF THE PHILIPPINES, Respondent.

April 27, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO MORALES, J.:

Petitioners Gemma Ilagan, Albert Cordero Sy, and Jaime Tan, who have separately filed the subject petitions which have been consolidated, were charged, in an Information filed before the Regional Trial Court (RTC) of Manila on January 30, 2002, for Estafa under Art. 315, paragraph 2(d), alleged to have been committed as follows:

Page 983 of 1485

That on or about July 1, 2001, in the City of Manila, Philippines, the said accused, conspiring and confederating together and helping one another, the said accused, did then and there willfully, unlawfully and feloniously defraud ROSITA TAN in the following manner, to wit: the said accused, by means of false manifestations and fraudulent representations which they made to said ROSITA TAN to the effect that the following checks, to wit: BANK/CHEC K NO. RCBC A0514808 RCBC A0514816 RCBC A0514810 FEBTC P8069954 REASON FOR DISHONOR Account Closed Account Closed Account Closed PAYABLE TO Jazshirt Trdg. Jazshirt Trdg. Jazshirt Trdg. Jazshirt Trdg.

DATE Sept. 2000 Sept. 2000 Oct. 2000 Aug. 2000 30,

AMOUNT P70,000.0 0 P88,350.0 0 P180,000. 00 P152,000. 00

16,

31,

15,

DAIF

issued by Gemma Ilagan, is a [ sic] good checks covered by sufficient funds and would be honored by the drawee bank on its maturity date, and by means of other similar deceits, induced and succeeded in inducing Rosita Tan to accept said checks in exchange for cash in the amount of P470,350.00; that however, when said checks were presented to the drawee bank for payment, the same were dishonored and payment thereof refused for the reason ACCOUNT CLOSED and DRAWN AGAINST INSUFFICIENT FUNDS, and that said accused knew fully well that said manifestations and representations were made for the purpose of inducing the said ROSITA TAN to part with the said amount of P470,350.00, to the damage and prejudice of the said ROSITA TAN in the aforesaid amount of P470,350.00, Philippine Currency. CONTRARY TO LAW.1359[1] (Underscoring supplied)

Private complainant Rosita Tan (Rosita) gave her account 1360[2] of the circumstances that led her to encash the checks subject of the case as follows:

1359 1360

Page 984 of 1485

In the morning of July 1, 2000, the accused-petitioners Alberto Cordero Sy (Sy) and Jaime Tan (Tan) repaired to her residence/office address at Binondo for the purpose of encashing the subject four (4) post-dated checks which had a total amount of P490,350 issued by petitioner Gemma Ilagan (Gemma) payable to the order of Jazshirt Trading, of which petitioner Sy is the registered owner and petitioner Tan is the general manager.

Agreeing to accommodate petitioners because of their promise that the checks will be good on due date and during that time they will have money and they being her relatives, Rosita asked them to return. Tan to go back to her address. For the purpose of encashing the checks, she immediately borrowed money from her friend Juanito Tan after which she advised petitioner

Thus, in the early afternoon also of July 1, 2000, petitioners Sy and Tan repaired back to Rositas address during which they told [her] not to worry because during that time they will have that amount of money hence, she changed the checks with cash in the amount of around P480,000. She was not sure of the exact amount, however, after P20,0001361[3] was deducted representing interest for Juanito Tan from July 1, 2000 up to the dates of maturity of the checks.

On their respective dates of maturity, as the above-quoted Information shows, the first three checks were, on presentment, dishonored due to Account Closed. check was dishonored due to DAIF or Drawn Against Insufficiency of Funds. The fourth

Rosita thereupon advised petitioners of the dishonor of the checks but was told that they still dont have the money to settle.

1361

Page 985 of 1485

As despite several demands, petitioners failed to settle their obligation, Rosita filed the complaint-basis of the filing of the Information against them.

Juanito Tan corroborated Rositas testimony relative to her borrowing money for the purpose of changing the checks to cash.1362[4]

The accused-petitioners, denying the charge, gave their respective versions as follows:

Petitioner Sy, who is the nephew of Rosita, denied knowledge about the transaction. He surmised that Rosita, the sister of his father, implicated him in the case following an altercation in his presence, which occurred in their house, between Rosita, his mother, and his sister in which he sided with his mother. Despite his apology and request for Rosita to drop him from the case, as after all he was no longer involved in Jazshirt Trading, the payee of the checks, she denied his request, she telling him to force his herein co-petitioner uncle Tan, whose wife is also a sister of Rosita, to pay her.1363[5]

For his part, petitioner Tan denied having gone to Rositas house on July 1, 2000. He admitted having indorsed the post-dated checks to her, however, by just calling her up by telephone,1364[6] without any intention of defrauding her, he having had several similar transactions of rediscounting with her in the past. When the checks were dishonored, he called her up and asked her to give us some time because our business is not doing well and the interest is going up thus we cannot afford [to pay]. 1365[7] He had in fact already sent her a check for P75,321 in partial settlement of the dishonored checks.1366[8]

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Page 986 of 1485

During his direct examination, petitioner Tan, when asked to enlighten what he meant by re-discounting, declared:

xxxx A If we received postdated checks, we find persons who are interested to change the check if there are people who would like to change the same we show it to that person and if he agree he will compute the check depending upon the date and amount of checks and interest and we would deduct the interest, maam.

x x x x1367[9] (Underscoring supplied)

As for petitioner Gemma, she admitted issuing the post-dated checks payable to Jazshirt Trading where she works as secretary and accounting clerk, which checks represented payment for goods she obtained from Jazshirt Trading. She was unable to resell the goods; however, hence, she returned them to Jazshirt Trading, hoping to recover the checks. Petitioner Tan later informed her that he had indorsed the checks to Rosita, and that he would settle the amounts of the checks so that Rosita would return them and he (petitioner Tan) would in turn return them to her (Gemma) upon which she would reimburse him the P75,300 he had paid to Rosita. The arrangement did not materialize, however, Rosita having allegedly mingled the checks with other checks which had been on different occasions indorsed to her by Jazshirt Trading. 1368[10]

Branch 21 of the Manila RTC, by Decision 1369[11] of February 18, 2003, convicted petitioners. It ratiocinated:

1367 1368 1369

Page 987 of 1485

x x x Even if the checks in question were issued by accused Gemma Ilagan, it was [the] accused Jaime Tan and Albert Cordero Sy being the manager and registered owners of Jazshirt Trading who directly and personally benefited from the postdated checks exchanged into cash by Rosita. Negotiating directly and personally the postdated checks issued by Gemma Ilagan and obtaining their cash value from Rosita Tan through deceit and misrepresentation that the checks would be funded upon maturity when in fact they were not, may be construed as the efficient cause which constitutes the crime of estafa as defined and penalized under par. 2(d) of Art. 315 of the Revised Penal Code. Rosita was deprived of disposing of the amount covered by the check. There was disturbance of property rights sufficient to cause damage satisfying the element of estafa. While admittedly Jaime Tan and Albert Cordero Sy did not issue the postdated checks, the act of negotiating and receiving the cash equivalent indicate the presence of conspiracy as charged in the information filed against them. As early as 1935, this issue has already been resolved by the Court in People v. Isleta and Nueno (61 Phil. 33[2]) cited in Zagado v. CA ([1]78 SCRA 146) when it held: It is true that the testimony of Isleta should be carefully scrutinized as there is no reason to believe that he was not such an innocent drawer as he pretends to be, but we are of the opinion that, apart from the weight which may be given to said testimony, the bad faith of appellant [Nueno] has been clearly demonstrated. Whether a conspiracy existed between appellant and Isleta, we do not need here to decide. The fact remains and this is sufficient to support the conviction of appellant that the latter had guilty knowledge of the fact that Isleta had no funds in the bank when he negotiated the check in question.

Assessing the evidence on record, the Court is convinced that accused are guilty of the crime charged. Accused therefore must be held liable not only criminally but likewise civilly for the damages they have caused private complainant as persons criminally liable are also civilly liable (Art. 100, Revised Penal Code).1370[12] (Emphasis and underscoring supplied)

Thus the trial court disposed:

1370

Page 988 of 1485

WHEREFORE, premises considered, the Court finds accused JAIME TAN, ALBERT CORDERO SY, and GEMMA ILAGAN GUILTY beyond reasonable doubt as principals of the crime charged and are hereby sentenced to suffer the penalty of SIX (6) YEARS and ONE (1) day of prision correccional to EIGHT (8) YEARS and ONE (1) DAY of prision mayor and to indemnify jointly and severally the complainant Rosita Tan, the amount of P470,350.00 with legal interest from the finality of the decision until fully satisfied without subsidiary imprisonment in case of insolvency and to pay the costs. Accordingly, the bond posted for provisional CANCELLED.1371[13] (Emphasis and underscoring supplied) liberty is

On appeal, the Court of Appeals affirmed the trial courts decision. It discredited the claim of the defense that Rosita was engaged in the business of rediscounting in the absence of evidence establishing this claim. It quoted with approval the trial courts abovequoted ratio decidendi in affirming the decision of the trial court. It modified the penalty and civil liability imposed by the trial court, however. The dispositive portion of the Court of Appeals Decision1372[14] dated September 22, 2004, reads:

WHEREFORE, premises considered, the Court hereby AFFIRMS the decision of the trial court in Criminal Case No. 02-199044 WITH MODIFICATION with respect to the penalty imposed. Thus, this Court finds the accused Jaime Tan, Albert Cordero Sy, and Gemma Ilagan guilty beyond reasonable doubt of ESTAFA, defined and penalized under Article 315, paragraph 2(d) of the Revised Penal Code, and hereby sentences each of them to suffer an indeterminate penalty of ten (10) years of prision mayor, as minimum, to thirty (30) years of reclusion perpetua, as maximum, and to indemnify the private complainant in the amount of P470,350.00.1373[15] (Underscoring supplied)

1371 1372 1373

Page 989 of 1485

Petitioners Sy and Tans motions for reconsiderations were denied on the merits, 1374 [16] while that of petitioner Gemma was denied for having been filed out of time. 1375[17]

Hence, the separate petitions for review of petitioners.

Petitioner Gemma assigns the following errors to the appellate court:

I.

. . . DENYING ACCUSED-PETITIONERS MOTION FOR RECONSIDERATION TO THE DECISION DATED SEPTEMBER 22, 2004 ON A MERE TECHNICAL GROUND. . . . MISAPPREHEND[ING] THE ESTABLISHED FACTS OF THE CASE THAT CLEARLY INDICATE THE ABSENCE OF ANY CRIMINAL INTENT ON THE PART OF ACCUSED-PETITIONER TO COMMIT THE CRIME CHARGED. . . . RULING THAT ACCUSED-PETITIONER CONSPIRED WITH COACCUSED JAIME TAN AND ALBERT CORDERO SY TO DEFRAUD PRIVATE COMPLAINANT ROSITA TAN.1376[18] (Underscoring supplied)

II.

III.

Petitioner Sy ascribes the following errors to the appellate court:

I.

. . . HOLDING THAT PETITIONER IS LIABLE FOR ESTAFA UNDER ART. 315, PAR. 2[d], REVISED PENAL CODE, ALTHOUGH HE WAS NOT THE DRAWER/ISSUER OF THE CHECKS IN QUESTION AND DID NOT KNOW OR COULD NOT HAVE KNOWN OF THE INSUFFICIENCY OF FUNDS TO COVER THE CHECKS. . . . HOLDING THAT PETITIONER COMMITTED FRAUD BY INDUCING THE PRIVATE COMPLAINANT TO ENCASH THE CHECKS BY

II.

1374 1375 1376

Page 990 of 1485

GUARANTEEING THAT SAID CHECKS WOULD BE HONORED UPON MATURITY. III. IV. . . . HOLDING THAT THERE WAS AN IMPLIED CONSPIRACY AMONG THE THREE ACCUSED TO COMMIT THE OFFENSE. . . . NOT HOLDING THAT THE PETITIONERS CONSTITUTIONAL PRESUMPTION OF INNOCENCE WAS NOT OVERCOME BY PROOF BEYOND A REASONABLE DOUBT, FOR WHICH ACCORDINGLY, HE SHOULD BE ACQUITTED OF THE CHARGE. 1377[19] (Underscoring supplied)

As for petitioner Tan, he raises the following issues:

I.

WHETHER OR NOT THE TRANSACTIONS BETWEEN PETITIONER AND PRIVATE COMPLAINANT ROSITA TAN WAS PURELY MONEY LOANS BETTER KNOWN IN THE BUSINESS COMMUNITY AS REDISCOUNTING WHETHER OR NOT THERE WAS A PARTIAL PAYMENT MADE BY THE PETITIONER TO ROSITA TAN IN THE AMOUNT OF Php75,321.00 PRIOR TO THE FILING OF THE CASE WHETHER OR NOT THERE WAS DECEIT ON THE PART OF THE PETITIONER WHEN HE ENDORSED THE SUBJECT CHECKS TO PRIVATE COMPLAINANT WHETHER OR NOT A MERE ENDORSER OF A CHECK WHO ASSUMES THE WARRANTIES UNDER THE NEGOTIABLE INSTRUMENT[S] LAW INCURS CRIMINAL LIABILITY BY REASON OF SUCH ENDORSEMENT. 1378[20] (Underscoring supplied)

II.

III.

IV.

Petitioner Gemmas belated filing of her motion for reconsideration before the appellate court notwithstanding, the Office of the Solicitor General interposes no objection to this Courts giving due course to her petition.

1377 1378

Page 991 of 1485

The petitions are impressed with merit.

Art. 315, par. 2(d) of the Revise Penal Code under which petitioners were indicted provides:

ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: xxxx 2. By means of any of the following false pretenses or fraudulent acts executed prior or simultaneously with the commission of the fraud. xxxx (d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent. x x x x (Emphasis and underscoring supplied)

Deceit and damage are the essential elements of estafa. Deceit to constitute estafa under above-quoted Article 315 2(d) of the Revised Penal Code must be the efficient cause of the defraudation. There must be concomitance: the issuance of the check should be the means to obtain money or property from the payer.1379[21]

By Rositas own admission, she and petitioner Tan had, prior to the transaction in question, been engaged in rediscounting or discounting transactions for four (4) years in

1379

Page 992 of 1485

which she charged interests which varied because she sourced the cash for the purpose from different persons.

COURT: Q Was this the first time the three (3) accused approached you? A No, your honor, there were several times already.

ATTY. MAFUCAR [Defense counsel]: Q Madam witness, you also stated that you gave in exchanged [ sic] of post-dated [checks] an amount more or less of P480,000.00 in cash, is that correct? A Yes, more or less.

ATTY. MAFUCAR: May we just total the amount of checks, your honor. If you will believe with [sic] me, madam witness, the total of the checks is P490,350. x x x x1380[22] ATTY. MAFUCAR: xxxx Q In your Affidavit Complaint Exhibit 3 you stated that you only handed over P470,000.00 while the total amount of the check is P490,000.00 plus, why is it so? I can not remember the exact amount my friend charged me P20,000.00 for the encashment of the check. In other words, madam witness, the difference is the interest? Yes maam. So for the loan of P490,000.00 [sic] an interest of P20,000.00 was charged more or less?

A Q A Q

COURT

Per month or per year?

ATTY. MAFUCAR: That was initial charge, your honor, for discounting. WITNESS: Yes.

1380

Page 993 of 1485

xxxx Q You stated madam witness, on the question of the Honorable Court that this was not the only time that you len[t] money to the accused. So, where did you base your computation on the interest on the previous loans if you do not know [sic]?

xxxx A Hindi po pare-pareho. xxxx Q Madam witness, in the previous transaction which you already testified to that there were previous transaction with the three (3) accused, how long a time, did this transaction [sic], the period of time?

xxxx A Actually, I can not remember.

COURT: Q How long have you been transacting with these three (3) accused? A Q A Q More or less four (4) years. In all these transaction[s], madam witness, did you charge them interest? Yes kasi kinukuha ko rin po sa iba iyon[sic]. In other words, madam witness, you are saying that your basis for the computation of the interest that you are charging with the accused in your previous dealings and in this present transaction you only based on what is told to you? Yes maam.

x x x x1381[23] (Emphasis and underscoring supplied)

Given the admitted previous 4-year period of rediscounting transactions between Rosita and petitioner Tan, if he indeed assured her that the checks in question would be sufficiently funded on maturity, the same was unnecessary to convince her to change them

1381

Page 994 of 1485

with cash, not unlike in People v. Ong1382[24] where this Court acquitted the accused for estafa, the Bank [therein having,] on its own, accorded [the accused] a [D]rawn [A]gainst [U]ncollected [D]eposit (DAUD) privilege without the need of any pretensions on his part.1383[25] In other words, any such assurance was not the efficient cause which induced Rosita to change the checks with cash. It is in this light that this Court credits the disclaimer of petitioner Sy of having gone with petitioner Tan to Rositas house to negotiate the checks and assure her that they would be sufficiently funded on maturity.

At all events, there was no proof, unlike that in People v. Isleta1384[26] which was relied upon by the trial court, that petitioner Tan had guilty knowledge that [the] petitioner Gemma, the issuer of the checks, had no funds in the bank. 1385[27]

Petitioners acquittal of the crime charged is thus in order.

Respecting the civil aspect of the case, petitioner Tan presented a check for P75,321 (PCIB Check No. 0000180015) in favor of Rosita and a corresponding check voucher dated December 18, 2000 bearing the signature of Samuel Balansang, Rositas employee, acknowledging receipt thereof.1386[28] By his claim, the check represented partial settlement of the dishonored checks. Rosita claimed, however, that the same check and voucher . . . had also been attached [to] a different case involving the same personalities to prove partial payments made.1387[29]

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Page 995 of 1485

The defense of partial payment was rejected by the appellate court, because of petitioner Tans failure to present proof that the check, the alleged partial payment, had been encashed.1388[30]

Indeed, the delivery of the P75,321 check to Rosita did not produce the effect of partial payment of the checks, absent a showing that it was intended as such and that it had been encashed. If it was encashed, petitioner Tan should have presented the check, but he did not.

The lack of criminal liability of petitioners then notwithstanding, they are civilly liable in the amount of P470,350, to bear 12% interest from the filing of the information on January 30, 2002 up to the time it is fully paid.1389[31]

WHEREFORE, the challenged decision of the Court of Appeals convicting petitioners Gemma Ilagan, Albert Cordero Sy, and Jaime Tan is REVERSED and SET ASIDE. Petitioners are thus ACQUITTED of the crime charged.

The decision on the civil aspect of the case is MODIFIED. Petitioner Jaime Tan is ordered to pay private complainant, Rosita Tan, the amount of P470,350, to bear 12% interest from the filing of the Information on January 30, 2002 up to the time it is fully paid.

SO ORDERED. Republic of the Philippines Supreme Court

1388 1389

Page 996 of 1485

Manila

SECOND DIVISION

EQUITABLE PCI BANK, Petitioner,

G.R. No. 165339 Present:

CARPIO, J., Chairperson, NACHURA, PERALTA, - versusABAD, and MENDOZA, JJ.

Promulgated:

ARCELITO B. TAN, Respondent.

August 23, 2010

x--------------------------------------------------x

DECISION

Page 997 of 1485

PERALTA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision 1390[1] and the Resolution1391[2] of the Court of Appeals (CA) in CA-G.R. CV No. 41928.

The antecedents are as follows:

Respondent Arcelito B.Tan maintained a current and savings account with Philippine Commercial International Bank (PCIB), now petitioner Equitable PCI Bank. 1392[3] On May 13, 1992, respondent issued PCIB Check No. 275100 postdated May 30, 1992 1393[4] in the amount of P34,588.72 in favor of Sulpicio Lines, Inc. As of May 14, 1992, respondent's balance with petitioner was P35,147.59. On May 14, 1992, Sulpicio Lines, Inc. deposited the aforesaid check to its account with Solid Bank, Carbon Branch, Cebu City. After clearing, the amount of the check was immediately debited by petitioner from respondent's account thereby leaving him with a balance of only P558.87.

Meanwhile, respondent issued three checks from May 9 to May 16, 1992, specifically, PCIB Check No. 275080 dated May 9, 1992, payable to Agusan del Sur Electric Cooperative Inc. (ASELCO) for the amount of P6,427.68; PCIB Check No. 275097 dated May 10, 1992 payable to Agusan del Norte Electric Cooperative Inc., (ANECO) for the amount of P6,472.01; and PCIB Check No. 314104 dated May 16, 1992 payable in cash for the amount of P10,000.00. When presented for payment, PCIB Check Nos. 275080, 275097 and 314014 were dishonored for being drawn against insufficient funds.

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Page 998 of 1485

As a result of the dishonor of Check Nos. 275080 and 275097 which were payable to ASELCO and ANECO, respectively, the electric power supply for the two mini-sawmills owned and operated by respondent, located in Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off on June 1, 1992 and May 28, 1992, respectively, and it was restored only on July 20 and August 24, 1992, respectively.

Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of Cebu City a complaint against petitioner, praying for payment of losses consisting of unrealized income in the amount of P1,864,500.00. He also prayed for payment of moral damages, exemplary damages, attorney's fees and litigation expenses.

Respondent claimed that Check No. 275100 was a postdated check in payment of Bills of Lading Nos. 15, 16 and 17, and that his account with petitioner would have had sufficient funds to cover payment of the three other checks were it not for the negligence of petitioner in immediately debiting from his account Check No. 275100, in the amount of P34,588.72, even as the said check was postdated to May 30, 1992. As a consequence of petitioner's error, which brought about the dishonor of the two checks paid to ASELCO and ANECO, the electric supply to his two mini-sawmills was cut off, the business operations thereof were stopped, and purchase orders were not duly served causing tremendous losses to him.

In its defense, petitioner denied that the questioned check was postdated May 30, 1992 and claimed that it was a current check dated May 3, 1992. It alleged further that the disconnection of the electric supply to respondent's sawmills was not due to the dishonor of the checks, but for other reasons not attributable to the bank.

After trial, the RTC, in its Decision 1394[5] dated June 21, 1993, ruled in favor of petitioner and dismissed the complaint.

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Page 999 of 1485

Aggrieved by the Decision, respondent filed a Notice of Appeal. 1395[6] In its Decision dated May 31, 2004, the Court of Appeals reversed the decision of the trial court and directed petitioner to pay respondent the sum of P1,864,500.00 as actual damages, P50,000.00 by way of moral damages, P50,000.00 as exemplary damages and attorney's fees in the amount of P30,000.00. Petitioner filed a motion for reconsideration, which the CA denied in a Resolution dated August 24, 2004. Hence, the instant petition assigning the following errors:

I THE FOURTH DIVISION OF THE COURT OF APPEALS DEFIED OFFICE ORDER NO. 82-04-CG BY HOLDING ON TO THIS CASE AND DECIDING IT INSTEAD OF UNLOADING IT AND HAVING IT RE-RAFFLED AMONG THE DIVISIONS IN CEBU CITY. II THE COURT OF APPEALS ERRED IN REVERSING THE FINDING OF THE REGIONAL TRIAL COURT THAT CHECK NO. 275100 WAS DATED MAY 3, 1992. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT'S WAY OF WRITING THE DATE ON CHECK NO. 275100 WAS THE PROXIMATE CAUSE OF THE DISHONOR OF HIS THREE OTHER CHECKS. IV THE COURT OF APPEALS ERRED IN AWARDING ACTUAL DAMAGES, MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY'S FEES.

Anent the first issue, petitioner submits that the CA defied Office Order No. 82-04-CG dated April 5, 2004 issued by then CA Presiding Justice Cancio C. Garcia when it failed to unload CA-G.R. CV No. 41928 so that it may be re-raffled among the Divisions in Cebu City.

Office Order No. 82-04-CG1396[7] provides:

1395 1396

Page 1000 of 1485

xxxx In view of the reorganization of the different Divisions due to the appointment of eighteen (18) new Justices to the additional divisions in the cities of Cebu and Cagayan de Oro, the raffle of civil, criminal and special cases submitted for decision and falling within the jurisdiction of the additional divisions shall commence on April 6, 2004. The raffle of newly-filed cases and those for completion likewise falling within the jurisdiction of the additional divisions, shall start on April 12, 2004. xxxx

Petitioner alleged that since the aforementioned Office Order directed the raffle of civil, criminal and special cases submitted for decision and falling within the jurisdiction of the additional divisions on April 6, 2004, CA-G.R. CV No. 41928 should have been unloaded by the CA's Fourth Division and re-raffled to the CA's Division in Cebu City instead of deciding the case on May 31, 2004.

Respondent argued that the CA's Fourth Division correctly acted in taking cognizance of the case. The CA defended its jurisdiction by ruling that cases already submitted for decision as of the effectivity of Republic Act (R.A.) 8246 1397[8] on February 1, 1997 were no longer included for re-raffle to the newly-created Visayas and Mindanao Divisions of the CA, conformable to Section 5 of the said statute.

Petitioner's argument is misplaced. Under Section 3 of R.A. 8246, it is provided that:

Section 3. Section 10 of Batas Pambansa Blg. 129, as amended, is hereby further amended to read as follows: Sec. 10. Place of Holding Sessions. The Court of Appeals shall have its permanent stations as follows: The first seventeen (17) divisions shall be stationed in the City of Manila for cases coming from the First to the Fifth Judicial Regions; the Eighteenth, Nineteenth, and Twentieth Divisions shall be

1397

Page 1001 of 1485

in Cebu City for cases coming from the Sixth, Seventh and Eighth Judicial Regions; the Twenty-first, Twenty-second and Twenty-third Divisions shall be in Cagayan de Oro City for cases coming from the Ninth, Tenth, Eleventh, and Twelfth Judicial Regions. Whenever demanded by public interest, or whenever justified by an increase in case load, the Supreme Court, upon its own initiative or upon recommendation of the Presiding Justice of the Court of Appeals, may authorize any division of the Court to hold sessions periodically, or for such periods and at such places as the Supreme Court may determine, for the purpose of hearing and deciding cases. Trials or hearings in the Court of Appeals must be continuous and must be completed within three (3) months unless extended by the Chief Justice of the Supreme Court.

Further, Section 5 of the same Act provides:

Upon the effectivity of this Act, all pending cases, except those which have been submitted for resolution , shall be referred to the proper division of the Court of Appeals.1398[9]

Although CA-G.R. CV No. 41928 originated from Cebu City and is thus referable to the CA's Divisions in Cebu City, the said case was already submitted for decision as of July 25, 1994.1399[10] Hence, CA-G.R. CV No. 41928, which was already submitted for decision as of the effectivity of R.A. 8246, i.e., February 1, 1997, can no longer be referred to the CA's Division in Cebu City. Thus, the CA's Former Fourth Division correctly ruled that CA-G.R. CV No. 41928 pending in its division was not among those cases that had to be re-raffled to the newly-created CA Divisions in the Visayas Region.

Further, administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. 1400[11] Thus, Office Order No. 82-04-CG cannot defeat the provisions of R.A. 8246.

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Page 1002 of 1485

As to the second issue, petitioner maintains that the CA erred in reversing the finding of the RTC that Check No. 275100 was dated May 3, 1992. Petitioner argued that in arriving at the conclusion that Check No. 275100 was postdated May 30, 1992, the CA just made a visual examination of the check, unlike the RTC which verified the truth of respondent's testimony relative to the issuance of Check No. 275100. Respondent argued that the check was carefully examined by the CA which correctly found that Check No. 275100 was postdated to May 30, 1992 and not May 3, 1992. The principle is well established that this Court is not a trier of facts. Therefore, in an appeal by certiorari under Rule 45 of the Rules of Court, only questions of law may be raised. The resolution of factual issues is the function of the lower courts whose findings on these matters are received with respect and are, as a rule, binding on this Court. However, this rule is subject to certain exceptions. One of these is when the findings of the appellate court are contrary to those of the trial court.1401[12] Due to the divergence of the findings of the CA and the RTC, We shall re-examine the facts and evidence presented before the lower courts.

The RTC ruled that:

xxxx

The issue to be resolved in this case is whether or not the date of PCIB Check No. 275100 is May 3, 1992 as contended by the defendant, or May 30, 1992 as claimed by the plaintiff. The date of the check is written as follows 5/3/0/92. From the manner by which the date of the check is written, the Court cannot really make a pronouncement as to whether the true date of the check is May 3 or May 30, 1992, without inquiring into the background facts leading to the issuance of said check. According to the plaintiff, the check was issued to Sulpicio Lines in payment of bill of lading nos. 15, 16 and 17. An examination of bill of lading no. 15, however, shows that the same was issued, not in favor of plaintiff but in favor of Coca Cola Bottlers Philippines, Inc. Bill of Lading No. 16 is issued in favor of Suson Lumber and not to plaintiff. Likewise, Bill of Lading No. 17 shows that it

1401

Page 1003 of 1485

was issued to Jazz Cola and not to plaintiff. Furthermore, the receipt for the payment of the freight for the shipments reflected in these three bills of lading shows that the freight was paid by Coca Cola Bottlers Philippines, Inc. and not by plaintiff. Moreover, the said receipt shows that it was paid in cash and not by check. From the foregoing, the evidence on record does not support the claim of the plaintiff that Check No. 275100 was issued in payment of bills of lading nos. 15, 16 and 17. Hence, the conclusion of the Court is that the date of the check was May 3, 1992 and not May 30, 1992.1402[13]

xxxx In fine, the RTC concluded that the check was dated May 3, 1992 and not May 30, 1992, because the same check was not issued to pay for Bills of Lading Nos. 15, 16 and 17, as respondent claims. The trial court's conclusion is preposterous and illogical. The purpose for the issuance of the check has no logical connection with the date of the check. Besides, the trial court need not look into the purpose for which the check was issued. A reading of Check No. 2751001403[14] would readily show that it was dated May 30, 1992. As correctly observed by the CA:

On the first issue, we agree with appellant that appellee Bank apparently erred in misappreciating the date of Check No. 275100. We have carefully examined the check in question (Exh. DDDD) and we are convinced that it was indeed postdated to May 30, 1992 and not May 3, 1992 as urged by appellee. The date written on the check clearly appears as 5/30/1992 (Exh. DDDD-4). The first bar (/) which separates the numbers 5 and 30 and the second bar (/) which further separates the number 30 from the year 1992 appear to have been done in heavy, well-defined and bold strokes, clearly indicating the date of the check as 5/30/1992 which obviously means May 30, 1992. On the other hand, the alleged bar (/) which appellee points out as allegedly separating the numbers 3 and 0, thereby leading it to read the date as May 3, 1992, is not actually a bar or a slant but appears to be more of an unintentional marking or line done with a very light stroke. The presence of the figure 0 after the number 3 is quite significant. In fact, a close examination thereof would unerringly show that the said number zero or 0 is connected to the preceeding number 3. In other words, the drawer of the check wrote the figures 30 in one continuous stroke, thereby contradicting appellees theory that the number 3 is separated from the figure 0 by a bar. Besides, appellees theory that the date of the check is

1402 1403

Page 1004 of 1485

May 3, 1992 is clearly untenable considering the presence of the figure 0 after 3 and another bar before the year 1992. And if we were to accept appellees theory that what we find to be an unintentional mark or line between the figures 3 and 0 is a bar separating the two numbers, the date of the check would then appear as 5/3/0/1992, which is simply absurd. Hence, we cannot go along with appellees theory which will lead us to an absurd result. It is therefore our conclusion that the check was postdated to May 30, 1992 and appellee Bank or its personnel erred in debiting the amount of the check from appellants account even before the checks due date. Undoubtedly, had not appellee bank prematurely debited the amount of the check from appellants account before its due date, the two other checks (Exhs. LLLL and GGGG) successively dated May 9, 1992 and May 16, 1992 which were paid by appellant to ASELCO and ANECO, respectively, would not have been dishonored and the said payees would not have disconnected their supply of electric power to appellants sawmills, and the latter would not have suffered losses. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of R.A. 87911404[15] decrees:

Declaration of Policy. The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy.

Although R.A. 8791 took effect only in the year 2000, the Court had already imposed on banks the same high standard of diligence required under R.A. 8791 at the time of the untimely debiting of respondent's account by petitioner in May 1992. In Simex International (Manila), Inc. v. Court of Appeals ,1405[16] which was decided in 1990, the Court held that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

1404 1405

Page 1005 of 1485

The diligence required of banks, therefore, is more than that of a good father of a family.1406[17] In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. 1407[18] From the foregoing, it is clear that petitioner bank did not exercise the degree of diligence that it ought to have exercised in dealing with its client. With respect to the third issue, petitioner submits that respondent's way of writing the date on Check No. 275100 was the proximate cause of the dishonor of his three other checks. Contrary to petitioners view, the Court finds that its negligence is the proximate cause of respondents loss.

Proximate cause is that cause which, in a natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.1408[19] The proximate cause of the loss is not respondent's manner of writing the date of the check, as it was very clear that he intended Check No. 275100 to be dated May 30, 1992 and not May 3, 1992. The proximate cause is petitioners own negligence in debiting the account of the respondent prior to the date as appearing in the check, which resulted in the subsequent dishonor of several checks issued by the respondent and the disconnection by ASELCO and ANECO of his electric supply.

The bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the order of the payee in accordance with the drawers instructions as reflected on the face and by the terms of the check. 1409[20] Thus, payment made before the date specified by the drawer is clearly against the drawee bank's duty to its client.

1406 1407 1408 1409

Page 1006 of 1485

In its memorandum1410[21] filed before the RTC, petitioner submits that respondent caused confusion on the true date of the check by writing the date of the check as 5/3/0/92. If, indeed, petitioner was confused on whether the check was dated May 3 or May 30 because of the / which allegedly separated the number 3 from the 0, petitioner should have required respondent drawer to countersign the said / in order to ascertain the true intent of the drawer before honoring the check. As a matter of practice, bank tellers would not receive nor honor such checks which they believe to be unclear, without the countersignature of its drawer. Petitioner should have exercised the highest degree of diligence required of it by ascertaining from the respondent the accuracy of the entries therein, in order to settle the confusion, instead of proceeding to honor and receive the check.

Further, petitioner's branch manager, Pedro D. Tradio, in a letter 1411[22] addressed to ANECO, explained the circumstances surrounding the dishonor of PCIB Check No. 275097. Thus:

June 11, 1992 ANECO Agusan del Norte Gentlemen: This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the amount of P6,472.01 payable to your goodselves issued by Mr. Arcelito B. Tan (MANWOOD Industries) which was returned by PCIB Mandaue Branch for insufficiency of funds. Please be advised that the return of the aforesaid check was a result of an earlier negotiation to PCIB-Mandaue Branch through a deposit made on May 14, 1992 with SOLIDBANK Carbon Branch, or through Central Bank clearing via Philippine Clearing House Corporation facilities, of a postdated check which ironically and without bad faith passed undetected through several eyes from the payee of the check down to the depository bank and finally the drawee bank (PCIB) the aforesaid Check No. 275097 issued to you would have been honored because it would have been sufficiently funded at the time it was negotiated. It should be emphasized, however, that Mr. Arcelito B. Tan was in no way responsible for the dishonor of said PCIB Check No. 275097.

1410 1411

Page 1007 of 1485

We hope that the foregoing will sufficiently explain the circumstances of the dishonor of PCIB Check No. 275097 and would clear the name and credit of Mr. Arcelito Tan from any misimpressions which may have resulted from the dishonor of said check. Thank you. xxxx

Although petitioner failed to specify in the letter the other details of this postdated check, which passed undetected from the eyes of the payee down to the petitioner drawee bank, the Court finds that petitioner was evidently referring to no other than Check No. 275100 which was deposited to Solidbank, and was postdated May 30, 1992. As correctly found by the CA:

In the aforequoted letter of its Manager, appellee Bank expressly acknowledged that Check No. 275097 (Exh. GGGG) which appellant paid to ANECO was sufficiently funded at the time it was negotiated, but it was dishonored as a result of an earlier negotiation to PCIB-Mandaue Branch through a deposit made on May 14, 1992 with SOLIDBANK xxx xxx xxx of a postdated check which xxx xxx passed undetected. He further admitted that Mr. Arcelito B. Tan was in no way responsible for the dishonor of said PCIB Check No. 275097. Needless to state, since appellee's Manager has cleared appellant of any fault in the dishonor of the ANECO check, it [necessarily] follows that responsibility therefor or fault for the dishonor of the check should fall on appellee bank. Appellee's attempt to extricate itself from its inadvertence must therefore fail in the face of its Manager's explicit acknowledgment of responsibility for the inadvertent dishonor of the ANECO check.1412[23]

Evidently, the bank's negligence was the result of lack of due care required of its managers and employees in handling the accounts of its clients. Petitioner was negligent in the selection and supervision of its employees. In Citibank, N.A. v. Cabamongan,1413[24] the Court ruled:

1412 1413

Page 1008 of 1485

x x x Banks handle daily transactions involving millions of pesos. By the very nature of their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.

We now resolve the question on the award of actual, moral and exemplary damages, as well as attorney's fees by the CA to the respondent.

The CA based the award of actual damages in the amount of P1,864,500.00 on the purchase orders1414[25] submitted by respondent. The CA ruled that:

x x x In the case at bar, appellant [respondent herein] presented adequate evidence to prove losses consisting of unrealized income that he sustained as a result of the appellee Bank's gross negligence. Appellant identified certain Purchase Orders from various customers which were not met by reason of the disruption of the operation of his sawmills when ANECO and ASELCO disconnected their supply of electricity thereto. x x x

Actual or compensatory damages are those awarded in order to compensate a party for an injury or loss he suffered. They arise out of a sense of natural justice and are aimed at repairing the wrong done. Except as provided by law or by stipulation, a party is entitled to an adequate compensation only for such pecuniary loss as he has duly proven. 1415[26] To recover actual damages, not only must the amount of loss be capable of proof; it must also be actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable.1416[27]

1414 1415 1416

Page 1009 of 1485

Respondent's claim for damages was based on purchase orders from various customers which were allegedly not met due to the disruption of the operation of his sawmills. However, aside from the purchase orders and his testimony, respondent failed to present competent proof on the specific amount of actual damages he suffered during the entire period his power was cut off. No other evidence was provided by respondent to show that the foregoing purchase orders were not met or were canceled by his various customers. The Court cannot simply rely on speculation, conjecture or guesswork in determining the amount of damages.1417[28]

Moreover, an examination of the purchase orders and job orders reveal that the orders were due for delivery prior to the period when the power supply of respondent's two sawmills was cut off on June 1, 1992 to July 20, 1992 and May 28, 1992 to August 24, 1992, respectively. Purchase Order No. 99061418[29] delivery date is May 4, 1992; Purchase Order No. 92691419[30] delivery date is March 19, 1992; Purchase Order No. 147796 1420[31] is due for delivery on January 31, 1992; Purchase Order No. 76000 1421[32] delivery date is February and March 1992; and Job Order No. 1824, 1422[33] dated March 18, 1992, has a 15 days duration of work. Clearly, the disconnection of his electricity during the period May 28, 1992 to August 24, 1992 could not possibly affect his sawmill operations and prior orders therefrom.

Given the dearth of respondent's evidence on the matter, the Court resolves to delete the award of actual damages rendered by the CA in favor of respondent for his unrealized income.

1417 1418 1419 1420 1421 1422

Page 1010 of 1485

Nonetheless, in the absence of competent proof on the actual damages suffered, respondent is entitled to temperate damages. Under Article 2224 of the Civil Code of the Philippines, temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty.1423[34] The allowance of temperate damages when actual damages were not adequately proven is ultimately a rule drawn from equity, the principle affording relief to those definitely injured who are unable to prove how definite the injury. 1424[35]

It is apparent that respondent suffered pecuniary loss. The negligence of petitioner triggered the disconnection of his electrical supply, which temporarily halted his business operations and the consequent loss of business opportunity. However, due to the insufficiency of evidence before Us, We cannot place its amount with certainty. Article 22161425[36] of the Civil Code instructs that assessment of damages is left to the discretion of the court according to the circumstances of each case. Under the circumstances, the sum of P50,000.00 as temperate damages is reasonable.

Anent the award of moral damages, it is settled that moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused.1426[37] In Philippine National Bank v. Court of Appeals ,1427[38] the Court held that a bank is under obligation to treat the accounts of its depositors with meticulous care whether such account consists only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation is demandable. While petitioner's negligence in that case may not have been attended with malice and bad faith, the banks' negligence caused respondent to suffer mental anguish,

1423 1424 1425 1426 1427

Page 1011 of 1485

serious anxiety, embarrassment and humiliation. In said case, We ruled that respondent therein was entitled to recover reasonable moral damages.

In this case, the unexpected cutting off of respondent's electricity, which resulted in the stoppage of his business operations, had caused him to suffer humiliation, mental anguish and serious anxiety. The award of P50,000.00 is reasonable, considering the reputation and social standing of respondent. and well- established corporations. As found by the CA, as an accredited supplier, respondent had been reposed with a certain degree of trust by various reputable

On the award of exemplary damages, Article 2229 of the Civil Code states:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

The law allows the grant of exemplary damages to set an example for the public good. The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence. For this reason, banks should guard against injury attributable to negligence or bad faith on its part. Without a doubt, it has been repeatedly emphasized that since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. 1428[39] Petitioner, having failed in this respect, the award of exemplary damages in the amount of P50,000.00 is in order.

1428

Page 1012 of 1485

As to the award of attorney's fees, Article 2208 1429[40] of the Civil Code provides, among others, that attorney's fees may be recovered when exemplary damages are awarded or when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. 1430[41] Respondent has been forced to undergo unnecessary trouble and expense to protect his interest. The Court affirms the appellate courts award of attorneys fees in the amount of P30,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 41928, dated May 31, 2004 and August 24, 2004, respectively, are AFFIRMED with the following MODIFICATIONS:

1.

The award of One Million Eight Hundred Sixty-Four Thousand and Five

Hundred Pesos (P1,864,500.00) as actual damages, in favor of respondent Arcelito B. Tan, is DELETED; and

2.

Petitioner Equitable PCI Bank is instead directed to pay respondent the

amount of Fifty Thousand Pesos (P50,000.00) as temperate damages.

SO ORDERED. SECOND DIVISION

CITIBANK, N.A., Petitioner,

G.R. No. 188412

1429 1430

Page 1013 of 1485

Present:

CARPIO, J., Chairperson, NACHURA, - versus PERALTA, ABAD, and MENDOZA, JJ.

ATTY. ERNESTO S. DINOPOL, Respondent.

Promulgated: November 22, 2010

X ----------------------------------------------------------------------------------------------------- X

DECISION

MENDOZA, J.:

This is a petition for review filed under Rule 45 of the 1997 Revised Rules of Civil Procedure questioning 1] the December 16, 2008 Decision1431[1] of the Court of Appeals (CA), in CA-G.R. CV No. 82291, which affirmed the February 20, 2004 Decision of the Regional Trial Court, Branch 226, Quezon City (RTC), ordering petitioner Citibank, N. A. (Citibank) to pay respondent Atty. Ernesto S. Dinopol (Atty. Dinopol) moral damages and attorneys fees;

1431

Page 1014 of 1485

and 2] its June 19, 2009 Resolution denying petitioners motion for the reconsideration thereof.

Records disclose that sometime in December 1996, Atty. Dinopol availed of Citibanks Ready Credit Checkbooks advertised offer. After approving his application, For said reason, Atty. Citibank granted Atty. Dinopol a credit line limit of P30,000.00.

Dinopol received from Citibank a check booklet consisting of several checks with a letter stating that the account was ready to use. Later, Citibank billed Atty. Dinopol the sum of P1,545.00 representing Ready Credit Documentary Stamp and Annual Membership Fee as reflected in his Statement of Account dated December 26, 1996. Thereafter, Citibank billed him the amount of P1,629.21 for interest and charges as well as late payment charges as stated in his Statement of Account dated January 26, 1997. Atty. Dinopol paid said interests and charges on February 26, 1997.

On March 6, 1997, Atty. Dinopol issued a check using his credit checkbook account with Citibank in the amount of P30,000.00 in favor of one Dr. Marietta M. Geonzon (Dr. Geonzon) for investment purposes in her restaurant business. However, when the check was deposited on March 12, 1997, it was dishonored for the reason, Drawn Against Insufficient Funds or DAIF. Humiliated by the dishonor and the demand notice he received from Dr. Geonzon, Atty. Dinopol filed a civil action for damages against Citibank before the RTC. Atty. Dinopol alleged that said bank was grossly negligent and acted in bad faith in dishonoring his check.

In defense, Citibank averred that it was completely justified in dishonoring Atty. Dinopols check because the account did not have sufficient funds at the time it was issued. Citibank explained that when said check in the amount of P30,000.00 was issued, his credit line was already insufficient to accommodate it. His credit limit had been reduced by the interests and penalty charges imposed as a result of his late payment. Citibank argued that had Atty. Dinopol been prompt in the payment of his obligations, he would not have incurred interests and penalty charges and his credit line of P30,000.00 would have been available at the time the check was issued and presented for payment.

Page 1015 of 1485

On February 20, 2004, the RTC rendered a decision 1432[2] against Citibank, the dispositive portion of which reads:

In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant bank as follows: Defendant Citibank N.A. is hereby ordered to pay the plaintiff Atty. Ernesto S. Dinopol: 1) 2) 3) P100,000.00 as and for moral damages; P50,000.00 as and for attorneys fees; and Costs of suit.

SO ORDERED.

The RTC reasoned out, among others, that Citibank failed to completely disclose the terms and conditions of its Citybank Ready Credit Account when Atty. Dinopol applied for it. Only the general provisions of the agreement were explained to him. The Standard Handbook Guide which would have guided him as to fees, charges and penalties that could be billed by the bank was never given to him.

Furthermore, the RTC found that Atty. Dinopol was given a go signal by Citibank when he informed the latter that he was going to issue a check in the amount of P30,000.00. Citibank failed to advise him that he still had an outstanding balance of P58.33 as of February 26, 1997. Had he been informed, he could have paid such a small amount and avoided the dishonor of his check. In fact, when he issued the check on March 6, 1997, no bill had yet been sent to him for the amount of P58.33 because he had just paid P1,629.00 on February 26, 1997. The billing statement, if any, would still be due on March 15, 1997. On March 11, 1997, when the check was presented for payment, Citibank could have called his attention and he could have immediately remitted the amount of P58.00 within the same banking day so that the check would be honored.

1432

Page 1016 of 1485

Decision of the Court of Appeals

On December 16, 2008, the CA affirmed the RTC decision with modification. It increased the award of moral damages from P100,000.00 to P500,000.00 and awarded exemplary damages in the amount of P50,000.00.

In its decision, the CA found that Citibank, as admitted by its witness, Mark Andre P. Hernando (Hernando), displayed dishonesty in claiming that Atty. Dinopol was provided with the banks Customer Guidebook. No proof to the contrary was shown by the bank. Instead of exercising good faith by providing a new account holder like Atty. Dinopol with the service guidebook, Citibank argued that since he was a lawyer, the latter should have already been familiar with the terms and conditions of his Ready Credit Account.

Moreover, the CA noted that before Atty. Dinopol issued the subject check, he first consulted the bank if he could issue one. It was only after being given the affirmative response that he issued said check which gave rise to this controversy. The bank should have given the necessary advice to Atty. Dinopol and thereby avoid the dishonor of the check for a measly amount of P58.33.

Finally, the CA ruled that Atty. Dinopol was not yet delinquent when he issued the check so as to justify the P58.33 deduction from his P30,000.00 credit line. Based on the documentary evidence, the due date for the February 26, 1997 Statement of Account was March 19, 1997. So, when Atty. Dinopol issued the check on March 6, 1997, the period within which to settle his account was still running, thus, rendering the P58.33 deduction unjustified.

Page 1017 of 1485

In modifying the decision, the CA increased the amount of moral damages from P100,000.00 to P500,000.00 for the following reasons: 1] Atty. Dinopols stature - he was a lawyer of good standing, yet he was abused by Citibank; 2] the dishonesty displayed by Citibank in claiming that Atty. Dinopol was given a service guidebook despite lack of proof thereon; 3] the bad faith displayed by Citibank in using a measly amount of P58.33 as basis to justify its dishonor (due to DAIF) of P30,000.00 worth of check issued by Atty. Dinopol; and 4] the fact that Citibank besmirched considerably caused him undue humiliation. Atty. Dinopols reputation and has

Hence, this petition.

ISSUE

WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN RULING THAT PETITIONER CITIBANK, N.A. IS LIABLE TO RESPONDENT ATTY. ERNESTO S. DINOPOL FOR DAMAGES.

Position of the Petitioner

Citibank argues that the dishonor of Atty. Dinopols check was valid as it was done in the exercise of its rights and prerogative under the terms and conditions of his Ready Credit Facility. It insists that it sent a copy of the guidebook to Atty. Dinopol after his application for the credit facility was approved.

Page 1018 of 1485

It also points out that upon the approval of Atty. Dinopols Ready Credit Facility, the latter was initially billed with the amounts of P1,500.00 for the annual fee and P45.00 for the documentary stamp tax. The total amount of P1,545.00 was indicated in his Statement of Account dated December 26, 1996, bearing the due date on or before January 16, 1997. Atty. Dinopol, however, failed to pay it on or before said date. guidebook. Thus, interest and late payment charges accrued on his unpaid account as provided for in the provisions of the

Further, Citibank claims that a second statement of account dated January 26, 1997 was sent to Atty. Dinopol which showed that the aggregate amount of P1,629.21 was due and payable immediately. This amount represents the unpaid sum of P1,545.00 for the annual fee and documentary stamp tax, P10.00 as penalty charge for the late payment and P74.21 as accrued interest. Atty. Dinopol paid the amount of P1,629.21 only on February 26, 1997. Thereafter, Citibank sent him another statement of account acknowledging receipt of his payment and, at the same time, charging him the additional amount of P58.33 for penalties and other charges. Since the unpaid amount of P58.33 was automatically billed as an availment against his Ready Credit Facility, his available credit limit at the time of the issuance of the subject check on March 6, 1997 was already reduced by P58.33. As a result, when the subject check was negotiated, it had to be returned due to DAIF.

Accordingly, Citibank asserts that the dishonor of the subject check was due to Atty. Dinopols failure to timely settle his outstanding obligations despite receipt of his statements of account. It cannot, therefore, be faulted because it was just exercising its legal right under the terms and conditions of the Ready Credit Facility. It did not act fradulently or in bad faith. No proof was shown that the dishonor of the subject check was carried out in an arbitrary, capricious, and malicious manner.

Finally, Citibank advances that Atty. Dinopol, as a practising lawyer, is presumed to have carefully considered, known, and understood the provisions and legal effects of the contracts he entered into.

Page 1019 of 1485

Position of the Respondent

In answer to Citibanks assertions, Atty. Dinopol counters that the bank failed to prove that a copy of the guidebook was sent to him. In fact, Citibanks own witness, Hernando, categorically admitted that the bank did not send him the said guidebook. According to Atty. Dinopol, Citibank should have acted in good faith and in a manner deserving of the trust of its customers.

He also contends that the dishonor of the check due to the non-payment of the penalty charges and interests of P58.33 was uncalled for. The payment of said amount was not yet due on March 6, 1997 when the check was issued and even on March 12, 1997 when it was dishonored. The statement of account would show that the sum of P58.33 was due only on March 19, 1997. This only shows that his account was not yet delinquent, both at the time when said check was issued and when it was eventually presented for payment, thereby making the act of the bank of dishonoring the check wanting of any legal basis.

Lastly, Atty. Dinopol charges Citibank for having acted in bad faith when it dishonered the subject check for a meager amount of P58.33 and for imposing highly questionable charges against his credit facility account. He believes that the bank, wilfully or negligently, wronged him and damaged his reputation. Hence, it is liable to pay him damages.

The Courts Ruling

The general rule is that in petitions for review on certiorari, the Court will not reexamine the findings of fact of the appellate court except (a) when the latters findings are

Page 1020 of 1485

grounded entirely on speculations, surmises or conjectures; (b) when its inference is manifestly mistaken, absurd or impossible; (c) when there is a grave abuse of discretion; (d) when its findings of fact are conflicting; and (e) when it goes beyond the issues of the case.1433[3] Citibank fails to convince the Court that the case falls under any of the exceptions. Hence, the findings of fact should no longer be reviewed.

At any rate, the Courts agrees with the courts below in concluding that Citibank was liable to Atty. Dinopol for moral and exemplary damages and attorneys fees.

A perusal of the evidentiary records shows that Citibank was at fault when it dishonored the subject check. First, Citibank claims that, as a matter of standard operating procedure, it sent to Atty. Dinopol the Citibank Ready Credit Customer Guidebook upon the approval of his Ready Credit Account application and so, he was aware of the terms and conditions stated therein. Yet, except for its bare allegation, no other substantial proof was presented by Citibank that the guidebook was indeed sent to Atty. Dinopol. In fact, its witness, Hernando, admitted that the subject handbook was not at all delivered to him.

Second, when Atty. Dinopol issued the subject check for the full amount of P30,000.00 and Citibank dishonored it because of insufficiency of funds by P58.33 representing the amount charged on his credit line for penalties and charges, the said amount was not yet overdue. The banks Statement of Account dated January 26, 19971434[4] showed that he must pay the total amount of P1,629.21 representing the annual membership fee of P1,500.00, documentary stamp tax of P45.00, late charges of P10.00 and interest/charges of P74.21. On February 26, 1997, he immediately paid the full amount of P1,629.21 as evidenced by his credit card payment slip. 1435[5] reflected in his statement of account
1436

The full payment was

[6] dated February 26, 1997. The same statement of

1433 1434 1435 1436

Page 1021 of 1485

account1437[7] indicated that there were still charges amounting to P58.33 due for payment on March 19, 1997. To reiterate, the check was issued on March 6, 19971438[8] and dishonored on March 12, 1997,1439[9] both dates being days before the said due date. Contrary to Citibanks insistence, Atty. Dinopol was definitely not yet a delinquent account holder. More importantly, Citibank failed to consider the fact that Atty. Dinopol issued the check on March 6, 1997 after paying the full amount of P1,629.21 and clearing with the bank if he could issue a check in the amount of P30,000.00. Citibank did not even refute the allegation that it gave Atty. Dinopol the go-signal to issue such a check.

With respect to damages, the Court is in agreement with the CA in awarding moral and exemplary damages. However, the Court cannot sanction the modification by the CA, under the circumstances attending the case. It is of the considered view that the award of the RTC would suffice subject, of course, to the payment of legal interest.

The award of moral damages should be granted in reasonable amounts depending on the facts and circumstances of the case. 1440[10] Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused.1441[11]

As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking is impressed with public interest and great reliance is

1437 1438 1439 1440 1441

Page 1022 of 1485

made on the banks sworn profession of diligence and meticulousness in giving irreproachable service.1442[12] subject to legal interest. Thus, the Court affirms the award as a way of setting an Both are example for the public good. In addition, it also provided for attorneys fees.

In any event, Citibank should have been more cautious in dealing with its clients since its business is imbued with public interest. Banks must always act in good faith and must win the confidence of clients and people in general. It is irrelevant whether the client is a lawyer or not. It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.

In its declaration of policy, the General Banking Law of 2000 requires of banks the highest standards of integrity and performance. Needless to say, a bank is under obligation to treat the accounts of its depositors with meticulous care. The fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern. 1443[13]

WHEREFORE, the December 16, 2008 Decision of the Court of Appeals is MODIFIED to read as follows:

In view of the foregoing, judgment is hereby rendered ordering defendant Citibank N.A to pay plaintiff Atty. Ernesto S. Dinopol the following: 1] P100,000.00 as and for moral damages; 2] P50,000.00 as and for exemplary damages;

1442 1443

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3] P50,000.00 as and for attorneys fees; and 4] Costs of suit, plus interest at the legal rate reckoned from the filing of the complaint.

SO ORDERED. Republic of the Philippines Supreme Court Baguio City

FIRST DIVISION

PHILIPPINE NATIONAL BANK, Petitioner, - versus SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Respondents. x--------------------------------x

G.R. No. 170865

SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Petitioners,

G.R. No. 170892 Present: CORONA, C.J., Chairperson, LEONARDO-DE CASTRO,

- versus -

BERSAMIN, DEL CASTILLO, and VILLARAMA, JR., JJ.

Page 1024 of 1485

PHILIPPINE NATIONAL BANK, Respondent. Promulgated: April 25, 2012

x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

Law favoreth diligence, and therefore, hateth folly and negligence.Wingates Maxim.

In doing a friend a favor to help the latters friend collect the proceeds of a foreign check, a woman deposited the check in her and her husbands dollar account. The local bank accepted the check for collection and immediately credited the proceeds thereof to said spouses account even before the lapse of the clearing period. And just when the money had been withdrawn and distributed among different beneficiaries, it was discovered that all along, to the horror of the woman whose intention to accommodate a friends friend backfired, she and her bank had dealt with a rubber check.

These consolidated1444[1] Petitions for Review on Certiorari filed by the Philippine National Bank (PNB)1445[2] and by the spouses Cheah Chee Chong and Ofelia Camacho Cheah (spouses Cheah)1446[3] both assail the August 22, 2005 Decision1447[4] and December 21, 2005 Resolution1448[5]of the Court of Appeals (CA) in CA-G.R. CV No. 63948 which declared both parties

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Page 1025 of 1485

equally negligent and, hence, should equally suffer the resulting loss. For its part, PNB questions why it was declared blameworthy together with its depositors, spouses Cheah, for the amount wrongfully paid the latter, while the spouses Cheah plead that they be declared entirely faultless.

Factual Antecedents

On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were having a conversation in the latters office when Adelinas friend, Filipina Tuazon (Filipina), approached her to ask if she could have Filipinas check cleared and encashed for a service fee of 2.5%. The check is Bank of America Check No. 190 1449[6] under the account of Alejandria Pineda and Eduardo Rosales and drawn by Atty. Eduardo Rosales against Bank of America Alhambra Branch in California, USA, with a face amount of $300,000.00, payable to cash. Because Adelina does not have a dollar account in which to deposit the check, she asked Ofelia if she could accommodate Filipinas request since she has a joint dollar savings account with her Malaysian husband Cheah Chee Chong (Chee Chong) under Account No. 265-705612-2 with PNB Buendia Branch. Ofelia agreed.

That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto Mendiola of the Loans Department who referred them to PNB Division Chief Alberto Garin (Garin). Garin discussed with them the process of clearing the subject check and they were told that it normally takes 15 days.1450[7] Assured that the deposit and subsequent clearance of the check is a normal transaction, Ofelia deposited Filipinas check. PNB then sent it for clearing through its correspondent bank, Philadelphia National Bank. Five days later, PNB received a credit advice 1451[8] from Philadelphia National Bank that the proceeds of the subject check had been temporarily credited to PNBs account as of November 6, 1992. On November 16, 1992, Garin called up Ofelia

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Page 1026 of 1485

to inform her that the check had already been cleared. 1452[9] The following day, PNB Buendia Branch, after deducting the bank charges, credited $299,248.37 to the account of the spouses Cheah.1453[10] Acting on Adelinas instruction to withdraw the credited amount, Ofelia that day personally withdrew $180,000.00.1454[11] Adelina was able to withdraw the remaining amount the next day after having been authorized by Ofelia.1455[12] Filipina received all the proceeds.

In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on November 16, 1992 a SWIFT1456[13] message from Philadelphia National Bank dated November 13, 1992 with Transaction Reference Number (TRN) 46506218, informing PNB of the return of the subject check for insufficient funds. 1457[14] However, the PNB Head Office could not ascertain to which branch/office it should forward the same for proper action. Eventually, PNB Head Office sent Philadelphia National Bank a SWIFT message informing the latter that SWIFT message with TRN 46506218 has been relayed to PNBs various divisions/departments but was returned to PNB Head Office as it seemed misrouted. PNB Head Office thus requested for Philadelphia National Banks advice on said SWIFT messages proper disposition.1458[15] After a few days, PNB Head Office ascertained that the SWIFT message was intended for PNB Buendia Branch.

PNB Buendia Branch learned about the bounced check when it received on November 20, 1992 a debit advice,1459[16] followed by a letter1460[17] on November 24, 1992, from Philadelphia National Bank to which the November 13, 1992 SWIFT message was attached. Informed about the bounced check and upon demand by PNB Buendia Branch to return the money withdrawn, Ofelia

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Page 1027 of 1485

immediately contacted Filipina to get the money back. But the latter told her that all the money had already been given to several people who asked for the checks encashment. In their effort to recover the money, spouses Cheah then sought the help of the National Bureau of Investigation. Said agencys Anti-Fraud and Action Division was later able to apprehend some of the beneficiaries of the proceeds of the check and recover from them $20,000.00. Criminal charges were then filed against these suspect beneficiaries.1461[18]

Meanwhile, the spouses Cheah have been constantly meeting with the bank officials to discuss matters regarding the incident and the recovery of the value of the check while the cases against the alleged perpetrators remain pending. drafted
1462

Chee Chong in the end signed a PNB

[19] letter

1463

[20] which states that the spouses Cheah are offering their condominium

units as collaterals for the amount withdrawn. Under this setup, the amount withdrawn would be treated as a loan account with deferred interest while the spouses try to recover the money from those who defrauded them. Apparently, Chee Chong signed the letter after the Vice President and Manager of PNB Buendia Branch, Erwin Asperilla (Asperilla), asked the spouses Cheah to help him and the other bank officers as they were in danger of losing their jobs because of the incident. Asperilla likewise assured the spouses Cheah that the letter was a mere formality and that the mortgage will be disregarded once PNB receives its claim for indemnity from Philadelphia National Bank.

Although some of the officers of PNB were amenable to the proposal, 1464[21] the same did not materialize. Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amount of the check,1465[22] froze their peso and dollar deposits in the amounts of P275,166.80 and $893.46,1466[23] and filed a complaint1467[24] against them for Sum of Money with Branch 50 of the

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Regional Trial Court (RTC) of Manila, docketed as Civil Case No. 94-71022. In said complaint, PNB demanded payment of around P8,202,220.44, plus interests1468[25] and attorneys fees, from the spouses Cheah.

As their main defense, the spouses Cheah claimed that the proximate cause of PNBs injury was its own negligence of paying a US dollar denominated check without waiting for the 15-day clearing period, in violation of its bank practice as mandated by its own bank circular, i.e., PNB General Circular No. 52-101/88.1469[26] Because of this, spouses Cheah averred that PNB is barred from claiming what it had lost. They further averred that it is unjust for them to pay back the amount disbursed as they never really benefited therefrom. As counterclaim, they prayed for the return of their frozen deposits, the recoupment of P400,000.00 representing the amount they had so far spent in recovering the value of the check, and payment of moral and exemplary damages, as well as attorneys fees.

Ruling of the Regional Trial Court

The RTC ruled in PNBs favor. The dispositive portion of its Decision 1470[27] dated May 20, 1999 reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Philippine National Bank [and] against defendants Mr. Cheah Chee Chong and Ms. Ofelia Camacho Cheah, ordering the latter to pay jointly and severally the herein plaintiffs bank the amount: 1. of US$298,950.25 or its peso equivalent based on Central Bank Exchange Rate prevailing at the time the proceeds of the BA Check No. 190 were withdrawn or the prevailing Central Bank Rate at the time the amount is to be reimbursed by the defendants to plaintiff or whatever is lower. This is without

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Page 1029 of 1485

prejudice however, to the rights of the defendants (accommodating parties) to go against the group of Adelina Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc., (Beneficiaries- accommodated parties) who are privy to the defendants. No pronouncement as to costs. No other award of damages for non[e] has been proven. SO ORDERED.1471[28]

The RTC held that spouses Cheah were guilty of contributory negligence. Because Ofelia trusted a friends friend whom she did not know and considering the amount of the check made payable to cash, the RTC opined that Ofelia showed lack of vigilance in her dealings. She should have exercised due care by investigating the negotiability of the check and the identity of the drawer. While the court found that the proximate cause of the wrongful payment of the check was PNBs negligence in not observing the 15-day guarantee period rule, it ruled that spouses Cheah still cannot escape liability to reimburse PNB the value of the check as an accommodation party pursuant to Section 29 of the Negotiable Instruments Law. 1472[29] It likewise applied the principle of solutio indebiti under the Civil Code. both parties as they are. With regard to the award of other forms of damages, the RTC held that each party must suffer the consequences of their own acts and thus left

Unwilling to accept the judgment, the spouses Cheah appealed to the CA.

Ruling of the Court of Appeals

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Page 1030 of 1485

While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to suffer the consequences of Ofelias lack of care and prudence in immediately trusting a stranger, the appellate court did not hold PNB scot-free. It ruled in its August 22, 2005 Decision,1473[30] viz:

As both parties were equally negligent, it is but right and just that both parties should equally suffer and shoulder the loss. The scam would not have been possible without the negligence of both parties. As earlier stated, the complaint of PNB cannot be dismissed because the Cheah spouses were negligent and Ms. Cheah took an active part in the deposit of the check and the withdrawal of the subject amounts. On the other hand, the Cheah spouses cannot entirely bear the loss because PNB allowed her to withdraw without waiting for the clearance of the check. The remedy of the parties is to go after those who perpetrated, and benefited from, the scam. WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch 5, Manila, in Civil Case No. 94-71022, is hereby REVERSED and SET ASIDE and another one entered DECLARING both parties equally negligent and should suffer and shoulder the loss. Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah spouses the amount due to them. SO ORDERED.1474[31]

In so ruling, the CA ratiocinated that PNB Buendia Branchs non-receipt of the SWIFT message from Philadelphia National Bank within the 15-day clearing period is not an acceptable excuse. Applying the last clear chance doctrine, the CA held that PNB had the last clear opportunity to avoid the impending loss of the money and yet, it glaringly exhibited its negligence in allowing the withdrawal of funds without exhausting the 15-day clearing period which has always been a standard banking practice as testified to by PNBs own officers, and as provided in its own General Circular No. 52/101/88. To the CA, PNB cannot claim from spouses Cheah even if the latter are accommodation parties under the law as the banks own negligence is the proximate cause of the damage it sustained. Nevertheless, it also found Ofelia guilty of contributory negligence. Thus, both parties should be made equally responsible for the resulting loss.

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Page 1031 of 1485

Both parties filed their respective Motions for Reconsideration1475[32] but same were denied in a Resolution1476[33] dated December 21, 2005.

Hence, these Petitions for Review on Certiorari.

Our Ruling

The petitions for review lack merit. Hence, we affirm the ruling of the CA. PNBs act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the loss.

Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. x x x To determine the proximate cause of a controversy, the question that needs to be asked is: If the event did not happen, would the injury have resulted? If the answer is no, then the event is the proximate cause.1477[34]

Here, while PNB highlights Ofelias fault in accommodating a strangers check and depositing it to the bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day clearing period, an act which contravened established banking rules and practice.

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Page 1032 of 1485

It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. As declared by Josephine Estella, the Administrative Service Officer who was the banks Remittance Examiner, what was unusual in the processing of the check was that the lapse of 15 banking days was not observed.1478[35] Even PNBs agreement with Philadelphia National Bank1479[36] regarding the rules on the collection of the proceeds of US dollar checks refers to business/ banking days. Ofelia deposited the subject check on November 4, 1992. Hence, the 15th banking day from the date of said deposit should fall on November 25, 1992. However, what happened was that PNB Buendia Branch, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18, 1992, a week before the lapse of the standard 15-day clearing period.

This Court already held that the payment of the amounts of checks without previously clearing them with the drawee bank especially so where the drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary banking practice. 1480[37] Also, in Associated Bank v. Tan,1481[38] wherein the bank allowed the withdrawal of the value of a check prior to its clearing, we said that [b]efore the check shall have been cleared for deposit, the collecting bank can only assume at its own risk x x x that the check would be cleared and paid out. The delay in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT message notifying it of the dishonor of the subject check is of no moment, because had PNB Buendia Branch waited for the expiration of the clearing period and had never released during that time the proceeds of the check, it would have already been duly notified of its dishonor. Clearly, PNBs disregard of its preventive and protective measure against the possibility of being victimized by bad checks had brought upon itself the injury of losing a significant amount of money.

It bears stressing that the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected. 1482[39] PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business

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Page 1033 of 1485

prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected. 1483[40] With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently the 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.1484[41] A bank is expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded.

Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle of solutio indebiti, which is laid down in Article 2154 of the Civil Code:1485[42]

Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

[T]he indispensable requisites of the juridical relation known as solutio indebiti, are, (a) that he who paid was not under obligation to do so; and (b) that the payment was made by reason of an essential mistake of fact.1486[43]

In the case at bench, PNB cannot recover the proceeds of the check under the principle it invokes. In the first place, the gross negligence of PNB, as earlier discussed, can never be equated

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with a mere mistake of fact, which must be something excusable and which requires the exercise of prudence. No recovery is due if the mistake done is one of gross negligence.

The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the bank

Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection.1487[44]

The CA found Ofelias credulousness blameworthy.

We agree.

Indeed, Ofelia failed to

observe caution in giving her full trust in accommodating a complete stranger and this led her and her husband to be swindled. Considering that Filipina was not personally known to her and the amount of the foreign check to be encashed was $300,000.00, a higher degree of care is expected of Ofelia which she, however, failed to exercise under the circumstances. Another circumstance which should have goaded Ofelia to be more circumspect in her dealings was when a bank officer called her up to inform that the Bank of America check has already been cleared way earlier than the 15-day clearing period. The fact that the check was cleared after only eight banking days from the time it was deposited or contrary to what Garin told her that clearing takes 15 days should have already put Ofelia on guard. She should have first verified the regularity of such hasty clearance considering that if something goes wrong with the transaction, it is she and her husband who would be put at risk and not the accommodated party. However, Ofelia chose to ignore the same and instead actively participated in immediately withdrawing the proceeds of the check. Thus, we are one with the CA in ruling that Ofelias prior consultation with PNB officers is not enough to totally absolve her of any liability. In the first place, she should have shunned any participation in that palpably shady transaction.

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In any case, the complaint against the spouses Cheah could not be dismissed. As PNBs client, Ofelia was the one who dealt with PNB and negotiated the check such that its value was credited in her and her husbands account. Being the ones in privity with PNB, the spouses Cheah are therefore the persons who should return to PNB the money released to them.

All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are equally negligent and should therefore equally suffer the loss. consequences of their mistakes. The two must both bear the

WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865 and in G.R. No. 170892 are both DENIED. The assailed August 22, 2005 Decision and December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are hereby AFFIRMED in toto.

SO ORDERED. Republic SUPREME Manila THIRD DIVISION of the Philippines COURT

G.R. No. 119178 June 20, 1997 LINA LIM LAO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

PANGANIBAN, J.: May an employee who, as part of her regular duties, signs blank corporate checks with the name of the payee and the amount drawn to be filled later by another signatory and, therefore, does so without actual knowledge of whether such checks are funded, be held criminally liable for violation of Batas Pambansa Bilang 22 (B.P. 22), when checks so signed

Page 1036 of 1485

are dishonored due to insufficiency of funds? Does a notice of dishonor sent to the main office of the corporation constitute a valid notice to the said employee who holds office in a separate branch and who had no actual knowledge thereof? In other words, is constructive knowledge of the corporation, but not of the signatory-employee, sufficient? These are the questions raised in the petition filed on March 21, 1995 assailing the Decision 1 of Respondent Court of Appeals 2 promulgated on December 9, 1994 in CA-G.R. CR No. 14240 dismissing the appeal of petitioner and affirming the decision dated September 26, 1990 in Criminal Case Nos. 84-26967 to 84-26969 of the Regional Trial Court of Manila, Branch 33. The dispositive portion of the said RTC decision affirmed by the respondent appellate court reads: 3 WHEREFORE, after a careful consideration of the evidence presented by the prosecution and that of the defense, the Court renders judgment as follows: In Criminal Case No. 84-26969 where no evidence was presented by the prosecution notwithstanding the fact that there was an agreement that the cases be tried jointly and also the fact that the accused Lina Lim Lao was already arraigned, for failure of the prosecution to adduce evidence against the accused, the Court hereby declares her innocent of the crime charged and she is hereby acquitted with cost de oficio. For Criminal Case No. 84-26967, the Court finds the accused Lina Lim Lao guilty beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of insolvency. For Criminal Case No. 84-26968, the Court finds the accused Lina Lim Lao guilty beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of of (sic) insolvency. For the two cases the accused is ordered to pay the cost of suit. The cash bond put up by the accused for her provisional liberty in Criminal Case No. 84-26969 where she is declared acquitted is hereby ordered cancelled (sic). With reference to the accused Teodulo Asprec who has remained at large, in order that the cases as against him may not remain pending in the docket for an indefinite period, let the same be archived without prejudice to its subsequent prosecution as soon as said accused is finally apprehended. Let a warrant issue for the arrest of the accused Teodulo Asprec which warrant need not be returned to this Court until the accused is finally arrested. SO ORDERED. The Facts Version of the Prosecution

Page 1037 of 1485

The facts are not disputed. We thus lift them from the assailed Decision, as follows: Appellant (and now Petitioner Lina Lim Lao) was a junior officer of Premiere Investment House (Premiere) in its Binondo Branch. As such officer, she was authorized to sign checks for and in behalf of the corporation (TSN, August 16, 1990, p. 6). In the course of the business, she met complainant Father Artelijo Pelijo, the provincial treasurer of the Society of the Divine Word through Mrs. Rosemarie Lachenal, a trader for Premiere. Father Palijo was authorized to invest donations to the society and had been investing the society's money with Premiere (TSN, June 23, 1987, pp. 5, 9-10). Father Palijo had invested a total of P514,484.04, as evidenced by the Confirmation of Sale No. 82-6994 (Exh "A") dated July 8, 1993. Father Palijo was also issued Traders Royal Bank (TRB) checks in payment of interest, as follows: Check Date Amount 299961 Oct. 7, 1993 (sic) P 150,000.00 (Exh. "B") 299962 Oct. 7, 1983 P 150,000.00 (Exh. "C") 323835 Oct. 7, 1983 P 26,010.73 All the checks were issued in favor of Artelijo A. Palijo and signed by appellant (herein petitioner) and Teodulo Asprec, who was the head of operations. Further evidence of the transaction was the acknowledgment of postdated checks dated July 8, 1983 (Exh. "D") and the cash disbursement voucher (Exh. "F", TSN, supra, at pp. 11-16). When Father Palijo presented the checks for encashment, the same were dishonored for the reason "Drawn Against Insufficient Funds" (DAIF). Father Palijo immediately made demands on premiere to pay him the necessary amounts. He first went to the Binondo Branch but was referred to the Cubao Main Branch where he was able to talk with the President, Mr. Cario. For his efforts, he was paid P5,000.00. Since no other payments followed, Father Palijo wrote Premiere a formal letter of demand Subsequently, Premiere was placed under receivership (TSN, supra, at pp. 16-19). 4 Thereafter, on January 24, 1984, Private Complainant Palijo filed an affidavit-complaint against Petitioner Lina Lim Lao and Teodulo Asprec for violation of B.P. 22. After preliminary investigation, 5 three Informations charging Lao and Asprec with the offense defined in the first paragraph of Section 1, B.P. 22 were filed by Assistant Fiscal Felix S. Caballes before the trial court on May 11, 1984, 6 worded as follows: 1. In Criminal Case No. 84-26967: That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299962 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason:

Page 1038 of 1485

"Insufficient Funds"; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice. CONTRARY TO LAW. 2. In Criminal Case No. 84-26968: That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299961 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, '83 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: "Insufficient Funds"; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice. CONTRARY TO LAW. 3. And finally in Criminal Case No. 84-26969: That on or about July 8, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account for value a Traders Royal Bank Check No. 323835 for P26,010.03 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: "Insufficient Funds"; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice. CONTRARY TO LAW. Upon being arraigned, petitioner assisted by counsel pleaded "not guilty." Asprec was not arrested; he has remained at large since the trial, and even now on appeal. After due trial, the Regional Trial Court convicted Petitioner Lina Lim Lao in Criminal Case Nos. 84-26967 and 84-26968 but acquitted her in Criminal Case No. 84-26969. 7 On appeal, the Court of Appeals affirmed the decision of the trial court. Version of the Defense Petitioner aptly summarized her version of the facts of the case thus:

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Petitioner Lina Lim Lao was, in 1983, an employee of Premiere Financing Corporation (hereinafter referred to as the "Corporation"), a corporation engaged in investment management, with principal business office at Miami, Cubao, Quezon City. She was a junior officer at the corporation who was, however, assigned not at its main branch but at the corporation's extension office in (Binondo) Manila. (Ocampo, T . S. N ., 16 August 1990, p. 14) In the regular course of her duties as a junior officer, she was required to cosign checks drawn against the account of the corporation. The other co-signor was her head of office, Mr. Teodulo Asprec. Since part of her duties required her to be mostly in the field and out of the office, it was normal procedure for her to sign the checks in blank, that is, without the names of the payees, the amounts and the dates of maturity. It was likewise Mr. Asprec, as head of office, who alone decided to whom the checks were to be ultimately issued and delivered. (Lao, T . S. N., 28 September 1989, pp. 9-11, 17, 19.) In signing the checks as part of her duties as junior officer of the corporation, petitioner had no knowledge of the actual funds available in the corporate account. (Lao, T . S. N., 28 September 1989, p. 21) The power, duty and responsibility of monitoring and assessing the balances against the checks issued, and funding the checks thus issued, devolved on the corporation's Treasury Department in its main office in Cubao, Quezon City, headed then by the Treasurer, Ms. Veronilyn Ocampo. (Ocampo, T . S. N., 19 July 1990, p. 4; Lao, T . S. N., 28 September 1989, pp. 21-23) All bank statements regarding the corporate checking account were likewise sent to the main branch in Cubao, Quezon City, and not in Binondo, Manila, where petitioner was holding office. (Ocampo, T . S. N., 19 July 1990, p. 24; Marqueses, T . S. N., 22 November 1988, p. 8) The foregoing circumstances attended the issuance of the checks subject of the instant prosecution. The checks were issued to guarantee payment of investments placed by private complainant Palijo with Premiere Financing Corporation. In his transactions with the corporation, private complainant dealt exclusively with one Rosemarie Lachenal, a trader connected with the corporation, and he never knew nor in any way dealt with petitioner Lina Lim Lao at any time before or during the issuance of the delivery of the checks. ( Palijo, T . S. N., 23 June 1987, pp. 28-29, 32-34; Lao, T . S. N., 15 May 1990, p. 6; Ocampo, T . S. N., p. 5) Petitioner Lina Lim Lao was not in any way involved in the transaction which led to the issuance of the checks. When the checks were co-signed by petitioner, they were signed in advance and in blank, delivered to the Head of Operations, Mr. Teodulo Asprec, who subsequently filled in the names of the payee, the amounts and the corresponding dates of maturity. After Mr. Asprec signed the checks, they were delivered to private complainant Palijo. (Lao, T . S. N ., 28 September 1989, pp. 8-11, 17, 19; note also that the trial court in its decision fully accepted the testimony of petitioner [Decision of the Regional Trial Court, p . 12], and that the Court of Appeals affirmed said decision in toto ) Petitioner Lina Lim Lao was not in any way involved in the completion, and the subsequent delivery of the check to private complainant Palijo.

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At the time petitioner signed the checks, she had no knowledge of the sufficiency or insufficiency of the funds of the corporate account. ( Lao, T . S. N ., 28 September 1989, p. 21) It was not within her powers, duties or responsibilities to monitor and assess the balances against the issuance; much less was it within her (duties and responsibilities) to make sure that the checks were funded. Premiere Financing Corporation had a Treasury Department headed by a Treasurer, Ms. Veronilyn Ocampo, which alone had access to information as to account balances and which alone was responsible for funding the issued checks. ( Ocampo, T . S. N ., 19 July 1990, p. 4; Lao, T . S. N ., 28 September 1990, p. 23) All statements of account were sent to the Treasury Department located at the main office in Cubao, Quezon City. Petitioner was holding office at the extension in Binondo Manila. ( Lao, T . S. N., 28 September 1989, p. 24-25) Petitioner Lina Lim Lao did not have knowledge of the insufficiency of the funds in the corporate account against which the checks were drawn. When the checks were subsequently dishonored, private complainant sent a notice of said dishonor to Premier Financing Corporation at its head office in Cubao, Quezon City. (Please refer to Exh. "E"; Palijo, T . S. N., 23 June 1987, p. 51) Private complainant did not send notice of dishonor to petitioner. ( Palijo, T . S. N., 24 July 1987, p. 10) He did not follow up his investment with petitioner. (Id.) Private complainant never contacted, never informed, and never talked with, petitioner after the checks had bounced. ( Id., at p. 29) Petitioner never had notice of the dishonor of the checks subject of the instant prosecution. The Treasurer of Premiere Financing Corporation, Ms. Veronilyn Ocampo testified that it was the head office in Cubao, Quezon City, which received notice of dishonor of the bounced checks. ( Ocampo, T . S. N ., 19 July 1990 pp. 7-8) The dishonor of the check came in the wake of the assassination of the late Sen. Benigno Aquino, as a consequence of which event a majority of the corporation's clients pre-terminated their investments. A period of extreme illiquidity and financial distress followed, which ultimately led to the corporation's being placed under receivership by the Securities and Exchange Commission. (Ocampo, T . S. N ., 16 August 1990, p. 8, 19; Lao, T . S. N ., 28 September 1989, pp. 25-26; Please refer also to Exhibit "1", the order of receivership issued by the Securities and Exchange Commission ) Despite the Treasury Department's and (Ms. Ocampo's) knowledge of the dishonor of the checks, however, the main office in Cubao, Quezon City never informed petitioner Lina Lim Lao or anybody in the Binondo office for that matter. (Ocampo, T .S. N ., 16 August 1990, pp. 9-10) In her testimony, she justified her omission by saying that the checks were actually the responsibility of the main office (Ocampo, T . S. N ., 19 July 1990, p. 6) and that, at that time of panic withdrawals and massive pre-termination of clients' investments, it was futile to inform the Binondo office since the main office was strapped for cash and in deep financial distress. (Id., at pp. 7-9) Moreover, the confusion which came in the wake of the Aquino assassination and the consequent panic withdrawals caused them to lose direct communication with the Binondo office. (Ocampo, T . S. N ., 16 August 1990, p. 9-10) As a result of the financial crisis and distress, the Securities and Exchange Commission placed Premier Financing Corporation under receivership, appointing a rehabilitation receiver for the purpose of settling claims against the corporation. (Exh. "1") As he himself admits, private complainant filed a claim for the payment of the bounced check before and even after the

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corporation had been placed under receivership. (Palijo, T . S. N ., 24 July 1987, p. 10-17) A check was prepared by the receiver in favor of the private complainant but the same was not claimed by him. ( Lao, T . S. N ., 15 May 1990, p. 18) Private complainant then filed the instant criminal action. On 26 September 1990, the Regional Trial Court of Manila, Branch 33, rendered a decision convicting petitioner, and sentencing the latter to suffer the aggregate penalty of two (2) years and to pay a fine in the total amount of P300,000.00. On appeal, the Court of Appeals affirmed said decision. Hence, this petition for review. 8 The Issue In the main, petitioner contends that the public respondent committed a reversible error in concluding that lack of actual knowledge of insufficiency of funds was not a defense in a prosecution for violation of B.P. 22. Additionally, the petitioner argues that the notice of dishonor sent to the main office of the corporation, and not to petitioner herself who holds office in that corporation's branch office, does not constitute the notice mandated in Section 2 of BP 22; thus, there can be no prima facie presumption that she had knowledge of the insufficiency of funds. The Court's Ruling The petition is meritorious. Strict Interpretation of Penal Statutes It is well-settled in this jurisdiction that penal statutes are strictly construed against the state and liberally for the accused, so much so that the scope of a penal statute cannot be extended by good intention, implication, or even equity consideration. Thus, for Petitioner Lina Lim Lao's acts to be penalized under the Bouncing Checks Law or B.P. 22, "they must come clearly within both the spirit and the letter of the statute." 9 The salient portions of B.P. 22 read: Sec. 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. The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit or to cover the full amount of the check if presented within a period of ninety (90) days from

Page 1042 of 1485

the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. Sec. 2. Evidence of knowledge of insufficient funds . The making, drawing and issuance of a check payment of which is refused by the drawee 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. This Court listed the elements of the offense penalized under B.P. 22, as follows: "(1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment." 10 Justice Luis B. Reyes, an eminent authority in criminal law, also enumerated the elements of the offense defined in the first paragraph of Section 1 of B.P. 22, thus: 1. That a person makes or draws and issues any check. 2. That the check is made or drawn and issued to apply on account or for value. 3. That the person who makes or draws and issues the check 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. 4. That 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 reason, ordered the bank to stop payment. 11 Crux of the Petition Petitioner raised as defense before the Court of Appeals her lack of actual knowledge of the insufficiency of funds at the time of the issuance of the checks, and lack of personal notice of dishonor to her. The respondent appellate court, however, affirmed the RTC decision, reasoning that "the maker's knowledge of the insufficiency of funds is legally presumed from the dishonor of his checks for insufficiency of funds. (People vs. Laggui, 171 SCRA 305; Nieras vs. Hon. Auxencio C. Dacuycuy, 181 SCRA 1)" 12 The Court of Appeals also stated that "her alleged lack of knowledge or intent to issue a bum check would not exculpate her from any responsibility under B.P. Blg. 22, since the act of making and issuing a worthless check

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is a malum prohibitum." 13 In the words of the Solicitor General, "(s)uch alleged lack of knowledge is not material for petitioner's liability under B.P. Blg. 22." 14 Lack of Actual Knowledge of Insufficiency of Funds Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential element of the offense. 15 There is a prima facie presumption of the existence of this element from the fact of drawing, issuing or making a check, the payment of which was subsequently refused for insufficiency of funds. It is important to stress, however, that this is not a conclusive presumption that forecloses or precludes the presentation of evidence to the contrary. In the present case, the fact alone that petitioner was a signatory to the checks that were subsequently dishonored merely engenders the prima facie presumption that she knew of the insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption. 16 Therefore, if such knowledge of insufficiency of funds is proven to be actually absent or non-existent, the accused should not be held liable for the offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is not thereby excused from its responsibility of proving beyond reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of funds. After a thorough review of the case at bar, the Court finds that Petitioner Lina Lim Lao did not have actual knowledge of the insufficiency of funds in the corporate accounts at the time she affixed her signature to the checks involved in this case, at the time the same were issued, and even at the time the checks were subsequently dishonored by the drawee bank. The scope of petitioner's duties and responsibilities did not encompass the funding of the corporation's checks; her duties were limited to the marketing department of the Binondo branch. 17 Under the organizational structure of Premiere Financing Corporation, funding of checks was the sole responsibility of the Treasury Department. Veronilyn Ocampo, former Treasurer of Premiere, testified thus: Q Will you please tell us whose ( sic) responsible for the funding of checks in Premiere? A The one in charge is the Treasury Division up to the Treasury Disbursement and then they give it directly to Jose Cabacan, President of Premiere. 18 Furthermore, the Regional Trial Court itself found that, since Petitioner Lina Lim Lao was often out in the field taking charge of the marketing department of the Binondo branch, she signed the checks in blank as to name of the payee and the amount to be drawn, and without knowledge of the transaction for which they were issued . 19 As a matter of company practice, her signature was required in addition to that of Teodulo Asprec, who alone placed the name of the payee and the amount to be drawn thereon. This is clear from her testimony: q . . . Will you please or will you be able to tell us the condition of this check when you signed this or when you first saw this check?

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Witness a I signed the check in blank. There were no payee. No amount, no date, sir. q Why did you sign this check in blank when there was no payee, no amount and no date? a It is in order to facilitate the transaction, sir. xxx xxx xxx COURT (to witness) q Is that your practice? Witness a Procedure, Your Honor. COURT That is quiet (sic) unusual. That is why I am asking that last question if that is a practice of your office. a As a co-signer, I sign first, sir. q So the check cannot be encashed without your signature, cosignature? a Yes, sir. Atty. Gonzales (to witness) q Now, you said that you sign first, after you sign, who signs the check? a Mr. Teodoro Asprec, sir. q Is this Teodoro Asprec the same Teodoro Asprec, one of the accused in all these cases? a Yes, sir. q Now, in the distribution or issuance of checks which according to you, as a co-signee, you sign. Who determines to whom to

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issue or to whom to pay the check after Teodoro Asprec signs the check? Witness a He is the one. Atty. Gonzales q Mr. Asprec is the one in-charge in . . . are you telling the Honorable Court that it was Teodoro Asprec who determines to whom to issue the check? Does he do that all the time? Court q Does he all the time? (to witness) a Yes, Your Honor. q So the check can be negotiated? So, the check can be good only upon his signing? Without his signing or signature the check cannot be good? a Yes, Your Honor. Atty. Gonzales (to witness) q You made reference to a transaction which according to you, you signed this check in order to facilitate the transaction . . . I withdraw that question. I will reform. COURT (for clarification to witness) Witness may answer. q Only to facilitate your business transaction, so you signed the other checks? Witness a Yes, Your Honor. q So that when ever there is a transaction all is needed . . . all that is needed is for the other co-signee to sign?

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a Yes, Your Honor. COURT (To counsel) Proceed. Atty. Gonzales (to witness) q Why is it necessary for you to sign? a Because most of the time I am out in the field in the afternoon, so, in order to facilitate the transaction I sign so if I am not around they can issue the check. 20 Petitioner did not have any knowledge either of the identity of the payee or the transaction which gave rise to the issuance of the checks. It was her co-signatory, Teodulo Asprec, who alone filled in the blanks, completed and issued the checks. That Petitioner Lina Lim Lao did not have any knowledge or connection with the checks' payee, Artelijo Palijo, is clearly evident even from the latter's testimony, viz.: ATTY. GONZALES: Q When did you come to know the accused Lina Lim Lao? A I cannot remember the exact date because in their office Binondo, COURT: (before witness could finish) Q More or less? A It must have been late 1983. ATTY. GONZALES: Q And that must or that was after the transactions involving alleged checks marked in evidence as Exhibits B and C? A After the transactions. Q And that was also before the transaction involving that confirmation of sale marked in evidence as Exhibit A? A It was also. Q And so you came to know the accused Lina Lim Lao when all those transactions were already consummated?

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A Yes, sir. Q And there has never been any occasion where you transacted with accused Lina Lim Lao, is that correct? A None, sir, there was no occasion. Q And your coming to know Lina Lim Lao the accused in these cases was by chance when you happened to drop by in the office at Binondo of the Premier Finance Corporation, is that what you mean? A Yes, sir. Q You indicated to the Court that you were introduced to the accused Lina Lim Lao, is that correct? A I was introduced. xxx xxx xxx Q After that plain introduction there was nothing which transpired between you and the accused Lina Lim Lao? A There was none.
21

Since Petitioner Lina Lim Lao signed the checks without knowledge of the insufficiency of funds, knowledge she was not expected or obliged to possess under the organizational structure of the corporation, she may not be held liable under B.P. 22. For in the final analysis, penal statutes such as B.P. 22 "must be construed with such strictness as to carefully safeguard the rights of the defendant . . ." 22 The element of knowledge of insufficiency of funds having been proven to be absent, petitioner is therefore entitled to an acquittal. This position finds support in Dingle vs. Intermediate Appellate Court 23 where we stressed that knowledge of insufficiency of funds at the time of the issuance of the check was an essential requisite for the offense penalized under B.P. 22. In that case, the spouses Paz and Nestor Dingle owned a family business known as "PMD Enterprises." Nestor transacted the sale of 400 tons of silica sand to the buyer Ernesto Ang who paid for the same. Nestor failed to deliver. Thus, he issued to Ernesto two checks, signed by him and his wife as authorized signatories for PMD Enterprises, to represent the value of the undelivered silica sand. These checks were dishonored for having been "drawn against insufficient funds." Nestor thereafter issued to Ernesto another check, signed by him and his wife Paz, which was likewise subsequently dishonored. No payment was ever made; hence, the spouses were charged with a violation of B.P. 22 before the trial court which found them both guilty. Paz appealed the judgment to the then Intermediate Appellate Court which modified the same by reducing the penalty of imprisonment to thirty days. Not satisfied, Paz filed an appeal to this Court "insisting on her innocence" and "contending that she did not incur any criminal liability under B.P. 22 because she had no knowledge of the dishonor of the checks issued by her husband and, for that matter, even the transaction of her husband with Ang." The Court ruled in Dingle as follows:

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The Solicitor General in his Memorandum recommended that petitioner be acquitted of the instant charge because from the testimony of the sole prosecution witness Ernesto Ang, it was established that he dealt exclusively with Nestor Dingle. Nowhere in his testimony is the name of Paz Dingle ever mentioned in connection with the transaction and with the issuance of the check. In fact, Ang categorically stated that it was Nestor Dingle who received his two (2) letters of demand. This lends credence to the testimony of Paz Dingle that she signed the questioned checks in blank together with her husband without any knowledge of its issuance, much less of the transaction and the fact of dishonor. In the case of Florentino Lozano vs. Hon. Martinez, promulgated December 18, 1986, it was held that an essential element of the offense is knowledge on the part of the maker or drawer of the check of the insufficiency of his funds. WHEREFORE, on reasonable doubt, the assailed decision of the Intermediate Appellate Court (now the Court of Appeals) is hereby SET ASIDE and a new one is hereby rendered ACQUITTING petitioner on reasonable doubt. 24 In rejecting the defense of herein petitioner and ruling that knowledge of the insufficiency of funds is legally presumed from the dishonor of the checks for insufficiency of funds, Respondent Court of Appeals cited People vs. Laggui 25 and Nierras vs. Dacuycuy. 26 These, however, are inapplicable here. The accused in both cases issued personal not corporate checks and did not aver lack of knowledge of insufficiency of funds or absence of personal notice of the check's dishonor. Furthermore, in People vs. Laggui 27 the Court ruled mainly on the adequacy of an information which alleged lack of knowledge of insufficiency of funds at the time the check was issued and not at the time of its presentment. On the other hand, the Court in Nierras vs. Dacuycuy 28 held mainly that an accused may be charged under B.P. 22 and Article 315 of the Revised Penal Code for the same act of issuing a bouncing check. The statement in the two cases that mere issuance of a dishonored check gives rise to the presumption of knowledge on the part of the drawer that he issued the same without funds does not support the CA Decision. As observed earlier, there is here only a prima facie presumption which does not preclude the presentation of contrary evidence. On the contrary, People vs. Laggui clearly spells out as an element of the offense the fact that the drawer must have knowledge of the insufficiency of funds in, or of credit with, the drawee bank for the payment of the same in full on presentment; hence, it even supports the petitioner's position. Lack of Adequate Notice of Dishonor There is another equally cogent reason for the acquittal of the accused. There can be no prima facie evidence of knowledge of insufficiency of funds in the instant case because no notice of dishonor was actually sent to or received by the petitioner. The notice of dishonor may be sent by the offended party or the drawee bank. The trial court itself found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the drawee bank based on the unrebutted testimony of Ocampo "(t)hat the checks bounced when presented with the drawee bank but she did not inform anymore the Binondo branch and Lina Lim Lao as there was no need to inform them as the corporation was in distress." 29 The Court of Appeals affirmed this factual finding. Pursuant to prevailing jurisprudence, this finding is binding on this Court. 30

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Indeed, this factual matter is borne by the records. The records show that the notice of dishonor was addressed to Premiere Financing Corporation and sent to its main office in Cubao, Quezon City. Furthermore, the same had not been transmitted to Premiere's Binondo Office where petitioner had been holding office. Likewise no notice of dishonor from the offended party was actually sent to or received by Petitioner Lao. Her testimony on this point is as follows: Atty. Gonzales q Will you please tell us if Father Artelejo Palejo ( sic) ever notified you of the bouncing of the check or the two (2) checks marked as Exhibit "B" or "C" for the prosecution? Witness a No, sir. q What do you mean no, sir? a I was never given a notice. I was never given notice from Father Palejo (sic). COURT (to witness) q Notice of what? a Of the bouncing check, Your Honor.
31

Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a bum check; there must also be a showing that, within five banking days from receipt of the notice of dishonor , such maker or drawer failed to pay the holder of the check the amount due thereon or to make arrangement for its payment in full by the drawee of such check. It has been observed that the State, under this statute, actually offers the violator "a compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to perform it the action is abated." This was also compared "to certain laws 32 allowing illegal possessors of firearms a certain period of time to surrender the illegally possessed firearms to the Government, without incurring any criminal liability." 33 In this light, the full payment of the amount appearing in the check within five banking days from notice of dishonor is a "complete defense." 34 The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand and the basic postulates of fairness require that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under B.P. 22.

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In this light, the postulate of Respondent Court of Appeals that "(d)emand on the Corporation constitutes demand on appellant (herein petitioner)," 35 is erroneous. Premiere has no obligation to forward the notice addressed to it to the employee concerned, especially because the corporation itself incurs no criminal liability under B.P. 22 for the issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence, personal knowledge of the notice of dishonor is necessary. Consequently, constructive notice to the corporation is not enough to satisfy due process. Moreover, it is petitioner, as an officer of the corporation, who is the latter's agent for purposes of receiving notices and other documents, and not the other way around. It is but axiomatic that notice to the corporation, which has a personality distinct and separate from the petitioner, does not constitute notice to the latter. Epilogue In granting this appeal, the Court is not unaware of B.P. 22's intent to inculcate public respect for and trust in checks which, although not legal tender, are deemed convenient substitutes for currency. B.P. 22 was intended by the legislature to enhance commercial and financial transactions in the Philippines by penalizing makers and issuers of worthless checks. The public interest behind B.P. 22 is thus clearly palpable from its intended purpose.
36

At the same time, this Court deeply cherishes and is in fact bound by duty to protect our people's constitutional rights to due process and to be presumed innocent until the contrary is proven. 37 These rights must be read into any interpretation and application of B.P. 22. Verily, the public policy to uphold civil liberties embodied in the Bill of Rights necessarily outweighs the public policy to build confidence in the issuance of checks. The first is a basic human right while the second is only proprietary in nature. 38 Important to remember also is B.P. 22's requirements that the check issuer must know "at the time of issue that he does not have sufficient funds in or credit with the drawee bank" and that he must receive "notice that such check has not been paid by the drawee." Hence, B.P. 22 must not be applied in a manner which contravenes an accused's constitutional and statutory rights. There is also a social justice dimension in this case. Lina Lim Lao is only a minor employee who had nothing to do with the issuance, funding and delivery of checks. Why she was required by her employer to countersign checks escapes us. Her signature is completely unnecessary for it serves no fathomable purpose at all in protecting the employer from unauthorized disbursements. Because of the pendency of this case, Lina Lim Lao stood in jeopardy for over a decade of losing her liberty and suffering the wrenching pain and loneliness of imprisonment, not to mention the stigma of prosecution on her career and family life as a young mother, as well as the expenses, effort and aches in defending her innocence. Upon the other hand, the senior official Teodulo Asprec who appears responsible for the issuance, funding and delivery of the worthless checks has escaped criminal prosecution simply because he could not be located by the authorities. The case against him has been archived while the awesome prosecutory might of the government and the knuckled ire of the private complainant were all focused on poor petitioner. Thus, this Court exhorts the prosecutors and the police authorities concerned to exert their best to arrest and prosecute Asprec so that justice in its pristine essence can be achieved in all fairness to the complainant, Fr. Artelijo Palijo, and the People of the Philippines. By this Decision, the Court enjoins the Secretary of Justice and the Secretary of Interior and Local Government to see that essential justice is done and the real culprit(s) duly-prosecuted and punished. WHEREFORE, the questioned Decision of the Court of Appeals affirming that of the Regional Trial Court, is hereby REVERSED and SET ASIDE. Petitioner Lina Lim Lao is ACQUITTED. The

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Clerk of Court is hereby ORDERED to furnish the Secretary of Justice and the Secretary of Interior and Local Government with copies of this Decision. No costs. SO ORDERED. Narvasa, C.J., Davide, Jr. and Melo, JJ., concur. Francisco, J., is on leave. Republic SUPREME Manila THIRD DIVISION of the Philippines COURT

G.R. No. 131540 December 2, 1999 BETTY KING, vs. PEOPLE OF THE PHILIPPINES, respondent. petitioner,

PANGANIBAN, J.: Under Batas Pambansa Blg. 22 (BP 22), the prosecution must prove not only that the accused issued a check that was subsequently dishonored. It must also established that the accused was actually notified that the check was dishonored, and that he or she failed, within five banking days from receipt of the notice, to pay the holder of the check the amount due thereon or to make arrangement for its payment. Absent proof that the accused received such notice, a prosecution for violation of the Bouncing Check Law cannot prosper. The Case Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the January 30, 1997 Decision 1 of the Court of Appeals 2 (CA) in CA-GR CR No. 18226 and its November 5, 1997 Resolution 3 denying reconsideration. The CA affirmed the June 14, 1994 Decision 4 of the Regional Trial Court (RTC) of Makati, Metro Manila 5 in Criminal Case Nos. 93-3335 to 933345 which convicted petitioner of 11 counts of violation of BP 22, otherwise known as the Bouncing Check Law. On April 28, 1993, Second Assistant Provincial Prosecutor Jaime A. Adoc filed against petitioner eleven separate Informations, 6 which are identically worded, except for the check number, the amount and the date, as follows: That in or about the month of January, 1992 in the Municipality of Las Pias, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, did, then and there willfully, unlawfully and

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feloniously make or draw and issue to EILEEN FERNANDEZ herein represented by ________ to apply on account or for value the check described below: EQUITABLE BANK Check No. 021711 In the amount of P50,000.00 Postdated July 24, 1992 said accused well knowing that at the time of issue she/he did not have sufficient funds in or credit with the drawee bank for the payment in full of the face amount of such check upon their presentment, which check when presented for payment within ninety (90) days from the date thereof were subsequently dishonored by the drawee bank for the reason "Account Closed" and despite receipt of notice of such dishonor the accused failed to pay the face amount thereof or make arrangement for the full payment thereof within five (5) working days after receiving notice. 7 When arraigned, petitioner, assisted by counsel, pleaded not guilty. After the prosecution presented its evidence and rested its case, petitioner filed a Demurrer to Evidence without leave of court, on the ground that the prosecution failed to prove her guilt beyond reasonable doubt. The trial court denied the Demurrer in its assailed Decision, the dispositive portion of which reads: WHEREFORE, premises considered, the demurrer to evidence without prior leave of court is DENIED for lack of merit. Since accused has waived her right to present evidence, judgment is hereby rendered finding accused guilty beyond reasonable doubt of Violation of Batas Pambansa Bilang 22 in the eleven (11) above-entitled cases and is ordered to: 1. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P50,000.00, and to pay complainant Eileen Fernandez the amount of P50,000.00 as actual damages in Criminal Case No. 93-3335; 2. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P50,000.00, and to pay complainant Eileen Fernandez the amount of P50,000.00 as actual damages in Criminal Case No. 93-3336; 3. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P50,000.00, and to pay complainant Eileen Fernandez the amount of P50,000.00 as actual damages in Criminal Case No. 93-3337; 4. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P64,200.00, and to pay complainant Eileen Fernandez the amount of P64,200.00 as actual damages in Criminal Case No. 93-3338; 5. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P66,000.00, and to pay complainant Eileen Fernandez the amount of P66,000.00 as actual damages in Criminal Case No. 93-3339;

Page 1053 of 1485

6. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P100,000.00, and to pay complainant Eileen Fernandez the amount of P100,000.00 as actual damages in Criminal Case No. 93-3340; 7. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P150,000.00, and to pay complainant Eileen Fernandez the amount of P150,000.00 as actual damages in Criminal Case No. 93-3341; 8. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P150,000.00, and to pay complainant Eileen Fernandez the amount of P150,000.00 as actual damages in Criminal Case No. 93-3342; 9. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P130,000.00, and to pay complainant Eileen Fernandez the amount of P130,000.00 as actual damages in Criminal Case No. 93-3343; 10. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P130,000.00, and to pay complainant Eileen Fernandez the amount of P130,000.00 as actual damages in Criminal Case No. 93-3344; and, 11. Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P130,000.00, and to pay complainant Eileen Fernandez the amount of P130,000.00 as actual damages in Criminal Case No. 93-3345. 8 As already stated, the Court of Appeals affirmed the RTC in this wise:
9

WHEREFORE, the appealed decision is hereby affirmed [I]N TOTO. Costs against appellant. Hence, this Petition. The Facts Evidence for the Prosecution The Office of the Solicitor General this wise:
11 10

summarized the facts, as viewed by the prosecution, in

On several occasions in January, 1992, at Las Pias, Metro Manila, petitioner discounted with complainant Ellen Fernandez several Equitable Bank checks postdated from July 23 to 29, 1992 in the total amount of P1,070,000.00 in exchange for cash in the amount of P1,000,000.00. When the checks were deposited for payment, they were dishonored by the drawee bank because they were drawn against an account without sufficient funds. Petitioner failed to make good the checks despite demand. (Memorandum dated April 7, 1993 of Assistant Provincial Prosecutor to the Rizal Provincial Prosecutor) During the hearing on the merits of this case on September 17, 1998, the prosecution offered in evidence its documentary evidence. Petitioner admitted the genuineness and due execution of the documents presented. 12 Evidence for the Defense

Page 1054 of 1485

As noted earlier, petitioner filed a Demurrer to Evidence without leave of court. In doing so, she waived her right to present evidence and submitted the case for judgment on the basis of the documentary exhibits adduced by the prosecution. 13 Ruling of the Court of Appeals In affirming the trial court, the Court of Appeals explained that the prosecution proved all the elements of the crime. The CA also pointed out that the failure of petitioner to sign the pretrial order was not fatal to the prosecution, because her conviction was based on the evidence presented during the trial. The Issues Petitioner submits the following issues for the Court's consideration: I Whether or not the trial court and the Court of Appeals gravely erred in admitting in evidence all the documentary evidence of the prosecution though their due execution and genuineness were not duly established in evidence pursuant to the provisions of the Rules of Court and prevailing jurisprudence; II Whether or not the trial court and the Court of Appeals gravely erred in declaring that Rule 118, Section 4 of the Rules of Court, as applied in the case of Fule vs. Court of Appeals, 162 SCRA 446, which states that no agreement or admission made or entered during the pre-trial conference shall be used in evidence against the accused unless reduced to writing and signed by him and his counsel, is inapplicable in the case at bar; III Whether or not the trial court and the Court of Appeals gravely erred in ruling that the burden of evidence has already been shifted from the prosecution to the defense despite the definite factual issues in the pre-trial order; and IV Whether or not the trial court and the Court of Appeals erred in ruling that the prosecution has proven the guilt of the accused beyond reasonable doubt albeit the prosecution did not produce any evidence. 14 In the main, the resolution of the Petition hinges on (1) the admissibility and (2) the sufficiency of the prosecution evidence. This Court's Ruling The Petition has merit insofar as it contends that the elements of the crime charged have not all been proven beyond reasonable doubt.

Page 1055 of 1485

First Issue: Admissibility of Documentary Evidence Because the first, the second and the third issues raised by petitioner all refer to the same matter, they will be discussed together. She contends that the pieces of documentary evidence presented by the prosecution during pretrial are inadmissible, because she did not sign the pretrial agreement as required under Section 4 of Rule 118 of the Rules of Court. 15 Hence, she argues that there is no basis for her conviction. True, a pretrial agreement not signed by a party is inadmissible. However, the conviction of petitioner was based not on that agreement but on the documents submitted during the trial, all of which were admitted without any objection from her counsel. During the hearing on September 17, 1993, the prosecution offered as evidence the dishonored checks, the return check tickets addressed to private complainant, the notice from complainant addressed to petitioner that the checks had been dishonored, and the postmaster's letter that the notice had been returned to sender. Petitioner's counsel did not object to their admissibility. This is shown by the transcript of stenographic notes taken during the hearing on September 17, 1993: COURT: You have no objection to the admissibility , not that the Court will believe it. ATTY. MANGERA No, Your Honor. COURT: Exhibits "A" to "A" to "K" are admitted. ATTY. MAKALINTAL: We offer Exhibit "L", the return-check ticket dated July 27, 1992, relative to checks No. 021745 and 021746 indicating that these checks were returned DAIF, drawn against insufficient funds; Exh. M, returned check ticket dated July 28, 1992, relative to Check No. 021727, 021711 and 021720 likewise indicating the said checks to have been drawn against insufficient funds, Your Honor. Exhibit N, returned check ticket dated July 29, 1992, relative to Check Nos. 021749 and 021748, having the same indications; Exhibits O, returned check ticket dated July 29, 1992 relative to Check Nos. 021750 and 021753, with the same indications; Exhibits P, returned check ticket dated August 4, 1992 relative to Check No. 021752, having the same indication as being drawn against insufficient funds;

Page 1056 of 1485

Exhibit Q, the demand letter sent to the accused by Atty. Horacio Makalintal dated August 3, 1992; Exhibit R, the letter-request for certification addressed to the Postmaster General sent by the same law office dated 17 September 1992, showing that the said letter was dispatched properly by the Central Post Office of Makati; Exhibit S, 1st Indorsement of the Makati Central Post Office dated 21 September 1992; Exhibit T, the Philippine Postal Corporation Central Post Office letter dated 24 September 1992, addressed to this representation showing that there were 3 notices sent to the herein accused who received the said letter. COURT: Let's go to the third check slip; any objection to the third slip? ATTY. MANGERA: We have no objection as to the due execution and authenticity. COURT: Admitted. ATTY. MAKALINTAL: We are offering Exhibits Q, R, S and T, for the purpose of showing that there was demand duly made on the accused and that the same had been appropriately served by the Central Post Office Services of Manila. ATTY. MANGERA: We admit as to the due execution and authenticity only as to that portion, Your Honor. COURT: We are talking of admissibility now, so admitted. In other words, at this point, he makes an offer and the Court will either grant admission, [admit] it in evidence or deny it. It can deny admission if it is not properly identified etcetera. ATTY. MANGERA: I think it is already provided.

Page 1057 of 1485

COURT: So, admitted. ATTY. MAKALINTAL: With the admission of our offer, Your Honor, the prosecution rests. 16 From the foregoing, it is clear that the prosecution evidence consisted of documents offered and admitted during the trial. In view of this, the CA correctly ruled that Fule v. Court of Appeals 17 would not apply to the present controversy. In that case, a hearing was conducted during which the prosecution presented three exhibits. However, Fule's conviction was "based solely on the stipulation of facts made during rile pre-trial on August 8, 1985, which was not signed by the petitioner, nor by his counsel." Because the stipulation was inadmissible in evidence under Section 4 of Rule 118, the Court held that there was no proof of his guilt. In the present case, petitioner's conviction was based on the evidence presented during trial, and not on the stipulations made during the pretrial. Hence, petitioner's admissions during the trial are governed not by the Fule ruling or by Section 4 of Rule 118, but by Section 4 of Rule 129 which reads: Sec. 4. Judicial Admissions. An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. Hence, the trial court and the Court of Appeals did not err in taking cognizance of the said documentary evidence. Second Issue: Sufficiency of Prosecution Evidence Petitioner argues that the prosecution failed to prove beyond reasonable doubt the elements of the offense. After a careful consideration of the records of this case, we believe and so rule that the totality of the evidence presented does not support petitioner's conviction for violation of BP 22. Sec. 1 of BP 22 defines the offense as follows: Sec. 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

Page 1058 of 1485

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. The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. Accordingly, this Court has held that the elements of the crime are as follows:
18

1. The accused makes, draws or issues any check to apply to account or for value. 2. The checks subsequently dishonored by the drawee bank for insufficiency of funds or credit; or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. 3. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, drawee bank for the payment of the check in full upon its presentment. We shall analyze the evidence, purportedly establishing each of the aforementioned elements which the trial and the appellate courts relied upon. Issuance of the Questioned Checks Contending that the prosecution failed to prove the first element, petitioner maintains that she merely signed the questioned checks without indicating therein the date and the amount involved. She adds that they were improperly filled up by Eileen Fernandez. Thus, she concludes, she did not "issue" the dishonored checks in the context of the Negotiable Instruments Law, which defines "issue" as the "first delivery of the instrument complete in form to a person who takes it as a holder." 19 Petitioner's contentions are not meritorious. The questioned checks, marked as Exhibits "A" to "K," contained the date of issue and the amount involved. In fact, petitioner even admitted that she signed those checks. On the other hand, no proof was adduced to show that petitioner merely signed them in blank, or that complainant filled them up in violation of the former's instructions or their previous agreement. The evidence on record is clear that petitioner issued eleven checks, all of which were duly filled up and signed by her. Checks Dishonored Neither are we persuaded by petitioner's argument that "there appears no evidence on record that the subject checks were unpaid and dishonored." 20 Under Section 3 of BP 22, "the introduction in evidence of any unpaid and dishonored check, having the drawee's refusal to pay stamped or written thereon, or attached thereto, with the reason therefor as

Page 1059 of 1485

aforesaid, shall be prima facie evidence of the making or issuance of said check, and the due presentment to the drawee for payment and the dishonor thereof, and that the same was properly dishonored for the reason written, stamped, or attached by the drawee on such dishonored check." In the present case, the fact that the checks were dishonored was sufficiently shown by the checks themselves, which were stamped with the words "ACCOUNT CLOSED." This was further supported by the returned check tickets issued by PCI Bank, the depository bank, stating that the checks had been dishonored. Clearly, these documents constitute prima facie evidence that the drawee bank dishonored the checks. Again, no evidence was presented to rebut the prosecution's claim. Knowledge of Insufficiency of Funds To hold a person liable under BP 22, it is not enough to establish that a check issued was subsequently dishonored. It must be shown further that the person who issued the check knew "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." Because this element involves a state of mind which is difficult to establish, Section 2 of the law creates a prima facie presumption of such knowledge, as follows: 21 Sec. 2. Evidence of knowledge of insufficient funds . The making, drawing and issuance of a check payment of which is refused by the drawee 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. In other words, the prima facie presumption arises when a check is issued. But the law also provides that the presumption does not arise when the issuer pays the amount of the check or makes arrangement for its payment "within five banking days after receiving notice that such check has not been paid by the drawee." Verily, BP 22 gives the accused an opportunity to satisfy the amount indicated in the check and thus avert prosecution. As the Court held in Lozano v. Martinez, the aforecited provision serves to "mitigate the harshness of the law in its application." 22 This opportunity, however, can be used only upon receipt by the accused of a notice of dishonor. This point was underscored by the Court in Lina Lim Lao v. Court of Appeals: 23 It has been observed that the State, under this statute, actually offers the violator a "compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to perform it the action is abated." This was also compared "to certain laws allowing illegal possessors of firearms a certain period of time to surrender the illegally possessed firearms to the Government, without incurring any criminal liability." In this light, the full payment of the amount appearing in the check within five banking days from notice of dishonor is a "complete defense." The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to

Page 1060 of 1485

demand and the basic postulates of fairness require that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under BP 22. Thus, in order to create the prima facie presumption that the issuer knew of the insufficiency of funds, it must be shown that he or she received a notice of dishonor and, within five banking days thereafter, failed to satisfy the amount of the check or make arrangement for its payment. To prove that petitioner knew of the insufficiency of her funds, the prosecution presented Exhibits "Q" to "T." Based on these documents, the Court of Appeals concluded that "[p]rivate complainant sent a demand letter to appellant to make good said checks . . .. Appellant failed to pay the face value of the eleven checks or make arrangement for the full payment thereof within 90 days after receiving the notice." 24 Upon closer examination of these documents, we find no evidentiary basis for the holding of the trial court and the Court of Appeals that petitioner received a notice that the checks had been dishonored. True, complainant sent petitioner a registered mail, as shown in Exhibit "Q" informing the latter that the checks had been dishonored. But the records show that petitioner did not receive it. In fact, Postmaster Wilfredo Ulibarri's letter addressed to complainant's counsel certified that the "subject registered mail was returned to sender on September 22, 1992 . . .. " 25 Notwithstanding the clear import of the postmaster's certification, the prosecution failed to adduce any other proof that petitioner received the post office notice but unjustifiably refused to claim the registered mail. It is possible that the drawee bank sent petitioner a notice of dishonor, but the prosecution did not present evidence that the bank did send it, or that petitioner actually received it. It was also possible that she was trying to flee from complainant by staying in different address. Speculations and possibilities, however, cannot take the place of proof. Conviction must rest on proof beyond reasonable doubt. Clearly, the evidence on hand demonstrates the indelible fact that petitioner did not receive notice that the checks had been dishonored. Necessarily, the presumption that she knew of the insufficiency of funds cannot arise. Be that as it may, the Court must point out that it cannot rule on petitioner's civil liability, for the issue was not raised in the pleadings submitted before us. We must stress that BP 22, like all penal statutes, is construed strictly against the State and liberally in favor of the accused. 26 Likewise, the prosecution has the burden to prove beyond reasonable doubt each element of the crime. Hence, the prosecution's case must rise or fall on the strength of its own evidence, never on the weakness or even absence of that of the defense. WHEREFORE, the assailed Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Petitioner Betty King is ACQUITTED for failure of the prosecution to prove all the elements of the crimes charged. No pronouncement as to costs. SO ORDERED. Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

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Republic SUPREME Baguio City THIRD DIVISION G.R. No. 105774 April 25, 2002 of the Philippines COURT

GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners, vs. THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT CORPORATION, respondents. CARPIO, J.: The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil Procedure assailing the June 9, 1992 Decision 1 of the Court of Appeals 2 in CA-G.R. CV No. 20167. The Court of Appeals affirmed the January 26, 1988 Decision 3 of the Regional Trial Court of Manila, Branch 52,4 ordering petitioners Great Asian Sales Center Corporation ("Great Asian" for brevity) and Tan Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment Corporation ("Bancasia" for brevity) the amount of P1,042,005.00. The Court of Appeals affirmed the trial courts award of interest and costs of suit but deleted the award of attorneys fees. The Facts Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. ("Arsenio" for brevity) to secure a loan from Bancasia in an amount not to exceed P1.0 million. The board resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. On February 10, 1982, the board of directors of Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2.0 million. The second board resolution also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary to secure the discounting line. On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin signed two surety agreements ("Surety Agreements" for brevity) in favor of Bancasia. Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds of Assignment of Receivables ("Deeds of Assignment" for brevity), assigning to Bancasia fifteen (15) postdated checks. Nine of the checks were payable to Great Asian, three were payable to "New Asian Emp.", and the last three were payable to cash. Various customers of Great Asian issued these postdated checks in payment for appliances and other merchandise.

Page 1062 of 1485

Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a total face value of P244,225.82, with maturity dates not later than March 17, 1982. Of these four postdated checks, two were dishonored. Great Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks with a total face value of P312,819.00, with maturity dates not later than April 1, 1982. All these four checks were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on February 11, 1982 covering eight postdated checks with a total face value of P344,475.00, with maturity dates not later than April 30, 1982. All these eight checks were dishonored. Great Asian and Bancasia signed the fourth Deed of Assignment on March 5, 1982 covering one postdated check with a face value of P200,000.00, with maturity date on March 18, 1982. This last check was also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face value of the checks. Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks. Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of "Great Asian Sales Center", while the rest of the dishonored checks just bore the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia, with any of the following as reason for the dishonor: "account closed", "payment stopped", "account under garnishment", and "insufficiency of funds". The total amount of the fifteen dishonored checks is P1,042,005.00. Below is a table of the fifteen dishonored checks: Drawee Bank 1st Deed Solid Bank Pacific Banking Corp. 2nd Deed Metrobank 030925 030926 Solidbank Pacific Banking Corp. 3rd Deed Phil. Trust Company 060835 060836 Allied Banking Corp. 11251624 11251625 Pacific Banking Corp. 237984 237988 237985 Security Bank & Trust 22061 Co. P21,228.00 P22,187.00 P41,773.00 P38,592.00 P37,886.00 P47,385.00 P46,748.00 P88,676.00 April 21, 1982 April 28, 1982 April 22, 1982 April 29, 1982 April 23, 1982 April 28, 1982 April 30, 1982 April 30, 1982 C-A097478 CC 769910 P68,722.00 P45,230.00 P140,000.00 P58,867.00 March 19, 1982 March 19, 1982 March 23, 1982 April 1, 1982 C-A097480 23950 P137,500.00 P47,211.00 March 16, 1982 March 17, 1982 Check No. Amount Maturity Date

Page 1063 of 1485

4th Deed Pacific Banking Corp. 860178 P200,000.00 March 18, 1982

After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and demanding payment from him. Subsequently, Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks. On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under oath by its Corporate Secretary, Mario Tan. Attached to the verified petition was a "Schedule and Inventory of Liabilities and Creditors of Great Asian Sales Center Corporation," listing Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00. On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia. In its answer, Great Asian denied the material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin. Ruling of the Trial Court The trial court rendered its decision on January 26, 1988 with the following findings and conclusions: "From the foregoing facts and circumstances, the Court finds that the plaintiff has established its causes of action against the defendants. The Board Resolution (Exh. "T"), dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and treasurer of the defendant Great Asian to apply and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an amount not exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution approved on February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian Center a discounting line with Bancasia at prevailing discounting rates in an amount not to exceed Two Million Pesos (P2,000,000.00), both of which were intended to secure money from the plaintiff financing firm to finance the business operations of defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have the aforementioned fifteen (15) checks totaling P1,042,005.00 discounted with the plaintiff, which transactions were obviously known by the beneficiary thereof, defendant Great Asian, as in fact, in its aforementioned Schedule and Inventory of Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition for Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an existing liability to the plaintiff, in the amount of P1,243,632.00, secured by it, by way of financing accommodation, from the said financing institution Bancasia Finance and Investment Corporation, plaintiff herein, sufficiently establish the liability of the

Page 1064 of 1485

defendant Great Asian to the plaintiff for the amount of P1,042,005.00 sought to be recovered by the latter in this case.5 xxx WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2) defendants ordering the latter, jointly and severally, to pay the former: (a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the filing of the complaint until the same is fully paid; (b) Attorneys fees equivalent to twenty per cent (20%) of the total amount due; and (c) The costs of suit. SO ORDERED."6 Ruling of the Court of Appeals On appeal, the Court of Appeals sustained the decision of the lower court, deleting only the award of attorneys fees, as follows: "As against appellants bare denial of it, the Court is more inclined to accept the appellees version, to the effect that the subject deeds of assignment are but individual transactions which -- being collectively evidentiary of the loan accommodation and/or credit line it granted the appellant corporation -- should not be taken singly and distinct therefrom. In addition to its plausibility, the proposition is, more importantly, adequately backed by the documentary evidence on record. Aside from the aforesaid Deeds of Assignment (Exhs. "A", "D", "I", and "R") and the Board Resolutions of the appellant corporations Board of Directors (Exhs. "T", "U" and "V"), the appellee -- consistent with its theory -- interposed the Surety Agreements the appellant Tan Chong Lin executed (Exhs. "W" and "X"), as well as the demand letters it served upon the latter as surety (Exhs. "Y" and "Z"). It bears emphasis that the second Resolution of the appellant corporations Board of Directors (Exh. "V") even closely coincides with the execution of the February 11, 1982 and March 5, 1982 Deeds of Assignment (Exhs. "I" and "R"). Were the appellants posturings true, it seems rather strange that the appellant Tan Chong Lin did not even protest or, at least, make known to the appellee what he -- together with the appellant corporation -- represented to be a corporate larceny to which all of them supposedly fell prey. In the petition for voluntary insolvency it filed, the appellant corporation, instead, indirectly acknowledged its indebtedness in terms of financing accommodations to the appellee, in an amount which, while not exactly matching the sum herein sought to be collected, approximates the same (Exhs. "CC", "DD" and "DD-1").7 xxx The appellants contend that the foregoing warranties enlarged or increased the suretys risk, such that appellant Tan Chong Lin should be released from his liabilities (pp. 37-44, Appellants Brief). Without saying more, the appellants position is, however, soundly debunked by the undertaking expressed in the Comprehensive and Continuing Surety Agreements (Exhs. "W" and "X"), to the effect that the "xxx

Page 1065 of 1485

surety/ies, jointly and severally among themselves and likewise with the principal, hereby agree/s and bind/s himself to pay at maturity all the notes, drafts, bills of exchange, overdrafts and other obligations which the principal may now or may hereafter owe the creditor xxx." With the possible exception of the fixed ceiling for the amount of loan obtainable, the surety undertaking in the case at bar is so comprehensive as to contemplate each and every condition, term or warranty which the principal parties may have or may be minded to agree on. Having affixed his signature thereto, the appellant Tan Chong Lin is expected to have, at least, read and understood the same. xxx With the foregoing disquisition, the Court sees little or no reason to go into the appellants remaining assignments of error, save the matter of attorneys fees. For want of a statement of the rationale therefore in the body of the challenged decision, the trial courts award of attorneys fees should be deleted and disallowed ( Abrogar vs. Intermediate Appellate Court, 157 SCRA 57). WHEREFORE, the decision appealed from is MODIFIED, to delete the trial courts award of attorneys fees. The rest is AFFIRMED in toto. SO ORDERED."8 The Issues The petition is anchored on the following assigned errors: "1. The respondent Court erred in not holding that the proper parties against whom this action for collection should be brought are the drawers and indorser of the checks in question, being the real parties in interest, and not the herein petitioners. 2. The respondent Court erred in not holding that the petitioner-corporation is discharged from liability for failure of the private respondent to comply with the provisions of the Negotiable Instruments Law on the dishonor of the checks. 3. The respondent Court erred in its appreciation and interpretation of the effect and legal consequences of the signing of the deeds of assignment and the subsequent indorsement of the checks by Arsenio Lim Piat, Jr. in his individual and personal capacity and without stating or indicating the name of his supposed principal. 4. The respondent Court erred in holding that the assignment of the checks is a loan accommodation or credit line accorded by the private respondent to petitionercorporation, and not a purchase and sale thereof. 5. The respondent Court erred in not holding that there was a material alteration of the risk assumed by the petitioner-surety under his surety agreement by the terms, conditions, warranties and obligations assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of assignment or receivables. 6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted its liability to private respondent when the former included the latter as one

Page 1066 of 1485

of its creditors in its petition for voluntary insolvency, although no claim was filed and proved by the private respondent in the insolvency court. 7. The respondent Court erred in holding the petitioners liable to private respondent on the transactions in question."9 The issues to be resolved in this petition can be summarized into three: 1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT AND THUS BIND GREAT ASIAN; 2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW; 3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY AGREEMENTS. The Courts Ruling The petition is bereft of merit. First Issue: Authority of Arsenio to Sign the Deeds of Assignment Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his personal capacity. The primordial question that must be resolved is whether Great Asian authorized Arsenio to sign the Deeds of Assignment. If Great Asian so authorized Arsenio, then Great Asian is bound by the Deeds of Assignment and must honor its terms. The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate powers of the corporation, save in those instances where the Code requires stockholders approval for certain specific acts. Section 23 of the Code provides: "SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x." In the ordinary course of business, a corporation can borrow funds or dispose of assets of the corporation only on authority of the board of directors. The board of directors normally designates one or more corporate officers to sign loan documents or deeds of assignment for the corporation. To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted two board resolutions on different dates, the first on March 17, 1981, and the second on February 10, 1982. These two board resolutions, as certified under oath by Great Asians Corporate Secretary Mario K. Tan, state: First Board Resolution "RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized as he is authorized to apply for and negotiate for a loan accommodation

Page 1067 of 1485

or credit line in the amount not to exceed ONE MILLION PESOS (P1,000,000.00), with Bancasia Finance and Investment Corporation, and likewise to sign any and all papers, documents, and/or promissory notes in connection with said loan accommodation or credit line, including the power to mortgage such properties of the corporation as may be needed to effectuate the same."10 (Emphasis supplied) Second Board Resolution "RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with BANCASIA FINANCE & INVESTMENT CORPORATION, at prevailing discounting rates, in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000),** Philippine Currency. RESOLVED FURTHER, that the corporation secure such other forms of credit lines with BANCASIA FINANCE & INVESTMENT CORPORATION in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000.00),** PESOS, under such terms and conditions as the signatories may deem fit and proper. RESOLVED FURTHER, that the following persons be authorized individually, jointly or collectively to sign, execute and deliver any and all instruments, documents, checks, sureties, etc. necessary or incidental to secure any of the foregoing obligation: (signed) Specimen Signature 1. ARSENIO LIM PIAT, JR. 2. _______________________ 3. _______________________ 4. _______________________ PROVIDED FINALLY that this authority shall be valid, binding and effective until revoked by the Board of Directors in the manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT CORPORATION shall not be bound by any such revocation until such time as it is noticed in writing of such revocation." 11 (Emphasis supplied) The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for a "loan accommodation or credit line " with Bancasia for not more than P1.0 million. Also, the first resolution explicitly authorizes Arsenio to sign any document, paper or promissory note, including mortgage deeds over properties of Great Asian, to secure the loan or credit line from Bancasia. The second board resolution expressly authorizes Great Asian to secure a " discounting line" from Bancasia for not more than P2.0 million. The second board resolution also expressly empowers Arsenio, as the authorized signatory of Great Asian, "to sign, execute and deliver any and all documents, checks x x x necessary or incidental to secure " the discounting line. The second board resolution specifically authorizes Arsenio to secure the discounting line "under such terms and conditions as (he) x x x may deem fit and proper ."

Page 1068 of 1485

As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line from Bancasia. The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver all the implementing documents, including checks, for Great Asian. There is no iota of doubt whatsoever about the purpose of the two board resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second board resolution even gave Arsenio full authority to agree with Bancasia on the terms and conditions of the discounting line. Great Asian adopted the correct and proper board resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board resolutions of Great Asian. Significantly, the two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian will secure the loan accommodation or discounting line. Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and endorsing, the fifteen checks of Great Asian to Bancasia. On the face of the Deeds of Assignment, the contracting parties are indisputably Great Asian and Bancasia as the names of these entities are expressly mentioned therein as the assignor and assignee, respectively. Great Asian claims that Arsenio signed the Deeds of Assignment in his personal capacity because Arsenio signed above his printed name, below which was the word "Assignor", thereby making Arsenio the assignor. Great Asian conveniently omits to state that the first paragraph of the Deeds expressly contains the following words: " the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its Treasurer Arsenio Lim Piat, Jr." The assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio. The only issue to determine is whether the Deeds of Assignment are indeed the transactions the board of directors of Great Asian authorized Arsenio to sign under the two board resolutions. Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over three months, to Bancasia. The Deeds of Assignment uniformly state that Great Asian, "x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE & INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS RECEIVABLES due and payable to it, having an aggregate face value of x x x." The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks, which were still not due and demandable then. In short, instead of waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the checks to Bancasia at less than the total face value of the checks. In exchange for receiving an amount less than the face value of the checks, Great Asian obtained immediately much needed cash. Over three months, Great Asian entered into four transactions of this nature with Bancasia, showing that Great Asian availed of a discounting line with Bancasia. In the financing industry, the term "discounting line" means a credit facility with a financing company or bank, which allows a business entity to sell, on a continuing basis, its accounts receivable at a discount. 12 The term "discount" means the sale of a receivable at less than its face value. The purpose of a discounting line is to enable a business entity to generate instant cash out of its receivables which are still to mature at future dates. The financing company or bank which buys the receivables makes its profit out of the difference between the face value of the receivable and the discounted price. Thus, Section 3 (a) of the Financing Company Act of 1998 provides: "Financing companies" are corporations x x x primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural

Page 1069 of 1485

enterprises by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property." (Emphasis supplied) This definition of "financing companies" is substantially the same definition as in the old Financing Company Act (R.A. No. 5980).13 Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and Exchange Commission to implement the Financing Company Act of 1998 states: "Discounting" is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value." (Emphasis supplied) Likewise, this definition of "discounting" is an exact reproduction of the definition of "discounting" in the implementing rules of the old Finance Company Act. Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its business. Arsenio acted completely within the limits of his authority under the two board resolutions. Arsenio did exactly what the board of directors of Great Asian directed and authorized him to do. Arsenio had all the proper and necessary authority from the board of directors of Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian under an authority expressly granted by its board of directors. The signature of Arsenio on the Deeds of Assignment is effectively also the signature of the board of directors of Great Asian, binding on the board of directors and on Great Asian itself. Evidently, Great Asian shows its bad faith in disowning the Deeds of Assignment signed by its own Treasurer, after receiving valuable consideration for the checks assigned under the Deeds. Second Issue: Breach of Contract by Great Asian Bancasias complaint against Great Asian is founded on the latters breach of contract under the Deeds of Assignment. The Deeds of Assignment uniformly stipulate 14 as follows: "If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the ASSIGNOR unconditionally and irrevocably agrees to pay the same , assuming the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid, for the period of delay until the same is fully paid. In case of any litigation which the ASSIGNEE may institute to enforce the terms of this agreement, the ASSIGNOR shall be liable for all the costs, plus attorneys fees equivalent to twenty-five (25%) per cent of the total amount due. Further thereto, the ASSIGNOR agrees that any and all actions which may be instituted relative hereto shall be filed before the proper courts of the City of Manila, all other appropriate venues being hereby waived. The last Deed of Assignment15 contains the following added stipulation:

Page 1070 of 1485

"xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are deemed part of the consideration for this transaction, such that any violation of any one, some, or all of said warranties shall be deemed as deliberate misrepresentation on the part of the ASSIGNOR. In such event, the monetary obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to make good said obligation, and making the ASSIGNOR liable to pay the penalty stipulated hereinabove as if the original obligor/s of the receivables actually defaulted. xxx" Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks, including penalty and attorneys fees. The failure of the drawers to pay the checks is a suspensive condition, 16 the happening of which gives rise to Bancasias right to demand payment from Great Asian. This conditional obligation of Great Asian arises from its written contracts with Bancasia as embodied in the Deeds of Assignment. Article 1157 of the Civil Code provides that "Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts." By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated checks on with recourse basis against itself. This is an obligation that Great Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia. Article 1159 of the Civil Code further provides that "Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were negotiable instruments with the endorsement of Arsenio. The contracting parties had the right to adopt the with recourse stipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code provides that "The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy." The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter

Page 1071 of 1485

remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law. There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be assigned. 17 Assignment of a negotiable instrument is actually the principal mode of conveying accounts receivable under the Financing Company Act. Since in discounting of receivables the assignee is subrogated as creditor of the receivable, the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the drawer. This is particularly true with checks because collecting banks will not accept checks unless endorsed by the payee. The purpose of the endorsement is merely to facilitate collection of the proceeds of the checks. The purpose of the endorsement is not to make the assignee finance company a holder in due course because policy considerations militate against according finance companies the rights of a holder in due course.18 Otherwise, consumers who purchase appliances on installment, giving their promissory notes or checks to the seller, will have no defense against the finance company should the appliances later turn out to be defective. Thus, the endorsement does not operate to make the finance company a holder in due course. For its own protection, therefore, the finance company usually requires the assignor, in a separate and distinct contract, to pay the finance company in the event of dishonor of the notes or checks. As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have governed Bancasias cause of action. Bancasia, however, did not choose this route. Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under the express with recourse stipulation in the Deeds of Assignment. The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment. 19 In the instant case, all the checks were dishonored for any of the following reasons: "account closed", "account under garnishment", insufficiency of funds", or "payment stopped". In the first three instances, the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded payment. Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the extent of the loss caused by the delay. 20 This rule finds application in this jurisdiction pursuant to Section 196 of the Negotiable Instruments Law which states, "Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by the rules of the Law Merchant." Under Section 186 of the Negotiable Instruments Law, delay in the presentment of checks discharges the drawer. However, Section 186 refers only to delay in presentment of checks but is silent on delay in giving notice of dishonor. Consequently, the common law or Law Merchant can supply this gap in accordance with Section 196 of the Negotiable Instruments Law.

Page 1072 of 1485

One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment, is completely unsubstantiated. The Deeds of Assignment uniformly provide that the fifteen postdated checks were assigned to Bancasia "for valuable consideration." Moreover, Article 1354 of the Civil Code states that, "Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary." The record is devoid of any showing on the part of Great Asian rebutting this presumption. On the other hand, Bancasias Loan Section Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at the discount rate of less than 24% of the face value of the postdated checks.21 Moreover, in its verified petition for voluntary insolvency, Great Asian admitted its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial admission that Bancasia proved when it formally offered in evidence the verified petition for insolvency.22 The Insolvency Law requires the petitioner to submit a schedule of debts that must "contain a full and true statement of all his debts and liabilities."23 The Insolvency Law even requires the petitioner to state in his verification that the schedule of debts contains "a full, correct and true discovery of all my debts and liabilities x x x."24 Great Asian cannot now claim that the listing of Bancasia as a creditor was not an admission of its debt to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter to Great Asian. Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation but a sale of the checks. With the sale, ownership of the checks passed to Bancasia, which must now, according to Great Asian, sue the drawers and indorser of the check who are the parties primarily liable on the checks. Great Asian forgets that under the Deeds of Assignment, Great Asian expressly undertook to pay the full value of the checks in case of dishonor. Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as indorser under the Negotiable Instruments Law. Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more properly a discounting, of the checks and not a loan accommodation. However, it is precisely because the transaction is a sale or a discounting of receivables, embodied in separate Deeds of Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable Instruments Law. At any rate, there is indeed a fine distinction between a discounting line and a loan accommodation. If the accounts receivable, like postdated checks, are sold for a consideration less than their face value, the transaction is one of discounting, and is subject to the provisions of the Financing Company Act. The assignee is immediately subrogated as creditor of the accounts receivable. However, if the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan, and the lender is not subrogated as creditor until there is a default and the collateral is foreclosed. In summary, Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since the common condition in the contracts had transpired, an obligation on the part of Great Asian arose from the four contracts, and that obligation is to pay Bancasia the full value of the checks, including the stipulated penalty and attorneys fees. Third Issue: The liability of surety Tan Chong Lin Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety Agreements he signed wherein he solidarily held himself liable with Great Asian

Page 1073 of 1485

for the payment of its debts to Bancasia. The Surety Agreements contain the following common condition: "Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the Principals failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes." Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on due date. The condition on which Tan Chong Lins obligation hinged had happened. As surety, Tan Chong Lin automatically became liable for the entire obligation to the same extent as Great Asian. Tan Chong Lin, however, contends that the following warranties in the Deeds of Assignment enlarge or increase his risks under the Surety Agreements: "The ASSIGNOR warrants: 1. the soundness of the receivables herein assigned; 2. that said receivables are duly noted in its books and are supported by appropriate documents; 3. that said receivables are genuine, valid and subsisting; 4. that said receivables represent bona fide sale of goods, merchandise, and/or services rendered in the ordinary course of its business transactions; 5. that the obligors of the receivables herein assigned are solvent; 6. that it has valid and genuine title to and indefeasible right to dispose of said accounts; 7. that said receivables are free from all liens and encumbrances; 8. that the said receivables are freely and legally transferable, and that the obligor/s therein will not interpose any objection to this assignment, and has in fact given his/their consent hereto." Tan Chong Lin maintains that these warranties in the Deeds of Assignment materially altered his obligations under the Surety Agreements, and therefore he is released from any liability to Bancasia. Under Article 1215 of the Civil Code, what releases a solidary debtor is a "novation, compensation, confusion or remission of the debt" made by the creditor with any of the solidary debtors. These warranties, however, are the usual warranties made by one who discounts receivables with a financing company or bank. The Surety Agreements, written on the letter head of "Bancasia Finance & Investment Corporation," uniformly state that "Great Asian Sales Center x x x has obtained and/or desires to obtain loans, overdrafts,

Page 1074 of 1485

discounts and/or other forms of credits from" Bancasia. Tan Chong Lin was clearly on notice that he was holding himself as surety of Great Asian which was discounting postdated checks issued by its buyers of goods and merchandise. Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance of Great Asians business activities or discounting transactions with Bancasia. Thus, the warranties do not increase or enlarge the risks of Tan Chong Lin under the Surety Agreements. There is, moreover, no novation of the debt of Great Asian that would warrant release of the surety. In any event, the provisions of the Surety Agreements are broad enough to include the obligations of Great Asian to Bancasia under the warranties. The first Surety Agreement states that: "x x x herein Surety/ies, jointly and severally among themselves and likewise with principal, hereby agree/s and bind/s himself/themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the Principal may now or may hereafter owe the Creditor , including extensions or renewals thereof in the sum *** ONE MILLION ONLY*** PESOS (P1,000,000.00), Philippine Currency, plus stipulated interest thereon at the rate of sixteen percent (16%) per annum, or at such increased rate of interest which the Creditor may charge on the Principals obligations or renewals or the reduced amount thereof, plus all the costs and expenses which the Creditor may incur in connection therewith. xxx Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the Principals failure promptly to respond to any other lawful demand made by the Creditor , its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal , whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes. (Emphasis supplied) The second Surety Agreement contains the following provisions: "x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL, hereby agree and bind themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor , including extensions and/or renewals thereof in the principal sum not to exceed TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest thereon, or such increased or decreased rate of interest which the Creditor may charge on the principal sum outstanding pursuant to the rules and regulations which the Monetary Board may from time to time promulgate, together with all the cost and expenses which the CREDITOR may incur in connection therewith. If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the obligations or amounts due to the CREDITOR, or if for any reason whatsoever the PRINCIPAL fails to promptly respond to and comply with any other lawful demand made by the CREDITOR, or if for any reason whatsoever any obligation of the PRINCIPAL in favor of any person or entity should be considered as defaulted, then both the PRINCIPAL and the SURETY/IES shall be considered in default under the

Page 1075 of 1485

terms of this Agreement. Pursuant thereto, the SURETY/IES agree/s to pay jointly and severally with the PRINCIPAL, all outstanding obligations of the CREDITOR , whether due or not due, and whether owing to the PRINCIPAL in its personal capacity or as agent of any person, endorsee, assignee or transferee. x x x. (Emphasis supplied) Article 1207 of the Civil Code provides, "xxx There is a solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity." The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing " all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor". Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the nonpayment of the fifteen dishonored checks, including penalty and attorneys fees in accordance with the Deeds of Assignment. The Deeds of Assignment stipulate that in case of suit Great Asian shall pay attorneys fees equivalent to 25% of the outstanding debt. The award of attorneys fees in the instant case is justified,25 not only because of such stipulation, but also because Great Asian and Tan Chong Lin acted in gross and evident bad faith in refusing to pay Bancasias plainly valid, just and demandable claim. We deem it just and equitable that the stipulated attorneys fee should be awarded to Bancasia. The Deeds of Assignment also provide for a 3% penalty on the total amount due in case of failure to pay, but the Deeds are silent on whether this penalty is a running monthly or annual penalty. Thus, the 3% penalty can only be considered as a one-time penalty. Moreover, the Deeds of Assignment do not provide for interest if Great Asian fails to pay. We can only award Bancasia legal interest at 12% interest per annum, and only from the time it filed the complaint because the records do not show that Bancasia made a written demand on Great Asian prior to filing the complaint. 26 Bancasia made an extrajudicial demand on Tan Chong Lin, the surety, but not on the principal debtor, Great Asian. WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is AFFIRMED with MODIFICATION. Petitioners are ordered to pay, solidarily, private respondent the following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the total outstanding amount in item (a) at the legal rate of 12% per annum from the filing of the complaint until the same is fully paid, (c) attorneys fees equivalent to 25% of the total amount in item (a), including interest at 12% per annum on the outstanding amount of the attorneys fees from the finality of this judgment until the same is fully paid, and (c) costs of suit. SO ORDERED. Vitug, (Acting Chairman), Melo, (Chairman), Sandoval-Gutierrez, J., no part. Republic SUPREME Manila SECOND DIVISION G.R. No. 149695 April 28, 2004 of and J., Panganiban, on JJ., concur. leave.

the

Philippines COURT

Page 1076 of 1485

WILLY G. SIA, vs. PEOPLE OF THE PHILIPPINES, appellant. DECISION CALLEJO, SR., J.: On June 4, 1982, the Consolidated Orient Leasing and Finance Corporation (COLF), as Lessor, and Willy G. Sia, the sole proprietor of WGS Construction Specialists, as Lessee, executed a Lease Agreement,1 for a period of eighteen (18) months, covering construction equipments described as follows: ONE (1) UNIT KOMATSU PAYLOADER, JH65C MODEL, 2-3/4 cu. yd. Chassis No.: Engine No.: JH65C0347 629676 appellee,

ONE (1) UNIT KOMATSU BULLDOZER MODEL D80A-12 Serial No.: Motor No.: D80A-12-19495 NH2200969N21515

ONE (1) UNIT YUTANI POCLAIN MODEL YS 650 Serial No.: Motor No.: 1283 92621
2

Under the lease agreement, Sia was obliged to deposit with the COLF, upon the execution thereof, the amount of P216,250.00 to guaranty the payment of, inter alia, the agreed rental of P44,980.00 a month payable in the COLF office. 3 On the custody and disposition of the guaranty deposit of P216,250.00, the parties agreed, as follows: The Deposit shall be retained by the LESSOR as security for the faithful observance and performance by the LESSEE of the terms and conditions and stipulations in this Agreement and any renewal thereof. The Deposit shall be returned to the LESSEE at the termination of lease without any interest, less such sums which may be due to the LESSOR under the terms of this Agreement without prejudice to whatever cause of action the LESSOR may have against the LESSEE under this Agreement.

Page 1077 of 1485

2. The provision of paragraph 1 of this Article notwithstanding, if the LESSEE is in default under any of the provisions of this Agreement including the events of Article XV, then the LESSOR may, at its option, apply the Deposit or any part thereof to claims for money or damages it may have against the LESSEE, or to arrearages in the rents and/or the Stipulated Lost Value as the LESSOR may deem necessary and, unless the LESSOR shall exercise its rights and terminate this lease hereby created under sub-paragraph 1.3 of paragraph 1 of Article XV, the LESSEE shall on written demand by the LESSOR pay to the LESSOR the full amount of the Deposit or such amount which shall cover the full amount referred to in Item 6 of the Schedule which shall serve as security and be considered the Deposit in accordance with the provisions of paragraph 1 of this Article. 3. In case the LESSEE gives the LESSOR other collaterals or securities in addition to the Deposit all of such securities or collaterals including the Deposit shall be deemed to secure all claims which are now or may hereafter be owing to the LESSOR by the LESSEE.4 The parties further agreed that, in case Sia defaulted in the payment of the agreed rentals or failed to observe the terms and conditions of the Agreement, the following provisions shall apply: 1. If the LESSEE fails to pay the rents as provided for in Article III hereof after the same becomes due and payable or any other sums and moneys due and payable under this Agreement or if the LESSEE fails to observe or perform any or all the provisions hereof, or if the LESSOR on reasonable grounds, considers the LESSEE as financially incapable of meeting its obligations herein, then the LESSOR shall, without prejudice to any pre-existing liability of the LESSEE to the LESSOR, have the right to avail of any or all of the following remedies without giving any prior notice or demand to the LESSEE; 1.1 To declare a part or the total amount of the rents and all other moneys, costs and expenses under this Agreement immediately due and payable by the LESSEE; 1.2 To take possession of the property or demand its return. 1.3 To terminate this lease and to demand from the LESSEE the full amount of the Stipulated Loss Value and to claim from the LESSEE compensation for all losses and damages including but not limited to loss of profits. The remedies provided in sub-paragraph 1.1 and 1.2 of paragraph 1 of this Articles shall not relieve the LESSEE from any other liability under this Agreement, including but not limited to liability for damages. 2. Upon the occurrence of any of the following events, the LESSOR may, without any prior notice or demand to the LESSEE, avail of any or all of the remedies under paragraph 1 of this Article, and the effects thereof will be the same as those provided for herein: 2.1 suspension of business, bankruptcy or dissolution of the LESSEE; or 2.2 levy or attachment of all or substantially all of the assets of the LESSEE, regardless of whether or not the same affects the Property, or

Page 1078 of 1485

2.3 assignment of or compromise affecting all or substantially all of the LESSEEs assets to or with its creditor; or 2.4 If any judgment against the LESSEE shall remain unsatisfied for more than ten (10) days; or 2.5 If the LESSEE shall abandon the Property.5 Sia and his wife, Judy, executed a surety agreement in which they bound and obliged themselves, jointly and severally, to insure the proper and due performance of Sias obligations to the COLF under the lease agreement. 6 Sia remitted to the COLF the agreed guaranty deposit of P216,250.00. He also issued and delivered to the COLF, upon the execution of the lease agreement in 1982, eighteen (18) postdated checks in the amount of P44,980.00 each, payable to the COLT, drawn against his account with the Rizal Commercial Banking Corporation (RCBC). Each check was to be encashed or deposited by the COLF in its account on their respective due dates in payment of the monthly rental of the equipment.7 At the time, the bank had extended credit facilities to the petitioner.8 The COLF deposited the checks for the rentals of July to December 1992, and these checks were duly honored by the drawee bank. 9 The COLF thereafter deposited, in its account, Check No. 233533 postdated January 4, 1983 for the amount of P44,980.00 in payment for the January 1983 rental of the equipment. 10 This check was, however, dishonored by the drawee bank for "insufficient funds." The COLF wrote Sia on January 5, 1983, informing the latter of the dishonor of the check and requesting for the replacement thereof. 11 On March 4, 1983, COLF deposited in its account Check No. 233534 postdated March 4, 1983 in the amount of P44,980.00 in payment for the March 1983 rental. 12 However, the check was, again, dishonored by the drawee bank, this time for the reason "account closed."13 On March 7, 1983, the COLF wrote Sia informing him of the dishonor of the check.14 The COLF finally decided to terminate the lease and, on March 10, 1983, wrote Sia informing him that it was terminating the lease agreement. 15 Sia received the letter but did not respond.16 Despite the termination of the lease, the COLF still deposited Check No. 233535 in the amount of P44,980.00 on April 4, 1983. The check, which was drawn by Sia against his account with the RCBC in payment for the April 1983 rental, was dishonored by the drawee bank, again for the reason "account closed." On April 6, 1983, COLF once more wrote to Sia, informing him of the dishonor of the check and requesting for a replacement as soon as possible.17 The COLF did not receive any reply. On May 17, 1983, the COLF filed a complaint for replevin and damages against Sia with the Regional Trial Court of Makati, docketed as Civil Case No. 3958. It prayed that, after due proceedings, judgment be rendered against Sia in its favor: 1. Directing the Sheriff to take over the possession and custody of the following: One (1) Unit Komatsu Payloader JH65 C Model 2-3/4 cu. yd. Chassis No. JH65C-0347

Page 1079 of 1485

Engine No. 629676 One (1) Unit Bulldozer Model D80A-12 (Komatsu) Serial No. D80A-12-19495 Motor No. NH220-0969N21515 One (1) Unit Yutani Poclain Model YS 650 Serial No. 1283 Motor No. 92621 2. Ordering defendant WGS Construction Specialists to pay the plaintiff: (a) Accrued rental in the amount of ONE HUNDRED SEVENTY-NINE THOUSAND NINE HUNDRED TWENTY PESOS (P179,920.00); (b) 3% of the above amount as penalty per month from January, 1983, up to the present; (c) 30% of the above amount as attorneys fees; (d) The value of the property, which is FOUR HUNDRED NINETY-FOUR THOUSAND SEVEN HUNDRED EIGHTY PESOS (P494,780.00), and the incidental charges above-mentioned in case the equipment are no longer available or the same have been impaired so substantially that recovery would be futile; (e) The costs of this suit; and 3. Ordering defendants-sureties Willy G. Sia and Judy A. Sia, jointly and severally, to pay the above-stated amounts to plaintiff in case defendant WGS Construction Specialists should fail to do so.18 On June 2, 1983, the court issued an Order in Civil Case No. 3958 granting the plaintiffs plea for a writ of replevin. The court thereafter issued a Writ of Seizure against the plaintiffs property with the requisite bond therefor. Sia received the complaint and summons on October 21, 1983, but failed to file an answer. On motion of the plaintiff, Sia was declared in default.19 The plaintiff adduced its evidence, ex parte, on February 8, 1984. The sheriff, however, failed to locate the equipment declared in the complaint and failed to seize and take possession thereof.20 In the meantime, the COLF charged Sia with violating Batas Pambansa (B.P.) Blg. 22 by reason of the dishonor of the checks postdated January 4, 1983, March 4, 1983 and April 4, 1983, respectively. On August 3, 1984, three Informations were filed with the RTC of Makati charging Sia with violating B.P. Blg. 22, docketed as Criminal Cases Nos. 11865, 11866, and 11867. The accusatory portions of the said Informations are as follows: That on or about June 1982, in the Municipality of Makati, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, said accused did, then and there,

Page 1080 of 1485

willfully, unlawfully and feloniously make, draw and issue in favor of Consolidated Orient Leasing & Finance Corporation represented by Eduardo R. Alvarez, a check numbered 233532, drawn against the Rizal Commercial Banking Corporation (RCBC), a duly established domestic banking institution, in the amount of P44,980.00 Philippine Currency, dated January 4, 1983 in payment of an obligation, knowing fully well at the time of issue that he did not have any sufficient funds in the drawee bank for the payment of such check; that upon presentation of said check to the said bank for payment the same was dishonored for the reason that the drawer thereof accused Willy G. Sia did not have sufficient funds therein and despite notice of dishonor thereof, accused failed and refused and still fails and refuses to redeem or make good said check, to the damage and prejudice of the said Consolidated Orient Leasing & Finance Corporation is (sic) the aforesaid sum. Contrary to law. Crim. Case No. 11865 That on or about June 1982, in the Municipality of Makati, Metro-Manila, Philippines and within the jurisdiction of this Honorable court, said accused did, then and there, willfully, unlawfully and feloniously make, draw and issue in favor of Consolidated Orient Leasing & Finance Corporation represented by Eduardo R. Alvarez, a check numbered 233534 drawn against the Rizal Commercial Banking Corporation (RCBC), a duly established banking institution, in the amount of P44,980.00 Philippine Currency, dated March 4, 1983 in payment of an obligation, knowing fully well at the time of issue that he did not have any funds in the drawee bank for the payment of said check, that upon presentation of said check to the drawee bank the same was dishonored for the reason that the drawer thereof, accused Willy G. Sia did not have funds therein and despite notice of dishonor thereof, accused failed and refused and still fails and refuses to redeem or make good said check, to the damage and prejudice of the said Consolidated Orient Leasing & Finance Corporation in the aforesaid sum. Contrary to law. Crim. Case No. 11866 That on or about June 1982, in the Municipality of Makati, Metro-Manila, Philippines and within the jurisdiction of this Honorable Court, said accused did, then and there, willfully, unlawfully and feloniously make, draw and issue in favor of Consolidated Orient Leasing & Finance Corporation represented by Eduardo R. Alvarez, a check numbered 233535, drawn against the Rizal Commercial Banking Corporation (RCBC), a duly established domestic banking institution, in the amount of P44,980.00 Philippine Currency, dated April 4, 1983 in payment of an obligation, knowing fully well at the time of issue that he did not have any funds in the drawee bank for the payment of such check; that upon presentation of said check to said bank for payment the same was dishonor (sic) for the reason that the drawee thereof, accused Willy G. Sia did not have funds therein and despite notice of dishonor thereof, accused failed and refused and still fails and refuses to redeem or make good said check, to the damage and prejudice of the said Consolidated Orient Leasing & Finance Corporation in the aforesaid sum. Contrary to law.

Page 1081 of 1485

Crim. Case No. 1186721 When arraigned, Sia, assisted by counsel, entered a plea of not guilty. The Case for Petitioner Sia Sia testified that, upon the execution of the lease agreement in 1982, he drew and delivered to COLF eighteen (18) postdated checks drawn against his account with the RCBC, each check in the amount of P44,980.00 corresponding to the rental for the leased property. 22 Every month, as each check fell due, he informed the COLF whether to deposit or encash the checks, or to apply the current deposit for the payment of the rental due. 23 He made good the first six postdated checks but failed to fund the ensuing checks for January, March, and April 1983. He reasoned that his financial condition was adversely affected by the implementation of his project in Nueva Vizcaya and the RCBC had since then refused to give him credit.24 To facilitate payment of the checks, Sia then asked COLF, through its assistant manager, Go Hong Ko, to apply his guaranty deposit for the postdated checks to cover the rentals from January 1983. Go Hong Ko told Sia that there would be no problem as his guaranty deposit of P216.250.00 was still intact and more than enough to answer for the said checks.25 Thus, Sia no longer funded his account with the drawee bank, thinking that his guaranty deposit would answer for the checks. Sia alleged that he never received the January 5, 1983, March 7, 1983 and April 6, 1983 letters of the COLF, and that the latter never notified him that the checks postdated January 4, 1983, March 3, 1983 and April 4, 1983, respectively, were deposited with the drawee bank, and that the same were subsequently dishonored by the drawee bank. He was surprised when he learned about the charges against him for violation of B.P. Blg. 22 when he received a subpoena from the Office of the City Prosecutor of Makati, requiring him to submit his counter-affidavit to the criminal complaint of the COLF. 26 Furthermore, he was not informed why his guaranty deposit was not applied to the payment of the three dishonored checks.27 In the meantime, on March 12, 1984, the RTC rendered judgment in Civil Case No. 3958, in favor of COLF, the dispositive portion of which reads, as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows: (1) Ordering defendant WGS Construction Specialists to pay plaintiff: a) P179,920.00, representing accrued rentals; b) 3% of the above amount as penalty per month from January, 1983, up to May 17, 1983; c) P5,000.00 as and for attorneys fees; d) P494,780.00, representing the actual value of the leased property not recovered, plus interest thereon at the legal rate computed from date hereof; e) The costs of suit.

Page 1082 of 1485

(2) The guaranty deposit of P216,250.00 made by said defendant shall be applied to the satisfaction of the aforementioned amounts. (3) Ordering defendants Willy G. Sia and Judy A. Sia, jointly and severally, to pay plaintiff the remaining unpaid balance of the judgment debt which defendant WGS Construction Specialists should fail to satisfy. SO ORDERED.28 The decision became final and executory, Sia having failed to appeal the decision. After due trial, the trial court rendered judgment, on November 17, 1995, finding Sia guilty beyond reasonable doubt of the crime charged in Criminal Cases Nos. 11865 and 11866 and acquitting him of the crime charged in Criminal Case No. 11867. The decretal portion of the decision reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered finding accused WILLY G. SIA GUILTY beyond reasonable doubt for violation of Batas Pambansa Bilang 22 in Criminal Cases Nos. 11865 and 11866 and is sentenced to suffer imprisonment of one (1) year and; to pay a fine of P50,000.00 for each case; and to indemnify complainant the sum of P89,900.00 with legal interest from the filing of these cases on August 31, 1984 until payment is made. Anent Criminal Case No. 11867, for the reason aforementioned, judgment is hereby rendered ACQUITTING accused WILLY G. SIA of the crime charged. No costs.29 Sia filed a motion for the reconsideration of the decision contending that: I THE DECISION OF THIS HONORABLE COURT IN CIVIL CASE NO. 3958 (REGIONAL TRIAL COURT BRANCH CXXXII) DATED MARCH 12, 1984 WHICH WAS RENDERED BEFORE THE INFORMATIONS IN THE ABOVE-ENTITLED CASES WERE FILED IN COURT CLEARLY SHOW THAT THE OBLIGATION OF THE ACCUSED WAS ALREADY SETTLED AND PAID THRU THE SECURITY DEPOSIT ALREADY MADE AND IN THE POSSESSION OF THE ALLEGED PRIVATE COMPLAINANT. II THE OBLIGATION, IF ANY, OF THE ACCUSED IN THE CASES AT BAR WAS ALREADY PAID OR EXTINGUISHED BY VIRTUE OF THE LAW ON COMPENSATION. III THE DECISION OF THIS HONORABLE COURT REQUIRING THE ACCUSED TO PAY AGAIN THE VALUE OF THE CHECKS DESPITE THE FINAL AND EXECUTED DECISION OF THIS HONORABLE COURT IN CIVIL CASE NO. 3958 IS TANTAMOUNT TO UNJUST ENRICHMENT ON THE PART OF THE PRIVATE COMPLAINANT. IV

Page 1083 of 1485

THIS HONORABLE COURT HAS NO JURISDICTION TO RULE ON THE CIVIL ASPECT OF THE TWO (2) CRIMINAL CASES.30 On June 4, 1996 the Court partially granted the motion and modified its decision, as follows: WHEREFORE, the Motion for Reconsideration is GRANTED, in so far as that portion ordering accused Willy G. Sia to indemnify the private complainant the sum of P89,900 with legal interest from the filing of these cases on August 31, 1984 until payment is made, is concerned. The Decision of this Court dated November 17, 1995 finding accused Willy G. Sia GUILTY beyond reasonable doubt for violation of Batas Pambansa Bilang 22 in Criminal Cases Nos. 11865 and 11866 and is sentenced to suffer imprisonment of one (1) year and to pay a fine of P50,000.00 for each case STANDS. SO ORDERED.31 On appeal to the Court of Appeals, Sia (the appellant therein), ascribed the following errors to the trial court: I THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSEDS DEPOSIT OF P216,250.00 IN THE POSSESSION OF THE PRIVATE COMPLAINANT WAS TO BE APPLIED OR COULD BE APPLIED TO THE RENTALS. II THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED HAD TOLD THE PRIVATE COMPLAINANT TO APPLY THE P216,250.00 TO THE PAYMENT OF THE RENTALS STARTING WITH THE MONTH OF JANUARY 1983. III THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED HAD ACTUALLY APPLIED THE P216,250.00 TO THE PAYMENT OF THE RENTALS FOR JANUARY AND MARCH 1983. IV THE TRIAL COURT ERRED IN NOT FINDING THAT THERE HAD BEEN NO NOTICE OF DISHONOR GIVEN TO THE ACCUSED. V THE TRIAL COURT ERRED IN FINDING THE ACCUSED GUILTY OF VIOLATING BATAS PAMBANSA BLG. 22.32 On May 31, 2001, the appellate court rendered judgment affirming the decision of the RTC, as amended, thus:

Page 1084 of 1485

WHEREFORE, the instant appeal is hereby DISMISSED, and the decision appealed from, as modified in the order dated June 4, 1996, is hereby AFFIRMED in toto. No pronouncement as to costs. SO ORDERED.33 The appellate court held that it was of no moment whether the COLF notified Sia of the dishonor of the checks by letter, or if Sia failed to receive such notices. Sia admitted when he testified that he knew that his funds with the drawee bank were insufficient when the subject checks fell due, and that he failed to fund the same. The court also held that the application of Sias guaranty deposit to the amounts due under the subject checks was optional on the part of the COLF. Sia, now the petitioner, comes to this Court contending as follows: I NOTICE OF DISHONOR IS NECESSARY IN A CRIMINAL CASE FOR VIOLATION OF BATAS PAMBANSA BLG. 22. II SUCH NOTICE OF DISHONOR IS ALL THE MORE NECESSARY IN THE INSTANT CASE BECAUSE THE SUBJECT CHECKS SHOULD NOT HAVE BEEN DEPOSITED BY THE PRIVATE COMPLAINANT. III THE PROSECUTION WAS NOT ABLE TO PROVE BEYOND REASONABLE DOUBT THAT NOTICE OF DISHONOR HAD BEEN GIVEN TO THE PETITIONER. IV THE PETITIONER SHOULD HAVE BEEN ACQUITTED FOR FAILURE PROSECUTION TO PROVE HIS GUILT BEYOND REASONABLE DOUBT.34 OF THE

The petitioner asserts that a notice or letter informing him of the dishonor of the subject checks so as to give him a period of five (5) banking days from receipt thereof to pay the amounts of the checks, or to make arrangements with the drawee bank for the payment of the said checks are mandatory requirements. He argues that the notice or letter informing him of the dishonor of the subject checks, as well as the lapse of the five-day period, are conditions precedent, without which he cannot be convicted, much less charged under Section 1, first paragraph of B.P. Blg. 22. The petitioner contends that the failure of the COLF or the drawee bank to notify him of the dishonor of the subject checks deprived him of a chance to pay the amounts thereof. He asserts that his admission35 did not relieve the prosecution of its burden to prove the following: (a) that the said checks were deposited by COLF in its account; (b) that the said checks were dishonored by the drawee bank either for insufficiency of funds or that his account with the said bank was already closed; (c) that the petitioner was notified in writing of the dishonor of the said checks; and, (d) that five banking days from such notice of

Page 1085 of 1485

dishonor had already elapsed, without him paying the amounts due or making arrangements with the drawee bank for the payment of the said checks. The petitioner avers that this did not amount to an admission that when he issued and delivered the subject checks to the COLF, he did not have sufficient funds in his account with the drawee bank to answer for the amounts of the checks and that he had knowledge thereof. The petitioner further avers that there was no factual basis for his indictment for violation of Section 1, first paragraph of B.P. 22 because he and the COLF, thru Go Hong Ko, had agreed that the latter would apply his guaranty deposit of P216,250.00 to the payment of the subject checks, amounting to only P99,960.00. The petitioner cited the ruling of this Court in Ting v. Court of Appeals 36 to support his plea for a reversal of the decisions of the appellate court and the trial court. In its Comment on the petition, the Office of the Solicitor General asserts that contrary to the petitioners contention, the latters admission relieved the prosecution of its burden to prove that the petitioner had knowledge of the insufficiency of his funds in the drawee bank when he drew and issued the subject checks in 1982 to COLF. The OSG also avers that under the lease agreement, it was optional on the part of COLF to apply the petitioners guaranty deposit to the payment of his back rentals and the subject checks. It behooved the petitioner to fund the subject checks on due dates thereof to avoid his indictment for violation of B.P. Blg. 22. The petition is meritorious. Section 1, B.P. Blg. 22 under which the petitioner was charged in the RTC reads: 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. The act sought to be prevented by the law is the act of making and issuing a check with the knowledge that, at the time of issue, the drawer issuing the check does not have sufficient funds in or credit with the bank for payment and the check was subsequently dishonored upon presentment. What the law punishes is the issuance of a worthless check and not the purpose for which such check was issued nor the terms or conditions relating to its issuance.37 The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and putting them in circulation. 38 The crime is one against public order and is malum prohibitum. The law is intended to safeguard the interests of the banking system and the legitimate checking account user. 39 It is not intended nor designed to coerce a debtor to pay his debt, 40 nor to favor or encourage those who seek to enrich themselves through manipulation and circumvention of the purpose of the law.41 This Court has held that in criminal cases involving violations of Section 1, B.P. Blg. 22, the prosecution is burdened to prove beyond reasonable doubt the following elements:

Page 1086 of 1485

1. The accused makes, draws or issues any check to apply to account or for value. 2. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit; or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. 3. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, drawee bank for the payment of the check in full upon its presentment.42 To hold a person liable, the prosecution must prove that the accused knew, at the time of issue, that he does not have sufficient funds in or credit for the full payment of such check upon its presentment. The prosecution must rely on the strength of its own evidence and not on the weakness of the evidence of the accused.43 Knowledge on the part of the drawer or maker of the insufficiency of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential element of the offense. This element involves a state of the mind of the drawer or maker of the check which is difficult for the prosecution to prove. To ease the burden of the prosecution, Section 2 of B.P. Blg. 22 created a prima facie presumption of knowledge on the part of the drawer or maker of the check of the insufficiency of his fund in the drawee bank, thus: SEC. 2. Evidence of knowledge of insufficient funds. -The making, drawing and issuance of a check payment of which is refused by the drawee 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. However, for the presumption to arise, the prosecution must adduce evidence to prove the factual basis for its onset, namely, (a) the check is presented within ninety (90) days from the date of the check; (b) the drawer or maker of the check receives notice that such check has not been paid by the drawer; and, (c) the drawer or maker of the check fails to pay the holder of the check the amount due thereon, or makes arrangements for payment in full within five (5) banking days after receiving notice that such check has not been paid by the drawer. With the onset of the presumption, the burden of evidence is shifted on the drawer/maker of the check to prove that, when he issued the subject check, he had no knowledge that he had insufficient funds in the drawee bank to answer for the amount due. The notice of dishonor may be sent to the drawer or maker by the drawee bank, the holder of the check, or the offended party, either by personal delivery or by registered mail. The drawer or maker of a check has a right, under the law, to demand that a written notice of dishonor be sent to and received by him to enable him to avoid indictment for violation of B.P. Blg. 22.44 Construing Section 2 of the said law, we held in Domagsang v. Court of Appeals, et al.45 that the notice of dishonor of a check to the maker must be in writing. A mere oral notice to the drawer or maker of the dishonor of his check is not enough: Petitioner counters that the lack of a written notice of dishonor is fatal. The Court agrees.

Page 1087 of 1485

While, indeed, Section 2 of B.P. Blg. 22 does not state that the notice of dishonor be in writing, taken in conjunction, however, with Section 3 of the law. i.e., "that where there are no sufficient funds in or credit with such drawee bank, such fact shall always be explicitly stated in the notice of dishonor or refusal, " a mere oral notice or demand to pay would appear to be insufficient for conviction under the law. The Court is convinced that both the spirit and letter of the Bouncing Checks Law would require for the act to be punished thereunder not only that the accused issued a check that is dishonored, but that likewise the accused has actually been notified in writing of the fact of dishonor. The consistent rule is that penal statutes have to be construed strictly against the State and liberally in favor of the accused. 46 Unless and until the drawer or maker of the check receives a written notice of dishonor of the check, or where there is no proof as to when such notice of dishonor was received by the drawer or maker, the five-day period within which the drawer or maker has to pay the amount due or made arrangements with the drawee bank for the payment of the check, cannot be determined. In such case, the prima facie presumption cannot arise.47 Emphasizing the intent of the State in providing a five-day banking period from notice of dishonor of a check within which the maker or drawer may pay the amount due or make arrangements with the drawee bank for its payment, the Court declared in Lao v. Court of Appeals:48 It has been observed that the State, under this statute, actually offers the violator "a compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to perform it the action is abated." This was also compared "to certain laws allowing illegal possessors of firearms a certain period of time to surrender the illegally possessed firearms to the Government, without incurring any criminal liability. 49 If the maker or drawer pays, or makes arrangements with the drawee bank for the payment of the amount due within the five-day period from notice of the dishonor given to the drawer, it is a complete defense; the accused may no longer be indicted for violation of Section 1, B.P. Blg. 22. If he is so indicted, he may set up the payment of the amount due as a complete defense.50 In this case, the prosecution failed to prove that the COLF or the drawee bank ever sent any written notice of dishonor of the subject checks to the petitioner and that the latter received the same. The only witness presented by the prosecution to prove its case against the petitioner was Eduardo R. Alvarez, who was in charge of the COLF collection department. He testified that he signed the letters dated January 5, 1983 51 and July 7, 1983,52 addressed to the petitioner notifying the latter of the dishonor of the subject checks. However, Alvarez admitted that, after signing the said letters, he had the same transmitted to the collection department and had no personal knowledge whether the said letters were sent to and actually received by the petitioner. The collection department merely told him that the letters were sent to the petitioner. Q You also talk of demand letters dated January 5, March 7 and April 6, all in the year 1983, which are marked Exhibits E, F, and G, respectively. Were you the one who prepare (sic) these demand letters? A No, sir, these were prepared and signed by our collection department. Q And you have no actual knowledge when these demand letters were prepared by one of your department?

Page 1088 of 1485

A No, sir, I gave instructions to prepare the demand letters. Q Who sent these demand letters to Mr. Sia? A The collection department was the one who sent the demand letter to Mr. Sia. Q Why do you know that it was sent by the collection department? A Because I gave instruction to that department. Q Did you ask the collection department that these demand letters be sent to Mr. Sia. A Yes, sir. Q What did your collection department said? A It was sent. Q Why do you know that it was sent by your collection department? A The collection department said the letters were sent and received by Mr. Sia. Q This collection department simply told you that this was sent to Mr. Sia? A Yes, sir. Q All these demand letters? A Yes.53 There is no evidence on record how the letters were, in fact, sent to the petitioner, whether by personal delivery or by registered mail. The COLF did not adduce in evidence the complaint for replevin and damages in Civil Case No. 3958 against the petitioner. Furthermore, the trial court did not declare in its decision that the COLF sent notices of dishonor of the subject checks to the petitioner, and that the latter received such notices of dishonor. The trial court convicted the petitioner of the crime of violating Section 1, B.P. Blg. 22, relying principally on the petitioners admission that, when Check No. 233533 became due, his funds in the drawee bank were insufficient to pay for the amount of the check; that his account with the drawee bank had already been closed when COLF deposited Check No. 233534; and, that he no longer funded his account to pay for the amounts of the ensuing checks. The trial court concluded that on the basis of the said admission, there was no longer a need for the prosecution to prove that the petitioner received notices or letters notifying him of the dishonor of the subject checks after the dishonor thereof. The appellate court agreed with the trial court. We do not agree. Indeed, the petitioner admitted when he testified in his defense, that, on the due date of Check No. 233533, he was aware that he did not have funds in the drawee bank for the

Page 1089 of 1485

payment of the said check, and that when Check No. 233534 fell due on March 4, 1983, the bank had already closed the said account. This, however, did not amount to an admission that, when he issued the said checks in June 1982, he had known that he had no funds in the drawee bank sufficient to pay for the amounts of the checks. In fact, the petitioner testified that in 1983, he was granted credit facilities by the drawee bank and that the postdated checks he issued to the COLF for the rentals due from June to December, 1982 had been duly honored. The drawee bank subsequently closed the petitioners account only because the latter had suffered financial reverses. Assuming that the petitioner had knowledge that he had insufficient funds in the drawee bank when he issued the questioned checks, he could still have paid the checks or made arrangements with the drawee bank for the payment of the said checks if he had been duly notified of their dishonor. In not sending a notice or letter of dishonor to the petitioner as required by law, the COLF deprived the petitioner of his right to avoid prosecution for violation of B.P. Blg. 22. IN LIGHT OF THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals affirming with modifications the Decision of the Regional Trial Court in Criminal Cases Nos. 11865 and 11866 are REVERSED and SET ASIDE. The petitioner is ACQUITTED of the crimes charged in said cases for insufficiency of evidence. SO ORDERED. Puno, Quisumbing, Austria-Martinez, and Tinga, JJ., concur. Republic SUPREME Manila FIRST DIVISION G.R. No. 144887 November 17, 2004 petitioner, of the Philippines COURT

ALFREDO RIGOR, vs. PEOPLE OF THE PHILIPPINES, respondent.

DECISION

AZCUNA, J.: This is a petition for review on certiorari of the decision of the Court of Appeals, in CA-G.R. CR No. 18855, which affirmed the decision of the Regional Trial Court of Pasig, Branch 163, in Criminal Case No. 86025, convicting petitioner Alfredo Rigor of violation of Batas Pambansa Blg. 22 (the Bouncing Checks Law), and imposing upon him the penalty of imprisonment for six (6) months and ordering him to restitute to the Rural Bank of San Juan the sum of P500,000 and to pay the costs.

Page 1090 of 1485

The Information1 against petitioner reads: That on or about the 16th day of November 1989 in the Municipality of San Juan, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, did then and there willfully, unlawfully and feloniously make or draw and issue to Rural Bank of San Juan, Inc. thru its loan officer Carlos N. Garcia, a postdated check to apply on account or for value the check described below: Check No. Drawn against In the Amount of Dated Payable to : 165476 : Associated Bank, Tarlac Branch : P500,000.00 : February 16, 1990 : Rural Bank of San Juan

said accused well knowing that at the time of issue on 16 November 1989, he has already insufficient funds or credit with the drawee bank for the payment in full of the face amount of such check and that as of 2 February 1990 his bank accounts were already closed and that check when presented for payment from and after the date thereof, was subsequently dishonored for the reason "Account Closed" and despite receipt of notice of such dishonor, the accused failed to pay said payee the face amount of said check or to make arrangement for full payment thereof during the period of not less than five (5) banking days after receiving notice. When arraigned, petitioner pleaded not guilty. Thereafter, trial on the merits ensued. The facts, as narrated by the Court of Appeals, are as follows: The prosecution evidence was furnished by witnesses Edmarcos Basangan of Rural Bank of San Juan (RBSJ) and Esteban Pasion, employee of the Associated Bank. It was shown that on November 16, 1989, appellant (petitioner herein) applied for a commercial loan from the Rural Bank of San Juan, Inc., at N. Domingo St., San Juan, Metro Manila in the sum of P500,000.00 (Exh. "A"). He signed a promissory note stating that an interest of 24% per annum from its date will be charged on the loan (Exh. "B"). The loan was approved by RBSJs Bank Manager Melquecedes de Guzman and Controller Agustin Uy. A cashiers check with RBSJ No. 2023424 in the amount of P487,000.00, net proceeds of the loan, was issued to appellant (Exh. "C"). Appellant endorsed, then encashed the check with RBSJ Teller Eleneth Cruz, who stamped thereon the word "paid" (Exh. "C-4"). After appellant received the proceeds, he issued an undated check, Associated Bank Check No. 165476, Tarlac Branch, in the amount of P500,000, payable to RBSJ (Exh. "D"). It was not the bank policy for a borrower to apply for a loan, obtain its approval and its proceeds on the same day. Appellants case was a special one considering that he is the "kumpare" of the President of RBSJ and he is well-known to all the banks directors since he, like them, comes from Tarlac.

Page 1091 of 1485

Appellant failed to pay his loan upon its maturity on December 16, 1989. He personally asked de Guzman for a two-month extension and advised RBSJ to date to February 16, 1990 his Associated Bank check no. 165476. Failing anew to pay, he asked for another two-month extension or up to April 16, 1990. Both requests de Guzman granted. On April 16, 1990, appellant still failed to pay his loan. Basangan and his co-employee, Carlos Garcia, went to Tarlac to collect from appellant the amount of the loan. Appellants written request for another 30-day extension was denied by de Guzman who instead, sent him a formal demand letter dated April 25, 1990. On May 25, 1990, Associated Bank check no. 165476 was deposited with PS Bank, San Juan Branch. The check was later returned with the words "closed account" stamped on its face. Associated Bank employee PASION declared that appellants Current Account No. 1022-001197-9 with Associated Bank had been closed since February 2, 1990. Appellants balance under the banks statement of account as of November 16, 1989 was only P859. The most appellant had on his account was P40,000 recorded on November 19, 1989 (Exh. "K"). Basangan and Garcia, in Tarlac, advised appellant of the dishonor of his check. Appellant wrote Atty. Joselito Lim, RBSJ Chairman of the Board, about the loan and arrangements as to the schedule of his payment. His letter was referred to de Guzman, who, in turn, sent to him another demand letter dated September 17, 1990. The letter informed him of the dishonor of his check. De Guzman required him to take the necessary step for the early settlement of his obligation. He still refused to pay. Appellant denied the charge. He claimed that on November 16, 1989, Agapito Uy and his sister Agnes Angeles proposed to him that he secure a loan from the RBSJ for P500,000. P200,000 of it will be for him and the P300,000 will go to Uy and to his sister to pay unpaid loans of borrowers in their "side banking" activities. For the approval of his loan, Uy told him that appellant can put up his four-door Mercedes Benz as collateral for the P200,000 loan. The P300,000 will have no collateral. Uy also told him the he (Uy) has complete control of the bank and his Mercedes Benz will be enough collateral for the P500,000. Appellant agreed to the proposal. He signed a blank loan application form and a promissory note plus a chattel mortgage for his Mercedes Benz. Thereafter, he was told to come back in two days. Uy gave him two Premiere Bank checks worth P100,000 each. He gave one check to his brother Efren Rigor and the other to his sister-in-law for encashment in Tarlac. He issued to Uy a personal check for P500,000 undated. This check was deposited in the bank for encashment in the later part of May, 1990 but it bounced. When demand was made for him to pay his loan, he told Uy to get his Mercedes Benz as payment for P200,000 but Uy refused. Uy wanted him to pay the whole amount of P500,000.2 On July 8, 1994, the trial court rendered judgment against petitioner, the dispositive portion of which reads: WHEREFORE, foregoing premises considered, this Court finds accused Alfredo Rigor guilty beyond reasonable doubt of the crime of Violation of Section 1 of Batas Pambansa Blg. 22 and there being no mitigating or aggravating circumstance on record, imposes upon him the penalty of imprisonment for six (6) months and to restitute to the Rural Bank of San Juan the sum of P500,000.00 and to pay the costs. 3

Page 1092 of 1485

The trial court stated the reasons for petitioners conviction, thus: In the case at bar, accused admitted having issued Associated Bank Check No. 165476 in the amount of P500,000.00. the check was undated when issued. Records, however, show that it was issued on 16 November 1989 but as it appear[s] now it is dated 16 February 1990. The probable reason must be because upon the maturity of his loan on 16 December 1989, accused asked for extension of two (2) months to pay the same. And the expiration of that two (2) months period is 16 February 1990. Nevertheless, Exhibit "K" for the prosecution including its submarkings show that the highest outstanding amount in the current account of accused with the Associated Bank, Tarlac Branch for the month of November 1989, the month Rigor issued aforesaid check, is only about P40,000.00. Hence, Rigor has no sufficient deposit in the bank to cover the amount of P500,000.00 when he issued Check No. 165476. Therefore, Rigor knowingly issued the same he having no sufficient funds in or credit with the drawee bank in violation of section 1 of [B.P.] Blg. 22. The defense of the accused that the amount of loan he secured from the Rural Bank of San Juan is only P200,000.00 is of no moment. The fact is he admitted having issued Associated Bank Check No. 165476 in the amount of P500,000.00 and upon its deposit for encashment, the same was dishonored for reason account closed. 4 Petitioner appealed his conviction to the Court of Appeals, which affirmed the trial courts decision. The dispositive portion of the appellate courts decision reads: WHEREFORE, the appealed decision is AFFIRMED with the modification that the reference to lack of mitigating or aggravating circumstances should be deleted and disregarded.5 Hence, this petition for review on certiorari. Petitioner raises the following: 1) Absent the element of knowingly issuing a worthless check entitles the petitioner to acquittal; 2) Without proof that accused actually received a notice of dishonor, a prosecution for violation of the Bouncing Checks Law cannot prosper; 3) The Pasig Court below had no jurisdiction to try and decide the case for violation of Batas Pambansa Bilang 22.6 Petitioner contends that he did not violate Batas Pambansa Bilang 22 because he told the officers of the complainant bank from the very beginning that he did not have sufficient funds in the bank; he was merely enticed by Agustin Uy, the banks managing director and comptroller, to obtain the instant loan where he received only P200,000, while Uy took P300,000; and his check was partly used to collateralize an accommodation in favor of Uy in the amount of P300,000. The contention is without merit. Petitioner is charged with violation of Section 1 of Batas Pambansa Bilang 22, thus:

Page 1093 of 1485

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. The elements of the offense are: (1) Making, drawing, and issuance of any check to apply on account or for value; (2) knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor of the check for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. 7 As found by the Regional Trial Court and the Court of Appeals, all the aforementioned elements are present in this case. The evidence shows that on November 16, 1989, petitioner applied 8 for a loan in the amount of P500,000 with the Rural Bank of San Juan and on the same day, he issued an undated Associated Bank Check No. 1654769 worth P500,000 payable to Rural Bank of San Juan in connection with the loan, which check was later dated February 16, 1990. 10 The check was thus issued to apply for value.11 This shows the presence of the first element of the offense. The presence of the second element of the offense is shown by petitioners admission 12 that he knew of the insufficiency of his funds in the drawee bank when he issued the check and he allegedly did not hide the fact from the officials of the Rural Bank of San Juan. The Court of Appeals correctly ruled, thus: xxx Knowledge involves a state of mind difficult to establish. We hold that appellants admission of the insufficiency of his fund at the time he issued the check constitutes the very element of "knowledge" contemplated in Sec. 1 of BP 22. The prima facie presumption of knowledge required in Sec. 2, Ibid., does not apply because (a) the check was presented for payment only on May 25, 1990 or beyond the 90-day period, which expired on May 16, 1990, counted from the maturity date of the check on February 16, 1990 and (b) an actually admitted knowledge of a fact needs no presumption. While it is true that if a check is presented beyond ninety (90) days from its due date, there is no more presumption of knowledge by the drawer that at the time of issue his check has no sufficient funds, the presumption in this case is supplanted by appellants own admission that he did not hide the fact that he had no sufficient funds for the check. In fact, it appears that when he authorized RBSJ to date his check on February 16, 1990, his current account was already closed two weeks earlier, on February 2, 1990.13

Page 1094 of 1485

Petitioner, however, argues that since the officers of the bank knew that he did not have sufficient funds, he has not violated Batas Pambansa Bilang 22. Assuming arguendo that the payee had knowledge that he had insufficient funds at the time he issued the check, such knowledge by the payee is immaterial as deceit is not an essential element of the offense under Batas Pambansa Bilang 22.14 The gravamen of the offense is the issuance of a bad check; hence, malice and intent in the issuance thereof are inconsequential.15 Moreover, the cited case of Magno v. Court of Appeals, 16 which resulted in the acquittal of the accused therein, is inapplicable to petitioner as the facts of said case are different. In Magno, 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. 17 It was a modus operandi whereby the supplier of the goods is also able to sell or lease the same goods at the same time privately financing those in desperate need so they may be accommodated. 18 The Court therein held: To charge the petitioner for the refund of a "warranty deposit" which he did not withdraw as it was not his own account, it having remained with LS Finance, is to even make him pay an unjust "debt," to say the least, since petitioner did not receive the amount in question. All the while, said amount was in the safekeeping of the financing company, which is managed, supervised and operated by the corporation officials and employees of LS Finance. Petitioner did not even know that the checks he issued were turned over by Joey Gomez to Mrs. Teng, whose operation was kept from his knowledge on her instruction. This fact alone evoke suspicion that the transaction is irregular and immoral per se, hence, she specifically requested Gomez not to divulge the source of the "warrant deposit." It is intriguing to realize that Mrs. Teng did not want the petitioner to know that it was she who "accommodated" petitioners request for Joey Gomez, to source out the needed funds for the "warranty deposit." Thus it unfolds the kind of transaction that is shrouded with mystery, gimmickry and doubtful legality. It is in simple language, a scheme whereby Mrs. Teng as the supplier of the equipment in the name of her corporation, Mancor, would be able to "sell or lease" its goods as in this case, and at the same time, privately financing those who desperately need petty accommodations as this one. This modus operandi has in so many instances victimized unsuspecting businessmen, who likewise need protection from the law, by availing of the deceptively called "warranty deposit" not realizing that they also fall prey to leasing equipment under the guise of a lease purchase agreement when it is a scheme designed to skim off business clients. 19 This case, however, involves an ordinary loan transaction between petitioner and the Rural Bank of San Juan wherein petitioner issued the check certainly to be applied to the payment of his loan since the check and the loan have the same value of P500,000. Whether petitioner agreed to give a portion of the proceeds of his loan to Agustin Uy, an officer of complainant bank, to finance Uys and his (petitioner) sisters alleged "side-banking" activity, such agreement is immaterial to petitioners liability for issuing the dishonored check under Batas Pambansa Bilang 22. Lozano v. Martinez20 states: The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment. It is

Page 1095 of 1485

not the non-payment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on the public interest, the practice is proscribed by the law. The law punishes the act not as an offense against property, but an offense against public order. People v. Nitafan21 held that to require that the agreement surrounding the issuance of checks be first looked into and thereafter exempt such issuance from the provisions of Batas Pambansa Bilang 22 on the basis of such agreement or understanding would frustrate the very purpose for which the law was enacted. Further, the presence of the third element of the offense is shown by the fact that after the check was deposited for encashment, it was dishonored by Associated Bank for reason of "closed account" as evidenced by its Check Return Slip. 22 Despite receipt of a notice of dishonor from complainant bank, petitioner failed to pay his obligation. Petitioner next contends that he did not receive a notice of dishonor, the absence of which precludes criminal prosecution. The contention is likewise of no merit. The notice of dishonor of a check may be sent to the drawer or maker by the drawee bank, the holder of the check, or the offended party either by personal delivery or by registered mail.23 The notice of dishonor to the maker of a check must be in writing. 24 In this case, prosecution witness Edmarcos Basangan testified that after petitioners check was dishonored, he and co-employee Carlos Garcia went to petitioners residence in Tarlac to inform him about it. Thereafter, petitioner wrote a letter dated June 28, 1990 to Atty. Joselito Lim, RBSJ chairman of the Board of Directors, proposing a manner of paying the loan. The letter was referred to the bank manager who sent petitioner another demand letter25 dated September 17, 1990 through registered mail. 26 Said letter informed petitioner of the dishonor of his check for the reason of account closed, and required him to settle his obligation, thus: xxx September 17, 1990 Mr. Victoria, Tarlac Dear Mr. Rigor, Please be informed that the check dated February 16, 1990, that you issued purportedly for the payment of your loan, which has already become due and demandable in the sum of PESOS: Five Hundred Thousand Pesos Only (P500,000.00) was dishonored on February 16, 1990 (should be May 25, 1990) for the reason Account Closed (AC). Alfredo Rigor

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We trust that you will take the necessary step for the early settlement of your obligation to us. Very truly yours, MELQUECEDES DE GUZMAN The transcript of records27 shows that petitioner admitted knowledge of the dishonor of his check through a demand letter sent to him. Hence, petitioner cannot pretend that he did not receive a notice of dishonor of his check. Lastly, petitioner contends that the Regional Trial Court of Pasig had no jurisdiction over this case since no proof has been offered that his check was issued, delivered, dishonored or that knowledge of insufficiency of funds occurred in the Municipality of San Juan, Metro Manila. The contention is untenable. As regards venue of a criminal action, Section 15, paragraph (a), of Rule 110 of the 2000 Revised Rules of Criminal Procedure, which reflects the old rule, 28 provides: Sec. 15. Place where action is to be instituted. (a) Subject to existing laws, the criminal action shall be instituted and tried in the court of the municipality or territory where the offense was committed or where any of its essential ingredients occurred. (Emphasis supplied.) Violations of Batas Pambansa Bilang 22 are categorized as transitory or continuing crimes. 29 In such crimes, 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. 30 Hence, a person charged with a transitory crime may be validly tried in any municipality or territory where the offense was in part committed.31 The evidence clearly shows that the undated check was issued and delivered at the Rural Bank of San Juan, Metro Manila 32 on November 16, 1989, and subsequently the check was dated February 16, 1990 thereat. On May 25, 1990, the check was deposited with PS Bank, San Juan Branch, Metro Manila.33 Thus, the Court of Appeals correctly ruled: Violations of B.P. 22 are categorized as transitory or continuing crimes. A suit on the check can be filed in any of the places where any of the elements of the offense occurred, that is, where the check is drawn, issued, delivered or dishonored. x x x The information at bar effectively charges San Juan as the place of drawing and issuing. The jurisdiction of courts in criminal cases is determined by the allegations of the complaint or information. Although, the check was dishonored by the drawee, Associated Bank, in its Tarlac Branch, appellant has drawn, issued and delivered it at RBSJ, San Juan. The place of issue and delivery was San Juan and knowledge, as an essential part of the offense, was also overtly manifested in San Juan. There is no question that crimes committed in November, 1989 in San Juan are triable by the

Page 1097 of 1485

RTC stationed in Pasig. In short both allegation and proof in this case sufficiently vest jurisdiction upon the RTC in Pasig City. 34 WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals, in CAG.R. CR No. 18855, is hereby AFFIRMED. Costs against petitioner. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Carpio, JJ., concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 175381 February 26, 2008 petitioner, of the Philippines COURT

JAMES SVENDSEN, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION CARPIO MORALES, J.:

Assailed via Petition for Review on Certiorari is the Court of Appeals Decision 1 of November 16, 2006 denying petitioners appeal from the December 22, 2005 Decision 2 of the Regional Trial Court (RTC) of Manila, Branch 14 which affirmed the December 17, 2003 Judgment 3 of the Metropolitan Trial Court (MeTC) of Manila, Branch 5, finding James Svendsen (petitioner) guilty of violation of Batas Pambansa Blg. (B.P. Blg.) 22 or the Bouncing Checks Law. In October 1997, Cristina Reyes (Cristina) extended a loan to petitioner in the amount of P200,000, to bear interest at 10% a month. After petitioner had partially paid his obligation, he failed to settle the balance thereof which had reached P380,000 inclusive of interest.4 Cristina thus filed a collection suit against petitioner, which was eventually settled when petitioner paid her P200,0005 and issued in her favor an International Exchange Bank check postdated February 2, 1999 (the check) in the amount of P160,000 representing interest.6 The check was co-signed by one Wilhelm Bolton. When the check was presented for payment on February 9, 1999, it was dishonored for having been Drawn Against Insufficient Funds (DAIF).7 Cristina, through counsel, thus sent a letter to petitioner by registered mail informing him that the check was dishonored by the drawee bank, and demanding that he make it good within five (5) days from receipt thereof. 8 No settlement having been made by petitioner, Cristina filed a complaint dated March 1, 1999 against him and his co-signatory to the check, Bolton, for violation of B.P. Blg. 22 before the City Prosecutors Office of Manila. No counter-affidavit was submitted by petitioner and his co-respondent. An Information dated April 13, 1999 for violation of B.P.

Page 1098 of 1485

Blg. No. 22 was thus filed on April 29, 1999 before the MeTC of Manila against the two, the accusatory portion of which reads: That sometime in December 1998 the said accused did then and there willfully, unlawfully, and feloniously and jointly make or draw and issue to CRISTINA C. REYES to apply on account or for value INTERNATIONAL EXCHANGE BANK check no. 0000009118 dated February 2, 1999 payable to CRISTINA REYES in the amount of P160,000.00 said accused well knowing that at the time of issue she/he/they did not have sufficient funds and/or credit with the drawee bank for payment of such check in full upon its presentment, which check after having been deposited in the City of Manila, Philippines, and upon being presented for payment within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for INSUFFICIENCY OF FUNDS and despite receipt of notice of such dishonor, said accused failed to pay said CRISTINA C. REYES 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.9 Bolton having remained at large, the trial court never acquired jurisdiction over his person. 10 By Judgment of December 17, 2003, Branch 5 of the Manila MeTC found petitioner guilty as charged, disposing as follows: WHEREFORE, this Court finds accused James Robert Svendson [ sic] GUILTY beyond reasonable doubt of a violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) and imposes upon him to pay a fine of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00), with subsidiary imprisonment in case of insolvency. Accused is also made liable to pay private complainant Cristina C. Reyes civil indemnity in the total amount of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00) representing his civil obligation covered by subject check . Meantime, considering that other accused Wilhelm Bolton remains at large, let a warrant of arrest against him ISSUE. Pending his apprehension, let the case against him be sent to the ARCHIVES. (Emphasis in the original; underscoring supplied) As priorly stated, the RTC affirmed the MeTC judgment and the Court of Appeals denied petitioners appeal. Hence, the present petition for review. Petitioner argues that the appellate court erred in finding that the first element of violation of B.P. Blg. 22 the making, drawing, and issuance of any check "to apply on account or for value" was present, as the obligation to pay interest is void, the same not being in writing and the 10% monthly interest is unconscionable; in holding him civilly liable in the amount of P160,000 to private complainant, notwithstanding the invalidity of the interest stipulation; and in violating his right to due process when it convicted him, notwithstanding the absence of proof of receipt by him of a written notice of dishonor. The petition is impressed with merit.

Page 1099 of 1485

Section 1 of B.P. Blg. 22 or the Bouncing Checks Law reads: 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 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. The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. For petitioner to be validly convicted of the crime under B.P. Blg. 22, the following requisites must thus concur: (1) the making, drawing and issuance of any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. 11 Petitioner admits having issued the postdated check to Cristina. The check, however, was dishonored when deposited for payment in Banco de Oro due to DAIF. Hence, the first and the third elements obtain in the case. As for the second element, Section 2 of B.P. Blg. 22 provides that [t]he making, drawing and issuance of a check payment of which is refused by the drawee 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. In Rico v. People of the Philippines,12 this Court held: x x x [I]f x x x notice of non-payment by the drawee bank is not sent to the maker or drawer of the bum check, or if there is no proof as to when such notice was received by the drawer, then the presumption of knowledge as provided in Section 2 of B.P. 22 cannot arise, since there would simply be no way of reckoning the crucial five-day period.

Page 1100 of 1485

x x x In recent cases, we had the occasion to emphasize that not only must there be a written notice of dishonor or demand letters actually received by the drawer of a dishonored check, but there must also be proof of receipt thereof that is properly authenticated, and not mere registered receipt and/or return receipt. Thus, as held in Domagsang vs. Court of Appeals, while Section 2 of B.P. 22 indeed does not state that the notice of dishonor be in writing, this must be taken in conjunction with Section 3 of the law, i.e., "that where there are no sufficient funds in or credit with such drawee bank, such fact shall always be explicitly stated in the notice of dishonor or refusal". A mere oral notice or demand to pay would appear to be insufficient for conviction under the law. In our view, both the spirit and letter of the Bouncing Checks Law require for the act to be punished thereunder not only that the accused issued a check that is dishonored, but also that the accused has actually been notified in writing of the fact of dishonor . This is consistent with the rule that penal statues must be construed strictly against the state and liberally in favor of the accused. x x x In fine, the failure of the prosecution to prove the existence and receipt by petitioner of the requisite written notice of dishonor and that he was given at least five banking days within which to settle his account constitutes sufficient ground for his acquittal.13 (Italics in the original; emphasis and underscoring supplied) The evidence for the prosecution failed to prove the second element. While the registry receipt,14 which is said to cover the letter-notice of dishonor and of demand sent to petitioner, was presented, there is no proof that he or a duly authorized agent received the same. Receipts for registered letters including return receipts do not themselves prove receipt; they must be properly authenticated to serve as proof of receipt of the letters. 15 Thus in Ting v. Court of Appeals,16 this Court observed: x x x All that we have on record is an illegible signature on the registry receipt as evidence that someone received the letter. As to whether this signature is that of one of the petitioners or of their authorized agent remains a mystery. From the registry receipt alone, it is possible that petitioners or their authorized agent did receive the demand letter. Possibilities, however, cannot replace proof beyond reasonable doubt.17 For failure then to prove all the elements of violation of B.P. Blg. 22, petitioners acquittal is in order. Petitioner is civilly liable, however. For in a criminal case, the social injury is sought to be repaired through the imposition of the corresponding penalty, whereas with respect to the personal injury of the victim, it is sought to be compensated through indemnity, which is civil in nature.18 The decision of the MeTC, which was affirmed on appeal by the RTC and the appellate court, ordering petitioner "to pay private complainant Cristina C. Reyes civil indemnity in the total amount of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000) representing his civil obligation covered by subject check," deserves circumspect examination, however, given that the obligation of petitioner to pay 10% interest per month on the loan is unconscionable and against public policy. The P160,000 check petitioner issued to Cristina admittedly represented unpaid interest. By Cristinas information, the interest was computed at a fixed rate of 10% per month. 19

Page 1101 of 1485

While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing therein grants lenders carte blanche to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. 20 Stipulations authorizing such interest are contra bonos mores, if not against the law. They are, under Article 1409 21 of the New Civil Code, inexistent and void from the beginning. 22 The interest rate of 10% per month agreed upon by the parties in this case being clearly excessive, iniquitous and unconscionable cannot thus be sustained. In Macalalag v. People,23 Dio v. Jardines,24 and in Cuaton v. Salud,25 this Court, finding the 10% per month interest rate to be unconscionable, reduced it to 12% per annum. And in other cases26 where the interest rates stipulated were even less than that involved herein, the Court equitably reduced them. This Court deems it fair and reasonable then, consistent with existing jurisprudence, to adjust the civil indemnity to P16,000, the equivalent of petitioners unpaid interest on the P200,000 loan at 12% percent per annum as of February 2, 1999, the date of the check, plus 12% per annum interest to be computed from April 29, 1999, the date of judicial demand (date of the filing of the Information) up to the finality of this judgment. After the judgment becomes final and executory until the obligation is satisfied, the total amount due shall bear interest at 12% per annum.27 Respecting petitioners claim that since the promissory note incorporating the stipulated 10% interest per month was not presented, there is no written proof thereof, hence, his obligation to pay the same must be void, the same fails. As reflected above, Cristina admitted such stipulation. In any event, the presentation of the promissory note may be dispensed with in a prosecution for violation of B.P. Blg. 22 as the purpose for the issuance of such check is irrelevant in the determination of the accuseds criminal liability. It is for the purpose of determining his civil liability that the document bears significance. Notably, however, Section 24 of the Negotiable Instruments Law provides that "Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon to have become a party thereto for value." It was incumbent then on petitioner to prove that the check was not for a valuable consideration. This he failed to discharge. WHEREFORE, the Court of Appeals Decision of November 16, 2006 is REVERSED and SET ASIDE. Petitioner, James Svendsen, is acquitted of the crime charged for failure of the prosecution to prove his guilt beyond reasonable doubt. He is, however, ordered to pay private complainant, Cristina C. Reyes, the amount of SIXTEEN THOUSAND PESOS (P16,000) representing civil indemnity, plus 12% interest per annum computed from April 29, 1999 up to the finality of this judgment. After the judgment becomes final and executory until the obligation is satisfied, the total amount due shall earn interest at 12% per annum. SO ORDERED. FIRST [G.R. No. 166810, DIVISION June 26, 2008]

Page 1102 of 1485

JUDE JOBY LOPEZ, PETITIONER, V.S. PEOPLE OF THE PHILIPPINES RESPONDENT. DECISION LEONARDO-DE CASTRO, J.: This is a petition for review on certiorari filed by JUDE JOBY LOPEZ from the decision [1] dated January 12, 2005 of the Court of Appeals (CA), Ninth Division, in CA-G.R. CR No. 27057, affirming an earlier decision[2] of the Regional Trial Court (RTC), Branch 53, Sorsogon, Sorsogon, which found petitioner guilty beyond reasonable doubt of the crime of Estafa as defined under Article 315, par. 2(d) of the Revised Penal Code, as amended by Republic Act (R.A.) No. 4885 and sentenced him to suffer 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, and to indemnify the private complainant in the amount of Twenty Thousand Pesos (P20,000.00) plus costs. On October 6, 1998, in the RTC of Sorsogon, an Information for estafa was filed against herein petitioner Jude Joby G. Lopez which was docketed in as Criminal Case No. 98-4690. The said Information alleged: That on or about March 23, 1998, in the municipality of Sorsogon, province of Sorsogon, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, with intent to defraud, did then and there, willfully, unlawfully and feloniously, make, draw, and issue to apply on account and/or for value received a DBP Check No. 0859279 payable to EFREN R. ABLES in the amount of TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, knowing fully well that at the time of issue, accused did not have sufficient fund and/or his account is already closed with the drawee bank and that upon presentment of the check for payment on May 27, 1998, the same was dishonored and/or refused payment by the drawee bank for the reason that the account of the said accused is already closed and/or without sufficient fund and despite repeated demands after receipt of notice of said dishonor and thereafter made by Efren R. Ables, accused refused and still refuses to pay the latter, to his damage and prejudice in the aforementioned amount of P20,000.00, Philippine Currency. Contrary to law. [3] When arraigned on April 13, 1999, petitioner pleaded "Not Guilty" [4] to the offense charged. During the trial on the merits, the prosecution presented the testimonies of private complainant Efren R. Ables and Valentin Luzuriaga, a bank teller of the Development Bank of the Philippines (DBP). The prosecution presented Exhibits "A" to "E" with submarkings consisting of the check issued by the petitioner, the demand letter sent by private complainant to petitioner and bank records to show that the said check was dishonored as the account was closed even before the said check was issued. All of the aforesaid exhibits were admitted by the trial court in its Order dated August 27, 2001. On the other hand, petitioner did not present any witness but only offered his documentary evidence, consisting of: Exh. 1- the said demand letter of the private complainant; Exh. 1-A - stamp "Return to Sender" on the envelope of Exh. 1; Exh. 2 - the Transcript of Stenographic Notes (TSN of the Hearing on December 20, 1999); Exh. 2-a, page 9 of the said TSN; and Exh. 2-b, the No. 5 question and answer in Exh. 2. The trial court convicted the accused (herein petitioner) of the crime of estafa penalized by Article 315, par. 2(d) of the Revised Penal Code as amended by R.A. No. 4885 in its decision dated June 17, 2002. The dispositive portion of the decision reads: WHEREFORE, the Court finds the accused Jude Joby G. Lopez guilty beyond reasonable doubt of the crime of ESTAFA defined and penalized under Art. 315, par. 2 (d) of the Revised Penal Code as amended by R.A. 4885 and taking into consideration the Indeterminate Sentence Law, the Court hereby sentences him to suffer an imprisonment of Six (6) years and One (1)

Page 1103 of 1485

day of prision mayor as minimum to Twelve (12) years and One (1) day of r eclusion temporal as maximum and to indemnify the private complainant, Efren Ables in the amount of P20,000.00 Philippine currency and to pay the costs. SO ORDERED.[5] In his Motion for Reconsideration, petitioner, citing the case of Pacheco v. Court of Appeals (G.R. No. 126670, December 2, 1999, 319 SCRA 595), argued that Ables knew at the time of the issuance of the check that accused had no funds in the bank and therefore, the element of deceit was absent. The said Motion for Reconsideration was denied by the trial court. Petitioner appealed to the CA, reiterating his argument that the element of deceit was not proven and that the lower court imposed excessive penalty. The CA rendered its Decision on January 12, 2005 in CA-G.R. CR No. 27057 affirming in toto the decision of the trial court in this case. Hence, the petitioner interposed this appeal, contending that the CA erred 1. In affirming the decision of the lower court convicting the accused of the crime of estafa. 2. In not applying the provisions of the negotiable instruments law. 3. In not ruling on the excessive penalty imposed by the trial court.

We find no merit in the instant appeal. Article 315, paragraph 2(d), of the Revised Penal Code, as amended by R.A. 4885 penalizes estafa when committed as follows: 2. By means of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud: xxx d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act. By settled jurisprudence, the elements of the crime of estafa, as defined in the above quoted provision of law, are as follows: (1) the offender has postdated or issued a check in payment of an obligation contracted at the time of the postdating or issuance; (2) at the time of postdating or issuance of said check, the offender has no funds in the bank or the funds deposited are not sufficient to cover the amount of the check; and (3) the payee has been defrauded. Damage and deceit are essential elements of the offense and must be established with satisfactory proof to warrant conviction, while the false pretense or fraudulent act must be committed prior to, or simultaneous with, the issuance of the bad check. The drawer of the dishonored check is given three days from receipt of the notice of dishonor to cover the amount of the check, otherwise, a prima facie presumption of deceit arises.[6] Further it is settled that it is criminal fraud or deceit in the issuance of a check which is made punishable under the Revised Penal Code, and not the nonpayment of a debt. Deceit is the false representation of a matter of fact whether by words or conduct by false or

Page 1104 of 1485

misleading allegations or by concealment of that which should have been disclosed which deceives or is intended to deceive another so that he shall act upon it to his legal injury. Concealment which the law denotes as fraudulent implies a purpose or design to hide facts which the other party ought to have. The postdating or issuing of a check in payment of an obligation when the offender had no funds in the bank or his funds deposited therein are not sufficient to cover the amount of the check is a false pretense or a fraudulent act. [7] The trial court and the CA found these elements of the crime charged present in this case. There is no dispute as to the findings of fact of the CA that respondent gave the sum of P20,000.00 to the accused in exchange for a postdated check in the same amount issued by petitioner and that the said check was dishonored by the bank. We quote the appellate court's factual findings, which sustained the trial court's decision as follows: Indisputably, on March 23, 1998, appellant issued and postdated a check with a value equivalent to the sum of P20,000.00 which he obtained from Efren. He accomplished deceit when he led Efren to believe that, prior to, or simultaneous with, their arrangement, the subject check is good upon its maturity on April 30, 1998. However, the check turned out to be worthless because, when Efren deposited it with the Legaspi Savings Bank, the same was dishonored due to "Account Closed". Evidently, Efren was prejudiced and damaged by appellant's fraudulent ploy.[8] In the motion for reconsideration of the decision of the trial court finding petitioner guilty of the crime of estafa, the latter raised only the issue of whether or not deceit was proven by the prosecution. Petitioner likewise dwelt on the said issue in his appeal to the CA. Re: First and Second Assigned Errors

In his first assignment of error, petitioner anchored his argument that no deceit was established by the prosecution because of the failure of the latter to prove the fact of receipt by petitioner of the notice of dishonor of the check. Petitioner argued that no presumption or prima facie evidence of guilt would arise if there is no proof as to the date of receipt by the drawer of the said notice "since there would simply be no way of reckoning the crucial 3-day period" from receipt of notice of dishonor of the check within which the amount necessary to cover the check may be done as provided by paragraph 2(d) of Article 315 of the Revised Penal Code, as amended. On this issue, the CA ruled as follows: As against appellant's insistence, the prima facie presumption of deceit perforce applies here. It must be noted that exactly on the same day, May 29, 1998, after Efren received the Debit Memo (Exh. "B") on the rubber check from the Legaspi Savings Bank, he called, then sent a demand letter (Exh. "C") to, appellant, informing him of its dishonor. [9] (Emphasis supplied) We sustain the CA. The receipt by the drawer of the notice of dishonor is not an element of the offense. The presumption only dispenses with the presentation of evidence of deceit if such notification is received and the drawer of the check failed to deposit the amount necessary to cover his check within three (3) days from receipt of the notice of dishonor of the check. The presumption indulged in by law does not preclude the presentation of other evidence to prove deceit. It is not disputed by petitioner that, as found by the CA, respondent Ables "called" up petitioner to inform him of the dishonor of the check. Moreover, when petitioner issued the check in question on March 23, 1998, he knew that his current account with the DBP was a closed account as early as January 27, 1998. Petitioner disclaim employing deceit by asserting that respondent knew that petitioner had no funds with the bank, as he was so informed by the petitioner himself at the time of the issuance of the check (Appellant's Brief, CA-G.R. No. 27057). Assuming that petitioner did so, petitioner could not escape culpability because he was not in a position to make good the check at any time since his current account was already closed. This fact petitioner

Page 1105 of 1485

failed to disclose to respondent.

The absence of proof as to receipt of the written notice of dishonor notwithstanding, the evidence shows that petitioner had actual notice of the dishonor of the check because he was verbally notified by the respondent and notice whether written or verbal was a surplusage and totally unnecessary considering that almost two (2) months before the issuance of the check, petitioner's current account was already closed. Under these circumstances, the notice of dishonor would have served no useful purpose as no deposit could be made in a closed bank account. Pertinently, Section 114(d) of the Negotiable Instruments Law provides: Sec. 114 - When notice need not be given to drawer . -Notice of dishonor is not required to be given to the drawer in either of the following cases: Xxx d. Where the drawer has no right to expect or require that the drawee or acceptor will honor the check. Since petitioner's bank account was already closed even before the issuance of the subject check, he had no right to expect or require the drawee bank to honor his check. By virtue of the aforequoted provision of law, petitioner is not entitled to be given a notice of dishonor. We now review the penalties imposed by the appellate court, affirming in toto the judgment of the trial court. Presidential Decree (P.D.) No. 818[10] amended Article 315 of the Revised Penal Code insofar as the penalties for felonies under paragraph 2(d) are concerned, viz: SECTION 1. Any person who shall defraud another by means of false pretenses or fraudulent acts as defined in paragraph 2(d) of Article 315 of the Revised Penal Code, as amended by Republic Act No. 4885, shall be punished by: 1st. The penalty of reclusion temporal if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos, and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos but the total penalty which may be imposed shall in no case exceed thirty years. In such cases, and in connection with the accessory penalties which may be imposed under the Revised Penal Code, the penalty shall be termed reclusion perpetua; 2nd. The penalty of prision mayor in its maximum period, if the amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos; 3rd. The penalty of prision mayor in its medium period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and 4th. By prision mayor in its minimum period, if such amount does not exceed 200 pesos. The Indeterminate Sentence Law provides that if an offense is punished by the Revised Penal Code or its amendments, the court shall sentence the accused to an indeterminate penalty, the maximum term of which shall be that which, in view of the attending circumstances, can be properly imposed under the rules of the Revised Penal Code, while the minimum term of which shall be within the range of the penalty next lower to that prescribed by the Code for the offense. Under Article 315, as amended by P.D. No. 818, the penalty of reclusion temporal is imposed if the amount defraud is over P12,000.00 but does not exceed P22,000.00. The amount

Page 1106 of 1485

involved in this case is within the above-mentioned range. Applying the Indeterminate Sentence Law, the maximum imposable penalty is reclusion temporal while the minimum term should be within the range of the penalty next lower to that prescribed by the Code for the offense, which is prision mayor. Thus, the CA correctly affirmed the penalty imposed by the trial court which is six (6) years and one (1) day of prision mayor as minimum to twelve years (12) and one (1) day of reclusion temporal as maximum. WHEREFORE, premises considered, the petition is hereby DENIED for utter lack of merit, and the Decision appealed from is AFFIRMED in toto. SO Puno, C.J. (Chairperson), Carpio, Corona, and Azcuna, JJ., concur. Republic of the Philippines Supreme Court Manila ORDERED.

SECOND DIVISION

EDGARDO MEDALLA, Petitioner,

G.R. No. 193362

Present:

CARPIO, J., Chairperson, - versus PEREZ, SERENO, REYES, and BERNABE, JJ.

Page 1107 of 1485

Promulgated: RESURRECCION D. LAXA, Respondent. January 18, 2012

x------------------------------------------------------------------------------------x

RESOLUTION

REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Edgardo Medalla (petitioner) assailing the Decision 1 dated May 17, 2010 and Resolution 2 dated August 13, 2010 issued by the Court of Appeals (CA) in CA-G.R. SP No. 101818.

Sometime in April 1998, the petitioner issued to Resurreccion Laxa (respondent) a Far East Bank Check dated May 5, 1998 in the amount of P742,000.00 as payment of the loan which he obtained from the latter. However, when the said check was deposited by the respondent on May 5, 1998, the same was dishonored as the account from which it was drawn had already been closed. Thereupon, the respondent verbally informed the petitioner of the dishonor of the said check and subsequently sent him a demand letter dated May 7, 1998. Nevertheless, the petitioner failed to pay the amount of the said check.

For his part, the petitioner admitted to having issued the subject check but averred that it was not meant to be deposited or encashed, but that it was a mere guarantee for the loan he obtained from the respondent. Likewise, the petitioner admitted to having been informed by the respondent of the fact of the dishonor of the subject check.

Page 1108 of 1485

The petitioner further alleged that he had executed a Real Estate Mortgage over his parcel of land in Bulacan in favor of the respondent with the understanding that, should he fail to pay his loan, the latter would foreclose the said mortgage and apply the proceeds thereof to his loan. Reneging on the said agreement, the respondent opted not to foreclose the mortgage and deposit the subject check instead.

Consequently, in an Information docketed as Criminal Case No. 0058531, the petitioner was charged with violation of Batas Pambansa Blg. 22 (B.P. 22) before the Metropolitan Trial Court (MeTC) of Metro Manila.

After due proceedings, the MeTC of Metro Manila, on July 29, 2003, rendered a Decision3 finding the petitioner guilty beyond reasonable doubt of the crime charged. He was then sentenced to suffer the penalty of imprisonment of six months and to pay the respondent the amount of P742,000.00, less the amount of partial payments made by the former, and the amount of P20,000.00 as attorneys fees.

Aggrieved, the petitioner appealed from the said Decision to the Regional Trial Court (RTC) of Quezon City. The petitioner claimed that he and the respondent had entered into a novation of contract thereby effectively obliterating his liability for the issuance of the said dishonored check. He pointed out that, during the pendency of the case with the MeTC of Metro Manila, he and the respondent entered into a new agreement with respect to the civil aspect of the case pursuant to which, substantial payments were made by him, with only P25,000.00 left unpaid.

On November 21, 2005, the RTC of Quezon City rendered a Decision affirming the July 29, 2003 Decision of the MeTC of Metro Manila, albeit with modification. The RTC of Quezon City deleted the penalty of imprisonment for six months and, instead, imposed a fine in the amount of P200,000.00.

Page 1109 of 1485

The RTC of Quezon City opined that the prosecution was able to establish beyond reasonable doubt all the elements of the crime charged. As to the petitioners defense of novation, the RTC of Quezon City held that the substantial payments made by the petitioner to the respondent would not affect his criminal liability for violation of B.P. 22 since what is punished by the said law is the issuance per se of a worthless check and not the failure to pay his obligation.

A Motion for Partial Reconsideration 4 was filed by the petitioner but it was denied by the RTC of Quezon City in its Order5 dated November 27, 2007.

The petitioner then filed a petition for review with the CA reiterating his arguments before the RTC of Quezon City. On May 17, 2010, the CA rendered the herein assailed Decision6 dismissing the petition for review filed by the petitioner and affirming the November 21, 2005 Decision of the RTC of Quezon City.

On the petitioners defense of novation, the CA found the same untenable and asserted that, for novation to prevent criminal liability, it must occur prior to the filing of Information in court. The petitioner sought reconsideration of the May 17, 2010 Decision but it was denied by the CA in its Resolution7 dated August 13, 2010.

Undaunted, the petitioner instituted the instant petition for review on certiorari before this Court asserting the following arguments: (1) the prosecution failed to establish the fact of the dishonor of the subject check beyond reasonable doubt; and (2) the novation subsequently entered between him and the respondent extinguished his criminal liability.

The petition is denied.

Page 1110 of 1485

A perusal of the arguments set forth by the petitioner in support of the instant petition would clearly show that the same only raised questions of fact. The petition failed to show any extraordinary circumstance justifying a departure from the established doctrine that findings of fact of the CA are conclusive on the Court and will not be disturbed on appeal. The issue on whether the prosecution was able to establish the dishonor of the subject check is factual in nature and, hence, not a proper subject of a petition for review on certiorari under Rule 45.

Settled is the rule that when the trial court's factual findings have been affirmed by the appellate court, said findings are generally conclusive and binding upon this Court, for it is not our function to analyze and weigh the parties' evidence all over again except when there is a serious ground to believe a possible miscarriage of justice would thereby result. To reiterate, our task in an appeal via certiorari is limited, as a jurisdictional matter, to reviewing errors of law that might have been committed by the CA. 8

Anent the petitioners contention that novation had extinguished his criminal liability for violation of B.P. 22, we likewise find the same utterly specious. The petitioner ought to be reminded that novation is not a mode of extinguishing criminal liability. As astutely opined by the CA, novation may only prevent the rise of criminal liability if it occurs prior to the filing of the Information in court. In other words, novation does not extinguish criminal liability but may only prevent its rise.9

The fact the petitioner had already made substantial payments to the respondent and that only P25,000.00 out of his total obligation in favor of the respondent remains unpaid is immaterial to the extinguishment of the petitioners criminal liability.

The gravamen of the offense punished by B.P. 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment. It is not the

Page 1111 of 1485

non-payment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on the public interest, the practice is proscribed by law. The law punishes the act not as an offense against property, but an offense against public order. 10

WHEREFORE, in consideration of the foregoing disquisitions, the petition is DENIED.

SO ORDERED. Republic Supreme Manila SECOND DIVISION of the Philippines Court

Page 1112 of 1485

HECTOR TREAS, Petitioner, G. R. No. 195002 Present: CARPIO, J., Chairperson, PEREZ, SERENO, REYES, and PERLAS-BERNABE, JJ. Promulgated: January 25, 2012 - versus -

PEOPLE OF THE PHILIPPINES, Respondent.

x--------------------------------------------------x

DECISION

SERENO, J.:

Page 1113 of 1485

Where life or liberty is affected by its proceedings, courts must keep strictly within the limits of the law authorizing them to take jurisdiction and to try the case and render judgment thereon.1488[1] This is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, seeking to annul and set aside the Court of Appeals (CA) Decision dated 9 July 20101489[2] and Resolution dated 4 January 2011.

Statement of the Facts and of the Case

The pertinent facts, as found by the CA, are as follows: Sometime in December 1999, Margarita Alocilja (Margarita) wanted to buy a house-and-lot in Iloilo City covered by TCT No. 109266. It was then mortgaged with Maybank. The bank manager Joselito Palma recommended the appellant Hector Treas (Hector) to private complainant Elizabeth, who was an employee and niece of Margarita, for advice regarding the transfer of the title in the latters name. Hector informed Elizabeth that for the titling of the property in the name of her aunt Margarita, the following expenses would be incurred: P20,000.00P90,000.00P24,000.00P10,000.00Attorneys fees, Capital Gains Tax, Documentary Stamp, Miscellaneous Expenses.

Thereafter, Elizabeth gave P150,000.00 to Hector who issued a corresponding receipt dated December 22, 1999 and prepared [a] Deed of Sale with Assumption of Mortgage. Subsequently, Hector gave Elizabeth Revenue Official Receipt Nos. 00084370 for P96,000.00 and 00084369 for P24,000.00. However, when she consulted with the BIR, she was informed that the receipts were fake. When confronted, Hector admitted to her that the receipts were fake and that he used the P120,000.00 for his other transactions. Elizabeth demanded the return of the money. To settle his accounts, appellant Hector issued in favor of Elizabeth a Bank of Commerce check No. 0042856 dated November 10, 2000 in the amount of P120,000.00, deducting from P150,000.00 the P30,000.00 as attorneys fees. When the check was deposited with the PCIBank, Makati Branch, the same was dishonored for the reason that the account was closed.

1488 1489

Page 1114 of 1485

Notwithstanding repeated formal and verbal demands, appellant failed to pay. Thus, the instant case of Estafa was filed against him.1490[3]

On 29 October 2001, an Information was filed by the Office of the City Prosecutor before the Regional Trial Court (RTC), both of Makati City. The Information reads as follows: That on or about the 23 rd day of December, 1999, in the City of Makati, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, received in trust from ELIZABETH LUCIAJA the amount of P150,000.00 which money was given to her by her aunt Margarita Alocilja, with the express obligation on the part of the accused to use the said amount for expenses and fees in connection with the purchase of a parcel of land covered by TCT No. T-109266, but the said accused, once in possession of the said amount, with the intent to gain and abuse of confidence, did then and there willfully, unlawfully and feloniously misappropriate, misapply and convert to his own personal use and benefit the amount of P130,000.00 less attorneys fees and the said accused failed and refused and still fails and refuses to do so, to the damage and prejudice of complainant Elizabeth Luciaja and Margarita Alocilja in the aforementioned amount of P130,000.00. CONTRARY TO LAW.1491[4]

During arraignment on 26 April 2002, petitioner, acting as his own counsel, entered a plea of Not Guilty. Allegedly due to old age and poor health, and the fact that he lives in Iloilo City, petitioner was unable to attend the pre-trial and trial of the case.

On 8 January 2007, the RTC rendered a Decision 1492[5] finding petitioner guilty of the crime of Estafa under section 1, paragraph (b), of Article 315 of the Revised Penal Code (RPC), with the dispositive portion as follows: WHEREFORE, in view of the foregoing, judgment is rendered finding accused Hector Trenas guilty of the crime of Estafa with abuse of confidence as penalized under Article 315 of the Revised Penal Code, and which offense was committed in the manner described in the aforementioned information. As a consequence of this judgment, accused Hector Trenas is sentenced to suffer a penalty of Ten (10) Years and One (1) Day of Prision Mayor to Seventeen (17) Years and Four (4) Months of Reclusion Temporal. Moreover, he is ordered to indemnify private complainant Elizabeth Luciaja the amount of P130,000.00 with interest at the legal rate of 12% per annum, reckoned from the date this case was filed until the amount is fully paid.

1490 1491 1492

Page 1115 of 1485

SO ORDERED.1493[6]

We note at this point that petitioner has been variably called Treas and Trenas in the pleadings and court issuances, but for consistency, we use the name Treas, under which he was accused in the Information. On 24 August 2007, petitioner filed a Motion for Reconsideration, 1494[7] which was denied by the RTC in a Resolution dated 2 July 2008.1495[8]

On 25 September 2008, petitioner filed a Notice of Appeal before the RTC. 1496[9] The appeal was docketed as CA-G.R. CR No. 32177. On 9 July 2010, the CA rendered a Decision1497[10] affirming that of the RTC. On 4 August 2010, petitioner filed a Motion for Reconsideration, which was denied by the CA in a Resolution dated 4 January 2011. 1498[11] On 25 January 2011, petitioner filed a Motion for Extension of Time to File Petition for Review on Certiorari1499[12] before this Court. He asked for a period of 15 days within which to file a petition for review, and the Court granted his motion in a Resolution dated 9 February 2011. On 3 February 2011, petitioner filed his Petition for Review on Certiorari before this Court, with the following assignment of errors: 1. THE COURT OF APPEALS ERRED IN RULING THAT AN ACCUSED HAS TO PRESENT EVIDENCE IN SUPPORT OF THE DEFENSE OF LACK OF JURISDICTION EVEN IF SUCH LACK OF JURISDICTION APPEARS IN THE EVIDENCE OF THE PROSECUTION; 2. THE COURT OF APPEALS ERRED IN RULING THAT DEMAND MADE BY A PERSON OTHER THAN THE AGGRIEVED PARTY SATISFIES THE REQUIREMENT OF DEMAND TO CONSTITUTE THE OFFENSE OF ESTAFA; 1500[13]

1493 1494 1495 1496 1497 1498 1499 1500

Page 1116 of 1485

On the first issue, petitioner asserts that nowhere in the evidence presented by the prosecution does it show that 150,000 was given to and received by petitioner in Makati City. Instead, the evidence shows that the Receipt issued by petitioner for the money was dated 22 December 1999, without any indication of the place where it was issued. Meanwhile, the Deed of Sale with Assumption of Mortgage prepared by petitioner was signed and notarized in Iloilo City, also on 22 December 1999. Petitioner claims that the only logical conclusion is that the money was actually delivered to him in Iloilo City, especially since his residence and office were situated there as well. Absent any direct proof as to the place of delivery, one must rely on the disputable presumption that things happened according to the ordinary course of nature and the ordinary habits of life. The only time Makati City was mentioned was with respect to the time when the check provided by petitioner was dishonored by Equitable-PCI Bank in its De la Rosa-Rada Branch in Makati. Petitioner asserts that the prosecution witness failed to allege that any of the acts material to the crime of estafa had occurred in Makati City. Thus, the trial court failed to acquire jurisdiction over the case. Petitioner thus argues that an accused is not required to present evidence to prove lack of jurisdiction, when such lack is already indicated in the prosecution evidence. As to the second issue, petitioner claims that the amount of P150,000 actually belongs to Margarita. Assuming there was misappropriation, it was actually she not Elizabeth who was the offended party. Thus, the latters demand does not satisfy the requirement of prior demand by the offended party in the offense of estafa. Even assuming that the demand could have been properly made by Elizabeth, the demand referred to the amount of P120,000, instead of P150,000. Finally, there is no showing that the demand was actually received by petitioner. The signature on the Registry Return Receipt was not proven to be that of petitioners. On 30 May 2011, this Court issued a Resolution directing the Office of the Solicitor General (OSG) to file the latters Comment on the Petition. On 27 July 2011, the OSG filed a Motion for Extension, praying for an additional period of 60 days within which to submit its Comment. This motion was granted in a Resolution dated 12 September 2011. On 23 September 2011, the OSG filed a Motion for Special Extension, requesting an additional period of five days. On 29 September 2011, it filed its Comment on the Petition. In its Comment, the OSG asserts that the RTC did not err in convicting petitioner as charged. The OSG notes that petitioner does not dispute the factual findings of the trial

Page 1117 of 1485

court with respect to the delivery of P150,000 to him, and that there was a relationship of trust and confidence between him and Elizabeth. With respect to his claim that the Complaint should have been filed in Iloilo City, his claim was not supported by any piece of evidence, as he did not present any. Further, petitioner is, in effect, asking the Court to weigh the credibility of the prosecution witness, Elizabeth. However, the trial courts assessment of the credibility of a witness is entitled to great weight, unless tainted with arbitrariness or oversight of some fact or circumstance, which is not the case here. With respect to the second issue, the OSG stresses that the defense of no valid demand was not raised in the lower court. Nevertheless, the demand letter sent to Elizabeth suffices, as she is also one of the complainants alleged in the Information, as an agent of Margarita. Moreover, no proof was adduced as to the genuineness of petitioners signature in the Registry Return Receipt of the demand letter. The OSG, however, submits that the Court may recommend petitioner for executive clemency, in view of his advanced age and failing health.

The Courts Ruling

The Petition is impressed with merit.

Review of Factual Findings

While the Petition raises questions of law, the resolution of the Petition requires a review of the factual findings of the lower courts and the evidence upon which they are based. As a rule, only questions of law may be raised in a petition for review under Rule 45 of the Rules of Court. In many instances, however, this Court has laid down exceptions to this general rule, as follows:

(1)

When the factual findings of the Court of Appeals and the trial court are contradictory;

Page 1118 of 1485

(2) (3) (4) (5) (6) (7) (8) (9) (10) When the conclusion is a finding grounded entirely on speculation, surmises or conjectures; When the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd or impossible; When there is grave abuse of discretion in the appreciation of facts; When the appellate court, in making its findings, went beyond the issues of the case, and such findings are contrary to the admissions of both appellant and appellee; When the judgment of the Court of Appeals is premised on misapprehension of facts; When the Court of Appeals failed to notice certain relevant facts which, if properly considered, would justify a different conclusion; When the findings of fact are themselves conflicting; When the findings of fact are conclusions without citation of the specific evidence on which they are based; and When the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are contradicted by the evidence on record.1501[14]

In this case, the findings of fact of the trial court and the CA on the issue of the place of commission of the offense are conclusions without any citation of the specific evidence on which they are based; they are grounded on conclusions and conjectures. The trial court, in its Decision, ruled on the commission of the offense without any finding as to where it was committed:

Based on the evidence presented by the prosecution through private complainant Elizabeth Luciaja, the Court is convinced that accused Trenas had committed the offense of Estafa by taking advantage of her trust so that he could misappropriate for his own personal benefit the amount entrusted to him for payment of the capital gains tax and documentary stamp tax. As clearly narrated by private complainant Luciaja, after accused Trenas had obtained the amount of P150,000.00 from her, he gave her two receipts purportedly issued by the Bureau of Internal Revenue, for the fraudulent purpose of fooling her and making her believe that he had complied with his duty to pay the aforementioned taxes. Eventually, private complainant Luciaja discovered that said receipts were fabricated documents.1502[15]

In his Motion for Reconsideration before the RTC, petitioner raised the argument that it had no jurisdiction over the offense charged. The trial court denied the motion, without

1501 1502

Page 1119 of 1485

citing any specific evidence upon which its findings were based, and by relying on conjecture, thus: That the said amount was given to [Treas] in Makati City was incontrovertibly established by the prosecution. Accused Treas, on the other hand, never appeared in Court to present countervailing evidence. It is only now that he is suggesting another possible scenario, not based on the evidence, but on mere what ifs. x x x Besides, if this Court were to seriously assay his assertions, the same would still not warrant a reversal of the assailed judgment. Even if the Deed of Sale with Assumption of Mortgage was executed on 22 December 999 in Iloilo City, it cannot preclude the fact that the P150,000.00 was delivered to him by private complainant Luciaja in Makati City the following day. His reasoning the money must have been delivered to him in Iloilo City because it was to be used for paying the taxes with the BIR office in that city does not inspire concurrence. The records show that he did not even pay the taxes because the BIR receipts he gave to private complainant were fake documents. Thus, his argumentation in this regard is too specious to consider favorably. 1503[16]

For its part, the CA ruled on the issue of the trial courts jurisdiction in this wise: It is a settled jurisprudence that the court will not entertain evidence unless it is offered in evidence. It bears emphasis that Hector did not comment on the formal offer of prosecutions evidence nor present any evidence on his behalf. He failed to substantiate his allegations that he had received the amount of P150,000.00 in Iloilo City. Hence, Hectors allegations cannot be given evidentiary weight. Absent any showing of a fact or circumstance of weight and influence which would appear to have been overlooked and, if considered, could affect the outcome of the case, the factual findings and assessment on the credibility of a witness made by the trial court remain binding on appellate tribunal. They are entitled to great weight and respect and will not be disturbed on review.1504[17]

The instant case is thus an exception allowing a review of the factual findings of the lower courts. Jurisdiction of the Trial Court

1503 1504

Page 1120 of 1485

The overarching consideration in this case is the principle that, in criminal cases, venue is jurisdictional. A court cannot exercise jurisdiction over a person charged with an offense committed outside its limited territory. In Isip v. People,1505[18] this Court explained:

The place where the crime was committed determines not only the venue of the action but is an essential element of jurisdiction . It is a fundamental rule that for jurisdiction to be acquired by courts in criminal cases, the offense should have been committed or any one of its essential ingredients should have taken place within the territorial jurisdiction of the court. Territorial jurisdiction in criminal cases is the territory where the court has jurisdiction to take cognizance or to try the offense allegedly committed therein by the accused. Thus, it cannot take jurisdiction over a person charged with an offense allegedly committed outside of that limited territory. Furthermore, the jurisdiction of a court over the criminal case is determined by the allegations in the complaint or information . And once it is so shown, the court may validly take cognizance of the case. However, if the evidence adduced during the trial shows that the offense was committed somewhere else, the court should dismiss the action for want of jurisdiction. (Emphasis supplied.)

In a criminal case, the prosecution must not only prove that the offense was committed, it must also prove the identity of the accused and the fact that the offense was committed within the jurisdiction of the court. In Fukuzume v. People,1506[19] this Court dismissed a Complaint for estafa, wherein the prosecution failed to prove that the essential elements of the offense took place within the trial courts jurisdiction. The Court ruled: More importantly, we find nothing in the direct or cross-examination of Yu to establish that he gave any money to Fukuzume or transacted business with him with respect to the subject aluminum scrap wires inside or within the premises of the Intercontinental Hotel in Makati, or anywhere in Makati for that matter. Venue in criminal cases is an essential element of jurisdiction. x x x In the present case, the criminal information against Fukuzume was filed with and tried by the RTC of Makati. He was charged with estafa as defined under Article 315, paragraph 2(a) of the Revised Penal Code, the elements of which are as follows: x x x The crime was committed in Makati. executed by Yu on April evidence, testimonial alleged in the Information as having been However, aside from the sworn statement 19, 1994, the prosecution presented no other or documentary, to corroborate Yu's sworn

1505 1506

Page 1121 of 1485

statement or to prove that any of the above-enumerated elements of the offense charged was committed in Makati . Indeed, the prosecution failed to establish that any of the subsequent payments made by Yu in the amounts of P50,000.00 on July 12, 1991, P20,000.00 on July 22, 1991, P50,000.00 on October 14, 1991 and P170,000.00 on October 18, 1991 was given in Makati. Neither was there proof to show that the certifications purporting to prove that NAPOCOR has in its custody the subject aluminum scrap wires and that Fukuzume is authorized by Furukawa to sell the same were given by Fukuzume to Yu in Makati. On the contrary, the testimony of Yu established that all the elements of the offense charged had been committed in Paraaque, to wit: that on July 12, 1991, Yu went to the house of Fukuzume in Paraaque; that with the intention of selling the subject aluminum scrap wires, the latter pretended that he is a representative of Furukawa who is authorized to sell the said scrap wires; that based on the false pretense of Fukuzume, Yu agreed to buy the subject aluminum scrap wires; that Yu paid Fukuzume the initial amount of P50,000.00; that as a result, Yu suffered damage. Stated differently, the crime of estafa, as defined and penalized under Article 315, paragraph 2(a) of the Revised Penal Code, was consummated when Yu and Fukuzume met at the latter's house in Paraaque and, by falsely pretending to sell aluminum scrap wires, Fukuzume was able to induce Yu to part with his money. xxx From the foregoing, it is evident that the prosecution failed to prove that Fukuzume committed the crime of estafa in Makati or that any of the essential ingredients of the offense took place in the said city. Hence, the judgment of the trial court convicting Fukuzume of the crime of estafa should be set aside for want of jurisdiction , without prejudice, however, to the filing of appropriate charges with the court of competent jurisdiction. (Emphasis supplied) In this case, the prosecution failed to show that the offense of estafa under Section 1, paragraph (b) of Article 315 of the RPC was committed within the jurisdiction of the RTC of Makati City. That the offense was committed in Makati City was alleged in the information as follows: That on or about the 23rd day of December, 1999, in the City of Makati, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, received in trust from ELIZABETH LUCIAJA the amount of P150,000.00 x x x. (Emphasis supplied.) 1507 [20]

Ordinarily, this statement would have been sufficient to vest jurisdiction in the RTC of Makati. However, the Affidavit of Complaint executed by Elizabeth does not contain any

1507

Page 1122 of 1485

allegation as to where the offense was committed. It provides in part: 4. THAT on 23 December 1999, [Elizabeth] personally entrusted to ATTY. HECTOR TREAS the sum of P150,000.00 to be expended as agreed and ATTY. HECTOR TREAS issued to me a receipt, a photo copy of which is hereto attached as Annex B, 5. THAT despite my several follow-ups with ATTY. HECTOR TREAS, the latter failed to transfer the title of aforesaid property to MRS. MARGARITA ALOCILJA. He also failed to pay the capital gains tax, documentary stamps and BIR-related expenses. What ATTY. HECTOR TREAS accomplished was only the preparation of the Deed of Sale covering aforesaid property. A copy of said Deed of Sale is hereto attached as Annex C, 6. THAT in view of my persistent follow-ups, ATTY. HECTOR TREAS issued to me a check for refund of the sum given to him less the attorneys fee of P20,000.00 and the sum of P10,000.00 allegedly paid to BIR or in the net sum of P120,000.00. x x x 7. THAT when said check was deposited at EQUITABLE PCI BANK dela RosaRada Branch at Makati City, the same was dishonored by the drawee bank for the reason: ACCOUNT CLOSED. x x x1508[21]

Aside from the lone allegation in the Information, no other evidence was presented by the prosecution to prove that the offense or any of its elements was committed in Makati City. Under Article 315, par. 1 (b) of the RPC, the elements of estafa are as follows: (1) that money, goods or other personal property is received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same; (2) that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) there is demand by the offended party to the offender.1509[22] There is nothing in the documentary evidence offered by the prosecution 1510[23] that points to where the offense, or any of its elements, was committed. A review of the testimony of Elizabeth also shows that there was no mention of the place where the offense was allegedly committed:

1508 1509 1510

Page 1123 of 1485

Q A Q A After the manager of Maybank referred Atty. Treas to you, what happened next? We have met and he explained to the expenses and what we will have to and she will work for the Deed of Sale. And did he quote any amount when you got to the expenses? Yes. I gave him ONE HUNDRED FIFTY THOUSAND.

Page 1124 of 1485

Q A Q A Q A

Q A Q A Q A Q

A Q A

What was the amount quoted to you? ONE HUNDRED FIFTY THOUSAND. Did he give a breakdown of this ONE HUNDRED FIFTY THOUSAND? Yes, sir. And what is the breakdown of this ONE HUNDRED FIFTY THOUSAND? TWENTY THOUSAND is for his Attorneys fee, NINETY THOUSAND is for the capital gain tax TWENTY FOUR THOUSAND is intended for documentary sum (sic) and TEN THOUSAND PESOS is for other expenses for BIR. And did you give him this ONE HUNDRED FIFTY THOUSAND? Yes, sir. Did he issue a receipt? Yes, sir. If shown to you a receipt issued by Atty. Treas for this ONE HUNDRED FIFTY THOUSAND, will you be able to identify it? Yes, sir. I am showing to you a document, madam witness, already identified during the pre-trial as exhibit B. This appears to be a receipt dated December 22, 1999. Will you please go over this document and inform this court what relation has this to the receipt which you said Atty. Treas issued to you? This is the receipt issued by Atty. Hector Treas. Now, after the amount of ONE HUNDRED FIFTY THOUSAND was given to Atty. Treas by you, what happened next? We made several follow-ups but he failed to do his job. 1511[24]

Although the prosecution alleged that the check issued by petitioner was dishonored in a bank in Makati, such dishonor is not an element of the offense of estafa under Article 315, par. 1 (b) of the RPC. Indeed, other than the lone allegation in the information, there is nothing in the prosecution evidence which even mentions that any of the elements of the offense were committed in Makati. The rule is settled that an objection may be raised based on the ground that the court lacks jurisdiction over the offense charged, or it may be considered motu proprio by the court at any stage of the proceedings or on appeal. 1512[25] Moreover, jurisdiction over the subject matter in a criminal case cannot be conferred upon the court by the accused, by express waiver or otherwise. That jurisdiction is conferred

1511 1512

Page 1125 of 1485

by the sovereign authority that organized the court and is given only by law in the manner and form prescribed by law.1513[26] It has been consistently held by this Court that it is unfair to require a defendant or accused to undergo the ordeal and expense of a trial if the court has no jurisdiction over the subject matter or offense or it is not the court of proper venue. 1514[27] Section 15 (a) of Rule 110 of the Revised Rules on Criminal Procedure of 2000 provides that [s]ubject to existing laws, the criminal action shall be instituted and tried in the court of the municipality or territory where the offense was committed or where any of its essential ingredients occurred. This fundamental principle is to ensure that the defendant is not compelled to move to, and appear in, a different court from that of the province where the crime was committed as it would cause him great inconvenience in looking for his witnesses and other evidence in another place.1515[28] This principle echoes more strongly in this case, where, due to distance constraints, coupled with his advanced age and failing health, petitioner was unable to present his defense in the charges against him. There being no showing that the offense was committed within Makati, the RTC of that city has no jurisdiction over the case.1516[29] As such, there is no more need to discuss the other issue raised by petitioner. At this juncture, this Court sees it fit to note that the Code of Professional Responsibility strongly militates against the petitioners conduct in handling the funds of his client. Rules 16.01 and 16.02 of the Code provides: Rule 16.01 A lawyer shall account for all money or property collected or received for or from the client. Rule 16.02 A lawyer shall keep the funds of each client separate and apart from his own and those others kept by him. When a lawyer collects or receives money from his client for a particular purpose (such as for filing fees, registration fees, transportation and office expenses), he should promptly account to the client how the money was spent. 1517[30] If he does not use the

1513 1514 1515 1516 1517

Page 1126 of 1485

money for its intended purpose, he must immediately return it to the client. His failure either to render an accounting or to return the money (if the intended purpose of the money does not materialize) constitutes a blatant disregard of Rule 16.01 of the Code of Professional Responsibility.1518[31] Moreover, a lawyer has the duty to deliver his client's funds or properties as they fall due or upon demand.1519[32] His failure to return the client's money upon demand gives rise to the presumption that he has misappropriated it for his own use to the prejudice of and in violation of the trust reposed in him by the client. 1520[33] It is a gross violation of general morality as well as of professional ethics; it impairs public confidence in the legal profession and deserves punishment.1521[34] In Cuizon v. Macalino,1522[35] this Court ruled that the issuance of checks which were later dishonored for having been drawn against a closed account indicates a lawyer's unfitness for the trust and confidence reposed on him, shows lack of personal honesty and good moral character as to render him unworthy of public confidence, and constitutes a ground for disciplinary action. This case is thus referred to the Integrated Bar of the Philippines (IBP) for the initiation of disciplinary proceedings against petitioner. In any case, should there be a finding that petitioner has failed to account for the funds received by him in trust, the recommendation should include an order to immediately return the amount of 130,000 to his client, with the appropriate rate of interest from the time of demand until full payment. WHEREFORE, the Petition is GRANTED. The Decision dated 9 July 2010 and the Resolution dated 4 January 2011 issued by the Court of Appeals in CA-G.R. CR No. 32177 are SET ASIDE on the ground of lack of jurisdiction on the part of the Regional Trial Court, Branch 137, Makati City. Criminal Case No. 01-2409 is DISMISSED without prejudice. This case is REFERRED to the IBP Board of Governors for investigation and recommendation pursuant to Section 1 of Rule 139-B of the Rules of Court. SO ORDERED. Al\:IAOA HEST~~HIO. ~1\rpttllhr of thr lk1hiliJ1pittrg $>upreanc QConrt

1518 1519 1520 1521 1522

Page 1127 of 1485

;flllnniln FIRST DIVISION G.R. No. 177438 PPt it ioner, - 1prs us PFOPI ,1~ OF TilE PHILIPPINES, Pt ese111: SERENO, ( 'J.. LF( )NJ\Rf)(J-DF CASTRO, BRH >N,* HERS/\MIN, and REYES. JJ Protmt I gated: 21t SEP 2QJ2 '~/;' /A --- ---- - --- ---- -- --------- --------- -- --- ------- ------- - -------- _____ ) __________ -- -- - -y I / ./ DECISION B E,HSAIVII N .!. : The notice of dishonor required by Hotos Pamhansa Rig. 2 2 to be gi\'t'll to the drawer, maker or issuer of a check should he written. I r the sen ice of the written notice of dishonor on the maker, drawt:r or issuer of the dishonored che('k is hy regiskred nwil, the proof of service consists not only in the ptPsentation as evidence of the rE'gistry retum receipt but also of the registry receipt together with the authenticating affidavit of the person nwiling the notice of dishonor. \Vithout the <1uthenticating affidavit, the proof or giving the notice of dishonor is insufficient unless the tn<liler personally testifies in court on the sending by registered mail. \'ice Justice l'v1mtin S. \'illcmlllHL .lr, whn is nn le<1ve per Special Order No. !l()) dated Sertcmher !fl. 2017. Decision 2 G.R. No. 177438 Antecedents The petitioner was charged with a violation of Batas Pambansa Blg. 22 in the Municipal Trial Court in Cities (MTCC) in Mandaue City through the information that alleged as follows: That on May, 2002, or thereabouts, in the City of Mandaue, Philippines, and within the jurisdiction of this Honorable Court, the abovenamed accused, with deliberate intent of gain, did there and then willfully, unlawfully and feloniously make, draw and issue ChinaBank Check bearing No. AO141332, dated June 3, 2002, in the amount of P50,000.00 payable to the order of Bernardo T. Villadolid to apply on account or for value, the accused fully knowing well that at the time of the issuance of said check that she does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; or the accused having sufficient funds in or credit with the drawee bank when she make/s or draw/s and issue/s a check but she failed to keep sufficient funds or maintain a credit to cover the full amount of the check, which check when presented for encashment was dishonored by the drawee bank for the reason ACCT. CLOSED or would have been dishonored for the same reason had not the drawer, without any valid reason ordered the bank to stop payment, and despite notice of dishonor and demands for payment, said accused failed and refused and still fails and refuses to redeem the check or to make arrangement for payment in full by the drawee of such check within five (5) banking days after

Page 1128 of 1485

receiving the notice of dishonor, to the damage and prejudice of the aforenamed private complainant, in the aforestated amount and other claims and charges allowed by civil law. CONTRARY TO LAW.1 After trial, the MTCC found the petitioner guilty as charged, disposing as follows: WHEREFORE, decision is hereby rendered finding the accused, AMADA Y. RESTERIO, GUILTY beyond reasonable doubt for Violation of Batas Pambansa Bilang 22 and sentences her to pay a fine of FIFTY THOUSAND PESOS (P50,000.00) and to pay her civil liabilities to the private complainant in the sum of FIFTY THOUSAND PESOS (P50,000.00), TEN THOUSAND PESOS (P10,000.00) as attorneys fees and FIVE HUNDRED SEVENTY[-]FIVE PESOS (P575.00) as reimbursement of the filing fees. SO ORDERED.2 1 Rollo, pp. 34-39; penned by Associate Justice Isaias P. Dicdican, with Associate Justice Romeo F. Barza and Associate Justice Priscilla Baltazar-Padilla concurring. 2 Id. at 2-3. Decision 3 G.R. No. 177438 The petitioner appealed, but the RTC affirmed the conviction.3 By petition for review, the petitioner appealed to the CA, stating that: (a) the RTC erred in affirming the conviction and in not finding instead that the Prosecution did not establish her guilt beyond reasonable doubt; and ( b) the conviction was contrary to existing laws and jurisprudence, particularly Yu Oh v. Court of Appeals.4 On December 4, 2006, the CA found the petition to be without merit, and denied the petition for review.5 Issues The petitioner assails the affirmance of her conviction by the CA based on the following grounds, to wit: THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS AND REVERSIBLE ERROR AND WITH GRAVE ABUSE OF DISCRETION IN IGNORING THE APPLICABILITY IN THE PRESENT CASE THE DECISION OF THE SUPREME COURT IN THE CASE OF ELVIRA YU OH VS. COURT OF APPEALS, G.R. NO. 125297, JUNE 26, 2003. THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS AND REVERSIBLE ERROR AND WITH GRAVE ABUSE OF DISCRETION IN NOT FINDING THAT THE PROSECUTION FAILED TO PROVE ALL THE ESSENTIAL ELEMENTS OF THE CRIME OF VIOLATION OF BATAS PAMBANSA BILANG 22. THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS AND REVERSIBLE ERROR AND WITH GRAVE ABUSE OF DISCRETION IN NOT FINDING THAT NO NOTICE OF DISHONOR WAS ACTUALLY SENT TO THE PETITIONER. THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS AND REVERSIBLE ERROR AND WITH GRAVE ABUSE OF DISCRETION IN NOT FINDING THAT THE PROSECUTION FAILED TO ESTABLISH THE GUILT OF THE PETITIONER BEYOND REASONABLE DOUBT.6 3 Id. at 3. 4 Id. 5 Id. at 34. 6 Id. at 13-14.

Page 1129 of 1485

Decision 4 G.R. No. 177438 The appeal hinges on whether or not all the elements of a violation of Batas Pambansa Blg. 22 were established beyond reasonable doubt. Ruling The petition is meritorious. For a violation of Batas Pambansa Blg. 22, the Prosecution must prove the following essential elements, namely: (1) The making, drawing, and issuance of any check to apply for account or for value; (2) The knowledge of the maker, drawer, or issuer that at the time of issue there were no sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) The dishonor of the check by the drawee bank for insufficiency of funds or credit or the dishonor for the same reason had not the drawer, without any valid cause, ordered the drawee bank to stop payment.7 The existence of the first element of the violation is not disputed. According to the petitioner, she was required to issue a check as a collateral for the obligation, and that she was left with no alternative but to borrow the check of her friend xxx and used the said check as a collateral of her loan.8 During her cross-examination, she stated that she did not own the check that she drew and issued to complainant Bernardo Villadolid.9 Yet, to avoid criminal liability, the petitioner contends that Batas Pambansa Blg. 22 was applicable only if the dishonored check was actually owned by her; and that she could not be held liable because the check was issued as a mere collateral of the loan and not intended to be deposited. 7 Ting v. Court of Appeals, G.R. No. 140665, November 13, 2000, 344 SCRA 551, 556-557. 8 Rollo, p. 16. 9 Id. at 49. Decision 5 G.R. No. 177438 The petitioners contentions do not persuade. What Batas Pambansa Blg. 22 punished was the mere act of issuing a worthless check. The law did not look either at the actual ownership of the check or of the account against which it was made, drawn, or issued, or at the intention of the drawee, maker or issuer. Also, that the check was not intended to be deposited was really of no consequence to her incurring criminal liability under Batas Pambansa Blg. 22. In Ruiz v. People,10 the Court debunked her contentions and cogently observed: In Lozano v. Martinez, this Court ruled that the gravamen of the offense is the act of making and issuing a worthless check or any check that is dishonored upon its presentment for payment and putting them in circulation. The law includes all checks drawn against banks. The law was designed to prohibit and altogether eliminate the deleterious and pernicious practice of issuing checks with insufficient or no credit or funds therefor. Such practice is deemed a public nuisance, a crime against public order to be abated. The mere act of issuing a worthless check, either as a deposit, as a guarantee, or even as an evidence of a pre-existing debt or as a mode of payment is covered by B.P. 22. It is a crime classified as malum prohibitum. The law is broad enough to include, within its coverage, the making and issuing of a check by one who has no account with a bank, or where such account was already closed when the check was presented for payment. As the Court in Lozano explained: The effects of the issuance of a worthless check transcends the private interests of the parties directly involved in the transaction and touches the interests of the community at large.

Page 1130 of 1485

The mischief it creates is not only a wrong to the payee or holder, but also an injury to the public. The harmful practice of putting valueless commercial papers in circulation, multiplied a thousandfold, can very well pollute the channels of trade and commerce, injure the banking system and eventually hurt the welfare of society and the public interest. As aptly stated The check flasher does a great deal more than contract a debt; he shakes the pillars of business; and to my mind, it is a mistaken charity of judgment to place him in the same category with the honest man who is unable to pay his debts, and for whom the constitutional inhibition against imprisonment for debt, except in cases of fraud was intended as a shield and not a sword. Considering that the law imposes a penal sanction on one who draws and issues a worthless check against insufficient funds or a closed account in the drawee bank, there is, likewise, every reason to penalize a person who indulges in the making and issuing of a check on an account 10 G.R. No. 160893, November 18, 2005, 475 SCRA 476. Decision 6 G.R. No. 177438 belonging to another with the latters consent, which account has been closed or has no funds or credit with the drawee bank .11 (Bold emphases supplied) The State likewise proved the existence of the third element. On direct examination, Villadolid declared that the check had been dishonored upon its presentment to the drawee bank through the Bank of the Philippine Islands (BPI) as the collecting bank. The return check memorandum issued by BPI indicated that the account had already been closed.12 The petitioner did not deny or contradict the fact of dishonor. The remaining issue is whether or not the second element, that is, the knowledge of the petitioner as the issuer of the check that at the time of issue there were no sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, was existent. To establish the existence of the second element, the State should present the giving of a written notice of the dishonor to the drawer, maker or issuer of the dishonored check. The rationale for this requirement is rendered in Dico v. Court of Appeals,13 to wit: To hold a person liable under B.P. Blg. 22, the prosecution must not only establish that a check was issued and that the same was subsequently dishonored, it must further be shown that accused knew at the time of the issuance of the check that he did not have sufficient funds or credit with the drawee bank for the payment of such check in full upon its presentment. This knowledge of insufficiency of funds or credit at the time of the issuance of the check is the second element of the offense. Inasmuch as this element involves a state of mind of the person making, drawing or issuing the check which is difficult to prove, Section 2 of B.P. Blg. 22 creates a prima facie presumption of such knowledge. Said section reads: SEC. 2. Evidence of knowledge of insufficient funds . The making, drawing and issuance of a check payment of which is refused by the drawee 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 11 Id. at 489-490. 12 Rollo, p. 48.

Page 1131 of 1485

13 G.R. No. 141669, February 28, 2005, 452 SCRA 441. Decision 7 G.R. No. 177438 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. For this presumption to arise, the prosecution must prove the following: (a) the check is presented within ninety (90) days from the date of the check; (b) the drawer or maker of the check receives notice that such check has not been paid by the drawee; and (c) the drawer or maker of the check fails to pay the holder of the check the amount due thereon, or make arrangements for payment in full within five (5) banking days after receiving notice that such check has not been paid by the drawee. In other words, the presumption is brought into existence only after it is proved that the issuer had received a notice of dishonor and that within five days from receipt thereof, he failed to pay the amount of the check or to make arrangements for its payment. The presumption or prima facie evidence as provided in this section cannot arise, if such notice of nonpayment by the drawee bank is not sent to the maker or drawer, or if there is no proof as to when such notice was received by the drawer, since there would simply be no way of reckoning the crucial 5-day period. A notice of dishonor received by the maker or drawer of the check is thus indispensable before a conviction can ensue. The notice of dishonor may be sent by the offended party or the drawee bank. The notice must be in writing. A mere oral notice to pay a dishonored check will not suffice. The lack of a written notice is fatal for the prosecution.14 (Bold emphases supplied) The giving of the written notice of dishonor does not only supply the proof for the second element arising from the presumption of knowledge the law puts up but also affords the offender due process. The law thereby allows the offender to avoid prosecution if she pays the holder of the check the amount due thereon, or makes arrangements for the payment in full of the check by the drawee within five banking days from receipt of the written notice that the check had not been paid.15 The Court cannot permit a deprivation of the offender of this statutory right by not giving the proper notice of dishonor. The nature of this opportunity for the accused to avoid criminal prosecution has been expounded in Lao v. Court of Appeals:16 It has been observed that the State, under this statute, actually offers the violator a compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to 14 Id. at 456-458. 15 Id. 16 G.R. No. 119178, June 20, 1997, 274 SCRA 572. Decision 8 G.R. No. 177438 perform it the action is abated xxx In this light, the full payment of the amount appearing in the check within five banking days from notice of dishonor is a complete defense. The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand and the basic postulate of fairness require that the notice of dishonor be actually sent to and received by her to afford her the opportunity

Page 1132 of 1485

to avert prosecution under B.P. 22.17 (Bold emphases supplied) To prove that he had sent the written notice of dishonor to the petitioner by registered mail, Villadolid presented the registry return receipt for the first notice of dishonor dated June 17, 2002 and the registry return receipt for the second notice of dishonor dated July 16, 2002. However, the petitioner denied receiving the written notices of dishonor. The mere presentment of the two registry return receipts was not sufficient to establish the fact that written notices of dishonor had been sent to or served on the petitioner as the issuer of the check. Considering that the sending of the written notices of dishonor had been done by registered mail, the registry return receipts by themselves were not proof of the service on the petitioner without being accompanied by the authenticating affidavit of the person or persons who had actually mailed the written notices of dishonor, or without the testimony in court of the mailer or mailers on the fact of mailing. The authentication by affidavit of the mailer or mailers was necessary in order for the giving of the notices of dishonor by registered mail to be regarded as clear proof of the giving of the notices of dishonor to predicate the existence of the second element of the offense. No less would fulfill the quantum of proof beyond reasonable doubt, for, as the Court said in Ting v. Court of Appeals:18 Aside from the above testimony, no other reference was made to the demand letter by the prosecution. As can be noticed from the above exchange, the prosecution alleged that the demand letter had been sent by mail. To prove mailing, it presented a copy of the demand letter as well as the registry return receipt. However, no attempt was made to 17 Id. at 594. 18 Ting v. Court of Appeals, supra note 7, at p. 560. Decision 9 G.R. No. 177438 show that the demand letter was indeed sent through registered mail nor was the signature on the registry return receipt authenticated or identified. It cannot even be gleaned from the testimony of private complainant as to who sent the demand letter and when the same was sent. In fact, the prosecution seems to have presumed that the registry return receipt was proof enough that the demand letter was sent through registered mail and that the same was actually received by petitioners or their agents. As adverted to earlier, it is necessary in cases for violation of Batas Pambansa Blg. 22, that the prosecution prove that the issuer had received a notice of dishonor. It is a general rule that when service of notice is an issue, the person alleging that the notice was served must prove the fact of service (58 Am Jur 2d, Notice, 45). The burden of proving notice rests upon the party asserting its existence. Now, ordinarily, preponderance of evidence is sufficient to prove notice. In criminal cases, however, the quantum of proof required is proof beyond reasonable doubt. Hence, for Batas Pambansa Blg. 22 cases, there should be clear proof of notice. Moreover, it is a general rule that, when service of a notice is sought to be made by mail, it should appear that the conditions on which the validity of such service depends had existence, otherwise the evidence is insufficient to establish the fact of service (C.J.S., Notice, 18). In the instant case, the prosecution did not present proof that the demand letter was sent through registered mail, relying as it did only on the registry return receipt. In civil cases, service made through registered mail is proved by the registry receipt issued by the mailing office and an affidavit of the person mailing of facts showing compliance with Section 7 of Rule 13 (See Section 13, Rule 13, 1997 Rules of Civil

Page 1133 of 1485

Procedure). If, in addition to the registry receipt, it is required in civil cases that an affidavit of mailing as proof of service be presented, then with more reason should we hold in criminal cases that a registry receipt alone is insufficient as proof of mailing. In the instant case, the prosecution failed to present the testimony, or at least the affidavit, of the person mailing that, indeed, the demand letter was sent. xxx Moreover, petitioners, during the pre-trial, denied having received the demand letter (p. 135, Rollo). Given petitioners denial of receipt of the demand letter, it behooved the prosecution to present proof that the demand letter was indeed sent through registered mail and that the same was received by petitioners. This, the prosecution miserably failed to do. Instead, it merely presented the demand letter and registry return receipt as if mere presentation of the same was equivalent to proof that some sort of mail matter was received by petitioners. Receipts for registered letters and return receipts do not prove themselves; they must be properly authenticated in order to serve as proof of receipt of the letters (Central Trust Co. v. City of Des Moines, 218 NW 580). Likewise, for notice by mail, it must appear that the same was served on the addressee or a duly authorized agent of the addressee. In fact, the registry return receipt itself provides that [a] registered article must not be delivered to anyone but the addressee, or upon the addressees written order, in which case the authorized agent must write the addressees name on the proper space and then affix legibly his own signature below it. In the case at bar, no effort was made to show that the demand letter was received by petitioners or their agent. All that we have on record is an illegible signature on the registry receipt as Decision 10 G.R. No. 177438 evidence that someone received the letter. As to whether this signature is that of one of the petitioners or of their authorized agent remains a mystery. From the registry receipt alone, it is possible that petitioners or their authorized agent did receive the demand letter. Possibilities, however, cannot replace proof beyond reasonable doubt. There being insufficient proof that petitioners received notice that their checks had been dishonored, the presumption that they knew of the insufficiency of the funds therefor cannot arise. As we stated in Savage v. Taypin (G.R. No. 134217, May 11, 2000, 311 SCRA 397), penal statutes must be strictly construed against the State and liberally in favor of the accused. Likewise, the prosecution may not rely on the weakness of the evidence for the defense to make up for its own blunders in prosecuting an offense. Having failed to prove all the elements of the offense, petitioners may not thus be convicted for violation of Batas Pambansa Blg. 22. (Bold emphases supplied) Also, that the wife of Villadolid verbally informed the petitioner that the check had bounced did not satisfy the requirement of showing that written notices of dishonor had been made to and received by the petitioner. The verbal notices of dishonor were not effective because it is already settled that a notice of dishonor must be in writing.19 The Court definitively ruled on the specific form of the notice of dishonor in Domagsang v. Court of Appeals:20 Petitioner counters that the lack of a written notice of dishonor is fatal. The Court agrees. While, indeed, Section 2 of B.P. Blg. 22 does not state that the notice of dishonor be in writing, taken in conjunction, however, with Section 3 of the law, i.e., that where there are no sufficient funds in

Page 1134 of 1485

or credit with such drawee bank, such fact shall always be explicitly stated in the notice of dishonor or refusal , a mere oral notice or demand to pay would appear to be insufficient for conviction under the law. The Court is convinced that both the spirit and letter of the Bouncing Checks Law would require for the act to be punished thereunder not only that the accused issued a check that is dishonored, but that likewise the accused has actually been notified in writing of the fact of dishonor. The consistent rule is that penal statutes have to be construed strictly against the State and liberally in favor of the accused. (Bold emphases supplied; italics in the original text) 19 Marigomen v. People, G.R. No. 153451, May 26, 2005, 459 SCRA 169, 180. 20 G.R. No. 139292, December 5, 2000, 347 SCRA 75, 83-84. Decision 11 G.R. No. 177438 In light of the foregoing, the proof of the guilt of the petitioner for a violation of Batas Pambansa Blg. 22 for issuing to Villadolid the unfunded Chinabank Check No. LPU-A0141332 in the amount of P50,000.00 did not satisfy the quantum of proof beyond reasonable doubt. According to Section 2 of Rule 133, Rules of Court, the accused is entitled to an acquittal, unless his guilt is shown beyond reasonable doubt, which does not mean such a degree of proof as, excluding possibility of error, produces absolute certainty; only a moral certainty is required, or that degree of proof that produces conviction in an unprejudiced mind. This is the required quantum, firstly, because the accused is presumed to be innocent until the contrary is proved, and, secondly, because of the inequality of the position in which the accused finds herself, with the State being arrayed against her with its unlimited command of means, with counsel usually of authority and capacity, who are regarded as public officers, and with an attitude of tranquil majesty often in striking contrast to that of (the accused) engaged in a perturbed and distracting struggle for liberty if not for life.21 Nonetheless, the civil liability of the petitioner in the principal sum of P50,000.00, being admitted, was established. She was further liable for legal interest of 6% per annum on that principal sum, reckoned from the filing of the information in the trial court. That rate of interest will increase to 12% per annum upon the finality of this decision. WHEREFORE, the Court REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on December 4, 2006, and ACQUITS petitioner AMADA RESTERIO of the violation of Batas Pambansa Blg. 22 as charged for failure to establish her guilt beyond reasonable doubt. The Court ORDERS the petitioner to pay to BERNARDO VILLADOLID the amount of P50,000.00, representing the face value of Chinabank Check No. LPU-A0141332, with legal interest of 6% per annum 21 1 Wharton, 1, quoted in Salonga, Philippine Law on Evidence, 3rd Ed., 1964, p. 771. Decision 17 G.R. No. 17743R from the filing of the information until the finality of this decision, and thereafter 12~0 per annum until the principal omount ofP50,000.00 is paid. No pronouncement on costs of suit. SO ORDEHED. vVF: CONClJH: . /?z.c..~~K-~~.-...~ IVIARIA LOlJRDES P. A. SERV.NO Chief Justice lt~ /u]~fA~ A ~ TERESITA .J. LEONARDO-DE CASTRO n . -~

Page 1135 of 1485

UJVUtO W~ir-ARTlJRO D. BRION Associate Justice Associate Justice A / ~~11(.~ <BJF',NVENIDO L. REV~S Associate Justice CERTIFICA'rf()N '!, Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultati011 before the C8se was assigned to the writE'r of the opinion of the Court's Division. MARIA LOURDES P. A. SERENO ( 'ltief Justice

SECOND DIVISION

MARCIANO TAN, Petitioner,

G.R. No. 152666

Present:

QUISUMBING, J., Chairperson, CARPIO MORALES, - versus TINGA, VELASCO, JR., and BRION, JJ.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Respondent.

Promulgated:

Page 1136 of 1485

April 23, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO MORALES, J.:

From the March 19, 2002 Decision1523[1] of the Court of Appeals affirming that of the Makati Regional Trial Court (RTC) convicting Marciano Tan, herein petitioner, of nine (9) counts of violation of Batas Pambansa Blg. 22 (B.P. Blg. 22) or the Bouncing Checks Law, petitioner filed the present petition for review on certiorari.

The following undisputed facts spawned the filing of the nine (9) informations for violation of BP Blg. 22 against petitioner.

Master Tours and Travel (MTT), of which petitioner was executive vice-president, applied on July 16, 1990 for a 360-day Usance Letter of Credit (LC) with respondent Philippine Commercial International Bank (PCIB) for the importation of four tourist buses with a total value of US$430,000 1524[2] from Daewoo Corporation of Seoul, Korea (the supplier), which was agreed upon by the parties to amount to closed [ sic] to P10 Million Pesos1525[3] computed on the basis of the then prevailing rate of exchange of the dollar to the peso.

1523 1524 1525

Page 1137 of 1485

As a condition to the grant of the LC, PCIB and MTT entered into a Memorandum of Agreement1526[4] under which the initial drawings of the supplier in the amount of US$5,700 against the LC would be paid by PCI Leasing and Finance Inc. (PCILF) out of the proceeds of MTTs amortized loan with it, and any subsequent drawings against the LC by the supplier in excess of the said amount would be paid out of the proceeds of Treasury Bills which PCIB would purchase out of the proceeds of post-dated checks to be issued by MTT.

MTT thus issued five checks postdated August, September, October, November, and December 1990 each for P716,666.66 and another check in January 1991 for P716,666.70 or in the total amount of P4,300,000.

PCIB thereupon issued the Usance LC in favor of the supplier, which was to mature in October 1991.

The tourist buses arrived in October 1990 and were delivered to MTT, covered by Trust Receipts with PCIB as entruster and MTT as entrustee.

Of the six checks that MTT issued to PCIB, the first five representing a total amount of P3,583,333 were cleared but not the last one dated January 1991. PCIB soon demanded settlement of this dishonored check from MTT. At the same time, PCIB required MTT to pay the exchange differential on the peso-dollar rate which was P23.7884 to US$1 in July 1990 when the LC was issued to P28.56 to US$1 in January 1991 when the last postdated check matured but was dishonored. The exchange differential was computed by PCIB to amount to P2,061,331.20. MTT agreed to pay the exchange differential, albeit it later claimed that its agreement to pay the differential was a mistake 1527[5] since no such condition was incorporated in their contract. The exchange differential, of P2,061,331.20 when added to the P716,666.70 face value of the dishonored check, totalled P2,777,999.86.

1526 1527

Page 1138 of 1485

MTT thus issued 14 postdated checks of P198,428.42, payable every 15 days, the first to start on February 28, 1991.

Of the 14 checks, only the first five were honored, the proceeds of which totaled P992,142.10. The other nine, those dated May 15, 1991 et seq. in the total amount of P1,785,855.78, were dishonored the subject of the nine informations at bar.

MTT, having suffered financial reverses, availed of provision No. 7 of the Trust Receipt reading.

7. In the event the Entrustee defaults in his/its obligations or breaches or fails to comply with the terms and conditions of this Trust Receipt, or upon default in, breach of or noncompliance with the obligation evidenced by Annex A hereof or the agreement under which the Entruster issued the letter of credit under the terms of which the Trust Property was purchased (events of default), the Entruster may cancel this trust, and thereupon take possession of the Trust Property and/or such proceeds as may then have been realized therefrom, and have the goods sold and the proceeds of such sale applied, in accordance with the provisions of Section 7 of the Trust Receipts Law. In all cases where the Entruster is compelled to resort to the cancellation of this Trust Receipt or to take any other legal action to protect its interest, the Entrustee shall pay attorneys fees fixed at 15% of the total obligation of the Entrustee, which in no case shall be less than P500.00 exclusive of the costs and fees allowed by law and the other expenses of collection incurred by the Entruster. Any deficiency resulting from the sale of the Trust Property shall be paid by the Entrustee within 24 hours from such sale; failing which the Entruster may take such legal action, without further notice to the Entrustee, as it may deem necessary to collect such deficiency from the Entrustee.1528[6] (Underscoring supplied)

1528

Page 1139 of 1485

MTT thus surrendered the buses to PCIB which accepted them in mid 1991 and March 1992. By MTTs claim the buses were, at the time of surrender, estimated to be about 6.6 million.

Subsequently or in July 1992, PCIB sent petitioner a letter of July 9, 1992 reading:

xxxx From the records now in our possession, it appears that despite promises made by you to make good your obligations, no performance thus far has been made. As of June 30, 1992, inclusive of interests and penalty charges, your obligations totaled P10,327,591.21. Since adequate time and opportunity had already been given you by our client, you are now requested to remit to it the aforesaid sum of P10,327,591.21 within five (5) days from your receipt hereof, otherwise, we shall bring you to court. x x x x1529[7] (Underscoring supplied)

Replying, petitioners counsel, by letter of July 22, 1992, wrote PCIB as follows:

Your letters of July 9, 1992 were endorsed to us for appropriate reply by our clients, Master Tours and Travel Corporation and Marciano Tan. Your letter to Mr. Tan makes mention of two (2) trust receipts signed by him covering the importation of the four (4) units DAEWOO buses you want our client to account for. However, Philippine Commercial International Bank (PCIB) never furnished our client copies thereof. And up to this date, none is in the possession of our client. Could you please provide our client with copies of the documents? Delving into the crux of your demand, kindly be advised that our clients voluntarily surrendered physical possession and custody of the four (4) DAEWOO buses to PCIB as early as August [sic] 1991. The units were accepted by PCIB and, therefore, there no longer exist[s] any liability or

1529

Page 1140 of 1485

obligation on the part of our clients towards that of yours. As clearly stated in your subject letter written to Mr. Marciano Tan, under the terms of the trust receipts, our client has the alternative obligation to either surrender the buses upon demand or pay the total value thereof. As the buses have been surrendered and delivered to your client, our clients obligation has been extinguished. We suggest then that your clarify the fact of delivery of the four (4) units with your client. We do hope to have amply answered and enlightened you on the status of the matter regarding our clients supposed liability on the four (4) buses.1530[8] (Emphasis and underscoring supplied)

There is no showing if PCIB reacted to the above-quoted letter of petitioners counsel. PCIB subsequently filed in October 1992 a criminal complaint against petitioner before the Makati City Prosecutors Office which resulted in the filing on April 1, 1993 of the nine informations against him for violation of B.P. Blg. 22 before the RTC of Makati. The first information, Criminal Case No. 93-2365, reads:

That on or about the 29th day of January 1991, in the Municipality of Makati, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused as the duly authorized signatory of Master Tours and Travel Corporation, did then and there willfully, unlawfully and feloniously make or draw and issue to Philippine Commercial Int[ernational] Bank to apply on account or for value the check/described below: Check No.: 677744 Drawn Against: Philippine Banking Corp. In the amount: P198,428.42 Dated/Postdated: May 15, 1991 Payable to: Philippine Commercial International Bank said accused well knowing that at the time of issue thereof Master Tours & Travel Corp. had no sufficient funds in or credit with the drawee bank for the payment in full of the face amount of the check upon its presentment, which check was presented for payment within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for the reason Drawn Against Insufficient Funds and, despite receipt of notice of said dishonor, the accused and/or Master Tours & Travel Corporation failed to pay said payee the face amount of said check or to make arrangement for full

1530

Page 1141 of 1485

payment thereof within five (5) banking days after receiving notice. 1531[9] (Underscoring partly in the original and partly supplied) The other eight informations, Criminal Case Nos. 93-2366 to 93-2373, are similarly worded and for the same amount, differing only as to the check numbers, the dates of issue and, with respect to Criminal Cases No. 93-2368 to 93-2373, the cause of dishonor (ACCOUNT CLOSED).1532[10]

Branch 142 of the Makati RTC, by Decision1533[11] of October 25, 1995, convicted petitioner of all the nine charges. The trial court absolved petitioner of civil liability, however, because the money obligations arising from the checks are of Master Tours & Travel Corporation and not of the accused Marciano Tan who did not, by signing in behalf of the corporation, assume personal liability therefor.1534[12] Thus, the trial court disposed:

WHEREFORE, the Court finds the accused MARCIANO T. TAN to be GUILTY beyond reasonable doubt of these nine (9) criminal charges for violation of BP 22, and hereby sentences him to suffer imprisonment for THIRTY (30) days for EACH of the NINE [9] CRIMNAL OFFENSES CHARGED. For lack of evidence, the claim of civil liability arising from the nine [9] dishonored checks, are DISMISSED, without prejudice to their being taken up in a proper civil action for recovery of the amounts till due, if any, from Master Tours [&] Travel Corporation. Costs against the underscoring supplied) accused.1535[13] (Emphasis in the original;

1531 1532 1533 1534 1535

Page 1142 of 1485

On petitioners appeal, the Court of Appeals affirmed the trial courts decision by Decision of March 19, 2002. appellate court Hence, the present Petition for Review, 1536[14] faulting the

A . . . IN CONVICTING THE ACCUSED DESPITE THE FACT THAT HIS CRIMINAL LIABILITY WAS EXTINGUISHED BY HIS HAVING OVERPAID PCIB. B . . . IN NOT FINDING THAT MASTER HAD FULLY PAID PCIB [AND] . . . IN NOT FINDING THAT MASTER, AS A MATTER OF FACT, HAD IN EFFECT, OVERPAID PCIB WHEN THE LATTER PULLED OUT THE BUSES SUBJECT OF THE TRUST RECEIPTS ISSUED IN CONNECTION WITH THE TRANSACTION. C . . . IN NOT FINDING THAT THE CONTRACT DOCUMENTS DO NOT CONTAIN ANY STIPULATION AS TO ADJUSTMENT OF THE OBLIGATION IN CASE OF FOREIGN EXCHANGE FLUCTUATION. THERE IS NOTHING IN THE MEMORANDUM OF AGREEMENT BETWEEN THE PARTIES NOR IN THE LETTER OF CREDIT APPLICATION OR IN ANY DOCUMENT COVERING THE TRANSACTION WHEREIN MASTER TOURS OBLIGED ITSELF TO PAY AN INCREASE IN DOLLAR EXCHANGE RATE FLUCTUATION. CONVERSELY, NEITHER IS PCIB OBLIGED TO REFUND MASTER TOURS OF ANY DECREASE IN THE PESO DOLLAR EXCHANGE RATE. D . . . IN NOT FINDING THAT EVEN ASSUMING MASTER WAS OBLIGED TO PAY FOREIGN EXCHANGE RATE DIFFERENTIAL, IT WAS PREMATURE TO DEMAND IT [ON] JANUARY 7, 1991. xxxx F . . . IN NOT FINDING THAT THE SUPERVENING BANKRUPTCY SUFFERED BY MASTER BROUGHT ABOUT BY THE ECONOMIC DISLOCATION OF THE COUNTRY BROUGHT ABOUT BY THE MOUNT PINATUBO ERUPTION, THE GULF WAR AND THE BAGUIO EARTHQUAKE DISCULPATES THE ACCUSED FROM CRIMINAL LIABILITY.1537[15] (Emphasis and underscoring supplied)

1536 1537

Page 1143 of 1485

The petition is impressed with merit.

Unless the following elements are shown to have been proven by the prosecution, an accused will not be convicted for violation of B.P. Blg. 22:

1. The accused makes, draws or issues any check to apply to account or for value; 2. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, the drawee bank for the payment of the check in full upon its presentment; and 3. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.1538[16] (Underscoring supplied)

While issuing of a bouncing check is malum prohibitum, the prosecution is not excused from its responsibility of proving beyond reasonable doubt all the elements of the offense.1539[17]

Respecting the second element of the crime, the prosecution must prove that the accused knew, at the time of issuance, that he does not have sufficient funds or credit for the full payment of the check upon its presentment. 1540[18]

The element of knowledge involves a state of mind that obviously would be difficult to establish, hence, the statute creates a prima facie presumption of knowledge on the

1538 1539 1540

Page 1144 of 1485

insufficiency of funds or credit coincidental with the attendance of the two other elements.1541[19]

Evidence of knowledge of insufficient funds . The making, drawing and issuance of a check payment of which is refused by the drawee 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.1542[20] (Emphasis and underscoring supplied)

In order to create such presumption, it must be shown that the drawer or maker received a notice of dishonor and, within five banking days thereafter, failed to satisfy the amount of the check or arrange for its payment. 1543[21] The above-quoted provision creates a presumption juris tantum that the second element prima facie exists when the first and third elements of the offense are present.1544[22]

The presumption is not conclusive,1545[23] however, as it may be rebutted by full payment.1546[24] If the maker or drawer pays, or makes arrangement with the drawee bank for the payment of the amount due within the five-day period from notice of the dishonor, he or she may no longer be indicted for such violation. 1547[25] It is a complete defense 1548[26]

1541 1542 1543 1544 1545 1546 1547 1548

Page 1145 of 1485

that would lie regardless of the strength of the evidence presented by the prosecution. 1549 [27] In essence, the law affords the drawer or maker the opportunity to avert prosecution by performing some acts that would operate to preempt the criminal action, 1550[28] which opportunity serves to mitigate the harshness of the law in its application. 1551[29]

It is a general rule that only a full payment at the time of its presentment or during the five-day grace period could exonerate one from criminal liability under B.P. Blg. 22 and that subsequent payments can only affect the civil, but not the criminal, liability.1552[30]

In Macalalag v. People,1553[31] the Court held that payment by the accused of the amount of the check prior to its presentment serves the same purpose. It rebuked the malpractice of presenting checks for payment even after the amount thereof had been paid.

In Griffith v. Court of Appeals,1554[32] the Court held that where the creditor had collected more than a sufficient amount to cover the value of the checks representing rental arrearages, holding the debtors president to answer for a criminal offense under B.P. Blg. 22 two years after the said collection is no longer tenable nor justified by law or equitable considerations. In that case, the Court ruled that albeit made beyond the grace period but two years prior to the institution of the criminal case, the payment collected from the proceeds of the foreclosure and auction sale of the petitioners impounded properties, with more than a million pesos to spare, justified the acquittal of the petitioner. The Court ratiocinated:

1549 1550 1551 1552 1553 1554

Page 1146 of 1485

The Bouncing Checks Law was devised to safeguard the interest of the banking system and the legitimate public checking account user. It was not designed to favor or encourage those who seek to enrich themselves through manipulation and circumvention of the purpose of the law. x x x x x x We cannot, under these circumstances, see how petitioners conviction and sentence could be upheld without running afoul of basic principles of fairness and justice. For [private respondent] has, in our view, already exacted its proverbial pound of flesh through foreclosure and auction sale as its chosen remedy.1555[33] (Emphasis supplied)

In the present case, PCIB already exacted its proverbial pound of flesh by receiving and keeping in possession the four buses-trust properties surrendered by petitioner in about mid 1991 and March 1992 pursuant to Section 7 of the Trust Receipts Law,1556[34] the estimated value of which was about P6.6 million.1557[35] It thus appears that the total amount of the dishonored checks P1,785,855.75 , the undisputed claim of petitioner of a mistaken agreement to pay the exchange differential (which the same checks represented) aside, was more than fully satisfied prior to the transmittal and receipt of the July 9, 1992 letter of demand . petitioner.1558[36] In keeping with jurisprudence, the Court then considers such payment of the dishonored checks to have obliterated the criminal liability of

It is a consistent rule that penal statutes are construed strictly against the State and liberally in favor of the accused. And since penal laws should not be applied mechanically, the Court must determine whether the application of the penal law is consistent with the purpose and reason of the law.1559[37] In the present case, it finds in the negative.

1555 1556 1557 1558 1559

Page 1147 of 1485

WHEREFORE, the petition is GRANTED. The assailed March 19, 2002 Decision of the Court of Appeals in CA-G.R. C.R. No. 18999 is REVERSED and SET ASIDE. Marciano Tan is ACQUITTED in Criminal Case Nos. 93-2365 to 93-2373. Petitioner

SO ORDERED.

Republic of the Philippines Supreme Court Manila

SECOND DIVISION

ANAMER SALAZAR, Petitioner,

G.R. No. 171998

Present:

CARPIO, J., Chairperson, - versus NACHURA, LEONARDO-DE CASTRO,* PERALTA, and MENDOZA, JJ.

J.Y. BROTHERS CORPORATION,

MARKETING

Promulgated:

Page 1148 of 1485

Respondent.

October 20, 2010 x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

Before us is a petition for review seeking to annul and set aside the Decision 1560[1] dated September 29, 2005 and the Resolution1561[2] dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.

The facts, as found by the Court of Appeals, are not disputed, thus:

J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of

1560 1561

Page 1149 of 1485

rice to Salazar. However, upon presentment, the check was dishonored due to closed account. Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in the amount of P214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of estafa before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474. After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer to evidence. On November 19, 2001, the court a quo rendered an Order, the dispositive portion of which reads: WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED of the crime charged but is hereby held liable for the value of the 300 bags of rice. Accused Anamer D. Salazar is therefore ordered to pay J.Y. Brothers Marketing Corporation the sum of P214,000.00. Costs against the accused. SO ORDERED. Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow her to present evidence thereon. The motion was denied. Accused went up to the Supreme Court on a petition for review on certiorari under Rule 45 of the Rules of Court. Docketed as G.R. 151931, in its Decision dated September 23, 2003, the High Court ruled: IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November 19, 2001 and January 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of Legaspi City, Branch 5, is hereby DIRECTED to set Criminal Case No. 7474 for the continuation of trial for the reception of the evidence-in-chief of the petitioner on the civil aspect of the case and for the rebuttal evidence of the private complainant and the sur-rebuttal evidence of the parties if they opt to adduce any. SO ORDERED.1562[3]

The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the civil aspect of the criminal case.

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Page 1150 of 1485

On April 1, 2004, the RTC rendered its Decision, 1563[4] the dispositive portion of which reads:

WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer D. Salazar the civil aspect of the above-entitled case. No pronouncement as to costs. Place into the files (archive) the record of the above-entitled case as against the other accused Nena Jaucian Timario. Let an alias (bench) warrant of arrest without expiry dated issue for her apprehension, and fix the amount of the bail bond for her provisional liberty at 59,000.00 pesos. SO ORDERED.1564[5]

The RTC found that the Prudential Bank check drawn by Timario for the amount of P214,000.00 was payable to the order of respondent, and such check was a negotiable order instrument; that petitioner was not the payee appearing in the check, but respondent who had not endorsed the check, much less delivered it to petitioner. It then found that petitioners liability should be limited to the allegation in the amended information that she endorsed and negotiated said check, and since she had never been the holder of the check, petitioner's signing of her name on the face of the dorsal side of the check did not produce the technical effect of an indorsement arising from negotiation. The RTC ruled that after the Prudential Bank check was dishonored, it was replaced by a Solid Bank check which, however, was also subsequently dishonored; that since the Solid Bank check was a crossed check, which meant that such check was only for deposit in payees account, a condition that rendered such check non-negotiable, the substitution of a non-negotiable Solid Bank check for a negotiable Prudential Bank check was an essential change which had the effect of discharging from the obligation whoever may be the endorser of the negotiable check. The RTC concluded that the absence of negotiability rendered nugatory the obligation arising from the technical act of indorsing a check and, thus, had the effect of novation; and that the ultimate effect of such substitution was to extinguish the obligation arising from the issuance of the Prudential Bank check.

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Page 1151 of 1485

Respondent filed an appeal with the CA on the sole assignment of error that:

IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR BY INDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID NOT PRODUCE THE TECHNICAL EFFECT OF AN INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID NOT INCUR CIVIL LIABILITY.1565[6]

After petitioner filed her appellees' brief, the case was submitted for decision. On September 29, 2005, the CA rendered its assailed Decision, the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision is REVERSED and SET ASIDE, and a new one entered ordering the appellee to pay the appellant the amount of P214,000.00, plus interest at the legal rate from the written demand until full payment. Costs against the appellee.1566[7] In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later replaced by a Solid Bank check issued by Timario, also indorsed by petitioner as payment for the 300 cavans of rice bought from respondent. The CA, applying Sections 63,1567[8] 661568[9] and 291569[10] of the Negotiable Instruments Law, found that petitioner was considered an indorser of the checks paid to respondent and considered her as an accommodation indorser, who was liable on the instrument to a holder for value, notwithstanding that such holder at the time of the taking of the instrument knew her only to be an accommodation party.

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Page 1152 of 1485

Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated March 2, 2006. Hence this petition, wherein petitioner raises the following assignment of errors: 1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF THE ISSUANCE OF THE SOLIDBANK CHECK IN REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH WOULD HAVE RESULTED TO THE NOVATION OF THE OBLIGATION ARISING FROM THE ISSUANCE OF THE LATTER CHECK. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS AGAINST THE PETITIONER THE CIVIL ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF OBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL BANK CHECK. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION WHEN IT DENIED THE MOTION FOR RECONSIDERATION OF THE PETITIONER ON THE GROUND THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN PASSED UPON AND CONSIDERED IN THE DECISION SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND IN FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.1570[11]

2.

3.

Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the respondent, in replacement of the dishonored Prudential Bank check, amounted to novation that discharged the latter check; that respondent's acceptance of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing whatever criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser of the Prudential Bank check would have incurred in the issuance thereof in the amount of P214,000.00; and that a check is a contract which is susceptible to a novation just like any other contract. Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply thereto. We find no merit in this petition. Section 119 of the Negotiable Instrument Law provides, thus:

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SECTION 119. Instrument; how discharged. A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. (Emphasis ours) And, under Article 1231 of the Civil Code, obligations are extinguished: xxxx (6) By novation. Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonored Prudential bank check resulted to novation which discharged the latter check is unmeritorious. In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc.,1571[12] we stated the concept of novation, thus: x x x Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. Novation may: [E]ither be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superceded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first.

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Page 1154 of 1485

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.) The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely supplements the old one.1572[13] In Nyco Sales Corporation v. BA Finance Corporation ,1573[14] we found untenable petitioner Nyco's claim that novation took place when the dishonored BPI check it endorsed to BA Finance Corporation was subsequently replaced by a Security Bank check, 1574[15] and said:

There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. In the instant case, there was no express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is there incompatibility because both checks were given precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable to this case.1575[16]

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In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank check. Moreover, respondents acceptance of the Solid Bank check did not result to any incompatibility, since the two checks Prudential and Solid Bank checks were precisely for the purpose of paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was no substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner the chance to pay her obligation. Petitioner also contends that the acceptance of the Solid Bank check, a nonnegotiable check being a crossed check, which replaced the dishonored Prudential Bank check, a negotiable check, is a new obligation in lieu of the old obligation arising from the issuance of the Prudential Bank check, since there was an essential change in the circumstance of each check. Such argument deserves scant consideration.

Among the different types of checks issued by a drawer is the crossed check. 1576[17] The Negotiable Instruments Law is silent with respect to crossed checks, 1577[18] although the Code of Commerce makes reference to such instruments. 1578[19] We have taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and could not be converted into cash. 1579[20] Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had

1576 1577 1578 1579

Page 1156 of 1485

intended the check for deposit only by the rightful person, i.e., the payee named therein. 1580 [21] The change in the mode of paying the obligation was not a change in any of the objects or principal condition of the contract for novation to take place. 1581[22] Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented for payment, the same was again dishonored; thus, the obligation which was secured by the Prudential Bank check was not extinguished and the Prudential Bank check was not discharged. Thus, we found no reversible error committed by the CA in holding petitioner liable as an accommodation indorser for the payment of the dishonored Prudential Bank check.

WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the Resolution dated March 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.

SO ORDERED.

Republic Supreme Manila SECOND DIVISION

of

the

Philippines Court

1580 1581

Page 1157 of 1485

CRESENCIO C. MILLA, Petitioner, G.R. No. 188726

Present: CARPIO, J., Chairperson, PEREZ, SERENO, REYES, and PERLAS-BERNABE, JJ. Promulgated: January 25, 2012

- versus -

PEOPLE OF THE PHILIPPINES and MARKET PURSUITS, INC. represented by CARLO V. LOPEZ, Respondents. x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

SERENO, J.: This is a Petition for Certiorari assailing the 22 April 2009 Decision 1582[1] and 8 July 2009 Resolution1583[2] of the Court of Appeals, affirming the Decision of the trial court finding petitioner Cresencio C. Milla (Milla) guilty of two counts of estafa through falsification of public documents. Respondent Carlo Lopez (Lopez) was the Financial Officer of private respondent, Market Pursuits, Inc. (MPI). In March 2003, Milla represented himself as a real estate

* 1582 1583

Page 1158 of 1485

developer from Ines Anderson Development Corporation, which was engaged in selling business properties in Makati, and offered to sell MPI a property therein located. For this purpose, he

Page 1159 of 1485

showed Lopez a photocopy of Transfer Certificate of Title (TCT) No. 216445 registered in the name of spouses Farley and Jocelyn Handog (Sps. Handog), as well as a Special Power of Attorney purportedly executed by the spouses in favor of Milla. 1584[3] Lopez verified with the Registry of Deeds of Makati and confirmed that the property was indeed registered under the names of Sps. Handog. Since Lopez was convinced by Millas authority, MPI purchased the property for P2 million, issuing Security Bank and Trust Co. (SBTC) Check No. 154670 in the amount of P1.6 million. After receiving the check, Milla gave Lopez (1) a notarized Deed of Absolute Sale dated 25 March 2003 executed by Sps. Handog in favor of MPI and (2) an original Owners Duplicate Copy of TCT No. 216445.1585[4] Milla then gave Regino Acosta (Acosta), Lopezs partner, a copy of the new Certificate of Title to the property, TCT No. 218777, registered in the name of MPI. Thereafter, it tendered in favor of Milla SBTC Check No. 15467111 in the amount of P400,000 as payment for the balance.1586[5] Milla turned over TCT No. 218777 to Acosta, but did not furnish the latter with the receipts for the transfer taxes and other costs incurred in the transfer of the property. This failure to turn over the receipts prompted Lopez to check with the Register of Deeds, where he discovered that (1) the Certificate of Title given to them by Milla could not be found therein; (2) there was no transfer of the property from Sps. Handog to MPI; and (3) TCT No. 218777 was registered in the name of a certain Matilde M. Tolentino. 1587[6] Consequently, Lopez demanded the return of the amount of P2 million from Milla, who then issued Equitable PCI Check Nos. 188954 and 188955 dated 20 and 23 May 2003, respectively, in the amount of P1 million each. However, these checks were dishonored for having been drawn against insufficient funds. When Milla ignored the demand letter sent by Lopez, the latter, by virtue of the authority vested in him by the MPI Board of Directors, filed a Complaint against the former on 4 August 2003. On 27 and 29 October 2003, two Informations for Estafa Thru Falsification of Public Documents were filed against Milla and were raffled to the Regional Trial Court, National Capital Judicial Region, Makati City, Branch 146 (RTC Br. 146).1588[7] Milla was accused of having committed estafa through the

1584 1585 1586 1587

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falsification of the notarized Deed of Absolute Sale and TCT No. 218777 purportedly issued by the Register of Deeds of Makati, viz:

CRIMINAL CASE NO. 034167 That on or about the 25th day of March 2003, in the City of Makati, Philippines and within the jurisdiction of this Honorable Court, the abovenamed accused, a private individual, did then and there, wilfully, unlawfully and feloniously falsify a document denomindated as Deed of Absolute Sale, duly notarized by Atty. Lope M. Velasco, a Notary Public for and in the City of Makati, denominated as Doc. No. 297, Page No. 61, Book No. 69, Series of 2003 in his Notarial Register, hence, a public document, by causing it to appear that the registered owners of the property covered by TCT No. 216445 have sold their land to complainant Market Pursuits, Inc. when in truth and in fact the said Deed of Absolute Sale was not executed by the owners thereof and after the document was falsified, accused, with intent to defraud complainant Market Pursuits, Inc. presented the falsified Deed of Sale to complainant, herein represented by Carlo V. Lopez, and complainant believing in the genuineness of the Deed of Absolute Sale paid accused the amount of P1,600,000.00 as partial payment for the property, to the damage and prejudice of complainant in the aforementioned amount of P1,600,000.00 CONTRARY TO LAW. CRIMINAL CASE NO. 034168 That on or about the 3 rd day of April 2003, in the City of Makati, Philippines and within the jurisdiction of this Honorable Court, the abovenamed accused, a private individual, did then and there wilfully, unlawfully and feloniously falsify a document denominated as Transfer Certificate of Title No. 218777 purportedly issued by the Register of Deeds of Makati City, hence, a public document, by causing it to appear that the lot covered by TCT No. 218777 was already registered in the name of complainant Market Pursuits, Inc., herein represented by Carlo V. Lopez, when in truth and in fact, as said accused well knew that the Register of Deeds of Makati did not issue TCT No. 218777 in the name of Market Pursuits Inc., and after the document was falsified, accused with

1588

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intent to defraud complainant and complainant believing in the genuineness of Transfer Certificate of Title No. 218777 paid accused the amount of P400,000.00, to the damage and prejudice of complainant in the aforementioned amount of P4000,000.00 (sic). CONTRARY TO LAW.1589[8] After the prosecution rested its case, Milla filed, with leave of court, his Demurrer to Evidence.1590[9] In its Order dated 26 January 2006, RTC Br. 146 denied the demurrer and ordered him to present evidence, but he failed to do so despite having been granted ample opportunity.1591[10] Though the court considered his right to present evidence to have been consequently waived, it nevertheless allowed him to file a memorandum. 1592[11] In its Joint Decision dated 28 November 2006, 1593[12] RTC Br. 146 found Milla guilty beyond reasonable doubt of two counts of estafa through falsification of public documents, thus: WHEREFORE, judgment is rendered finding the accused Cresencio Milla guilty beyond reasonable doubt of two (2) counts of estafa through falsification of public documents. Applying the indeterminate sentence law and considering that the amount involved is more than P22,000,00 this Court should apply the provision that an additional one (1) year should be imposed for every ten thousand (P10,000.00) pesos in excess of P22,000.00, thus, this Court is constrained to impose the Indeterminate (sic) penalty of four (4) years, two (2) months one (1) day of prision correccional as minimum to twenty (20) years of reclusion temporal as maximum for each count. Accused is adjudged to be civilly liable to the private complainant and is ordered pay (sic) complainant the total amount of TWO MILLION (P2,000,000.00) PESOS with legal rate of interest from the filing of the Information until the same is fully paid and to pay the costs. He is further ordered to pay attorneys fees equivalent to ten (10%) of the total amount due as and for attorneys fees. A lien on the monetary award is constituted in favor of the government, the private complainant not having paid the required docket fee prior to the filing of the Information. SO ORDERED.1594[13]

1589 1590 1591 1592 1593 1594

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On appeal, the Court of Appeals, in the assailed Decision dated 22 April 2009, affirmed the findings of the trial court. 1595[14] In its assailed Resolution dated 8 July 2009, it also denied Millas subsequent Motion for Reconsideration. 1596[15] In the instant Petition, Milla alleges that the Decision and the Resolution of the Court of Appeals were not in accordance with law and jurisprudence. He raises the following issues: I. Whether the case should be reopened on the ground of negligence of counsel; II. III. IV. Whether the principle of novation is applicable; Whether the principle of simple loan is applicable; Whether the Secretarys Certificate presented by the prosecution is admissible in evidence; V. Whether the supposed inconsistent statements of prosecution witnesses cast a doubt on the guilt of petitioner.1597[16] In its Comment, MPI argues that (1) Milla was not deprived of due process on the ground of gross negligence of counsel; (2) under the Revised Penal Code, novation is not one of the grounds for the extinction of criminal liability for estafa; and (3) factual findings of the trial court, when affirmed by the Court of Appeals, are final and conclusive. 1598[17] On the other hand, in its Comment, the Office of the Solicitor General contends that (1) Milla was accorded due process of law; (2) the elements of the crime charged against him were established during trial; (3) novation is not a ground for extinction of criminal liability for estafa; (4) the money received by Milla from Lopez was not in the nature of a simple loan or cash advance; and (5) Lopez was duly authorized by MPI to institute the action.1599[18]

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In his Consolidated Reply, Milla reiterates that the negligence of his former counsel warrants a reopening of the case, wherein he can present evidence to prove that his transaction with MPI was in the nature of a simple loan.1600[19] In the disposition of this case, the following issues must be resolved: I. II. Whether the negligence of counsel deprived Milla of due process of law Whether the principle of novation can exculpate Milla from criminal liability III. Whether the factual findings of the trial court, as affirmed by the appellate court, should be reviewed on appeal We resolve to deny the Petition. Milla was not deprived of due process. Milla argues that the negligence of his former counsel, Atty. Manuel V. Mendoza (Atty. Mendoza), deprived him of due process. Specifically, he states that after the prosecution had rested its case, Atty. Mendoza filed a Demurrer to Evidence, and that the former was never advised by the latter of the demurrer. Thus, Milla was purportedly surprised to discover that RTC Br. 146 had already rendered judgment finding him guilty, and that it had issued a warrant for his arrest. Atty. Mendoza filed an Omnibus Motion for Leave to File Motion for New Trial, which Milla claims to have been denied by the trial court for being an inappropriate remedy, thus, demonstrating his counsels negligence. These contentions cannot be given any merit. The general rule is that the mistake of a counsel binds the client, and it is only in instances wherein the negligence is so gross or palpable that courts must step in to grant relief to the aggrieved client. 1601[20] In this case, Milla was able to file a Demurrer to Evidence, and upon the trial courts denial thereof, was allowed to present evidence. 1602[21] Because of his failure to do so, RTC Br. 146 was justified in considering that he had waived his right thereto. Nevertheless, the trial court still allowed him to submit a memorandum in the interest of justice. Further, contrary to his assertion that RTC Br. 146 denied the Motion

1600 1601 1602

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to Recall Warrant of Arrest thereafter filed by his former counsel, a reading of the 2 August 2007 Order of RTC Br. 146 reveals that it partially denied the Omnibus Motion for New Trial and Recall of Warrant of Arrest, but granted the Motion for Leave of Court to Avail of Remedies under the Rules of Court, allowing him to file an appeal and lifting his warrant of arrest.1603[22] It can be gleaned from the foregoing circumstances that Milla was given opportunities to defend his case and was granted concomitant reliefs. Thus, it cannot be said that the mistake and negligence of his former counsel were so gross and palpable to have deprived him of due process. The principle of novation cannot be applied to the case at bar. Milla contends that his issuance of Equitable PCI Check Nos. 188954 and 188955 before the institution of the criminal complaint against him novated his obligation to MPI, thereby enabling him to avoid any incipient criminal liability and converting his obligation into a purely civil one. This argument does not persuade. The principles of novation cannot apply to the present case as to extinguish his criminal liability. Milla cites People v. Nery1604[23] to support his

1603 1604

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contention that his issuance of the Equitable PCI checks prior to the filing of the criminal complaint averted his incipient criminal liability. However, it must be clarified that mere payment of an obligation before the institution of a criminal complaint does not, on its own, constitute novation that may prevent criminal liability. This Courts ruling in Nery in fact warned: It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal liability or to cast doubt on the true nature of the original petition, whether or not it was such that its breach would not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; Villareal, 27 Phil. 481). Even in Civil Law the acceptance of partial payments, without further change in the original relation between the complainant and the accused, can not produce novation. For the latter to exist, there must be proof of intent to extinguish the original relationship, and such intent can not be inferred from the mere acceptance of payments on account of what is totally due. Much less can it be said that the acceptance of partial satisfaction can effect the nullification of a criminal liability that is fully matured, and already in the process of enforcement. Thus, this Court has ruled that the offended partys acceptance of a promissory note for all or part of the amount misapplied does not obliterate the criminal offense (Camus vs. Court of Appeals, 48 Off. Gaz. 3898).1605[24] (Emphasis supplied.) Further, in Quinto v. People,1606[25] this Court exhaustively explained the concept of novation in relation to incipient criminal liability, viz: Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. The term expressly means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations.

1605 1606

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There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. The changes alluded to by petitioner consists only in the manner of payment. There was really no substitution of debtors since private complainant merely acquiesced to the payment but did not give her consent to enter into a new contract. The appellate court observed: xxx xxx xxx The acceptance by complainant of partial payment tendered by the buyer, Leonor Camacho, does not evince the intention of the complainant to have their agreement novated. It was simply necessitated by the fact that, at that time, Camacho had substantial accounts payable to complainant, and because of the fact that appellant made herself scarce to complainant. (TSN, April 15, 1981, 31-32) Thus, to obviate the situation where complainant would end up with nothing, she was forced to receive the tender of Camacho. Moreover, it is to be noted that the aforesaid payment was for the purchase, not of the jewelry subject of this case, but of some other jewelry subject of a previous transaction. (Ibid. June 8, 1981, 10-11) xxx xxx xxx

Art. 315 of the Revised Penal Code defines estafa and penalizes any person who shall defraud another by misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property. It is axiomatic that the gravamen of the offense is the appropriation or conversion of money or property received to the prejudice of the owner. The terms convert and misappropriate have been held to connote an act of using or disposing of anothers property as if it were ones own or devoting it to a purpose or use different from that agreed upon. The phrase, to misappropriate to ones own use has been said to include not only conversion to ones personal advantage, but also every attempt to dispose of the property of another without right. Verily, the sale of the pieces of jewelry on installments (sic) in contravention of the explicit terms of the authority

Page 1167 of 1485

granted to her in Exhibit A (supra) is deemed to be one of conversion. Thus, neither the theory of delay in the fulfillment of commission nor that of novation posed by petitioner, can avoid the incipient criminal liability. In People vs. Nery, this Court held: xxx xxx xxx

The criminal liability for estafa already committed is then not affected by the subsequent novation of contract, for it is a public offense which must be prosecuted and punished by the State in its own conation. (Emphasis supplied.)1607[26]

In the case at bar, the acceptance by MPI of the Equitable PCI checks tendered by Milla could not have novated the original transaction, as the checks were only intended to secure the return of the P2 million the former had already given him. Even then, these checks bounced and were thus unable to satisfy his liability. Moreover, the estafa involved here was not for simple misappropriation or conversion, but was committed through Millas falsification of public documents, the liability for which cannot be extinguished by mere novation. The Court of Appeals was correct in affirming the trial courts finding of guilt. Finally, Milla assails the factual findings of the trial court. Suffice it to say that factual findings of the trial court, especially when affirmed by the appellate court, are binding on and accorded great respect by this Court.1608[27] There was no reversible error on the part of the Court of Appeals when it affirmed the finding of the trial court that Milla was guilty beyond reasonable doubt of the offense of estafa through falsification of public documents. The prosecution was able to prove the existence of all the elements of the crime charged. The relevant provisions of the Revised Penal Code read: Art. 172. Falsification by private individual and use of falsified documents. The penalty of prision correccional in its medium and maximum periods and a fine of not more than 5,000 shall be imposed upon: 1. Any private individual who shall commit any of the falsification enumerated in the next preceding article in any public or official document or letter of exchange or any other kind of commercial document xxx xxx xxx

1607 1608

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Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: xxx xxx xxx

2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud: (a) By using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions; or by means of other similar deceits. xxx xxx xxx

It was proven during trial that Milla misrepresented himself to have the authority to sell the subject property, and it was precisely this misrepresentation that prompted MPI to purchase it. Because of its reliance on his authority and on the falsified Deed of Absolute Sale and TCT No. 218777, MPI parted with its money in the amount of P2 million, which has not been returned until now despite Millas allegation of novation. Clearly, he is guilty beyond reasonable doubt of estafa through falsification of public documents. WHEREFORE, we resolve to DENY the Petition. The assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED. SO ORDERED. Republic SUPREME Baguio City FIRST DIVISION of the Philippines COURT

G.R. No. 107508 April 25, 1996 PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F. ABANTE MARKETING, respondents.

KAPUNAN, J.:p This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision dated April 29, 1992 of respondent Court of Appeals in CA-G.R. CV No. 24776 and

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its resolution dated September 16, 1992, denying petitioner Philippine National Bank's motion for reconsideration of said decision. The facts of the case are as follows. A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued by the Ministry of Education and Culture (now Department of Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check was drawn against Philippine National Bank (herein petitioner). On August 11, 1981, F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the questioned check in its savings account with said bank. In turn, Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to petitioner for clearing. Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's account for the amount stated in the check. However, on October 19, 1981, petitioner returned the check to PBCom and debited PBCom's account for the amount covered by the check, the reason being that there was a "material alteration" of the check number. PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount, and subsequently, sent the check back to petitioner. Petitioner, however, returned the check to PBCom. On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account since the latter had already withdrawn the amount of the check as of October 15, 1981. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting from petitioner. Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court of Manila against PBCom which, in turn, filed a third-party complaint against petitioner for reimbursement/indemnity with respect to the claims of Capitol. Petitioner, on its part, filed a fourth-party complaint against F. Abante Marketing. On October 3, 1989; the Regional Trial Court rendered its decision the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered as follows: 1.) On plaintiffs complaint, defendant Philippine Bank of Communications is ordered to re-credit or reimburse plaintiff Capitol City Development Bank the amount of P97,650.00, plus interest of 12 percent thereto from October 19, 1981 until the amount is fully paid; 2.) On Philippine Bank of Communications third-party complaint third-party defendant PNB is ordered to reimburse and indemnify Philippine Bank of Communications for whatever amount PBCom pays to plaintiff; 3.) On Philippine National Bank's fourth-party complaint, F. Abante Marketing is ordered to reimburse and indemnify PNB for whatever amount PNB pays to PBCom;

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4.) On attorney's fees, Philippine Bank of Communications is ordered to pay Capitol City Development Bank attorney's fees in the amount of Ten Thousand (P10,000.00) Pesos; but PBCom is entitled to reimbursement/indemnity from PNB; and Philippine National Bank to be, in turn reimbursed or indemnified by F. Abante Marketing for the same amount; 5.) The Counterclaims of PBCom and PNB are hereby dismissed; 6.) No pronouncement as to costs. SO ORDERED. 1 An appeal was interposed before the respondent Court of Appeals which rendered its decision on April 29, 1992, the decretal portion of which reads: WHEREFORE, the judgment appealed from is modified by exempting PBCom from liability to plaintiff-appellee for attorney's fees and ordering PNB to honor the check for P97,650.00, with interest as declared by the trial court, and pay plaintiff-appellee attorney's fees of P10,000.00. After the check shall have been honored by PNB, PBCom shall re-credit plaintiff-appellee's account with it with the amount. No pronouncement as to costs. SO ORDERED. 2 A motion for reconsideration of the decision was denied by the respondent Court in its resolution dated September 16, 1992 for lack of merit. 3 Hence, petitioner filed the instant petition which raises the following issues: I WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW. II WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF EDUCATION CAN BE GIVEN WEIGHT IN EVIDENCE. III WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. CHECK WITHIN THE TWENTY FOUR (24) HOUR CLEARING PERIOD MAY RECOVER THE VALUE OF THE CHECK FROM THE COLLECTING BANK. IV WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB MAY BE HELD LIABLE FOR ATTORNEY'S FEES. 4 We find no merit in the petition.

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We shall first deal with the effect of the alteration of the serial number on the negotiability of the check in question. Petitioner anchors its position on Section 125 of the Negotiable Instruments Law (ACT No. 2031) 5 which provides: Sec. 225. What constitutes a material alteration. Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The number or the relations of the parties; (e) The medium or currency in which payment is to be made; (f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration. Petitioner alleges that there is no hard and fast rule in the interpretation of the aforequoted provision of the Negotiable Instruments Law. It maintains that under Section 125(f), any change that alters the effect of the instrument is a material alteration. 6 We do not agree. An alteration is said to be material if it alters the effect of the instrument. 7 It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. 8 In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law. Section 1 of the Negotiable Instruments Law provides: Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and

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(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent alteration (generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the holder may enforce it only according to its original tenor." 9 Reproduced hereunder are some examples of material and immaterial alterations: A. Material Alterations: (1) Substituting the words "or bearer" for "order." (2) Writing "protest waived" above blank indorsements. (3) A change in the date from which interest is to run. (4) A check was originally drawn as follows: "Iron County Bank, Crystal Falls, Mich. Aug. 5, 1901. Pay to G.L. or order $9 fifty cents CTR" The insertion of the figure 5 before the figure 9, the instrument being otherwise unchanged. (5) Adding the words "with interest" with or without a fixed rate. (6) An alteration in the maturity of a note, whether the time for payment is thereby curtailed or extended. (7) An instrument was payable "First Nat'l Bank" the plaintiff added the word "Marion." (8) Plaintiff, without consent of the defendant, struck out the name of the defendant as payee and inserted the name of the maker of the original note. (9) Striking out the name of the payee and substituting that of the person who actually discounted the note. (10) Substituting the address of the maker for the name of a co-maker. 10 B. Immaterial Alterations: (1) Changing "I promise to pay" to "We promise to pay", where there are two makers. (2) Adding the word "annual" after the interest clause. (3) Adding the date of maturity as a marginal notation. (4) Filling in the date of actual delivery where the makers of a note gave it with the date in blank, "July ____."

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(5) An alteration of the marginal figures of a note where the sum stated in words in the body remained unchanged. (6) The insertion of the legal rate of interest where the note had a provision for "interest at _______ per cent." (7) A printed form of promissory note had on the margin the printed words, "Extended to ________." The holder on or after maturity wrote in the blank space the words "May 1, 1913," as a reference memorandum of a promise made by him to the principal maker at the time the words were written to extend the time of payment. (8) Where there was a blank for the place of payment, filling in the blank with the place desired. (9) Adding to an indorsee's name the abbreviation "Cash" when it had been agreed that the draft should be discounted by the trust company of which the indorsee was cashier. (10) The indorsement of a note by a stranger after its delivery to the payee at the time the note was negotiated to the plaintiff. (11) An extension of time given by the holder of a note to the principal maker, without the consent of a surety co-maker. 11 The case at bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the same. Despite these findings, however, petitioner insists, that: xxx xxx xxx It is an accepted concept, besides being a negotiable instrument itself, that a TCAA check by its very nature is the medium of exchange of governments (sic) instrumentalities of agencies. And as (a) safety measure, every government office o(r) agency (is) assigned TCAA checks bearing different number series. A concrete example is that of the disbursements of the Ministry of Education and Culture. It is issued by the Bureau of Treasury sizeable bundles of checks in booklet form with serial numbers different from other government office or agency. Now, for fictitious payee to succeed in its malicious intentions to defraud the government, all it need do is to get hold of a TCAA Check and have the serial numbers of portion (sic) thereof changed or altered to make it appear that the same was issued by the MEG. Otherwise, stated, it is through the serial numbers that (a) TCAA Check is determined to have been issued by a particular office or agency of the government. 12

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xxx xxx xxx Petitioner's arguments fail to convince. The check's serial number is not the sole indication of its origin.. As succinctly found by the Court of Appeals, the name of the government agency which issued the subject check was prominently printed therein. The check's issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. Thus, we quote with favor the findings of the respondent court: xxx xxx xxx If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration in this case had no material effect whatsoever on the integrity of the check. The identity of the issuing government office or agency was not changed thereby and the amount of the check was not charged against the account of another government office or agency which had no liability under the check. The owner and issuer of the check is boldly and clearly printed on its face, second line from the top : "MINISTRY OF EDUCATION AND CULTURE," and below the name of the payee are the rubber-stamped words: "Ministry of Educ. & Culture." These words are not alleged to have been falsely or fraudulently intercalated into the check . The ownership of the check is established without the necessity of recourse to the serial number. Neither there any proof that the amount of the check was erroneously charged against the account of a government office or agency other than the Ministry of Education and Culture. Hence, the alteration in the number of the check did not affect or change the liability of the Ministry of Education and Culture under the check and, therefore, is immaterial. The genuineness of the amount and the signatures therein of then Deputy Minister of Education Hermenegildo C. Dumlao and of the resident Auditor, Penomio C. Alvarez are not challenged. Neither is the authenticity of the different codes appearing therein questioned . . . 13 (Emphasis ours.) Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an immaterial or innocent one. We now go to the second issue. It is petitioner's submission that the certification issued by Minrado C. Batonghinog, Cashier III of the MEC clearly shows that the check was altered. Said certification reads: July 22, 1985 TO WHOM IT MAY CONCERN: This is to certify that according to the records of this Office, TCAA PNB Check Mo. SN7-3666223-3 dated August 7, 1981 drawn in favor of F. Abante Marketing in the amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY PESOS ONLY (P97,650.00) was not issued by this Office nor released to the payee concerned. The series number of said check was not included among those requisition by this Office from the Bureau of Treasury. Very truly yours,

Page 1175 of 1485

(SGD.) MINRADO C. BATONGHINOG Cashier III 14 Petitioner claims that even if the author of the certification issued by the Ministry of Education and Culture (MEG) was not presented, still the best evidence of the material alteration would be the disputed check itself and the serial number thereon. Petitioner thus assails the refusal of respondent court to give weight to the certification because the author thereof was not presented to identify it and to be cross-examined thereon. 15 We agree with the respondent court. The one who signed the certification was not presented before the trial court to prove that the said document was really the document he prepared and that the signature below the said document is his own signature. Neither did petitioner present an eyewitness to the execution of the questioned document who could possibly identify it. 16 Absent this proof, we cannot rule on the authenticity of the contents of the certification. Moreover, as we previously emphasized, there was no material alteration on the check, the change of its serial number not being substantial to its negotiability. Anent the third issue whether or not the drawee bank may still recover the value of the check from the collecting bank even if it failed to return the check within the twenty-four (24) hour clearing period because the check was tampered suffice it to state that since there is no material alteration in the check, petitioner has no right to dishonor it and return it to PBCom, the same being in all respects negotiable. However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their respective decisions, the trial court and the Court of Appeals failed to explicitly state the rationale for the said award. The trial court merely ruled as follows: With respect to Capitol's claim for damages consisting of alleged loss of opportunity, this Court finds that Capitol failed to adequately substantiate its claim. What Capitol had presented was a self-serving, unsubstantiated and speculative computation of what it allegedly could have earned or realized were it not for the debit made by PBCom which was triggered by the return and debit made by PNB. However, this Court finds that it would be fair and reasonable to impose interest at 12% per annum on the principal amount of the check computed from October 19, 1981 (the date PBCom debited Capitol's account) until the amount is fully paid and reasonable attorney's fees. 17 (Emphasis ours.) And contrary to the Court of Appeal's resolution, petitioner unambiguously questioned before it the award of attorney's fees, assigning the latter as one of the errors committed by the trial court. 18 The foregoing is in conformity with the guiding principles laid down in a long line of cases and reiterated recently in Consolidated Bank & Trust Corporation (Solidbank) v . Court of Appeals: 19 The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case. However, the discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the

Page 1176 of 1485

Philippines demands factual, legal and equitable justification, without which the award is a conclusion without a premise and improperly left to speculation and conjecture. It becomes a violation of the proscription against the imposition of a penalty on the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]). The reason for the award must be stated in the text of the court's decision. If it is stated only in the dispositive portion of the decision, the same shall be disallowed. As to the award of attorney's fees being an exception rather than the rule, it is necessary for the court to make findings of fact and law that would bring the case within the exception and justify the grant of the award (Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [176 SCRA 539]). WHEREFORE, premises considered, except for the deletion of the award of attorney's fees, the decision of the Court of Appeals is hereby AFFIRMED. SO ORDERED. Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ., concur Republic SUPREME Manila THIRD DIVISION G.R. No. 129910 September 5, 2006 petitioner, of the Philippines COURT

THE INTERNATIONAL CORPORATE BANK, INC., vs. COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents. DECISION CARPIO, J.: The Case

Before the Court is a petition for review 1 assailing the 9 August 1994 Amended Decision 2 and the 16 July 1997 Resolution3 of the Court of Appeals in CA-G.R. CV No. 25209. The Antecedent Facts The case originated from an action for collection of sum of money filed on 16 March 1982 by the International Corporate Bank, Inc.4 ("petitioner") against the Philippine National Bank ("respondent"). The case was raffled to the then Court of First Instance (CFI) of Manila, Branch 6. The complaint was amended on 19 March 1982. The case was eventually reraffled to the Regional Trial Court of Manila, Branch 52 ("trial court"). The Ministry of Education and Culture issued 15 checks 5 drawn against respondent which petitioner accepted for deposit on various dates. The checks are as follows:

Page 1177 of 1485

Check Number 7-3694621-4 7-3694609-6 7-3666224-4 7-3528348-4 7-3666225-5 7-3688945-6 7-4535674-1 7-4535675-2 7-4535699-5 7-4535700-6 7-4697902-2 7-4697925-6 7-4697011-6 7-4697909-4 7-4697922-3 Date 7-20-81 7-27-81 8-03-81 8-07-81 8-10-81 8-10-81 8-21-81 8-21-81 8-24-81 8-24-81 9-18-81 9-18-81 10-02-81 10-02-81 10-05-81 Payee Trade Factors, Inc. Romero D. Palmares Trade Factors, Inc. Trade Factors, Inc. Antonio Lisan Antonio Lisan Golden City Trading Red Arrow Trading Antonio Lisan Antonio Lisan Ace Enterprises, Inc. Golden City Trading Wintrade Marketing ABC Trading, Inc. Golden Enterprises Amount P 97,500.00 98,500.50 99,800.00 98,600.00 98,900.00 97,700.00 95,300.00 96,400.00 94,200.00 95,100.00 96,000.00 93,030.00 90,960.00 99,300.00 96,630.00

The checks were deposited on the following dates for the following accounts: Check Number 7-3694621-4 7-3694609-6 7-3666224-4 7-3528348-4 7-3666225-5 7-3688945-6 7-4535674-1 7-4535675-2 7-4535699-5 7-4535700-6 7-4697902-2 7-4697925-6 7-4697011-6 7-4697909-4 Date Deposited 7-23-81 7-28-81 8-4-81 8-11-81 8-11-81 8-17-81 8-26-81 8-27-81 8-31-81 8-24-81 9-23-81 9-23-81 10-7-81 10-7-81 Account Deposited CA 0060 02360 3 CA 0060 02360 3 CA 0060 02360 3 CA 0060 02360 3 SA 0061 32331 7 CA 0060 30982 5 CA 0060 02360 3 CA 0060 02360 3 CA 0060 30982 5 SA 0061 32331 7 CA 0060 02360 3 CA 0060 30982 5 CA 0060 02360 3 CA 0060 30982 56

After 24 hours from submission of the checks to respondent for clearing, petitioner paid the value of the checks and allowed the withdrawals of the deposits. However, on 14 October 1981, respondent returned all the checks to petitioner without clearing them on the ground that they were materially altered. Thus, petitioner instituted an action for collection of sums of money against respondent to recover the value of the checks. The Ruling of the Trial Court The trial court ruled that respondent is expected to use reasonable business practices in accepting and paying the checks presented to it. Thus, respondent cannot be faulted for the delay in clearing the checks considering the ingenuity in which the alterations were effected. The trial court observed that there was no attempt from petitioner to verify the status of the checks before petitioner paid the value of the checks or allowed withdrawal of the deposits. According to the trial court, petitioner, as collecting bank, could have inquired by telephone from respondent, as drawee bank, about the status of the checks before paying their value.

Page 1178 of 1485

Since the immediate cause of petitioners loss was the lack of caution of its personnel, the trial court held that petitioner is not entitled to recover the value of the checks from respondent. The dispositive portion of the trial courts Decision reads: WHEREFORE, judgment is hereby rendered dismissing both the complaint and the counterclaim. Costs shall, however be assessed against the plaintiff. SO ORDERED.7 Petitioner appealed the trial courts Decision before the Court of Appeals. The Ruling of the Court of Appeals In its 10 October 1991 Decision,8 the Court of Appeals reversed the trial courts Decision. Applying Section 4(c) of Central Bank Circular No. 580, series of 1977, 9 the Court of Appeals held that checks that have been materially altered shall be returned within 24 hours after discovery of the alteration. However, the Court of Appeals ruled that even if the drawee bank returns a check with material alterations after discovery of the alteration, the return would not relieve the drawee bank from any liability for its failure to return the checks within the 24-hour clearing period. The Court of Appeals explained: Does this mean that, as long as the drawee bank returns a check with material alteration within 24 hour[s] after discovery of such alteration, such return would have the effect of relieving the bank of any liability whatsoever despite its failure to return the check within the 24- hour clearing house rule? We do not think so. Obviously, such bank cannot be held liable for its failure to return the check in question not later than the next regular clearing. However, this Court is of the opinion and so holds that it could still be held liable if it fails to exercise due diligence in verifying the alterations made. In other words, such bank would still be expected, nay required, to make the proper verification before the 24-hour regular clearing period lapses, or in cases where such lapses may be deemed inevitable, that the required verification should be made within a reasonable time. The implication of the rule that a check shall be returned within the 24-hour clearing period is that if the collecting bank paid the check before the end of the aforesaid 24hour clearing period, it would be responsible therefor such that if the said check is dishonored and returned within the 24-hour clearing period, the drawee bank cannot be held liable. Would such an implication apply in the case of materially altered checks returned within 24 hours after discovery? This Court finds nothing in the letter of the above-cited C.B. Circular that would justify a negative answer. Nonetheless, the drawee bank could still be held liable in certain instances. Even if the return of the check/s in question is done within 24 hours after discovery, if it can be shown that the drawee bank had been patently negligent in the performance of its verification function, this Court finds no reason why the said bank should be relieved of liability.

Page 1179 of 1485

Although banking practice has it that the presumption of clearance is conclusive when it comes to the application of the 24-hour clearing period, the same principle may not be applied to the 24-hour period vis-a-vis material alterations in the sense that the drawee bank which returns materially altered checks within 24 hours after discovery would be conclusively relieved of any liability thereon. This is because there could well be various intervening events or factors that could affect the rights and obligations of the parties in cases such as the instant one including patent negligence on the part of the drawee bank resulting in an unreasonable delay in detecting the alterations. While it is true that the pertinent proviso in C.B. Circular No. 580 allows the drawee bank to return the altered check within the period "provided by law for filing a legal action", this does not mean that this would entitle or allow the drawee bank to be grossly negligent and, inspite thereof, avail itself of the maximum period allowed by the above-cited Circular. The discovery must be made within a reasonable time taking into consideration the facts and circumstances of the case. In other words, the aforementioned C.B. Circular does not provide the drawee bank the license to be grossly negligent on the one hand nor does it preclude the collecting bank from raising available defenses even if the check is properly returned within the 24-hour period after discovery of the material alteration. 10 The Court of Appeals rejected the trial courts opinion that petitioner could have verified the status of the checks by telephone call since such imposition is not required under Central Bank rules. The dispositive portion of the 10 October 1991 Decision reads: PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and the defendant-appellee Philippine National Bank is declared liable for the value of the fifteen checks specified and enumerated in the decision of the trial court (page 3) in the amount of P1,447,920.00 SO ORDERED.11 Respondent filed a motion for reconsideration of the 10 October 1991 Decision. In its 9 August 1994 Amended Decision, the Court of Appeals reversed itself and affirmed the Decision of the trial court dismissing the complaint. In reversing itself, the Court of Appeals held that its 10 October 1991 Decision failed to appreciate that the rule on the return of altered checks within 24 hours from the discovery of the alteration had been duly passed by the Central Bank and accepted by the members of the banking system. Until the rule is repealed or amended, the rule has to be applied. Petitioner moved for the reconsideration of the Amended Decision. In its 16 July 1997 Resolution, the Court of Appeals denied the motion for lack of merit. Hence, the recourse to this Court. The Issues Petitioner raises the following issues in its Memorandum: 1. Whether the checks were materially altered; 2. Whether respondent was negligent in failing to recognize within a reasonable period the altered checks and in not returning the checks within the period; and

Page 1180 of 1485

3. Whether the motion for reconsideration filed by respondent was out of time thus making the 10 October 1991 Decision final and executory. 12 The Ruling of This Court Filing of the Petition under both Rules 45 and 65 Respondent asserts that the petition should be dismissed outright since petitioner availed of a wrong mode of appeal. Respondent cites Ybaez v. Court of Appeals 13 where the Court ruled that "a petition cannot be subsumed simultaneously under Rule 45 and Rule 65 of the Rules of Court, and neither may petitioners delegate upon the court the task of determining under which rule the petition should fall." The remedies of appeal and certiorari are mutually exclusive and not alternative or successive.14 However, this Court may set aside technicality for justifiable reasons. The petition before the Court is clearly meritorious. Further, the petition was filed on time both under Rules 45 and 65.15 Hence, in accordance with the liberal spirit which pervades the Rules of Court and in the interest of justice, 16 we will treat the petition as having been filed under Rule 45. Alteration of Serial Number Not Material The alterations in the checks were made on their serial numbers. Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable Instruments Law, provide: SEC. 124. Alteration of instrument; effect of . Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor. SEC. 125. What constitutes a material alteration. Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The number or the relations of the parties; (e) The medium or currency in which payment is to be made; or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.

Page 1181 of 1485

The question on whether an alteration of the serial number of a check is a material alteration under the Negotiable Instruments Law is already a settled matter. In Philippine National Bank v. Court of Appeals, this Court ruled that the alteration on the serial number of a check is not a material alteration. Thus: An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instrument[s] Law. Section 1 of the Negotiable Instruments Law provides: Section 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent alteration (generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the holder may enforce it only according to its original tenor. xxxx The case at the bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the same. x x x xxxx The checks serial number is not the sole indication of its origin. As succinctly found by the Court of Appeals, the name of the government agency which issued the subject check was prominently printed therein. The checks issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. x x x

Page 1182 of 1485

xxxx Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an immaterial or innocent one. 17 Likewise, in the present case the alterations of the serial numbers do not constitute material alterations on the checks. Incidentally, we agree with the petitioners observation that the check in the PNB case appears to belong to the same batch of checks as in the present case. The check in the PNB case was also issued by the Ministry of Education and Culture. It was also drawn against PNB, respondent in this case. The serial number of the check in the PNB case is 7-3666-2233 and it was issued on 7 August 1981. Timeliness of Filing of Respondents Motion for Reconsideration Respondent filed its motion for reconsideration of the 10 October 1991 Decision on 6 November 1991. Respondents motion for reconsideration states that it received a copy of the 10 October 1991 Decision on 22 October 1991. 18 Thus, it appears that the motion for reconsideration was filed on time. However, the Registry Return Receipt shows that counsel for respondent or his agent received a copy of the 10 October 1991 Decision on 16 October 1991,19 not on 22 October 1991 as respondent claimed. Hence, the Court of Appeals is correct when it noted that the motion for reconsideration was filed late. Despite its late filing, the Court of Appeals resolved to admit the motion for reconsideration "in the interest of substantial justice."20 There are instances when rules of procedure are relaxed in the interest of justice. However, in this case, respondent did not proffer any explanation for the late filing of the motion for reconsideration. Instead, there was a deliberate attempt to deceive the Court of Appeals by claiming that the copy of the 10 October 1991 Decision was received on 22 October 1991 instead of on 16 October 1991. We find no justification for the posture taken by the Court of Appeals in admitting the motion for reconsideration. Thus, the late filing of the motion for reconsideration rendered the 10 October 1991 Decision final and executory. The 24-Hour Clearing Time The Court will not rule on the proper application of Central Bank Circular No. 580 in this case. Since there were no material alterations on the checks, respondent as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank. 21 Thus, respondent is liable to petitioner for the value of the checks, with legal interest from the time of filing of the complaint on 16 March 1982 until full payment. 22 Further, considering that respondents motion for reconsideration was filed late, the 10 October 1991 Decision, which held respondent liable for the value of the checks amounting to P1,447,920, had become final and executory. WHEREFORE, we SET ASIDE the 9 August 1994 Amended Decision and the 16 July 1997 Resolution of the Court of Appeals. We rule that respondent Philippine National Bank is liable to petitioner International Corporate Bank, Inc. for the value of the checks amounting to P1,447,920, with legal interest from 16 March 1982 until full payment. Costs against respondent. SO ORDERED.

Page 1183 of 1485

Quisumbing, Chairperson, Carpio-Morales, Tinga, Velasco, Jr., J.J., concur. Republic SUPREME Manila FIRST DIVISION G.R. No. 154469 December 6, 2006 TRUST COMPANY, petitioners, of the Philippines COURT

METROPOLITAN BANK AND vs. RENATO D. CABILZO, respondent.

DECISION

CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank and Trust Company (Metrobank) seeking to reverse and set aside the Decision 1 of the Court of Appeals dated 8 March 2002 and its Resolution dated 26 July 2002 affirming the Decision of the Regional Trial Court (RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive portion of the Court of Appeals Decision reads: WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with modifications (sic) that the awards for exemplary damages and attorneys fees are hereby deleted. Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine laws.2 Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobanks clients who maintained a current account with Metrobank Pasong Tamo Branch. 3 On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH" and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00). The check was drawn against Cabilzos Account with Metrobank Pasong Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission.4 Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After the entries thereon were examined, including the availability of funds and the authenticity of the signature of the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules. On 16 November 1994, Cabilzos representative was at Metrobank Pasong Tamo Branch to make some transaction when he was asked by a bank personnel if Cabilzo had issued a

Page 1184 of 1485

check in the amount of P91,000.00 to which the former replied in the negative. On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P91,000.00 and requested that the questioned check be returned to him for verification, to which Metrobank complied.5 Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to 14 November 1994.6 Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still failed to re-credit the amount of P91,000.00 to Cabilzos account.7 On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand 8 to Metrobank for the payment of P90,000.00, after deducting the original value of the check in the amount of P1,000.00. Such written demand notwithstanding, Metrobank still failed or refused to comply with its obligation. Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to his claim for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor.9 For its part, Metrobank countered that upon the receipt of the said check through the PCHC on 14 November 1994, it examined the genuineness and the authenticity of the drawers signature appearing thereon and the technical entries on the check including the amount in figures and in words to determine if there were alterations, erasures, superimpositions or intercalations thereon, but none was noted. After verifying the authenticity and propriety of the aforesaid entries, including the indorsement of the collecting bank located at the dorsal side of the check which stated that, "all prior indorsements and lack of indorsement guaranteed," Metrobank cleared the check.10 Anent thereto, Metrobank claimed that as a collecting bank and the last indorser, Westmont Bank should be held liable for the value of the check. Westmont Bank indorsed the check as the an unqualified indorser, by virtue of which it assumed the liability of a general indorser, and thus, among others, warranted that the instrument is genuine and in all respect what it purports to be. In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the check, which, made the fraudulent insertion of the amount and figures thereon, possible. On account of his negligence in the preparation and issuance of the check, which according to Metrobank, was the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by virtue of the doctrine of equitable estoppel. Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which represents the cost of litigation and attorneys fees, for allegedly bringing a frivolous and baseless suit. 11 On 19 April 1996, Metrobank filed a Third-Party Complaint 12 against Westmont Bank on account of its unqualified indorsement stamped at the dorsal side of the check which the former relied upon in clearing what turned out to be a materially altered check.

Page 1185 of 1485

Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by Westmont bank because another case involving the same cause of action was pending before a different court. The said case arose from an action for reimbursement filed by Metrobank before the Arbitration Committee of the PCHC against Westmont Bank, and now the subject of a Petition for Review before the RTC of Manila, Branch 19. In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the ThirdParty Complaint on the ground of litis pendentia. On 4 September 1998, the RTC rendered a Decision 15 in favor of Cabilzo and thereby ordered Metrobank to pay the sum of P90,000.00, the amount of the check. In stressing the fiduciary nature of the relationship between the bank and its clients and the negligence of the drawee bank in failing to detect an apparent alteration on the check, the trial court ordered for the payment of exemplary damages, attorneys fees and cost of litigation. The dispositive portion of the Decision reads: WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust Company to pay plaintiff Renato Cabilzo the sum of P90,000 with legal interest of 6 percent per annum from November 16, 1994 until payment is made plus P20,000 attorneys fees, exemplary damages of P50,000, and costs of the suit.16 Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its previous argument that as the last indorser, Westmont Bank shall bear the loss occasioned by the fraudulent alteration of the check. Elaborating, Metrobank maintained that by reason of its unqualified indorsement, Westmont Bank warranted that the check in question is genuine, valid and subsisting and that upon presentment the check shall be accepted according to its tenor. Even more, Metrobank argued that in clearing the check, it was not remiss in the performance of its duty as the drawee bank, but rather, it exercised the highest degree of diligence in accordance with the generally accepted banking practice. It further insisted that the entries in the check were regular and authentic and alteration could not be determined even upon close examination. In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with modification the Decision of the court a quo, similarly finding Metrobank liable for the amount of the check, without prejudice, however, to the outcome of the case between Metrobank and Westmont Bank which was pending before another tribunal. The decretal portion of the Decision reads: WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with the modifications (sic) that the awards for exemplary damages and attorneys fees are hereby deleted.18 Similarly ill-fated was Metrobanks Motion for Reconsideration which was also denied by the appellate court in its Resolution19 issued on 26 July 2002, for lack of merit. Metrobank now poses before this Court this sole issue: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, AS DRAWEE BANK, LIABLE FOR THE ALTERATIONS ON THE SUBJECT CHECK BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.

Page 1186 of 1485

We resolve to deny the petition. An alteration is said to be material if it changes the effect of the instrument. It means that an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. 20 In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law. Section 1 of the Negotiable Instruments Law provides: Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand or at a fixed determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. Also pertinent is the following provision in the Negotiable Instrument Law which states: Section 125. What constitutes material alteration. Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The number or the relation of the parties; (e) The medium or currency in which payment is to be made; Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect is a material alteration. In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among those enumerated under Section 1 and 125, namely, the sum of money payable and the date of the check, the instant controversy therefore squarely falls within the purview of material alteration. Now, having laid the premise that the present petition is a case of material alteration, it is now necessary for us to determine the effect of a materially altered instrument, as well as

Page 1187 of 1485

the rights and obligations of the parties thereunder. The following provision of the Negotiable Instrument Law will shed us some light in threshing out this issue: Section 124. Alteration of instrument; effect of. Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, and assented to the alteration and subsequent indorsers. But when the instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce the payment thereof according to its original tenor. (Emphasis ours.) Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which could have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance of the check, and there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words and figures in order to forewarn the subsequent holders that nothing follows before and after the amount indicated other than the one specified between the asterisks. The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces between and after the amounts, not only those stated in words, but also those in numerical figures, in order to prevent any fraudulent insertion, but unfortunately, the check was still successfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and prejudice of Cabilzo. Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his rights under the doctrine of equitable estoppel when the facts on record are bare of evidence to support such conclusion. The doctrine of equitable estoppel states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury. 21 Metrobanks reliance on this dictum, is misplaced. For one, Metrobanks representation that it is an innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause 22 of the loss in the absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it.23 Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary businessman who, in order to facilitate his business transactions, entrusted his money with a bank, not knowing that the latter would yield a substantial amount of his deposit to fraud, for which Cabilzo can never be faulted. We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the countrys economy in general. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence.24

Page 1188 of 1485

Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for a businessman like the respondent, the bank is a trusted and active associate that can help in the running of his affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.25 In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.26 The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The appropriate degree of diligence required of a bank must be a high degree of diligence, if not the utmost diligence.27 In the present case, it is obvious that Metrobank was remiss in that duty and violated that relationship. As observed by the Court of Appeals, there are material alterations on the check that are visible to the naked eye. Thus: x x x The number "1" in the date is clearly imposed on a white figure in the shape of the number "2". The appellants employees who examined the said check should have likewise been put on guard as to why at the end of the amount in words, i.e., after the word "ONLY", there are 4 asterisks, while at the beginning of the line or before said phrase, there is none, even as 4 asterisks have been placed before and after the word "CASH" in the space for payee. In addition, the 4 asterisks before the words "ONE THOUSAND PESOS ONLY" have noticeably been erased with typing correction paper, leaving white marks, over which the word "NINETY" was superimposed. The same can be said of the numeral "9" in the amount "91,000", which is superimposed over a whitish mark, obviously an erasure, in lieu of the asterisk which was deleted to insert the said figure. The appellants employees should have again noticed why only 2 asterisks were placed before the amount in figures, while 3 asterisks were placed after such amount. The word "NINETY" is also typed differently and with a lighter ink, when compared with the words "ONE THOUSAND PESOS ONLY." The letters of the word "NINETY" are likewise a little bigger when compared with the letters of the words "ONE THOUSAND PESOS ONLY". 28 Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of even an ordinary person. This negligence was exacerbated by the fact that, as found by the trial court, the check in question was examined by the cash custodian whose functions do not include the examinations of checks indorsed for payment against drawers accounts. 29 Obviously, the employee allowed by Metrobank to examine the check was not verse and competent to handle such duty. These factual findings of the trial court is conclusive upon this court especially when such findings was affirmed the appellate court.30

Page 1189 of 1485

Apropos thereto, we need to reiterate that by the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far better than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. 31 In addition, the bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the order of the payee in accordance with the drawers instructions as reflected on the face and by the terms of the check. Payment made under materially altered instrument is not payment done in accordance with the instruction of the drawer. When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its clients account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawers account which it was expected to treat with utmost fidelity. Metrobank vigorously asserts that the entries in the check were carefully examined: The date of the instrument, the amount in words and figures, as well as the drawers signature, which after verification, were found to be proper and authentic and was thus cleared. We are not persuaded. Metrobanks negligence consisted in the omission of that degree of diligence required of a bank owing to the fiduciary nature of its relationship with its client. Article 1173 of the Civil Code 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 circumstances of the persons, of the time and of the place. x x x. Beyond question, Metrobank failed to comply with the degree required by the nature of its business as provided by law and jurisprudence. If indeed it was not remiss in its obligation, then it would be inconceivable for it not to detect an evident alteration considering its vast knowledge and technical expertise in the intricacies of the banking business. This Court is not completely unaware of banks practices of employing devices and techniques in order to detect forgeries, insertions, intercalations, superimpositions and alterations in checks and other negotiable instruments so as to safeguard their authenticity and negotiability. Metrobank cannot now feign ignorance nor claim diligence; neither can it point its finger at the collecting bank, in order to evade liability. Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the loss. Without ruling on the matter between the drawee bank and the collecting bank, which is already under the jurisdiction of another tribunal, we find that Metrobank cannot rely on such indorsement, in clearing the questioned check. The corollary liability of such indorsement, if any, is separate and independent from the liability of Metrobank to Cabilzo. The reliance made by Metrobank on Westmont Banks indorsement is clearly inconsistent, if not totally offensive to the dictum that being impressed with public interest, banks should exercise the highest degree of diligence, if not utmost diligence in dealing with the accounts of its own clients. It owes the highest degree fidelity to its clients and should not therefore lightly rely on the judgment of other banks on occasions where its clients money were involve, no matter how small or substantial the amount at stake.

Page 1190 of 1485

Metrobanks contention that it relied on the strength of collecting banks indorsement may be merely a lame excuse to evade liability, or may be indeed an actual banking practice. In either case, such act constitutes a deplorable banking practice and could not be allowed by this Court bearing in mind that the confidence of public in general is of paramount importance in banking business. What is even more deplorable is that, having been informed of the alteration, Metrobank did not immediately re-credit the amount that was erroneously debited from Cabilzos account but permitted a full blown litigation to push through, to the prejudice of its client. Anyway, Metrobank is not left with no recourse for it can still run after the one who made the alteration or with the collecting bank, which it had already done. It bears repeating that the records are bare of evidence to prove that Cabilzo was negligent. We find no justifiable reason therefore why Metrobank did not immediately reimburse his account. Such ineptness comes within the concept of wanton manner contemplated under the Civil Code which warrants the imposition of exemplary damages, "by way of example or correction for the public good," in the words of the law. It is expected that this ruling will serve as a stern warning in order to deter the repetition of similar acts of negligence, lest the confidence of the public in the banking system be further eroded. 32 WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8 March 2002 and the Resolution dated 26 July 2002 of the Court of Appeals are AFFIRMED with modification that exemplary damages in the amount of P50,000.00 be awarded. Costs against the petitioner. SO ORDERED. Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-Martinez, and Callejo, Sr., JJ., concur. Republic SUPREME Manila THIRD DIVISION G.R. No. 125851 July 11, 2006 of the Philippines COURT

ALLIED BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, G.G. SPORTSWEAR MANUFACTURING CORPORATION, NARI GIDWANI, SPOUSES LETICIA AND LEON DE VILLA AND ALCRON INTERNATIONAL LTD., respondents. DECISION QUISUMBING, J.: This petition for review on certiorari assails (a) the July 31, 1996 Decision 1 of the Court of Appeals, ordering respondent G.G. Sportswear Manufacturing Corp. to reimburse petitioner US $20,085; and exonerating the guarantors from liability; and (b) the January 17, 1997 Resolution2 denying the motion for reconsideration.

Page 1191 of 1485

The facts are undisputed. On January 6, 1981, petitioner Allied Bank, Manila (ALLIED) purchased Export Bill No. BDO81-002 in the amount of US $20,085.00 from respondent G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit No. BB640549 covered Men's Valvoline Training Suit that was in transit to West Germany (Uniger via Rotterdam) under Cont. #73/S0299. The export bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED credited GGS the peso equivalent of the aforementioned bill amounting to P151,474.52 and the receipt of which was acknowledged by the latter in its letter dated June 22, 1981. On the same date, respondents Nari Gidwani and Alcron International Ltd. (Alcron) executed their respective Letters of Guaranty, holding themselves liable on the export bill if it should be dishonored or retired by the drawee for any reason. Subsequently, the spouses Leon and Leticia de Villa and Nari Gidwani also executed a Continuing Guaranty/Comprehensive Surety (surety, for brevity), guaranteeing payment of any and all such credit accommodations which ALLIED may extend to GGS. When ALLIED negotiated the export bill to Chekiang, payment was refused due to some material discrepancies in the documents submitted by GGS relative to the exportation covered by the letter of credit. Consequently, ALLIED demanded payment from all the respondents based on the Letters of Guaranty and Surety executed in favor of ALLIED. However, respondents refused to pay, prompting ALLIED to file an action for a sum of money. In their joint answer, respondents GGS and Nari Gidwani admitted the due execution of the export bill and the Letters of Guaranty in favor of ALLIED, but claimed that they signed blank forms of the Letters of Guaranty and the Surety, and the blanks were only filled up by ALLIED after they had affixed their signatures. They also added that the documents did not cover the transaction involving the subject export bill. On the other hand, the respondents, spouses de Villa, claimed that they were not aware of the existence of the export bill; they signed blank forms of the surety; and averred that the guaranty was not meant to secure the export bill. Respondent Alcron, for its part, alleged that as a foreign corporation doing business in the Philippines, its branch in the Philippines is merely a liaison office confined to the following duties and responsibilities, to wit: acting as a message center between its office in Hongkong and its clients in the Philippines; conducting credit investigations on Filipino clients; and providing its office in Hongkong with shipping arrangements and other details in connection with its office in Hongkong. Respondent Alcron further alleged that neither its liaison office in the Philippines nor its then representative, Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for and in behalf of local entities and persons. It also invoked laches against petitioner ALLIED. GGS and Nari Gidwani filed a Motion for Summary Judgment on the ground that since the plaintiff admitted not having protested the dishonor of the export bill, it thereby discharged GGS from liability. But the trial court denied the motion. After the presentation of evidence by the petitioner, only the spouses de Villa presented their evidence. The other respondents did not. The trial court dismissed the complaint. On appeal, the Court of Appeals modified the ruling of the trial court holding respondent GGS liable to reimburse petitioner ALLIED the peso equivalent of the export bill, but it

Page 1192 of 1485

exonerated the guarantors from their liabilities under the Letters of Guaranty. The CA decision reads as follows: For the foregoing considerations, appellee GGS is obliged to reimburse appellant Allied Bank the amount of P151,474.52 which was the equivalent of GGS's contracted obligation of US$20,085.00. The lower court however correctly exonerated the guarantors from their liability under their Letters of Guaranty. A guaranty is an accessory contract. What the guarantors guaranteed in the instant case was the bill which had been discharged. Consequently, the guarantors should be correspondingly released. WHEREFORE, judgment is hereby rendered ordering defendant-appellee G.G. Sportswear Mfg. Corporation to pay appellant the sum of P151,474.52 with interest thereon at the legal rate from the filing of the complaint, and the costs. SO ORDERED.3 The petitioner filed a Motion for Reconsideration, but to no avail. Hence, this appeal, raising a single issue: WHETHER OR NOT RESPONDENTS NARI, DE VILLA AND ALCRON ARE LIABLE UNDER THE LETTERS OF GUARANTY AND THE CONTINUING GUARANTY/ COMPREHENSIVE SURETY NOTWITHSTANDING THE FACT THAT NO PROTEST WAS MADE AFTER THE BILL, A FOREIGN BILL OF EXCHANGE, WAS DISHONORED.4 The main issue raised before us is: Can respondents, in their capacity as guarantors and surety, be held jointly and severally liable under the Letters of Guaranty and Continuing Guaranty/Comprehensive Surety, in the absence of protest on the bill in accordance with Section 152 of the Negotiable Instruments Law?5 The petitioner contends that part of the Court of Appeals' decision exonerating respondents Nari Gidwani, Alcron International Ltd., and spouses Leon and Leticia de Villa as guarantors and/or sureties. Respondents rely on Section 152 of the Negotiable Instruments Law to support their contention. Our review of the records shows that what transpired in this case is a discounting arrangement of the subject export bill, between petitioner ALLIED and respondent GGS. Previously, we ruled that in a letter of credit transaction, once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. 6 However, in most cases, instead of going to the issuing bank to claim payment, the buyer (or the beneficiary of the draft) may approach another bank, termed the negotiating bank, to have the draft discounted. 7 While the negotiating bank owes no contractual duty toward the beneficiary of the draft to discount or purchase it, it may still do so. Nothing can prevent the negotiating bank from requiring additional requirements, like contracts of guaranty and surety, in consideration of the discounting arrangement.

Page 1193 of 1485

In this case, respondent GGS, as the beneficiary of the export bill, instead of going to Chekiang First Bank Ltd. (issuing bank), went to petitioner ALLIED, to have the export bill purchased or discounted. Before ALLIED agreed to purchase the subject export bill, it required respondents Nari Gidwani and Alcron to execute Letters of Guaranty, holding them liable on demand,in case the subject export bill was dishonored or retired for any reason. 8 Likewise, respondents Nari Gidwani and spouses Leon and Leticia de Villa executed Continuing Guaranty/Comprehensive Surety, holding themselves jointly and severally liable on any and all credit accommodations, instruments, loans, advances, credits and/or other obligation that may be granted by the petitioner ALLIED to respondent GGS. 9 The surety also contained a clause whereby said sureties waive protest and notice of dishonor of any and all such instruments, loans, advances, credits and/or obligations. 10 These letters of guaranty and surety are now the basis of the petitioner's action. At this juncture, we must stress that obligations arising from contracts have the force of law between the parties and should be complied with in good faith. 11 Nothing can stop the parties from establishing stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.12 Here, Art. 2047 of the New Civil Code is pertinent. Art. 2047 states, Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. In this case, the Letters of Guaranty and Surety clearly show that respondents undertook and bound themselves as guarantors and surety to pay the full amount of the export bill. Respondents claim that the petitioner did not protest 13 upon dishonor of the export bill by Chekiang First Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export bill, all of them, as indorsers were discharged under Section 152 of the Negotiable Instruments Law. Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security. 14 The liability of a guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability thereon. 15 On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required to fix the surety's liability.16 He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship. 17 Therefore, no protest on the export bill is necessary to charge all the respondents jointly and severally liable with G.G. Sportswear since the respondents held themselves liable upon demand in case the instrument was dishonored and on the surety, they even waived notice of dishonor as stipulated in their Letters of Guarantee.

Page 1194 of 1485

As to respondent Alcron, it is bound by the Letter of Guaranty executed by its representative Hans-Joachim Schloer. As to the other respondents, not to be overlooked is the fact that, the "Suretyship Agreement" they executed, expressly contemplated a solidary obligation, providing as it did that " the sureties hereby guarantee jointly and severally the punctual payment of any and all such credit accommodations, instruments, loans, which is/are now or may hereafter become due or owing by the borrower". 18 It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control. 19 In the present case, there can be no mistaking about respondents' intent, as sureties, to be jointly and severally obligated with respondent G.G. Sportswear. Respondents also aver that, (1) they only signed said documents in blank; (2) they were never made aware that said documents will cover the payment of the export bill; and (3) laches have set in. Respondents' stance lacks merit. Under Section 3 (d), Rule 131 of the Rules of Court, it is presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is that one does not sign a document without first informing himself of its contents and consequences. Said presumption acquires greater force in the case at bar where not only one document but several documents were executed at different times and at different places by the herein respondent guarantors and sureties.20 In this case, having affixed their consenting signatures in several documents executed at different times, it is safe to presume that they had full knowledge of its terms and conditions, hence, they are precluded from asserting ignorance of the legal effects of the undertaking they assumed thereunder. It is also presumed that private transactions have been fair and regular21 and that he who alleges has the burden of proving his allegation with the requisite quantum of evidence.22 But here the records of this case do not support their claims. Last, we find the defense of laches unavailing. The question of laches is addressed to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by equitable considerations.23 Respondents, however, failed to show that the collection suit against them as sureties was inequitable. Remedies in equity address only situations tainted with inequity, not those expressly governed by statutes. 24 After considering the facts of this case vis--vis the pertinent laws, we are constrained to rule for the petitioner. WHEREFORE, the instant petition is GRANTED.The assailed Decision of the Court of Appeals is hereby MODIFIED, and we hold that respondent Alcron International Ltd. is subsidiarily liable, while respondents Nari Gidwani, and Spouses Leon and Leticia de Villa are jointly and severally liable together with G.G. Sportswear, to pay petitioner Bank the sum of P151,474.52 with interest at the legal rate from the filing of the complaint, and the costs. SO ORDERED. Carpio, Carpio-Morales, Tinga, Velasco, Jr., J.J., concur. Republic SUPREME Manila of the Philippines COURT

Page 1195 of 1485

SECOND DIVISION G.R. No. 152071 May 8, 2009 PHILIPPINES, Petitioner,

PRODUCERS BANK OF THE vs. EXCELSA INDUSTRIES, INC., Respondent. DECISION TINGA, J.:

This is a petition for review on certiorari 1 under Rule 43 of the 1997 Rules of Civil Procedure, assailing the decision2 and resolution3 of the Court of Appeals in CA-G.R. CV No. 59931. The Court of Appeals decision4 reversed the decision of the Regional Trial Court (RTC), Branch 73, Antipolo, Rizal, upholding the extrajudicial foreclosure of the mortgage on respondents properties, while the resolution denied petitioners motion for reconsideration. 5 As borne by the records of the case, the following factual antecedents appear: Respondent Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly charcoal briquettes, as an alternative fuel source. Sometime in January 1987, respondent applied for a packing credit line or a credit export advance with petitioner Producers Bank of the Philippines, a banking institution duly organized and existing under Philippines laws.6 The application was supported by Letter of Credit No. M3411610NS2970 dated 14 October 1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of credit through its correspondent bank, the Bank of the Philippine Islands, in the amount of US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also located in Seoul, Korea. T.L. World Development Corporation was the original beneficiary of the letter of credit. On 05 December 1986, for value received, T.L. World transferred to respondent all its rights and obligations under the said letter of credit. Petitioner approved respondents application for a packing credit line in the amount of P300,000.00, of which about P96,000.00 in principal remained outstanding.7 Respondent executed the corresponding promissory notes evidencing the indebtedness.8 Prior to the application for the packing credit line, respondent had obtained a loan from petitioner in the form of a bill discounted and secured credit accommodation in the amount of P200,000.00, of which P110,000.00 was outstanding at the time of the approval of the packing credit line. The loan was secured by a real estate mortgage dated 05 December 1986 over respondents properties covered by Transfer Certificates of Titles (TCT) No. N68661, N-68662, N-68663, N-68664, N-68665 and N-68666, all issued by the Register of Deeds of Marikina.9 Significantly, the real estate mortgage contained the following clause: For and in consideration of those certain loans, overdraft and/or other credit accommodations on this date obtained from the MORTGAGEE, and to secure the payment of the same, the principal of all of which is hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine Currency, as well as those that the MORTGAGEE may hereafter extend to the MORTGAGOR, including interest and expenses or any other

Page 1196 of 1485

obligation owing to the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the parcel(s) of land which is/are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the MORTGAGOR declares that he/it is the absolute owner, free from all liens and encumbrances. 10 On 17 March 1987, respondent presented for negotiation to petitioner drafts drawn under the letter of credit and the corresponding export documents in consideration for its drawings in the amounts of US$5,739.76 and US$4,585.79. Petitioner purchased the drafts and export documents by paying respondent the peso equivalent of the drawings. The purchase was subject to the conditions laid down in two separate undertakings by respondent dated 17 March 1987 and 10 April 1987.11 On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable that the Korean buyer refused to pay respondents export documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the export documents. 12 Upon learning about the Korean importers non-payment, respondent sent petitioner a letter dated 27 July 1987, informing the latter that respondent had brought the matter before the Korea Trade Court and that it was ready to liquidate its past due account with petitioner. Respondent sent another letter dated 08 September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export documents on account of the non-acceptance by the importer. 13 Petitioner demanded from respondent the payment of the peso equivalent of the export documents, plus interest and other charges, and also of the other due and unpaid loans. Due to respondents failure to heed the demand, petitioner moved for the extrajudicial foreclosure on the real estate mortgage over respondents properties. Per petitioners computation, aside from charges for attorneys fees and sheriffs fees, respondent had a total due and demandable obligation of P573,225.60, including interest, in six different accounts, namely: 1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = P119,165.06 2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97 3) BDS-001-87 = 61,777.78 4) BDS-030/86 A = 123,555.55 5) BDS-PC-002-/87 = 55,822.91 6) BDS-005/87 = 61,323.33 P573,225.6014 The total approved bid price, which included the attorneys fees and sheriff fees, was pegged at P752,074.63. At the public auction held on 05 January 1988, the Sheriff of Antipolo, Rizal issued a Certificate of Sale in favor of petitioner as the highest bidder. 15 The certificate of sale was registered on 24 March 1988.16

Page 1197 of 1485

On 12 June 1989, petitioner executed an affidavit of consolidation over the foreclosed properties after respondent failed to redeem the same. As a result, the Register of Deeds of Marikina issued new certificates of title in the name of petitioner. 17 On 17 November 1989, respondent instituted an action for the annulment of the extrajudicial foreclosure with prayer for preliminary injunction and damages against petitioner and the Register of Deeds of Marikina. Docketed as Civil Case No. 1587-A, the complaint was raffled to Branch 73 of the RTC of Antipolo, Rizal. The complaint prayed, among others, that the defendants be enjoined from causing the transfer of ownership over the foreclosed properties from respondent to petitioner.18 On 05 April 1990, petitioner filed a petition for the issuance of a writ of possession, docketed as LR Case No. 90-787, before the same branch of the RTC of Antipolo, Rizal. The RTC ordered the consolidation of Civil Case No, 1587-A and LR Case No. 90-787. 19 On 18 December 1997, the RTC rendered a decision upholding the validity of the extrajudicial foreclosure and ordering the issuance of a writ of possession in favor of petitioner, to wit: WHEREFORE, in Case No. 1587-A, the court hereby rules that the foreclosure of mortgage for the old and new obligations of the plaintiff Excelsa Industries Corp., which has remained unpaid up to the time of foreclosure by defendant Producers Bank of the Philippines was valid, legal and in order; In Case No. 787-A, the court hereby orders for the issuance of a writ of possession in favor of Producers Bank of the Philippines after the properties of Excelsa Industries Corp., which were foreclosed and consolidated in the name of Producers Bank of the Philippines under TCT No. 169031, 169032, 169033, 169034 and 169035 of the Register of Deeds of Marikina. SO ORDERED.20 The RTC held that petitioner, whose obligation consisted only of receiving, and not of collecting, the export proceeds for the purpose of converting into Philippine currency and remitting the same to respondent, cannot be considered as respondents agent. The RTC also held that petitioner cannot be presumed to have received the export proceeds, considering that respondent executed undertakings warranting that the drafts and accompanying documents were genuine and accurately represented the facts stated therein and would be accepted and paid in accordance with their tenor. 21 Furthermore, the RTC concluded that petitioner had no obligation to return the export documents and respondent could not expect their return prior to the payment of the export advances because the drafts and export documents were the evidence that respondent received export advances from petitioner.22 The RTC also found that by its admission, respondent had other loan obligations obtained from petitioner which were due and demandable; hence, petitioner correctly exercised its right to foreclose the real estate mortgage, which provided that the same secured the payment of not only the loans already obtained but also the export advances. 231avvphi1 Lastly, the RTC found respondent guilty of laches in questioning the foreclosure sale considering that petitioner made several demands for payment of respondents outstanding loans as early as July 1987 and that respondent acknowledged the failure to pay its loans and advances.24

Page 1198 of 1485

The RTC denied respondents motion for reconsideration. 25 Thus, respondent elevated the matter to the Court of Appeals, reiterating its claim that petitioner was not only a collection agent but was considered a purchaser of the export On 30 May 2001, the Court of Appeals rendered the assailed decision, reversing the RTCs decision, thus: WHEREFORE, the appeal is hereby GRANTED. The decision of the trial court dated December 18, 1997 is REVERSED and SET ASIDE. Accordingly, the foreclosure of mortgage on the properties of appellant is declared as INVALID. The issuance of the writ of possession in favor of appellee is ANNULLED. The following damages are hereby awarded in favor of appellant: (a) Moral damages in the amount of P100,000.00; (b) Exemplary damages in the amount of P100,000.00; and (c) Costs. SO ORDERED.26 The Court of Appeals held that respondent should not be faulted for the dishonor of the drafts and export documents because the obligation to collect the export proceeds from Kwang Ju Bank, Ltd. devolved upon petitioner. It cited the testimony of petitioners manager for the foreign currency department to the effect that petitioner was respondents agent, being the only entity authorized under Central Bank Circular No. 491 to collect directly from the importer the export proceeds on respondents behalf and converting the same to Philippine currency for remittance to respondent. The appellate court found that respondent was not authorized and even powerless to collect from the importer and it appeared that respondent was left at the mercy of petitioner, which kept the export documents during the time that respondent attempted to collect payment from the Korean importer. The Court of Appeals disregarded the RTCs finding that the export documents were the only evidence of respondents export advances and that petitioner was justified in refusing to return them. It opined that granting petitioner had no obligation to return the export documents, the former should have helped respondent in the collection efforts instead of augmenting respondents dilemma. Furthermore, the Court of Appeals found petitioners negligence as the cause of the refusal by the Korean buyer to pay the export proceeds based on the following: first, petitioner had a hand in preparing and scrutinizing the export documents wherein the discrepancies were found; and, second, petitioner failed to advise respondent about the warning from Kwang Ju Bank, Ltd. that the export documents would be returned if no explanation regarding the discrepancies would be made. The Court of Appeals invalidated the extrajudicial foreclosure of the real estate mortgage on the ground that the posting and publication of the notice of extrajudicial foreclosure proceedings did not comply with the personal notice requirement under paragraph 12 27 of the real estate mortgage executed between petitioner and respondent. The Court of Appeals also overturned the RTCs finding

Page 1199 of 1485

that respondent was guilty of estoppel by laches in questioning the extrajudicial foreclosure sale. Petitioners motion for reconsideration 28 was denied in a Resolution dated 29 January 2002. Hence, the instant petition, arguing that the Court of Appeals erred in finding petitioner as respondents agent, which was liable for the discrepancies in the export documents, in invalidating the foreclosure sale and in declaring that respondent was not estopped from questioning the foreclosure sale.29 The validity of the extrajudicial foreclosure of the mortgage is dependent on the following issues posed by petitioner: (1) the coverage of the "blanket mortgage clause;" (2) petitioners failure to furnish personal notice of the foreclosure to respondent; and (3) petitioners obligation as negotiating bank under the letter of credit. Notably, the errors cited by petitioners are factual in nature. Although the instant case is a petition for review under Rule 45 which, as a general rule, is limited to reviewing errors of law, findings of fact being conclusive as a matter of general principle, however, considering the conflict between the factual findings of the RTC and the Court of Appeals, there is a need to review the factual issues as an exception to the general rule. 30 Much of the discussion has revolved around who should be liable for the dishonor of the draft and export documents. In the two undertakings executed by respondent as a condition for the negotiation of the drafts, respondent held itself liable if the drafts were not accepted. The two undertakings signed by respondent are similarly-worded and contained respondents express warranties, to wit: In consideration of your negotiating the above described draft(s), we hereby warrant that the said draft(s) and accompanying documents thereon are valid, genuine and accurately represent the facts stated therein, and that such draft(s) will be accepted and paid in accordance with its/their tenor. We further undertake and agree, jointly and severally, to defend and hold you free and harmless from any and all actions, claims and demands whatsoever, and to pay on demand all damages actual or compensatory including attorneys fees, costs and other awards or be adjudged to pay, in case of suit, which you may suffer arising from, by reason, or on account of your negotiating the above draft(s) because of the following discrepancies or reasons or any other discrepancy or reason whatever. We hereby undertake to pay on demand the full amount of the above draft(s) or any unpaid balance thereof, the Philippine perso equivalent converted at the prevailing selling rate (or selling rate prevailing at the date you negotiate our draft, whichever is higher) allowed by the Central Bank with interest at the rate prevailing today from the date of negotiation, plus all charges and expenses whatsoever incurred in connection therewith. You shall neither be obliged to contest or dispute any refusal to accept or to pay the whole or any part of the above draft(s), nor proceed in any way against the drawee, the issuing bank or any endorser thereof, before making a demand on us for the payment of the whole or any unpaid balance of the draft(s).(Emphasis supplied)31 In Velasquez v. Solidbank Corporation,32 where the drawer therein also executed a separate letter of undertaking in consideration for the banks negotiation of its sight drafts, the Court held that the drawer can still be made liable under the letter of undertaking even if he is discharged due to the banks failure to protest the non-acceptance of the drafts. The Court explained, thus:

Page 1200 of 1485

Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a separate contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and primary. It is independent from his liability under the sight draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-payment. Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking that he will reimburse the amount in case the sight draft is dishonored. The bank would certainly not have agreed to grant petitioner an advance export payment were it not for the letter of undertaking. The consideration for the letter of undertaking was petitioners promise to pay respondent the value of the sight draft if it was dishonored for any reason by the Bank of Seoul.33 Thus, notwithstanding petitioners alleged failure to comply with the requirements of notice of dishonor and protest under Sections 8934 and 152,35 respectively, of the Negotiable Instruments Law, respondent may not escape its liability under the separate undertakings, where respondent promised to pay on demand the full amount of the drafts. The next question, therefore, is whether the real estate mortgage also served as security for respondents drafts that were not accepted and paid by the Kwang Ju Bank, Ltd. Respondent executed a real estate mortgage containing a "blanket mortgage clause," also known as a "dragnet clause." It has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.36 In Union Bank of the Philippines v. Court of Appeals ,37 the nature of a dragnet clause was explained, thus: Is one which is specifically phrased to subsume all debts of past and future origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.38 xxx Petitioner, therefore, was not precluded from seeking the foreclosure of the real estate mortgage based on the unpaid drafts drawn by respondent. In any case, respondent had admitted that aside from the unpaid drafts, respondent also had due and demandable loans secured from another account as evidenced by Promissory Notes (PN Nos.) BDS-001-87, BDS-030/86 A, BDS-PC-002-/87 and BDS-005/87. However, the Court of Appeals invalidated the extrajudicial foreclosure of the mortgage on the ground that petitioner had failed to furnish respondent personal notice of the sale contrary to the stipulation in the real estate mortgage.

Page 1201 of 1485

Petitioner, on the other hand, claims that under paragraph 12 39 of the real estate mortgage, personal notice of the foreclosure sale is not a requirement to the validity of the foreclosure sale. A perusal of the records of the case shows that a notice of sheriffs sale 40 was sent by registered mail to respondent and received in due course. 41 Yet, respondent claims that it did not receive the notice but only learned about it from petitioner. In any event, paragraph 12 of the real estate mortgage requires petitioner merely to furnish respondent with the notice and does not oblige petitioner to ensure that respondent actually receives the notice. On this score, the Court holds that petitioner has performed its obligation under paragraph 12 of the real estate mortgage. As regards the issue of whether respondent may still question the foreclosure sale, the RTC held that the sale was conducted according to the legal procedure, to wit: Plaintiff is estopped from questioning the foreclosure. The plaintiff is guilty of laches and cannot at this point in time question the foreclosure of the subject properties. Defendant bank made demands against the plaintiff for the payment of plaintiffs outstanding loans and advances with the defendant as early as July 1997. Plaintiff acknowledged such outstanding loans and advances to the defendant bank and committed to liquidate the same. For failure of the plaintiff to pay its obligations on maturity, defendant bank foreclosed the mortgage on subject properties on January 5, 1988 the certificate of sale was annotated on March 24, 1988 and there being no redemption made by the plaintiff, title to said properties were consolidated in the name of defendant in July 1989. Undeniably, subject foreclosure was done in accordance with the prescribed rules as may be borne out by the exhibits submitted to this Court which are Exhibit "33," a notice of extrajudicial sale executed by the Sheriff of Antipolo, Exhibit "34" certificate posting of extrajudicial sale, Exhibit "35" return card evidencing receipt by plaintiff of the notice of extrajudicial sale and Exhibit "21" affidavit of publication. The Court adopts and approves the aforequoted findings by the RTC, the same being fully supported by the evidence on record. WHEREFORE, the instant petition for review on certiorari is GRANTED and the decision and resolution of the Court of Appeals in CA-G.R. CV No. 59931 are REVERSED and SET ASIDE. The decision of the Regional Trial Court Branch 73, Antipolo, Rizal in Civil Case No. 1587-A and LR Case No. 90-787 is REINSTATED. SO ORDERED. Republic SUPREME Manila SECOND DIVISION G.R. No. 121413 January 29, 2001 of the Philippines COURT

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.

Page 1202 of 1485

G.R. No. 121479

January 29, 2001 petitioner-plaintiff, and PHILIPPINE COMMERCIAL

FORD PHILIPPINES, INC., vs. COURT OF APPEALS and CITIBANK, N.A. INTERNATIONAL BANK, respondents.

G.R. No. 128604

January 29, 2001

FORD PHILIPPINES, INC., petitioner, vs. CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF APPEALS, respondents. QUISUMBING, J.: These consolidated petitions involve several fraudulently negotiated checks. The original actions a quo were instituted by Ford Philippines to recover from the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and America], the value of several checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate.1wphi1.nt G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision 1 of the Court of Appeals in CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philipppine Commercial International Bank), and the August 8, 1995 Resolution,2 ordering the collecting bank, Philippine Commercial International Bank, to pay the amount of Citibank Check No. SN-04867. In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision 3 of the Court of Appeals and its March 5, 1997 Resolution 4 in CA-G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank," affirming in toto the judgment of the trial court holding the defendant drawee bank, Citibank, N.A., solely liable to pay the amount of P12,163,298.10 as damages for the misapplied proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508. I. G.R. Nos. 121413 and 121479 The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows: "On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff;s percentage or manufacturer's sales taxes for the third quarter of 1977. The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank.

Page 1203 of 1485

The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner of Internal Revenue. As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal Revenue. It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had been maintaining a checking account with defendant Citibank; that Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of the Commissioner of Internal Revenue was a crossed check in that, on its face were two parallel lines and written in between said lines was the phrase "Payee's Account Only"; and that defendant Citibank paid the full face value of the check in the amount of P4,746,114.41 to the defendant IBAA. It has been duly established that for the payment of plaintiff's percentage tax for the last quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No. 18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro Manila, as the authorized agent bank of Metrobanl, Alabang branch to receive the tax payment of the plaintiff. On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the Revenue Tax Receipt No. 18747002, was deposited with defendant IBAA, through its Ermita Branch. The latter accepted the check and sent it to the Central Clearing House for clearing on the samd day, with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed." Thereafter, defendant IBAA presented the check for payment to defendant Citibank on same date, December 19, 1977, and the latter paid the face value of the check in the amount of P4,746,114.41. Consequently, the amount of P4,746,114.41 was debited in plaintiff's account with the defendant Citibank and the check was returned to the plaintiff. Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence, in separate letters dated October 26, 1979, addressed to the defendants, the plaintiff notified the latter that in case it will be re-assessed by the BIR for the payment of the taxes covered by the said checks, then plaintiff shall hold the defendants liable for reimbursement of the face value of the same. Both defendants denied liability and refused to pay. In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed to the plaintiff - supposed to be Exhibit "D", the latter was officially informed, among others, that its check in the amount of P4, 746,114.41 was not paid to the government or its authorized agent and instead encashed by unauthorized persons, hence, plaintiff has to pay the said amount within fifteen days from receipt of the letter. Upon advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of plaintiff's percentage tax for the third quarter of 1977. As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its original complaint before this Court.

Page 1204 of 1485

On December 24, 1985, defendant IBAA was merged with the Philippine Commercial International Bank (PCI Bank) with the latter as the surviving entity. Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No. SN-04867 in the amount of P4,746,114.41 "was in due course"; it merely relied on the clearing stamp of the depository/collecting bank, the defendant IBAA that "all prior indorsements and/or lack of indorsements guaranteed"; and the proximate cause of plaintiff's injury is the gross negligence of defendant IBAA in indorsing the plaintiff's Citibank check in question. It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check No. SN-048867 was paid to defendant IBAA as collecting bank, plaintiff was maintaining a checking account with defendant Citibank." 5 Although it was not among the stipulated facts, an investigation by the National Bureau of Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back the check because there was an error in the computation of the tax due to the Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank replaced the check with two of its own Manager's Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific Banking Corporation. Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party defendants. But the court dismissed the complaint against PBC for lack of cause of action. The course likewise dismissed the third-party complaint against Godofredo Rivera because he could not be served with summons as the NBI declared him as a "fugitive from justice". On June 15, 1989, the trial court rendered its decision, as follows: "Premises considered, judgment is hereby rendered as follows: "1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to pay the plaintiff the amount of P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate starting January 20, 1983, the date when the original complaint was filed until the amount is fully paid, plus costs; "2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now PCI Bank) to reimburse defendant Citibank for whatever amount the latter has paid or may pay to the plaintiff in accordance with next preceding paragraph; "3. The counterclaims asserted by the defendants against the plaintiff, as well as that asserted by the cross-defendant against the cross-claimant are dismissed, for lack of merits; and "4. With costs against the defendants. SO ORDERED."6

Page 1205 of 1485

Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their respective petitions for review on certiorari to the Courts of Appeals. On March 27, 1995, the appellate court issued its judgment as follows: "WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with modifications. The court hereby renderes judgment: 1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is concerned; 2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate starting January 20, 1983, the date when the original complaint was filed until the amount is fully paid; 3. Dismissing the counterclaims asserted by the defendants against the plaintiff as well as that asserted by the cross-defendant against the crossclaimant, for lack of merits. Costs against the defendant IBAA (now PCI Bank). IT IS SO ORDERED."7 PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford filed a "Motion for Partial Reconsideration." Both motions were denied for lack of merit. Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under Rule 45. In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of the Court of Appeals contending that it merely acted on the instruction of Ford and such casue of action had already prescribed. PCIBank sets forth the following issues for consideration: I. Did the respondent court err when, after finding that the petitioner acted on the check drawn by respondent Ford on the said respondent's instructions, it nevertheless found the petitioner liable to the said respondent for the full amount of the said check. II. Did the respondent court err when it did not find prescription in favor of the petitioner.8 In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same decision and resolution of the Court of Appeals, and praying for the reinstatement in toto of the decision of the trial court which found both PCIBank and Citibank jointly and severally liable for the loss. In G.R. No. 121479, appellant Ford presents the following propositions for consideration:

Page 1206 of 1485

I. Respondent Citibank is liable to petitioner Ford considering that: 1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of the subject check and a depositor of respondent Citibank, an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof, the Commissioner of Internal Revenue. 2. Respondent Citibank failed to observe its duty as banker with respect to the subject check, which was crossed and payable to "Payee's Account Only." 3. Respondent Citibank raises an issue for the first time on appeal; thus the same should not be considered by the Honorable Court. 4. As correctly held by the trial court, there is no evidence of gross negligence on the part of petitioner Ford.9 II. PCI Bank is liable to petitioner Ford considering that: 1. There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a person other than the payee named therein, the Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only obligation is to deliver the proceeds to the Commissioner of the Bureau of Internal Revenue.10 2. PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of indorsement guaranteed"), is liable as collecting bank.11 3. PCIBank is barred from raising issues of fact in the instant proceedings. 12 4. Petitioner Ford's cause of action had not prescribed.13 II. G.R. No. 128604 The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle Ford's percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979. The facts as narrated by the Court of Appeals are as follows: Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of P5,851,706.37 representing the percentage tax due for the second quarter of 1978 payable to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for the said purpose. On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 and payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt No. A1697160 was issued for the said purpose. Both checks were "crossed checks" and contain two diagonal lines on its upper corner between, which were written the words "payable to the payee's account only."

Page 1207 of 1485

The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR, Region 4-B, demanded for the said tax payments the corresponding periods abovementioned. As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake and spurious". This anomaly was confirmed by the NBI upon the initiative of the BIR. The findings forced Ford to pay the BIR a new, while an action was filed against Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508. The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on the modus operandi of the syndicate, as follows: "A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. As such, he prepared the plaintiff's check marked Ex. 'A' [Citibank Check No. Sn-10597] for payment to the BIR. Instead, however, fo delivering the same of the payee, he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of the San Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself subsequently opened a Checking Account in the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as Assistant Manager. After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank of America Check in exactly the same amount as the first FORD check (Exh. "A", P5,851,706.37) while this worthless check was coursed through PCIB's main office enroute to the Central Bank for clearing, replaced this worthless check with FORD's Exhibit 'A' and accordingly tampered the accompanying documents to cover the replacement. As a result, Exhibit 'A' was cleared by defendant CITIBANK, and the fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total amount of the FORD check Exhibit 'A'. The same method was again utilized by the syndicate in profiting from Exh. 'B' [Citibank Check No. SN-16508] which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at FORD. From this 'Reynaldo Reyes' account, Castro drew various checks distributing the sahres of the other participating conspirators namely (1) CRISANTO BERNABE, the mastermind who formulated the method for the embezzlement; (2) RODOLFO R. DE LEON a customs broker who negotiated the initial contact between Bernabe, FORD's Godofredo Rivera and PCIB's Remberto Castro; (3) JUAN VASTILLO who assisted de Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's accountant who passed on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's promanager at San Andres who performed the switching of checks in the clearing process and opened the fictitious Reynaldo Reyes account at the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at its Meralco Branch, who assisted Castro in switching the checks in the clearing process and facilitated the opening of the fictitious Reynaldo Reyes' bank account; (7) ALEXIS MARINDO, Rivera's Assistant at FORD, who gave the second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection Agent who provided the fake and spurious revenue tax receipts to make it appear that the BIR had received FORD's tax payments. Several other persons and entities were utilized by the syndicate as conduits in the disbursements of the proceeds of the two checks, but like the aforementioned participants in the conspiracy, have not been impleaded in the present case. The

Page 1208 of 1485

manner by which the said funds were distributed among them are traceable from the record of checks drawn against the original "Reynaldo Reyes" account and indubitably identify the parties who illegally benefited therefrom and readily indicate in what amounts they did so."14 On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank, liable for the value of the two checks while adsolving PCIBank from any liability, disposing as follows: "WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse plaintiff FORD the total amount of P12,163,298.10 prayed for in its complaint, with 6% interest thereon from date of first written demand until full payment, plus P300,000.00 attorney's fees and expenses litigation, and to pay the defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as attorney's fees and costs of litigation, and pay the costs. SO ORDERED."15 Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of the trial court. Hence, this petition. Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals decision and its resolution dated March 5, 1997, with respect to the dismissal of the complaint against PCIBank and holding Citibank solely responsible for the proceeds of Citibank Check Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively. Ford avers that the Court of Appeals erred in dismissing the complaint against defendant PCIBank considering that: I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence required to be exercised by it as a banking insitution. II. Defendant PCIBank clearly failed to observe the diligence required in the selection and supervision of its officers and employees. III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or damage resulting to the plaintiff Ford as a consequence of the substitution of the check consistent with Section 5 of Central Bank Circular No. 580 series of 1977. IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate in due course the subject checks, it is liable, under Article 2154 of the Civil Code, to return the money which it admits having received, and which was credited to it its Central bank account.16 The main issue presented for our consideration by these petitions could be simplified as follows: Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue? Or has Ford's cause of action already prescribed? Note that in these cases, the checks were drawn against the drawee bank, but the title of the person negotiating the same was allegedly defective because the instrument was

Page 1209 of 1485

obtained by fraud and unlawful means, and the proceeds of the checks were not remitted to the payee. It was established that instead of paying the checks to the CIR, for the settlement of the approprite quarterly percentage taxes of Ford, the checks were diverted and encashed for the eventual distribution among the mmbers of the syndicate. As to the unlawful negotiation of the check the applicable law is Section 55 of the Negotiable Instruments Law (NIL), which provides: "When title defective -- The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or fore and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith or under such circumstances as amount to a fraud." Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator in breach of faith amounting to fraud. The person negotiating the checks must have gone beyond the authority given by his principal. If the principal could prove that there was no negligence in the performance of his duties, he may set up the personal defense to escape liability and recover from other parties who. Though their own negligence, alowed the commission of the crime. In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to a syndicate, are now fugitives from justice. They have, even if temporarily, escaped liability for the embezzlement of millions of pesos. We are thus left only with the task of determining who of the present parties before us must bear the burden of loss of these millions. It all boils down to thequestion of liability based on the degree of negligence among the parties concerned. Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory negligence" that would defeat its claim for reimbursement, bearing ing mind that its employees, Godofredo Rivera and Alexis Marindo, were among the members of the syndicate. Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the checks to his co-conspirators, instead of delivering them to the designated authorized collecting bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact that Ford was remiss in the supervision and control of its own employees, inasmuch as it only discovered the syndicate's activities through the information given by the payee of the checks after an unreasonable period of time. PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to the subsequent run-around of unds of Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the proximate cause of the damge to Ford lies in its own officers and employees who carried out the fradulent schemes and the transactions. These circumstances were not checked by other officers of the company including its comptroller or internal auditor. PCIBank contends that the inaction of Ford despite the enormity of the amount involved was a sheer negligence and stated that, as between two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it possible, by his act of negligence, must bear the loss. For its part, Ford denies any negligence in the performance of its duties. It avers that there was no evidence presented before the trial court showing lack of diligence on the part of Ford. And, citing the case of Gempesaw vs. Court of Appeals, 17 Ford argues that even if there

Page 1210 of 1485

was a finding therein that the drawer was negligent, the drawee bank was still ordered to pay damages. Furthermore, Ford contends the Godofredo rivera was not authorized to make any representation in its behalf, specifically, to divert the proceeds of the checks. It adds that Citibank raised the issue of imputed negligence against Ford for the first time on appeal. Thus, it should not be considered by this Court. On this point, jurisprudence regarding the imputed negligence of employer in a masterservant relationship is instructive. Since a master may be held for his servant's wrongful act, the law imputes to the master the act of the servant, and if that act is negligent or wrongful and proximately results in injury to a third person, the negligence or wrongful conduct is the negligence or wrongful conduct of the master, for which he is liable. 18 The general rule is that if the master is injured by the negligence of a third person and by the concuring contributory negligence of his own servant or agent, the latter's negligence is imputed to his superior and will defeat the superior's action against the third person, asuming, of course that the contributory negligence was the proximate cause of the injury of which complaint is made.19 Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or damage. AS defined, proximate cause is that which, in the natural and continuous sequence, unbroken by any efficient, intervening cause produces the injury and without the result would not have occurred.20 It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford's negligence, if any, could not be characterized as the proximate cause of the injury to the parties. The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank Check No. SN-04867. Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in theordinary course of business which could have prompted PCIBank to validate the same. As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these checks were made payable to the CIR. Both were crossed checks. These checks were apparently turned around by Ford's emploees, who were acting on their own personal capacity. Given these circumstances, the mere fact that the forgery was committed by a drawerpayor's confidential employee or agent, who by virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged paper upon the bank, does notentitle the bank toshift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.21 This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession. With respect to the negligence of PCIBank in the payment of the three checks involved, separately, the trial courts found variations between the negotiation of Citibank Check No. SN-04867 and the misapplication of total proceeds of Checks SN-10597 and 16508. Therefore, we have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its ultimate agenda of stealing the proceeds of these checks.

Page 1211 of 1485

G.R. Nos. 121413 and 121479 Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the ordinary banking transaction, sent to Central Clearing with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed," and was presented to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its Manager's checks and enabled the syndicate to encash the same. On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank employees to verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack of care and prudence required in the circumstances. Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent. As aptly stated by the trial court, to wit: "xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a depository/collecting bank of BIR, it has the responsibility to make sure that the check in question is deposited in Payee's account only. xxx xxx xxx

As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its principal BIR and not from any other person especially so when that person is not known to the defendant. It is very imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of the one Godofredo Rivera and in his signature considering that the plaintiff is not a client of the defendant IBAA." It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent for collection is, in the absence of an argreement to the contrary, that of principal and agent. 22 A bank which receives such paper for collection is the agent of the payee or holder.23 Even considering arguendo, that the diversion of the amount of a check payable to the collecting bank in behalf of the designated payee may be allowed, still such diversion must be properly authorized by the payor. Otherwise stated, the diversion can be justified only by proof of authority from the drawer, or that the drawer has clothed his agent with apparent authority to receive the proceeds of such check. Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED should render PCIBank liable because it made it pass through the clearing house and therefore Citibank had no other option but to pay it. Thus, Citibank had no other option but to pay it. Thus, Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank. Since the questione dcrossed check was deposited with PCIBank, which claimed to be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check in questions is deposited in Payee's account only.

Page 1212 of 1485

Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed". In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation, 24 we ruled: "Anent petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC's Board of Directors that: 'In presenting the checks for clearing and for payment, the defendant made an express guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks.' No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation." 25 Lastly, banking business requires that the one who first cashes and negotiates the check must take some percautions to learn whether or not it is genuine. And if the one cashing the check through indifference or othe circumstance assists the forger in committing the fraud, he should not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it did not discover the forgery or the defect in the title of the person negotiating the instrument before paying the check. For this reason, a bank which cashes a check drawn upon another bank, without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one who encashed a check which had been forged or diverted and in turn received payment thereon from the drawee, is guilty of negligence which proximately contributed to the success of the fraud practiced on the drawee bank. The latter may recover from the holder the money paid on the check. 26 Having established that the collecting bank's negligence is the proximate cause of the loss, we conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check No. SN-04867. G.R. No. 128604 The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of business that would attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508, because PCIBank did not actually receive nor hold the two Ford checks at all. The trial court held, thus: "Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the process of the embezzlement. This Court is convinced that the switching operation (involving the checks while in transit for "clearing") were the clandestine or hidden actuations performed by the members of the syndicate in

Page 1213 of 1485

their own personl, covert and private capacity and done without the knowledge of the defendant PCIBank"27 In this case, there was no evidence presented confirming the conscious particiapation of PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment.28 A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential element. In this case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had particiapted. The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers SN-10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager of PCIBank's Meralco Branch, who helped Castro open a Checking account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and 16508. The PCIBank Ptro-manager, Castro, and his coconspirator Assistant Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain or benefit. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment; nor will t be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. 29 And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebetedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.30 Moreover, as correctly pointed out by Ford, Section 5 31 of Central Bank Circular No. 580, Series of 1977 provides that any theft affecting items in transit for clearing, shall be for the account of sending bank, which in this case is PCIBank. But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone. The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to establish that its payment of Ford's checjs were made in due course and legally in order. In its defense, Citibank claims the genuineness and due execution of said checks, considering that Citibank (1) has no knowledge of any informity in the issuance of the checks in question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to honor and pay the same. For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof, the CIR. Citing Section 6232 of the Negotiable Instruments Law, Ford argues that by accepting the instrument, the acceptro which is Citibank engages that it will pay according to the tenor of

Page 1214 of 1485

its acceptance, and that it will pay only to the payee, (the CIR), considering the fact that here the check was crossed with annotation "Payees Account Only." As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. On this score, we agree with the respondent court's ruling. Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, consitutes negligence in carrying out the bank's duty to its depositors. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.33 Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR. Time and again, we have stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount umportance such that the appropriate standard of diligence must be very high, if not the highest, degree of diligence.34 A bank's 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.35 Banks handle daily transactions involving millions of pesos. 36 By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. 37 Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.38 On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of its inability to seek judicial relief seasonably, considering that the alleged negligent act took place prior to December 19, 1977 but the relief was sought only in 1983, or seven years thereafter. The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his account, 39 and an action upon a check is ordinarily governed by the statutory period applicable to instruments in writing.40

Page 1215 of 1485

Our laws on the matter provide that the action upon a written contract must be brought within ten year from the time the right of action accrues. 41 hence, the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check was returned by the bank to its depositor (normally a month thereafter). Applying the same rule, the cause of action for the recovery of the proceeds of Citibank Check No. SN 04867 would normally be a month after December 19, 1977, when Citibank paid the face value of the check in the amount of P4,746,114.41. Since the original complaint for the cause of action was filed on January 20, 1984, barely six years had lapsed. Thus, we conclude that Ford's cause of action to recover the amount of Citibank Check No. SN 04867 was seasonably filed within the period provided by law. Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud. Failure on the part of the depositor to examine its passbook, statements of account, and cancelled checks and to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due care and diligence find therein, serves to mitigate the banks' liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of the Philippines, respondibility 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. In quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages that he may recover.42 WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 25017 are AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, id declared solely responsible for the loss of the proceeds of Citibank Check No SN 04867 in the amount P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. from the date when the original complaint was filed until said amount is fully paid. However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed until full payment of said amount.1wphi1.nt Costs against Philippine Commercial International Bank and Citibank N.A. SO ORDERED. Bellosillo, Mendoza, Buena, De Leon, Jr., JJ, concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 125297 June 6, 2003 of the Philippines COURT

ELVIRA YU OH, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

Page 1216 of 1485

AUSTRIA-MARTINEZ, J.: Before this Court is a petition for review on certiorari of the decision1 of the Court of Appeals in CA-G.R. No. CR No. 16390, promulgated on January 30, 1996, affirming the conviction of petitioner Elvira Yu Oh by the Regional Trial Court (RTC), Branch 99, Quezon City and the resolution dated May 30, 1996 which denied her motion for reconsideration. The facts as borne by the records are as follows: Petitioner purchased pieces of jewelry from Solid Gold International Traders, Inc., a company engaged in jewelry trading. Due to her failure to pay the purchase price, Solid Gold filed civil cases2 against her for specific performance before the Regional Trial Court of Pasig. On September 17, 1990, petitioner and Solid Gold, through its general manager Joaquin Novales III, entered into a compromise agreement to settle said civil cases. 3 The compromise agreement, as approved by the trial court, provided that petitioner shall issue a total of ninety-nine post-dated checks in the amount of P50,000.00 each, dated every 15 th and 30th of the month starting October 1, 1990 and the balance of over P1 million to be paid in lump sum on November 16, 1994 which is also the due date of the 99 th and last postdated check. Petitioner issued ten checks at P50,000.00 each, for a total of P500,000.00, drawn against her account at the Equitable Banking Corporation (EBC), Grace Park, Caloocan City Branch. Novales then deposited each of the ten checks on their respective due dates with the Far East Bank and Trust Company (FEBTC). However, said checks were dishonored by EBC for the reason "Account Closed." Dishonor slips were issued for each check that was returned to Novales.4 On October 5, 1992, Novales filed ten separate Informations, docketed as Criminal Cases Nos. 92-26243 to 92-36252 before the RTC of Quezon City charging petitioner with violation of Batas Pambansa Bilang 22, otherwise known as the Bouncing Checks Law. 5 Except for the dates and the check numbers, the Informations uniformly allege: That on or about the in Quezon City, Philippines, the said accused did then and there willfully, unlawfully and feloniously make or draw and issue to JOAQUIN P. LOVALES III to apply on account or for value Equitable Banking Corp. Grace Park Caloocan Branch Check No. dated payable to SOLID GOLD INTERNATIONAL TRADERS, INC. in the amount of P50,000.00, Philippine Currency, said accused well knowing that at the time of issue she/he/they 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 was subsequently dishonored by the drawee bank for insufficiency of funds/Account Closed and despite receipt of notice of such dishonor, said accused failed to pay said SOLID GOLD INTERNATIONAL TRADERS, INC. the amount of said check or to make arrangement for full payment of the same within five (5) banking days after receiving said notice. CONTRARY TO LAW.6 The cases were consolidated and subsequently raffled to Branch 99 of the said RTC. Upon arraignment, accused pleaded not guilty. 7 Trial then ensued. On December 22, 1993, the RTC rendered its decision, the dispositive portion of which reads: WHEREFORE, this Court finds the accused GUILTY of ten counts of violation of BP 22 and hereby sentences her to a penalty of one year imprisonment for each count, or a total of ten years, to be served in accordance with the limitation prescribed in par. 4,

Page 1217 of 1485

Article 70 of the Revised Penal Code and to indemnify complainant the amount of the checks in their totality, or in the amount of P500,000.00. SO ORDERED.8 Petitioner appealed to the Court of Appeals alleging that: the RTC has no jurisdiction over the offense charged in the ten informations; it overlooked the fact that no notice of dishonor had been given to the appellant as drawer of the dishonored checks; it failed to consider that the reason of "closed account" for the dishonor of the ten checks in these cases is not the statutory cause to warrant prosecution, much more a conviction, under B.P. Blg. 22; it failed to consider that there is only one act which caused the offense, if any, and not ten separate cases; and it disregarded the definition of what a 'check' is under Sec. 185 of the Negotiable Instruments Law.9 Finding the appeal to be without merit, the Court of Appeals affirmed the decision of the trial court with costs against appellant. Hence, herein petition raising the following errors: I THAT THE COURT OF APPEALS ERRED IN NOT RESOLVING THE JURISDICTIONAL ISSUE IN FAVOR OF THE ACCUSED-APPELLANT BY UNJUSTLY DEPRIVING HER OF THE LEGAL BENEFITS OF GIVING RETROACTIVE EFFECT TO THE PROVISIONS OF R.A. NO. 7691 EXPANDING THE JURISDICTION OF THE INFERIOR COURTS TO COVER THE OFFENSES INVOLVED IN THESE CASES PURSUANT TO ART. 22 OF THE REVISED PENAL CODE, THUS IN EFFECT RENDERING THE JUDGMENT OF CONVICTION PROMULGATED BY THE TRIAL COURT BELOW AND AFFIRMED BY THE COURT OF APPEALS PATENTLY NULL AND VOID FOR HAVING BEEN RENDERED WITHOUT OR IN EXCESS OF JURISDICTION. II THAT THE COURT OF APPEALS ERRED IN NOT RESOLVING IN FAVOR OF ACCUSEDAPPELLANT THE FACT THAT NO NOTICE OF DISHONOR HAD BEEN GIVEN HER AS DRAWER OF THE DISHONORED "CHECKS" PURSUANT TO THE REQUIREMENT EXPRESSLY PROVIDED UNDER BATAS PAMBANSA BILANG 22. III THAT THE COURT OF APPEALS ERRED IN CONSTRUING THE PROVISIONS OF BATAS PAMBANSA BILANG 22 CONTRARY TO THE WELL-ESTABLISHED RULE OF STATUTORY CONSTRUCTION THAT "PENAL STATUTES, SUBSTANTIVE AND REMEDIAL OR PROCEDURAL, ARE, BY THE CONSECRATED RULE, CONSTRUED STRICTLY AGAINST THE STATE, OR LIBERALLY IN FAVOR OF THE ACCUSED" AND THAT "IT IS ALWAYS THE DUTY OF THE COURT TO RESOLVE THE CIRCUMSTANCES OF EVIDENCE UPON A THEORY OF INNOCENCE RATHER THAN UPON A THEORY OF GUILT WHERE IT IS POSSIBLE TO DO SO", AND IN SO DOING THE DECISION APPEALED FROM INDULGED ITSELF IN "JUDICIAL LEGISLATION" TO FAVOR THE PROSECUTION AND TO WORK GRAVE INJUSTICE TO THE ACCUSED. Simply worded, the issues of this case may be stated as follows: (1) whether or not the appellate court erred in not granting retroactive effect to Republic Act No. 7691 10 in view of

Page 1218 of 1485

Art. 22 of the Revised Penal Code (RPC); (2) whether or not notice of dishonor is dispensable in this case; and (3) whether or not the appellate court erred in construing B.P. Blg. 22. We will resolve the first and third issues before considering the second issue. First issue Whether or not the Court of Appeals erred in not giving retroactive effect to R.A. 7690 in view of Article 22 of the RPC. Petitioner argues that: the failure of the appellate court to give retroactive application to R.A. 7691 is a violation of Art. 22 of the Revised Penal Code which provides that penal laws shall have retroactive effect insofar as they favor the person guilty of the felony; R.A. 7691 is a penal law in the sense that it affects the jurisdiction of the court to take cognizance of criminal cases; taken separately, the offense covered by each of the ten Informations in this case falls within the exclusive original jurisdiction of the Municipal Trial Court under Sec. 2 of R.A. 7691; and the Court of Appeals is guilty of judicial legislation in stating that after the arraignment of petitioner, said cases could no longer be transferred to the MTC without violating the rules on double jeopardy, because that is not so provided in R.A. 7691. 11 The Solicitor General, in its Comment, counters that the arguments of petitioner are baseless contending that: penal laws are those which define crimes and provides for their punishment; laws defining the jurisdiction of courts are substantive in nature and not procedural for they do not refer to the manner of trying cases but to the authority of the courts to hear and decide certain and definite cases in the various instances of which they are susceptible; R.A. No. 7691 is a substantive law and not a penal law as nowhere in its provisions does it define a crime neither does it provide a penalty of any kind; the purpose of enacting R.A. No. 7691 is laid down in the opening sentence thereof as "An Act Expanding the Jurisdiction of the Municipal Trial Courts, Municipal Circuit Trial Courts and the Metropolitan Trial Court" whereby it reapportions the jurisdiction of said courts to cover certain civil and criminal case, erstwhile tried exclusively by the Regional Trial Courts; consequently, Art. 22 of the RPC finds no application to the case at bar; jurisdiction is determined by the law in force at the time of the filing of the complaint, and once acquired, jurisdiction is not affected by subsequent legislative enactments placing jurisdiction in another tribunal; in this case, the RTC was vested with jurisdiction to try petitioner's cases when the same were filed in October 1992; at that time, R.A. No. 7691 was not yet effective;12 in so far as the retroactive effect of R.A. No. 7691 is concerned, that same is limited only to pending civil cases that have not reached pre-trial stage as provided for in Section 7 thereof and as clarified by this Court in People vs. Yolanda Velasco13, where it was held: "[a] perusal of R.A. No. 7691 will show that its retroactive provisions apply only to civil cases that have not yet reached the pre-trial stage. Neither from an express proviso nor by implication can it be understood as having retroactive application to criminal cases pending or decided by the RTC prior to its effectivity." 14 On this point, the Court fully agrees with the Solicitor General and holds that Article 22 of the Revised Penal Code finds no application to the case at bar. Said provision reads: ART. 22. Retroactive effect of penal laws. Penal laws shall have a retroactive effect insofar as they favor the person guilty of a felony, who is not a habitual criminal, as this term is defined in Rule 5 of Article 62 of this Code, although at the time of the publication of such laws a final sentence has been pronounced and the convict is serving sentence.

Page 1219 of 1485

A penal law, as defined by this Court, is an act of the legislature that prohibits certain acts and establishes penalties for its violations. It also defines crime, treats of its nature and provides for its punishment. 15 R.A. No. 7691 does not prohibit certain acts or provides penalties for its violation; neither does it treat of the nature of crimes and its punishment. Consequently, R.A. No. 7691 is not a penal law, and therefore, Art. 22 of the RPC does not apply in the present case. B. P. Blg. 22, which took effect on April 24, 1979, provides the penalty of imprisonment of not less than thirty days but not more than one year or by a fine of not less than but not more then double the amount of the check which fine shall in no case exceed P200,000.00, or both such fine and imprisonment at the discretion of the court. R.A. No. 7691 which took effect on June 15, 1994, amended B.P. Blg. 129, and vested on the Metropolitan, Municipal and Municipal Circuit Trial Courts jurisdiction to try cases punishable by imprisonment of not more than six (6) years.16 Since R.A. No. 7691 vests jurisdiction on courts, it is apparent that said law is substantive.17 In the case of Cang vs. Court of Appeals ,18 this Court held that "jurisdiction being a matter of substantive law, the established rule is that the statute in force at the time of the commencement of the action determines the jurisdiction of the court." 19 R.A. No. 7691 was not yet in force at the time of the commencement of the cases in the trial court. It took effect only during the pendency of the appeal before the Court of Appeals. 20 There is therefore no merit in the claim of petitioner that R.A. No. 7691 should be retroactively applied to this case and the same be remanded to the MTC. The Court has held that a "law vesting additional jurisdiction in the court cannot be given retroactive effect."21 Third issue Whether or not the Court of Appeals erroneously construed B.P. Blg. 22. Petitioner insists that: penal statutes must be strictly construed and where there is any reasonable doubt, it must always be resolved in favor of the accused; 22 the Court of Appeals, in construing that B.P. Blg. 22 embraces cases of "no funds" or "closed accounts" when the express language of B.P. Blg. 22 penalizes only the issuance of checks that are subsequently dishonored by the drawee bank for "insufficiency" of funds or credit, has enlarged by implication the meaning of the statute which amounts to judicial legislation; 23 a postdated check, not being drawn payable on demand, is technically not a special kind of a bill of exchange, called check, but an ordinary bill of exchange payable at a fixed date, which is the date indicated on the face of the postdated check, hence, the instrument is still valid and the obligation covered thereby, but only civilly and not criminally; 24 the trial court also erroneously cited a portion in the case of Lozano vs. Martinez25 that the "language of B.P. Blg. 22 is broad enough to cover all kinds of checks, whether present dated or postdated, or whether issued in payment of pre-existing obligations or given in mutual or simultaneous exchange for something of value," since the same is mere obiter dictum;26 in the interpretation of the meaning of a "check", where the law is clear and unambiguous, the law must be taken as it is, devoid of judicial addition or subtraction. 27 The Solicitor General counters that a postdated check is still a check and its being a postdated instrument does not necessarily make it a bill of exchange "payable at a fixed or determinable future time" since it is still paid on demand on the date indicated therein or thereafter just like an ordinary check. 28 It also points out that the doctrine laid down in Lozano vs. Martinez was reiterated in People vs. Nitafan,29 hence, it can no longer be argued that the statement in the case of Lozano regarding the scope of "checks" is mere obiter dictum.

Page 1220 of 1485

Again, we agree with the Solicitor General and find petitioner's claim to be without merit. The rationale behind B.P. Blg. 22 was initially explained by the Court in the landmark case of Lozano vs. Martinez30 where we held that: The gravamen of the offense punished by B.P. Blg. 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment The thrust of the law is to prohibit, under pain of penal sanctions, the making or worthless checks and putting them in circulation. Because of its deleterious effects on the public interest, the practice is proscribed by law. The law punished the act not as an offense against property, but an offense against public order.31 ... The effects of the issuance of a worthless check transcend the private interests of the parties directly involved in the transaction and touches the interests of the community at large. The mischief it creates is not only a wrong to the payee or holder but also an injury to the public. The harmful practice of putting valueless commercial papers in circulation, multiplied a thousandfold, can very well pollute the channels of trade and commerce, injure the banking system and eventually hurt the welfare of society and the public interest.32 The same is reiterated in Cueme vs. People33 where we pronounced that: . . . B.P. Blg. 22 was purposely enacted to prevent the proliferation of worthless checks in the mainstream of daily business and to avert not only the undermining of the banking system of the country but also the infliction of damage and injury upon trade and commerce occasioned by the indiscriminate issuances of such checks. By its very nature, the offenses defined under B.P. Blg. 22 are against public interest. 34 In Recuerdo vs. People, this Court also held that the terms and conditions surrounding the issuance of the checks are irrelevant since its primordial intention is to ensure the stability and commercial value of checks as being virtual substitutes for currency. 35 Petitioner's claim that cases of "closed accounts" are not included in the coverage of B.P. Blg. 22 has no merit considering the clear intent of the law, which is to discourage the issuance of worthless checks due to its harmful effect to the public. This Court, in Lozano vs. Martinez, was explicit in ruling that the language of B.P. Blg. 22 is broad enough to cover all kinds of checks, whether present dated or postdated, or whether issued in payment of preexisting obligations or given in mutual or simultaneous exchange for something of value. 36 In People vs. Nitafan,37 the Supreme Court reiterated this point and held that: B.P. Blg. 22 does not distinguish but merely provides that "[any person who makes or draws and issues any check knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank which check is subsequently dishonored shall be punished by imprisonment Ubi lex non distinguit nec nos distinguere debemus. But even if We retrace the enactment of the "Bouncing Check Law" to determine the parameters of the concept of "check", we can easily glean that the members of the

Page 1221 of 1485

then Batasang Pambansa intended it to be comprehensive as to include all checks drawn against banks.38 In this light, it is easy to see that the claim of petitioner that B.P. Blg. 22 does not include 'postdated checks' and cases of 'closed accounts' has no leg to stand on. The term "closed accounts" is within the meaning of the phrase "does not have sufficient funds in or credit with the drawee bank". Anent the second issue: whether or not notice of dishonor is dispensable in the case at bar. Petitioner failed to show any cogent reason for us to disturb the findings of the RTC and the Court of Appeals. B.P. Blg. 22 or the Bouncing Check's Law seeks to prevent the act of making and issuing checks with the knowledge that at the time of issue, the drawer does not have sufficient funds in or credit with the bank for payment and the checks were subsequently dishonored upon presentment.39 To be convicted thereunder, the following elements must be proved: 1. The accused makes, draws or issues any check to apply to account or for value; 2. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, the drawee bank for the payment of the check in full upon its presentment; and 3. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. 40 For liability to attach under B.P. Blg. 22, it is not enough that the prosecution establishes that checks were issued and that the same were subsequently dishonored. The prosecution must also prove that the issuer, at the time of the check's issuance, had knowledge that he did not have enough funds or credit in the bank of payment thereof upon its presentment. 41 Since the second element involves a state of mind which is difficult to establish, Section 2 of B.P. Blg. 22 created a prima facie presumption of such knowledge, as follows: SEC. 2. Evidence of knowledge of insufficient funds . The making, drawing and issuance of a check payment of which is refused by the drawee 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. Based on this section, the presumption that the issuer had knowledge of the insufficiency of funds is brought into existence only after it is proved that the issuer had received a notice of dishonor and that within five days from receipt thereof, he failed to pay the amount of the check or to make arrangement for its payment. 42 The presumption or prima facie evidence as provided in this section cannot arise, if such notice of non-payment by the drawee bank is not sent to the maker or drawer, or if there is no proof as to when such notice was received by the drawer, since there would simply be no way of reckoning the crucial 5-day period. 43

Page 1222 of 1485

In this case, it is not disputed that checks were issued by petitioner and said checks were subsequently dishonored. The question however is, was petitioner furnished a notice of dishonor? If not, is it sufficient justification to exonerate petitioner from her criminal and civil liabilities for issuing the bouncing checks? The trial court ruled that the second element is present because: the accused knew at the time of issuance of the checks that she did not have sufficient funds in or credit with her drawee bank for the payment of the checks in full upon their presentment [as admitted by her in the Counter-Affidavit she executed during the preliminary investigation of these criminal cases (itals. ours), to wit: 4. That the time of the issuance of the said checks, due notice and information had been so given to Solid Gold anent the actual status of the checks that the same might not be able to cover the amount of the said checks so stated therein (Exhibit "N", "1", underscoring supplied). This fact became evident again during the cross-examination by the accused's counsel of the prosecution's witness, Joaquin Novales III: ATTY. TAGANAS: Q: And the reason you agreed to the terms and conditions for the issuance of postdated checks because you are also aware the particular time the accused Mrs. Elvira Yu Oh did not also have enough funds or money in the bank within which to cover the amount of the checks? A: I am not aware, sir. ... Q: To your knowledge when the accused had already admitted to you that she had not enough money to pay you? A: That is the terms and promise and agreed upon, sir. Q: But inspite of the fact that she already told you about that, that you never suspected that she did not have enough money to cover the checks agreed upon and issued to you? A: Yes, sir. Q: And inspite of the fact she told you you never suspected that she did not have enough money to cover you . . . Q: You still believe that although she does not have enough money she still issued checks to you? A: Yes, sir. (TSN, April 6, 1993, pp. 24-26)

Page 1223 of 1485

At any rate, there is already prima facie evidence of knowledge of insufficiency of funds on the part of the accused from her failure to pay the amount due on the checks or to make arrangements for payment in full by the drawee bank within five banking days after she received notice of their dishonor, each of the checks having been presented within ninety days from their respective dated (B.P. Blg. 22, Sec. 2). The defense did not controvert this evidence. (itals. ours) 44 Although the trial court in its decision, mentioned that herein petitioner received notices of dishonor, nowhere in the records is there proof that the prosecution ever presented evidence that petitioner received or was furnished a notice of dishonor. The notices of dishonor that were presented in court and marked as Exhibits "D-2", "E-2", "F-2", "G-2", "H2", "I-2", "J-2", "K-2", "L-2", "C-2" 45 were all sent to the private complainant, Solid Gold, and not to petitioner. In convicting petitioner, the trial court, gave probative weight on the admission of petitioner in her Counter-Affidavit which she submitted during the preliminary investigation that at the time of issuance of the subject checks, she was aware and even told private complainant that the checks might not be able to cover the amount stated therein. The Court of Appeals sustained the RTC, to wit: . . . Neither can We agree that accused-appellant was still entitled to notice of dishonor of the bouncing checks as she had no more checking account with the drawee bank at the time of the dishonor of the ten checks in question. Accusedappellant must have realized that by closing her checking account after issuing the ten postdated checks, all of said checks would bounce. Knowing that she had already closed her checking account with the drawee bank, certainly accused-appellant would not have expected, even in her wildest imagination, that her postdated checks would be honored by the drawee bank. Thus, accused-appellant need not be notified anymore of the obvious dishonor of her rubber checks. (itals. ours) 46 Based on the law and existing jurisprudence, we find that the appellate court erred in convicting petitioner. In cases for violation of B.P. Blg. 22, it is necessary that the prosecution prove that the issuer had received a notice of dishonor. Since service of notice is an issue, the person alleging that the notice was served must prove the fact of service. Basic also is the doctrine that in criminal cases, the quantum of proof required is proof beyond reasonable doubt. Hence, for cases of B.P. Blg. 22 there should be clear proof of notice. 47 Indeed, this requirement cannot be taken lightly because Section 2 provides for an opportunity for the drawer to effect full payment of the amount appearing on the check, within five banking days from notice of dishonor. The absence of said notice therefore deprives an accused of an opportunity to preclude criminal prosecution. In other words, procedural due process demands that a notice of dishonor be actually served on petitioner. In the case at bar, appellant has a right to demand and the basic postulate of fairness requires that the notice of dishonor be actually sent to and received by her to afford her to opportunity to aver prosecution under B.P. Blg. 22.48 The Solicitor General contends that notice of dishonor is dispensable in this case considering that the cause of the dishonor of the checks was "Account Closed" and therefore, petitioner already knew that the checks will bounce anyway. This argument has no merit. The Court has decided numerous cases where checks were dishonored for the reason, "Account Closed"49 and we have explicitly held in said cases that "it is essential for the maker or

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drawer to be notified of the dishonor of her check, so she could pay the value thereof or make arrangements for its payment within the period prescribed by law" 50 and omission or neglect on the part of the prosecution to prove that the accused received such notice of dishonor is fatal to its cause.51 A perusal of the testimony of the prosecution witness Joaquin Novales III, General Manager of complainant Solid Gold, discloses that no personal demands were made on appellant before the filing of the complaints against her. 52 Thus, absent a clear showing that petitioner actually knew of the dishonor of her checks and was given the opportunity to make arrangements for payment as provided for under the law, we cannot with moral certainty convict her of violation of B.P. Blg. 22. The failure of the prosecution to prove that petitioner was given the requisite notice of dishonor is a clear ground for her acquittal. 53 Moreover, as understood by the trial court itself in the herein aforequoted portion of its decision, General Manager Novales knew of the non-availability of sufficient funds when appellant issued the subject checks to him. This Court has held that there is no violation of B.P. 22 if complainant was told by the drawer that he has no sufficient funds in the bank. 54 For these reasons, we reverse the ruling of the Court of Appeals affirming the trial court's conviction of petitioner for violation of B.P. Blg. 22. This is without prejudice, however, to her civil liability towards private complainant Solid Gold in the amount of P500,000.00 plus interest thereon at the rate of 12% per annum from date of finality of herein judgment. 55 WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. Petitioner Elvira Yu Oh is ACQUITTED of the offense of violation of B.P. Blg. 22 on ten counts for insufficiency of evidence. However, she is ordered to pay complainant Solid Gold International Traders, Inc. the total amount of Five Hundred Thousand Pesos (P500,000.00) with 12% interest per annum from date of finality of herein judgment. SO ORDERED. Bellosillo, Quisumbing, and Callejo, Sr., JJ., concur. Republic SUPREME Manila SECOND DIVISION G.R. No. 159590 October 18, 2004 CORPORATION LIMITED, petitioner, of the Philippines COURT

HONGKONG AND SHANGHAI BANKING vs. CECILIA DIEZ CATALAN, respondent. x----------------------------x G.R. No. 159591 October 18, 2004

Page 1225 of 1485

HSBC INTERNATIONAL TRUSTEE vs. CECILIA DIEZ CATALAN, respondent. DECISION AUSTRIA-MARTINEZ, J.: Before us are two petitions for review on certiorari under Rule 45 of the Rules of Court separately filed by the Hongkong and Shanghai Banking Corporation Limited (HSBANK) and HSBC International Trustee Limited (HSBC TRUSTEE). They seek the reversal of the consolidated Decision,1 dated August 14, 2003, of the Court of Appeals (CA) in CA-G.R. SP Nos. 75756 and 75757, which dismissed the petitions for certiorari of herein petitioners assailing the Order, dated May 15, 2002, of the Regional Trial Court, Branch 44, Bacolod City (RTC) in Civil Case No. 01-11372 that denied their respective motions to dismiss the amended complaint of respondent Cecilia Diez Catalan. The factual antecedents are as follows: On January 29, 2001, respondent filed before the RTC, a complaint for a sum of money with damages against petitioner HSBANK, docketed as Civil Case No. 0111372, due to HSBANKs alleged wanton refusal to pay her the value of five HSBANK checks issued by Frederick Arthur Thomson (Thomson) amounting to HK$3,200,000.00.2 On February 7, 2001, summons was served on HSBANK at the Enterprise Center, Tower I, Ayala Avenue corner Paseo de Roxas St., Makati City. 3 HSBANK filed a Motion for Extension of Time to File Answer or Motion to Dismiss dated February 21, 2001. 4 Then, it filed a Motion to Dismiss, dated March 8, 2001, on the grounds that (a) the RTC has no jurisdiction over the subject matter of the complaint; (b) the RTC has not acquired jurisdiction for failure of the plaintiff to pay the correct filing or docket fees; (c) the RTC has no jurisdiction over the person of HSBANK; (d) the complaint does not state a cause of action against HSBANK; and (e) plaintiff engages in forum-shopping.5 On September 10, 2001, Catalan filed an Amended Complaint impleading petitioner HSBC TRUSTEE as co-defendant and invoking Article 19 of the Civil Code as basis for her cause of action.6 The Amended Complaint alleges: Defendants HSBANK and HSBC TRUSTEE, doing business in the Philippines, are corporations duly organized under the laws of the British Virgin Islands with head office at 1 Grenville Street, St. Helier Jersey, Channel Islands and with branch offices at Level 12, 1 Queens Road Central, Hongkong and may be served with summons and other court processes through their main office in Manila with address at HSBC, the Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas Street, Makati City. Sometime in March 1997, Thomson issued five HSBANK checks payable to Catalan, to wit: CHECK NO. DATE AMOUNT LIMITED, petitioner,

Page 1226 of 1485

807852 807853 807854 807855 807856 TOTAL

Mar. 1997 Mar. 1997 Mar. 1997 Mar. 1997 Mar. 1997

15, 17, 17, 22, 23,

$600,000.00 800,000.00 600,000.00 600,000.00 600,000.00 $3,200,000.0 0

The checks when deposited were returned by HSBANK purportedly for reason of "payment stopped" pending confirmation, despite the fact that the checks were duly funded. On March 18, 1997, Thomson wrote a letter to a certain Ricky Sousa 7 of HSBANK confirming the checks he issued to Catalan and requesting that all his checks be cleared. On March 20, 1997, Thomson wrote another letter to Sousa of HSBANK requesting an advice in writing to be sent to the Philippine National Bank, through the fastest means, that the checks he previously issued to Catalan were already cleared. Thereafter, Catalan demanded that HSBANK make good the checks issued by Thomson. On May 16, 1997, Marilou A. Lozada, personal secretary and attorney-in-fact of Thomson, wrote a letter to Sousa of HSBANK informing him that HSBANKs failure to clear all the checks had saddened Thomson and requesting that the clearing of the checks be facilitated. Subsequently, Thomson died and Catalan forwarded her demand to HSBC TRUSTEE. Catalan sent photocopies of the returned checks to HSBC TRUSTEE. Not satisfied, HSBC TRUSTEE through deceit and trickery, required Catalan, as a condition for the acceptance of the checks, to submit the original copies of the returned checks, purportedly, to hasten payment of her claim. HSBC TRUSTEE succeeded in its calculated deception because on April 21, 1999, Catalan and her former counsel went to Hongkong at their own expense to personally deliver the originals of the returned checks to the officers of HSBC TRUSTEE, anxious of receiving the money value of the checks but HSBC TRUSTEE despite receipt of the original checks, refused to pay Catalans claim. Having seen and received the original of the checks, upon its request, HSBC TRUSTEE is deemed to have impliedly accepted the checks. Moreover, the refusal of HSBANK and HSBC TRUSTEE to pay the checks is equivalent to illegal freezing of ones deposit. On the assurance of HSBC TRUSTEE that her claim will soon be paid, as she was made to believe that payments of the checks shall be made by HSBC TRUSTEE "upon sight," the unsuspecting Catalan left the originals of the checks with HSBC TRUSTEE and was given only an acknowledgment receipt. Catalan made several demands and after several more follow ups, on August 16, 1999, Phoenix Lam, Senior Vice President of HSBC TRUSTEE, in obvious disregard of her valid claim, informed Catalan that her claim is disapproved. No reason or explanation whatsoever was made why her claim was disapproved, neither were the checks returned to her. Catalan appealed for fairness and understanding, in the hope that HSBC TRUSTEE would act fairly and justly on her claim but these demands were met by a stonewall of silence. On June 9, 2000, Catalan through counsel sent a last and final demand to HSBC TRUSTEE to remit the amount covered by the checks but despite receipt of said letter, no payment was made. Clearly, the act of the HSBANK and HSBC TRUSTEE in refusing to honor and pay the checks validly issued by Thomson violates the abuse of rights principle under Article 19 of the Civil Code which requires that everyone must act with justice, give everyone his due and observe honesty and good faith. The refusal of HSBANK and HSBC TRUSTEE to pay the checks

Page 1227 of 1485

without any valid reason is intended solely to prejudice and injure Catalan. When they declined payment of the checks despite instructions of the drawer, Thomson, to honor them, coupled with the fact that the checks were duly funded, they acted in bad faith, thus causing damage to Catalan. A person may not exercise his right unjustly or in a manner that is not in keeping with honesty or good faith, otherwise he opens himself to liability for abuse of right.8 Catalan prays that HSBANK and HSBC TRUSTEE be ordered to pay P20,864,000.00 representing the value of the five checks at the rate of P6.52 per HK$1 as of January 29, 2001 for the acts of HSBANK and HSBC TRUSTEE in refusing to pay the amount justly due her, in addition to moral and exemplary damages, attorneys fees and litigation expenses. 9 On October 2, 2001, HSBANK filed a Motion to Dismiss Amended Complaint on the grounds that: (a) the RTC has no jurisdiction over the subject matter of the complaint since the action is a money claim for a debt contracted by Thomson before his death which should have been filed in the estate or intestate proceedings of Thomson; (b) Catalan engages in forum shopping by filing the suit and at the same time filing a claim in the probate proceeding filed with another branch of the RTC; (c) the amended complaint states no cause of action against HSBANK since it has no obligation to pay the checks as it has not accepted the checks and Catalan did not re-deposit the checks or make a formal protest; (d) the RTC has not acquired jurisdiction over the person of HSBANK for improper service of summons; and, (e) it did not submit to the jurisdiction of the RTC by filing a motion for extension of time to file a motion to dismiss.10 Meanwhile, on October 17, 2001, summons for HSBC TRUSTEE was tendered to the In House Counsel of HSBANK (Makati Branch) at the Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas, Makati. Without submitting itself to the jurisdiction of the RTC, HSBC TRUSTEE filed a Special Appearance for Motion to Dismiss Amended Complaint, dated October 29, 2001, questioning the jurisdiction of the RTC over it. 11 HSBC TRUSTEE alleges that tender of summons through HSBANK Makati did not confer upon the RTC jurisdiction over it because: (a) it is a corporation separate and distinct from HSBANK; (b) it does not hold office at the HSBANK Makati or in any other place in the Philippines; (c) it has not authorized HSBANK Makati to receive summons for it; and, (d) it has no resident agent upon whom summons may be served because it does not transact business in the Philippines. Subsequently, HSBC TRUSTEE filed a Submission, dated November 15, 2001, attaching the Affidavit executed in Hongkong by Phoenix Lam, Senior Vice-President of HSBC TRUSTEE, attesting to the fact that: 1) HSBC TRUSTEE has not done nor is it doing business in the Philippines; 2) it does not maintain any office in Makati or anywhere in the Philippines; 3) it has not appointed any agent in Philippines; and 4) HSBANK Makati has no authority to receive any summons or court processes for HSBC TRUSTEE. 12 On May 15, 2002, the RTC issued an Order denying the two motions to dismiss. 13 The RTC held that it has jurisdiction over the subject matter of the action because it is an action for damages under Article 19 of the Civil Code for the acts of unjustly refusing to honor the checks issued by Thomson and not a money claim against the estate of Thomson; that Catalan did not engage in forum-shopping because the elements thereof are not attendant in the case; that the question of cause of action should be threshed out or ventilated during the proceedings in the main action and after the plaintiff and defendants have adduced evidence in their favor; that it acquired jurisdiction over the person of defendants because the question of whether a foreign corporation is doing business or not in the Philippines cannot be a subject of a Motion to Dismiss but should be ventilated in the trial on the merits; and defendants voluntarily submitted to the jurisdiction of the RTC setting up in their Motions to Dismiss other grounds aside from lack of jurisdiction.

Page 1228 of 1485

HSBANK and HSBC TRUSTEE filed separate motions for reconsideration 14 but both proved futile as they were denied by the RTC in an Order dated December 20, 2002. 15 On February 21, 2003, Catalan moved to declare HSBANK and HSBC TRUSTEE in default for failure to file their answer to the amended complaint. On March 5, 2003, HSBANK and HSBC TRUSTEE filed separate petitions for certiorari and/or prohibition with the CA, docketed as CA-G.R. SP Nos. 75756 16 and 75757,17 respectively. Subsequently, HSBANK and HSBC TRUSTEE filed before the RTC separate Answers ad cautelam, both dated March 18, 2003, as a "precaution against being declared in default and without prejudice to the separate petitions for certiorari and/or prohibition then pending with the CA."18 Meanwhile, the two petitions for certiorari before the CA were consolidated and after responsive pleadings were filed, the cases were deemed submitted for decision. In a consolidated Decision dated August 14, 2003, the CA dismissed the two petitions for certiorari.19 The CA held that the filing of petitioners answers before the RTC rendered moot and academic the issue of the RTCs lack of jurisdiction over the person of the petitioners; that the RTC has jurisdiction over the subject matter since it is one for damages under Article 19 of the Civil Code for the alleged unjust acts of petitioners and not a money claim against the estate of Thomson; and, that the amended complaint states a cause of action under Article 19 of the Civil Code which could merit a favorable judgment if found to be true. The CA noted that Catalan may have prayed for payment of the value of the checks but ratiocinated that she merely used the value as basis for the computation of the damages. Hence, the present petitions. In G.R. No. 159590, HSBANK submits the following assigned errors: I. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE COURT A QUO, ACTING AS AN (SIC) REGULAR COURT, HAS JURISDICTION OVER THE AMENDED COMPLAINT SEEKING TO ORDER HSBC TRUSTEE, THE EXECUTOR OF THE DECEASED FREDERICK ARTHUR THOMSON, TO PAY SUBJECT CHECKS ISSUED BY THE LATE FREDERICK ARTHUR THOMSON, ADMITTEDLY IN PAYMENT OF HIS INDEBTEDNESS TO CATALAN. II. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE AMENDED COMPLAINT DOES NOT SEEK TO ORDER HSBANK AND HSBC INTERNATIONAL TRUSTEE LIMITED TO PAY THE OBLIGATION OF THE (SIC) FREDERICK ARTHUR THOMSON AS EVIDENCED BY THE CHECKS, BUT PRAYS FOR DAMAGES EQUIVALENT OR COMPUTED ON THE BASIS OF THE VALUE OF THE CHECKS BECAUSE THE DEFENDANTS FAILED TO COMPLY WITH THE MANDATES OF ARTICLE 19 OF THE NEW CIVIL CODE. III.

Page 1229 of 1485

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT ALLEGATIONS IN THE AMENDED COMPLAINT MAKE OUT A CAUSE OF ACTION WHICH COULD MERIT A FAVORABLE JUDGMENT IF FOUND TO BE TRUE, OR IN NOT HOLDING THAT THE AMENDED COMPLAINT STATES NO CAUSE OF ACTION AGAINST HSBANK, AS DRAWEE BANK. IV. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DISREGARDING THE FACT THAT CATALAN ENGAGED IN FORUM SHOPPING BY FILING THE AMENDED COMPLAINT WHILE HER PETITION FOR THE PROBATE OF THE SUPPOSED WILL OF THE DECEASED FREDERICK ARTHUR THOMSON IS PENDING WITH ANOTHER BRANCH OF THE COURT A QUO. V. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT HSBANK HAD SUBMITTED TO THE JURISDICTION OF THE COURT A QUO BY SUBMITTING AN ANSWER TO THE AMENDED COMPLAINT.20 In G.R. No. 159591, HSBC TRUSTEE also assigns the foregoing first, second and fifth errors as its own.21 In addition, it claims that: THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT ORDERING THE DISMISSAL OF THE AMENDED COMPLAINT AGAINST HSBC TRUSTEE DESPITE THE FACT IT HAS NOT BEEN DULY SERVED WITH SUMMONS. 22 HSBANK and HSBC TRUSTEE contend in common that Catalan has no cause of action for abuse of rights under Article 19 of the Civil Code; that her complaint, under the guise of a claim for damages, is actually a money claim against the estate of Thomson arising from checks issued by the latter in her favor in payment of indebtedness. HSBANK claims that the money claim should be dismissed on the ground of forum-shopping since Catalan also filed a petition for probate of the alleged last will of Thomson before RTC, Branch 48, Bacolod City, docketed as Spec. Proc No. 00-892. In addition, HSBANK imputes error upon the CA in holding that by filing an answer to the amended complaint, petitioners are estopped from questioning the jurisdiction of the RTC. HSBC TRUSTEE maintains that the RTC did not acquire jurisdiction over it for improper service of summons. In her Comment, Catalan insists that her complaint is one for damages under Article 19 of the Civil Code for the wanton refusal to honor and pay the value of five checks issued by the Thomson amounting to HK$3,200,000.00. She argues that the issue of jurisdiction has been rendered moot by petitioners participation in the proceedings before the RTC. Succinctly, the issues boil down to the following: 1) Does the complaint state a cause of action?

Page 1230 of 1485

2) Did Catalan engage in forum-shopping by filing the complaint for damages when she also filed a petition for probate of the alleged last will of Thomson with another branch of the RTC? and, 3) Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE? Corollary thereto, did the filing of the answer before the RTC render the issue of lack of jurisdiction moot and academic? We shall resolve the issue in seriatim. Does the complaint state a cause of action against HSBANK and HSBC TRUSTEE? The elementary test for failure to state a cause of action is whether the complaint alleges facts which if true would justify the relief demanded. Stated otherwise, may the court render a valid judgment upon the facts alleged therein? 23 The inquiry is into the sufficiency, not the veracity of the material allegations. 24 If the allegations in the complaint furnish sufficient basis on which it can be maintained, it should not be dismissed regardless of the defense that may be presented by the defendants.25 Catalan anchors her complaint for damages on Article 19 of the Civil Code. It speaks of the fundamental principle of law and human conduct that a person "must, in the exercise of his rights and in the performance of his duties, act with justice, give every one his due, and observe honesty and good faith." It sets the standards which may be observed not only in the exercise of ones rights but also in the performance of ones duties. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible.26 But a right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. A person should be protected only when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in good faith; but not when he acts with negligence or abuse. 27 There is an abuse of right when it is exercised for the only purpose of prejudicing or injuring another. The exercise of a right must be in accordance with the purpose for which it was established, and must not be excessive or unduly harsh; there must be no intention to injure another. 28 Thus, in order to be liable under the abuse of rights principle, three elements must concur, to wit: (a) that there is a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.29 In this instance, after carefully examining the amended complaint, we are convinced that the allegations therein are in the nature of an action based on tort under Article 19 of the Civil Code. It is evident that Catalan is suing HSBANK and HSBC TRUSTEE for unjustified and willful refusal to pay the value of the checks. HSBANK is being sued for unwarranted failure to pay the checks notwithstanding the repeated assurance of the drawer Thomson as to the authenticity of the checks and frequent directives to pay the value thereof to Catalan. Her allegations in the complaint that the gross inaction of HSBANK on Thomsons instructions, as well as its evident failure to inform Catalan of the reason for its continued inaction and non-payment of the checks, smack of insouciance on its part, are sufficient statements of clear abuse of right for which it may be held liable to Catalan for any damages she incurred resulting therefrom. HSBANKs actions, or lack thereof, prevented Catalan from seeking further redress with Thomson for the recovery of her claim while the latter was alive.

Page 1231 of 1485

HSBANK claims that Catalan has no cause of action because under Section 189 of the Negotiable Instruments Law, "a check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies it." However, HSBANK is not being sued on the value of the check itself but for how it acted in relation to Catalans claim for payment despite the repeated directives of the drawer Thomson to recognize the check the latter issued. Catalan may have prayed that she be paid the value of the checks but it is axiomatic that what determines the nature of an action, as well as which court has jurisdiction over it, are the allegations of the complaint, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein.30 Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalans claim. When Catalan parted with the checks as a requirement for the processing of her claim, even going to the extent of traveling to Hongkong to deliver personally the checks, HSBC TRUSTEE summarily disapproved her claim with nary a reason. HSBC TRUSTEE gave no heed to Catalans incessant appeals for an explanation. Her pleas fell on deaf and uncaring corporate ears. Clearly, HSBC TRUSTEEs acts are anathema to the prescription for human conduct enshrined in Article 19 of the Civil Code. Did Catalan engage in forum-shopping? It has been held that forum-shopping exists where a litigant sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendentia in one case is a bar to the others; and, a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest.31 Thus, there is forum-shopping when there exist: a) identity of parties, or at least such parties as represent the same interests in both actions, b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and c) the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party is successful would amount to res judicata in the other. 32 Applying the foregoing requisites to the case before us in relation to Spec. Proc No. 00-892, the probate proceeding brought by Catalan before RTC, Branch 48, Bacolod City, it is obvious that forum-shopping does not exist. There is no identity of parties. HSBANK is not a party in the probate proceeding. HSBC TRUSTEE is only a party in the probate proceeding because it is the executor and trustee named in the Hongkong will of Thomson. HSBC TRUSTEE is representing the interest of the estate of Thomson and not its own corporate interest. With respect to the second and third requisites, a scrutiny of the entirety of the allegations of the amended complaint in this case reveals that the rights asserted and reliefs prayed for therein are different from those pleaded in the probate proceeding, such that a judgment in one case would not bar the prosecution of the other case. Verily, there can be no forumshopping where in one proceeding a party raises a claim for damages based on tort and, in another proceeding a party seeks the allowance of an alleged last will based on ones claim as an heir. After all, the merits of the action for damages is not to be determined in the probate proceeding and vice versa. Undeniably, the facts or evidence as would support and establish the two causes of action are not the same. 33 Consequently, HSBANKs reliance on the principle of forum-shopping is clearly misplaced.

Page 1232 of 1485

Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE? The Rules of Court provides that a court generally acquires jurisdiction over a person through either a valid service of summons in the manner required by law or the persons voluntary appearance in court.34 In holding that it acquired jurisdiction over HSBANK and HSBC TRUSTEE, the RTC held that both voluntarily submitted to the jurisdiction of the court by setting up in their Motions to Dismiss other grounds aside from lack of jurisdiction. On the other hand, the CA ruled that HSBANK and HSBC TRUSTEE are estopped from challenging the jurisdiction of the RTC because they filed their respective answers before the RTC. We find that both lower courts overlooked Section 20 of Rule 14 of the 1997 Rules of Civil Procedure which provides that "the inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance." Nonetheless, such omission does not aid HSBANKs case. It must be noted that HSBANK initially filed a Motion for Extension of Time to File Answer or Motion to Dismiss.35 HSBANK already invoked the RTCs jurisdiction over it by praying that its motion for extension of time to file answer or a motion to dismiss be granted. The Court has held that the filing of motions seeking affirmative relief, such as, to admit answer, for additional time to file answer, for reconsideration of a default judgment, and to lift order of default with motion for reconsideration, are considered voluntary submission to the jurisdiction of the court.36 Consequently, HSBANKs expressed reservation in its Answer ad cautelam that it filed the same "as a mere precaution against being declared in default, and without prejudice to the Petition for Certiorari and/or Prohibition xxx now pending before the Court of Appeals"37 to assail the jurisdiction of the RTC over it is of no moment. Having earlier invoked the jurisdiction of the RTC to secure affirmative relief in its motion for additional time to file answer or motion to dismiss, HSBANK, effectively submitted voluntarily to the jurisdiction of the RTC and is thereby estopped from asserting otherwise, even before this Court. In contrast, the filing by HSBC TRUSTEE of a motion to dismiss cannot be considered a voluntary submission to the jurisdiction of the RTC. It was a conditional appearance, entered precisely to question the regularity of the service of summons. It is settled that a party who makes a special appearance in court challenging the jurisdiction of said court, e.g., invalidity of the service of summons, cannot be considered to have submitted himself to the jurisdiction of the court. 38 HSBC TRUSTEE has been consistent in all its pleadings in assailing the service of summons and the jurisdiction of the RTC over it. Thus, HSBC TRUSTEE cannot be declared in estoppel when it filed an Answer ad cautelam before the RTC while its petition for certiorari was pending before the CA. Such answer did not render the petition for certiorari before the CA moot and academic. The Answer of HSBC TRUSTEE was only filed to prevent any declaration that it had by its inaction waived the right to file responsive pleadings. Admittedly, HSBC TRUSTEE is a foreign corporation, organized and existing under the laws of the British Virgin Islands. For proper service of summons on foreign corporations, Section 12 of Rule 14 of the Revised Rules of Court provides: SEC. 12. Service upon foreign private juridical entity. When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for

Page 1233 of 1485

that purpose, or if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. In French Oil Mill Machinery Co., Inc. vs. Court of Appeals, 39 we had occasion to rule that it is not enough to merely allege in the complaint that a defendant foreign corporation is doing business. For purposes of the rule on summons, the fact of doing business must first be "established by appropriate allegations in the complaint" and the court in determining such fact need not go beyond the allegations therein.40 The allegations in the amended complaint subject of the present cases did not sufficiently show the fact of HSBC TRUSTEEs doing business in the Philippines. It does not appear at all that HSBC TRUSTEE had performed any act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. Absent from the amended complaint is an allegation that HSBC TRUSTEE had performed any act in the country that would place it within the sphere of the courts jurisdiction. We have held that a general allegation, standing alone, that a party is doing business in the Philippines does not make it so; a conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness.41 Besides, there is no allegation in the amended complaint that HSBANK is the domestic agent of HSBC TRUSTEE to warrant service of summons upon it. Thus, the summons tendered to the In House Counsel of HSBANK (Makati Branch) for HSBC TRUSTEE was clearly improper. There being no proper service of summons, the RTC cannot take cognizance of the case against HSBC TRUSTEE for lack of jurisdiction over it. Any proceeding undertaken by the RTC is therefore null and void. 42 Accordingly, the complaint against HSBC TRUSTEE should have been dismissed for lack of jurisdiction over it. WHEREFORE, the petition in G.R. No. 159590 is DENIED. The Decision of the Court of Appeals, dated August 14, 2003, in CA-G.R. SP No. 75757 dismissing the petition for certiorari of the Hongkong and Shanghai Banking Corporation Limited is AFFIRMED. The petition in G.R. No. 159591 is GRANTED. The Decision of the Court of Appeals, dated August 14, 2003, in CA-G.R. SP No. 75756 dismissing the petition for certiorari of the HSBC International Trustee Limited is REVERSED and SET ASIDE. The Regional Trial Court, Branch 44, Bacolod City is declared without jurisdiction to take cognizance of Civil Case No. 01-11372 against the HSBC International Trustee Limited, and all its orders and issuances with respect to the latter are hereby ANNULLED and SET ASIDE. The said Regional Trial Court is hereby ORDERED to DESIST from maintaining further proceedings against the HSBC International Trustee Limited in the case aforestated. SO ORDERED. Puno, Callejo, Sr., Tinga, and Chico-Nazario*, JJ., concur. THIRD DIVISION

Page 1234 of 1485

LUZON DEVELOPMENT BANK,

G.R. No. 163338 Petitioner, Present:

Panganiban, J., - versus Chairman Sandoval-Gutierrez, Corona, Carpio Morales, and BENEDICTO C. CONQUILLA, CORNELIA C. CONQUILLA DOROTEA C. ORCINE and FELICIANO S. CONQUILLA, Respondents. September 21, 2005 Promulgated: Garcia, JJ

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

Page 1235 of 1485

n the present case, the Court stresses that the use of facts admitted in the Complaint will not subject the judgment based thereon to a claim of nullity grounded on lack of due process. Clearly, the facts alleged in the Complaint bound the plaintiff. Thus, the trial court correctly I used the allegations or admissions therein as basis to grant the Motion to Dismiss, in

the same manner that it could have done so on a motion to render judgment on the pleadings.

The Case

Before us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, assailing the December 16, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 71589 and its April 14, 2004 Resolution[3] denying petitioners Motion for Reconsideration. The challenged Decision disposed thus:

IN VIEW OF THE FOREGOING, the order appealed from is SET ASIDE and the case REMANDED for further proceedings.[4]

The Facts

Page 1236 of 1485

According to the CA, the facts are as follows:

x x x. Feliciano Conquilla was the president of an educational institution located at Noveleta Cavite and known as Columbia College. He was joined by his children Benedicto, Cornelio and Dorotea in mortgaging the three properties on which the school sat and titled in their names as TCT No. T-593582 to 84 to secure a loan from the Luzon Development Bank. The transaction underwent a series of amendments. Initially, on March 7, 1996, they borrowed P4,720,000, which was increased to P7,220,000 on April 2 by way of a Promissory Note and Amendment Of Real Estate Mortgage. The Promissory Note appears to have been signed by the four in their personal capacities, but Felicianos name in the Amendment of Real Estate Mortgage was preceded by the telling phrase Columbia College By. An amount of P2,500,000 was specifically earmarked for building construction. On May 2, they acknowledged a loan of P10,000,000 in a promissory note signed by them again without any qualification, and raising the amount for building construction to P2,780,000.

After some months, Feliciano Conquilla applied for a restructuring of the loan. He wrote the bank that they had sought extra funding to finish the school building, and with the increased enrollment that would follow on the heels of their expansion program, assured that their loan obligations would be met. The request granted, they again issued on December 27, 1996 a Promissory Note for P12,242,000 payable monthly for the next five years.

They failed to deliver on their promise, and by March 1998, their unpaid amortizations rose to more than P4 million. To prevent the impending foreclosure of the mortgaged properties, Feliciano filed in the name of Columbia College with the RTC of Cavite City [C]ivil [C]ase N-6659 against Luzon Development Bank and the notary public[,] Rolando Torres. This suit was filed on February 18, 1998. Less than a month later, on March 11, 1998, Judge Christopher [Lock] of Branch 88 of the court dismissed the case on the ground that the plaintiff failed to establish its cause of action. As mentioned in his order, the case was set for hearing on March 5, and on this date only Feliciano Conquilla appeared. Nothing more was said about the hearing, but it is difficult to see what else could happen in the absence of the other parties[,] and all the lawyers. 6 days later, in the order, he declared that there was no reason why the foreclosure of mortgage should be enjoined, and ruled that in the face of the clear admission of plaintiff that they were unable to settle their

Page 1237 of 1485

obligations[,] which were secured by the mortgage, defendants have a clear right to foreclose the mortgage[,] which is the remedy provided by law.

The next day, March 12, Feliciano Conquilla[,] joined by his wife Salud[,] filed case N-6669 in his own name[,] which still fell in the sala of Judge [Lock], praying for the same remedy of injunction against the foreclosure. On a motion to dismiss, he ruled that the complaint was a rehash of the one made in N-6659 and already dismissed. His order of March 16 contained this disquisition:

Except for the allegations that the defendants did not comply with the requirement of notice and publication, and that the plaintiffs are now suing in their personal capacity, the averments in the complaint are mere rehash of the allegations in the complaint docketed as [C]ivil [C]ase No. N-6659[,] filed by the plaintiff Feliciano Conquilla on behalf of Columbia College Inc.[,] which has been dismissed by this court per its order dated March 11, 1998.

It appearing from the opposition filed by the defendants that the latter (have) complied with the notice and publication requirements under Act 3135, and it appearing further that the plaintiffs (have) no cause of action to institute the present complaint, the reasons of which (have) already been discussed in the order of the court dated March 11, 1998, the prayer for the issuance of a temporary restraining order is hereby denied; and finding merit in the motion to dismiss filed by defendants, the same is granted. Consequently, let the complaint filed in this case be, as it is hereby dismissed.

With the cases out of the way, the properties were auctioned off to Luzon Development Bank. In June, it advised Columbia College through Feliciano of its right to buy back the lots within the redemption period. Not amenable to this solution, Feliciano Conquilla and his children filed the present case in January 1999, their final trump card against the inevitable outcome of the foreclosure proceeding. As the plaintiffs in LP 99-0019, the Conquillas alleged in their complaint that of the amount of the loan of P7.2 million agreed to on April 2, 1996, the defendant Luzon Development Bank failed to release to them the amount of P1,940,000, thus causing a breach of contract and rendering the foreclosure premature. The contract obligation was, furthermore, increased to over P12 million without further releases. Even as it bidded for the properties in the amount of over P18 million, it failed to turn over to them the difference between this price and the amount of the actual releases, representing a balance of about P13 million.[5]

Page 1238 of 1485

The defendant bank moved to dismiss the Complaint on the ground that the case had already been barred by two prior judgments in Civil Case Nos. N-6659 (First Case) and N6669 (Second Case).[6] On May 4, 2000, the trial court issued an Order dismissing Civil Case No. LP 99-0019 (Third Case) on the ground of res judicata.[7] In denying the Motion for Reconsideration, the trial court explained that the causes of action in the Third Case were so intimately and closely related to those in the First and the Second Cases that to allow a re-litigation would constitute a circuity of suits.[8]

Respondents appealed this Order, alleging that the dismissal of the Third Case was a denial of their right to be heard;[9] that the First and the Second Cases did not constitute res judicata;[10] and that the foreclosure was premature, because the entire loan had yet to be released.[11]

Page 1239 of 1485

Respondents argued that the trial court had erred in dismissing Civil Case No. LP 990019 on the ground of res judicata. They added that the Third Case had a different cause of action and was not barred by the unfavorable judgments in the previous two cases.[12] While the First and the Second Cases were filed in order to prevent the mortgage foreclosure, the object of the Third Case was the nullification of the foreclosure proceedings and the collection of the balance of the loan.

Elaborating, respondents explained that of the P7.2 million loan agreed upon, only P5.28 million had been released at the time of the foreclosure.[13] Therefore, they argued, the foreclosure was premature and should be nullified.[14]

Further, respondents criticized the dismissal of the case by the Regional Trial Court (RTC) on the basis of a mere Motion to Dismiss. They argued that the RTC should have ordered petitioner to file a responsive pleading. Because the trial court had failed to do so, their Complaint was dismissed without trial on the merits. [15]

Lastly, respondents pointed out that petitioner bank should have been declared in default because of its failure to file a responsive pleading in Civil Case No. LP 99-0019. They theorized that its Motion to Dismiss, grounded on res judicata, was defective, considering that Rule 16 of the Rules of Court did not include res judicata among the grounds for dismissal. They contended that the grounds mentioned in Rule 16 were prior judgment or statute of limitations, which were different from res judicata.[16]

Ruling of the Court of Appeals

Page 1240 of 1485

The appellate court noted that the lower court had ordered the dismissal of the previous cases without any pretrial or trial.[17] Although the CA recognized that a formal trial was not necessary for a judgment to be on the merits, it nevertheless held that the parties should have been given the opportunity to be heard on their claims before judgment was passed. Thus, it ruled that the orders of dismissal were violative of respondents right to due process.[18]

Additionally, the appellate court observed that the denial of the First Case was grounded on the failure of the Complaint to state a cause of action. Under Rule 16 of the Rules of Court, dismissals on this particular ground did not constitute res judicata.[19]

For these reasons, the CA remanded Civil Case No. LP 99-0019 to the trial court for further proceedings.

Hence, this Petition.[20]

Issues

Page 1241 of 1485

Petitioner raised the following issues in its Memorandum:

I. Whether or not the Court of Appeals acted without or in excess of jurisdiction or with grave abuse of discretion when they decided to remand the case back to the lower [court] despite finality of the order of dismissal[; and]

II. Whether or not the Court of Appeals decision to remand the case to the lower court violates jurisprudence on forum shopping and res judicata.[21]

After going over the arguments of petitioner, the Court believes that the resolution of this case hinges on the principal issue of whether the dismissal of the First Case on the ground of failure to establish a cause of action operates as res judicata on the Third Case.

The Courts Ruling

The Petition is partially meritorious.

Main Issue: Res Judicata

Page 1242 of 1485

A case is barred by prior judgment or res judicata when the following requisites concur: (1) the former judgment is final; (2) it is rendered by a court having jurisdiction over the subject matter and the parties; (3) it is a judgment or an order on the merits; (4) there is -- between the first and the second actions -- identity of parties, of subject matter, and of causes of action.[22]

The parties do not dispute the fact that Branch 88 of the RTC of Cavite has jurisdiction over the First Case, and that its Order of dismissal has long become final and executory[23] because of respondents failure to appeal it. There is no controversy, either, regarding the identity of the subject matter.

Therefore, the dispute lies only in the presence of the three remaining elements -judgment on the merits, identity of parties, and identity of causes of action.

The Ground for Dismissal: Failure to Establish Cause of Action, Not Failure to State a Cause of Action

Preliminarily, we have to determine the actual ground for the dismissal of Civil Case No. N-6659. According to the CA, the ground for dismissal could not possibly be failure to establish [respondents] cause of action, as stated by the trial court, because there was no

Page 1243 of 1485

hearing on the case. Rather, the CA ruled that the ground for dismissal could only be failure to state a cause of action in the light of the fact that the trial court had looked only at the allegations in the Complaint. [24]

Cause of action is the act or omission by which a party violates a right of another. [25] It contains three elements: (1) a right existing in favor of the plaintiff, (2) a duty on the part of the defendant to respect the right of the plaintiff, and (3) a breach of the defendants duty.

Civil Case No. N-6659 stated a cause of action: first, plaintiff (Respondent Feliciano) had a right to apply for an injunction to enjoin a premature foreclosure a foreclosure before December 27, 2001; second, defendant (petitioner herein) had a duty not to foreclose the mortgage prematurely; third, the alleged breach arose when defendant applied for foreclosure in 1998, three years prior to the stipulated maturity of the loan.

From the foregoing, it is clear that plaintiff had a cause of action to apply for an injunction on the basis of the alleged breach. In other words, the allegations in the Complaint are sufficient to enable

Page 1244 of 1485

the trial court to grant the relief prayed for. Therefore, we do not agree that there was a failure to state a cause of action; on the contrary, there was no insufficiency of allegations in the pleading.

To repeat, the actual ground for dismissal was the insufficiency of the factual basis for the action.[26] It may be raised at any time after the questions of fact shall have been resolved on the basis of stipulations, admissions, or evidence presented.[27] Usually, the declaration that a plaintiff failed to establish a cause of action is postponed until after the parties are given the opportunity to present all relevant evidence on questions of fact.[28]

In the First Case, the trial judge clearly deviated from the usual course when he dismissed the Complaint on the ground of failure to establish its cause of action without giving the parties an opportunity to present their evidence. Under the special circumstances of this case, however, we find that the absence of a trial did not substantively deprive the respondents of their day in court. Notably, the Complaint (and its Annexes) admitted that respondents own default triggered the acceleration clause of the mortgage Contract. An acceleration clause is a stipulation stating that, on the occasion of the mortgagors default, the whole sum remaining unpaid automatically becomes due and payable. The presence and activation of the acceleration clause, the validity of which was never questioned by respondents, negates their contention that the foreclosure was premature.

To state it simply, respondents are saying in their own pleading that the breach committed by petitioner bank is actually justified in the light of their breach of the agreement on the monthly installments. Hence, on the basis of their admission of their breach of their own obligations to the bank, the trial court found that petitioner had a right to foreclose the mortgage.

This is not a flimsy conclusion arrived at by the trial court. It is a fact derived from respondents Complaint and its Annexes.[29] Being in the nature of a judicial admission made in the course of the proceedings, it did not require proof.[30] This factual admission in the pleadings on record dispensed with the need for petitioner to present evidence to prove the admitted fact.

Moreover, findings of fact are not unbendingly postponed until after trial, but may be made as soon as there is sufficient evidence available.[31] In the present case, the evidence that the trial court needed in order to make a decision on the matter was the admission contained in respondents Complaint and its Annexes.

Page 1245 of 1485

Although the procedure in the RTC was not conducted in the usual manner, this Court is not prepared to say that it deprived respondents of their right to due process. The factual finding that they defaulted on their monthly payments for a period of fifteen months was their own uncontroverted admission. If the trial courts factual finding was wrong, respondents should have sought a reconsideration of the matter by showing that no such admission was made, or that it was made through a palpable mistake.[32] A motion for reconsideration was the remedy provided them by law, but they took no such action. Thus, they are bound by their admission. On this basis, the trial court cannot be completely faulted for concluding that they failed to establish their cause of action.

What transpired in the court below is akin to a judgment on the pleadings. A judgment on the pleadings may be rendered by the court either on motion[33] of the plaintiff or motu proprio.[34] Such judgment is based exclusively upon the pleadings without introduction of evidence; therefore, it is proper whenever it appears that there is no controverted factual issue.

There was no controverted factual issue in the First Case because, in filing a Motion to Dismiss, petitioner was hypothetically admitting all the allegations in the Complaint. Although no motion for a judgment on the pleadings was filed by respondents, the trial court -- on the authority akin to that granted by Rule 18 Section 2(g) -- decided motu proprio to render a judgment on the pleadings.

The only difference between what transpired in Civil Case No. N-6659 and a Rule 34 judgment on the pleadings is the absence of an answer in the former; instead, what was filed was a motion to dismiss. This procedural flaw could have injured, not the plaintiff (Respondent Feliciano), but the defendant (petitioner herein), because a judgment was rendered without giving it the opportunity to counter plaintiffs factual allegations. Considering, however, that the defendant did not object to this procedural lapse, it is clear that it had waived whatever procedural injury was caused by the courts action.

Dismissal on the Ground of Failure to Establish Cause of Action, a Judgment on the Merits

Page 1246 of 1485

The CA ruled that Civil Case No. N-6659 did not operate as res judicata, because no trial had ever been conducted in the trial court; hence, no judgment on the merits could have possibly been issued.[35]

While it is indisputable that there was no trial on the merits in Civil Case No. N-6659, the ruling was nonetheless a judgment on the merits. Escarte v. Office of the President [36] held that a ruling based on a motion to dismiss, without any trial on the merits or formal presentation of evidence, can still be a judgment on the merits.

Merits has been defined as a matter of substance in law, as distinguished from a matter of form; it refers to the real or substantial grounds of action or defense, as contrasted with some technical or collateral matter raised in the course of the suit.[37] A judgment is on the merits when it amounts to a legal declaration of the respective rights and duties of the parties, based upon the disclosed facts.[38]

In Allied Banking Corporation v. CA,[39] the trial court, after finding that on the basis of the allegations of the Complaint, there [was] really no cause of action against defendant Alano,[40] granted the Motion to Dismiss. Four months later, the plaintiff (Allied Bank) filed a new Complaint against Alano, which practically restated the causes of action in the earlier case. Both the trial and the appellate courts found that the filing of the second case was barred by res judicata.[41] The issue presented before the Court was whether the CA erred in affirming the dismissal of the second case on the ground of res judicata.[42] Petitioner contended that the judgment dismissing the earlier case for failure to state a cause of action was not a judgment on the merits.

In denying the Petition, this Court held that, although the Complaint had stated a cause of action, its allegations showed that Alano had not incurred any liability at all. The dismissal was on the merits,[43] because it unequivocally determined the rights and obligations of the [bank] and [Alano] with respect to the causes of action and the subject matter of the case.[44]

Page 1247 of 1485

Similarly, the Complaint in the present Civil Case No. N-6659 alleged a cause of action, but since plaintiff himself showed through his allegations that defendant had not incurred any liability, the trial court dismissed the Complaint. Through its Order of Dismissal, the RTC ruled on the issue presented before it -- the propriety of foreclosing the mortgaged property. Relevant portions of the Order are quoted as follows:

Paragraph 5 of the complaint clearly show[s] that the [respondent] has not paid the amortizations due from December 1996 up to March 1998 or a period covering 15 months. Paragraph 4 of the promissory notes executed by the [respondent] also disclose[s] that the [respondent] agreed that in case of default in the payment of any of the installments and advance interest, the whole sum remaining unpaid shall automatically become due and payable. As it appears that there is a clear admission on the part of [respondent] that [he] failed to settle to the fullest [his] obligation, foreclosure is valid. Foreclosure is valid where the debtors, as in this case, are in default in the payment of their obligation. xxx xxx xxx

x x x. In the case at bench, we fail to see any reason why the foreclosure of the mortgages should be enjoined. On the face of the clear admission of [respondent] that they were unable to settle their obligations which were secured by the mortgages, [petitioners] have a clear right to foreclose the mortgages[,] which is the remedy provided for by law.[45]

Contrary to the findings of the appellate court, the dismissal of Civil Case No. N-6659 was a dismissal on the merits. The Order was based on the finding that the Complaint contained an admission that respondents had violated the terms of the Mortgage Contract, a violation that gave petitioner the right to foreclose the mortgaged property. The judgment was on the merits, because it ruled that petitioners defense was substantial enough to overcome the relief sought by respondents. The Order applied the law to the facts as stated in the Complaint; it was and is thus conclusive on the propriety of foreclosure and determinative of the legal rights and obligations of the parties with respect to the mortgage. The Order definitively put an end to the controversy and barred any subsequent action on the same subject matter.

Even assuming arguendo that the ground for dismissal in the First Case was the failure to state a cause of action, that particular Order of Dismissal was still a judgment on the merits and operated as res judicata on a subsequent case.

In Manalo v. CA,[46] without any trial, the RTC dismissed CEB-11735 on the ground of failure to state a cause of action. When the same case was again filed, the respondent moved to dismiss on the ground of res judicata. The Motion was sustained by the trial court. Upon review before this Court, the petitioners alleged that the Order of dismissal in

Page 1248 of 1485

CEB-11735 did not constitute res judicata; the Order was not an adjudication on the merits, since the Complaint was dismissed for failure to state a cause of action.[47]

This Court found no merit in the Petition. It ruled that res judicata had barred the subsequent Complaint despite the absence of a trial or a cause of action properly alleged. Since the Order of Dismissal actually ruled on the issues raised in the Complaint, the judgment constituted a bar on this case.[48]

The same conclusion was arrived at in Mendiola v. CA.[49] In that case, Petitioner Mendiola gave a special power of attorney (SPA) to another person to mortgage the formers parcels of land in Marikina for the purpose of financing their planned joint venture. Although they had already abandoned that business plan, the person who had been given an SPA nevertheless mortgaged Mendiolas properties to the Philippine National Bank (PNB). When the bank initiated foreclosure proceedings, Mendiola filed a separate case for injunction against it. The trial court sustained the Motion to Dismiss on the ground that the Complaint did not state a sufficient cause of action.[50] During the pendency of Mendiolas appeal, the foreclosure pushed through, and the properties were sold at the auction.

Because of the turn of events, Mendiola filed a case to annul the auction sale. Again, PNB moved to dismiss on the ground that an appeal was still pending for the same cause of action. After due hearing, the trial court dismissed the second case on the ground of litis pendentia.[51] The CA subsequently affirmed the dismissal of the first case.

Coming before this Court, petitioner therein maintained that the first case could not bar the second one, because the former, which was dismissed for failure to state a cause of action, had not ruled on PNBs right to foreclose the properties.

This Court ruled that the second case was dismissible under the principle of res judicata. It found that the dismissal of the first case, which was based on a Motion to Dismiss, was a judgment on the merits. It was rendered only after due consideration of the facts and evidence presented by both parties. The Order of Dismissal went into the substance of the relief sought by Mendiola (which was the issuance of a writ of injunction) and must be regarded as an adjudication on the merits.[52]

These cases show that even a dismissal on the ground of failure to state a cause of action may operate as res judicata on a subsequent case involving the same parties, subject matter, and causes of action, provided that the order of dismissal actually ruled on the issues raised. What appears to be essential to a judgment on the merits is that it be a reasoned decision, which clearly states the facts and the law on which it is based.

Page 1249 of 1485

In the present case, the Order of Dismissal in Civil Case No. N-6659 ruled on the right of petitioner to foreclose the property. It held that foreclosure was valid; and that the debtor was in default in the payment of his obligation.[53] The Order of Dismissal also explained that the Mortgage Contract and the Promissory Notes had authorized the mortgagee to foreclose.[54] It clearly looked into the facts as presented by respondents pleadings and applied the law accordingly. Thus, based on Manalo and Mendiola, the Order carried the effect of res judicata, it definitively settled the controversy between the parties.

Although Mendiola differs slightly from the instant case in the sense that the plaintiff in the former was given a hearing to argue the merits of his case, the procedural difference is not substantial enough to arrive at a different conclusion. Notably, in the present case, the uncontroverted admission of the Complaint rendered a hearing unnecessary. To reiterate, an admission in the course of the proceedings, such as that in the pleadings on record, does not require proof. In other words, the Complaint contained the facts that the trial court used to render a judgment on the merits.

Substantial Identity of Parties

Respondents argue that there is no identity of parties between the First Case and the Third Case.[55] The party in the First Case was Columbia College, Inc., represented by Feliciano S. Conquilla;[56] while the parties in the Third Case were Feliciano S. Conquilla, Benedicto C. Conquilla, Cornelio C. Conquilla, and Dorotea C. Orcine.[57] The parties in the latter case were the registered owners of the mortgaged properties.[58]

It is axiomatic that to invoke res judicata, absolute identity of parties is not required . A substantial identity of parties is sufficient.[59] There is substantial identity of parties when there is a community of interest between a party in the first case and that in the second one, even if the latter party was not impleaded in the first case.[60]

In the instant controversy, the Complaint alleged that Columbia College, Inc., was the only debtor.[61] But the CA found that the Promissory Note given to petitioner contained the signatures of all the four registered owners, without any qualification.[62] A Promissory Note is defined as an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer.[63] This definition shows that the makers or signatories of a promissory note have the duty to pay the amount stated on it.

Page 1250 of 1485

Therefore, it is only logical that the present respondents were debtors, together with Columbia College, Inc. This fact explains why they are also claiming the balance of the loan, instead of merely asking for the nullification of the foreclosure of their property. Together with Columbia College, Inc., they are interested in annulling the contracted loan and in preventing the foreclosure of the properties.

Moreover, we find that Columbia College, Inc. claimed that it had mortgaged its properties to petitioner bank and executed the Promissory Note.[64] Reconciling this fact with the finding of the CA that respondents were the mortgagors,[65] we can only come to the conclusion that they and Columbia College were not only common debtors; all of them were also mortgagors.

Therefore, they were all parties to the same Contract, protecting the same interests, and seeking the same relief. Clearly, the actions were instituted for the protection of the common interest of respondents in the loan and the mortgage. They shared an identity of interest from which flowed an identity of relief sought; that is, to have the foreclosure nullified. Their identity of interest in the loan

Page 1251 of 1485

and the mortgaged property is enough to hold them privy-in-law; this fact meets the substantive requisite of identity of parties.

That the children-respondents were not joined in the First Case is not enough to show that there is no identity of parties. The joining of new parties does not remove a case from the operation of res judicata; otherwise, the litigants can easily renew the litigation by simply joining new parties.[66]

Identical Causes of Action

The fourth requisite of res judicata is identity of causes of action between the two cases.

The cause of action in the First Case arose from petitioners alleged premature foreclosure of the mortgage. On the other hand, the Third Case involves three alternative causes of action: (1) nullification of the foreclosure and the auction sale, (2) release of the balance of the loan, or (3) recovery of the excess proceeds of the sale.

Respondents insist that the two cases involve different causes of action, allegedly because the First Case seeks to prevent, and the Third Case to nullify, the foreclosure.[67] However, hornbook is the rule that identity of causes of action does not mean absolute identity. Otherwise, a party could easily escape the operation of res judicata by changing the form of the action or the relief sought.[68]

The test to determine whether the causes of action are identical is to ascertain whether the same evidence will sustain both actions, or whether there is an identity in the

Page 1252 of 1485

facts essential to the maintenance of the two actions. If the same facts or evidence would sustain both, the two actions are considered the same, and a judgment in the first case is a bar to the subsequent action.[69]

The validity of the foreclosure in Civil Case No. LP 99-0019 is assailed by respondents on the ground of prematurity.[70] Despite the stipulation that the loan would mature only on December 27, 2001, the foreclosure of their mortgage took place on March 16, 1998. [71] Notably, that cause of action was the same as that raised, considered, and conclusively passed upon in Civil Case No. N-6659. In the latter case, Respondent Feliciano sought to prevent foreclosure by also contending that it was premature.[72]

In order to obtain the reliefs sought, respondents in both cases should have presented proof that the bank had no right to foreclose before December 27, 2001. By applying the same evidence test, it becomes readily apparent that the evidence or facts needed to sustain the cause of action in Civil Case No. N-6659 is the same as the evidence or facts needed to allow relief in Civil Case No. LP 99-0019. Tellingly, the first cause of action in Civil Case No. LP 99-0019 (nullification of foreclosure) is identical with that in Civil Case No. N-6659 (injunction of foreclosure).

This ruling finds support in Mendiola.[73] In that case, we ruled that the actions to enjoin foreclosure and to annul the auction sale based on the same grounds were identical.

Page 1253 of 1485

At any rate, the Order of Dismissal in the First Case was already a final judgment; [74] hence, it was appealable. Respondents could have appealed it, but they did not. Having failed to appeal from that judgment, they may not abuse court processes by repeatedly refiling the same case to obviate the conclusive effects of dismissal. It now operates as res judicata. Hence, respondents can no longer assail the validity of the foreclosure on the ground of prematurity.

The second cause of action in the Third Case (recovery of the balance of the loan) is likewise identical with that in the First Case. Respondents allege that petitioner bank

released only P5.2 million of the total P7.42 million agreed upon;[75] thus, there was a breach of the Contract. What respondents are saying is that petitioner has no right to foreclose, on the ground that it has yet to comply fully with its obligation. In other words, the foreclosure is allegedly premature and invalid.[76] In order to sustain their claim, respondents should have presented proof that petitioner had no right to foreclose at the time of their application. It will be recalled that this was the same proof needed to sustain the claim in the First Case. Since the same evidence sustains both actions, they are considered to be the same for purposes of res judicata.

Moreover, the alleged failure of petitioner bank to release the balance of the loan was a fact already in existence at the time that the First Case was filed in court. If petitioner had really violated the terms of the loan agreement, this fact should have been pleaded by respondents in the First Case. If true, such fact bolstered the claim of respondents that petitioner had no right to foreclose. According to the principle of res judicata, a judgment is conclusive between the parties with respect to matters directly adjudged and to any other matter that may have been raised in relation to it.[77] By failing to raise this matter in the first instance, respondents are deemed to have waived it. They can no longer cite any ground for invalidating the Mortgage Contract, which was already in existence at the time of the First Case.

Page 1254 of 1485

In putting an end to litigation between the same parties over a subject that has already been adjudicated, the principle of res judicata is dictated by public interest. Relitigation of issues already settled

Page 1255 of 1485

merely burdens the courts and the taxpayers, creates uneasiness and confusion, and wastes valuable time and energy that could be devoted to worthier cases.[78] Even at the risk of occasional errors, judgments of courts should become final at some definite time fixed by law and x x x parties should not be permitted to litigate the same issues over again.[79]

Remand of the New Cause of Action

A different fate befalls the third alternative cause of action in Civil Case No. LP 990019, which is for recovery of the excess proceeds of the foreclosure sale. Respondents allege that the mortgaged property was sold for P18,462,900, which allegedly far exceeded the amount of loan agreed upon by the parties.[80]

Under the same evidence test, this is a different cause of action from an injunction of foreclosure. As already discussed, Civil Case No. N-6659 requires proof that the mortgagee had no right to foreclose; on the other hand, the alternative cause of action in Civil Case No. LP 99-0019 requires proof that the bid price of the mortgaged property was in excess of the contracted loan. The two issues require different sets of evidence; there is no identity of causes of action.

Page 1256 of 1485

Moreover, the recovery of the excess proceeds of the sale was not and could not be included in Civil Case No. N-6659, because it was a new cause of action that had arisen only after the foreclosure. It was not barred by res judicata, because it could not have been raised then. This is the only matter that may be remanded to the trial court.

If it is proven that the mortgaged property was foreclosed and sold for an amount exceeding the loan contracted, respondent must be allowed to recover the excess.[81] By the accessory nature of mortgage, the mortgagee has the right to foreclose the mortgaged property only to the extent of the loan secured by it. Any decision to the contrary abets unjust enrichment.

Page 1257 of 1485

To stress, the recovery of the excess proceeds of the sale is the only cause of action that should be remanded to the lower court. Preliminarily, the trial court should first

determine the amount of loan actually contracted by the parties, because the true amount is disputed. According to petitioner[82] and the CA,[83] the contracted loan was P12 million, but respondents maintain that the amount was only P7.42 million.[84] Afterwards, the court a quo should limit itself to a determination of whether the property was sold for an amount exceeding the contracted loan, while taking into consideration the interests and costs of the sale. If the sale price of the mortgaged property is greater than the amount of indebtedness to the bank, the bank must be ordered to turn over the excess to respondents.

The lower court should no longer inquire into the validity of the mortgage loan and the right to foreclose. The resolution of these two matters have reached finality in Civil Case No. N-6659, which decided that petitioner had the right to foreclose on the presumption that the mortgage was also valid. If respondents are allowed to question the validity of the mortgage loan all over again, the consequent foreclosure would likewise have to be subjected to a review, which is no longer possible by operation of res judicata. Forever barred now are all questions regarding the validity of the Mortgage Contract and the subsequent foreclosure, questions that have been directly adjudged or could have been raised and adjudged in Civil Case No. N-6659.

WHEREFORE, the Petition is PARTLY GRANTED.

The assailed Decision and The case is

Resolution are hereby MODIFIED pursuant to the above discussion.

REMANDED to the Regional Trial Court of Cavite City for further proceedings, only on the

Page 1258 of 1485

matter of recovery of the alleged excess proceeds of the auction sale. No pronouncement as to costs.

SO ORDERED.

THIRD DIVISION

VICTORIA J. ILANO represented by her Attorney-in-fact, MILO ANTONIO C. ILANO, Petitioners,

G.R. No. 161756

Present:

PANGANIBAN, Chairman, - versus SANDOVAL- GUTIERREZ, CORONA, CARPIO MORALES, and HON. DOLORES L. ESPAOL, in her capacity as Executive Judge, RTC of Imus, Cavite, Br. 90, and, AMELIA ALONZO, EDITH CALILAP, DANILO CAMACLANG, ESTELA CAMACLANG, ALLAN CAMACLANG, LENIZA REYES, EDWIN REYES, JANE BACAREL, CHERRY CAMACLANG, FLORA CABRERA, ESTELITA LEGASPI, CARMENCITA GONZALES, NEMIA CASTRO, GLORIA DOMINGUEZ, ANNILYN C. SABALE and several JOHN DOES, GARCIA, JJ.

Page 1259 of 1485

Respondents.

Promulgated:

December 16, 2005

xx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -xx

DECISION

CARPIO MORALES, J.:

The Court of Appeals having affirmed the dismissal by Branch 20 of the Regional Trial Court (RTC) of Cavite at Imus, for lack of cause of action, Civil Case No. 2079-00, the complaint filed by herein petitioner Victoria J. Ilano for Revocation/Cancellation of Promissory Notes and Bills of Exchange (Checks) with Damages and Prayer for Preliminary Injunction or Temporary Restraining Order (TRO),[1] against herein respondents 15 named defendants (and several John Does), a recital of the pertinent allegations in the complaint, quoted verbatim as follows, is in order:

xxx

Page 1260 of 1485

3. That defendant AMELIA O. ALONZO, is a trusted employee of [petitioner]. She has been with them for several years already, and through the years, defendant ALONZO was able to gain the trust and confidence of [petitioner] and her family; That due to these trust and confidence reposed upon defendant ALONZO by [petitioner], there were occasions when defendant ALONZO was entrusted with [petitioners] METROBANK Check Book containing either signed or unsigned blank checks, especially in those times when [petitioner] left for the United States for medical check-up; Sometime during the second week of December 1999, or thereabouts, defendant ALONZO by means of deceit and abuse of confidence succeeded in procuring Promissory Notes and signed blank checks from [petitioner] who was then recuperating from illness ; That as stated, aside from the said blank checks, defendant ALONZO likewise succeeded in inducing [petitioner] to sign the Promissory Notes antedated June 8, 1999 in the amount of PESOS: ONE MILLION FOUR HUNDRED TWENTY EIGHT THOUSAND TWO HUNDRED SEVENTY TWO (Php 1,428,272.00) payable to defendants EDITH CALILAP and DANILO CALILAP, and another Promissory Noted dated March 1999 in the amount of PESOS: ONE MILLION (Php 1,000,000.00) payable to the same defendants EDITH CALILAP and DANILO CALILAP, copies of said Promissory Notes are hereto attached as Annexes A and A-1 hereof; That another Promissory Note antedated October 1, 1999 thru the machination of defendant ALONZO, was signed by [petitioner] in the amount of PESOS: THREE MILLION FORTY SIX THOUSAND FOUR HUNDRED ONE (Php 3,046,401.00) excluding interest, in favor of her codefendants ESTELA CAMACLANG, ALLAN CAMACLANG, LENIZA REYES, EDWIN REYES, JANE BACAREL and CHERRY CAMACLANG, a copy of said Promissory Note is hereto attached as Annex B hereof; That the Promissory Notes and blank checks were procured thru fraud and deceit. The consent of the [petitioner] in the issuance of the two (2) aforementioned Promissory Notes was vitiated. Furthermore, the same were issued for want of consideration, hence, the same should be cancelled, revoked or declared null and void; That as clearly shown heretofore, defendant ALONZO in collusion with her co-defendants, ESTELA CAMACLANG, ALLAN CAMACLANG and ESTELITA LEGASPI likewise was able to induce plaintiff to sign several undated blank checks, among which are: Metrobank Metrobank Metrobank Metrobank Metrobank Check Check Check Check Check No. No. No. No. No. 0111544 0111545 0111546 0111547 0111515

4.

5.

6.

7.

8.

9.

Page 1261 of 1485

all in the total amount of Php 3,031,600.00, copies of said checks are hereto attached as Annexes C, C-1, C-2, C-3 and C-4, respectively; 10. That aside from the checks mentioned heretofore, defendant ALONZO, confederated and conspired with the following co-defendants, FLORA CABRERA, NEMIA CASTRO, EDITH CALILAP, DANILO CALILAP, GLORIA DOMINGUEZ, CARMENCITA GONZALES and ANNILYN C. SABALE and took advantage of the signature of [petitioner] in said blank checks which were later on completed by them indicated opposite their respective names and the respective amount thereof, as follows:

NAME

METROBANK Check No. Flora Cabrera Php 337,584.58 0111460 Flora Cabrera 98,000.00 0111514 Nemia Castro 100,000.00 0111542 Nemia Castro 150,000.00 0084078 Edith Calilap/Danilo Calilap 490,000.00 0111513 Edith Calilap/Danilo Calilap 790,272.00 0111512 Edith Calilap/Danilo Calilap 1,220,000.00 0111462 Gloria Dominguez/ 1,046,040.00 0111543 Carmencita Gonzales Annilyn C. Sable 150,000.00 0085134 Annilyn C. Sable 250,000.00 0085149 Annilyn C. Sable 186,000.00 0085112 Copy attached as Annexes D, D-1, D-2, D-3, D-4, D-5, D-6, D-7, D-8, D-9 and D-10, respectively; Furthermore, defendant ALONZO colluded and conspired with defendant NEMIA CASTO in procuring the signature of [petitioner] in documents denominated as Malayang Salaysay dated July 22, 1999 in the amount of PESOS: ONE HUNDRED FIFTY THOUSAND (Php 150,000.00) and another Malayang Salaysay dated November 22, 1999 in the amount of PESOS: ONE HUNDRED THOUSAND (Php 100,000.00) Annexes D-11 and D-12 hereof; 11. That said defendants took undue advantage of the signature of [petitioner] in the said blank checks and furthermore forged and or falsified the signature of [petitioner] in other unsigned checks and as it was made to appear that said [petitioner] is under the obligation to pay them several amounts of money, when in truth and in fact, said [petitioner] does not owe any of said defendant any single amount; 12. That the issuance of the aforementioned checks or Promissory Notes or the aforementioned Malayang Salaysay to herein defendants were tainted with fraud and deceit, and defendants conspired with one another to defraud herein [petitioner] as the aforementioned documents were issued for want of consideration;

AMOUNT

Page 1262 of 1485

13. That the aforesaid defendants conspiring and confederating together and helping one another committed acts of falsification and defraudation which they should be held accountable under law ; 14. The foregoing acts, and transactions, perpetrated by herein defendants in all bad faith and malice, with malevolence and selfish intent are causing anxiety, tension, sleepless nights, wounded feelings, and embarrassment to [petitioner] entitling her to moral damages of at least in the amount of PESOS: FIVE HUNDRED THOUSAND (Php 500,000.00); 15. That to avoid repetition of similar acts and as a correction for the public good, the defendants should be held liable to [petitioner] for exemplary damages in the sum of not less than the amount of PESOS: TWO HUNDRED THOUSAND (Php 200,000.00); 16. That to protect the rights and interest of the [petitioner] in the illegal actuations of the defendants, she was forced to engage the services of counsel for which she was obliged to pay the sum of PESOS: ONE HUNDRED THOUSAND (Php 100,000.00) by way of Attorneys fees plus the amount of PESOS: THREE THOUSAND (Php 3,000.00) per appearance in court; x x x (Emphasis and underscoring supplied)

The named defendants-herein respondents filed their respective Answers invoking, among other grounds for dismissal, lack of cause of action, for while the checks subject of the complaint had been issued on account and for value, some had been dishonored due to ACCOUNT CLOSED; and the allegations in the complaint are bare and general.

By Order[2] dated October 12, 2000, the trial court dismissed petitioners complaint for failure to allege the ultimate facts-bases of petitioners claim that her right was violated and that she suffered damages thereby.

On appeal to the Court of Appeals, petitioner contended that the trial court:

A. . . . FAILED TO STATE CLEARLY AND DISTINCTLY THE FACTS AND LAW ON WHICH THE APPEALED ORDER WAS BASED, THEREBY RENDERING SAID ORDER NULL AND VOID.

Page 1263 of 1485

B. . . . ERRED IN HOLDING THAT THE COMPLAINT FAILED TO ALLEGE ULTIMATE FACTS ON WHICH [PETITIONER] RELIES ON HER CLAIM THEREBY DISMISSING THE CASE FOR LACK OF CAUSE OF ACTION. C. . . . ERRED IN GIVING DUE COURSE TO THE MOTION TO DISMISS THAT CONTAINED A FAULTY NOTICE OF HEARING AS THE SAME IS MERELY ADDRESSED TO THE BRANCH CLERK OF COURT.[3]

In its Decision[4] of March 21, 2003 affirming the dismissal order of the trial court, the appellate court held that the elements of a cause of action are absent in the case:

xxx Such allegations in the complaint are only general averments of fraud, deceit and bad faith. There were no allegations of facts showing that the acts complained of were done in the manner alleged. The complaint did not clearly ascribe the extent of the liability of each of [respondents]. Neither did it state any right or cause of action on the part of [petitioner] to show that she is indeed entitled to the relief prayed for. In the first place, the record shows that subject checks which she sought to cancel or revoke had already been dishonored and stamped ACCOUNT CLOSED. In fact, there were already criminal charges for violation of Batas Pambansa Blg. 22 filed against [petitioner] previous to the filing of the civil case for revocation/cancellation. Such being the case, there was actually nothing more to cancel or revoke. The subject checks could no longer be negotiated. Thus, [petitioners] allegation that the [respondents] were secretly negotiating with third persons for their delivery and/or assignment, is untenable. In the second place, we find nothing on the face of the complaint to show that [petitioner] denied the genuineness or authenticity of her signature on the subject promissory notes and the allegedly signed blank checks. She merely alleged abuse of trust and confidence on the part of [Alonzo]. Even assuming arguendo that such allegations were true, then [petitioner] cannot be held totally blameless for her predicament as it was by her own negligence that subject instruments/signed blank checks fell into the hands of third persons. Contrary to [petitioners] allegations, the promissory notes show that some of the [respondents] were actually creditors of [petitioner] and who were issued the subject checks as securities for the loan/obligation incurred. Having taken the instrument in good faith and for value, the [respondents] are therefore considered holders thereof in due course and entitled to payment. x x x (Underscoring supplied)

Page 1264 of 1485

Hence, the present petition for review on certiorari, petitioner faulting the appellate court:

1.

. . . in sustaining the dismissal of the complaint upon the ground of failure to state a cause of action when there are other several causes of action which ventilate such causes of action in the complaint; . . . in finding that a requirement that a Decision which should express therein clearly and distinctly the facts and the law on which it is based does not include cases which had not reached pre-trial or trial stage; . . . in not finding that a notice of hearing which was addressed to the Clerk of Court is totally defective and that subsequent action of the court did not cure the flaw.[5]

2.

3.

In issue then is whether petitioners complaint failed to state a cause of action.

A cause of action has three elements: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right. In determining the presence of these elements, inquiry is confined to the four corners of the complaint[6] including its annexes, they being parts thereof.[7] If these elements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.[8]

As reflected in the above-quoted allegations in petitioners complaint, petitioner is seeking twin reliefs, one for revocation/cancellation of promissory notes and checks, and the other for damages.

Thus, petitioner alleged, among other things, that respondents,

through deceit,

abuse of confidence machination, fraud, falsification, forgery, defraudation, and bad faith, and with malice, malevolence and selfish intent, succeeded in inducing her to sign antedated promissory notes and some blank checks, and [by taking] undue advantage of her signature on some other blank checks, succeeded in procuring them, even if there was

Page 1265 of 1485

no consideration for all of these instruments on account of which she suffered anxiety, tension, sleepless nights, wounded feelings and embarrassment.

While some of the allegations may lack particulars, and are in the form of conclusions of law, the elements of a cause of action are present. For even if some are not stated with particularity, petitioner alleged 1) her legal right not to be bound by the instruments which were bereft of consideration and to which her consent was vitiated; 2) the correlative obligation on the part of the defendants-respondents to respect said right; and 3) the act of the defendants-respondents in procuring her signature on the instruments through deceit, abuse of confidence machination, fraud, falsification, forgery, defraudation, and bad faith, and with malice, malevolence and selfish intent.

Where the allegations of a complaint are vague, indefinite, or in the form of conclusions, its dismissal is not proper for the defendant may ask for more particulars.[9]

With respect to the checks subject of the complaint, it is gathered that, except for Check No. 0084078,[10] they were drawn all against petitioners Metrobank Account No. 00703-955536-7.

Annex D-8[11] of the complaint, a photocopy of Check No. 0085134, shows that it was dishonored on January 12, 2000 due to ACCOUNT CLOSED. When petitioner then filed her complaint on March 28, 2000, all the checks subject hereof which were drawn against the same closed account were already rendered valueless or non-negotiable, hence, petitioner had, with respect to them, no cause of action.

With respect to above-said Check No. 0084078, however, which was drawn against another account of petitioner, albeit the date of issue bears only the year 1999, its validity and negotiable character at the time the complaint was filed on March 28, 2000 was not affected. For Section 6 of the Negotiable Instruments Law provides:

Page 1266 of 1485

Section 6. Omission; seal; particular money. The validity and negotiable character of an instrument are not affected by the fact that (a) It is not dated; or (b) Does not specify the value given, or that any value had been given therefor; or (c) Does not specify the place where it is drawn or the place where it is payable; or (d) Bears a seal; or (e) Designates a particular kind of current money in which payment is to be made. x x x (Emphasis supplied)

However, even if the holder of Check No. 0084078 would have filled up the month and day of issue thereon to be December and 31, respectively, it would have, as it did, become stale six (6) months or 180 days thereafter, following current banking practice.[12]

It is, however, with respect to the questioned promissory notes that the present petition assumes merit. For, petitioners allegations in the complaint relative thereto, even if lacking particularity, does not as priorly stated call for the dismissal of the complaint.

WHEREFORE, the petition is PARTLY GRANTED.

The March 21, 2003 decision of the appellate court affirming the October 12, 2000 Order of the trial court, Branch 20 of the RTC of Imus, Cavite, is AFFIRMED with MODIFICATION in light of the foregoing discussions.

Page 1267 of 1485

The trial court is DIRECTED to REINSTATE Civil Case No. 2079-00 to its docket and take further proceedings thereon only insofar as the complaint seeks the revocation/cancellation of the subject promissory notes and damages.

Let the records of the case be then REMANDED to the trial court.

SO ORDERED.

FIRST DIVISION

ATTY. JOSE RICUERDO P. FLORES, Complainant,

A.M. No. P-05-2038 (Formerly OCA I.P.I. No. 04-2055-P) Present: PANGANIBAN, C.J., Chairman, YNARES-SANTIAGO, AUSTRIA-MARTINEZ, CALLEJO, SR. and CHICO-NAZARIO, JJ. Promulgated: January 25, 2006

versus

FELIX M. FALCOTELO, Sheriff IV, RTC, Branch 276, Muntinlupa City, Respondent.

x----------------------------------------------x

RESOLUTION

Page 1268 of 1485

AUSTRIA-MARTINEZ, J.:

On October 29, 2004, Executive Judge Juanita T. Guerrero, Regional Trial Court (RTC), Muntinlupa City, indorsed to the Office of the Court Administrator (OCA) a letter from Atty. Jose Ricuerdo P. Flores, Clerk of Court of RTC Muntinlupa City, dated October 10, 2004, regarding the alleged attempt of Sheriff Felix M. Falcotelo of RTC Br. 276, Muntinlupa City to deposit in his personal savings account a managers check worth P900,000.00, together with the Answer of Sheriff Falcotelo dated October 20, 2004.[1]

Atty. Flores narrates in his letter that: on October 5, 2004, he received a call from a certain Mrs. Alcaraz of the Accounting Division of this Court asking whether he authorized a sheriff to deposit in said sheriffs personal bank account a check issued in favor of the RTCMuntinlupa City; after answering in the negative, he immediately went to LandbankMuntinlupa and talked with the bank manager who confirmed that Felix Falcotelo, Sheriff IV of RTC Br. 276, tried to deposit a check in his (Falcotelos) personal bank account; the bank manager did not allow Falcotelo to deposit said check and told the latter to coordinate with the Clerk of Court of RTC, Muntinlupa; Atty. Flores then went to Judge N.C. Perello, of RTC Br. 276 and informed her of the matter; Judge Perello said that she had no knowledge about the bank transaction and that she will issue a memorandum to Falcotelo regarding the matter; upon his return to his office, he found Falcotelo waiting for him who then showed him (a) the check in question, dated October 4, 2004 with the Regional Trial Court, Branch 276 Muntinlupa City, thru: Felix M. Falcotelo, Sheriff IV as payee, in the amount of P900,000.00, (b) a Landbank check deposit slip dated October 5, 2004 with account name Felix Falcotelo with the check description Prudential Bank, Navotas Branch, Check No. 019460 in the amount of P900,000.00, and (c) Falcotelos Landbank savings account passbook; after handing the said documents to him, Falcotelo admitted that he tried to deposit the subject check in his personal savings account but explained that he only did so at the insistence of Atty. Marcelo G. Rempillo, Jr., the counsel of the plaintiff in Civil Case No. 95-172 entitled Polilio Shipping Lines, Inc. vs. Mariano V. Buquia , pending before RTC-Branch 276 and that such action was resorted only to expedite proceedings and not for personal gain; it was the manager of Prudential Bank, Navotas Branch, the bank of the defendant in Civil Case No. 95-

Page 1269 of 1485

172, that issued the said check payable to the RTC, Br. 276 through Falcotelo. Atty. Flores thereafter requested that a formal investigation on the matter be conducted in order to determine the criminal/administrative liability of the concerned sheriff, if any.[2]

In his Answer to the letter of Atty. Flores, Falcotelo stated that he has no intention whatsoever to misappropriate the sum of P900,000.00 covered by the subject check since the issuance of the same was with the conformity of both the plaintiff and defendant in Civil Case No. 95-172. He then prayed that the matter be laid to rest.[3]

Attached to said Answer is the Memorandum of Judge Perello dated October 11, 2004 addressed to Falcotelo stating that she believes that there was no intention to misappropriate the money involved, although the issuance of the check may have been with the knowledge and consent of the sheriff in whose name the check was allegedly issued.[4]

Also attached to the Answer is the Incident Report prepared by Florian T. Galera, authorized representative of the law firm Lopez & Rempillo, and noted by Atty. Rempillo, Jr., counsel of the plaintiff in the civil case, narrating that:

1. On October 4, 2004, (Sheriff Falcotelo) and the representative of our law firm, upon the invitation of defendant, held a conference at his office to discuss settlement of the case;

2. On said date, our representative and defendant arrived at a settlement, and thereafter, they proceeded (to) Prudential Bank, Navotas Branch (defendants bank) to secure a Managers Check payable to DIVINA S. REMOLLINO, the President of the plaintiff corporation, in the amount of P900,000.00; 3. Accordingly, by reason of this settlement, the scheduled Sheriff Auction Sale on October 5, 2004 was cancelled and reset to October 21, 2004;

Page 1270 of 1485

4. However, the Branch Manager of Prudential Bank, Navotas Branch, informed them that there was a prior Notice of Garnishment issued by the Court Branch Sheriff and that the amount of P900,000.00 corresponding to the amount of the Managers Check cannot be withdrawn without lifting the Notice of Garnishment;

5. This prompted the Court Branch Sheriff to serve the said bank a Notice To Deliver The Garnished Amount, in the presence and with conformity of the defendant/depositor;

6. After having been served with a Notice To Deliver The Garnished Amount of P900,000.00, the Branch Manager referred the matter to their Legal Department for Clearance on the delivery of the garnished amount of P900,000.00;

7. The Legal Department approved the delivery and release of the amount of P900,000.00;

8. Before the Managers Check of P900,000.00 could be issued, our representative, with the conformity of the Sheriff, requested that the Managers Check of P900,000.00 be made payable to DIVINA S. REMOLLINO, the President of the plaintiff corporation;

9. The Branch Manager sought the advice of their Legal Department and thereafter, informed our representative that it cannot grant the request since it was not stated on the Notice to Deliver the garnished amount that the amount should be payable directly to DIVINA S. REMOLLINO;

10. Thus, the Branch Manager issued a Prudential Bank Managers Check No. 0000019460 for P900,000.00 payable to the Order of REGIONAL TRIAL COURT, BRANCH 276, MUNTINLUPA CITY thru FELIX FALCOTELO SHERIFF IV;

11. However, the Court Branch Sheriff countered that the check should not be made payable to him;

Page 1271 of 1485

12. Since the Managers Check of P900,000.00 was already issued by the bank in the name of the Court thru the implementing Sheriff, our representative adviced the Sheriff that the check be replaced with another check in the name of DIVINA S. REMOLLINO;

13. On October 5, 2004, two (2) of our representatives, FLORIAN T. GALERA and SOFRONIO GONOWON, and the Court Branch Sheriff proceeded to the Land Bank of the Philippines, Muntinlupa Branch to deposit the said Managers Check of P900,000.00 and to order/purchase a Managers Check of P900,000.00 payable directly to the plaintiff DIVINA S. REMOLLINO. But, the bank refused since the said check is not directly payable to Sheriff FELIX FALCOTELO but to the RTC, Branch 276, Muntinlupa City;

14. Instead, the bank advice (sic) us to coordinate with the Office of the Clerk of Court of Muntinlupa;

15. The Court Branch Sheriff and our representatives proceeded to the Office of the Clerk of Court of Muntinlupa and adviced our representative to make a report on the incident.[5]

On December 2, 2004, the OCA required Falcotelo to file a comment on the letter of Atty. Flores.[6]

In his Comment dated December 23, 2004, Falcotelo reiterated his defense that: he had no intention to misappropriate the sum of P900,000.00 covered by Prudential Bank managers check as the issuance of the same was with the conformity of the plaintiffs counsel in Civil Case No. 95-172; it was respondents intention that the garnished amount be issued in his name and in fact it was through the instruction of the legal department of Prudential Bank that the aforesaid amount be addressed and named thru the sheriff of RTC Br. 276 reasoning that since the favorable decision was rendered by Br. 276, the same should be properly addressed thereat; the incident report submitted by Atty. Rempillo, counsel of the plaintiff, shows that it was not respondents intention that the managers check be issued by Prudential Bank in the name of RTC Br. 276; since the check was issued in the name of RTC Br. 276 through Falcotelo, respondent was then accompanied by the

Page 1272 of 1485

representative of the counsel for the plaintiff and tried to deposit the said check in respondents account to have it cleared for the purpose of withdrawing the amount covered by the check after clearing and the same to be given to the plaintiff; when the matter was brought to the attention of Judge Perello, she issued a memorandum with a finding that the respondent had no intention to misappropriate the subject amount.[7]

Respondent submitted a Supplement to the Comment, dated January 10, 2005, portions of which read as follows:

9. That before the sought after Managers Check could be issued, the judgment creditor requested that the aforesaid check be named after or be directly made payable to DIVINA REMOLLINO, the President of Polilio Shipping Lines, Inc., the plaintiff in the case, but because of the complications that might arise in the process as it was not Mrs. Remollino who is the actual plaintiff in the said civil case, the legal department of the said bank instead advised that the Managers Check No. 0000019460 in the amount of Nine Hundred Thousand (Php.900,000.00) Pesos be made payable to the order of Regional Trial Court Branch 276, Muntinlupa City thru Felix M. Falcotelo, Sheriff IV, which manner of issuance was well within the conformity of all parties concerned with herein respondent advancing his vehement opposition thereto, but to no avail;

10. That on October 05, 2004, the judgment creditor, through its representatives, and accompanied by herein respondent proceeded to Landbank of the Philippines, Muntinlupa Branch, with the Prudential Bank Branch Manager advising herein respondent to just deposit the aforesaid check in his account, as he was the one named therein, for the mere purpose of having the check expeditedly cleared or withdrawn in favor of the former;

11. That in the process, the Manager of Landbank advised the representatives of judgment creditor to coordinate the matter with the Office of the Clerk of Court of Muntinlupa City maybe to determine the propriety of the transaction but instead, the Clerk of Court, Atty. Jose Ricuerdo P. Flores took in his possession the managers check and herein respondents bankbook over the vehement opposition of the counsel for the judgment creditor;[8] (Emphasis supplied)

Page 1273 of 1485

Attached to said Supplement is a copy of a letter of Atty. Rempillo to Atty. Flores, dated October 13, 2004, stating that the subject check was issued by the bank by virtue of a Notice of Garnishment served upon them by the implementing Sheriff of the RTC of Muntinlupa City, Branch 276 in connection with Civil Case No. 95-172 which was erroneously made payable to the latter court and that the managers check should have been made payable to the plaintiff in said case for the purpose of satisfying the writ of execution against defendant.[9]

The OCA then submitted its report with the following evaluation and recommendation:

The version of the respondent Sheriff is that the managers check in the amount of Nine Hundred Thousand Pesos (P900,000.00) issued by the Prudential Bank in favor of the Regional Trial Court, Branch 276, Muntinlupa City, thru: Felix M. Falcotelo, Sheriff was at the instance of the counsel for the plaintiff.

As culled from the records, it appears that the managers check was issued by the bank pursuant to the Notice of Garnishment served by the implementing sheriff of RTC, Branch 276, Muntinlupa City in connection with Civil Case No. 95-172 entitled, Polilio Shipping Lines, Inc. vs. Mariano V. Buquia. After the Notice of Garnishment was served upon the bank, the representative of the judgment obligee and the respondent sheriff requested the bank Branch Manager to make the managers check payable to Divina S. Remollino, President of the plaintiff corporation. But since it is not stated in the Notice to Deliver Garnished Amount that the amount should be paid directly to Divina S. Remollino, the Branch Manager of the bank issued a Managers Check payable to the order of RTC, Branch 276, Muntinlupa City, thru Felix Falcotelo, Sheriff IV. The representative of the plaintiff and the respondent sheriff proceeded to the Land Bank of the Philippines, Muntinlupa Branch to deposit the Managers Check in order to purchase a Managers Check in the same amount payable directly to Divina S. Remollino.

The fault of the respondent Sheriff was when he prepared the Notice to Deliver the Garnished Amount not in favor of the judgment obligee for

Page 1274 of 1485

which reason, the Manager of the Bank made a check payable to the Regional Trial Court of Muntinlupa, Branch 276, thru Felix Falcotelo, Sheriff IV.

Respondent can also be faulted for attempting to deposit the managers check in his Lank Bank personal savings account. Only the presence of mind of the Manager of the Land Bank prevented the consummation of the transaction. What respondent Sheriff should have done was to deliver the Managers Check to the Clerk of Court that issued the writ or deposit the amount to a fiduciary account in the nearest depository bank of the RTC in the locality. The Clerk of Court shall thereafter arrange for the remittance of the deposit to the account of the court that issued the writ whose Clerk of Court shall deliver said payment to the judgment obligee in satisfaction of the judgment. xxx ( Section 9, Rule 39, 1997 Rules of Civil Procedure).

xxx Respectfully submitted for consideration of the Honorable Court is the recommendation that the instant IPI complaint be RE-DOCKETED as a regular administrative matter and respondent be SUSPENDED from office for six (6) months with a STERN WARNING that repetition of the same or similar offense shall be dealt with more severely.[10]

The parties manifested that they are willing to submit the case for resolution on the basis of the pleadings filed.[11]

We agree with the evaluation and findings of the OCA except as to the recommended penalty.

This Court has pointed out, time and again, the heavy burden and responsibility court personnel are saddled with in view of their exalted positions as keepers of the public faith. [12] Any impression of impropriety, misdeed or negligence in the performance of official functions must therefore be avoided.[13] Court personnel should be examples of responsibility, competence and efficiency and must discharge their duties with due care and utmost diligence.[14] Any conduct, act or omission on the part of those who would violate the norm of public accountability and diminish or even just tend to diminish the faith of the people in the judiciary shall not be countenanced.[15]

Page 1275 of 1485

Sheriffs in particular play an important role in the administration of justice[16] since they are called upon to serve court writs, execute all processes, and carry into effect the orders of the court with due care and utmost diligence. As officers of the court, sheriffs are duty-bound to use reasonable skill and diligence in the performance of their duties, and conduct themselves with propriety and decorum and act above suspicion. [17]

As we pronounced in Tan vs. Paredes:[18]

It must be stressed that high standards are expected of sheriffs, who, play an important role in the administration of justice. At the grassroots of our judicial machinery, sheriffs and deputy sheriffs are indispensably in close contact with the litigants, hence, their conduct should be geared towards maintaining the prestige and integrity of the court. The Court condemns and would never countenance any conduct, act or omission on the part of all those involved in the administration of justice, which would violate the norm of public accountability and diminish or even just tend to diminish the faith of the people in the judiciary.[19]

Under paragraph (c), Section 9, Rule 39 of the Rules of Court on garnishment of bank deposits, the executing sheriff is mandated to observe the same procedure under paragraph (a) of the same Rule with respect to delivery of payment to the judgment obligee, to wit:

Sec. 9. Execution of judgments for money, how enforced. ---

(a) Immediate payment on demand . --- The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. The judgment obligor shall pay in cash, certified bank check

Page 1276 of 1485

payable to the judgment obligee, or any other form of payment acceptable to the latter, the amount of the judgment debt under proper receipt directly to the judgment obligee or his authorized representative if present at the time of payment. The lawful fees shall be handed under proper receipt to the executing sheriff who shall turn over the said amount within the same day to the clerk of court of the court that issued the writ.

If the judgment obligee or his authorized representative is not present to receive payment, the judgment obligor shall deliver the aforesaid payment to the executing sheriff. The latter shall turn over all the amounts coming into his possession within the same day to the clerk of the court of the court that issued the writ, or if the same is not practicable, deposit said amounts to a fiduciary account in the nearest government depository bank of the Regional Trial Court of the locality.

The clerk of said court shall thereafter arrange for the remittance of the deposit to the account of the court that issued the writ whose clerk of court shall then deliver said payment to the judgment obligee in satisfaction of the judgment. The excess, if any, shall be delivered to the judgment obligor while the lawful fees shall be retained by the clerk of court for disposition as provided by law. In no case shall the executing sheriff demand that any payment by check be made payable to him.

Respondent failed to comply faithfully with said Rule.

Respondent explains that the prevailing party in the civil case initially sought to have the check made payable to Divina Remollino, president of plaintiff Polilio Shipping Lines. However, since the notice of garnishment did not specify to whom it shall be issued, the bank did not directly issue a check in the name of said prevailing party and instead issued a check to the order of RTC Br. 276 Muntinlupa thru Felix Falcotelo, Sheriff IV.

Page 1277 of 1485

While such explanation may dispel any ill motive on the part of the sheriff, still, his act cannot be allowed to go unpunished for he failed to strictly observe the rules in implementing money judgments.

Respondent allowed a check to be made payable through him despite the clear intent of the rules proscribing sheriffs from having checks made payable to them. He likewise attempted to deposit the check in his personal account despite the clear mandate of the rules directing sheriffs to deliver sums of money intended for judgment creditors to the clerks of court or deposit the same to a fiduciary account.

The procedure in receiving money intended for judgment creditors are clearly specified by the rules. Thus in Balanag, Jr. vs. Osita,[20] the Court explained that:

In case where the judgment obligor voluntarily pays in cash or certified check the judgment debt and the judgment obligee is not present, Section 9 of Rule 39 requires the sheriff to receive the payment. However, the sheriff must turn over the amount within the same day to the clerk of court. If it is not practicable to deliver the amount to the clerk of court within the same day, the sheriff shall deposit the amount in a fiduciary account with the nearest government depository bank. The clerk of court then delivers the amount to the judgment obligee in satisfaction of the judgment.[21]

Indeed, issuing checks in the name of sheriffs is fraught with danger. In Philippine Airlines, Inc. vs. Court of Appeals, [22] where the judgment debtor issued a check in the name of the sheriff who later absconded with the money, the Court explained why checks should not be made payable through sheriffs:

It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name of another. Making the checks payable to the judgment creditor would have prevented the encashment or the taking of

Page 1278 of 1485

undue advantage by the sheriff, or any person into whose hands the checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in the name of the sheriff clearly made possible the misappropriation of the funds that were withdrawn.[23]

xxxx

The attention of this Court has been called to the bad practice of a number of executing officers, of requiring checks in satisfaction of judgment debts to be made out in their own names. If a sheriff directs a judgment debtor to issue the checks in the sheriffs name, claiming he must get his commission or fees, the debtor must report the sheriff immediately to the court which ordered the execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, and salaries are paid through regular channels. This improper procedure also allows such officers, who have sixty (60) days within which to make a return, to treat the moneys as their personal funds and to deposit the same in their private accounts to earn sixty (60) days interest, before said funds are turned over to the court or judgment creditor xxx. Quite as easily, such officers could put up the defense that said checks had been issued to them in their private or personal capacity. Without a receipt evidencing payment of the judgment debt, the misappropriation of funds by such officers becomes clean and complete. The practice is ingenious but evil as it unjustly enriches court personnel at the expense of litigants and the proper administration of justice. The temptation could be far greater, as proved to be in this case of the absconding sheriff. The correct and prudent thing for the petitioner was to have issued the checks in the intended payees name.

The pernicious effects of issuing checks in the name of a person other than the intended payee, without the latters agreement or consent, are as many as the ways that an artful mind could concoct to get around the safeguards provided by the law on negotiable instruments. An angry litigant who loses a case, as a rule, would not want the winning party to get what he won in the judgment. He would think of ways to delay the winning partys getting what has been adjudged in his favor. We cannot condone that practice especially in cases where the courts and their officers are involve xxx.[24]

Page 1279 of 1485

Respondent argues that he never had any intention to misappropriate the amount of P900,000.00 covered by the subject check since the issuance of the same was with the conformity of both the plaintiff and the defendant in Civil Case No. 95-172.

Even if true, such excuse will not completely exculpate him. Good faith on the part of the sheriff, in proceeding to execute his mandate would be of no moment for he is chargeable with the knowledge that being the officer of the court tasked therefor, it behooves him to make due compliances.[25] As an implementing officer of the court, respondent should set the example by faithfully observing the Rules of Court, and not brazenly disregard the Rules.[26] Indeed, despite the hazards that come with the implementation of the judgment, sheriffs must perform their duties by the book.[27]

For his failure to properly observe Sec. 9, Rule 39 of the Rules of Court, respondent is guilty of simple neglect of duty.

In Balanag vs. Osita,[28] the respondent Sheriff therein was found guilty of simple neglect of duty for failing to follow the procedure laid down by the Rules of Court in failing to secure the approval of the court on the expenses of execution and in turning over the proceeds to one of the four plaintiffs without authority from the others to receive their shares and without first turning over the proceeds to the clerk of court under Section 9, Rule 39; and fined P5,000.00 with a stern warning that a repetition of the same or similar act shall be dealt with more severely by the Court.

Under Sec. 23, Rule XIV of the Omnibus Civil Service Rules and Regulations, simple neglect of duty is punishable by suspension for one (1) month and one (1) day to six (6) months for the first offense. Considering however the fact that this is respondents first administrative offense, and that there is no evidence that shows bad faith or malice on the part of respondent in view of the fact that the counsel of the plaintiff corroborated the defense of respondent that the representative of plaintiff agreed to have the check

Page 1280 of 1485

deposited in the personal account of respondent, for the purpose of having the check expeditely cleared or withdrawn in favor of the former, we find that the penalty of fine of P5,000.00 is just and reasonable.

WHEREFORE, respondent FELIX FALCOTELO, Sheriff IV of RTC Branch 276, Muntinlupa City, is found GUILTY of simple neglect of duty and FINED the amount of Five Thousand Pesos (P5,000.00) with a WARNING that a repetition of the same or similar acts in the future shall be dealt with more severely.

SO ORDERED. FIRST DIVISION

LETICIA G. MIRANDA, Petitioner,

G.R. No. 169334

Present:

Panganiban, C.J. (Chairperson), - versus Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ. PHILIPPINE DEPOSIT INSURANCE CORPORATION, BANGKO SENTRAL NG PILIPINAS and PRIME SAVINGS BANK, Promulgated:

Page 1281 of 1485

Respondents. September 8, 2006 x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks a reversal of the Decision1609[1] of the Court of Appeals dated February 23, 2005 in CA-G.R. CV No. 77556 which reversed and set aside the Decision 1610[2] of the Regional Trial Court of Santiago City, Branch 35, in Civil Case No. 35-2844 and the July 7, 2005 Resolution denying petitioners Motion for Reconsideration.1611[3]

Petitioner Leticia G. Miranda was a depositor of Prime Savings Bank, Santiago City Branch. On June 3, 1999, she withdrew substantial amounts from her account, but instead of cash she opted to be issued a crossed cashiers check. She was thus issued cashiers check no. 0000000518 in the sum of P2,500,000.00 and cashiers check no. 0000000514 in the amount of P3,002,000.00.1612[4]

Petitioner deposited the two checks into her account in another bank on the same day, however, Bangko Sentral ng Pilipinas (BSP) suspended the clearing privileges of Prime

1609 1610 1611 1612

Page 1282 of 1485

Savings Bank effective 2:00 p.m. of June 3, 1999. returned to her unpaid.1613[5] The two checks of petitioner were

On June 4, 1999, Prime Savings Bank declared a bank holiday. On January 7, 2000, the BSP placed Prime Savings Bank under the receivership of the Philippine Deposit Insurance Corporation (PDIC).1614[6]

Petitioner filed a civil action for sum of money in the Regional Trial Court of Santiago City, Isabela to recover the funds from her unpaid checks against Prime Savings Bank, PDIC and the BSP. Judgment on the pleadings was rendered on March 1, 2001, the dispositive portion of which reads:

WHEREFORE, judgment is rendered against defendants namely: Philippine Deposit Insurance Corporation, Bangko Sentral ng Pilipinas and Prime Bank, to pay jointly and solidarily the amount of P5,502,000.00 to the plaintiff. SO ORDERED.1615[7]

On appeal, the Court of Appeals reversed the trial court and ruled in favor of the PDIC and BSP, dismissing the case against them, without prejudice to the right of petitioner to file her claim before the court designated to adjudicate on claims against Prime Savings Bank. The dispositive portion of the appellate courts decision dated February 23, 2005 thus reads:

WHEREFORE, the appeal is GRANTED and the decision appealed from is REVERSED and SET ASIDE and the case is DISMISSED, without prejudice to

1613 1614 1615

Page 1283 of 1485

the right of Miranda to file her claim before the court designated to adjudicate on claims against Prime Savings Bank. SO ORDERED.1616[8]

Petitioners motion for reconsideration was denied,1617[9] hence, this petition.

The issues presented by the petitioner before this Court can be summarized as follows: (1) Whether the two cashiers checks operate as an assignment of funds in the hands of the petitioner; (2) Whether the claim lodged by the petitioner is a disputed claim under Section 30 of Republic Act (R.A.) No. 7653, otherwise known as the New Central Bank Act, and therefore, under the jurisdiction of the liquidation court; and (3) Whether the respondents are solidarily liable to the petitioner.

Petitioner contends that she ceased to be a depositor upon withdrawal of her deposit and the issuance of the two cashiers checks to her. As a holder in due course of the cashiers checks as defined under Sections 52 and 191 of the Negotiable Instruments Law, she is an assignee of the funds of Prime Savings Bank as drawer thereof and entitled to its immediate payment.1618[10]

Petitioner next argues that the present claim is not a disputed claim in contemplation of Section 30 of the New Central Bank Act. Since disputed claims refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, or damages, it is manifest that petitioners claim cannot fall within the purview of a disputed claim because she is recovering assigned funds which are segregated monies of Prime Savings Bank.1619[11]

1616 1617 1618 1619

Page 1284 of 1485

Petitioner further states that by the mere issuance of the cashiers check, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder. Hence, petitioner alleges that she cannot be placed on the same footing with the ordinary creditors of the bank because Section 30 of R.A. No. 7653 is for equality among creditors. She avers that she is not a creditor thus is entitled to the immediate payment of her claim, pursuant to Section 189 of the Negotiable Instruments Law and existing jurisprudence. She argues that putting her on equal footing with ordinary creditors, would contravene the provisions of the Negotiable Instruments Law and would greatly diminish her rights as a holder in due course of said two cashiers checks.1620[12]

Petitioner also argues that respondents PDIC and BSP contrary to Sections 185 and 189 of the Negotiable Instruments Law have caused damage to the petitioner and should be held solidarily liable by indemnifying the petitioner for the value of the two cashiers checks.1621[13]

Respondents, on the other hand, state that the mere issuance of the cashiers checks did not operate as assignment of funds in favor of the petitioner. They argue that even prior to the issuance of the cashiers checks, the bank was already cash-strapped, which negates petitioners claim that there was an assignment of funds in her favor. 1622[14] There can be no assignment of funds when there is no funds to speak of in the first place.

They likewise argue that the cashiers checks issued to petitioner were not certified but crossed, hence, there was no assignment of funds made by the cashier or manager of respondent Prime Savings Bank-Santiago City Branch as it had insufficient funds to meet the said checks either in its cash vault or with respondent BSP to clear the said checks. 1623[15]

1620 1621 1622 1623

Page 1285 of 1485

Respondents argue that the instant case involves a disputed claim of sum of money against a closed financial institution. Sections 30 and 31 of R.A. No. 7653, exclusively vests the authority to assess, evaluate and determine the condition of any bank with the BSP, while the PDIC has the primary responsibility of acting as receiver or liquidator of the closed financial institution.1624[16] Since the relationship between petitioner and Prime Savings Bank is one of creditor and debtor, petitioner should file her claim with the liquidation court constituted precisely for purposes of adjudicating claims against the bank in accordance with the rules on concurrence and preference of credits.1625[17]

Respondent PDIC alleges that it was impleaded in its representative capacity as the receiver/liquidator of the closed institution, therefore, it has no direct, personal and solidary liability for the payment of the two cashiers checks. receiver or liquidator.1626[18] Its involvement came about only because a bank under receivership or liquidation cannot sue or be sued except through its

Respondent BSP also insists that not being a party to the said checks nor for imposing sanctions on co-respondent Prime Savings Bank, is not liable on the said crossed cashiers checks.1627[19]

Anent the first issue, the two cashiers checks issued by Prime Savings Bank do not constitute an assignment of funds in the hands of the petitioner as there were no funds to speak of in the first place. The bank was financially insolvent for sometime, even before the issuance of the checks on June 3, 1999. As the Court of Appeals correctly ruled, the issuance of the cashiers checks to petitioner did not constitute an

1624 1625 1626 1627

Page 1286 of 1485

assignment of funds, of which there was practically none at the time these were issued, as the bank was in dire financial straits for some time.1628[20]

As regards the second issue, the claim lodged by the petitioner qualifies as a disputed claim subject to the jurisdiction of the liquidation court. Regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank, unless there is a clear showing that the action taken by the BSP, through the Monetary Board in the closure of financial institutions was in excess of jurisdiction, or with grave abuse of discretion.

The power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may not be exercised arbitrarily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due process and equal protection clauses of the Constitution.1629[21]

Disputed claims refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever. 1630[22] Petitioners claim which involved the payment of the two cashiers checks that were not honored by Prime Savings Bank due to its closure falls within the ambit of a claim against the assets of the insolvent bank. The issuance of the cashiers checks by Prime Savings Bank to the petitioner created a debtor/creditor relationship between them. This

1628 1629 1630

Page 1287 of 1485

disputed claim should therefore be lodged in the liquidation proceedings by the petitioner as creditor, since the closure of Prime Savings Bank has rendered all claims subsisting at that time moot which can best be threshed out by the liquidation court and not the regular courts.

It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve a probable loss to its depositors or creditors, forbid bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the BSP or other competent person as receiver to immediately take charge of its assets and liabilities.1631[23]

In Central Bank of the Philippines v. De la Cruz ,1632[24] we held that the actions of the Monetary Board in proceedings on insolvency are explicitly declared by law to be final and executory. They may not be set aside, or restrained, or enjoined by the courts, except upon convincing proof that the action is plainly arbitrary and made in bad faith.

Hence, as clearly laid down in Ong v. Court of Appeals,1633[25] the rationale behind judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking body contemplated that for convenience, only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendent of Banks and regulate his operations.

1631 1632 1633

Page 1288 of 1485

Regarding the third issue, it is only Prime Savings Bank that is liable to pay for the amount of the two cashiers checks. Solidary liability cannot attach to the BSP, in its capacity as government regulator of banks, and the PDIC as statutory receiver under R.A. No. 7653, because they are the principal government agencies mandated by law to determine the financial viability of banks and quasi-banks, and facilitate receivership and liquidation of closed financial institutions, upon a factual determination of the latters insolvency.

As correctly pointed out by the Court of Appeals, the BSP should not be held liable on the crossed cashiers checks for it was not a party to the issuance of the same; nor can it be held liable for imposing the sanctions on Prime Savings Bank which indirectly affected Miranda, since it is mandated under Sec. 37 of R.A. No. 7653 to act accordingly. 1634[26] The BSP, through the Monetary Board was well within its discretion to exercise this power granted by law to issue a resolution suspending the interbank clearing privileges of Prime Savings Bank, having made a factual determination that the bank had deficient cash reserves deposited before the BSP. There is no showing that the BSP abused this discretionary power conferred upon it by law.

In addition, co-respondent PDIC was impleaded as a party-litigant only in its representative capacity as the receiver/liquidator of Prime Savings Bank. Both BSP and PDIC cannot therefore be held directly and solidarily liable for the payment of the two cashiers checks. Sole liability rests with Prime Savings Bank.

In the absence of fraud, the purchase of a cashiers check, like the purchase of a draft on a correspondent bank, creates the relation of creditor and debtor, not that of principal and agent, with the result that the purchaser or holder thereof is not entitled to a preference over general creditors in the assets of the bank issuing the check, when it fails before payment of the check. However, in a situation involving the element of fraud, where a cashiers check is purchased from a bank at a time when it is insolvent, as its officers know or are bound to know by the exercise of reasonable diligence,

1634

Page 1289 of 1485

it has been held that the purchase is entitled to a preference in the assets of the bank on its liquidation before the check is paid .1635[27]

As correctly found by the Court of Appeals:

Prime Savings as a bank did not collapse overnight but was hemorrhaging and in financial extremis for some time, a fact which could not have gone unnoticed by the bank officers. They could not have issued in good faith checks for the total sum of P5,502,000.00 knowing that the banks coffers could not meet this.1636[28]

Clearly, there was fraud or the intent to deceive when the two cashiers checks dated June 3, 1999 were issued by Prime Savings Bank to the petitioner.

In the distribution of assets of Prime Savings Bank, Section 31 of the New Central Bank Act which provides that [i]n case of liquidation of a bank or quasi-bank, after payment of the cost of proceedings, including reasonable expenses and fees of the receiver to be allowed by the court, the receiver shall pay the debts of such institution, under order of the court, in accordance with the rules on concurrence and preference of credit as provided in the Civil Code, should apply.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated February 23, 2005 and the Resolution dated July 7, 2005, in CA-G.R. CV No. 77556, are AFFIRMED with the MODIFICATION that petitioner Leticia G. Miranda is entitled to a preference in the assets of Prime Savings Bank in its liquidation for the amounts of P3,002,000.00 and P2,500,000.00, respectively stated in Cashiers Check No. 0000000514 and 0000000518 dated June 3, 1999 in the proceedings before the liquidation court

1635 1636

Page 1290 of 1485

designated to adjudicate on all claims against Prime Savings Bank, in accordance with the rules on concurrence and preference of credits as provided in the Civil Code.

SO ORDERED. Republic SUPREME Manila THIRD DIVISION G.R. No. 156132 February 6, 2007 of the Philippines COURT

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS FINANCE CORPORATION, doing business under the name and style of FNCB Finance, Petitioners, vs. MODESTA R. SABENIANO, Respondent. RESOLUTION CHICO-NAZARIO, J.: On 16 October 2006, this Court promulgated its Decision 1 in the above-entitled case, the dispositive portion of which reads IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution, dated 20 November 2002, is hereby AFFIRMED WITH MODIFICATION, as follows 1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is ORDERED to return to respondent the principal amounts of the said PNs, amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated interest of Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977; 2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-Nine Cents (US$149,632.99) from respondents Citibank-Geneva accounts to petitioner Citibank in Manila, and the application of the same against respondents outstanding loans with the latter, is DECLARED illegal, null and void. Petitioner Citibank is ORDERED to refund to respondent the said amount, or its equivalent in Philippine currency using the exchange rate at the time of payment, plus the stipulated interest for each of the fiduciary placements and current accounts involved, beginning 26 October 1979;

Page 1291 of 1485

3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred Thousand Pesos (P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorneys fees in the amount of Two Hundred Thousand Pesos (P200,000.00); and 4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from the respective dates of their maturity to 5 September 1979, was computed to be in the sum of One Million Sixty-Nine Thousand Eight Hundred FortySeven Pesos and Forty Centavos (P1,069,847.40), inclusive of interest. These outstanding loans shall continue to earn interest, at the rates stipulated in the corresponding PNs, from 5 September 1979 until payment thereof. Subsequent thereto, respondent Modesta R. Sabeniano filed an Urgent Motion to Clarify and/or Confirm Decision with Notice of Judgment on 20 October 2006; while, petitioners Citibank, N.A. and FNCB Finance2 filed their Motion for Partial Reconsideration of the foregoing Decision on 6 November 2006. The facts of the case, as determined by this Court in its Decision, may be summarized as follows. Respondent was a client of petitioners. She had several deposits and market placements with petitioners, among which were her savings account with the local branch of petitioner Citibank (Citibank-Manila3 ); money market placements with petitioner FNCB Finance; and dollar accounts with the Geneva branch of petitioner Citibank (Citibank-Geneva). At the same time, respondent had outstanding loans with petitioner Citibank, incurred at CitibankManila, the principal amounts aggregating to P1,920,000.00, all of which had become due and demandable by May 1979. Despite repeated demands by petitioner Citibank, respondent failed to pay her outstanding loans. Thus, petitioner Citibank used respondents deposits and money market placements to off-set and liquidate her outstanding obligations, as follows P Respondents outstanding obligation (principal and interest as of 2,156,940.5 26 October 1979) 8 Less Proceeds from respondents money market placements : with petitioner FNCB Finance (principal and interest as of 5 (1,022,916.6 September 1979) 6) Deposits in respondents bank accounts with petitioner Citibank (31,079.14) Proceeds of respondents money market placements and dollar accounts with Citibank-Geneva (peso equivalent as (1,102,944.7 of 26 October 1979) 8) Balance of respondents obligation P 0.00

Respondent, however, denied having any outstanding loans with petitioner Citibank. She likewise denied that she was duly informed of the off-setting or compensation thereof made by petitioner Citibank using her deposits and money market placements with petitioners. Hence, respondent sought to recover her deposits and money market placements.

Page 1292 of 1485

Respondent instituted a complaint for "Accounting, Sum of Money and Damages" against petitioners, docketed as Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati City. After trial proper, which lasted for a decade, the RTC rendered a Decision 4 on 24 August 1995, the dispositive portion of which reads WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows: (1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of plaintiffs [respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said defendant [petitioner Citibank] to refund the said amount to the plaintiff with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of payment; (2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank] in the amount of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said amount, however, there shall be no interest and penalty charges from the time the illegal setoff was effected on 31 October 1979; (3) Dismissing all other claims and counterclaims interposed by the parties against each other. Costs against the defendant Bank. All the parties appealed the afore-mentioned RTC Decision to the Court of Appeals, docketed as CA-G.R. CV No. 51930. On 26 March 2002, the appellate court promulgated its Decision, 5 ruling entirely in favor of respondent, to wit Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is hereby AFFIRMED with MODIFICATION, as follows: 1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of the plaintiff-appellants dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering defendant-appellant Citibank to refund the said amount to the plaintiff-appellant with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of payment; 2. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without legal and factual basis; 3. As defendants-appellants failed to account the following plaintiff-appellants money market placements, savings account and current accounts, the former is hereby ordered to return the same, in accordance with the terms and conditions agreed upon by the contending parties as evidenced by the certificates of investments, to wit: (i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17 March 1977, P318,897.34 with 14.50% interest p.a.;

Page 1293 of 1485

(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17 March 1977, P203,150.00 with 14.50 interest p.a.; (iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02 June 1977, P500,000.00 with 17% interest p.a.; (iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02 June 1977, P500,000.00 with 17% interest per annum; (v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the Ayala Investment & Development Corporation (AIDC) with legal interest at the rate of twelve percent (12%) per annum compounded yearly, from 30 September 1976 until fully paid; 4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00) as attorneys fees. Acting on petitioners Motion for Partial Reconsideration, the Court of Appeals issued a Resolution,6 dated 20 November 2002, modifying its earlier Decision, thus WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3 of the assailed Decisions dispositive portion is hereby ordered DELETED. The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION. Since the Court of Appeals Decision, dated 26 March 2002, as modified by the Resolution of the same court, dated 20 November 2002, was still principally in favor of respondent, petitioners filed the instant Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court. After giving due course to the instant Petition, this Court promulgated on 16 October 2006 its Decision, now subject of petitioners Motion for Partial Reconsideration.1awphi1.net Among the numerous grounds raised by petitioners in their Motion for Partial Reconsideration, this Court shall address and discuss herein only particular points that had not been considered or discussed in its Decision. Even in consideration of these points though, this Court remains unconvinced that it should modify or reverse in any way its disposition of the case in its earlier Decision. As to the off-setting or compensation of respondents outstanding loan balance with her dollar deposits in Citibank-Geneva Petitioners take exception to the following findings made by this Court in its Decision, dated 16 October 2006, disallowing the off-setting or compensation of the balance of respondents outstanding loans using her dollar deposits in Citibank-Geneva Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondents dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate

Page 1294 of 1485

entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions were evidently not the principal creditor of each other. Petitioners maintain that respondents Declaration of Pledge, by virtue of which she supposedly assigned her dollar accounts with Citibank-Geneva as security for her loans with petitioner Citibank, is authentic and, thus, valid and binding upon respondent. Alternatively, petitioners aver that even without said Declaration of Pledge, the off-setting or compensation made by petitioner Citibank using respondents dollar accounts with CitibankGeneva to liquidate the balance of her outstanding loans with Citibank-Manila was expressly authorized by respondent herself in the promissory notes (PNs) she signed for her loans, as well as sanctioned by Articles 1278 to 1290 of the Civil Code. This alternative argument is anchored on the premise that all branches of petitioner Citibank in the Philippines and abroad are part of a single worldwide corporate entity and share the same juridical personality. In connection therewith, petitioners deny that they ever admitted that CitibankManila and Citibank-Geneva are distinct and separate entities. Petitioners call the attention of this Court to the following provision found in all of the PNs 7 executed by respondent for her loans At or after the maturity of this note, or when same becomes due under any of the provisions hereof, any money, stocks, bonds, or other property of any kind whatsoever, on deposit or otherwise, to the credit of the undersigned on the books of CITIBANK, N.A. in transit or in their possession, may without notice be applied at the discretion of the said bank to the full or partial payment of this note. It is the petitioners contention that the term "Citibank, N.A." used therein should be deemed to refer to all branches of petitioner Citibank in the Philippines and abroad; thus, giving petitioner Citibank the authority to apply as payment for the PNs even respondents dollar accounts with Citibank-Geneva. Still proceeding from the premise that all branches of petitioner Citibank should be considered as a single entity, then it should not matter that the respondent obtained the loans from Citibank-Manila and her deposits were with CitibankGeneva. Respondent should be considered the debtor (for the loans) and creditor (for her deposits) of the same entity, petitioner Citibank. Since petitioner Citibank and respondent were principal creditors of each other, in compliance with the requirements under Article 1279 of the Civil Code,8 then the former could have very well used off-setting or compensation to extinguish the parties obligations to one another. And even without the PNs, off-setting or compensation was still authorized because according to Article 1286 of the Civil Code, "Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment." Pertinent provisions of Republic Act No. 8791, otherwise known as the General Banking Law of 2000, governing bank branches are reproduced below SEC. 20. Bank Branches. Universal or commercial banks may open branches or other offices within or outside the Philippines upon prior approval of the Bangko Sentral. Branching by all other banks shall be governed by pertinent laws.

Page 1295 of 1485

A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for the presentation and/or sale of the financial products of its allied undertaking or its investment house units. A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though such business had all been conducted in the head office. A bank and its branches and offices shall be treated as one unit. xxxx SEC. 72. Transacting Business in the Philippines. The entry of foreign banks in the Philippines through the establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act. The conduct of offshore banking business in the Philippines shall be governed by the provisions of Presidential Decree No. 1034, otherwise known as the "Offshore Banking System Decree." xxxx SEC. 74. Local Branches of Foreign Banks. In case of a foreign bank which has more than one (1) branch in the Philippines, all such branches shall be treated as one (1) unit for the purpose of this Act, and all references to the Philippine branches of foreign banks shall be held to refer to such units. SEC. 75. Head Office Guarantee. In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch. Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with existing laws. Republic Act No. 7721, otherwise known as the Foreign Banks Liberalization Law, lays down the policies and regulations specifically concerning the establishment and operation of local branches of foreign banks. Relevant provisions of the said statute read Sec. 2. Modes of Entry. - The Monetary Board may authorize foreign banks to operate in the Philippine banking system through any of the following modes of entry: (i) by acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an existing bank; (ii) by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or (iii) by establishing branches with full banking authority: Provided, That a foreign bank may avail itself of only one (1) mode of entry: Provided, further, That a foreign bank or a Philippine corporation may own up to a sixty percent (60%) of the voting stock of only one (1) domestic bank or new banking subsidiary. Sec. 5. Head Office Guarantee. - The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches.

Page 1296 of 1485

It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly states that the bank and its branches shall be treated as one unit. It should be pointed out, however, that the said provision applies to a universal 9 or commercial bank,10 duly established and organized as a Philippine corporation in accordance with Section 8 of the same statute,11 and authorized to establish branches within or outside the Philippines. The General Banking Law of 2000, however, does not make the same categorical statement as regards to foreign banks and their branches in the Philippines. What Section 74 of the said law provides is that in case of a foreign bank with several branches in the country, all such branches shall be treated as one unit . As to the relations between the local branches of a foreign bank and its head office, Section 75 of the General Banking Law of 2000 and Section 5 of the Foreign Banks Liberalization Law provide for a "Home Office Guarantee," in which the head office of the foreign bank shall guarantee prompt payment of all liabilities of its Philippine branches. While the Home Office Guarantee is in accord with the principle that these local branches, together with its head office, constitute but one legal entity, it does not necessarily support the view that said principle is true and applicable in all circumstances. The Home Office Guarantee is included in Philippine statutes clearly for the protection of the interests of the depositors and other creditors of the local branches of a foreign bank. 12 Since the head office of the bank is located in another country or state, such a guarantee is necessary so as to bring the head office within Philippine jurisdiction, and to hold the same answerable for the liabilities of its Philippine branches. Hence, the principle of the singular identity of that the local branches and the head office of a foreign bank are more often invoked by the clients in order to establish the accountability of the head office for the liabilities of its local branches. It is under such attendant circumstances in which the American authorities and jurisprudence presented by petitioners in their Motion for Partial Reconsideration were rendered. Now the question that remains to be answered is whether the foreign bank can use the principle for a reverse purpose, in order to extend the liability of a client to the foreign banks Philippine branch to its head office, as well as to its branches in other countries. Thus, if a client obtains a loan from the foreign banks Philippine branch, does it absolutely and automatically make the client a debtor, not just of the Philippine branch, but also of the head office and all other branches of the foreign bank around the world? This Court rules in the negative. There being a dearth of Philippine authorities and jurisprudence on the matter, this Court, just as what petitioners have done, turns to American authorities and jurisprudence. American authorities and jurisprudence are significant herein considering that the head office of petitioner Citibank is located in New York, United States of America (U.S.A.). Unlike Philippine statutes, the American legislation explicitly defines the relations among foreign branches of an American bank. Section 25 of the United States Federal Reserve Act 13 states that Every national banking association operating foreign branches shall conduct the accounts of each foreign branch independently of the accounts of other foreign branches established by it and of its home office, and shall at the end of each fiscal period transfer to its general ledger the profit or loss accrued at each branch as a separate item. Contrary to petitioners assertion that the accounts of Citibank-Manila and Citibank-Geneva should be deemed as a single account under its head office, the foregoing provision

Page 1297 of 1485

mandates that the accounts of foreign branches of an American bank shall be conducted independently of each other. Since the head office of petitioner Citibank is in the U.S.A., then it is bound to treat its foreign branches in accordance with the said provision. It is only at the end of its fiscal period that the bank is required to transfer to its general ledger the profit or loss accrued at each branch, but still reporting it as a separate item. It is by virtue of this provision that the Circuit Court of Appeals of New York declared in Pan-American Bank and Trust Co. v. National City Bank of New York14 that a branch is not merely a tellers window; it is a separate business entity. The circumstances in the case of McGrath v. Agency of Chartered Bank of India, Australia & China15 are closest to the one at bar. In said case, the Chartered Bank had branches in several countries, including one in Hamburg, Germany and another in New York, U.S.A., and yet another in London, United Kingdom. The New York branch entered in its books credit in favor of four German firms. Said credit represents collections made from bills of exchange delivered by the four German firms. The same four German firms subsequently became indebted to the Hamburg branch. The London branch then requested for the transfer of the credit in the name of the German firms from the New York branch so as to be applied or setoff against the indebtedness of the same firms to the Hamburg branch. One of the question brought before the U.S. District Court of New York was "whether or not the debts and the alleged setoffs thereto are mutual," which could be answered by determining first whether the New York and Hamburg branches of Chartered Bank are individual business entities or are one and the same entity. In denying the right of the Hamburg branch to setoff, the U.S. District Court ratiocinated that The structure of international banking houses such as Chartered bank defies one rigorous description. Suffice it to say for present analysis, branches or agencies of an international bank have been held to be independent entities for a variety of purposes (a) deposits payable only at branch where made; Mutaugh v. Yokohama Specie Bank, Ltd., 1933, 149 Misc. 693, 269 N.Y.S. 65; Bluebird Undergarment Corp. v. Gomez, 1931, 139 Misc. 742, 249 N.Y.S. 319; (b) checks need be honored only when drawn on branch where deposited; Chrzanowska v. Corn Exchange Bank , 1916, 173 App. Div. 285, 159 N.Y.S. 385, affirmed 1919, 225 N.Y. 728, 122 N.E. 877; subpoena duces tecum on foreign banks record barred; In re Harris, D.C.S.D.N.Y. 1939, 27 F. Supp. 480; (d) a foreign branch separate for collection of forwarded paper; Pan-American Bank and Trust Company v. National City Bank of New York, 2 Cir., 1925, 6 F. 2d 762, certiorari denied 1925, 269 U.S. 554, 46 S. Ct. 18, 70 L. Ed. 408. Thus in law there is nothing innately unitary about the organization of international banking institutions. Defendant, upon its oral argument and in its brief, relies heavily on Sokoloff v. National City Bank of New York, 1928, 250 N.Y. 69, 164 N.E. 745, as authority for the proposition that Chartered Bank, not the Hamburg or New York Agency, is ultimately responsible for the amounts owing its German customers and, conversely, it is to Chartered Bank that the German firms owe their obligations. The Sokoloff case, aside from its violently different fact situation, is centered on the legal problem of default of payment and consequent breach of contract by a branch bank. It does not stand for the principle that in every instance an international bank with branches is but one legal entity for all purposes. The defendant concedes in its brief (p. 15) that there are purposes for which the various agencies and branches of Chartered Bank may be treated in law as separate entities. I fail to see the applicability of Sokoloff either as a guide to or authority for the resolution of this problem. The facts before me and the cases catalogued supra lend weight to the view that we are dealing here with Agencies independent of one another. xxxx

Page 1298 of 1485

I hold that for instant purposes the Hamburg Agency and defendant were independent business entities, and the attempted setoff may not be utilized by defendant against its debt to the German firms obligated to the Hamburg Agency. Going back to the instant Petition, although this Court concedes that all the Philippine branches of petitioner Citibank should be treated as one unit with its head office, it cannot be persuaded to declare that these Philippine branches are likewise a single unit with the Geneva branch. It would be stretching the principle way beyond its intended purpose. Therefore, this Court maintains its original position in the Decision that the off-setting or compensation of respondents loans with Citibank-Manila using her dollar accounts with Citibank-Geneva cannot be effected. The parties cannot be considered principal creditor of the other. As for the dollar accounts, respondent was the creditor and Citibank-Geneva was the debtor; and as for the outstanding loans, petitioner Citibank, particularly Citibank-Manila, was the creditor and respondent was the debtor. Since legal compensation was not possible, petitioner Citibank could only use respondents dollar accounts with Citibank-Geneva to liquidate her loans if she had expressly authorized it to do so by contract. Respondent cannot be deemed to have authorized the use of her dollar deposits with Citibank-Geneva to liquidate her loans with petitioner Citibank when she signed the PNs 16 for her loans which all contained the provision that At or after the maturity of this note, or when same becomes due under any of the provisions hereof, any money, stocks, bonds, or other property of any kind whatsoever, on deposit or otherwise, to the credit of the undersigned on the books of CITIBANK, N.A. in transit or in their possession, may without notice be applied at the discretion of the said bank to the full or partial payment of this note. As has been established in the preceding discussion, "Citibank, N.A." can only refer to the local branches of petitioner Citibank together with its head office. Unless there is any showing that respondent understood and expressly agreed to a more far-reaching interpretation, the reference to Citibank, N.A. cannot be extended to all other branches of petitioner Citibank all over the world. Although theoretically, books of the branches form part of the books of the head office, operationally and practically, each branch maintains its own books which shall only be later integrated and balanced with the books of the head office. Thus, it is very possible to identify and segregate the books of the Philippine branches of petitioner Citibank from those of Citibank-Geneva, and to limit the authority granted for application as payment of the PNs to respondents deposits in the books of the former. Moreover, the PNs can be considered a contract of adhesion, the PNs being in standard printed form prepared by petitioner Citibank. Generally, stipulations in a contract come about after deliberate drafting by the parties thereto, there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the affixing of his signature or his "adhesion" thereto. This being the case, the terms of such contract are to be construed strictly against the party which prepared it. 17 As for the supposed Declaration of Pledge of respondents dollar accounts with CitibankGeneva as security for the loans, this Court stands firm on its ruling that the non-production thereof is fatal to petitioners cause in light of respondents claim that her signature on such document was a forgery. It bears to note that the original of the Declaration of Pledge is with Citibank-Geneva, a branch of petitioner Citibank. As between respondent and petitioner Citibank, the latter has better access to the document. The constant excuse forwarded by

Page 1299 of 1485

petitioner Citibank that Citibank-Geneva refused to return possession of the original Declaration of Pledge to Citibank-Manila only supports this Courts finding in the preceding paragraphs that the two branches are actually operating separately and independently of each other. Further, petitioners keep playing up the fact that respondent, at the beginning of the trial, refused to give her specimen signatures to help establish whether her signature on the Declaration of Pledge was indeed forged. Petitioners seem to forget that subsequently, respondent, on advice of her new counsel, already offered to cooperate in whatever manner so as to bring the original Declaration of Pledge before the RTC for inspection. The exchange of the counsels for the opposing sides during the hearing on 24 July 1991 before the RTC reveals the apparent willingness of respondents counsel to undertake whatever course of action necessary for the production of the contested document, and the evasive, noncommittal, and uncooperative attitude of petitioners counsel.18 Lastly, this Courts ruling striking down the Declaration of Pledge is not entirely based on respondents allegation of forgery. In its Decision, this Court already extensively discussed why it found the said Declaration of Pledge highly suspicious and irregular, to wit First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court would think that petitioner Citibank would take greater cautionary measures with the preparation and execution of the Declaration of Pledge because it involved respondents "all present and future fiduciary placements" with a Citibank branch in another country, specifically, in Geneva, Switzerland. While there is no express legal requirement that the Declaration of Pledge had to be notarized to be effective, even so, it could not enjoy the same prima facie presumption of due execution that is extended to notarized documents, and petitioner Citibank must discharge the burden of proving due execution and authenticity of the Declaration of Pledge. Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank before the RTC was undated. It presented only a photocopy of the pledge because it already forwarded the original copy thereof to Citibank-Geneva when it requested for the remittance of respondents dollar accounts pursuant thereto. Respondent, on the other hand, was able to secure a copy of the Declaration of Pledge, certified by an officer of Citibank-Geneva, which bore the date 24 September 1979. Respondent, however, presented her passport and plane tickets to prove that she was out of the country on the said date and could not have signed the pledge. Petitioner Citibank insisted that the pledge was signed before 24 September 1979, but could not provide an explanation as to how and why the said date was written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by respondent personally before him, he could not give the exact date when the said signing took place. It is important to note that the copy of the Declaration of Pledge submitted by the respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession of the original copy of the pledge. It is dated 24 September 1979, and this Court shall abide by the presumption that the written document is truly dated. Since it is undeniable that respondent was out of the country on 24 September 1979, then she could not have executed the pledge on the said date. Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. It was constituted in favor of Citibank, N.A., otherwise referred to therein as the Bank. It should be noted, however, that in the space which should have named the pledgor, the name of petitioner Citibank was typewritten, to wit

Page 1300 of 1485

The pledge right herewith constituted shall secure all claims which the Bank now has or in the future acquires against Citibank, N.A., Manila (full name and address of the Debtor), regardless of the legal cause or the transaction (for example current account, securities transactions, collections, credits, payments, documentary credits and collections) which gives rise thereto, and including principal, all contractual and penalty interest, commissions, charges, and costs. The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a mistake made by whoever filled-out the form? Yes, it could be a possibility. Nonetheless, considering the value of such a document, the mistake as to a significant detail in the pledge could only be committed with gross carelessness on the part of petitioner Citibank, and raised serious doubts as to the authenticity and due execution of the same. The Declaration of Pledge had passed through the hands of several bank officers in the country and abroad, yet, surprisingly and implausibly, no one noticed such a glaring mistake. Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that the signature was a forgery. When a document is assailed on the basis of forgery, the best evidence rule applies Basic is the rule of evidence that when the subject of inquiry is the contents of a document, no evidence is admissible other than the original document itself except in the instances mentioned in Section 3, Rule 130 of the Revised Rules of Court. Mere photocopies of documents are inadmissible pursuant to the best evidence rule. This is especially true when the issue is that of forgery. As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the burden of proof lies on the party alleging forgery. The best evidence of a forged signature in an instrument is the instrument itself reflecting the alleged forged signature. The fact of forgery can only be established by a comparison between the alleged forged signature and the authentic and genuine signature of the person whose signature is theorized upon to have been forged. Without the original document containing the alleged forged signature, one cannot make a definitive comparison which would establish forgery. A comparison based on a mere xerox copy or reproduction of the document under controversy cannot produce reliable results. Respondent made several attempts to have the original copy of the pledge produced before the RTC so as to have it examined by experts. Yet, despite several Orders by the RTC, petitioner Citibank failed to comply with the production of the original Declaration of Pledge. It is admitted that Citibank-Geneva had possession of the original copy of the pledge. While petitioner Citibank in Manila and its branch in Geneva may be separate and distinct entities, they are still incontestably related, and between petitioner Citibank and respondent, the former had more influence and resources to convince Citibank-Geneva to return, albeit temporarily, the original Declaration of Pledge. Petitioner Citibank did not present any evidence to convince this Court that it had exerted diligent efforts to secure the original copy of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back, when such document would have been very vital to the case of petitioner Citibank. There is thus no justification to allow the presentation of a mere photocopy of the Declaration of Pledge in lieu of the original, and the photocopy of the pledge presented by petitioner Citibank has nil probative value. In addition, even if this Court cannot make a categorical finding that respondents signature on the original copy of the pledge was forged, it is persuaded that petitioner Citibank willfully suppressed the presentation of the original document, and takes into consideration the presumption that the evidence willfully suppressed would be adverse to petitioner Citibank if produced.

Page 1301 of 1485

As far as the Declaration of Pledge is concerned, petitioners failed to submit any new evidence or argument that was not already considered by this Court when it rendered its Decision. As to the value of the dollar deposits in Citibank-Geneva ordered refunded to respondent In case petitioners are still ordered to refund to respondent the amount of her dollar accounts with Citibank-Geneva, petitioners beseech this Court to adjust the nominal values of respondents dollar accounts and/or her overdue peso loans by using the values of the currencies stipulated at the time the obligations were established in 1979, to address the alleged inequitable consequences resulting from the extreme and extraordinary devaluation of the Philippine currency that occurred in the course of the Asian crisis of 1997. Petitioners base their request on Article 1250 of the Civil Code which reads, "In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary." It is well-settled that Article 1250 of the Civil Code becomes applicable only when there is extraordinary inflation or deflation of the currency. Inflation has been defined as the sharp increase of money or credit or both without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level.19 In Singson v. Caltex (Philippines), Inc. ,20 this Court already provided a discourse as to what constitutes as extraordinary inflation or deflation of currency, thus We have held extraordinary inflation to exist when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry Corporation vs. NAWASA, supra, is that which happened to the deutschmark in 1920. Thus: "More recently, in the 1920s, Germany experienced a case of hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]). As reported, "prices were going up every week, then every day, then every hour. Women were paid several times a day so that they could rush out and exchange their money for something of value before what little purchasing power was left dissolved in their hands. Some workers tried to beat the constantly rising prices by throwing their money out of the windows to their waiting wives, who would rush to unload the nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The Money Balloon", New York: Simon and Schuster, 1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd ed.) The supervening of extraordinary inflation is never assumed. The party alleging it must lay down the factual basis for the application of Article 1250.

Page 1302 of 1485

Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records and statistics submitted by plaintiff-appellant proved that there has been a decline in the purchasing power of the Philippine peso, but this downward fall cannot be considered "extraordinary" but was simply a universal trend that has not spared our country. Similarly, in Huibonhoa vs. Court of Appeals, the Court dismissed plaintiff-appellant's unsubstantiated allegation that the Aquino assassination in 1983 caused building and construction costs to double during the period July 1983 to February 1984. In Serra vs. Court of Appeals , the Court again did not consider the decline in the peso's purchasing power from 1983 to 1985 to be so great as to result in an extraordinary inflation. Like the Serra and Huibonhoa cases, the instant case also raises as basis for the application of Article 1250 the Philippine economic crisis in the early 1980s --- when, based on petitioner's evidence, the inflation rate rose to 50.34% in 1984. We hold that there is no legal or factual basis to support petitioner's allegation of the existence of extraordinary inflation during this period, or, for that matter, the entire time frame of 1968 to 1983, to merit the adjustment of the rentals in the lease contract dated July 16, 1968. Although by petitioner's evidence there was a decided decline in the purchasing power of the Philippine peso throughout this period, we are hard put to treat this as an "extraordinary inflation" within the meaning and intent of Article 1250. Rather, we adopt with approval the following observations of the Court of Appeals on petitioner's evidence, especially the NEDA certification of inflation rates based on consumer price index: xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in any single year; (b) the highest official inflation rate recorded was in 1984 which reached only 50.34%; (c) over a twenty one (21) year period, the Philippines experienced a single-digit inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969, 1975, 1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979, 1980, 1981, 1982, 1984 and 1989) when the Philippines experienced double-digit inflation rates, the average of those rates was only 20.88%; (e) while there was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986, such cannot be considered as extraordinary; rather, it is a normal erosion of the value of the Philippine peso which is a characteristic of most currencies. "Erosion" is indeed an accurate description of the trend of decline in the value of the peso in the past three to four decades. Unfortunate as this trend may be, it is certainly distinct from the phenomenon contemplated by Article 1250. Moreover, this Court has held that the effects of extraordinary inflation are not to be applied without an official declaration thereof by competent authorities. The burden of proving that there had been extraordinary inflation or deflation of the currency is upon the party that alleges it. Such circumstance must be proven by competent evidence, and it cannot be merely assumed. In this case, petitioners presented no proof as to how much, for instance, the price index of goods and services had risen during the intervening period.21 All the information petitioners provided was the drop of the U.S. dollarPhilippine peso exchange rate by 17 points from June 1997 to January 1998. While the said figure was based on the statistics of the Bangko Sentral ng Pilipinas (BSP), it is also significant to note that the BSP did not categorically declare that the same constitute as an extraordinary inflation. The existence of extraordinary inflation must be officially proclaimed by competent authorities, and the only competent authority so far recognized by this Court to make such an official proclamation is the BSP. 22

Page 1303 of 1485

Neither can this Court, by merely taking judicial notice of the Asian currency crisis in 1997, already declare that there had been extraordinary inflation. It should be recalled that the Philippines likewise experienced economic crisis in the 1980s, yet this Court did not find that extraordinary inflation took place during the said period so as to warrant the application of Article 1250 of the Civil Code. Furthermore, it is incontrovertible that Article 1250 of the Civil Code is based on equitable considerations. Among the maxims of equity are (1) he who seeks equity must do equity, and (2) he who comes into equity must come with clean hands. The latter is a frequently stated maxim which is also expressed in the principle that he who has done inequity shall not have equity.23 Petitioner Citibank, hence, cannot invoke Article 1250 of the Civil Code because it does not come to court with clean hands. The delay in the recovery 24 by respondent of her dollar accounts with Citibank-Geneva was due to the unlawful act of petitioner Citibank in using the same to liquidate respondents loans. Petitioner Citibank even attempted to justify the off-setting or compensation of respondents loans using her dollar accounts with Citibank-Geneva by the presentation of a highly suspicious and irregular, and even possibly forged, Declaration of Pledge. The damage caused to respondent of the deprivation of her dollar accounts for more than two decades is unquestionably relatively more extensive and devastating, as compared to whatever damage petitioner Citibank, an international banking corporation with undoubtedly substantial capital, may have suffered for respondents non-payment of her loans. It must also be remembered that petitioner Citibank had already considered respondents loans paid or liquidated by 26 October 1979 after it had fully effected compensation thereof using respondents deposits and money market placements. All this time, respondents dollar accounts are unlawfully in the possession of and are being used by petitioner Citibank for its business transactions. In the meantime, respondents businesses failed and her properties were foreclosed because she was denied access to her funds when she needed them most. Taking these into consideration, respondents dollar accounts with Citibank-Geneva must be deemed to be subsisting and continuously deposited with petitioner Citibank all this while, and will only be presently withdrawn by respondent. Therefore, petitioner Citibank should refund to respondent the U.S. $149,632.99 taken from her Citibank-Geneva accounts, or its equivalent in Philippine currency using the exchange rate at the time of payment , plus the stipulated interest for each of the fiduciary placements and current accounts involved, beginning 26 October 1979. As to respondents Motion to Clarify and/or Confirm Decision with Notice of Judgment Respondent, in her Motion, is of the mistaken notion that the Court of Appeals Decision, dated 26 March 2002, as modified by the Resolution of the same court, dated 20 November 2002, would be implemented or executed together with this Courts Decision. This Court clarifies that its affirmation of the Decision of the Court of Appeals, as modified, is only to the extent that it recognizes that petitioners had liabilities to the respondent. However, this Courts Decision modified that of the appellate courts by making its own determination of the specific liabilities of the petitioners to respondent and the amounts thereof; as well as by recognizing that respondent also had liabilities to petitioner Citibank and the amount thereof. Thus, for purposes of execution, the parties need only refer to the dispositive portion of this Courts Decision, dated 16 October 2006, should it already become final and executory, without any further modifications.

Page 1304 of 1485

As the last point, there is no merit in respondents Motion for this Court to already declare its Decision, dated 16 October 2006, final and executory. A judgment becomes final and executory by operation of law and, accordingly, the finality of the judgment becomes a fact upon the lapse of the reglementary period without an appeal or a motion for new trial or reconsideration being filed.25 This Court cannot arbitrarily disregard the reglementary period and declare a judgment final and executory upon the mere motion of one party, for to do so will be a culpable violation of the right of the other parties to due process. IN VIEW OF THE FOREGOING, petitioners Motion for Partial Reconsideration of this Courts Decision, dated 16 October 2006, and respondents Motion for this Court to declare the same Decision already final and executory, are both DENIED for lack of merit. SO ORDERED. FIRST DIVISION

HI-CEMENT CORPORATION, Petitioner,

G.R. No. 132403

-versus-

INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI BANK) Respondent.

x----------------------x

Page 1305 of 1485

E.T. HENRY & CO. and G.R. No. 132419

SPOUSES ENRIQUE TAN and LILIA TAN, Petitioners, Present:

PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, -versusCORONA, AZCUNA and GARCIA, JJ.

INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI BANK), Respondent.

Promulgated:

September 28, 2007

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Page 1306 of 1485

DECISION

CORONA, J.:

At bar are consolidated petitions assailing the decision of the Court of Appeals (CA) dated January 21, 1998 in CA-G.R. CV No. 31600 entitled Insular Bank of Asia and America [now Philippine Commercial International Bank/(PCIB)] v. E.T. Henry & Co., et al .1637[1]

The antecedent facts follow.

Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in the business of processing and distributing bunker fuel.1638[2] Among E.T. Henry's customers were petitioner Hi-Cement Corporation (Hi-Cement),1639[3] Riverside Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo). For their purchases, these corporations issued postdated checks to E.T. Henry.

Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now Equitable PCI-Bank) granted E.T. Henry a credit facility known as Purchase of Short Term Receivables. Through this arrangement, E.T. Henry was able to encash, with pre-deducted

1637 1638 1639

Page 1307 of 1485

interest, the postdated checks of its clients. In other words, E.T. Henry and respondent were into re-discounting of checks.

For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the re-discounting. 1640[4]

From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of assignment) with respondent. However, in February 1981, 20 checks 1641[5] of Hi-Cement (which were crossed and which bore the restriction deposit to payees account only) were dishonored. So were the checks of Riverside and Kanebo. 1642[6]

Respondent filed a complaint for sum of money 1643[7]

in the then Court of First

Instance of Rizal1644[8] against E.T. Henry, the spouses Tan, Hi-Cement (including its general manager1645[9] and its treasurer Riverside and Kanebo.1647[11]
1646

[10] as signatories of the postdated crossed checks),

1640 1641 1642 1643 1644 1645 1646 1647

Page 1308 of 1485

In its complaint, respondent claimed that, due to the dishonor of the checks, it suffered actual damages equivalent to their value, exclusive of accrued and accruing interests, charges and penalties such as attorneys fees and expenses of litigation, as follows:

1. Riverside Mills Corporation 2. Kanebo Cosmetics Philippines, Inc. 3. Hi-Cement Corporation

115,312.50 5,811,750.00

10,000,000.00

Respondent also sought to collect from E.T. Henry and the spouses Tan other loan obligations (amounting to P1,661,266.51 and P4,900,805, respectively) as deficiencies resulting from the foreclosure of the real estate mortgage on E.T. Henry's property in Sucat, Paraaque.1648[12]

Hi-Cement filed its answer alleging, among others, that: (1) its general manager and treasurer were not authorized to issue the postdated crossed checks in E.T. Henry's favor; (2) the deed of assignment purportedly executed by Hi-Cement assigning them to respondent only bore the conformity of its treasurer and (3) respondent was not a holder in due course as it should not have discounted them for being crossed checks. 1649[13]

1648 1649

Page 1309 of 1485

In their answer (with counterclaim against respondent and cross-claims against HiCement, Riverside and Kanebo),1650[14] E.T. Henry and the spouses Tan claimed that: (1) the drawers of the postdated checks failed to honor them due to the adverse economic conditions prevailing at the time respondent presented them for payment; (2) the extrajudicial sale of the mortgaged Sucat property was void due to gross inadequacy of the bid price1651[15] and (3) their loans were subjected to a usurious interest rate of 21% p.a.

For their part, Riverside and Kanebo sought the dismissal of the case against them, arguing that they were not privy to the re-discounting arrangement between respondent and E.T. Henry.

On June 30, 1989, the trial court rendered a decision which read:

WHEREFORE, in view of the foregoing, and as a consequence of the preponderance of evidence, this Court hereby renders judgment in favor of [respondent] and against [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], to wit:

1.

Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], jointly and severally, to pay [respondent] damages represented by the face value of the postdated checks as follows:

(a) Riverside Mills Corporation (b) Kanebo Cosmetics Philippines, Inc. (c) Hi-Cement Corporation

115,312.50

5,811,750.00 10,000,000.00

1650 1651

Page 1310 of 1485

plus interests, services, charges and penalties until fully paid;

2.

Ordering [E.T. Henry] and/or [spouses Tan] to pay to [respondent] the sum of P4,900,805.00 plus accrued interests, charges, penalties until fully paid;

3.

Ordering [E.T. Henry and spouses Tan] to pay [respondent] the sum of P1,661,266.51 plus interests, charges, and penalties until fully paid;

4.

Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo] to pay [respondent] [a]ttorneys fees and expenses of litigation in the amount of P200,000.00 and pay the cost of this suit.1652[16]

SO ORDERED.1653[17]

Only petitioners appealed the decision to the CA which affirmed it in toto. Hence, these petitions.

In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated crossed checks because (1) it did not authorize their issuance; (2) respondent was not a holder in due course and (3) there was no basis for the lower courts holding that it was solidarily liable for the face value of Riversides and Kanebos checks. 1654[18]

1652 1653 1654

Page 1311 of 1485

In G.R. No. 132419, on the other hand, E.T. Henry and the spouses Tan essentially contend that the lower courts erred in: (1) applying the doctrine of piercing the veil of the corporate entity to make the spouses Tan solidarily liable with E.T. Henry; (2) not ruling on their cross-claims and counterclaims, and (3) not declaring the foreclosure of E.T. Henry's Sucat property as void.1655[19]

(A) G.R. 132403

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law.1656[20] The factual findings of the trial court, specially when affirmed by the appellate court, are generally binding on us unless there was a misapprehension of facts or when the inference drawn from the facts was manifestly mistaken. 1657[21] This case falls within the exception.

AUTHORITY GENERAL TREASURER POSTDATED

OF HI-CEMENTS MANAGER AND TO ISSUE THE CROSSED CHECKS

1655 1656 1657

Page 1312 of 1485

Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks. They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E.T. Henry which the latter, in turn, was able to re-discount with respondent.

We agree with the lower courts that both the general manager and treasurer of HiCement were authorized to issue the subjects checks. However, notwithstanding such fact, respondent could not be considered a holder in due course.

RESPONDENT BANK NOT HOLDER IN DUE COURSE

The Negotiable Instruments Law (NIL), specifically Section 191, 1658[22] provides:

Holder means the payee or indorsee of a bill or a note, or the person who is in possession of it, or the bearer thereof.

On the other hand, Section 521659[23] states:

1658 1659

Page 1313 of 1485

A holder in due course is a holder who has taken the instrument under the following conditions: (a) it is complete and regular on its face; (b) he became the holder of it before it was overdue, and without notice that it has previously been dishonored, if such was the fact; (c) he took it in good faith and for value and (d) at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two requirements were not met.

In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,1660[24] we held that the holder of crossed checks was not a holder in due course. There, the drawer (BCCF) issued postdated crossed checks in favor of one of its suppliers (George King) who promised to deliver bales of tobacco leaf but failed. George King, however, sold the checks on discount to State Investment House, Inc. (SIHI) and upon the latters presentment to the drawee bank, BCCF ordered a stop payment. Thereafter, SIHI filed a collection case against it. In ruling that SIHI was not a holder in due course, we explained:

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank [and]; (c) the act of crossing the checks serves as warning to the holder that the check

1660

Page 1314 of 1485

has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.

Likewise, in Atrium Management Corporation v. CA,1661[25] where E.T. Henry, HiCement and its treasurer1662[26] again engaged in a legal scuffle over four postdated crossed checks, we held that Atrium (with which the checks were re-discounted) was not a holder in due course. In that case, E.T. Henry was the payee of four Hi-Cement postdated checks which it endorsed to Atrium. When the latter presented the crossed checks to the drawee bank, Hi-Cement stopped payment. 1663[27] We held that Atrium was not a

holder in due course:

In the instant case, the checks were crossed and specifically indorsed for deposit to payees account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payees account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cements postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks.

1661 1662 1663

Page 1315 of 1485

Respondent was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's account only; hence, they could not be further negotiated to it. The records likewise reveal that respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment. As a banking institution, it behooved respondent to act with extraordinary diligence in every transaction.1664[28] Its business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed. In Bataan Cigar and Cigarette Factory, Inc.,1665[29] we ruled:

It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorsers title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faithand as such[,] the consensus of authority is to the effect that the holder of the check is not a holder in due course. (emphasis supplied)

The next query is whether Hi-Cement can still be made liable for the checks. We answer in the negative.

In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court, 1666[30] SIHI rediscounted crossed checks and was declared not a holder in due course. As a result, when it

1664 1665 1666

Page 1316 of 1485

presented the checks for deposit, we deemed that its presentment to the drawee bank was not proper, hence, the liability did not attach to the drawer of the checks. We ruled that:

The three subject checks in the case at bar had been crossedwhich could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. 1667[31]

Our resolution in the foregoing case was reiterated in Atrium Management Corporation v. CA,1668[32] where we affirmed the CA ruling that the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course .

We note, however, that in the two aforementioned cases, we made it clear that the NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. In both, we ruled that it may recover from the party who indorsed/encashed the checks if the latter has no valid excuse for refusing payment. Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T. Henry had no justification to refuse payment, it should pay respondent.

1667 1668

Page 1317 of 1485

SOLIDARY LIABILITY OF HI-CEMENT FOR THE FACE VALUE OF RIVERSIDE'S AND KANEBO'S CHECKS

Hi-Cement could not also be made solidarily liable with Riverside and Kanebo for the face value of their checks. Hi-Cement had nothing to do with the checks of these two corporations. However, although the language of the trial court decision's dispositive portion seemed confusing, a reading of the decision in its entirety reveals that the fallo was for each corporation to be liable solidarily with E.T. Henry and/or the spouses Tan for the respective values of their checks.

Furthermore, solidary liability cannot be presumed but must be established by law or contract. Neither is present here. Articles 1207 and 1208 of the Civil Code provide:

Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the presentation. There is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity. (emphasis supplied)

Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding article refers to the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules governing the multiplicity of suits.

Page 1318 of 1485

At any rate, the issue has become moot in view of our ruling that Hi-Cement is not liable for the checks.

(B) G.R. No. 132419

DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY

In their petition, E.T. Henry and the spouses Tan argue that the lower courts erred in applying the piercing the veil of corporate entity doctrine to their case. They claim that both the trial and appellate courts failed to cite the reasons why the doctrine was relevant to them.

We agree with petitioners E.T. Henry and the spouses Tan in this respect.

If any general rule can be laid down, it is that the corporation will be looked upon as a legal entity until sufficient reasons to the contrary appear.
1669

[33] It is only when the fiction

or notion of legal entity is used to defeat public convenience, justify wrong, perpetuate fraud or defend crime that the law will shred the corporate legal veil and regard it as a mere

1669

Page 1319 of 1485

association of persons.1670[34] This is referred to as the doctrine of piercing the veil of corporate entity.

After a careful study of the records, we hold that E.T. Henry's corporate veil should not have been pierced at all.

First, the trial court failed to provide a clear ground why the doctrine was used. It merely stated that it agreed with respondents arguments but did not explain why the doctrine was relevant to petitioner E.T. Henry's and the spouses Tans case. On the other hand, the CA held:

It appears that spouses Tan are controlling stockholders of E.T. Henry & Co., Inc. as well as its authorized signatories. The business of the corporation was conducted solely for the benefit of the spouses Tan who colluded with [Hi-Cement] in defrauding [respondent]. As the lower court cited[I]t is a settled law in this and other jurisdictions that when the corporation is a mere alter ego of a person, same being true when the corporation is controlled, and its affairs are so conducted to make it merely an instrumentality, agency or conduit of another.1671[35]

Similarly, the CA left a gaping hole by failing to provide the basis for its ruling that E.T. Henry and the spouses Tan defrauded respondent. It did not also state what act

1670 1671

Page 1320 of 1485

constituted the fraud. Fraud is an allegation of fact that demands clear and

convincing evidence.1672[36] It is never presumed.1673[37]

Second, the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. 1674[38] For this ground to stand in this case, there must be proof that the spouses Tan: (1) had control or complete domination of E.T. Henrys finances and that the latter had no separate existence with respect to the act complained of; (2) used such control to commit fraud or wrong and (3) the control was the proximate cause of the loss or injury complained of by respondent. 1675[39] The records of this case do not show that these elements were present.

INADEQUACY OF THE BID PRICE ANNUL FORECLOSURE PROCEEDING

TO

With respect to the allegation that foreclosure was void due to the inadequacy of the bid price, we agree with the CA that the mere inadequacy of the price obtained at the [s]heriffs sale, unless shocking to the conscience, (was) not sufficient to set aside the sale if there (was) no showing that, in the event of a regular sale, a better price (could) be

1672 1673 1674 1675

Page 1321 of 1485

obtained.1676[40]

Furthermore, in the absence of any irregularity in the foreclosure proceeding or proof that it was carried out without strict observance of the procedure, we will continue to assume its regularity and strike down any attempt to vitiate it. In this case, E.T. Henry and the spouses Tan made no mention of any anomaly to support the nullification of the foreclosure sale but merely alleged a disparity in the bid price and the propertys fair market value.

COUNTERCLAIMS AND CROSS-CLAIMS

Lastly, E.T. Henry and the spouses Tan call this Court's attention to the alleged failure of the lower court to pass upon their counterclaim against respondent or cross-claims against Hi-Cement, Riverside and Kanebo. They ask us now to hold these parties liable on the basis of said claims. We decline to do so.

First, E.T. Henry and the spouses Tan failed to implead Hi-Cement, Riverside and Kanebo as parties in the case at bar. Under Rule 3 of the Rules of Court, every action, including a counterclaim (or a cross-claim), must be prosecuted or defended in the name of

1676

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the real party in interest.1677[41] The term defendant may refer to the original defending party, the defendant in a counterclaim, the cross-defendant or the third (fourth, etc.) party defendant.1678[42] Hence, for this technical lapse, we are constrained not to pass on E.T. Henry's and the spouses Tan's cross-claims.

Second, E.T. Henry and the spouses Tan filed the counterclaim against respondent on the basis of an alleged void foreclosure proceeding on E.T. Henry's Sucat property due to an inadequate bid price. It is no longer necessary to delve into this matter in view of our finding that the mere inadequacy of the bid price on the property did not automatically render the foreclosure sale irregular or void.

Incidentally, the petition in G.R. No. 132419 posed no contest on the lower courts ruling on E.T. Henrys and the spouses Tans solidary liability with Riverside and Kanebo visa-vis their checks.1679[43] To be consistent, however, with our dictum on the separate personality of E.T. Henry and the spouses Tan, the solidarity liability arising from the checks of Riverside and Kanebo shall only be enforced against E.T. Henry.

WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is hereby AFFIRMED with MODIFICATION. Accordingly, petitioner Hi-Cement Corporation is discharged from any liability. Only petitioner E.T. Henry & Co. is ORDERED to pay

respondent Insular Bank of Asia and America (later Philippine Commercial International Bank and now Equitable PCI-Bank) the following:

1677 1678 1679

Page 1323 of 1485

1.

P10,000,000 representing the value of Hi-Cement's checks it received from respondent plus accrued interests, charges and penalties until fully paid, and

2.

the loans for P1,661,266.51 and P4,900,805 plus accrued interests, charges and penalties until fully paid.

Let the records of this case be remanded to the trial court for the proper computation of E.T. Henry's, Riverside's and Kanebo's liabilities for the checks, attorney's fees and costs of litigation.

Costs against petitioners E.T. Henry and the spouses Enrique and Lilia Tan.

SO ORDERED.

Republic of the Philippines Supreme Court Manila

FIRST DIVISION

Page 1324 of 1485

METROPOLITAN COMPANY, BANK AND TRUST G.R. No. 141408

Petitioner,

Present:

- versus -

PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ.

PHILIPPINE BANK OF COMMUNICATIONS, FILIPINAS ORIENT FINANCE CORPORATION, PIPE MASTER CORPORATION and TAN JUAN LIAN, Respondents.

x---------------------------------------------x SOLID BANK CORPORATION, Petitioner, G.R. No. 141429

- versus -

FILIPINAS ORIENT FINANCE CORPORATION, PIPE MASTER CORPORATION, TAN JUAN LIAN and/or PHILIPPINE BANK OF COMMUNICATIONS, Respondents. Promulgated:

October 18, 2007

Page 1325 of 1485

x---------------------------------------------------------------------------------------- x

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Sometime in 1978, Pipe Master Corporation (Pipe Master) represented by Yu Kio, its president, applied for check discounting with Filipinas Orient Finance Corporation (Filipinas Orient). The latter approved and granted the same.

On July 1, 1978, the Board of Directors of Pipe Master issued a Board Resolution authorizing Yu Kio, in his capacity as president, and/or Tan Juan Lian, in his capacity as vicepresident, to execute, indorse, make, sign, deliver or negotiate instruments, documents and such other papers necessary in connection with any transaction coursed through Filipinas Orient for and in behalf of the corporation.

Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty that he shall pay at maturity any and all promissory notes, drafts, checks, or other instruments or evidence of indebtedness for which Pipe Master may become liable; that the extent of his liability shall not at any one time exceed the sum of P1,000,000.00; and that in the event of default by Pipe Master, Filipinas Orient may proceed directly against him.

On April 9, 1980, under the check discounting agreement between Pipe Master and Filipinas Orient, Yu Kio sold to Filipinas Orient four Metropolitan Bank and Trust Company (Metro Bank) checks amounting to P1,000,000.00. In exchange for the four Metro Bank

Page 1326 of 1485

checks, Filipinas Orient issued to Yu Kio four Philippine Bank of Communications (PBCom) crossed checks totaling P964,303.62, payable to Pipe Master with the statement for payees account only.

Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in the Metro Bank, in his personal account, three of the checks valued at P721,596.95. As to the remaining check amounting to P242,706.67, he deposited it in the Solid Bank Corporation (Solid Bank), also in his personal account. Eventually, PBCom paid Metro Bank and Solid Bank the amounts of the checks. In turn, Metro Bank and Solid Bank credited the value of the checks to the personal accounts of Yu Kio.

Subsequently, when Filipinas Orient presented the four Metro Bank checks equivalent to P1,000,000.00 it received from Yu Kio, they were dishonored by the drawee bank. Pipe Master, the drawer, refused to pay the amounts of the checks, claiming that it never received the proceeds of the PBCom checks as they were delivered and paid to the wrong party, Yu Kio, who was not the named payee.

Filipinas Orient then demanded that PBCom restore to its (Filipinas Orients) account the value of the PBCom checks. In turn, PBCom sought reimbursement from Metro Bank and Solid Bank, being the collecting banks, but they refused. Thus, Filipinas Orient filed with the Regional Trial Court (RTC), Branch 39, Manila a complaint for a sum of money against Pipe Master, Tan Juan Lian and/or PBCom.

In their answer to the complaint, Pipe Master and Tan Juan Lian averred that they did not authorize Yu Kio to negotiate and enter into discounting transaction with Filipinas Orient, and even if Yu Kio was so authorized, Pipe Master never received the proceeds of the checks. Consequently, they filed a cross-claim against PBCom for gross negligence for having paid the wrong party. In turn, PBCom, Pipe Master and Tan Juan Lian filed third-party complaints against Metro Bank and Solid Bank.

Page 1327 of 1485

On July 12, 1990, the RTC rendered a Decision against Metro Bank and Solid Bank, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered: 1. Ordering third-party defendant Metro Bank to pay plaintiff the amount of Seven Hundred Twenty One Thousand Five Hundred Ninety Six Pesos and Ninety-Five Centavos (P721,596.95) plus legal interest; 2. Ordering third-party defendant Solid Bank to pay plaintiff the amount of Two Hundred Forty-Two Thousand Seven Hundred Six Pesos and SixtySeven Centavos (P242,706.67) plus legal interest; 3. Ordering third-party defendants to pay the costs of suit.

SO ORDERED.

On appeal, the appellate court affirmed in toto the Decision of the trial court. Metro Bank and Solid Bank filed their respective motions for reconsideration but the same were denied.

Hence, the instant consolidated petitions for review on certiorari filed by Metro Bank and Solid Bank.

The issue for our resolution is whether Metro Bank and Solid Bank, petitioners, are liable to respondent Filipinas Orient for accepting the PBCom crossed checks payable to Pipe Master.

Page 1328 of 1485

Petitioner banks contend that respondents Pipe Master, Tan Juan Lian and/or PBCom should be made liable to respondent Filipinas Orient for the value of the checks.

Respondents Pipe Master and Tan Juan Lian counter that although Yu Kio was expressly authorized to indorse Pipe Masters checks, such authority extended only to acts done in the ordinary course of business, not in his personal capacity. to deposit the PBCom checks in his account. For its part, respondent Filipinas Orient contends that petitioner banks were negligent in allowing Yu Kio Respondent PBCom, as the drawee bank, maintains that it has no liability because in clearing the checks, it relied on the express guarantee made by petitioner banks that the checks were validly indorsed.

We find in favor of respondents.

A check is defined by law as a bill of exchange drawn on a bank payable on demand.1680[1] The Negotiable Instruments Law is silent with respect to crossed checks. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines on the upper left hand corner means that it could only be deposited and not converted into cash.1681[2] The crossing of a check with the phrase Payees Account Only It is the is a warning that the check should be deposited in the account of the payee.

collecting bank which is bound to scrutinize the check and to know its depositors before it can make the clearing indorsement, all prior indorsements and/or lack of indorsement guaranteed.1682[3]

Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in accordance with the instructions stated in the checks. 1683[4] The four PBCom

1680 1681 1682 1683

Page 1329 of 1485

checks in question had been crossed and issued for payees account only. This could only mean that the drawer, Filipinas Orient, intended the same for deposit only by the payee, Pipe Master. The effect of crossing a check means that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein1684[5] Pipe Master.

As what transpired in this case, petitioner banks accommodated Yu Kio, being a valued client and the president of Pipe Master, and accepted the crossed checks. guaranteed. In so doing, they became general endorsers. They stamped at the back thereof that all prior indorsements and/or lack of indorsements are Under Section 66 of the Negotiable Instruments Law, an endorser warrants that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting.

Clearly, petitioner banks, being endorsers, cannot deny liability.

In Associated Bank v. Court of Appeals ,1685[6] we held that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements and is privy to the depositor who negotiated the check.

PBCom, as the drawee bank, cannot be held liable since it mainly relied on the express guarantee made by petitioners, the collecting banks, of all prior indorsements.

Evidently, petitioner banks disregarded established banking rules and procedures.

1684 1685

Page 1330 of 1485

They were negligent in accepting the checks and allowing the transaction to push through. In Jai-Alai Corp. of the Phil. v. Bank of the Phil. Islands ,1686[7] we ruled that one who accepts and encashes a check from an individual knowing that the payee is a corporation does so at his peril. Therefore, petitioner banks are liable to respondent Filipinas Orient.

In fine, it must be emphasized that the law imposes on the collecting bank the duty to diligently scrutinize the 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.1687[8] Since petitioner banks negligence was the direct cause of the misappropriation of the checks, they should bear and answer for respondent Filipinas Orients loss, without prejudice to their filing of an appropriate action against Yu Kio.

WHEREFORE, we DENY the petitions. The challenged Decision 1688[9] and Resolution of the Court of Appeals in CA-G.R. CV No. 30702 are AFFIRMED. Costs against petitioners.

SO ORDERED. Republic of the Philippines Supreme Court Manila

FIRST DIVISION

1686 1687 1688

Page 1331 of 1485

METROPOLITAN COMPANY,

BANK

AND

TRUST

G.R. No. 141408

Petitioner,

Present:

- versus -

PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ.

PHILIPPINE BANK OF COMMUNICATIONS, FILIPINAS ORIENT FINANCE CORPORATION, PIPE MASTER CORPORATION and TAN JUAN LIAN, Respondents.

x---------------------------------------------x SOLID BANK CORPORATION, Petitioner, G.R. No. 141429

- versus -

FILIPINAS ORIENT FINANCE CORPORATION, PIPE MASTER CORPORATION, TAN JUAN LIAN and/or PHILIPPINE BANK OF COMMUNICATIONS,

Page 1332 of 1485

Respondents.

Promulgated:

October 18, 2007 x---------------------------------------------------------------------------------------- x

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Sometime in 1978, Pipe Master Corporation (Pipe Master) represented by Yu Kio, its president, applied for check discounting with Filipinas Orient Finance Corporation (Filipinas Orient). The latter approved and granted the same.

On July 1, 1978, the Board of Directors of Pipe Master issued a Board Resolution authorizing Yu Kio, in his capacity as president, and/or Tan Juan Lian, in his capacity as vicepresident, to execute, indorse, make, sign, deliver or negotiate instruments, documents and such other papers necessary in connection with any transaction coursed through Filipinas Orient for and in behalf of the corporation.

Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty that he shall pay at maturity any and all promissory notes, drafts, checks, or other instruments or evidence of indebtedness for which Pipe Master may become liable; that the extent of his liability shall not at any one time exceed the sum of P1,000,000.00; and that in the event of default by Pipe Master, Filipinas Orient may proceed directly against him.

Page 1333 of 1485

On April 9, 1980, under the check discounting agreement between Pipe Master and Filipinas Orient, Yu Kio sold to Filipinas Orient four Metropolitan Bank and Trust Company (Metro Bank) checks amounting to P1,000,000.00. In exchange for the four Metro Bank checks, Filipinas Orient issued to Yu Kio four Philippine Bank of Communications (PBCom) crossed checks totaling P964,303.62, payable to Pipe Master with the statement for payees account only.

Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in the Metro Bank, in his personal account, three of the checks valued at P721,596.95. As to the remaining check amounting to P242,706.67, he deposited it in the Solid Bank Corporation (Solid Bank), also in his personal account. Eventually, PBCom paid Metro Bank and Solid Bank the amounts of the checks. In turn, Metro Bank and Solid Bank credited the value of the checks to the personal accounts of Yu Kio.

Subsequently, when Filipinas Orient presented the four Metro Bank checks equivalent to P1,000,000.00 it received from Yu Kio, they were dishonored by the drawee bank. Pipe Master, the drawer, refused to pay the amounts of the checks, claiming that it never received the proceeds of the PBCom checks as they were delivered and paid to the wrong party, Yu Kio, who was not the named payee.

Filipinas Orient then demanded that PBCom restore to its (Filipinas Orients) account the value of the PBCom checks. In turn, PBCom sought reimbursement from Metro Bank and Solid Bank, being the collecting banks, but they refused. Thus, Filipinas Orient filed with the Regional Trial Court (RTC), Branch 39, Manila a complaint for a sum of money against Pipe Master, Tan Juan Lian and/or PBCom.

In their answer to the complaint, Pipe Master and Tan Juan Lian averred that they did not authorize Yu Kio to negotiate and enter into discounting transaction with Filipinas Orient,

Page 1334 of 1485

and even if Yu Kio was so authorized, Pipe Master never received the proceeds of the checks. Consequently, they filed a cross-claim against PBCom for gross negligence for having paid the wrong party. In turn, PBCom, Pipe Master and Tan Juan Lian filed third-party complaints against Metro Bank and Solid Bank.

On July 12, 1990, the RTC rendered a Decision against Metro Bank and Solid Bank, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered: 1. Ordering third-party defendant Metro Bank to pay plaintiff the amount of Seven Hundred Twenty One Thousand Five Hundred Ninety Six Pesos and Ninety-Five Centavos (P721,596.95) plus legal interest; 2. Ordering third-party defendant Solid Bank to pay plaintiff the amount of Two Hundred Forty-Two Thousand Seven Hundred Six Pesos and SixtySeven Centavos (P242,706.67) plus legal interest; 3. Ordering third-party defendants to pay the costs of suit.

SO ORDERED.

On appeal, the appellate court affirmed in toto the Decision of the trial court. Metro Bank and Solid Bank filed their respective motions for reconsideration but the same were denied.

Hence, the instant consolidated petitions for review on certiorari filed by Metro Bank and Solid Bank.

Page 1335 of 1485

The issue for our resolution is whether Metro Bank and Solid Bank, petitioners, are liable to respondent Filipinas Orient for accepting the PBCom crossed checks payable to Pipe Master.

Petitioner banks contend that respondents Pipe Master, Tan Juan Lian and/or PBCom should be made liable to respondent Filipinas Orient for the value of the checks.

Respondents Pipe Master and Tan Juan Lian counter that although Yu Kio was expressly authorized to indorse Pipe Masters checks, such authority extended only to acts done in the ordinary course of business, not in his personal capacity. to deposit the PBCom checks in his account. For its part, respondent Filipinas Orient contends that petitioner banks were negligent in allowing Yu Kio Respondent PBCom, as the drawee bank, maintains that it has no liability because in clearing the checks, it relied on the express guarantee made by petitioner banks that the checks were validly indorsed.

We find in favor of respondents.

A check is defined by law as a bill of exchange drawn on a bank payable on demand.1689[1] The Negotiable Instruments Law is silent with respect to crossed checks. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines on the upper left hand corner means that it could only be deposited and not converted into cash.1690[2] The crossing of a check with the phrase Payees Account Only It is the is a warning that the check should be deposited in the account of the payee.

collecting bank which is bound to scrutinize the check and to know its depositors before it can make the clearing indorsement, all prior indorsements and/or lack of indorsement guaranteed.1691[3]

1689 1690 1691

Page 1336 of 1485

Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in accordance with the instructions stated in the checks. 1692[4] The four PBCom checks in question had been crossed and issued for payees account only. This could only mean that the drawer, Filipinas Orient, intended the same for deposit only by the payee, Pipe Master. The effect of crossing a check means that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein1693[5] Pipe Master.

As what transpired in this case, petitioner banks accommodated Yu Kio, being a valued client and the president of Pipe Master, and accepted the crossed checks. guaranteed. In so doing, they became general endorsers. They stamped at the back thereof that all prior indorsements and/or lack of indorsements are Under Section 66 of the Negotiable Instruments Law, an endorser warrants that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting.

Clearly, petitioner banks, being endorsers, cannot deny liability.

In Associated Bank v. Court of Appeals ,1694[6] we held that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements and is privy to the depositor who negotiated the check.

1692 1693 1694

Page 1337 of 1485

PBCom, as the drawee bank, cannot be held liable since it mainly relied on the express guarantee made by petitioners, the collecting banks, of all prior indorsements.

Evidently, petitioner banks disregarded established banking rules and procedures. They were negligent in accepting the checks and allowing the transaction to push through. In Jai-Alai Corp. of the Phil. v. Bank of the Phil. Islands ,1695[7] we ruled that one who accepts and encashes a check from an individual knowing that the payee is a corporation does so at his peril. Therefore, petitioner banks are liable to respondent Filipinas Orient.

In fine, it must be emphasized that the law imposes on the collecting bank the duty to diligently scrutinize the 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.1696[8] Since petitioner banks negligence was the direct cause of the misappropriation of the checks, they should bear and answer for respondent Filipinas Orients loss, without prejudice to their filing of an appropriate action against Yu Kio.

WHEREFORE, we DENY the petitions. The challenged Decision 1697[9] and Resolution of the Court of Appeals in CA-G.R. CV No. 30702 are AFFIRMED. Costs against petitioners.

SO ORDERED. Republic SUPREME Manila SECOND DIVISION of the Philippines COURT

1695 1696 1697

Page 1338 of 1485

G.R. No. 170984 January 30, 2009 Petitioner,

SECURITY BANK AND TRUST COMPANY, vs. RIZAL COMMERCIAL BANKING CORPORATION, Respondent. x-------------------------x G.R. No. 170987 January 30, 2009

RIZAL COMMERCIAL BANKING CORPORATION, vs. SECURITY BANK AND TRUST COMPANY, Respondent. DECISION QUISUMBING, Acting C.J.:

Petitioner,

Before us are opposing parties petitions for review of the Decision 1 dated March 29, 2005 and Resolution2 dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387. The two petitions are herein consolidated as they stem from the same set of factual circumstances. The facts, as found by the trial and appellate courts, are as follows: On January 9, 1981, Security Bank and Trust Company (SBTC) issued a managers check for P8 million, payable to "CASH," as proceeds of the loan granted to Guidon Construction and Development Corporation (GCDC). On the same day, the P8-million check, along with other checks, was deposited by Continental Manufacturing Corporation (CMC) in its Current Account No. 0109-022888 with Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8-million check and allowed CMC to withdraw the same.3 On the next banking day, January 12, 1981, GCDC issued a "Stop Payment Order" to SBTC, claiming that the P8-million check was released to a third party by mistake. Consequently, SBTC dishonored and returned the managers check to RCBC. Thereafter, the check was returned back and forth between the two banks, resulting in automatic debits and credits in each banks clearing balance.4 On February 13, 1981, RCBC filed a complaint 5 for damages against SBTC with the then Court of First Instance of Rizal, Branch XXII. Said case was docketed as Civil Case No. 1081 and later transferred to the Regional Trial Court (RTC) of Makati City, Branch 143. Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC stopped returning the checks to each other. By way of a temporary arrangement pending resolution of the case, the P8-million check was equally divided between, and credited to, RCBC and SBTC.6 On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision 7 in favor of RCBC. The dispositive portion of the decision reads: PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff [RCBC] and finds defendant SBTC justly liable to [RCBC] and sentences [SBTC] to pay [RCBC] the amount of:

Page 1339 of 1485

1. PhP4,000,000.00 as and for actual damages; 2. PhP100,000.00 as and for attorneys fees; and, 3. the costs. SO ORDERED.8 On appeal, the Court of Appeals affirmed with modification the above Decision, to wit: WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant Security Bank and Trust Co. shall pay appellee Rizal Commercial Banking Corporation not only the principal amount of P4,000,000.00 but also interest thereon at (6%) per annum covering appellees unearned income on interest computed from the time of filing of the complaint on February 13, 1981 to the date of finality of this Decision. For lack of factual and legal basis, the award of attorneys fees is DELETED. SO ORDERED.9 Now for our resolution are the opposing parties petitions for review on certiorari of the abovecited decision. On its part, SBTC alleges the following to support its petition: I. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO APPLY THE LAW BECAUSE, IN ITS OPINION, TO DO SO WOULD "RESULT IN AN INJUSTICE." II. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT TO DETERMINE WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE, ONLY THE NEGOTIABLE INSTRUMENTS LAW NEED BE APPLIED TO THE EXCLUSION OF CENTRAL BANK RULES AND REGULATIONS. III. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO NOTE THAT THE MANAGERS CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT BY THE RCBC AND WAS NOT ENCASHED BY THE PAYEE. IV. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH PhP53 MILLION, RCBC WAS HOLDING 43 CHECKS TOTALING P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING CORPORATION AGAINST ITS CURRENT ACCOUNT WHEN THE BALANCE OF THAT ACCOUNT WAS A MERE P573.62. V.

Page 1340 of 1485

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT THE CHECKS DEPOSITED WITH RCBC THE PROCEEDS OF WHICH WERE IMMEDIATELY WITHDRAWN TO HONOR THE 43 CHECKS TOTALING P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING CORPORATION ON ITS CURRENT ACCOUNT WERE NOT ALL MANAGERS CHECK[S] BUT INCLUDED ORDINARY CHECKS IN THE TOTAL AMOUNT OF PhP15,436,140.81. VI. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT EACH OF THE 43 CHECKS DRAWN BY THE CONTINENTAL MANUFACTURING CORPORATION WERE ALL HONORED BY RCBC ON THE BASIS OF A MIXTURE OF ALL THE MANAGERS AND ORDINARY CHECKS DEPOSITED ON THAT DAY OF 9 JANUARY 1981. VII. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE RCBC IS A HOLDER IN DUE COURSE. VIII. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTC WAITED FOR THREE (3) DAYS TO NOTIFY THE RCBC OF THE STOP PAYMENT ORDER. IX. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTC SHOULD HAVE FIRST ACQUIRED PERSONAL KNOWLEDGE OF THE FACTS WHICH GAVE RISE TO THE REQUEST FOR THE STOP PAYMENT ORDER BEFORE HONORING SUCH REQUEST. X. THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN REFUSING TO HOLD SBTC LIABLE FOR DAMAGE CLAIMS BASED SOLELY ON SPECULATION, CONJECTURE AND GUESSWORK. XI. THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING THAT RCBC IS NOT ENTITLED TO EXEMPLARY DAMAGES. XII. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING SBTC LIABLE FOR THE ATTORNEYS FEES OF RCBC [SIC].10 On RCBCs part, the following issues are submitted for resolution: I. WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS CHECK IT ISSUED.

Page 1341 of 1485

II. WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGES EQUIVALENT TO THE INTEREST INCOME LOST AS A RESULT OF THE ILLEGAL REFUSAL OF SBTC TO HONOR ITS OWN MANAGERS CHECK, AS WELL AS FOR EXEMPLARY DAMAGES AND ATTORNEYS FEES. 11 Simply stated, we find that in these consolidated petitions, the legal issues for our resolution are: (1) Is SBTC liable to RCBC for the remaining P4 million? and (2) Is SBTC liable to pay for lost interest income on the remaining P4 million, exemplary damages and attorneys fees? RCBC avers that the managers check issued by SBTC is substantially as good as the money it represents because by its peculiar character, its issuance has the effect of an advance acceptance. RCBC claims that it is a holder in due course when it credited the P8-million managers check to CMCs account. Accordingly, RCBC asserts that SBTCs refusal to honor its obligation justifies RCBC claim for lost interest income, exemplary damages and attorneys fees. On the other hand, SBTC contends that RCBC violated Monetary Board Resolution No. 2202 of the Central Bank of the Philippines mandating all banks to verify the genuineness and validity of all checks before allowing drawings of the same. SBTC insists that RCBC should bear the consequences of allowing CMC to withdraw the amount of the check before it was cleared.12 We shall rule on the issues seriatim. At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a managers check. A managers check is one drawn by a banks manager upon the bank itself. It stands on the same footing as a certified check, 13 which is deemed to have been accepted by the bank that certified it. 14 As the banks own check, a managers check becomes the primary obligation of the bank and is accepted in advance by the act of its issuance.15 In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the integrity and honor of the check as it is regarded in commercial transactions. Where the questioned check, which was payable to "Cash," appeared regular on its face, and the bank found nothing unusual in the transaction, as the drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned check.16 In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings against uncollected deposits. For we must point out that the Central Bank at that time issued a Memorandum dated July 9, 1980, which interpreted said Monetary Board Resolution No. 2202. In its pertinent portion, said Memorandum reads: "MEMORANDUM TO ALL BANKS July 9, 1980 For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31, 1979 prohibiting, as a matter of policy, drawing against uncollected deposit effective July 1, 1980, uncollected deposits representing managers cashiers/ treasurers checks, treasury

Page 1342 of 1485

warrants, postal money orders and duly funded "on us" checks which may be permitted at the discretion of each bank, covers drawings against demand deposits as well as withdrawals from savings deposits."17 Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow immediate drawings on uncollected deposits of managers checks, among others. Consequently, RCBC, in allowing the immediate withdrawal against the subject managers check, only exercised a prerogative expressly granted to it by the Monetary Board. Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the extraordinary nature of the managers check and the relative rights of the parties thereto. SBTCs liability as drawer remains the same by drawing the instrument, it admits the existence of the payee and his then capacity to indorse; and engages that on due presentment, the instrument will be accepted, or paid, or both, according to its tenor. 18 Concerning RCBCs claim for lost interest income on the remaining P4 million, this is already covered by the amount of damages in the form of legal interest of 6%, based on Article 220019 and 220920 of the Civil Code of the Philippines, as awarded by the Court of Appeals in its decision. In addition to the above-mentioned award of compensatory damages, we also find merit in the need to award exemplary damages in order to set an example for the public good. The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, above all, trust and confidence. In this connection, it is important that banks should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized, since the banking business is impressed with public interest, the trust and confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required of it. SBTC having failed in this respect, the award of exemplary damages to RCBC in the amount of P50,000.00 is warranted.21 Pursuant to current jurisprudence, with the finding of liability for exemplary damages, attorneys fees in the amount of P25,000.0022 must also be awarded against SBTC and in favor of RCBC. WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387 is hereby AFFIRMED with MODIFICATION. Security Bank and Trust Company is ordered to pay Rizal Commercial Banking Corporation: (1) the remaining P4,000,000.00, with legal interest thereon at six percent (6%) per annum from the time of filing of the complaint on February 13, 1981 to the date of finality of this Decision; (2) exemplary damages of P50,000.00; and (3) attorneys fees of P25,000.00. No pronouncement as to costs. SO ORDERED. SECOND DIVISION

Page 1343 of 1485

ROBERT DINO, Petitioner,

G.R. No. 170912

Present:

CARPIO, J., Chairperson, - versus BRION, DEL CASTILLO, ABAD, and MARIA LUISA JUDAL-LOOT, joined by her husband VICENTE LOOT, Respondents. Promulgated: April 19, 2010 PEREZ, JJ.

x-----------------------------------------------------------------------------------------x

DECISION

CARPIO, J.:

The Case

Page 1344 of 1485

This is a petition for review1698[1] of the 16 August 2005 Decision1699[2] and 30 November 2005 Resolution1700[3] of the Court of Appeals in CA-G.R. CV No. 57994.
th

The

Court of Appeals affirmed the decision of the Regional Trial Court, 7 Judicial Region, Branch 56, Mandaue City (trial court), with the deletion of the award of interest, moral damages, attorneys fees and litigation expenses. The trial court ruled that respondents Maria Luisa Judal-Loot and Vicente Loot are holders in due course of Metrobank Check No. C-MA 142119406 CA and ordered petitioner Robert Dino as drawer, together with co-defendant Fe Lobitana as indorser, to solidarily pay respondents the face value of the check, among others.

The Facts

Sometime in December 1992, a syndicate, one of whose members posed as an owner of several parcels of land situated in Canjulao, Lapu-lapu City, approached petitioner and induced him to lend the group P3,000,000.00 to be secured by a real estate mortgage on the properties. A member of the group, particularly a woman pretending to be a certain Vivencia Ompok Consing, even offered to execute a Deed of Absolute Sale covering the properties, instead of the usual mortgage contract. 1701[4] Enticed and convinced by the syndicates offer, petitioner issued three Metrobank checks totaling P3,000,000.00, one of which is Check No. C-MA-142119406-CA postdated 13 February 1993 in the amount of P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana. 1702[5]

1698 1699 1700 1701 1702

Page 1345 of 1485

Upon scrutinizing the documents involving the properties, petitioner discovered that the documents covered rights over government properties. Realizing he had been deceived, petitioner advised Metrobank to stop payment of his checks. However, only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The other two checks were already encashed by the payees.

Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to respondents in exchange for cash in the sum of P948,000.00, which respondents borrowed from Metrobank and charged against their credit line. Before respondents accepted the check, they first inquired from the drawee bank, Metrobank, Cebu-Mabolo Branch which is also their depositary bank, if the subject check was sufficiently funded, to which Metrobank answered in the positive. However, when respondents deposited the check with Metrobank, Cebu-Mabolo Branch, the same was dishonored by the drawee bank for reason PAYMENT STOPPED.

Respondents filed a collection suit 1703[6] against petitioner and Lobitana before the trial court. In their Complaint, respondents alleged, among other things, that they are holders in due course and for value of Metrobank Check No. C-MA-142119406-CA and that they had no prior information concerning the transaction between defendants.

In his Answer, petitioner denied respondents allegations that on the face of the subject check, no condition or limitation was imposed and that respondents are holders in due course and for value of the check. For her part, Lobitana denied the allegations in the complaint and basically claimed that the transaction leading to the issuance of the subject check is a sale of a parcel of land by Vivencia Ompok Consing to petitioner and that she was made a payee of the check only to facilitate its discounting.

1703

Page 1346 of 1485

The trial court ruled in favor of respondents and declared them due course holders of the subject check, since there was no privity between respondents and defendants. The dispositive portion of the 14 March 1996 Decision of the trial court reads:

In summation, this Court rules for the Plaintiff and against the Defendants and hereby orders: 1.) 2.) 3.) 4.) 5.) defendants to pay to Plaintiff, and severally, the amount of P1,000,000.00 representing the face value of subject Metrobank check; to pay to Plaintiff herein, jointly and severally, the sum of P101,748.00 for accrued and paid interest; to pay to Plaintiff, jointly and severally, moral damages in the amount of P100,000.00; to pay to Plaintiff, jointly and severally, the sum of P200,000.00 for attorneys fees; and to pay to Plaintiff, jointly and severally, litigation expenses in the sum of P10,000.00 and costs of the suit.

SO ORDERED.1704[7]

Only petitioner filed an appeal. Lobitana did not appeal the trial courts judgment.

The Ruling of the Court of Appeals

The Court of Appeals affirmed the trial courts finding that respondents are holders in due course of Metrobank Check No. C-MA- 142119406-CA. The Court of Appeals pointed out that petitioners own admission that respondents were never parties to the transaction among petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos, and Consing, proved respondents lack of knowledge of any infirmity in the instrument or defect in the title of the person negotiating it. Moreover, respondents verified from Metrobank whether the check

1704

Page 1347 of 1485

was sufficiently funded before they accepted it. Therefore, respondents must be excluded from the ambit of petitioners stop payment order.

The Court of Appeals modified the trial courts decision by deleting the award of interest, moral damages, attorneys fees and litigation expenses. The Court of Appeals opined that petitioner was only exercising (although incorrectly), what he perceived to be his right to stop the payment of the check which he rediscounted. The Court of Appeals ruled that petitioner acted in good faith in ordering the stoppage of payment of the subject check and thus, he must not be made liable for those amounts.

In its 16 August 2005 Decision, the Court of Appeals affirmed the trial courts decision with modifications, thus:

WHEREFORE, premises considered, finding no reversible error in the decision of the lower court, WE hereby DISMISS the appeal and AFFIRM the decision of the court a quo with modifications that the award of interest, moral damages, attorneys fees and litigation expenses be deleted. No pronouncement as to costs.

SO ORDERED.1705[8]

In its 30 November 2005 Resolution, the Court of Appeals denied petitioners motion for reconsideration.

In denying the petitioners motion for reconsideration, the Court of Appeals noted that petitioner raised the defense that the check is a crossed check for the first time on appeal (particularly in the motion for reconsideration). The Court of Appeals rejected such

1705

Page 1348 of 1485

defense considering that to entertain the same would be offensive to the basic rules of fair play, justice, and due process.

Hence, this petition.

The Issues

Petitioner raises the following issues:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RESPONDENTS WERE HOLDERS IN DUE COURSE. THE FACT THAT METROBANK CHECK NO. 142119406 IS A CROSSED CHECK CONSTITUTES SUFFICIENT WARNING TO THE RESPONDENTS TO EXERCISE EXTRAORDINARY DILIGENCE TO DETERMINE THE TITLE OF THE INDORSER.

II. THE COURT OF APPEALS ERRED IN DENYING PETITIONERS MOTION FOR RECONSIDERATION UPON THE GROUND THAT THE ARGUMENTS RELIED UPON HAVE ONLY BEEN RAISED FOR THE FIRST TIME. EQUITY DEMANDS THAT THE COURT OF APPEALS SHOULD HAVE MADE AN EXCEPTION TO PREVENT THE COMMISSION OF MANIFEST WRONG AND INJUSTICE UPON THE PETITIONER.1706[9]

The Ruling of this Court

1706

Page 1349 of 1485

The petition is meritorious.

Respondents point out that petitioner raised the defense that Metrobank Check No. C-MA-142119406-CA is a crossed check for the first time in his motion for reconsideration before the Court of Appeals. Respondents insist that issues not raised during the trial cannot be raised for the first time on appeal as it would be offensive to the elementary rules of fair play, justice and due process. Respondents further assert that a change of theory on appeal is improper.

In his Answer, petitioner specifically denied, among others, condition or limitation was imposed, and

(1) Paragraph 4

of the Complaint, concerning the allegation that on the face of the subject check, no (2) Paragraph 8 of the Complaint, regarding the allegation that respondents were holders in due course and for value of the subject check. In his Special Affirmative Defenses, petitioner claimed that for want or lack of the prestation, he could validly stop the payment of his check, and that by rediscounting petitioners check, respondents took the risk of what might happen on the check. Essentially, petitioner maintained that respondents are not holders in due course of the subject check, and as such, respondents could not recover any liability on the check from petitioner. Indeed, petitioner did not expressly state in his Answer or raise during the trial that Metrobank Check No. C-MA-142119406-CA is a crossed check. It must be stressed, however, that petitioner consistently argues that respondents are not holders in due course of the subject check, which is one of the possible effects of crossing a check. The act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course. 1707[10] Contrary to respondents view, petitioner never changed his theory, that respondents are not holders in due course of the subject check, as would violate fundamental rules of justice, fair play, and due process. Besides, the subject check was presented and admitted as evidence during the trial and respondents did not and in fact cannot deny that it is a crossed check.

1707

Page 1350 of 1485

In any event, the Court is clothed with ample authority to entertain issues or matters not raised in the lower courts in the interest of substantial justice. 1708[11] In Casa Filipina Realty v. Office of the President,1709[12] the Court held:

[T]he trend in modern-day procedure is to accord the courts broad discretionary power such that the appellate court may consider matters bearing on the issues submitted for resolution which the parties failed to raise or which the lower court ignored. Since rules of procedure are mere tools designed to facilitate the attainment of justice, their strict and rigid application which would result in technicalities that tend to frustrate rather than promote substantial justice, must always be avoided. Technicality should not be allowed to stand in the way of equitably and completely resolving the rights and obligations of the parties.1710[13]

Having disposed of the procedural issue, the Court shall now proceed to the merits of the case. The main issue is whether respondents are holders in due course of Metrobank Check No. C-MA 142119406 CA as to entitle them to collect the face value of the check from its drawer or petitioner herein.

Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the following conditions: (a) (b) That it is complete and regular upon its face; That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact; That he took it in good faith and for value; That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

(c) (d)

1708 1709 1710

Page 1351 of 1485

In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only once to one who has an account with a bank; and (c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.1711[14]

Based on the foregoing, respondents had the duty to ascertain the indorsers, in this case Lobitanas, title to the check or the nature of her possession. This respondents failed to do. Respondents verification from Metrobank on the funding of the check does not amount to determination of Lobitanas title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith, 1712[15] contrary to Section 52(c) of the Negotiable Instruments Law. holders in due course of the subject check.1713[16] Hence, respondents are not deemed

State Investment House v. Intermediate Appellate Court 1714[17] squarely applies to this case. There, New Sikatuna Wood Industries, Inc. sold at a discount to State Investment House three post-dated crossed checks, issued by Anita Pea Chua naming as payee New Sikatuna Wood Industries, Inc. The Court found State Investment House not a holder in due course of the checks. The Court also expounded on the effect of crossing a check, thus:

Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be general wherein between two parallel diagonal lines are written the words and Co. or none at

1711 1712 1713 1714

Page 1352 of 1485

all as in the case at bar, in which case the drawee should not encash the same but merely accept the same for deposit. The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person authorized to receive payment on his behalf xx x As to who the holder or authorized person will be depends on the instructions stated on the face of the check. The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries, Inc. which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner is not the proper party authorized to make presentment of the checks in question.

In this case, there is no question that the payees of the check, Lobitana or Consing, were not the ones who presented the check for payment. Lobitana negotiated and indorsed the check to respondents in exchange for P948,000.00. It was respondents who presented the subject check for payment; however, the check was dishonored for reason PAYMENT STOPPED. In other words, it was not the payee who presented the check for payment; and thus, there was no proper presentment. As a result, liability did not attach to the drawer. Accordingly, no right of recourse is available to respondents against the drawer of the check, petitioner herein, since respondents are not the proper party authorized to make presentment of the subject check.

However, the fact that respondents are not holders in due course does not automatically mean that they cannot recover on the check. 1715[18] The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were nonnegotiable.1716[19] Among such defenses is the absence or failure of consideration, 1717[20] which petitioner sufficiently established in this case. Petitioner issued the subject check

1715

Page 1353 of 1485

supposedly for a loan in favor of Consings group, who turned out to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no consideration for the issuance of the check. Consequently, petitioner cannot be obliged to pay the face value of the check.

Respondents can collect from the immediate indorser, 1718[21] in this case Lobitana. Significantly, Lobitana did not appeal the trial courts decision, finding her solidarily liable to pay, among others, the face value of the subject check. judgment has long become final and executory as to Lobitana. Therefore, the trial courts

WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August 2005 Decision and 30 November 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 57994.

SO ORDERED. Republic SUPREME Manila SECOND DIVISION G.R. No. 173930 September 15, 2010 ECHANO, JR., Petitioner, of the Philippines COURT

SALVADOR O. vs. LIBERTY TOLEDO, Respondent. DECISION ABAD, J.:

1716 1717 1718

Page 1354 of 1485

This case is about the liability of a government-owned bank cashier for allowing an unauthorized person to deposit to her savings account second-endorsed checks payable to the Office of the City Treasurer of Manila. The Facts and the Case On August 8, 2000 Laurence V. Taguinod of the Medical Center Trading Corporation verified with the Office of the City Treasurer of Manila the authenticity of their 1st Quarter 2000 Municipal License Receipt. He claimed that he entrusted a January 18, 2000 managers check for P55,205.36 to Rogelio S. Reyes (Reyes), an officer of the City Treasurers Business License Division in payment of his companys business tax. Reyes photocopied the check and signed the photocopy as proof that he received it. He also issued the subject receipt. After investigation, respondent Liberty M. Toledo, the City Treasurer of Manila, discovered that the receipt was spurious since its validation imprint was copied from the official validation imprint of a Municipal License Receipt issued to Co Siu Kheng. She also found that the city did not receive the managers check nor was it deposited to its account with the Land Bank of the Philippines-YMCA Branch. As it turned out Liza E. Perez (Perez), a stenographer in the Office of the Clerk of Court, Regional Trial Court (RTC) of Manila, deposited the check in her personal account with the Land Bank-Taft Avenue Branch. The dorsal portion of the check showed Perezs signature and a signature of an unidentified person who was supposedly the first endorser. The deposit was approved by petitioner Salvador O. Echano, Jr. (Echano), Acting Branch Cashier of the Land Bank-Taft Avenue Branch. As a result, Toledo filed charges of grave misconduct and conduct prejudicial to the service against Reyes, Perez, Echano, and a certain John Doe with the Office of the Ombudsman. The latter office dropped the charge against Perez and referred her case to the Office of the Court Administrator. The Ombudsman case against Reyes and Echano proceeded. Echano claimed that Perez became his banks client in 1993 and had been depositing second-endorsed checks to her accounts with the bank since 1995. He did not know her personally. Edwin Quesada, the Assistant Department Manager, introduced her to him as a valued client with a long-standing business relationship with the bank. Quesada told him that Perez was in the business of rediscounting checks and it was not unusual for her to deposit numerous second-endorsed checks at any given time. Liwliwa Eli, Echanos predecessor as Acting Branch Cashier, also called him to facilitate Perezs transactions, she being a valued client of the bank. Echano added that he was unaware, prior to the filing of the complaint, that Perez had been able to deposit in her accounts second-endorsed checks that were payable to the City Treasurer of Manila. He claimed that he may have inadvertently missed out the payees name on the check when he examined it prior to signing the stamp of approval on the dorsal side. On September 30, 2002 the Office of the Ombudsman found Reyes and Echano guilty of grave misconduct and dishonesty and meted out to them the penalty of dismissal from the service with forfeiture of leave credits and perpetual disqualification from employment in the government and in government-owned and controlled corporations. On appeal, the Court of Appeals (CA)1 affirmed the Ombudsman decision.1avvphi1 The Issues Presented

Page 1355 of 1485

Two issues are raised: 1. Whether or not the Office of the Ombudsman erred in finding Echano guilty of grave misconduct and dishonesty; and 2. Whether or not the Office of the Ombudsman erred in imposing on him the penalty of dismissal from the service with forfeiture of leave credits and perpetual disqualification from employment in the government service. The Courts Ruling One. There is no doubt, based on the evidence that Echano was guilty of grave misconduct. Misconduct is a transgression of some established and definite rule of action, more particularly, unlawful behavior or gross negligence by a public officer. As differentiated from simple misconduct, in grave misconduct the elements of corruption, clear intent to violate the law or flagrant disregard of established rule, must be manifest. 2 As the CA pointed out, Echano, as Acting Branch Cashier, should have exercised a high degree of diligence and care in handling Perezs second-endorsed checks since her rediscounting of checks was not a regular banking transaction. Moreover, the managers check in this case had been crossed and issued for the payees account only. This meant that Medical Center Trading Corporation intended it to be deposited to the account of the payee, namely, the City Treasurer of Manila. And Echano cannot plead simple oversight because he had approved for deposit to Perezs accounts more or less 26 second-endorsed checks intended for the City Treasurer of Manila. What is more, Echano failed to prove that Perez had indeed been a valued client of his bank or that her questionable transactions carried the approval of higher bank officials. Echano claims that Judge Antonio J. de Castro, who presided over Branch 3 of the RTC of Manila, requested and guaranteed the deposit of Perezs second-endorsed checks. But the evidence shows that those requests were made in 1995 and 1996 and under the premise that the checks were payable to the court. The transaction in this case occurred in 2000 and there is no showing that Judge De Castro guaranteed it. As Acting Branch Cashier, petitioner was charged with responsibility of handling the banks daily transactions which could run into large amounts. There is a tremendous difference between the degree of responsibility, care, and trustworthiness expected of a clerk or ordinary employee in the bureaucracy and that required of bank managers, cashiers, finance officers, and other officials directly handling large sums of money and properties. 3 The evidence clearly shows that Echano took light of such responsibility and flagrantly disregarded established banking rules and practices. His misconduct and dishonesty paved the way for the commission of fraud against, and consequent damage to, the City Government of Manila.4 Two. Under Section 52, Rule IV of the Civil Service Commissions Uniform Rules on Administrative Cases, grave misconduct carries with it the penalty of dismissal for the first offense. Section 53, however, allows mitigating circumstances to be considered in the determination of the penalties to be imposed. While Echano claims good faith, the Court cannot close its eyes to the fact that he approved for deposit to Perezs personal account about 26 other second-endorsed checks payable to the City Treasurer of Manila. His violation of the banking rules was certainly willful and dishonest.

Page 1356 of 1485

WHEREFORE, the Court DENIES the petition and AFFIRMS the assailed decision of the Court of Appeals in CA-G.R. SP 75681 dated April 17, 2006. SO ORDERED. Republic of the Philippines Supreme Court Manila

SECOND DIVISION

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,

G.R. No. 158143

Present:

VELASCO, JR.,* J., BRION,** Acting Chairperson, PEREZ, SERENO, and REYES, JJ.

- versus -

ANTONIO B. BALMACEDA and ROLANDO N. RAMOS, Respondents.

Promulgated:

September 21, 2011

* *

Page 1357 of 1485

x------------------------------------------------------------------------------------x

DECISION

BRION, J.:

Before us is a petition for review on certiorari,1719[1] filed by the Philippine Commercial International Bank1720[2] (Bank or PCIB), to reverse and set aside the decision1721[3] dated April 29, 2003 of the Court of Appeals ( CA) in CA-G.R. CV No. 69955. The CA overturned the September 22, 2000 decision of the Regional Trial Court ( RTC) of Makati City, Branch 148, in Civil Case No. 93-3181, which held respondent Rolando Ramos liable to PCIB for the amount of P895,000.00.

FACTUAL ANTECEDENTS

On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by

1719 1720 1721

Page 1358 of 1485

taking advantage of his position as branch manager, fraudulently obtained and encashed 31 Managers checks in the total amount of Ten Million Seven Hundred Eighty Two Thousand One Hundred Fifty Pesos (P10,782,150.00).

On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the recipients of a portion of the proceeds from Balmacedas alleged fraud. PCIB also increased the number of fraudulently obtained and encashed Managers checks to 34, in the total amount of Eleven Million Nine Hundred Thirty Seven Thousand One Hundred Fifty Pesos (P11,937,150.00). The RTC granted this motion.

Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed an Answer denying any knowledge of Balmacedas scheme. According to Ramos, he is a reputable businessman engaged in the business of buying and selling fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving money from Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but maintained that he had no knowledge of the source of Balmacedas money.

Page 1359 of 1485

THE RTC DECISION

On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following dispositive portion:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants as follows: 1. Ordering defendant Antonio Balmaceda to pay the amount of P11,042,150.00 with interest thereon at the legal rate from [the] date of his misappropriation of the said amount until full restitution shall have been made[.] 2. Ordering defendant Rolando Ramos to pay the amount of P895,000.00 with interest at the legal rate from the date of misappropriation of the said amount until full restitution shall have been made[.] 3. Ordering the defendants to pay plaintiff moral damages in the sum of P500,000.00 and attorneys fees in the amount of ten (10%) percent of the total misappropriated amounts sought to be recovered. 4. Plus costs of suit.

SO ORDERED.1722[4]

From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his position and authority as branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and misappropriated the banks funds by falsifying several commercial documents. He accomplished this by claiming that he had been instructed by one of the Banks corporate clients to purchase Managers checks on its behalf, with the value of the checks to be debited from the clients corporate bank account. First, he would instruct the Bank staff to prepare the application forms for the purchase of Managers checks, payable to several persons. Then, he would forge the signature of the clients authorized representative on these forms and sign the forms as PCIBs approving officer. Finally, he would have an authorized officer of PCIB issue the Managers checks. Balmaceda would subsequently ask his subordinates to release the Managers checks to him, claiming

1722

Page 1360 of 1485

that the client had requested that he deliver the checks. 1723[5] After receiving the Managers checks, he encashed them by forging the signatures of the payees on the checks.

In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Managers checks payable to Ramos were crossed checks, Balmaceda was still able to encash the checks.1724[6] After Balmaceda encashed three of these Managers checks, he deposited most of the money into Ramos account. 1725[7] The RTC concluded that from the P11,937,150.00 that Balmaceda misappropriated from PCIB, P895,000.00 actually went to Ramos. Since the RTC disbelieved Ramos allegation that the sum of money deposited into his Savings Account (PCIB, Pasig branch) were proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the amount of P895,000.00.

THE COURT OF APPEALS DECISION

On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove that Ramos colluded with Balmaceda in the latters fraudulent manipulations.1726[8]

According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Managers checks does not suffice to prove that Ramos was complicit in Balmacedas fraudulent scheme. It observed that other persons were also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos. With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal and factual basis exists to hold him liable.

1723 1724 1725 1726

Page 1361 of 1485

The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 from Ramos bank account. The CA thus decreed:

WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September 22, 2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and the complaint below against him is DISMISSED. Appellee is hereby ordered to release the amount of P251,910.96 to appellant Ramos plus interest at [the] legal rate computed from September 30, 1993 until appellee shall have fully complied therewith. Appellee is likewise ordered to pay appellant Ramos the following: a) b) c) No costs. SO ORDERED.1727[9] P50,000.00 as moral damages P50,000.00 as exemplary damages, and P20,000.00 as attorneys fees.

THE PETITION

In the present petition, PCIB avers that:

1727

Page 1362 of 1485

I THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH RESPONDENT BALMACEDA

II

THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE AMOUNT OF P251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES1728[10]

PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and acted in complicity with Balmaceda in, the perpetuation of the fraud. Ramos explanation that he is a businessman and that he received the Managers checks as payment for the fighting cocks he sold to Balmaceda is unconvincing, given the large sum of money involved. While Ramos presented evidence that he is a reputable businessman, this evidence does not explain why the Managers checks were made payable to him in the first place.

PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 from Ramos bank account, even without his consent, since legal compensation had taken place between them by operation of law. PCIB debited Ramos bank account, believing in good faith that Ramos was not entitled to the proceeds of the Managers checks and was actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for moral and exemplary damages.

OUR RULING

1728

Page 1363 of 1485

We partly grant the petition.

At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the re-examination of the evidence on record. As a general rule, petitions for review on certiorari only involve questions of law.1729[11] By way of exception, however, we can delve into evidence and the factual circumstance of the case when the findings of fact in the tribunals below (in this case between those of the CA and of the RTC) are conflicting. When the exception applies, we are given latitude to review the evidence on record to decide the case with finality. 1730[12]

Ramos participation scheme not proven

in

Balmacedas

From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by taking advantage of his position as branch manager of PCIBs Sta. Cruz, Manila branch, was able to apply for and obtain Managers checks drawn against the bank account of one of PCIBs clients. The unsettled question is whether Ramos, who received a portion of the money that Balmaceda took from PCIB, should also be held liable for the return of this money to the Bank.

PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in the scheme to fraudulently secure Managers checks and to misappropriate their proceeds. Since Ramos defense anchored on mere denial of any participation in Balmacedas wrongdoing is an intrinsically weak defense, it was error for the CA to exonerate Ramos from any liability.

1729 1730

Page 1364 of 1485

In civil cases, the party carrying the burden of proof must establish his case by a preponderance of evidence, or evidence which, to the court, is more worthy of belief than the evidence offered in opposition. 1731[13] This Court, in Encinas v. National Bookstore, Inc.,1732[14] defined preponderance of evidence in the following manner:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.

The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment, subject to the overriding rule that the burden to prove his cause of action never leaves the plaintiff. For the defendant, an affirmative defense is one that is not merely a denial of an essential ingredient in the plaintiff's cause of action, but one which, if established, will constitute an "avoidance" of the claim.1733[15]

Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos conspired with Balmaceda in perpetrating the latters scheme to defraud the Bank. In PCIBs estimation, it successfully accomplished this through the submission of the following evidence:

[1]

Exhibits A, D, PPPP, QQQQ, and RRRR and their submarkings, the application forms for MCs, show that [these MCs were applied for in favor of Ramos;]

1731 1732 1733

Page 1365 of 1485

[2] [3] Exhibits K, N, SSSS, TTTT, and UUUU and their submarkings prove that the MCs were issued in favor of x x x Ramos[; and] [T]estimonies of the witness for [PCIB].1734[16]

We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that PCIB carries as plaintiff.

On its face, all that PCIBs evidence proves is that Balmaceda used Ramos name as a payee when he filled up the application forms for the Managers checks. But, as the CA correctly observed, the mere fact that Balmaceda made Ramos the payee on some of the Managers checks is not enough basis to conclude that Ramos was complicit in Balmacedas fraud; a number of other people were made payees on the other Managers checks yet PCIB never alleged them to be liable, nor did the Bank adduce any other evidence pointing to Ramos participation that would justify his separate treatment from the others. Also, while Ramos is Balmacedas brother-in-law, their relationship is not sufficient, by itself, to render Ramos liable, absent concrete proof of his actual participation in the fraudulent scheme.

Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for the Managers checks against the bank account of one of PCIBs clients, as well as when he encashed the fraudulently acquired Managers checks.

Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that Balmaceda committed all the acts necessary to obtain the unauthorized Managers checks from filling up the application form by forging the signature of the clients representative, to forging the signatures of the payees in order to encash the checks. As Mrs. Costes stated in her testimony:

1734

Page 1366 of 1485

Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has] been making unauthorized withdrawals from particular account of a client or a client of yours at Sta. Cruz branch. Would you tell us how he effected his unauthorized withdrawals? A: He prevailed upon the domestic remittance clerk to prepare the application of a Managers check which [has] been debited to a clients account. This particular Managers check will be payable to a certain individual thru his account as the instruction of the client.

Q: What was your findings in so far as the particular alleged instruction of a client is concerned? A: We found out that he forged the signature of the client .

Q: A:

On that particular application? Yes sir.

Q: Showing to you several applications for Managers Check previously attached as Annexes A, B, C, D and E[] of the complaint. Could you please tell us where is that particular alleged signature of a client applying for the Managers check which you claimed to have been forged by Mr. Balmaceda? A: Here sir.

xxxx

Q: After the accomplishment of this application form as you stated Mrs. witness, do you know what happened to the application form? A: Before that application form is processed it goes to several stages. Here for example this was signed supposed to be by the client and his signature representing that, he certified the signature based on their records to be authentic.

Q:

When you said he to whom are you referring to?

Page 1367 of 1485

A: Mr. Balmaceda. And at the same time he approved the transaction.

xxxx

Q: Do you know if the corresponding checks applied for in the application forms were issued? A: Yes sir.

Q: Could you please show us where these checks are now, the one applied for in Exhibit A which is in the amount of P150,000.00, where is the corresponding check?

Page 1368 of 1485

A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher authority, this is Mr. Balmacedas signature.

Q: In other words he is likewise approving signatory to the Managers check? A: Yes sir. This is an authority that the check [has] been encashed .

Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a cross check but nonetheless he allowed to encash by granting it.

Could you please show us?

ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the notation cross check.

A:

And this is his signature.

xxxx

Q: How about the check corresponding to Exhibit E-2 which is an application for P125,000.00 for a certain Rolando Ramos. Do you have the check? A: Yes sir.

ATTY. PACES: Witness producing a check dated December 19, 1991 the amount of P125,000.00 payable to certain Rolando Ramos.

Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in so far as he is concerned?

Page 1369 of 1485

A: Yes sir he is also the right signer and he authorized the cancellation of the cross check.1735[17] (emphasis ours)

xxxx

Q: These particular checks [Mrs.] witness in your findings, do you know if Mr. Balmaceda [has] again any participation in these checks? A: He is also the right signer and approved officer and he was authorized to debit on file.

xxxx

Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were subsequently encashed? A: Yes sir.

Q:

Were you able to find out who encashed?

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Page 1370 of 1485

A: Mr. Balmaceda himself and besides he approved the encashment because of the signature that he allowed the encashment of the check.

xxxx

Q: Do you know if this particular person having in fact withdraw of received the proceeds of [these] particular checks, the payee? A: No sir.

Q: A:

It was all Mr. Balmaceda dealing with you? Yes sir.

Q: In other words it would be possible that Mr. Balmaceda himself gotten the proceeds of the checks by forging the payees signature ? A: Yes sir.1736[18] (emphases ours)

Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila branch at the time the events of this case occurred, confirmed Mrs. Costes testimony by stating that it was Balmaceda who forged Ramos signature on the Managers checks where Ramos was the payee, so as to encash the amounts indicated on the checks.1737[19] Mrs. Laforteza also testified that Ramos never went to the PCIB, Sta. Cruz, Manila branch to encash the checks since Balmaceda was the one who deposited the checks into Ramos bank account. As revealed during Mrs. Lafortezas crossexamination:

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Page 1371 of 1485

Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you ever see my client go to the bank to encash these checks? A: No it is Balmaceda who is depositing in his behalf.

Q:

Did my client ever call up the bank concerning this amount?

A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is maintained at Pasig.

Page 1372 of 1485

Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you claimed [was sent] to the account of my client? A: Yes.1738[20] (emphases ours)

Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a Managers check for P480,000.00, could only testify that the money was deposited into Ramos PCIB bank account. She could not attest that Ramos himself presented the Managers check for deposit in his bank account. 1739[21] These testimonies clearly dispute PCIBs theory that Ramos was instrumental in the encashment of the Managers checks.

We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums of money into his bank account as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two witnesses Vicente Cosculluela and Crispin Gadapan who testified that Ramos previously engaged in the business of buying and selling fighting cocks, and that Balmaceda was one of Ramos biggest clients.

Quoting from the RTC decision, PCIB stresses that Ramos own witness and business partner, Cosculluela, testified that the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to no more than P100,000.00, for the sale of approximately 45 fighting cocks.1740[22] In PCIBs view, this testimony directly contradicts Ramos assertion that he received approximately P400,000.00 from his biggest transaction with Balmaceda. To PCIB, the testimony also renders questionable Ramos assertion that Balmaceda deposited large amounts of money into his bank account as payment for the fighting cocks.

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Page 1373 of 1485

On this point, we find that PCIB misunderstood Cosculluelas testimony. A review of the testimony shows that Cosculluela specifically referred to the net profit that they earned from the sale of the fighting cocks;1741[23] PCIB apparently did not take into account the capital, transportation and other expenses that are components of these transactions. Obviously, in sales transactions, the buyer has to pay not only for the value of the thing sold, but also for the shipping costs and other incidental costs that accompany the acquisition of the thing sold. Thus, while the biggest net profit that Ramos and Cosculluela earned in a single transaction amounted to no more than P100,000.00,1742[24] the inclusion of the actual acquisition costs of the fighting cocks, the transportation expenses ( i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other attendant expenses could account for the P400,000.00 that Balmaceda deposited into Ramos bank account.

Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was not even necessary for Ramos to provide an explanation for the money he received from Balmaceda. Even if the evidence adduced by the plaintiff appears stronger than that presented by the defendant, a judgment cannot be entered in the plaintiffs favor if his evidence still does not suffice to sustain his cause of action; 1743[25] to reiterate, a preponderance of evidence as defined must be established to achieve this result.

1741 1742 1743

Page 1374 of 1485

PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily because other PCIB employees failed to carry out their assigned tasks flaws imputable to PCIB itself as the employer.

Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta. Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the Banks protocol when he ordered the Banks employees to fill up the application forms for the Managers checks, to be debited from the bank account of one of the banks clients, without providing the necessary Authority to Debit from the client. 1744[26] PCIB also admitted that these Managers checks were subsequently released to Balmaceda, and not to the clients representative, based solely on Balmacedas word that the client had tasked him to deliver these checks.1745[27]

Despite Balmacedas gross violations of bank procedures mainly in the processing of the applications for Managers checks and in the releasing of the Managers checks Balmacedas co-employees not only turned a blind eye to his actions, but actually complied with his instructions. In this way, PCIBs own employees were unwitting accomplices in Balmacedas fraud.

Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to encash the Managers checks that were plainly crossed checks . A crossed check

1744 1745

Page 1375 of 1485

is one where two parallel lines are drawn across its face or across its corner. 1746[28] Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank ; (b) the check may be negotiated only once to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course.1747[29] In other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payees account.1748[30] In complete disregard of this duty, PCIBs systems allowed Balmaceda to encash 26 Managers checks which were all crossed checks, or checks payable to the payees account only.

The General Banking Law of 2000 1749[31] requires of banks the highest standards of integrity and performance. The banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family.1750[32] The highest degree of diligence is expected. 1751 [33]

While we appreciate that Balmaceda took advantage of his authority and position as the branch manager to commit these acts, this circumstance cannot be used to excuse the manner the Bank through its employees handled its clients bank accounts and thereby ignored established bank procedures at the branch managers mere order. This lapse is made all the more glaring by Balmacedas repetition of his modus operandi 33 more times in a period of over one year by the Banks own estimation. With this kind of record, blame

1746 1747 1748 1749 1750 1751

Page 1376 of 1485

must be imputed on the Bank itself and its systems, not solely on the weakness or lapses of individual employees.

Principle of applicable

unjust

enrichment

not

PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the amounts unjustly received by Ramos pursuant to the principle of unjust enrichment. This principle is embodied in Article 22 of the Civil Code which provides:

Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

To have a cause of action based on unjust enrichment, we explained in University of the Philippines v. Philab Industries, Inc.1752[34] that:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully. Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.1753[35] (emphasis ours)

1752 1753

Page 1377 of 1485

Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out of money secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the money from Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at the time that he received the money from Balmaceda, knew that the money was acquired through fraud. Knowledge of the fraud is the link between Ramos and PCIB that would obligate Ramos to return the money based on the principle of unjust enrichment. However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made directly into his bank account, believing that these deposits were payments for the fighting cocks that Balmaceda had purchased. Significantly, PCIB has not presented any evidence proving that Ramos participated in, or that he even knew of, the fraudulent sources of Balmacedas funds.

PCIB illegally froze and debited Ramos assets

We also find that PCIB acted illegally in freezing and debiting Ramos bank account. In BPI Family Bank v. Franco,1754[36] we cautioned against the unilateral freezing of bank accounts by banks, noting that:

More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.1755[37]

1754 1755

Page 1378 of 1485

We see no legal merit in PCIBs claim that legal compensation took place between it and Ramos, thereby warranting the automatic deduction from Ramos bank account. For legal compensation to take place, two persons, in their own right, must first be creditors and debtors of each other.1756[38] While PCIB, as the depositary bank, is Ramos debtor in the amount of his deposits, Ramos is not PCIBs debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos bank account.

On the award of damages

Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB liable for moral and exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the depositor and the depositary bank, respectively, the award of moral damages depends on the applicability of Article 2220 of the Civil Code, which provides:

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith . [emphasis ours]

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious commission of a wrong; it partakes of the nature of fraud.1757[39]

As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos bank account and subsequently debited the amount of P251,910.96 therefrom. While PCIB may have acted hastily and without regard to its primary duty to treat the

1756 1757

Page 1379 of 1485

accounts of its depositors with meticulous care and utmost fidelity, 1758[40] we find that its actions were propelled more by the need to protect itself, and not out of malevolence or ill will. One may err, but error alone is not a ground for granting moral damages. 1759[41]

We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove that he is entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages. Since no reason exists to award moral damages, so too can there be no reason to award exemplary damages.

We deem it just and equitable, however, to uphold the award of attorneys fees in Ramos favor. Taking into consideration the time and efforts involved that went into this case, we increase the award of attorneys fees from P20,000.00 to P75,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of Appeals dated April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral and exemplary damages in favor of Rolando N. Ramos is DELETED, while the award of attorneys fees is INCREASED to P75,000.00. Philippine Commercial International Bank. Costs against the

SO ORDERED.

Republic of the Philippines Supreme Court Baguio City

1758 1759

Page 1380 of 1485

THIRD DIVISION

INSULAR INVESTMENT AND TRUST CORPORATION, Petitioner,

G.R. No. 183308

Present:

VELASCO, JR., J., Chairperson, PERALTA, - versus ABAD, MENDOZA, and PERLAS-BERNABE, JJ.

CAPITAL ONE EQUITIES CORP. (now known as CAPITAL ONE HOLDINGS CORP.) and PLANTERS DEVELOPMENT BANK, Respondents. Promulgated:

April 25, 2012

x ---------------------------------------------------------------------------------------- x

DECISION

MENDOZA, J.:

Page 1381 of 1485

This is a petition for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure assailing the June 6, 2008 Decision 1760[1] of the Court of Appeals (CA) in C.A.G.R. CV No. 79320 entitled Insular Investment and Trust Corporation v. Capital One Equities Corporation (now known as Capital One Holdings Corporation) and Planters Development Bank.

THE FACTS

Based on the records of the case and on the September 2, 1999 Partial Stipulation of Facts and Documents1761[2] (the Partial Stipulation) agreed upon by the parties, the facts are as follows:

Petitioner Insular Investment and Trust Corporation (IITC) and respondents Capital One Equities Corporation (COEC) and Planters Development Bank (PDB) are regularly engaged in the trading, sale and purchase of Philippine treasury bills.

On various dates in 1994, IITC purchased from COEC treasury bills with an aggregate face value of P260,683,392.51 (the IITC T-Bills), as evidenced by the confirmations of purchase issued by IITC. The purchase price for the said treasury bills were fully paid by IITC to COEC which was able to deliver P121,050,000.00 worth of treasury bills to IITC.

On May 2, 1994, COEC purchased treasury bills with a face value of P186,774,739.49 (the COEC T-Bills). IITC issued confirmations of sale in favor of COEC covering the said transaction. COEC paid the purchase price by issuing the following checks:

1760 1761

Page 1382 of 1485

Check No. (1) City Trust Managers Check No. 001180 (2) UCPB-Ayala Managers Check No. AYLO43841 (3) UCPB-Ayala Managers Check No. AYLO43840 (4) UCPB-Ayala Check No. AYL213346

Payee Planters Bank Planters Bank Planters Bank Development Development Development and

Amount P154,802,341.59 P16,975,883.89 P10,413,043.78 P24,116.11

Insular Investment Trust Corporation

Both IITC and PDB received the proceeds of the checks.

On May 2, 1994, PDB issued confirmations of sale in favor of IITC for the sale of treasury bills and IITC, in turn, issued confirmations of purchase in favor of PDB over treasury bills with a total face value of P186,790,000.00.

Thereafter, PDB sent a letter1762[3] dated May 4, 1994 to IITC undertaking to deliver treasury bills worth P186,790,000.00, which IITC purchased from PDB on May 2, 1994, as soon as they would be available.

On May 10, 1994, COEC wrote a letter to IITC demanding the physical delivery of the treasury bills which the former purchased from the latter on May 2, 1994.

1762

Page 1383 of 1485

In its May 18, 1994 Letter1763[4] to PDB, IITC requested, on behalf of COEC, the delivery to IITC of treasury bills worth P186,790,000.00 which had been paid in full by COEC. COEC was furnished with a copy of the said letter.

On May 30, 1994, COEC protested the tenor of IITCs letter to PDB and took exception to IITCs assertion that it merely acted as a facilitator with regard to the sale of the treasury bills.

IITC sent COEC a letter1764[5] dated June 3, 1994, demanding that COEC deliver to it (IITC) the P139,833,392.00 worth of treasury bills or return the full purchase price. In either case, it also demanded that COEC (1) pay IITC the amount of P1,729,069.50 representing business opportunity lost due to the non-delivery of the treasury bills, and (2) deliver treasury bills worth P121,050,000 with the same maturity dates originally purchased by IITC.

COEC sent a letter-reply1765[6] dated June 9, 1994 to IITC in which it acknowledged its obligation to deliver the treasury bills worth P139,833,392.001766[7] which it sold to IITC and formally demanded the delivery of the treasury bills worth P186,774,739.49 which it purchased from IITC. COEC also demanded the payment of lost profits in the amount of P3,253,250.00. Considering that COEC and IITC both have claims against each other for the delivery of treasury bills, COEC proposed that a legal set-off be effected, which would result in IITC owing COEC the difference of P46,941,446.49.

1763 1764 1765 1766

Page 1384 of 1485

In its June 13, 1994 letter to COEC, IITC rejected the suggestion for a legal setting-off of obligations, alleging that it merely acted as a facilitator between PDB and COEC.

On June 27, 1994, COEC replied to IITCs letter, reiterating its demand and its position stated in its June 9, 1994 letter.

On July 1, 1994, IITC, COEC and PDB entered into a Tripartite Agreement 1767[8] (the Tripartite Agreement) wherein PDB assigned to IITC, which in turn assigned to COEC, Central Bank Bills with a total face value of P50,000,000.00. These assignments were made in consideration of (a) IITC relinquishing all its rights to claim delivery under the confirmation of sale issued by PDB to IITC to the extent of P50,000,000.00 (face value) and (b) COEC relinquishing all its rights to claim delivery of the COEC T-Bills under the IITC confirmations of sale to COEC to the extent of P50,000,000.00 (face value).

On the same day, COEC and IITC entered into an Agreement1768[9] (the COEC-IITC Agreement) whereby COEC reassigned to IITC the Central Bank bills subject of the Tripartite Agreement to the extent of P20,000,000.00 in consideration of which IITC relinquished all its rights to claim from COEC the IITC T-Bills covered by the COEC confirmation of sale to the extent of an aggregate P20,000,000.00 face value.

Despite repeated demands, however, PDB failed to deliver the balance of P136,790,000.00 worth of treasury bills which IITC purchased from PDB allegedly for COEC. COEC was likewise
1769

unable

to

deliver

the

remaining

IITC

T-Bills

amounting

to

P119,633,392.00. treasury bills.

Neither PDB and COEC returned the purchase price for the duly paid

[10]

1767 1768 1769

Page 1385 of 1485

This prompted IITC to file the Amended Complaint 1770[11] dated March 20, 1995 before the Regional Trial Court, Branch 138, Makati City (RTC), praying that COEC be ordered to deliver treasury bills worth P119,633,392.00 to IITC or pay the monetary equivalent plus legal interests; and, in the alternative, that PDB be ordered to comply with its obligations under the conduit transaction involving treasury bills worth P136,790,000.00 by delivering the treasury bills to IITC, in addition to actual and exemplary damages and attorneys fees.

COEC filed its Answer to Amended Complaint 1771[12] dated April 10, 1995, admitting that it owed IITC treasury bills worth P119,633,392.00. It countered, however, that IITC had an outstanding obligation to deliver to COEC treasury bills worth P136,774,739.49.1772[13] COEC prayed that IITC be required to deliver P17,141,347.49 (the amount IITC still owed COEC after a legal off-setting of their debts against each other) to COEC in addition to moral and exemplary damages and attorneys fees.1773[14]

PDB, for its part, insisted in its Answer Ad Cautelam1774[15] that it had no knowledge or participation in the sale by IITC of treasury bills to COEC. It admitted that it sent a letter dated May 4, 1994 to IITC, undertaking to deliver treasury bills worth P186,790,000.00 which IITC purchased from PDB. PDB posited, however, that IITC was not entitled to the delivery of the said treasury bills because IITC did not remit payment to PDB. Neither did the subject securities become available to PDB.

In its Judgment1775[16] dated June 16, 2003, the RTC found that COEC still owed IITC P119,633,392.00 worth of treasury bills, pursuant to their transaction in early 1994. As

1770 1771 1772 1773 1774 1775

Page 1386 of 1485

regards the sale of treasury bills by IITC to COEC, however, the RTC determined that IITC was not merely a conduit in the purchase a sale of treasury bills between PDB and COEC. Rather, IITC acted as a principal in two transactions: as a buyer of treasury bills from PDB and as a seller to COEC. Taking into consideration the Tripartite Agreement, IITC was still liable to pay COEC the sum of P136,790,000.00. Since IITC and COEC were both debtors and creditors of each other, the RTC off-set their debts, resulting in a difference of 17,056,608.00 in favor of COEC. As to PDBs liability, it ruled that PDB had the obligation to pay P136,790,000.00 to IITC. Thus, the trial court ordered (a) IITC to pay COEC P17,056,608.00 with interest at the rate of 6% from June 10, 1994 until full payment and (b) PDB to pay IITC P136,790,000.00 with interest at the rate of 6% from March 21, 1995 until full payment.

Aggrieved, all parties appealed to the CA which promulgated its decision on June 6, 2008. The CA affirmed the RTC finding that IITC was not a mere conduit but rather a direct seller to COEC of the treasury bills.1776[17] The CA, however, absolved PDB from any liability, ruling that because PDB was not involved in the transactions between IITC and COEC, IITC should have alleged and proved that PDB sold treasury bills to IITC. 1777[18] Moreover, PDB only undertook to deliver treasury bills worth P186,790,000.00 to IITC as soon as they are available.1778[19] But, the said treasury bills did not become available. Neither did IITC remit payment to PDB. As such, PDB incurred no obligation to deliver P186,790,000.00 worth of treasury bills to IITC.

Hence, this petition.

THE ISSUES

IITC raises the following grounds for the grant of its petition:

1776 1777 1778

Page 1387 of 1485

A. The petition is not dismissible. The issue of whether IITC acted as a conduit is a question of law. Assuming for the sake of argument that the petition involves questions of fact, the Supreme Court may take cognizance of the petition under exceptional circumstances. B. The Court of Appeals gravely erred and acted contrary to law and jurisprudence and the evidence on record in holding that IITC did not act as a conduit of Capital One and Plantersbank in the 2 May 1994 sale of COEC Tbills. C. The Court of Appeals erred and acted contrary to law and the evidence on record in ruling that Plantersbank did not have any obligation to delivery the COEC T-Bills to IITC under IITCs alternative cause of action. D. The Court of Appeals erred and acted contrary to law in holding that Capital One could validly set off its claims for the undelivered COEC T-Bills against the fully paid IITC T-Bills. E. The Court of Appeals further erred and acted contrary to law in holding that Capital One and Plantersbank were not guilty of fraud. F. The Court of Appeals violated IITCs right to due process in affirming, without citing any basis whatsoever, the erroneous holding of the trial court that there was insufficient evidence to prove the actual and consequential damages sustained by IITC.1779[20]

COEC puts forth the following issues: Whether the Court of Appeals correctly held that IITC did not act as a conduit of Capital One and Plantersbank in the May 2, 1994 sale of the COEC T-Bills by IITC to Capital One. Whether the Court of Appeals correctly held that Capital One may validly set off its claim for the undelivered COEC T-Bills against the balance of the IITC TBills. Whether the Court of Appeals correctly affirmed the holding of the trial court that Capital One and Plantersbank are not guilty of fraud. Whether the Petition raises questions of fact, and whether it is defective.

1779

Page 1388 of 1485

Whether Capital One is entitled to the correction of the mathematical error in the computation of the money judgment in its favor. 1780[21]

For its part, PDB identifies the principal issue to be whether it was obliged to deliver to petitioner Insular the treasury bills which the latter sold, as principal, to Capital One, and/or pay the value thereof.1781[22] The following are stated as corollary issues: Whether petitioner Insular was acting as facilitator or conduit in the May 2, 1994 sales of the treasury bills; Whether petitioner Insular may raise in this petition the issue of it being merely as facilitator or conduit after the Trial Court and Court of Appeals found that petitioner Insular was not a facilitator or conduit. Whether respondents Plantersbank and Capital One were guilty of fraud in their transactions with petitioner Insular. Whether petitioner Insular damages.1782[23] was entitled to actual and consequential

The numerous issues can be simplified as follows:

(1) Whether IITC acted as a conduit in the transaction between COEC and PDB; (2) Whether COEC can set-off its obligation to IITC as against the latters obligation to it; and (3) IITC. Whether PDB has the obligation to deliver treasury bills to

THE COURTS RULING

1780 1781 1782

Page 1389 of 1485

The petition is partly meritorious.

Question of fact; IITC did not act as conduit

Petitioner IITC insists that the issue of whether it acted as a conduit is a question of law which can properly be the subject of a petition for review before this Court. Because the parties already entered into a stipulation of facts and documents, the facts are no longer at issue; rather, the court must now determine the applicable law based on the admitted facts, thereby making it a question of law. Even assuming that the determination of IITCs role in the two transactions is a pure question of fact, it falls under the exceptions when the Court may decide to review a question of fact.1783[24]

Respondent COEC, on the other hand, argues that IITC raises questions of fact. An issue is one of fact when: (a) there is a doubt or difference as to the truth or falsehood of the alleged facts, (b) the issues raised invite a calibration, assessment, re-examination and reevaluation of the evidence presented, (c) it questions the probative value of evidence presented or the proofs presented by one party are clear, convincing and adequate. Because the question of whether IITC was merely a conduit satisfies all the conditions enumerated, then it is a question of fact which this Court cannot pass upon. In addition, COEC calls attention to the principle that findings of fact of the trial court, especially when approved by the Court of Appeals, are binding and conclusive on the Supreme Court. 1784[25]

PDB also maintains that the finding of the RTC that IITC did not act as a conduit between PDB and COEC was supported by substantial evidence and was sustained by the

1783 1784

Page 1390 of 1485

CA. Thus, it is already binding and conclusive upon this Court, whose jurisdiction is limited to reviewing only errors of law and not of fact.1785[26]

Respondents are correct.

The issue raised by IITC is factual in nature as it requires the Court to delve into the records and review the evidence presented by the parties to determine the validity of the findings of both the RTC and the CA as to IITCs role in the transactions in question. These are purely factual issues which this Court cannot review. 1786[27] Well-established is the principle that factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are binding and conclusive on this Court and will generally not be reviewed on appeal.1787[28]

As discussed in The Insular Life Assurance Company, Ltd. v. Court of Appeals :1788[29] It is a settled rule that in the exercise of the Supreme Courts power of review, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the CA are conclusive and binding on the Court. However, the Court had recognized several exceptions to this rule, to wit: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the

1785 1786 1787 1788

Page 1391 of 1485

evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.1789[30]

Contrary to IITCs claim, the circumstances surrounding the case at bench do not justify the application of any of the exceptions. At any rate, even if the Court would be willing to disregard this time-honored principle, the inevitable conclusion would be the same as that made by the RTC and the CA that IITC did not act as a conduit but rather as a principal in two separate transactions, one as the purchaser of treasury bills from PDB and, in another, as the seller of treasury bills to COEC.

The evidence against IITC cannot be denied.

The confirmations of sale issued by IITC to COEC unmistakably show that the former, as principal, sold the treasury bills to the latter:1790[31] Gentlemen: As principal, we confirm having sold to you on a without recourse basis the following securities against which you shall pay us clearing funds on value date.

IITCs confirmations of purchase to PDB likewise reflect that it acted as the principal in the transaction:1791[32]

Gentlemen:

1789 1790 1791

Page 1392 of 1485

As principal, we confirm having purchased from you on a without recourse basis the following securities against which we shall pay you clearing funds on value date.

There is nothing in these documents which mentions that IITC merely acted as a conduit in the sale and purchase of treasury bills between PDB and COEC. On the contrary, the confirmations of sale and of purchase all clearly and expressly indicate that IITC acted as a principal seller to COEC and as a principal buyer from PDB.

IITC then tries to shift the blame to PDB and COEC by alleging that it was the two parties which conceptualized the two-step or conduit transaction and dictated the documents to be used. As such, they cannot be allowed to take advantage of the ambiguity created by the documentation which it, in conspiracy with Plantersbank, concocted to render IITC, an innocent party, liable.1792[33]

This argument is far-fetched and borders on the incredible. At the outset, it should be pointed out that there is no ambiguity whatsoever in the language of the documents used. The confirmations of sale and purchase unequivocally state that IITC acted as a Thus, because the words of the documents in question are clear and principal buyer and seller of treasury bills. The language used is as clear as day and cannot be more explicit. readily understandable by any ordinary reader, there is no need for the interpretation or construction thereof.1793[34] This was emphasized in the case of Pichel v. Alonzo:1794[35]

Xxx. To begin with, We agree with petitioner that construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning thereof should be

1792 1793 1794

Page 1393 of 1485

observed. Such is the mandate of the Civil Code of the Philippines which provides that: Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control Pursuant to the aforequoted legal provision, the first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible. 1795[36] (Emphases supplied)

COEC and PDB did not take advantage of any vagueness in the documents in question. They only seek to enforce the intention of the parties, in accordance with the terms of the confirmations of sale and purchase voluntarily entered into by the parties.

The Court also finds it hard to believe that an entity would carelessly and imprudently expose itself to liability in the amount of millions of pesos by failing to ensure that the documents used in the transaction would be a faithful account of its true nature. It is important to note that the confirmations of sale were issued by IITC itself using its own documents. Therefore, it defies imagination how COEC and PDB could have foisted off these forms on IITC against its will.

In addition, a comparison of the confirmations of sale issued by IITC in favor of COEC as against the confirmations of sale issued by PDB in favor of IITC indicates that there is a difference in the interest rates of the treasury bills and in the face values:

PDB Confirmations of Sale to IITC1796[37]

Maturity Date July 13, 1994 July 6, 1994

Yield 17.150% 17.150%

Face Value P44,170,000.00 142,620,000.00

Total Price P42,998,169.00 139,193,100.56

1795 1796

Page 1394 of 1485

P186,790,000.00

P182,191,269.56

IITC Confirmations of Sale to COEC1797[38]

Maturity Date July 13, 1994 July 6, 1994

Yield 17.0% 17.0%

Face Value P 44,161,700.44 142,613,039.05 P186,774,739.49

Total Price P 43,000,000.00 139,215,385.70 P182,215,385.70

IITC offered a lower interest rate of 17% to COEC, in contrast to the 17.15% interest rate given to it by PDB. There is also a notable difference in the face value of the treasury bills and in the total price paid for each set. If, as IITC insists, it only acted as a conduit to the sale between PDB and COEC, then there should be no disparity in the terms (the interest rate, the face value and the total price) of the sale of the treasury bills. Obviously, this is not the case. The figures lead to no other conclusion but that there were two separate transactions in both of which IITC played a principal role as a buyer from PDB of treasury bills with an aggregate face value of P186,790,000.00 at an interest rate of 17.15% and as a seller to COEC of treasury bills with an aggregate face value of P186,774,739.49 at an interest rate of 17%.

Again, IITC attempts to hold PDB and COEC responsible for this questionable variation, alleging that it was PDB and COEC which dictated the details of the purchase and sale of the treasury bills. IITC heavily relies on the fact that COEC directly paid PDB the amount of P182,191,269.26 representing the amount covered in the confirmations of sale issued by PDB to strengthen its position that it merely acted as a conduit between PDB and COEC.1798[39] This was further supported by the internal trading sheets of IITC where the

1797 1798

Page 1395 of 1485

following handwritten notations were made: (1) in Purchase Trading Sheet No. 10856 covering the purchase of treasury bills by IITC from PDB: dont prepare any check; payment will come from Capital One (See STS 10811), and (2) in Sale Trading Sheet No. 10811 covering the sale of treasury bills by IITC to COEC: for STS 10810 and 10811 will receive 2 checks payable to the ff: 1. Planters Devt Bank - P182,191,269.59 2. IITC - 24,116.11

The Court is not convinced. That COEC directly paid PDB is of no moment and does not necessarily mean that COEC recognized IITCs conduit role in the transaction. Neither does it disprove the findings of both the RTC and the CA that IITC acted as principal in the two transactions the purchase of treasury bills from PDB and the subsequent sale thereof to COEC. The Court agrees with the explanation of the RTC:

The Court is aware that in the trading business, agreements are concluded even before the goods being traded are received by the would be seller. Buyers in turn conclude their transactions even before they are paid. For this reason, the mere fact that in document for internal use, the instruction that payment will come from Capital One will not, by itself, prove that plaintiff was a mere conduit. Neither could it be considered as circumstantial to establish the fact in issue. At most, the instructions merely identified the source of funds but whether those funds are to be received by the plaintiff as purchase price or for remittance to whoever is entitled to it, none was indicated. The Court may look at the instruction differently if the entries were no payment required; COEC to pay PDB directly or this is a conduit transaction; servicing to be done by COEC or COEC to pay PDB directly.1799[40]

IITC also insists that the fact that the P24,116.11 which it claims to be a facilitation fee is exactly the difference between the principal amounts of the treasury bills purchased from PDB and the treasury bills sold to COEC constitutes the smoking gun or the veritable elephant in the living room.1800[41] To IITC, it is apparent that the amount is a facilitation fee, adding credence to its contention that it only acted as a conduit.

1799 1800

Page 1396 of 1485

The Court cannot sustain that view. There is nothing to prove that the amount of P24,116.11 received by IITC from COEC was a facilitation fee. As explained by COEC, the amount could easily have been the margin or spread earned by IITC in the buy-and-sell transaction.1801[42] This is, however, not for the Court to determine. relies on the findings of the RTC on this matter: As such, the Court

Plaintiffs other evidence to prove its conduit role was the delivery to it by COEC by way of its corporate check of P24,116.11 in payment of plaintiffs conduit fee. The Court is hesitant to give probative value to this proof because nowhere does it appear in the trading sheets or any other document that it was collected by plaintiff and received by it from COEC in that concept. Business practice is to issue an official receipt because it is an income, but none was presented. The testimonial evidence was refuted. COEC presented controverting evidence on the original mode of payment which was requested to be changed by witness Bombaes. COEC presented the unsigned check and voucher. The latter was duly accomplished and bears the signatures or initials of the approving officers. On this particular issue, COECs evidence deserves more weight.1802[43]

Finally, as correctly observed by the RTC, the actions of IITC after the transaction were not those of a conduit but of a principal: The Court notes with particular interest the events which transpired on May 4, 1994, two (2) days after plaintiff through witness Mendoza learned of the non-delivery by PDB of the treasury bills. Witness Mendoza went to the office of PDB and secured the letter, Exhibit E, which contains the undertaking of PDB to deliver the treasury bills. This was procured by plaintiff and addressed to the plaintiff. The language used by PDB was purchase[d] from us and plaintiff accepted it. Plaintiff failed to explain the reason for demanding delivery of the treasury bills when it was not the buyer as it so claims. It also failed to object to the use by PDB of the words purchase[d] from us, something which it could easily do or should do considering the amount involved. The conduct of the plaintiff after concluding the May 2, 1994 transaction [was] [that] of a buyer.1803[44]

1801 1802 1803

Page 1397 of 1485

From the foregoing, it is clear that IITC acted as principal purchaser from PDB and principal seller to COEC, and not simply as a conduit between PDB and COEC.

Set-off allowed

IITC argues that the RTC and the CA erred in holding that COEC can validly set off its claims for the undelivered IITC T-Bills against the COEC T-Bills. 1804[45] IITC reiterates that COEC did not become a creditor of IITC because the former did not pay the latter for the purchased treasury bills. Rather, it was PDB which received the proceeds of the payment from COEC.1805[46] In addition, their obligations do not consist of a sum or money. Neither are they of the same kind because the obligations call for the delivery of specific determinate things treasury bills with specific maturity dates and various interest rates. Thus, legal compensation cannot take place.1806[47]

COEC, on the other hand, points out that it has already unquestionably proven that IITC acted as a principal, and not as a conduit, in the sale of treasury bills to COEC. 1807[48] Furthermore, it asserts that the treasury bills in question are generic in nature because the confirmations of sale and purchase do not mention specific treasury bills with serial numbers.1808[49] The securities were sold as indeterminate objects which have a monetary equivalent, as acknowledged by the parties in the Tripartite Agreement. 1809[50] As such, because both IITC and COEC are principal creditors of the other over debts which consist of consumable things or a sum of money, the RTC correctly ruled that COEC may validly set-off its claims for undelivered treasury bills against that of IITCs claims. 1810[51]

1804 1805 1806 1807 1808 1809 1810

Page 1398 of 1485

The Court finds in favor of respondent COEC.

The applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of the Philippines: Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. xxx Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation.

Based on the foregoing, in order for compensation to be valid, the five requisites mentioned in the abovequoted Article 1279 should be present, as in the case at bench. The lower courts have already determined, to which this Court concurs, that IITC acted as a principal in the purchase of treasury bills from PDB and in the subsequent sale to COEC of the COEC T-Bills. Thus, COEC and IITC are principal creditors of each other in relation to the sale of the COEC T-Bills and IITC T-Bills, respectively.

Page 1399 of 1485

IITC also claims that the COEC T-Bills cannot be set-off against the IITC T-Bills because the latter are specific determinate things which consist of treasury bills with specific maturity dates and various interest rates. 1811[52] IITCs actions belie its own assertion. The fact that IITC accepted the assignment by COEC of Central Bank Bills with an aggregate face value of P20,000,000.00 as payment of part of the IITC T-Bills is evidence of IITCs willingness to accept other forms of security as satisfaction of COECs obligation. It should be noted that the second requisite only requires that the thing be of the same kind and quality. The COEC T-Bills and the IITC T-Bills are both government securities which, while having differing interest rates and dates of maturity, have each been assigned a certain face value to determine their monetary equivalent. In fact, in the Tripartite Agreement, the COEC-IITC Agreement and in the memoranda of the parties, the parties recognized the monetary value of the treasury bills in question, and, in some instances, treated them as sums of money.1812[53] Thus, they are of the same kind and are capable of being subject to compensation.

The third, fourth and fifth requirements are clearly present and are not denied by the parties. Both debts are due and demandable because both remain unsatisfied, despite payment made by IITC for the IITC T-Bills and by COEC for the COEC T-Bills. Moreover, COEC readily admits that it has an outstanding balance in favor of IITC. 1813[54] Conversely, IITC has been found by the lower courts to be liable, as principal seller, for the delivery of the COEC T-Bills.1814[55] The debts are also liquidated because their existence and amount are determined.1815[56] Finally, there exists no retention or controversy over the COEC T-Bills and the IITC T-Bills.

Because all the stipulations under Article 1279 are present in this case, compensation can take place. COEC is allowed to set-off its obligation to deliver the IITC TBills against IITCs obligation to deliver the COEC T-Bills.

1811 1812 1813 1814 1815

Page 1400 of 1485

Correction of the amount due

Having established that compensation or set-off is allowed between COEC and IITC, the Court will now delve into the proper amount of the award and the applicable interest rates.

The RTC, in its Judgment, ordered IITC to pay COEC the amount of P17,056,608 with interest at the rate of 6% per annum until full payment. In arriving at the said amount, the trial court used, as its basis, COECs claim against IITC for P186,790,000 worth of treasury bills less P50,000,000 which it received under the Tripartite Agreement. Then it deducted from this the P139,633,392.00 face value of the undelivered treasury bills by COEC to IITC less the P20,000,000 which COEC assigned to IITC pursuant to the COEC-IITC Agreement. 1816 [57]

As correctly pointed out by COEC, there was a mistake in the arithmetic subtraction made by the RTC. Using the figures provided by the lower court, the correct result should have been P17,156,608.00, P100,000.00 more than what was adjudged in favor of COEC. To illustrate:

The trial courts computation COECs counterclaim against IITC Amount assigned by IITC to COEC Subtotal IITCs claim against COEC Amount reassigned by COEC to IITC Subtotal P139,633,392.00 (20,000,000.00) P119,633,392.00 P186,790,000.00 (50,000,000.00) P136,790,000.00

1816

Page 1401 of 1485

TOTAL P17,156,608.00

Aside from the error in the RTCs mathematical computation, a review of the records, particularly the March 20, 1995 Amended Complaint filed by IITC, the April 10, 1995 Answer to Amended Complaint (With Counterclaim) filed by COEC and the September 2, 1999 Partial Stipulation of Facts and Documents submitted by IITC, COEC and PDB to the trial court, reveals that there was some confusion as to the correct basis to be used for calculating the amount due to COEC. In COECs Answer and in the Partial Stipulation, it explicitly stated that it purchased from IITC treasury bills with a face value of P186,774,739.49, as evidenced by the Confirmations of Sale issued by IITC. counterclaim. The revised computation COECs counterclaim against IITC Amount assigned by IITC to COEC Subtotal IITCs claim against COEC Amount reassigned by COEC to IITC Subtotal TOTAL P139,633,392.00 (20,000,000.00) P119,633,392.00 P17,141,347.49 P186,774,739.49 (50,000,000.00) P136,774,739.49 If this figure is used in computing COECs award, the resulting amount would be P17,141,347.49, which is consistent with COECs

Lastly, as regards the legal interest which should be imposed on the award, the Court directs the attention of the parties to the case of Eastern Shipping Lines v. Court of Appeals,1817[58] 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be

1817

Page 1402 of 1485

computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction , this interim period being deemed to be by then an equivalent to a forbearance of credit. 1818[59] (Emphases supplied)

Because the obligation arose from a contract of sale and purchase of government securities, and not from a loan or forbearance of money, the applicable interest rate is 6% from June 10, 1994, when IITC received the demand letter from COEC. 1819[60] obligation is satisfied. After the judgment becomes final and executory, the legal interest rate increases to 12% until the

In sum, the Court finds that after compensation is effected, IITC still owes COEC P17,141,347.49 worth of treasury bills, subject to the interest rate of 6% per annum from June 10, 1994, then subsequently to the increased interest rate of 12% from the date of finality of this decision until full payment.

PDB has an obligation to deliver

1818 1819

Page 1403 of 1485

the treasury bills to IITC

The CA, in absolving PDB from all liability, reasoned that: (1) PDB was not involved in the transactions for the purchase and sale of treasury bills between IITC and COEC; (2) IITC failed to allege in its Amended Complaint and prove during the trial that PDB directly and principally sold to IITC P186,790,000 worth of treasury bills; (3) while PDB undertook, in its May 4, 1994 letter to deliver to IITC the said treasury bills, the obligation did not ripen because the bills did not become available to PDB and IITC did not remit any payment to PDB; (4) IITC did not demand delivery of the treasury bills; (5) IITC merely sued PDB as an alternative defendant, implying that IITC did not have a principal and direct cause of action against PDB on the treasury bills; and (6) there was nothing in the records to support the trial courts finding that PDB owed IITC P186,790,000 worth of treasury bills.1820[61]

PDB essentially echoes the reasons set forth by the CA and reiterated that because IITC did not pay for the treasury bills subject of its (PDB) May 4 undertaking, then IITC had no right to demand delivery of the said securities from PDB. Moreover, the check payments made by COEC to PDB were not in payment of the treasury bills purchased by IITC from PDB, but for COECs other obligations with PDB. The total amount of the checks P182,191,269.26 did not correspond to the treasury bills worth P186,790,000 which COEC allegedly purchased from PDB with IITC acting as conduit. PDB also points out that COEC did not interpose a cross-claim against it precisely because COEC was aware that it had no claim against PDB.1821[62] Also, the checks clearly indicated that they were made in payment for the account of COEC.1822[63]

IITC insists that it alleged in its Amended Complaint (by way of alternative cause of action) that PDB directly and principally sold to IITC treasury bills worth P186,790,000.00. By suing PDB as an alternative defendant, IITC did not acknowledge that PDB could not be held principally liable. On the contrary, by bringing suit against PDB under an alternative

1820 1821 1822

Page 1404 of 1485

cause of action, IITC set forth a claim against PDB as the principal seller of the treasury bills. In addition, IITC categorically refuted PDBs allegation that the former did not pay for the treasury bills purchased from the latter. The judicial admissions of PDB during the course of the trial and in the Partial Stipulation, that PDB received the proceeds of the managers checks issued by COEC as payment for COECs purchase of treasury bills from IITC, contradict PDBs defense that no payment was made by IITC for the said treasury bills. Payment by COEC to PDB, upon IITCs instructions, should be treated as a payment by a third person with the knowledge of the debtor, under Article 1236 of the Civil Code. Thus, when PDB accepted COECs checks, it became duty bound to deliver the treasury bills sold to IITC as the principal buyer.1823[64]

Lastly, IITC points out the absurdity of the CA decision in allowing COEC to offset its liability to IITC against its liability to deliver the treasury bills purchased by COEC. The parties do not deny that COEC paid for the purchase price of the subject treasury bills by issuing managers checks in the name of PDB and IITC. As such, unless COECs payment to PDB is credited as payment by IITC to PDB for the securities purchased by IITC, under that theory that IITC acted as a principal buyer, there would be no obligation on the part of IITC against which a set-off can be effected by COEC.1824[65]

On this point, the Court agrees with IITC.

First, while it is true that PDB was not involved in the sale of the COEC T-Bills, it is irrelevant to the issue because it is IITC which interposed a claim, albeit an alternative one, against PDB for having sold to IITC treasury bills worth P186,790,000.00. This was alleged in IITCs Amended Complaint and was deemed by the RTC to have been successfully proven.1825[66] The findings of the RTC are supported by the confirmations of sale issued by PDB in favor of IITC and PDBs letter dated May 4, 1994 undertaking to deliver the treasury

1823 1824 1825

Page 1405 of 1485

bills worth P186,790,000.00 to IITC.1826[67] The due execution and the veracity of the

contents of the aforesaid documents have been admitted by the parties. 1827[68]

Second, it is erroneous to say that IITC never made any demand upon PDB. IITCs letter dated May 18, 1994 addressed to PDB confirms that it demanded delivery by PDB of the treasury bills covered by the confirmations of sale issued by PDB in its favor. Although the demand was made on behalf of COEC, which allegedly purchased the treasury bills from PDB, consistent with IITCs assertion that it only facilitated the sale, it was nevertheless a demand for delivery. Even if this were to be considered an invalid demand because it was not made by IITC as the principal party to the transaction with PDB, the filing of the Amended Complaint by IITC is equivalent to demand, in keeping with the rule that the filing of a complaint constitutes judicial demand. 1828[69]

Third, the CA ruling that IITC impliedly did not have a principal cause of action because it merely sued PDB as an alternative defendant is an extremely flawed and baseless supposition which runs counter to established law and jurisprudence. The filing of a suit against an alternative defendant and under an alternative cause of action should not be taken against IITC. Section 13, Rule 3 and Section 2, Rule 8 of the Rules of Civil Procedure explicitly allows such filing:

Rule 13, Section 13: Alternative defendants. Where the plaintiff is uncertain against who of several persons he is entitled to relief, he may join any or all of them as defendants in the alternative, although a right to relief against one may be inconsistent with a right of relief against the other. (13a) Rule 8, Section 2: Alternative causes of action or defenses. A party may set forth two or more statements of a claim or defense alternatively or hypothetically, either in one cause of action or defense or in separate causes of action or defenses. When two or more statements are made in the alternative and one of them if made independently would be sufficient, the pleading is not made insufficient by the insufficiency of one or more of the alternative statements.

1826 1827 1828

Page 1406 of 1485

As discussed earlier, the Court is not granting IITCs primary cause of action against COEC because IITC acted, not as a mere conduit for the sale of shares by PDB to COEC as alleged by IITC, but rather as a principal purchaser of securities from PDB and then later as a principal seller to COEC. deliver the COEC T-Bills. By reason of this determination, COEC is allowed to offset its Consequently, IITCs alternative action against the alternative outstanding obligation to deliver the remaining IITC T-Bills against the latters obligation to defendant PDB should be considered in order for IITC to be able to recover from PDB the P186,790,000.00 worth of treasury bills which had already been fully paid for.

To ascertain whether IITC was able to adequately state an alternative cause of action against PDB in its Amended Complaint, the Court refers to Perpetual Savings Bank v. Fajardo1829[70] where the test for determining the existence of a cause of action was extensively discussed:

The familiar test for determining whether a complaint did or did not state a cause of action against the defendants is whether or not, admitting hypothetically the truth of the allegations of fact made in the complaint, a judge may validly grant the relief demanded in the complaint. In Rava Development Corporation v. Court of Appeals, the Court elaborated on this established standard in the following manner: The rule is that a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof. The test of the sufficiency of the facts found in a petition as constituting a cause of action is whether or not, admitting the facts alleged, the court can render a valid judgment upon the same in accordance with the prayer thereof (Consolidated Bank and Trust Corp. v. Court of Appeals , 197 SCRA 663 [1991]). In determining the existence of a cause of action, only the statements in the complaint may properly be considered. It is error for the court to take cognizance of external facts or hold preliminary hearings to determine their existence. If the allegation in a complaint furnish sufficient basis by which the complaint may be maintained, the same should not be dismissed regardless of the defenses that may be assessed by the defendants (supra).

1829

Page 1407 of 1485

A careful review of the records of this case reveals that the allegations set forth in the complaint sufficiently establish a cause of action. The following are the requisites for the existence of a cause of action: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect, or not to violate such right; and (3) an act or omission on the part of the said defendants constituting a violation of the plaintiff's right or a breach of the obligation of the defendant to the plaintiff (Heirs of Ildefonso Coscolluela, Sr., Inc. v. Rico General Insurance Corporation, 179 SCRA 511 [1989]).1830[71] (Emphases supplied)

Following the disquisition above, IITCs Amended Complaint, while not a model of superb draftsmanship in its struggle to maintain IITCs conduit theory, adequately sets forth a cause of action against PDB. Under its claim against PDB as alternative defendant, IITC alleged that, even if it acted as a direct buyer from PDB, (1) IITC is entitled to the delivery of the treasury bills worth P186,790,000.00 covered by the confirmations of sale issued by PDB, (2) PDB has an obligation to deliver the same to IITC, and (3) PDB failed to deliver the said securities to IITC.1831[72]

It would be the height of injustice to hold IITC accountable for the delivery of the COEC T-Bills to COEC without similarly holding PDB liable for the release of the treasury bills worth P186,790,000.00 to IITC, which cannot be accomplished without allowing IITCs alternative cause of action against PDB to prosper.

The Court now tackles the main argument of PDB for sustaining the ruling of the CA absolving it from liability that IITC allegedly failed to make the required payment for the purchase. PDB claims that the managers checks which it received from COEC were payment by the latter for its other obligations to the former. Conspicuously, PDB failed to elaborate on the supposed obligations of COEC.

1830 1831

Page 1408 of 1485

This flimsy allegation is patently untrue. In its Memorandum, 1832[73] COEC denied

that the checks were payment for an account which it had with PDB, as PDB so desperately alleges. COEC clarified that the managers checks payable to PDB were issued by COEC upon the instructions of IITC in payment for the COEC T-Bills. PDBs theory was negated by COEC itself as the issuer of the checks. Moreover, PDB already judicially admitted, through the Partial Stipulation, that the checks were given by COEC as payment for the COEC T-Bills. Section 4, Rule 129 of the Revised Rules of Evidence provides that:

Sec. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

As such, PDB cannot now gainsay itself by claiming that the checks were payment by COEC for certain unidentified obligations to PDB. It is well-settled that judicial admissions cannot be contradicted by the admitter who is the party himself and binds the person who makes the same, and absent any showing that this was made thru palpable mistake, no amount of rationalization can offset it.1833[74]

Since it has been sufficiently established that it was IITC which instructed that payment be made to PDB, it is apparent that the said checks were delivered to PDB in consideration of a transaction between PDB and IITC. On May 2, 1994, the same date the checks were issued, IITC purchased treasury bills with a combined face value of P186,790,000.00 from PDB for the total price of P182,191,269.56. The Court notes that the P182,191,269.26 aggregate amount of the checks issued by COEC to PDB is almost exactly equal to the total price of the treasury bills which IITC purchased from PDB. 1834[75] The payment by COEC on behalf of IITC can be considered as payment made by a third-party to the transaction between IITC and PDB which is allowed under Article 1236 of the Civil Code of the Philippines.1835[76]

1832 1833 1834 1835

Page 1409 of 1485

The Court finds no logical reason either for PDB to execute the May 4, 1994 Letter to IITC undertaking to deliver treasury bills worth P186,790,000.00 if it had not received the payment from IITC. Especially so because there is nothing in the letter to indicate that PDB was still awaiting payment for the said securities. There is no other reasonable conclusion but that PDB received payment, in the form of three managers checks issued by COEC, for the treasury bills purchased by IITC, and that having failed to promptly deliver the treasury bills despite having encashed the checks, PDB then executed the foregoing letter of undertaking.

Also telling is PDBs participation in the Tripartite Agreement with IITC and COEC where it assigned P50,000,000 worth of Central Bank Bills to IITC, in consideration of which, IITC relinquished its right to claim delivery under the confirmations of sale issued by PDB to the extent of P50,000,000. While the agreement stipulated that it was not in any way an admission of any liability by any one of them against another, the fact that PDB agreed to execute such an agreement is indicative of the existence of its obligation to IITC. In its Answer Ad Cautelam filed before the RTC, PDB explained that it gave up P50,000,000 worth of Central Bank Bills simply to assist COEC and IITC meet their financial difficulties. The Court finds this allegation highly inconceivable, preposterous and even ludicrous because no company in its right mind would willingly part with such a huge amount of bank bills for no consideration whatsoever except for solely altruistic reasons.

Finally, PDBs argument that it had no obligation to deliver the treasury bills purchased by IITC because the same did not become available to PDB is evidently a frantic last ditch attempt to evade liability. That the subject securities did not become available to PDB should not be the concern of IITC. For as long as payment was made, PDB was obliged to deliver the securities subject of its confirmations of sale.

PDBs adroit maneuvering coupled with IITCs poorly conceived conduit theory led the CA to reach an erroneous conclusion. This Court, however, will not be similarly blinded. There is simply an incongruity in the CA decision. Accordingly, this Court rules that PDB

Page 1410 of 1485

should be liable for the delivery of P186,790,000.00 worth of treasury bills to IITC, or payment of the same, reduced by P50,000,000.00 which the former assigned to the latter under the Tripartite Agreement. The total liability of PDB is P136,790,000.00, computed as follows:

PDBs Liability Amount of treasury bills purchased by IITC Amount assigned by PDB to IITC TOTAL P186,790,000.00 50,000,000.00 P136,790,000.00

This shall be subject to interest at the rate of 6% per annum from the date of the filing of the Amended Complaint on March 21, 1995, considered as the date of judicial demand, then to 12% per annum from the date of finality of this decision until full payment.

To rule otherwise would be to allow unjust enrichment on the part of PDB to the detriment of IITC. Article 22 of the Civil Code of the Philippines provides that: Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

In the recent case of Flores v. Spouses Lindo,1836[77] this Court expounded on the subject matter: There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. The principle of unjust enrichment requires two conditions: (1) that a person

1836

Page 1411 of 1485

is benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of another. The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause or consideration.1837[78]

The Court cannot condone a decision which is manifestly partial. Neither shall the Court be a party to the perpetration of injustice. As the last bastion of justice, this Court shall always rule pursuant to the precepts of fairness and equity in order to dispel any doubt in the integrity and competence of the Judiciary.

WHEREFORE, the petition is PARTIALLY GRANTED. The June 6, 2008 Decision of the Court of Appeals in C.A.-G.R. CV No. 79320 is SET ASIDE. Accordingly, the June 16, 2003 RTC Decision is REINSTATED though MODIFIED to read as follows:

FOR THE REASONS GIVEN, judgment is hereby rendered -

a]

ordering

Planters

Development

Bank

to

pay

plaintiff

136,790,000.00 with interest at the rate of six (6%) percent per annum from March 21, 1995 until full payment;

b] ordering Insular and Trust Investment Corporation to pay Capital One Equities Corporation 17,156,608.00 with legal interest at the rate of six (6%) percent per annum from June 10, 1994 until full payment; and

c] dismissing the counterclaim of Planters Development Bank.

1837

Page 1412 of 1485

Any amount not paid upon the finality of this decision shall be subject to interest at the increased rate of twelve (12%) percent per annum reckoned from the date of finality of this decision until full payment thereof. No pronouncement as to costs.

SO ORDERED. EN BANC [G.R. No. 149276. September 27, 2002] JOVENCIO LIM and TERESITA LIM, petitioners, vs. THE PEOPLE OF THE PHILIPPINES, THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 217, THE CITY PROSECUTOR OF QUEZON CITY, AND WILSON CHAM, respondents. DECISION CORONA, J.: The constitutionality of PD 818, a decree which amended Article 315 of the Revised Penal Code by increasing the penalties for estafa committed by means of bouncing checks, is being challenged in this petition for certiorari, for being violative of the due process clause, the right to bail and the provision against cruel, degrading or inhuman punishment enshrined under the Constitution. The antecedents of this case, as gathered from the parties pleadings and documentary proofs, follow. In December 1991, petitioner spouses issued to private respondent two postdated checks, namely, Metrobank check no. 464728 dated January 15, 1992 in the amount of P365,750 and Metrobank check no. 464743 dated January 22, 1992 in the amount of P429,000. Check no. 464728 was dishonored upon presentment for having been drawn against insufficient funds while check no. 464743 was not presented for payment upon request of petitioners who promised to replace the dishonored check. When petitioners reneged on their promise to cover the amount of check no. 464728, the private respondent filed a complaint-affidavit before the Office of the City Prosecutor of Quezon City charging petitioner spouses with the crime of estafa under Article 315, par. 2 (d) of the Revised Penal Code, as amended by PD 818. On February 16, 2001, the City Prosecutor issued a resolution finding probable cause against petitioners and recommending the filing of an information for estafa with no bail recommended. On the same day, an information for the crime of estafa was filed with Branch 217 of the Regional Trial Court of Quezon City against petitioners. The case was docketed as Criminal Case No. Q-01-101574. Thereafter, the trial court issued a warrant for the arrest of herein petitioners, thus:

Page 1413 of 1485

It appearing on the face of the information and from supporting affidavit of the complaining witness and its annexes that probable cause exists, that the crime charged was committed and accused is probably guilty thereof, let a warrant for the arrest of the accused be issued. No Bail Recommended. SO ORDERED.ccv[1] On July 18, 2001, petitioners filed an Urgent Motion to Quash Information and Warrant of Arrest which was denied by the trial court. Likewise, petitioners motion for bail filed on July 24, 2001 was denied by the trial court on the same day. Petitioner Jovencio Lim was arrested by virtue of the warrant of arrest issued by the trial court and was detained at the Quezon City Jail. However, petitioner Teresita Lim remained at large. On August 22, 2001, petitioners filed the instant petition for certiorari imputing grave abuse of discretion on the part of the lower court and the Office of the City Prosecutor of Quezon City, arguing that PD 818 violates the constitutional provisions on due process, bail and imposition of cruel, degrading or inhuman punishment. In a resolution dated February 26, 2002, this Court granted the petition of Jovencio Lim to post bail pursuant to Department of Justice Circular No. 74 dated November 6, 2001 which amended the 2000 Bail Bond Guide involving estafa under Article 315, par. 2 (d), and qualified theft. Said Circular specifically provides as follows: xxx xxx xxx

3) Where the amount of fraud is P32,000.00 or over in which the imposable penalty is reclusion temporal to reclusion perpetua, bail shall be based on reclusion temporal maximum, pursuant to Par. 2 (a) of the 2000 Bail Bond Guide, multiplied by P2,000.00, plus an additional of P2,000.00 for every P10,000.00 in excess of P22,000.00; Provided, however, that the total amount of bail shall not exceed P60,000.00. In view of the aforementioned resolution, the matter concerning bail shall no longer be discussed. Thus, this decision will focus on whether or not PD 818 violates Sections 1 and 19 of Article III of the Constitution, which respectively provide: Section 1. No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection of the laws. x x x

Section 19 (1) Excessive fines shall not be imposed, nor cruel, degrading or inhuman punishment inflicted. x x x. We shall deal first with the issue of whether PD 818 was enacted in contravention of Section 19 of Article III of the Constitution. In this regard, the impugned provision of PD 818 reads as follows: SECTION 1. Any person who shall defraud another by means of false pretenses or fraudulent acts as defined in paragraph 2(d) of Article 315 of the Revised Penal Code, as amended by Republic Act No. 4885, shall be punished by:

Page 1414 of 1485

1st. The penalty of reclusion temporal if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos, and if such amount exceeds the later sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos but the total penalty which may be imposed shall in no case exceed thirty years. In such cases, and in connection with the accessory penalties which may be imposed under the Revised Penal Code, the penalty shall be termed reclusion perpetua; 2nd. The penalty of prision mayor in its maximum period, if the amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos. 3rd. The penalty of prision mayor in its medium period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and 4th. By prision mayor in its minimum period, if such amount does not exceed 200 pesos. Petitioners contend that, inasmuch as the amount of the subject check is P365,750, they can be penalized with reclusion perpetua or 30 years of imprisonment. This penalty, according to petitioners, is too severe and disproportionate to the crime they committed and infringes on the express mandate of Article III, Section 19 of the Constitution which prohibits the infliction of cruel, degrading and inhuman punishment. Settled is the rule that a punishment authorized by statute is not cruel, degrading or disproportionate to the nature of the offense unless it is flagrantly and plainly oppressive and wholly disproportionate to the nature of the offense as to shock the moral sense of the community. It takes more than merely being harsh, excessive, out of proportion or severe for a penalty to be obnoxious to the Constitution. ccvi[2] Based on this principle, the Court has consistently overruled contentions of the defense that the penalty of fine or imprisonment authorized by the statute involved is cruel and degrading. In People vs. Tongko,ccvii[3] this Court held that the prohibition against cruel and unusual punishment is generally aimed at the form or character of the punishment rather than its severity in respect of its duration or amount, and applies to punishments which never existed in America or which public sentiment regards as cruel or obsolete. This refers, for instance, to those inflicted at the whipping post or in the pillory, to burning at the stake, breaking on the wheel, disemboweling and the like. The fact that the penalty is severe provides insufficient basis to declare a law unconstitutional and does not, by that circumstance alone, make it cruel and inhuman. Petitioners also argue that while PD 818 increased the imposable penalties for estafa committed under Article 315, par. 2 (d) of the Revised Penal Code, it did not increase the amounts corresponding to the said new penalties. Thus, the original amounts provided for in the Revised Penal Code have remained the same notwithstanding that they have become negligible and insignificant compared to the present value of the peso. This argument is without merit. The primary purpose of PD 818 is emphatically and categorically stated in the following: WHEREAS, reports received of late indicate an upsurge of estafa (swindling) cases committed by means of bouncing checks; WHEREAS, if not checked at once, these criminal acts would erode the peoples confidence in the use of negotiable instruments as a medium of commercial transaction and

Page 1415 of 1485

consequently result in the retardation of trade and commerce and the undermining of the banking system of the country; WHEREAS, it is vitally necessary to arrest and curb the rise in this kind of estafa cases by increasing the existing penalties provided therefor. Clearly, the increase in the penalty, far from being cruel and degrading, was motivated by a laudable purpose, namely, to effectuate the repression of an evil that undermines the countrys commercial and economic growth, and to serve as a necessary precaution to deter people from issuing bouncing checks. The fact that PD 818 did not increase the amounts corresponding to the new penalties only proves that the amount is immaterial and inconsequential. What the law sought to avert was the proliferation of estafa cases committed by means of bouncing checks. Taking into account the salutary purpose for which said law was decreed, we conclude that PD 818 does not violate Section 19 of Article III of the Constitution. Moreover, when a law is questioned before the Court, the presumption is in favor of its constitutionality. To justify its nullification, there must be a clear and unmistakable breach of the Constitution, not a doubtful and argumentative one. ccviii[4] The burden of proving the invalidity of a law rests on those who challenge it. In this case, petitioners failed to present clear and convincing proof to defeat the presumption of constitutionality of PD 818. With respect to the issue of whether PD 818 infringes on Section 1 of Article III of the Constitution, petitioners claim that PD 818 is violative of the due process clause of the Constitution as it was not published in the Official Gazette. This claim is incorrect and must be rejected. Publication, being an indispensable part of due process, is imperative to the validity of laws, presidential decrees and executive orders. ccix[5] PD 818 was published in the Official Gazette on December 1, 1975.ccx[6] With the foregoing considerations in mind, this Court upholds the constitutionality of PD 818. WHEREFORE, the petition is hereby DISMISSED. SO ORDERED. Davide, Jr., C.J., Bellosillo, Vitug, Panganiban, Quisumbing, Ynares-Santiago, SandovalGutierrez, Carpio, Austria-Martinez, Morales, and Callejo, Sr., JJ., concur. Puno, J., no part due to relation to counsel. Mendoza, J., on leave. SECOND [G.R. No. 174629, DIVISION February 14, 2008]

REPUBLIC OF THE PHILIPPINES, Represented by THE ANTI-MONEY LAUNDERING COUNCIL (AMLC), Petitioner, vs. HON. ANTONIO M. EUGENIO, JR., AS PRESIDING JUDGE OF RTC, MANILA, BRANCH 34, PANTALEON ALVAREZ and LILIA CHENG, Respondents. DECISION

Page 1416 of 1485

TINGA, J,: The present petition for certiorari and prohibition under Rule 65 assails the orders and resolutions issued by two different courts in two different cases. The courts and cases in question are the Regional Trial Court of Manila, Branch 24, which heard SP Case No. 06114200[1] and the Court of Appeals, Tenth Division, which heared CA-G.R. SP No. 95198. [2] Both cases arose as part of the aftermath of the ruling of this Court in Agan v. PIATCO[3] nullifying the concession agreement awarded to the Philippine International Airport Terminal Corporation (PIATCO) over the Ninoy Aquino International Airport International Passenger Terminal 3 (NAIA 3) Project. I. Following the promulgation of Agan, a series of investigations concerning the award of the NAIA 3 contracts to PIATCO were undertaken by the Ombudsman and the Compliance and Investigation Staff (CIS) of petitioner Anti-Money Laundering Council (AMLC). On 24 May 2005, the Office of the Solicitor General (OSG) wrote the AMLC requesting the latters assistance in obtaining more evidence to completely reveal the financial trail of corruption surrounding the [NAIA 3] Project, and also noting that petitioner Republic of the Philippines was presently defending itself in two international arbitration cases filed in relation to the NAIA 3 Project.[4] The CIS conducted an intelligence database search on the financial transactions of certain individuals involved in the award, including respondent Pantaleon Alvarez (Alvarez) who had been the Chairman of the PBAC Technical Committee, NAIA-IPT3 Project.[5] By this time, Alvarez had already been charged by the Ombudsman with violation of Section 3(j) of R.A. No. 3019. [6] The search revealed that Alvarez maintained eight (8) bank accounts with six (6) different banks.[7] On 27 June 2005, the AMLC issued Resolution No. 75, Series of 2005, [8] whereby the Council resolved to authorize the Executive Director of the AMLC to sign and verify an application to inquire into and/or examine the [deposits] or investments of Pantaleon Alvarez, Wilfredo Trinidad, Alfredo Liongson, and Cheng Yong, and their related web of accounts wherever these may be found, as defined under Rule 10.4 of the Revised Implementing Rules and Regulations; and to authorize the AMLC Secretariat to conduct an inquiry into subject accounts once the Regional Trial Court grants the application to inquire into and/or examine the bank accounts of those four individuals. [9] The resolution enumerated the particular bank accounts of Alvarez, Wilfredo Trinidad (Trinidad), Alfredo Liongson (Liongson) and Cheng Yong which were to be the subject of the inquiry. [10] The rationale for the said resolution was founded on the cited findings of the CIS that amounts were transferred from a Hong Kong bank account owned by Jetstream Pacific Ltd. Account to bank accounts in the Philippines maintained by Liongson and Cheng Yong. [11] The Resolution also noted that [b]y awarding the contract to PIATCO despite its lack of financial capacity, Pantaleon Alvarez caused undue injury to the government by giving PIATCO unwarranted benefits, advantage, or preference in the discharge of his official administrative functions through manifest partiality, evident bad faith, or gross inexcusable negligence, in violation of Section 3(e) of Republic Act No. 3019.[12] Under the authority granted by the Resolution, the AMLC filed an application to inquire into or examine the deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC of Makati, Branch 138, presided by Judge (now Court of Appeals Justice) Sixto Marella, Jr. The application was docketed as AMLC No. 05-005. [13] The Makati RTC heard the testimony of the Deputy Director of the AMLC, Richard David C. Funk II, and received the documentary evidence of the AMLC.[14] Thereafter, on 4 July 2005, the Makati RTC rendered an Order (Makati RTC bank inquiry order) granting the AMLC the authority to inquire and examine the subject bank accounts of Alvarez, Trinidad, Liongson and Cheng Yong, the trial

Page 1417 of 1485

court being satisfied that there existed [p]robable cause [to] believe that the deposits in various bank accounts, details of which appear in paragraph 1 of the Application, are related to the offense of violation of Anti-Graft and Corrupt Practices Act now the subject of criminal prosecution before the Sandiganbayan as attested to by the Informations, Exhibits C, D, E, F, and G.[15] Pursuant to the Makati RTC bank inquiry order, the CIS proceeded to inquire and examine the deposits, investments and related web accounts of the four. [16] Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a letter dated 2 November 2005, requesting the AMLC to investigate the accounts of Alvarez, PIATCO, and several other entities involved in the nullified contract. The letter adverted to probable cause to believe that the bank accounts were used in the commission of unlawful activities that were committed in relation to the criminal cases then pending before the Sandiganbayan.[17] Attached to the letter was a memorandum on why the investigation of the [accounts] is necessary in the prosecution of the above criminal cases before the Sandiganbayan.[18] In response to the letter of the Special Prosecutor, the AMLC promulgated on 9 December 2005 Resolution No. 121 Series of 2005, [19] which authorized the executive director of the AMLC to inquire into and examine the accounts named in the letter, including one maintained by Alvarez with DBS Bank and two other accounts in the name of Cheng Yong with Metrobank. The Resolution characterized the memorandum attached to the Special Prosecutors letter as extensively justif[ying] the existence of probable cause that the bank accounts of the persons and entities mentioned in the letter are related to the unlawful activity of violation of Sections 3(g) and 3(e) of Rep. Act No. 3019, as amended. [20] Following the December 2005 AMLC Resolution, the Republic, through the AMLC, filed an application[21] before the Manila RTC to inquire into and/or examine thirteen (13) accounts and two (2) related web of accounts alleged as having been used to facilitate corruption in the NAIA 3 Project. Among said accounts were the DBS Bank account of Alvarez and the Metrobank accounts of Cheng Yong. The case was raffled to Manila RTC, Branch 24, presided by respondent Judge Antonio Eugenio, Jr., and docketed as SP Case No. 06-114200. On 12 January 2006, the Manila RTC issued an Order (Manila RTC bank inquiry order) granting the Ex Parte Application expressing therein [that] the allegations in said application to be impressed with merit, and in conformity with Section 11 of R.A. No. 9160, as amended, otherwise known as the Anti-Money Laundering Act (AMLA) of 2001 and Rules 11.1 and 11.2 of the Revised Implementing Rules and Regulations. [22] Authority was thus granted to the AMLC to inquire into the bank accounts listed therein. On 25 January 2006, Alvarez, through counsel, entered his appearance [23] before the Manila RTC in SP Case No. 06-114200 and filed an Urgent Motion to Stay Enforcement of Order of January 12, 2006.[24] Alvarez alleged that he fortuitously learned of the bank inquiry order, which was issued following an ex parte application, and he argued that nothing in R.A. No. 9160 authorized the AMLC to seek the authority to inquire into bank accounts ex parte.[25] The day after Alvarez filed his motion, 26 January 2006, the Manila RTC issued an Order [26] staying the enforcement of its bank inquiry order and giving the Republic five (5) days to respond to Alvarezs motion. The Republic filed an Omnibus Motion for Reconsideration [27] of the 26 January 2006 Manila RTC Order and likewise sought to strike out Alvarezs motion that led to the issuance of said order. For his part, Alvarez filed a Reply and Motion to Dismiss [28] the application for bank inquiry order. On 2 May 2006, the Manila RTC issued an Omnibus Order [29] granting the Republics Motion for Reconsideration, denying Alvarezs motion to dismiss and reinstating in full force and effect the Order dated 12 January 2006. In the omnibus order, the Manila RTC reiterated that the material allegations in the application for bank inquiry order filed by

Page 1418 of 1485

the Republic stood as the probable cause for the investigation and examination of the bank accounts and investments of the respondents. [30] Alvarez filed on 10 May 2006 an Urgent Motion [31] expressing his apprehension that the AMLC would immediately enforce the omnibus order and would thereby render the motion for reconsideration he intended to file as moot and academic; thus he sought that the Republic be refrained from enforcing the omnibus order in the meantime. Acting on this motion, the Manila RTC, on 11 May 2006, issued an Order [32] requiring the OSG to file a comment/opposition and reminding the parties that judgments and orders become final and executory upon the expiration of fifteen (15) days from receipt thereof, as it is the period within which a motion for reconsideration could be filed. Alvarez filed his Motion for Reconsideration[33] of the omnibus order on 15 May 2006, but the motion was denied by the Manila RTC in an Order [34] dated 5 July 2006. On 11 July 2006, Alvarez filed an Urgent Motion and Manifestation [35] wherein he manifested having received reliable information that the AMLC was about to implement the Manila RTC bank inquiry order even though he was intending to appeal from it. On the premise that only a final and executory judgment or order could be executed or implemented, Alvarez sought that the AMLC be immediately ordered to refrain from enforcing the Manila RTC bank inquiry order. On 12 July 2006, the Manila RTC, acting on Alvarezs latest motion, issued an Order [36] directing the AMLC to refrain from enforcing the order dated January 12, 2006 until the expiration of the period to appeal, without any appeal having been filed. On the same day, Alvarez filed a Notice of Appeal [37] with the Manila RTC. On 24 July 2006, Alvarez filed an Urgent Ex Parte Motion for Clarification.[38] Therein, he alleged having learned that the AMLC had began to inquire into the bank accounts of the other persons mentioned in the application for bank inquiry order filed by the Republic. [39] Considering that the Manila RTC bank inquiry order was issued ex parte, without notice to those other persons, Alvarez prayed that the AMLC be ordered to refrain from inquiring into any of the other bank deposits and alleged web of accounts enumerated in AMLCs application with the RTC; and that the AMLC be directed to refrain from using, disclosing or publishing in any proceeding or venue any information or document obtained in violation of the 11 May 2006 RTC Order.[40] On 25 July 2006, or one day after Alvarez filed his motion, the Manila RTC issued an Order [41] wherein it clarified that the Ex Parte Order of this Court dated January 12, 2006 can not be implemented against the deposits or accounts of any of the persons enumerated in the AMLC Application until the appeal of movant Alvarez is finally resolved, otherwise, the appeal would be rendered moot and academic or even nugatory. [42] In addition, the AMLC was ordered not to disclose or publish any information or document found or obtained in [v]iolation of the May 11, 2006 Order of this Court. [43] The Manila RTC reasoned that the other persons mentioned in AMLCs application were not served with the courts 12 January 2006 Order. This 25 July 2006 Manila RTC Order is the first of the four rulings being assailed through this petition. In response, the Republic filed an Urgent Omnibus Motion for Reconsideration [44] dated 27 July 2006, urging that it be allowed to immediately enforce the bank inquiry order against Alvarez and that Alvarezs notice of appeal be expunged from the records since appeal from an order of inquiry is disallowed under the Anti money Laundering Act (AMLA). Meanwhile, respondent Lilia Cheng filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus with Application for TRO and/or Writ of Preliminary Injunction [45] dated 10 July 2006, directed against the Republic of the Philippines through the AMLC,

Page 1419 of 1485

Manila RTC Judge Eugenio, Jr. and Makati RTC Judge Marella, Jr.. She identified herself as the wife of Cheng Yong[46] with whom she jointly owns a conjugal bank account with Citibank that is covered by the Makati RTC bank inquiry order, and two conjugal bank accounts with Metrobank that are covered by the Manila RTC bank inquiry order. Lilia Cheng imputed grave abuse of discretion on the part of the Makati and Manila RTCs in granting AMLCs ex parte applications for a bank inquiry order, arguing among others that the ex parte applications violated her constitutional right to due process, that the bank inquiry order under the AMLA can only be granted in connection with violations of the AMLA and that the AMLA can not apply to bank accounts opened and transactions entered into prior to the effectivity of the AMLA or to bank accounts located outside the Philippines. [47] On 1 August 2006, the Court of Appeals, acting on Lilia Chengs petition, issued a Temporary Restraining Order[48] enjoining the Manila and Makati trial courts from implementing, enforcing or executing the respective bank inquiry orders previously issued, and the AMLC from enforcing and implementing such orders. On even date, the Manila RTC issued an Order[49] resolving to hold in abeyance the resolution of the urgent omnibus motion for reconsideration then pending before it until the resolution of Lilia Chengs petition for certiorari with the Court of Appeals. The Court of Appeals Resolution directing the issuance of the temporary restraining order is the second of the four rulings assailed in the present petition. The third assailed ruling[50] was issued on 15 August 2006 by the Manila RTC, acting on the Urgent Motion for Clarification[51] dated 14 August 2006 filed by Alvarez. It appears that the 1 August 2006 Manila RTC Order had amended its previous 25 July 2006 Order by deleting the last paragraph which stated that the AMLC should not disclose or publish any information or document found or obtained in violation of the May 11, 2006 Order of this Court. [52] In this new motion, Alvarez argued that the deletion of that paragraph would allow the AMLC to implement the bank inquiry orders and publish whatever information it might obtain thereupon even before the final orders of the Manila RTC could become final and executory. [53] In the 15 August 2006 Order, the Manila RTC reiterated that the bank inquiry order it had issued could not be implemented or enforced by the AMLC or any of its representatives until the appeal therefrom was finally resolved and that any enforcement thereof would be unauthorized.[54] The present Consolidated Petition[55] for certiorari and prohibition under Rule 65 was filed on 2 October 2006, assailing the two Orders of the Manila RTC dated 25 July and 15 August 2006 and the Temporary Restraining Order dated 1 August 2006 of the Court of Appeals. Through an Urgent Manifestation and Motion [56] dated 9 October 2006, petitioner informed the Court that on 22 September 2006, the Court of Appeals hearing Lilia Chengs petition had granted a writ of preliminary injunction in her favor. [57] Thereafter, petitioner sought as well the nullification of the 22 September 2006 Resolution of the Court of Appeals, thereby constituting the fourth ruling assailed in the instant petition. [58] The Court had initially granted a Temporary Restraining Order[59] dated 6 October 2006 and later on a Supplemental Temporary Restraining Order [60] dated 13 October 2006 in petitioners favor, enjoining the implementation of the assailed rulings of the Manila RTC and the Court of Appeals. However, on respondents motion, the Court, through a Resolution [61] dated 11 December 2006, suspended the implementation of the restraining orders it had earlier issued. Oral arguments were held on 17 January 2007. The Court consolidated the issues for argument as follows: 1. Did the RTC-Manila, in issuing the Orders dated 25 July 2006 and 15 August 2006 which deferred the implementation of its Order dated 12 January 2006, and the Court of Appeals, in issuing its Resolution dated 1 August 2006, which ordered the s tatus quo in relation to the

Page 1420 of 1485

1 July 2005 Order of the RTC-Makati and the 12 January 2006 Order of the RTC-Manila, both of which authorized the examination of bank accounts under Section 11 of Rep. Act No. 9160 (AMLA), commit grave abuse of discretion? (a) Is an application for an order authorizing inquiry into or examination of bank accounts or investments under Section 11 of the AMLA ex-parte in nature or one which requires notice and hearing? (b) What legal procedures and standards should be observed in the conduct of the proceedings for the issuance of said order? (c) Is such order susceptible to legal challenges and judicial review? 2. Is it proper for this Court at this time and in this case to inquire into and pass upon the validity of the 1 July 2005 Order of the RTC-Makati and the 12 January 2006 Order of the RTC-Manila, considering the pendency of CA G.R. SP No. 95-198 (Lilia Cheng v. Republic) wherein the validity of both orders was challenged? [62] After the oral arguments, the parties were directed to file their respective memoranda, which they did,[63] and the petition was thereafter deemed submitted for resolution. II. Petitioners general advocacy is that the bank inquiry orders issued by the Manila and Makati RTCs are valid and immediately enforceable whereas the assailed rulings, which effectively stayed the enforcement of the Manila and Makati RTCs bank inquiry orders, are sullied with grave abuse of discretion. These conclusions flow from the posture that a bank inquiry order, issued upon a finding of probable cause, may be issued ex parte and, once issued, is immediately executory. Petitioner further argues that the information obtained following the bank inquiry is necessarily beneficial, if not indispensable, to the AMLC in discharging its awesome responsibility regarding the effective implementation of the AMLA and that any restraint in the disclosure of such information to appropriate agencies or other judicial fora would render meaningless the relief supplied by the bank inquiry order. Petitioner raises particular arguments questioning Lilia Chengs right to seek injunctive relief before the Court of Appeals, noting that not one of the bank inquiry orders is directed against her. Her cryptic assertion that she is the wife of Cheng Yong cannot, according to petitioner, metamorphose into the requisite legal standing to seek redress for an imagined injury or to maintain an action in behalf of another. In the same breath, petitioner argues that Alvarez cannot assert any violation of the right to financial privacy in behalf of other persons whose bank accounts are being inquired into, particularly those other persons named in the Makati RTC bank inquiry order who did not take any step to oppose such orders before the courts. Ostensibly, the proximate question before the Court is whether a bank inquiry order issued in accordance with Section 10 of the AMLA may be stayed by injunction. Yet in arguing that it does, petitioner relies on what it posits as the final and immediately executory character of the bank inquiry orders issued by the Manila and Makati RTCs. Implicit in that position is the notion that the inquiry orders are valid, and such notion is susceptible to review and validation based on what appears on the face of the orders and the applications which triggered their issuance, as well as the provisions of the AMLA governing the issuance of such orders. Indeed, to test the viability of petitioners argument, the Court will have to be satisfied that the subject inquiry orders are valid in the first place. However, even from a cursory examination of the applications for inquiry order and the orders themselves, it is evident that the orders are not in accordance with law. III.

Page 1421 of 1485

brief

overview

of

the

AMLA

is

called

for.

Money laundering has been generally defined by the International Criminal Police Organization (Interpol) `as any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.[64] Even before the passage of the AMLA, the problem was addressed by the Philippine government through the issuance of various circulars by the Bangko Sentral ng Pilipinas. Yet ultimately, legislative proscription was necessary, especially with the inclusion of the Philippines in the Financial Action Task Forces list of non-cooperative countries and territories in the fight against money laundering. [65] The original AMLA, Republic Act (R.A.) No. 9160, was passed in 2001. It was amended by R.A. No. 9194 in 2003. Section 4 of the AMLA states that [m]oney laundering is a crime whereby the proceeds of an unlawful activity as [defined in the law] are transacted, thereby making them appear to have originated from legitimate sources.[66] The section further provides the three modes through which the crime of money laundering is committed. Section 7 creates the AMLC and defines its powers, which generally relate to the enforcement of the AMLA provisions and the initiation of legal actions authorized in the AMLA such as civil forefeiture proceedings and complaints for the prosecution of money laundering offenses.[67] In addition to providing for the definition and penalties for the crime of money laundering, the AMLA also authorizes certain provisional remedies that would aid the AMLC in the enforcement of the AMLA. These are the freeze order authorized under Section 10, and the bank inquiry order authorized under Section 11. Respondents posit that a bank inquiry order under Section 11 may be obtained only upon the pre-existence of a money laundering offense case already filed before the courts. [68] The conclusion is based on the phrase upon order of any competent court in cases of violation of this Act, the word cases generally understood as referring to actual cases pending with the courts. We are unconvinced by this proposition, and agree instead with the then Solicitor General who conceded that the use of the phrase in cases of was unfortunate, yet submitted that it should be interpreted to mean in the event there are violations of the AMLA, and not that there are already cases pending in court concerning such violations. [69] If the contrary position is adopted, then the bank inquiry order would be limited in purpose as a tool in aid of litigation of live cases, and wholly inutile as a means for the government to ascertain whether there is sufficient evidence to sustain an intended prosecution of the account holder for violation of the AMLA. Should that be the situation, in all likelihood the AMLC would be virtually deprived of its character as a discovery tool, and thus would become less circumspect in filing complaints against suspect account holders. After all, under such set-up the preferred strategy would be to allow or even encourage the indiscriminate filing of complaints under the AMLA with the hope or expectation that the evidence of money laundering would somehow surface during the trial. Since the AMLC could not make use of the bank inquiry order to determine whether there is evidentiary basis to prosecute the suspected malefactors, not filing any case at all would not be an alternative. Such unwholesome set-up should not come to pass. Thus Section 11 cannot be interpreted in a way that would emasculate the remedy it has established and encourage the unfounded initiation of complaints for money laundering. Still, even if the bank inquiry order may be availed of without need of a pre-existing case under the AMLA, it does not follow that such order may be availed of ex parte. There are several reasons why the AMLA does not generally sanction ex parte applications and issuances of the bank inquiry order.

Page 1422 of 1485

IV. It is evident that Section 11 does not specifically authorize, as a general rule, the issuance ex parte of the bank inquiry order. We quote the provision in full: SEC. 11. Authority to Inquire into Bank Deposits. Notwithstanding the provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non bank financial institution upon order of any competent court in cases of violation of this Act, when it has been established that there is probable cause that the deposits or investments are related to an unlawful activity as defined in Section 3(i) hereof or a money laundering offense under Section 4 hereof, except that no court order shall be required in cases involving unlawful activities defined in Sections 3(i)1, (2) and (12) . To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or examine any deposit of investment with any banking institution or non bank financial institution when the examination is made in the course of a periodic or special examination, in accordance with the rules of examination of the BSP.[70] (Emphasis supplied) Of course, Section 11 also allows the AMLC to inquire into bank accounts without having to obtain a judicial order in cases where there is probable cause that the deposits or investments are related to kidnapping for ransom, [71] certain violations of the Comprehensive Dangerous Drugs Act of 2002,[72] hijacking and other violations under R.A. No. 6235, destructive arson and murder. Since such special circumstances do not apply in this case, there is no need for us to pass comment on this proviso. Suffice it to say, the proviso contemplates a situation distinct from that which presently confronts us, and for purposes of the succeeding discussion, our reference to Section 11 of the AMLA excludes said proviso. In the instances where a court order is required for the issuance of the bank inquiry order, nothing in Section 11 specifically authorizes that such court order may be issued ex parte. It might be argued that this silence does not preclude the ex parte issuance of the bank inquiry order since the same is not prohibited under Section 11. Yet this argument falls when the immediately preceding provision, Section 10, is examined. SEC. 10. Freezing of Monetary Instrument or Property. The Court of Appeals, upon application ex parte by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Section 3(i) hereof, may issue a freeze order which shall be effective immediately . The freeze order shall be for a period of twenty (20) days unless extended by the court. [73] Although oriented towards different purposes, the freeze order under Section 10 and the bank inquiry order under Section 11 are similar in that they are extraordinary provisional reliefs which the AMLC may avail of to effectively combat and prosecute money laundering offenses. Crucially, Section 10 uses specific language to authorize an ex parte application for the provisional relief therein, a circumstance absent in Section 11. If indeed the legislature had intended to authorize ex parte proceedings for the issuance of the bank inquiry order, then it could have easily expressed such intent in the law, as it did with the freeze order under Section 10. Even more tellingly, the current language of Sections 10 and 11 of the AMLA was crafted at the same time, through the passage of R.A. No. 9194. Prior to the amendatory law, it was the AMLC, not the Court of Appeals, which had authority to issue a freeze order, whereas a bank inquiry order always then required, without exception, an order from a competent court.[74] It was through the same enactment that ex parte proceedings were introduced for the first time into the AMLA, in the case of the freeze order which now can only be issued by the Court of Appeals. It certainly would have been convenient, through the same amendatory law, to allow a similar ex parte procedure in the case of a bank inquiry order

Page 1423 of 1485

had Congress been so minded. Yet nothing in the provision itself, or even the available legislative record, explicitly points to an ex parte judicial procedure in the application for a bank inquiry order, unlike in the case of the freeze order. That the AMLA does not contemplate ex parte proceedings in applications for bank inquiry orders is confirmed by the present implementing rules and regulations of the AMLA, promulgated upon the passage of R.A. No. 9194. With respect to freeze orders under Section 10, the implementing rules do expressly provide that the applications for freeze orders be filed ex parte,[75] but no similar clearance is granted in the case of inquiry orders under Section 11.[76] These implementing rules were promulgated by the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission, [77] and if it was the true belief of these institutions that inquiry orders could be issued ex parte similar to freeze orders, language to that effect would have been incorporated in the said Rules. This is stressed not because the implementing rules could authorize ex parte applications for inquiry orders despite the absence of statutory basis, but rather because the framers of the law had no intention to allow such ex parte applications. Even the Rules of Procedure adopted by this Court in A.M. No. 05-11-04-SC [78] to enforce the provisions of the AMLA specifically authorize ex parte applications with respect to freeze orders under Section 10[79] but make no similar authorization with respect to bank inquiry orders under Section 11. The Court could divine the sense in allowing ex parte proceedings under Section 10 and in proscribing the same under Section 11. A freeze order under Section 10 on the one hand is aimed at preserving monetary instruments or property in any way deemed related to unlawful activities as defined in Section 3(i) of the AMLA. The owner of such monetary instruments or property would thus be inhibited from utilizing the same for the duration of the freeze order. To make such freeze order anteceded by a judicial proceeding with notice to the account holder would allow for or lead to the dissipation of such funds even before the order could be issued. On the other hand, a bank inquiry order under Section 11 does not necessitate any form of physical seizure of property of the account holder. What the bank inquiry order authorizes is the examination of the particular deposits or investments in banking institutions or non-bank financial institutions. The monetary instruments or property deposited with such banks or financial institutions are not seized in a physical sense, but are examined on particular details such as the account holders record of deposits and transactions. Unlike the assets subject of the freeze order, the records to be inspected under a bank inquiry order cannot be physically seized or hidden by the account holder. Said records are in the possession of the bank and therefore cannot be destroyed at the instance of the account holder alone as that would require the extraordinary cooperation and devotion of the bank. Interestingly, petitioners memorandum does not attempt to demonstrate before the Court that the bank inquiry order under Section 11 may be issued ex parte, although the petition itself did devote some space for that argument. The petition argues that the bank inquiry order is a special and peculiar remedy, drastic in its name, and made necessary because of a public necessity [t]hus, by its very nature, the application for an order or inquiry must necessarily, be ex parte. This argument is insufficient justification in light of the clear disinclination of Congress to allow the issuance ex parte of bank inquiry orders under Section 11, in contrast to the legislatures clear inclination to allow the ex parte grant of freeze orders under Section 10. Without doubt, a requirement that the application for a bank inquiry order be done with notice to the account holder will alert the latter that there is a plan to inspect his bank account on the belief that the funds therein are involved in an unlawful activity or money

Page 1424 of 1485

laundering offense.[80] Still, the account holder so alerted will in fact be unable to do anything to conceal or cleanse his bank account records of suspicious or anomalous transactions, at least not without the whole-hearted cooperation of the bank, which inherently has no vested interest to aid the account holder in such manner. V. The necessary implication of this finding that Section 11 of the AMLA does not generally authorize the issuance ex parte of the bank inquiry order would be that such orders cannot be issued unless notice is given to the owners of the account, allowing them the opportunity to contest the issuance of the order. Without such a consequence, the legislated distinction between ex parte proceedings under Section 10 and those which are not ex parte under Section 11 would be lost and rendered useless. There certainly is fertile ground to contest the issuance of an ex parte order. Section 11 itself requires that it be established that there is probable cause that the deposits or investments are related to unlawful activities, and it obviously is the court which stands as arbiter whether there is indeed such probable cause. The process of inquiring into the existence of probable cause would involve the function of determination reposed on the trial court. Determination clearly implies a function of adjudication on the part of the trial court, and not a mechanical application of a standard pre-determination by some other body. The word "determination" implies deliberation and is, in normal legal contemplation, equivalent to "the decision of a court of justice." [81] The court receiving the application for inquiry order cannot simply take the AMLCs word that probable cause exists that the deposits or investments are related to an unlawful activity. It will have to exercise its own determinative function in order to be convinced of such fact. The account holder would be certainly capable of contesting such probable cause if given the opportunity to be apprised of the pending application to inquire into his account; hence a notice requirement would not be an empty spectacle. It may be so that the process of obtaining the inquiry order may become more cumbersome or prolonged because of the notice requirement, yet we fail to see any unreasonable burden cast by such circumstance. After all, as earlier stated, requiring notice to the account holder should not, in any way, compromise the integrity of the bank records subject of the inquiry which remain in the possession and control of the bank. Petitioner argues that a bank inquiry order necessitates a finding of probable cause, a characteristic similar to a search warrant which is applied to and heard ex parte. We have examined the supposed analogy between a search warrant and a bank inquiry order yet we remain to be unconvinced by petitioner. The Constitution and the Rules of Court prescribe particular requirements attaching to search warrants that are not imposed by the AMLA with respect to bank inquiry orders. A constitutional warrant requires that the judge personally examine under oath or affirmation the complainant and the witnesses he may produce, [82] such examination being in the form of searching questions and answers.[83] Those are impositions which the legislative did not specifically prescribe as to the bank inquiry order under the AMLA, and we cannot find sufficient legal basis to apply them to Section 11 of the AMLA. Simply put, a bank inquiry order is not a search warrant or warrant of arrest as it contemplates a direct object but not the seizure of persons or property. Even as the Constitution and the Rules of Court impose a high procedural standard for the determination of probable cause for the issuance of search warrants which Congress chose not to prescribe for the bank inquiry order under the AMLA, Congress nonetheless disallowed ex parte applications for the inquiry order. We can discern that in exchange for these

Page 1425 of 1485

procedural standards normally applied to search warrants, Congress chose instead to legislate a right to notice and a right to be heard characteristics of judicial proceedings which are not ex parte. Absent any demonstrable constitutional infirmity, there is no reason for us to dispute such legislative policy choices. VI. The Courts construction of Section 11 of the AMLA is undoubtedly influenced by right to privacy considerations. If sustained, petitioners argument that a bank account may be inspected by the government following an ex parte proceeding about which the depositor would know nothing would have significant implications on the right to privacy, a right innately cherished by all notwithstanding the legally recognized exceptions thereto. The notion that the government could be so empowered is cause for concern of any individual who values the right to privacy which, after all, embodies even the right to be let alone, the most comprehensive of rights and the right most valued by civilized people. [84] One might assume that the constitutional dimension of the right to privacy, as applied to bank deposits, warrants our present inquiry. We decline to do so. Admittedly, that question has proved controversial in American jurisprudence. Notably, the United States Supreme Court in U.S. v. Miller[85] held that there was no legitimate expectation of privacy as to the bank records of a depositor. [86] Moreover, the text of our Constitution has not bothered with the triviality of allocating specific rights peculiar to bank deposits. However, sufficient for our purposes, we can assert there is a right to privacy governing bank accounts in the Philippines, and that such right finds application to the case at bar. The source of such right is statutory, expressed as it is in R.A. No. 1405 otherwise known as the Bank Secrecy Act of 1955. The right to privacy is enshrined in Section 2 of that law, to wit: SECTION 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation. (Emphasis supplied) Because of the Bank Secrecy Act, the confidentiality of bank deposits remains a basic state policy in the Philippines.[87] Subsequent laws, including the AMLA, may have added exceptions to the Bank Secrecy Act, yet the secrecy of bank deposits still lies as the general rule. It falls within the zones of privacy recognized by our laws. [88] The framers of the 1987 Constitution likewise recognized that bank accounts are not covered by either the right to information[89] under Section 7, Article III or under the requirement of full public disclosure [90] under Section 28, Article II.[91] Unless the Bank Secrecy Act is repealed or amended, the legal order is obliged to conserve the absolutely confidential nature of Philippine bank deposits. Any exception to the rule of absolute confidentiality must be specifically legislated. Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be examined by any person, government official, bureau or office; namely when: (1) upon written permission of the depositor; (2) in cases of impeachment; (3) the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) the money deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as constituting an additional exception to the rule of absolute confidentiality,[92] and there have been other similar recognitions as well. [93] The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC

Page 1426 of 1485

may inquire into a bank account upon order of any competent court in cases of violation of the AMLA, it having been established that there is probable cause that the deposits or investments are related to unlawful activities as defined in Section 3(i) of the law, or a money laundering offense under Section 4 thereof. Further, in instances where there is probable cause that the deposits or investments are related to kidnapping for ransom, [94] certain violations of the Comprehensive Dangerous Drugs Act of 2002, [95] hijacking and other violations under R.A. No. 6235, destructive arson and murder, then there is no need for the AMLC to obtain a court order before it could inquire into such accounts. It cannot be successfully argued the proceedings relating to the bank inquiry order under Section 11 of the AMLA is a litigation encompassed in one of the exceptions to the Bank Secrecy Act which is when the money deposited or invested is the subject matter of the litigation. The orientation of the bank inquiry order is simply to serve as a provisional relief or remedy. As earlier stated, the application for such does not entail a full-blown trial. Nevertheless, just because the AMLA establishes additional exceptions to the Bank Secrecy Act it does not mean that the later law has dispensed with the general principle established in the older law that [a]ll deposits of whatever nature with banks or banking institutions in the Philippines x x x are hereby considered as of an absolutely confidential nature. [96] Indeed, by force of statute, all bank deposits are absolutely confidential, and that nature is unaltered even by the legislated exceptions referred to above. There is disfavor towards construing these exceptions in such a manner that would authorize unlimited discretion on the part of the government or of any party seeking to enforce those exceptions and inquire into bank deposits. If there are doubts in upholding the absolutely confidential nature of bank deposits against affirming the authority to inquire into such accounts, then such doubts must be resolved in favor of the former. Such a stance would persist unless Congress passes a law reversing the general state policy of preserving the absolutely confidential nature of Philippine bank accounts. The presence of this statutory right to privacy addresses at least one of the arguments raised by petitioner, that Lilia Cheng had no personality to assail the inquiry orders before the Court of Appeals because she was not the subject of said orders. AMLC Resolution No. 75, which served as the basis in the successful application for the Makati inquiry order, expressly adverts to Citibank Account No. 88576248 owned by Cheng Yong and/or Lilia G. Cheng with Citibank N.A.,[97] whereas Lilia Chengs petition before the Court of Appeals is accompanied by a certification from Metrobank that Account Nos. 300852436-0 and 700149801-7, both of which are among the subjects of the Manila inquiry order, are accounts in the name of Yong Cheng or Lilia Cheng. [98] Petitioner does not specifically deny that Lilia Cheng holds rights of ownership over the three said accounts, laying focus instead on the fact that she was not named as a subject of either the Makati or Manila RTC inquiry orders. We are reasonably convinced that Lilia Cheng has sufficiently demonstrated her joint ownership of the three accounts, and such conclusion leads us to acknowledge that she has the standing to assail via certiorari the inquiry orders authorizing the examination of her bank accounts as the orders interfere with her statutory right to maintain the secrecy of said accounts. While petitioner would premise that the inquiry into Lilia Chengs accounts finds root in Section 11 of the AMLA, it cannot be denied that the authority to inquire under Section 11 is only exceptional in character, contrary as it is to the general rule preserving the secrecy of bank deposits. Even though she may not have been the subject of the inquiry orders, her bank accounts nevertheless were, and she thus has the standing to vindicate the right to secrecy that attaches to said accounts and their owners. This statutory right to privacy will not prevent the courts from authorizing the inquiry anyway upon the fulfillment of the requirements set forth under Section 11 of the AMLA or Section 2 of the Bank Secrecy Act; at

Page 1427 of 1485

the same time, the owner of the accounts have the right to challenge whether the requirements were indeed complied with. VII. There is a final point of concern which needs to be addressed. Lilia Cheng argues that the AMLA, being a substantive penal statute, has no retroactive effect and the bank inquiry order could not apply to deposits or investments opened prior to the effectivity of Rep. Act No. 9164, or on 17 October 2001. Thus, she concludes, her subject bank accounts, opened between 1989 to 1990, could not be the subject of the bank inquiry order lest there be a violation of the constitutional prohibition against ex post facto laws. No ex post facto law may be enacted,[99] and no law may be construed in such fashion as to permit a criminal prosecution offensive to the ex post facto clause. As applied to the AMLA, it is plain that no person may be prosecuted under the penal provisions of the AMLA for acts committed prior to the enactment of the law on 17 October 2001. As much was understood by the lawmakers since they deliberated upon the AMLA, and indeed there is no serious dispute on that point. Does the proscription against ex post facto laws apply to the interpretation of Section 11, a provision which does not provide for a penal sanction but which merely authorizes the inspection of suspect accounts and deposits? The answer is in the affirmative. In this jurisdiction, we have defined an ex post facto law as one which either: (1) makes criminal an act done before the passage of the law and which was innocent when done, and punishes such an act; (2) aggravates a crime, or makes it greater than it was, when committed;

(3) changes the punishment and inflicts a greater punishment than the law annexed to the crime when committed; (4) alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law required at the time of the commission of the offense; (5) assuming to regulate civil rights and remedies only, in effect imposes penalty or deprivation of a right for something which when done was lawful; and (6) deprives a person accused of a crime of some lawful protection to which he has become entitled, such as the protection of a former conviction or acquittal, or a proclamation of amnesty. (Emphasis supplied)[100] Prior to the enactment of the AMLA, the fact that bank accounts or deposits were involved in activities later on enumerated in Section 3 of the law did not, by itself, remove such accounts from the shelter of absolute confidentiality. Prior to the AMLA, in order that bank accounts could be examined, there was need to secure either the written permission of the depositor or a court order authorizing such examination, assuming that they were involved in cases of bribery or dereliction of duty of public officials, or in a case where the money deposited or invested was itself the subject matter of the litigation. The passage of the AMLA stripped another layer off the rule on absolute confidentiality that provided a measure of lawful protection to the account holder. For that reason, the application of the bank inquiry order as a means of inquiring into records of transactions entered into prior to the passage of the AMLA would be constitutionally infirm, offensive as it is to the ex post facto clause. Still, we must note that the position submitted by Lilia Cheng is much broader than what we are willing to affirm. She argues that the proscription against ex post facto laws goes as far as to prohibit any inquiry into deposits or investments included in bank accounts opened

Page 1428 of 1485

prior to the effectivity of the AMLA even if the suspect transactions were entered into when the law had already taken effect. The Court recognizes that if this argument were to be affirmed, it would create a horrible loophole in the AMLA that would in turn supply the means to fearlessly engage in money laundering in the Philippines; all that the criminal has to do is to make sure that the money laundering activity is facilitated through a bank account opened prior to 2001. Lilia Cheng admits that actual money launderers could utilize the ex post facto provision of the Constitution as a shield but that the remedy lay with Congress to amend the law. We can hardly presume that Congress intended to enact a self-defeating law in the first place, and the courts are inhibited from such a construction by the cardinal rule that a law should be interpreted with a view to upholding rather than destroying it.[101] Besides, nowhere in the legislative record cited by Lilia Cheng does it appear that there was an unequivocal intent to exempt from the bank inquiry order all bank accounts opened prior to the passage of the AMLA. There is a cited exchange between Representatives Ronaldo Zamora and Jaime Lopez where the latter confirmed to the former that deposits are supposed to be exempted from scrutiny or monitoring if they are already in place as of the time the law is enacted.[102] That statement does indicate that transactions already in place when the AMLA was passed are indeed exempt from scrutiny through a bank inquiry order, but it cannot yield any interpretation that records of transactions undertaken after the enactment of the AMLA are similarly exempt. Due to the absence of cited authority from the legislative record that unqualifiedly supports respondent Lilia Chengs thesis, there is no cause for us to sustain her interpretation of the AMLA, fatal as it is to the anima of that law. IX. We are well aware that Lilia Chengs petition presently pending before the Court of Appeals likewise assails the validity of the subject bank inquiry orders and precisely seeks the annulment of said orders. Our current declarations may indeed have the effect of preempting that0 petition. Still, in order for this Court to rule on the petition at bar which insists on the enforceability of the said bank inquiry orders, it is necessary for us to consider and rule on the same question which after all is a pure question of law. WHEREFORE, SO the PETITION is DISMISSED. No pronouncement as to costs.

ORDERED.

Quisumbing, (Chairperson), Austria-Martinez, Carpio-Morales, and Velasco, Jr., JJ., concur. EN BANC

SPOUSES PNP DIRECTOR ELISEO D. DELA PAZ (Ret.) and MARIA FE C. DELA PAZ, Petitioners,

G.R. No. 184849

Present:

PUNO, C.J.,

Page 1429 of 1485

QUISUMBING, YNARES-SANTIAGO, CARPIO, AUSTRIA-MARTINEZ, - versus CORONA, CARPIO MORALES, AZCUNA, TINGA, CHICO-NAZARIO, VELASCO, JR., NACHURA, LEONARDO-DE CASTRO, SENATE COMMITTEE ON RELATIONS and the SERGEANT-AT-ARMS BALAJADIA, JR., FOREIGN SENATE JOSE BRION, and PERALTA, JJ.

Respondents. Promulgated:

February 13, 2009 x-----------------------------------------------------------------------------------------x

RESOLUTION

NACHURA, J.:

Page 1430 of 1485

This is a Petition for Certiorari and Prohibition1838[1] under Rule 65 of the Rules of Court filed on October 28, 2008 by petitioners-spouses General (Ret.) Eliseo D. dela Paz (Gen. Dela Paz) and Mrs. Maria Fe C. dela Paz (Mrs. Dela Paz) assailing, allegedly for having been rendered with grave abuse of discretion amounting to lack or excess of jurisdiction, the orders of respondent Senate Foreign Relations Committee (respondent Committee), through its Chairperson, Senator Miriam Defensor-Santiago (Senator Santiago), (1) denying petitioners Challenge to Jurisdiction with Motion to Quash Subpoenae and (2) commanding respondent Senate Sergeant-at-Arms Jose Balajadia, Jr. (Balajadia) to immediately arrest petitioners during the Senate committee hearing last October 23, 2008. The petition thus prays that respondent Committee be enjoined from conducting its hearings involving petitioners, and to enjoin Balajadia from implementing the verbal arrest order against them.

The antecedents are as follow

On October 6, 2008, a Philippine delegation of eight (8) senior Philippine National Police (PNP) officers arrived in Moscow, Russia to attend the 77 th General Assembly Session of the International Criminal Police Organization (ICPO)-INTERPOL in St. Petersburg from October 6-10, 2008. With the delegation was Gen. Dela Paz, then comptroller and special disbursing officer of the PNP. Gen. Dela Paz, however, was to retire from the PNP on October 9, 2008.

On October 11, 2008, Gen. Dela Paz was apprehended by the local authorities at the Moscow airport departure area for failure to declare in written form the 105,000 euros [approximately P6,930,000.00] found in his luggage. In addition, he was also found to have in his possession 45,000 euros (roughly equivalent to P2,970,000.00).

1838

Page 1431 of 1485

Petitioners were detained in Moscow for questioning. After a few days, Gen. Dela Paz and the PNP delegation were allowed to return to the Philippines, but the Russian government confiscated the euros.

On October 21, 2008, Gen. Dela Paz arrived in Manila, a few days after Mrs. Dela Paz. Awaiting them were subpoenae earlier issued by respondent Committee for the investigation it was to conduct on the Moscow incident on October 23, 2008.

On October 23, 2008, respondent Committee held its first hearing. Challenge to Jurisdiction with Motion to Quash Subpoena .1839[2] arrest petitioners.

Instead of

attending the hearing, petitioners filed with respondent Committee a pleading denominated Senator Santiago emphatically defended respondent Committees jurisdiction and commanded Balajadia to

Hence, this Petition.

Petitioners argue that respondent Committee is devoid of any jurisdiction to investigate the Moscow incident as the matter does not involve state to state relations as provided in paragraph 12, Section 13, Rule 10 of the Senate Rules of Procedure (Senate Rules). They further claim that respondent Committee violated the same Senate Rules when it issued the warrant of arrest without the required signatures of the majority of the members of respondent Committee. They likewise assail the very same Senate Rules because the same were not published as required by the Constitution, and thus, cannot be used as the basis of any investigation involving them relative to the Moscow incident.

Respondent Committee filed its Comment1840[3] on January 22, 2009.

1839 1840

Page 1432 of 1485

The petition must inevitably fail. First. Section 16(3), Article VI of the Philippine Constitution states: Each House shall determine the rules of its proceedings.

This provision has been traditionally construed as a grant of full discretionary authority to the Houses of Congress in the formulation, adoption and promulgation of its own rules. As such, the exercise of this power is generally exempt from judicial supervision and interference, except on a clear showing of such arbitrary and improvident use of the power as will constitute a denial of due process.1841[4]

The challenge to the jurisdiction of the Senate Foreign Relations Committee, raised by petitioner in the case at bench, in effect, asks this Court to inquire into a matter that is within the full discretion of the Senate. The issue partakes of the nature of a political question that, in Taada v. Cuenco,1842[5] was characterized as a question which, under the Constitution, is to be decided by the people in their sovereign capacity, or in regard to which full discretionary authority has been delegated to the legislative or executive branch of the government. Further, pursuant to this constitutional grant of virtually unrestricted authority to determine its own rules, the Senate is at liberty to alter or modify these rules at any time it may see fit, subject only to the imperatives of quorum, voting and publication.

Thus, it is not for this Court to intervene in what is clearly a question of policy, an issue dependent upon the wisdom, not the legality, of the Senates action.

1841 1842

Page 1433 of 1485

Second. Even if it is within our power to inquire into the validity of the exercise of jurisdiction over the petitioners by the Senate Foreign Relations Committee, we are convinced that respondent Committee has acted within the proper sphere of its authority.

Paragraph 12, Section 13, Rule 10 of the Senate Rules provides:

12) Committee on Foreign Relations. Fifteen (15) members. All matters relating to the relations of the Philippines with other nations generally; diplomatic and consular services; the Association of Southeast Asian Nations; the United Nations Organization and its agencies; multi-lateral organizations, all international agreements, obligations and contracts; and overseas Filipinos.

A reading of the above provision unmistakably shows that the investigation of the Moscow incident involving petitioners is well within the respondent Committees jurisdiction.

The Moscow incident could create ripples in the relations between the Philippines and Russia. Gen. Dela Paz went to Moscow in an official capacity, as a member of the Philippine delegation to the INTERPOL Conference in St. Petersburg, carrying a huge amount of public money ostensibly to cover the expenses to be incurred by the delegation. For his failure to comply with immigration and currency laws, the Russian government confiscated the money in his possession and detained him and other members of the delegation in Moscow.

Furthermore, the matter affects Philippine international obligations. We take judicial notice of the fact that the Philippines is a state-party to the United Nations Convention Against Corruption and the United Nations Convention Against Transnational Organized Crime. The two conventions contain provisions dealing with the movement of considerable foreign

Page 1434 of 1485

currency across borders.1843[6]

The Moscow incident would reflect on our countrys Thus,

compliance with the obligations required of state-parties under these conventions.

the respondent Committee can properly inquire into this matter, particularly as to the source and purpose of the funds discovered in Moscow as this would involve the Philippines commitments under these conventions.

Third. The Philippine Senate has decided that the legislative inquiry will be jointly conducted by the respondent Committee and the Senate Committee on Accountability of Public Officers and Investigations (Blue Ribbon Committee).

Pursuant to paragraph 36, Section 13, Rule 10 of the Senate Rules, the Blue Ribbon Committee may conduct investigations on all matters relating to malfeasance, misfeasance and nonfeasance in office by officers and employees of the government, its branches, agencies, subdivisions and instrumentalities, and on any matter of public interest on its own initiative or brought to its attention by any of its members. It is, thus, beyond cavil that the Blue Ribbon Committee can investigate Gen. Dela Paz, a retired PNP general and member of the official PNP delegation to the INTERPOL Conference in Russia, who had with him millions which may have been sourced from public funds.

Fourth.

Subsequent to Senator Santiagos verbal command to Balajadia to arrest

petitioners, the Philippine Senate issued a formal written Order 1844[7] of arrest, signed by ten (10) senators, with the Senate President himself approving it, in accordance with the Senate Rules.

Fifth. The Philippine Senate has already published its Rules of Procedure Governing Inquiries in Aid of Legislation in two newspapers of general circulation. 1845[8]

1843 1844 1845

Page 1435 of 1485

Sixth. The arrest order issued against the petitioners has been rendered ineffectual. In the legislative inquiry held on November 15, 2008, jointly by the respondent Committee and the Senate Blue Ribbon Committee, Gen. Dela Paz voluntarily appeared and answered the questions propounded by the Committee members. Having submitted himself to the jurisdiction of the Senate Committees, there was no longer any necessity to implement the order of arrest. Furthermore, in the same hearing, Senator Santiago granted the motion of Gen. Dela Paz to dispense with the presence of Mrs. Dela Paz for humanitarian considerations.1846[9] Consequently, the order for her arrest was effectively withdrawn.

WHEREFORE, the petition is DISMISSED for lack of merit and for being moot and academic.

1846

Page 1436 of 1485

SO ORDERED. FIRST DIVISION

SPOUSES SIMON YAP AND MILAGROS GUEVARRA, Petitioners,

G.R. No. 169889

Present:

PUNO, C.J., Chairperson, CORONA, -versus CHICO-NAZARIO,* LEONARDO-DE CASTRO and BERSAMIN, JJ.

FIRST e-BANK CORPORATION (previously known as PDCP DEVELOPMENT BANK, INC.), Respondent. Promulgated:

September 29, 2009

Page 1437 of 1485

x---------------------------------------------------x

DECISION

CORONA, J.:

On August 30, 1990, Sammy Yap obtained a P2 million loan from PDCP Development Bank, Inc.1847[1] (PDCP). As security, Sammys parents, petitioners Simon Yap and Milagros Guevarra, executed a third-party mortgage on their land1848[2] and warehouse standing on it. The mortgage agreement provided that PDCP may extrajudicially foreclose the property in case Sammy failed to pay the loan.

On November 7, 1990, Sammy issued a promissory note and six postdated checks1849[3] in favor of PDCP as additional securities for the loan.

When Sammy defaulted on the payment of his loan, PDCP presented the six checks to the drawee bank but the said checks were dishonored. 1850[4] This prompted PDCP to file a complaint against Sammy for six counts of violation of BP 22 (Bouncing Checks Law) on February 8, 1993.

1847 1848 1849 1850

Page 1438 of 1485

On May 3, 1993, PDCP filed an application for extrajudicial foreclosure of mortgage on the property of petitioners which served as principal security for Sammys loan.

On December 16, 1993, on motion of Sammy and without objection from the public prosecutor and PDCP, the BP 22 cases were provisionally dismissed.

On October 26, 1994, pursuant to the petition of PDCP for extrajudicial foreclosure, the extrajudicial sale was set on December 28, 1994. Copies of the notice of extrajudicial sale were sent by registered mail to Sammy, petitioners, the Registrar of Deeds of San Carlos City, Pangasinan, the Sangguniang Panglungsod of San Carlos City and the office of the barangay secretary of Taloy District, San Carlos City, Pangasinan.

The notice was also published in the Sunday Punch, a newspaper of general circulation in Pangasinan on November 27, December 4 and 11, 1994.

On December 20, 1994, petitioners filed in the Regional Trial Court (RTC) of San Carlos City, Pangasinan a complaint for injunction (with prayer for the issuance of a temporary restraining order/preliminary injunction), damages and accounting of payments against PDCP. The complaint sought to stop the foreclosure sale on the ground that PDCP waived its right to foreclose the mortgage on their property when it filed the BP 22 cases against Sammy.

Page 1439 of 1485

On April 2, 1997, the RTC 1851[5] ruled in favor of petitioners. It held that PDCP had three options when Sammy defaulted in the payment of his loan: enforcement of the promissory note in a collection case, enforcement of the checks under the Negotiable Instruments Law and/or BP 22, or foreclosure of mortgage. The remedies were alternative and the choice of one excluded the others. Thus, PDCP was deemed to have waived its right to foreclose on the property of petitioners when it elected to sue Sammy for violation of BP 22.1852[6]

PDCP appealed to the Court of Appeals (CA). On February 8, 2005, the CA 1853[7] reversed the RTC. It opined that PDCP was not barred from exercising its right to foreclose on the property of petitioners despite suing Sammy for violation of BP 22. The purpose of BP 22 was to punish the act of issuing a worthless check, not to force a debtor to pay his debt.1854[8]

Hence, this appeal1855[9] where petitioners argue that, when Sammy was sued for six counts of violation of BP 22, PDCP should have been deemed to have simultaneously filed for collection of the amount represented by the checks. The civil aspect of the case was naturally an action for collection of Sammys obligation to PDCP. PDCP clearly elected a remedy. PDCP should not be allowed to pursue another, like foreclosure of mortgage.

1851 1852 1853 1854 1855

Page 1440 of 1485

The argument is not convincing.

First, petitioners anchor their position on Supreme Court Circular 57-97, which provides for the rules and guidelines in the filing and prosecution of criminal cases under BP 22. Pertinent portions of Circular 57-97 provide:

1. The criminal action for violation of [BP] 22 shall be deemed to necessarily include the corresponding civil action, and no reservation to file such civil action separately shall be allowed or recognized.

2. Upon the filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full the filing fees based upon the amount of the check involved, which shall be considered as the actual damages claimed, in accordance with the filing fees in Section 7 (a) and Section 8 (a), Rule 141 of the Rules of Court, and last amended by Administrative Circular No. 11-94 effective August 1, 1994. Where the offended party seeks to enforce against the accused civil liability by way of liquidated, moral, nominal, temperate or exemplary damages, he shall pay the corresponding filing fees therefore based on the amounts thereof as alleged either in his complaint or in the information. If not so alleged but any of these damages are awarded by the court, the amount of such fees shall constitute a first lien on the judgment.

3. Where the civil action has heretofore been filed separately and trial thereof has not yet commenced, it may be consolidated with the criminal action upon application with the court trying the latter case. If the application is granted, the trial of both actions shall proceed in accordance with the pertinent procedure outlined in Section 2 (a) of Rule 111 governing the proceedings in the actions as thus consolidated. (emphasis supplied)

Page 1441 of 1485

Circular 57-97 has been institutionalized as Section 1(b), Rule 111 of the Rules of Court:1856[10]

Section 1. Institution of criminal and civil actions.xxx

(b) The criminal action for violation of [BP] 22 shall be deemed to include the corresponding civil action. No reservation to file such civil action separately shall be allowed.

Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full the filing fees based on the amount of the check involved, which shall be considered as the actual damages claimed. Where the complaint or information also seeks to recover liquidated, moral, nominal, temperate or exemplary damages, the offended party shall pay additional filing fees based on the amounts alleged therein. If the amounts are not so alleged but any of these damages are subsequently awarded by the court, the filing fee based on the amount awarded shall constitute a first lien on the judgment.

Where the civil action has been filed separately and trial thereof has not yet commenced, it may be consolidated with the criminal action upon application with the court trying the latter case. If the application is granted, the trial of both actions shall proceed in accordance with section 2 of this Rule governing consolidation of the civil and criminal actions. (emphasis supplied)

Sad to say, Circular 57-97 (and, it goes without saying, Section 1(b), Rule 111 of the Rules of Court) was not yet in force 1857[11] when PDCP sued Sammy for violation of BP 22 and when it filed a petition for extrajudicial foreclosure on the mortgaged property of petitioners on February 8, 1993 and May 3, 1993, respectively. In Lo Bun Tiong v. Balboa,1858

1856 1857 1858

Page 1442 of 1485

[12] Circular 57-97 was not applied because the collection suit and the criminal complaints for violation of BP 22 were filed prior to the adoption of Circular 57-97. The same principle applies here.

Thus, prior to the effectivity of Circular 57-97, the alternative remedies of foreclosure of mortgage and collection suit were not barred even if a suit for BP 22 had been filed earlier, unless a judgment of conviction had already been rendered in the BP 22 case finding the accused debtor criminally liable and ordering him to pay the amount of the check(s). 1859 [13]

In this case, no judgment of conviction (which could have declared the criminal and civil liability of Sammy) was rendered because Sammy moved for the provisional dismissal of the case. Hence, PDCP could have still foreclosed on the mortgage or filed a collection suit.

Nonetheless, records show that, during the pendency of the BP 22 case, Sammy had already paid PDCP the total amount of P1,783,582.1860[14] Thus, to prevent unjust enrichment on the part of the creditor, any foreclosure by PDCP should only be for the unpaid balance.

Second, it is undisputed that the BP 22 cases were provisionally dismissed at Sammys instance. In other words, PDCP was prevented from recovering the whole amount

1859 1860

Page 1443 of 1485

by Sammy himself. To bar PDCP from foreclosing on petitioners property for the balance of the indebtedness would be to penalize PDCP for the act of Sammy. That would not only be illogical and absurd but would also violate elementary rules of justice and fair play. In sum, PDCP has not yet effectively availed of and fully exhausted its remedy.

While it can be argued that PDCP may revive the BP 22 cases anytime as their dismissal was only provisional, suffice it to state that the law gives the right of choice to PDCP, not to Sammy or to petitioners.

Third, petitioners should be mindful that, by being third party mortgagors, they agreed that their property would stand as collateral to the loan of Sammy until the last centavo is paid to PDCP. That is a risk they willingly assumed. To release the mortgage just because they find it inconvenient would be the height of injustice against PDCP.

All told, PDCP should not be left without recourse for the unsettled loan of Sammy. Otherwise, an iniquitous situation will arise where Sammy and petitioners are unjustly enriched at the expense of PDCP. That we cannot sanction.

So as not to create any misunderstanding, however, the point should be underscored that the creditors obvious purpose when it forecloses on mortgaged property is to obtain payment for a loan which the debtor is unable or unjustifiably refuses to pay. The rationale is the same if the creditor opts to sue the debtor for collection. Thus, it is but logical that a creditor who obtains a personal judgment against the debtor on a loan waives his right to foreclose on the mortgage securing the loan. Otherwise, the creditor becomes guilty of

Page 1444 of 1485

splitting a single cause of action1861[15] for the debtors inability (or unjustified refusal) to pay his debt.1862[16] Nemo debet bis vexare pro una et eadem causa. No man shall be twice vexed for one and the same cause.

In the light of Circular 57-97 and Section 1(b), Rule 111 of the Rules of Court, the same rule applies when the creditor sues the debtor for BP 22 and thereafter forecloses on the mortgaged property. It is true that BP 22 is a criminal remedy while foreclosure of mortgage is a civil remedy. It is also true that BP 22 was not enacted to force, much more penalize a person for his inability (or refusal to pay) his debt. 1863[17] What BP 22 prohibits and penalizes is the issuance of bum checks because of its pernicious effects on public interest. Congress, in the exercise of police power, enacted BP 22 in order to maintain public confidence in commercial transactions.1864[18]

At the other end of the spectrum, however, is the fact that a creditors principal purpose in suing the debtor for BP 22 is to be able to collect his debt. (Circular 57-97 and Section 1(b), Rule 111 of the Rules of Court have been drawn up to address this reality.) It is not so much that the debtor should be imprisoned for issuing a bad check; this is so specially because a conviction for BP 22 does not necessarily result in imprisonment. 1865[19]

1861 1862 1863 1864 1865

Page 1445 of 1485

Thus, we state the rule at present. If the debtor fails (or unjustly refuses) to pay his debt when it falls due and the debt is secured by a mortgage and by a check, the creditor has three options against the debtor and the exercise of one will bar the exercise of the others. He may pursue either of the three but not all or a combination of them.

First, the creditor may file a collection suit against the debtor. This will open up all the properties of the debtor to attachment and execution, even the mortgaged property itself. Second, the creditor may opt to foreclose on the mortgaged property. In case the debt is not fully satisfied, he may sue the debtor for deficiency judgment (not a collection case for the whole indebtedness), in which case, all the properties of the debtor, other than the mortgaged property, are again opened up for the satisfaction of the deficiency. 1866[20] Lastly, the creditor may opt to sue the debtor for violation of BP 22 if the checks securing the obligation bounce. Circular 57-97 and Section 1(b), Rule 111 of the Rules of Court both provide that the criminal action for violation of BP 22 shall be deemed to necessarily include the corresponding civil action, i.e., a collection suit. No reservation to file such civil action separately shall be allowed or recognized.

Petitioners would have been correct had it not been for the reasons stated earlier.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

1866

Page 1446 of 1485

SO ORDERED.

Republic of the Philippines Supreme Court Manila

EN BANC

Page 1447 of 1485

OFFICE OF ADMINISTRATOR, THE COURT A.M. No. P-05-2082 (formerly A.M. No. 05-8-534-RTC)

Complainant,

Present:

CORONA, C.J., CARPIO, VELASCO, JR.,* LEONARDO-DE CASTRO, BRION, PERALTA, BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ, MENDOZA, SERENO, REYES, and PERLAS-BERNABE, JJ.

- versus -

CLERK OF COURT HERMENEGILDO I. MARASIGAN, Regional Trial Court, Kabacan, North Cotabato, Respondent.

Promulgated:

December 12, 2011

Page 1448 of 1485

x-----------------------------------------------------------------------------------------x

DECISION

PER CURIAM:

We resolve the present administrative complaint brought by the Office of the Court Administrator (OCA) against Clerk of Court Hermenegildo I. Marasigan ( respondent) of the Regional Trial Court (RTC), Kabacan, North Cotabato.

The Antecedents

The facts are laid out in the OCA memorandum dated October 7, 2008 1867[1] and are summarized below.

From June 7 to 16, 2004, an OCA audit team, headed by Management and Audit Analyst IV Monroe Curioso, conducted a financial audit on the RTC, Kabacan, North Cotabato. The audit covered the accountabilities of former Clerk of Court-in-Charge Barbara Espinosa, for the period of September 1991 to March 1993, and of the respondent, from April 1993 to May 2004.

The audit team discovered that the cash count for June 7, 2004 fell short of P660.80. It attributed this anomaly to the respondents practice of depositing his collections on a

1867

Page 1449 of 1485

monthly, instead of a daily, basis. Also, the team found a big number of missing documents which were vital in the completion of the audit. These documents consisted of official receipts (recorded and not recorded in the cashbook), cancelled official receipts without the original copies, deposit slips, deposit slips without machine validation, and Fiduciary Fund (FF) withdrawals and passbooks.

Because of the non-availability of the FF passbooks, the audit team failed to determine the interests earned on the FF deposits which should have been remitted to the Judiciary Development Fund (JDF).

At the conclusion of its work, the audit team submitted to the OCA a Final Report. 1868 [2] The OCA, in a memorandum dated August 15, 2005, 1869[3] presented the salient features of the report to then Chief Justice Hilario G. Davide, Jr.

Acting on the report, the Courts Third Division issued a Resolution on October 5, 2005,1870[4] as follows:

1. 2.

to RE-DOCKET the report of the team as a regular administrative complaint against Clerk of Court Hermenegildo I. Marasigan. to DIRECT Clerk of Court Hermenegildo I. Marasigan: a. to EXPLAIN within ten (10) days from notice hereof: a.1. the P660.80 shortage in his collection during the cash count;

a.2. his failure to deposit his collections daily despite the fact that the LBP, Kabacan Branch is only about 25 meters away from the court;

1868 1869 1870

Page 1450 of 1485

a.3. his failure to maintain a cashbook for the Fiduciary Fund; a.4. his failure to present the detached original copies of official receipts with serial numbers 17631048-17631050 while leaving in the booklet the corresponding duplicate and triplicate copies unmarked; and a.5. his failure to comply with the directives in the memorandum of the Court Administrator dated November 9, 2004. b. to ACCOUNT for the interest earned on deposits of Fiduciary Fund from April 1993 to May 2004 and to PAY by depositing the same to the Judiciary Development Fund Account of the Court and to SUBMIT the machine validated deposit slip to the Fiscal Monitoring Division, Court Management Office; c. to EXPLAIN his failure to produce the following documents and submit the same to the Fiscal Monitoring Division, Court Management Office, Office of the Court Administrator, both within ten (10) days from notice, to wit: c.1. the Missing Official Receipts (ORs) that were not reported in the cashbook, as follows: OR NUMBER 8786851-8786854 8786886-8786888 8786899-8786900 2871226 2871501-2871504 2871510-2871539 2871611-2871614 2871851-2871900 4006501-4006550 4006901-4006908 4006951-4006952 4007029-4007037 4007051-4007100 4007118-4007150 4007251-4007300 5374951-5375000 18799433 18799501-18799541 18800460-18800472 17631048-17631050

c.2. the missing official receipts (ORs) but were recorded in the cashbook, viz: OR NUMBER 2871151-2871450 2871505-2871509 2871540-2871600 2871601-2871610 2871753-2871850 2871951-2872000 4006551-4006650 4006701-4006750 4006851-4006900 OR NUMBER 4007601-4008000 5374001-5374050 5374101-5374700 5374751-5374900 6528601 6555601-6556000 9294501 8786855-8786885 8786889-8786898

Page 1451 of 1485

4006909-4006950 4006967-4007028 4007038-4007050 4007101-4007117 4007151-4007200 4007301-4007350 4007401-4007550 8786901-8786950 2871451-2871500 2871901-2871950 4006801-4006850 4007351-4007400 4007551-4007600 5374901-5374950

c.3. the original copies of the following cancelled official receipts or proofs that the same were submitted to the Accounting DivisionOCA or to the Commission on Audit:

OR NUMBER

DATE ISSUED

OR NUMBER

DATE ISSUED

6674695 6674555 9294951 9828903 9828951 9828955 9828802 9828839 14458975 14459140 15324953 15324978 16605035 17630938 17630960 17631007 18799252 18799311 18799341 18799342 6555567 6555581 9828698 4006594 5374360 6528279 6528700 6528768 6674307 9294483

Dec. 1997 Feb. 1998 Apr. 1998 Oct. 1998 Nov. 1998 Nov. 1998 Jan. 1999 Mar. 1999 May 2001 Aug. 2001 Jan. 2002 Feb. 2002 Dec. 2002 Mar. 2003 Apr. 2003 Jun. 2003 Sept. 2003 Nov. 2003 Dec. 2003 Dec. 2003 Jul. 1997 Dec. 1997 Apr. 2001 Jul. 1994 Feb. 1996 Jul. 1996 Jan. 1997 Feb. 1997 Jan. 1998 May 1998

9828238 9828402 9828407 9828455 9828474 9828611 12385446 13594549 13594840 15324652 16604672 16604759 16604778 16604798 16605110-16605112 16605159 17630263 17630370 17630434 17630589 17630767 17630883 18799549 18799550 18799731 18799750 18799876 18800011 18800280

Oct. 1998 Nov. 1998 Nov. 1998 Dec. 1998 Dec. 1998 Jan. 1999 May 2000 Dec. 2000 Mar. 2001 Feb. 2002 Oct. 2002 Nov. 2002 Nov. 2002 Nov. 2002 Dec. 2002 Dec. 2002 Jan. 2003 Feb. 2003 Mar. 2003 Apr. 2003 Jun. 2003 Jun. 2003 Jul. 2003 Jul. 2003 Sept. 2003 Oct. 2003 Nov. 2003 Dec. 2003 Mar. 2004

c.4. the missing documents of Fiduciary Fund withdrawals, to wit:

Court OR No.

Case No.

Page 1452 of 1485

Date Withdrawn

Name of Litigant(s)

Amount Withdrawn

Missing Documents

1/7/1994 6/9/1995 6/16/1995 10/10/1995 6/18/1996 9/18/1996 9/18/1996 2/26/1997 7/15/1997 10/3/97 10/3/97 2/11/99 3/9/99 3/10/99 10/26/00 10/26/00 11/7/00 12/29/00 2/7/02 6/24/02 8/28/03 10/14/03 11/14/03 11/14/03 11/14/03 11/14/03 11/17/03 3/5/04 3/22/04 5/31/04

2998378 4007202 4007213 4007237 4007226 4007231 4007224 4007204 6674968 6674969 6674997

56 918 02 46 57 27,059-F-95 27-098-E-95 27,448-A-95 982 2591 2591 428 Election Case Election Case 98-01 to 02 98-01 to 02 00-32 5330 37048-37111 103-262-G2001 32806-1385 to 328101385 43,212-99 13,526-02 to 13,531-02 13,619-02 to 13,631-02 13,651-02 to 13,664-02 13,874-02 13581-02 to 13584-02 5716 4878 14,076-02

10650678 10650677 6674994 14459157 16605229 10650660 14459163 14459174 14459175 14459193 14459170 18801151 4007245 16605230

Estolas Loreto Juson Eliseo Gabano Nelia Catalan Cancelled Consuelo Daez Consuelo Daez Fatima Flauta Imelda Laa Hermenigildo I. Marasigan Hilda Gura Dorena Lacarama-Canlog Bonifacio Tejada Bonifacio Tejada Bonifacio Tejada Bonifacio Tejada Quirico Cano Merlita M. Garcia Yolanda Bel Shellane Sampiton Cayetano Pomares Reynaldo Angel Marilou Arellano Gina J. Mutulani Dalisay J. Nayona Ramonita Nadela Janeth Fuentes Judy Ann Lamban Vitudio Gomesio Gatawan Ramuel Abellera

Court Order (CO), Acknowledgem ent Receipt (AR) P 1,218.00 CO,AR 10,000.00 CO 15,000.00 CO,AR 8,000.00 CO 7,000.00 CO,AR 1,000.00 CO 1,000.00 CO 1,000.00 CO 2,000.00 AR 24,000.00 CO,AR 24,000.00 2,000.00 10,960.00 3,000.00 38,000.00 7,760.00 10,000.00 6,000.00 10,000.00 5,000.00 105,000.00 3,000.00 12,000.00 26,000.00 28,000.00 10,000.00 8,000.00 10,000.00 20,000.00 2,000.00 CO,AR AR CO,AR CO,AR CO,AR CO,AR CO AR AR AR CO AR CO CO CO CO CO AR AR AR

Page 1453 of 1485

TOTAL P410,938.00 ======= ==

c.5. the details and supporting documents of the following Fiduciary Fund withdrawals from LBP Savings Account No. 2731-0018-15: DATE 01/20/00 07/12/00 03/12/02 08/09/02 04/08/03 TOTAL AMOUNT P 5,739.00 4,921.00 18,000.00 7,000.00 4,000.00 DATE 06/23/03 06/30/03 08/28/03 03/02/04 AMOUNT P 2,000.00 3,000.00 6,000.00 84,000.00 2,000.00 P 136,660.00 =========

c.6. the passbook for Fiduciary Fund (FF) account with PNB, Kidapawan City Branch with Savings Account No. 42112 (from 39933) from April 1993 up to the time of its closing. c.7. the passbooks, bank statements or account ledgers for the following Fiduciary Fund (FF) accounts: (a) (b) LBP, Kidapawan City Branch with Savings Account No. 17402523-1 from January 1994 to January 31, 2000 LBP, Kabacan Branch with Savings Account No. 2731-001815 from its opening to January 20, 2000;

c.8. an inventory list indicating the case number, name of litigant, OR number, amount, date of collection, date of court order, date of withdrawals of all confiscated and forfeited cash bonds from April 1993 to May 2004 and proofs that the same were remitted either to the GF or JDF. c.9. court orders authorizing the withdrawal of the Sheriffs Trust Fund with Civil Case No. 260 and Fiduciary Fund with Civil Case No. 56, amounting to P4,124.81 and P1,218.00, respectively, which were withdrawn from PNB Savings Account No. 41579 on January 7, 1994, and proofs of remittance to GF of the P45.31 interest earned relative thereto. d. to SECURE confirmation from LBP for the missing deposit slips and unvalidated deposits:

Page 1454 of 1485

Missing Deposit Slips

Judiciary Development Fund (JDF) Period of Collection Dec.-93 Aug.-94 Nov.-94 Dec.-94 Jan.-95 Feb.-96 Jul.-96 Sept.-96 Oct.-96 Dec.-96 Jul.-97 Apr.-98 Jul.-98 Sept.-98 Oct.-98 Nov.-98 May-99 Jun.-99 Jul.-99 Oct.-99 Nov.-99 Dec.-99 Nov.-01 Total Amount P 308.00 1,806.00 2,543.00 1,029.50 5,000.00 98,510.36 3,900.00 8,836.90 3,981.90 5,935.50 5,813.10 29,317.00 4,955.30 8,034.50 5,992.70 22,653.60 10,371.86 4,411.80 4,599.00 6,695.00 4,342.50 4,907.00 11,689.96 P255,634.98 ======= == General Fund (GF) Period of Amount Collection Oct.-93 Feb.-94 Nov.-94 Dec.-94 Jan.-95 Jul.-95 Sept.-95 Feb.-96 Aug.-97 Nov.-97 May-99 Aug.-99 Nov.-99 Dec.-99 Sept.-02 Apr.-03 May-03 Jul.-03 Aug.-03 P 279.20 31.40 299.70 235.50 1,930.00 265.80 678.00 65,730.90 2,163.00 3,297.30 527.10 721.30 1,219.00 1,606.00 8,168.57 3,251.70 5,849.20 1,710.60 215.20

Sheriffs General Fund (SGF) Period of Collection Jul.-94 Jan.-99 May-99 Sept.-02 Apr.-03 May-03 Jul.-03 Oct.-03 Nov.-03 Amount P 44.00 748.00 60.00 36.00 16.00 48.00 44.00 8.00 44.00

P98,179.47 ====== ==

P 1,048.00 ======= =

Unvalidated Deposit Slips GF DATE AMOUNT 01/09/02 P 215.00 02/05/02 04/01/02 989.60 359.10 SGF DATE 05/10/99 10/2001 01/10/02 01/10/02 02/05/02 AMOUNT P 4.00 4.00 8.00 12.00 28.00 SAJF DATE AMOUNT 03/22/04 P2,177.30 03/24/04 04/21/04 04/06/04 05/03/04 1,234.60 15.00 1,176.00 287.80

JDF DATE AMOUNT 02/15/94 P 150.00 02/15/94 5,518.0 0 02/14/94 3,109.8 0 05/18/94 100.0 0 05/18/94 4,133.2

Page 1455 of 1485

0 06/06/94 03/08/96 0 2,206.0 6,000.0 0 02/2000 4,165.00 04/19/00 17,482.0 0 12/27/02 6,416.8 0

TOTAL P49,280.80

P1,563.70

P56.00

P4,890.70

e. to SHOW proofs of other valid withdrawals that were not presented in the course of the audit; and f. to RESTITUTE his shortages for the following judiciary funds: Amount of Shortage P 327,463.89 93,574.07 1,108.00 5,042.50 1,572,793.33 P1,999,981.79

Fund JDF GF SGF SAJF FF TOTAL

These amounts may change depending on the compliance with the above directives. Any excess payment that may result from his compliance will be refunded to him, and any deficiency, if ever, will be added to the abovementioned accountabilities. 3. to SUSPEND, effective immediately, Clerk of Court Hermenegildo I. Marasigan pending resolution of this administrative matter. 4. to DIRECT the Manager of the LBP, Kidapawan City Branch, and LBP, Kabacan Branch, to produce within fifteen (15) days from notice the bank statements or account ledgers of Savings Account No. 17402523-1 from January 1994 to January 31, 2000 and Savings Account No. 2731-0018-15 from its opening to January 20, 2000, respectively. 5. to ISSUE a Hold Departure Order against Atty. Hermenegildo I. Marasigan to prevent him from leaving the country. [emphases ours]

Page 1456 of 1485

On the same day, the Court issued a Hold Departure Order against the respondent.1871[5]

The respondent filed an Omnibus Motion to Extend Time to Comply and to Defer and/or Lift the Order of Suspension dated October 26, 2005. 1872[6] He alleged that since January 2005, he had been relieved as accountable officer of the RTC, Kabacan, North Cotabato; hence, he could not immediately comply with the Courts directives. He claimed that in good faith, he entrusted to the cash clerk, Rebecca Necesito, the court collections, remittances and financial reports. He found out later that the reports were missing. He asked for the lifting of his suspension, expressing apprehension over its adverse effects on his children during the Christmas season as they were expecting to receive gifts from him.

In his Compliance dated December 15, 2005, 1873[7] following submissions/explanations on the Courts directives:

the respondent made the

1. The interest earnings of the FF deposits from April 1993 to May 2004.

He was not aware of these interest earnings until the latter part of 1997. He entrusted the handling of the FF to Necesito who was a recommendee of the then incumbent judge of the court. Necesito failed to present to him the FF deposit slips and other documents pertaining to the interest.

2. The missing official receipts and missing cancelled official receipts.

1871 1872 1873

Page 1457 of 1485

The retrieval of the missing official receipts had become impossible because of their unsystematic handling by Necesito. He added that the Office of the Clerk of Court had not been provided with a vault or steel cabinet, or a strong locker for the safekeeping of the official receipts and other accountable forms.

3. The missing FF withdrawal documents.

He attached copies of court orders and acknowledgement receipts to his Compliance. He particularly explained that he could not comply with the Courts directives in Election Case No. 98-02; after receiving the amount of P15,000.00, the then Executive Judge requested that the official receipts be cancelled and the amount be used to pay for the revisors honorarium, as agreed upon by the parties.

4. The FF withdrawals from Land Bank of the Philippines ( LBP) Savings Account No. 2731-0018-15.

They were supported by court orders and withdrawal slips scrutinized and signed by the Executive Judge. Other documents were untraceable because they were lost while in the custody of the cash clerk.

5. The missing passbook for the Philippine National Bank (PNB) FF account.

He closed the account, but the PNB retained the passbook. When he requested for a photocopy of the passbook, he was informed that it was disposed of pursuant to bank policy.1874[8]

1874

Page 1458 of 1485

6. The missing LBP passbook.

The passbook for Savings Account No. 17402523-1 could not be submitted as there was a pending request with the banks Technology Department for the reprinting of the account.1875[9] However, he attached certified true copies of the bank ledger pertaining to LBP Savings Account No. 2731-0018-15.1876[10]

7.

Inventory of confiscated cash bond.

He submitted the inventory.1877[11] There was no formal turnover of accountability from Espinosa; hence, he could not explain the withdrawal of the amounts corresponding to the Sheriff Trust Fund in Civil Case Nos. 50 and 260. After a review, however, he found no withdrawal orders which occurred in 1994.

8. Missing and unvalidated deposit slips.

The audit teams findings on the missing and unvalidated deposit slips are not meritorious. Except for a few missing deposit slips, the deposit slips were attached to the courts financial report, which was sent to the Financial Division of the Supreme Court. He submitted photocopies of deposit slips in his files. 1878[12] Further, the collections for February 1996 in the amount of P98,410.36 for the JDF and P65,506.90 for the General Fund were in managers checks.

1875 1876 1877 1878

Page 1459 of 1485

9. Directive regarding the unvalidated deposit slips.

He noted that the 1990 to 1996 collections were deposited at the LBP-Kidapawan Branch. He attached copies of deposit slips for these. 1879[13] On the requirement that he show proof of other valid withdrawals that were not presented in the course of the audit, he explained that all valid withdrawals were presented to the audit team which even borrowed the records.

10. Directive to restitute the shortages.

He maintained that the shortages were highly improbable, considering that he was being audited by the Commission on Audit from time to time. He cited the audit covering the period of January 1, 2001 to October 8, 2003 where no shortage was found. 1880[14] The same thing is true with the audit for the period of October 10, 2003 to May 30, 2005. 1881[15]

Lastly, the respondent tried to rationalize the unsystematic and inconsistent manner the courts funds were handled and administered. He disclosed that he was appointed in 1993 with no accounting and bookkeeping experience. For this reason, he assigned to Necesito the task of keeping the official receipts and other accountable forms. He expected Necesito to adopt a system of keeping the accountable forms, but she failed to comply with his reminders in this respect, thus resulting in the loss of the accountable documents.

1879 1880 1881

Page 1460 of 1485

He reiterated his disappointment over the lack of office equipment for the

safekeeping of the documents; his requests in this regard received no favorable response from the OCA. This led him to obtain steel cabinets at his own expense. He also bewailed the OCAs failure to provide the court with calculators, cashbooks, and training for court personnel in the handling and safekeeping of court funds. He added that the loss of financial documents could partly be attributed to the four transfers of the courts offices since he assumed office. He stressed that had regular audits been conducted of the courts funds, the problem could have been avoided.

The respondent prayed for (1) the immediate lifting of his suspension; (2) the setting aside of the hold departure order; and (3) his immediate reinstatement.

The Courts Ruling

The Court has taken steps to minimize, if not eliminate, such irregularities in the handling of the collections of the courts. In OCA Circular No. 88-2007, issued on August 28, 2007, the Court adopted the guidelines proposed by the OCA for the payment of fees, and its modes and effect, thus, amending Section 1, Rule 141 of the Rules of Court. The Court has initially implemented the amendments in all collegiate courts and, as designated pilot testing areas, in all lower courts in the National Capital Region, and in Cebu City, Mandaue City and Lapu-Lapu City.1882[16]

In the present administrative case, it is clear that the respondent created the mess the audit team discovered in the management of the courts funds during the period of April 1993 to May 2004. Specifically, the audit team noted that a number of accountable documents (such as official receipts, deposit and withdrawal slips, cashbooks, and passbooks) were missing. These irregularities occurred because the respondent allowed them to happen; at the very least, his failure to supervise and monitor his subordinate already constituted gross negligence in the performance of his duties.

1882

Page 1461 of 1485

The respondent admitted that when he assumed office in 1993, he assigned to Necesito in good faith the collections, remittances, financial reports and the accountable forms only to find out that some are already missing. 1883[17] This is a highly irresponsible move. As clerk of court, the respondent is the courts accountable officer, not the cash clerk. No amount of good faith can relieve him of his duty to properly administer and safeguard the courts funds. As the Court said in an earlier case, clerks of court are officers of the law who perform vital functions in the prompt and sound administration of justice.1884[18] They are designated custodians of the courts funds, revenues, records, properties and premises.1885[19] They are liable for any loss, shortage, destruction or impairment of such funds and property. 1886[20] We find the respondent liable for gross neglect of duty.

In Soria v. Oliveros,1887[21] the Court stressed that from the time the respondent accepted his appointment as clerk of court, he accepted the corresponding duties and responsibilities of the position. He should have developed an appropriate system so that he could efficiently attend to his tasks. As clerk of court, he is the courts chief administrative officer. He must show competence, honesty, integrity and probity since he is in charge of safeguarding the integrity of the court and its proceedings.

We thus find that the respondent miserably failed to perform his duties as clerk of court. Without doubt, he deserves to be sanctioned administratively for gross neglect of duty. fund shortages. He must be held liable for all the missing documents and the

1883 1884 1885 1886 1887

Page 1462 of 1485

Under Section 52(A)(1), Rule IV of the Uniform Rules on Administrative Cases in the Civil Service, gross neglect of duty is punishable by dismissal. Since the penalty of dismissal inherently carries with it forfeiture of retirement benefits under Section 58 of the same rule, the respondents financial liability has to be satisfied through his leave benefits.1888[22]

WHEREFORE, premises considered, Clerk of Court Hermenegildo I. Marasigan, Regional Trial Court, Kabacan, North Cotabato, is hereby found LIABLE for gross neglect of duty and is DISMISSED from the service, with FORFEITURE of all leave credits and his retirement benefits with prejudice to re-employment in any government office, including government-owned and controlled corporations. The Financial Management Office, Office of the Court Administrator is directed to process the respondents accrued leave credits, dispensing with the documentary requirements, and to remit the cash value of this benefit to the Fiduciary Fund Account of the Regional Trial Court, Kabacan, North Cotabato, to answer for his shortages.

Hermenegildo I. Marasigan is directed to RESTITUTE the amount of One Million Seven Hundred Forty-Seven Thousand Seven Hundred Fifteen Pesos and Two Centavos (P1,747,715.02), representing the amount of shortages as stated in the Report dated October 7, 2008 of the Office of the Court Administrator, hereby summarized as follows:

JDF GF SGF SAJF FF

P 327,463.89 93,574.07 1,108.00 5,042.50 1,320,526.56

1888

Page 1463 of 1485

TOTAL P1,747.715.02

The Court hereby declares the forfeiture of all the respondents accrued leave credits whose monetary value shall be applied to the amount ordered to be restituted. The Legal Office, Office of the Court Administrator is directed to file the appropriate cases against the respondent for the recovery of the remaining shortages not covered by the monetary value of the respondents accrued leave credits.

Further, the Court hereby DIRECTS the Office of the Court Administrator to SUBMIT, as required in OCA Circular No. 88-2007, the written report on the pilot testing of the amended rule and its implementing guidelines, for the Court to determine whether the check payment system should now be adopted in all courts, within ninety (90) days from notice.

SO ORDERED. FIRST [G.R. No. 195592, DIVISION September 05, 2012]

MAGDIWANG REALTY CORPORATION, RENATO P. DRAGON AND ESPERANZA TOLENTINO, PETITIONERS, VS. THE MANILA BANKING CORPORATION, SUBSTITUTED BY FIRST SOVEREIGN ASSET MANAGEMENT (SPV-AMC), INC., RESPONDENT. DECISION REYES, J.: This resolves the petition for review on certiorari filed under Rule 45 of the Rules of Court which questions. the Decision[1] dated October 11, 201 0 and Resolution [2] dated January 31, 2011 of the Court of Appeals (CA) in CA-G .R. CV No. 90098 entitled The Manila Banking Corporation, substituted by First Sovereign Asset Management, Inc., Plaintiff-Appellee, v. Magdiwang Realty Corporation, Renata P. Dragon and Esperanza Tolentino, DefendantsAppellants. The Factual Antecedents The case stems from a complaint [3] for sum of money filed on April 18, 2000 before the Regional Trial Court (RTC), Makati City by herein respondent, The Manila Banking

Page 1464 of 1485

Corporation (TMBC), against herein petitioners, Magdiwang Realty Corporation (Magdiwang), Renato P. Dragon (Dragon) and Esperanza Tolentino (Tolentino), after said petitioners allegedly defaulted in the payment of their debts under the five promissory notes [4] they executed in favor of TMBC, which contained the following terms: Promissory Promissory Promissory Promissory Promissory Note Note Note Note Note No. No. No. No. No. 4953 10045 10046 10047 10048 Maturity Date December 27, 1976 March 27, 1982 March 27, 1982 March 27, 1982 March 27, 1982 Amount Php500,000.00 Php500,000.00 Php500,000.00 Php500,000.00 Php500,000.00

All promissory notes included stipulations on the payment of interest and additional charges in case of default by the debtors. Despite several demands for payment made by TMBC, the petitioners allegedly failed to heed to the banks demands, prompting the filing of the complaint for sum of money. The case was docketed as Civil Case No. 00-511 and raffled to Branch 148 of the RTC of Makati City. Instead of filing a responsive pleading with the trial court, the petitioners filed on October 12, 2000, which was notably beyond the fifteen (15)-day period allowed for the filing of a responsive pleading, a Motion for Leave to Admit Attached Motion to Dismiss [5] and a Motion to Dismiss,[6] raising therein the issues of novation, lack of cause of action against individuals Dragon and Tolentino, and the impossibility of the novated contract due to a subsequent act of the Congress. The motions were opposed by the respondent TMBC, via its Opposition [7] which likewise asked that the petitioners be declared in default for their failure to file their responsive pleading within the period allowed under the law. Acting on these incidents, the RTC issued an Order [8] on July 5, 2001 declaring the petitioners in default given the following findings: The record shows that as per Officers Return dated 19 September 2000, summons were served on even date by way of substituted service. Summons were received by a certain LINDA G. MANLIMOS, a person of sufficient age and discretion then working/residing at the address indicated in the Complaint at No. 15 Tamarind St., Forbes Park, Makati City. Consequently, in accordance with the Rules, defendants should have filed an Answer or Motion to Dismiss or any responsive pleading for that matter within the reglementary period, which is [fifteen] (15) days from receipt of Summons and a copy of the complaint with attached annexes. Accordingly, defendants should have filed their responsive pleading on October 2, 2000 but no pleading was filed on the aforesaid date, not even a Motion for Extension of Time. Instead, defendants Motion to Dismiss [found its] way into the court only on the 13th day of October, clearly beyond the period contemplated by the Rules. A perusal of the Motion for Leave to Admit the Motion to Dismiss filed by defendants reveals that the case, as claimed by the counsel for defendants, was just referred to the counsel only on October 10, and further insinuated that the Motion to Dismiss was only filed on the said date in view of the complicated factual and legal issues involved. While this Court appreciates the efforts and tenacity shown by defendants counsel for having prepared a [lengthy] pleading for his clients in so short a time, the Court will have to rule that the Motion to Dismiss was nonetheless filed out of time, hence, there is sufficient basis to declare defendant[s] in default. x x x.[9] The decretal portion of the Order then reads: WHEREFORE, premises considered, defendants[] Motio[n] to Dismiss is hereby treated as a pleading which has not been filed at all and cannot be ruled upon by the Court anymore for

Page 1465 of 1485

the same has been filed out of time. Plaintiffs prayer to declare defendants in default is hereby GRANTED, and as a consequence, defendants are hereby declared in DEFAULT. SO ORDERED.[10] The petitioners motion for reconsideration was denied by the trial court in its Order [11] dated August 2, 2005. The ex parte presentation of evidence by the bank before the trial courts Presiding Judge was scheduled in the same Order. Unsatisfied with the RTC orders, the petitioners filed with the CA a petition for certiorari, which was docketed as CA-G.R. SP No. 91820. In a Decision12 dated December 2, 2006, the CA affirmed the RTC orders after ruling that the trial court did not commit grave abuse of discretion when it declared herein petitioners in default. The denial of petitioners motion for reconsideration prompted the filing of a petition for review on certiorari before this Court, which, through its Resolutions dated March 5, 200813 and June 25, 2008, [14] denied the petition for lack of merit. In the meantime, TMBCs presentation of evidence ex parte proceeded before Presiding Judge Oscar B. Pimentel of the RTC of Makati City. The Ruling of the RTC On May 20, 2007, the RTC rendered its Decision [15] in favor of TMBC and against herein petitioners. The decisions dispositive portion reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff as against: 1. Defendant Magdiwang Realty Corporation, requiring said defendant to pay plaintiff the sum of [P]500,000.00 as indicated in Promissory Note No. 4953; 2. Requiring defendant Magdiwang Realty Corporation to pay the plaintiff interest to the principal loan at the rate of 14% per annum from 27 December 1976 until the amount is paid; 2. Requiring the defendant Magdiwang Realty Corporation to pay plaintiff penalty charges of 4% per annum from December 27, 1976 until the whole amount is paid; [and] 3. Requiring defendant Magdiwang Realty Corporation to pay plaintiff attorneys fees equivalent to 10% of the total outstanding obligation.

Further, judgment is rendered in favor of plaintiff and against defendants Magdiwang Realty Corporation, Renato Dragon and Esperanza Tolentino ordering said defendants to jointly and severally pay the plaintiff the following: 1. The principal amount of [P]500,000.00 as indicated in Promissory Note No. 10045; 2. To pay the principal amount of [P]500,000.00 as indicated in Promissory Note No. 10046; 3. To pay the principal amount of [P]500,000.00 as indicated in Promissory Note No. 10047; 4. To pay the principal amount of [P]500,000.00 as indicated in Promissory Note No. 10048;

Page 1466 of 1485

5. To pay interest in the principal loan at the rate of sixteen (16%) percent per annum as stipulated in PN Nos. 10045, 10046, 10047 and 10048 from March 27, 1981 until the whole amount is paid; 6. To pay penalty at the rate of one percent a month (1%) on the principal amount [of] loan plus unpaid interest at the rate of 16% per annum in PN Nos. 10045, 10046, 10047 and 10048 starting from March 27, 1981 until the whole amount is paid; [and] 7. To pay 10% of the total amount due and outstanding under PN Nos. 10045, 10046, 10047 and 10048 as attorneys fees. Costs against the defendants. SO ORDERED.[16] The petitioners motion for reconsideration was denied by the trial court via its Order[17] dated November 5, 2007. Feeling aggrieved, the petitioners appealed to the CA, imputing error on the part of the trial court in: (1) not declaring that TMBCs cause of action was already barred by the statute of limitations; (2) declaring herein petitioners liable to pay TMBC despite the alleged novation of the subject obligations; (3) declaring TMBC entitled to its claims despite the alleged failure of the bank to substantiate its claims; (4) declaring TMBC entitled to attorneys fees and litigation expenses; and (5) declaring herein petitioners in default. While appeal was pending before the appellate court, TMBC and First Sovereign Asset Management (SPV-AMC), Inc. (FSAMI) filed a Joint Motion for Substitution, asking that TMBC be substituted by FSAMI after the former executed in favor of the latter a Deed of Assignment covering all of its rights, title and interest over the loans subject of the case. The Ruling of the CA On October 11, 2010, the CA rendered its Decision18 dismissing the petitioners appeal. The decisions dispositive portion reads: WHEREFORE, in view of the foregoing premises, the appeal filed in this case is hereby DENIED and, consequently, DISMISSED. The assailed Decision dated May 20, 2007 and Order dated November 5, 2007 of the Regional Trial Court, Branch 148, in Makati City in Civil Case No. 00-51[1] are hereby AFFIRMED. SO ORDERED.[19] On the issue of prescription, the CA cited the rule that the prescriptive period is interrupted in any of the following instances: (1) when an action is filed before the court; (2) when there is a written extrajudicial demand by the creditors; and (3) when there is any written acknowledgment of the debt by the debtor. The appellate court held: As shown by the evidence, we arrived at the conclusion that the prescriptive period was legally interrupted on September 19, 1984 when the defendants-appellants, through several letters, proposed for the restructuring of their loans until the plaintiff-appellee sent its final demand letter on September 10, 1999. Indeed, the period during which the defendantsappellants were seeking reconsideration for the non-settlement of their loans and proposing payment schemes of the same should not be reckoned against it. When prescription is interrupted, all the benefits acquired so far from the lapse of time cease and, when prescription starts anew, it will be entirely a new one. This concept should not be equated with suspension where the past period is included in the computation being added to the period after prescription is resumed. Consequently, when the plaintiff-appellee sent its final demand letter to the defendants- appellants, thus, foreclosing all possibilities of reaching a

Page 1467 of 1485

settlement of the loans which could be favorable to both parties, the period of ten years within which to enforce the five promissory notes under Article 1142 of the New Civil Code began to run again and, therefore, the action filed on April 18, 2000 to compel the defendants-appellants to pay their obligations under the promissory notes had not prescribed. The written communications of the defendants-appellants proposing for the restructuring of their loans and the repayment scheme are, in our view, synonymous to an express acknowledgment of the obligation and had the effect of interrupting the prescription. x x x.[20] (Citation omitted) The defense of novation was also rejected by the CA, citing the absence of two requirements for a valid novation, namely: (1) the clear and express release of the original debtor from the obligation upon the assumption by the new debtor of the obligation; and (2) the consent of the creditor thereto. A motion for reconsideration filed by the petitioners was denied by the CA in its Resolution [21] dated January 31, 2011. Hence, the present petition for review on certiorari. The Present Petition The petitioners present the following grounds to support their petition: 1. THE COURT OF APPEALS ERRED WHEN IT HELD THAT THE PRESCRIPTIVE PERIOD WAS LEGALLY INTERRUPTED ON 19 SEPTEMBER 1984 WHEN PETITIONERS, THROUGH SEVERAL LETTERS, PROPOSED FOR THE RESTRUCTURING OF THEIR LOANS UNTIL THE RESPONDENT SENT ITS FINAL DEMAND LETTER ON 10 SEPTEMBER 1999. 2. THE COURT OF APPEALS ERRED WHEN IT HELD THAT THE PRINCIPLE OF NOVATION BY THE SUBSTITUTION OF DEBTORS WAS ERRONEOUSLY EMPLOYED BY THE PETITIONERS TO EXTRICATE THEMSELVES FROM THEIR OBLIGATION TO RESPONDENT. 3. THE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE TRIAL COURTS RULING HOLDING THAT PETITIONERS ARE LIABLE FOR ATTORNEYS FEES.[22] This Courts Ruling The petition is dismissible.

At the outset, we explain that based on the issues being raised by the petitioners, together with the arguments and the evidence being invoked in support thereof, we hold that the petition involves questions of fact that are beyond the ambit of a petition for review on certiorari. Section 1, Rule 45 of the Rules of Court, as amended, reads: Sec. 1. Filing of petition with Supreme Court . A party desiring to appeal by certiorari from a judgment, final order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or other courts, whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition may include an application for a writ of preliminary injunction or other provisional remedies and shall raise only questions of law, which must be distinctly set forth. The petitioner may seek the same provisional remedies by verified motion filed in the same action or proceeding at any time during its pendency. (Emphasis ours) Section 1, Rule 45 then categorically states that a petition for review on certiorari shall raise only questions of law, which must be distinctly set forth. A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one

Page 1468 of 1485

of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. [23] On the first issue of prescription, the petitioners argue that there was no written extrajudicial demand by the creditor TMBC that could have validly interrupted the ten (10)year prescriptive period.[24] They claim, among other things, that the bank failed to prove that it sent the demand letter dated September 10, 1999 to the petitioners, and that it was actually received by said petitioners. The petitioners also question the several other letters supposedly exchanged between the parties. These contentions are now being raised even after the trial court that admitted the evidence of the respondent has categorically declared in its Decision dated May 20, 2007 the fact of the respondents service, and the petitioners receipt, of the demands.[25] In its Order dated November 5, 2007, the trial court had also cited the several other correspondences exchanged between the parties, including the letters of November 14, 1984, March 24, 1987, February 14, 1990 and September 10, 1999 that negated the defenses of prescription and novation. [26] On appeal, these factual findings were even affirmed by the CA, which again cited the several letters exchanged between the parties in relation to the subject debts, and which correspondences were declared to have effectively interrupted the running of the prescriptive period to initiate the action for sum of money against the petitioners. Applying the guidelines laid down by jurisprudence on the criteria for distinguishing a question of law from a question of fact, it is clear that the petitioners are now asking this Court to determine a question of fact, as their arguments delve on the truth or falsity of the trial and appellate courts factual findings, the existence and authenticity of the respondents documentary evidence, as well as the truth or falsity of the TMBCs narration of facts in their complaint and the testimonial evidence presented before the Presiding Judge in support of said allegations. Similarly, the issue of the alleged novation involves a question of fact, as it necessarily requires a factual determination on the existence of the following requisites of novation: (1) there must be a previous valid obligation; (2) the parties concerned must agree to a new contract; (3) the old contract must be extinguished; and (4) there must be a valid new contract.[27] Needless to say, the respondents entitlement to attorneys fees also depends upon the questioned factual findings. The settled rule is that conclusions and findings of fact of the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because the trial court is in a better position to examine real evidence, as well as observe the demeanor of the witnesses while testifying in the case. The fact that the CA adopted the findings of fact of the trial court makes the same binding upon this Court. [28] The Supreme Court is not a trier of facts. It is not our function to review, examine and evaluate or weigh the probative value of the evidence presented. A question of fact would arise in such event. [29] Although jurisprudence admits of several exceptions to the foregoing rules, the present case does not fall under any of them. Even granting that the issues being raised by the petitioners may still be validly entertained by this Court through the instant petition for review on certiorari, we hold that their arguments and defenses are bound to fail for lack of merit. Significantly, the petitioners failed to file their answer to TMBCs complaint within the reglementary period allowed under the Rules of Court. The validity of the trial courts declaration of their default is a settled matter, following the denial of the petitions previously

Page 1469 of 1485

brought by the petitioners before the CA and this Court questioning it. As correctly stated by the CA in the Decision dated October 11, 2010: At the outset, it behooves this Court to accentuate that the Order of the trial court declaring the defendants-appellants in default for their failure to file their responsive pleading to the complaint within the period prescribed under Section 3 of Rule 9 of the Revised Rules of Court had been declared final and beyond review already by the Supreme Court through its Resolution dated March 5, 2008 and June 25, 2008. Judicial decisions of the Supreme Court, as the final arbiter of any justiciable controversy, assume the same authority as the law itself. Thus, the issue raised by the defendants-appellants questioning the wisdom of the trial courts decision in declaring them in default is now rendered moot and academic by the aforecited Supreme Court resolutions.[30] The petitioners default by their failure to file their answer led to certain consequences. Where defendants before a trial court are declared in default, they thereby lose their right to object to the reception of the plaintiffs evidence establishing his cause of action. [31] This is akin to a failure to, despite due notice, attend in court hearings for the presentation of the complainants evidence, which absence would amount to the waiver of such defendants right to object to the evidence presented during such hearing, and to cross-examine the witnesses presented therein.[32] Taking into consideration the banks allegations in its complaint and the totality of the evidence presented in support thereof, coupled with the said circumstance that the petitioners, by their own inaction, failed to make their timely objection or opposition to the evidence, both documentary and testimonial, presented by TMBC to support its case, we find no cogent reason to reverse the trial and appellate courts findings. We stress that in civil cases, the party having the burden of proof must establish his case only by a preponderance of evidence. Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term greater weight of evidence or greater weight of the credible evidence. Preponderance of evidence is a phrase which, in the last analysis, means probability to truth. It is evidence which is more convincing to the court as worthier of belief than that which is offered in opposition thereto. [33] We agree with the trial and appellate courts, for as the records bear, that the ten (10)-year prescriptive period to file an action based on the subject promissory notes was interrupted by the several letters exchanged between the parties. This is in conformity with the second and third circumstances under Article 1155 of the New Civil Code (NCC) which provides that the prescription of actions is interrupted when: (1) they are filed before the court; (2) there is a written extrajudicial demand by the creditors; and (3) there is any written acknowledgment of the debt by the debtor. In TMBCs complaint against the petitioners, the bank sufficiently made the allegations on its service and the petitioners receipt of the subject demand letters, even attaching thereto copies thereof for the trial courts consideration. Thus, the complaint states in part: 23. However, despite numerous demands by plaintiff for the payment of the loan obligations obtained by defendants and evidenced by the five Promissory Notes, defendants MAGDIWANG, Dragon and Tolentino failed to settle their obligations with plaintiff. Copies of plaintiffs demand letters with respect to the five Promissory Notes (PN Nos. 4953, 10045, 10046, 10047, 10048) duly received by defendants, as well as defendants letters in reply to the demand letters and requesting for restructuring of loan or extension of time to pay the same are herewith attached as Annexes F to O, respectively, and made integral parts of this Complaint.[34]

Page 1470 of 1485

During the banks presentation of evidence ex parte, the testimony of witness Mr. Megdonio Isanan was also offered to further support the claim on the demand made by the bank upon the petitioners. In the absence of a timely objection from the petitioners on these claims, no error can be imputed on the part of the trial court, and even the appellate court, in taking due consideration thereof. As against the bare denial belatedly made by the petitioners of their receipt of the written extrajudicial demands made by TMBC, especially of the letter of September 10, 1999 which was the written demand sent closest in time to the institution of the civil case, the appreciation of evidence and pronouncements of the trial court in its Order dated November 5, 2007 shall stand, to wit: In the 14 November 1984 Letter of Kalilid Wood Industries, Inc., through Mr. Uriel Balboa, the counter-offer of the plaintiff was acknowledged but Kalilid, while manifesting that the counter offer is acceptable, made some reservations and other conditions which likewise constitute as counter offers. Hence, no meeting of the minds happened regarding the restructuring of the loan. Likewise, based on this letter, the debt was also acknowledged. Another letter dated 24 March 1987 was issued and a repayment plan has been proposed by the Magdiwang Realty Corporation. There was also a correspondence dated February 14, 1990 from defendant Renato P. Dragons Office regarding the obligation. While a demand letter dated September 1999 was given by the plaintiff to the defendants. Hence, from all indications, the prescription of the obligation does not set in. [35] In addition to these, we take note that letters prior to the letter of September 1999 also form part of the case records, and the existence of said letters were not directly denied by the petitioners. The following letters that form part of the complaint and included in TMBCs formal offer of exhibits were correctly claimed by the respondents in their Comment [36] as also containing the petitioners acknowledgment of their debts and TMBCs demand to its debtors: (1) Exhibit M-29, which is a letter dated January 4, 1995 requesting for an updated Statement of Account of the corporations owned by petitioner Dragon, including the account of petitioner Magdiwang; and (2) Exhibit M-30, which is the letter dated January 12, 1995 from the Office of the Statutory Receiver of TMBC and providing the Statements of Account requested for in the letter of January 4, 1995. Significantly, the petitioners failed to adequately negate the authority of the first letters signatory to act for and on behalf of the petitioners, the reasonable conclusion being that said signatory and the company it represented were designated by the petitioners, as the debtors in the loans therein indicated, to deal with the TMBC. On the issue of novation, no evidence was presented to adequately establish that such novation ensued. What the letters being invoked by the petitioners as supposedly establishing novation only indicate that efforts on a repayment scheme were exerted by the parties. However, nowhere in the records is it indicated that such novation ever materialized. Regarding the award of attorneys fees, the applicable provision is Article 2208(2) of the NCC which allows the grant thereof when the defendants act or omission compelled the plaintiff to litigate or to incur expenses to protect its interest. Considering the circumstances that led to the filing of the complaint in court, and the clear refusal of the petitioners to satisfy their existing debt to the bank despite the long period of time and the accommodations granted to it by the respondent to enable them to satisfy their obligations, we agree that the respondent was compelled by the petitioners' acts to litigate for the protection of the bank's interests, making the award of attorney's fees proper. WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision

Page 1471 of 1485

dated October 11, 2010 and Resolution dated January 31, 2011 of the Court of Appeals in CA-G.R. CV No. 90098 are hereby AFFIRMED. SO ORDERED. li'N p A ?\l('i :.L -- }) f-\. I -~ -J OFFICE OF THE COllR'f ADMINISTlV\TOl~, (:oltll)1ai tla!ll, --versusSUSANA n. FON'fANJLIJA, Clerk of Court, rvJunicipal Circuit Trial Court, San Narcisu--Bucnavista, San Narciso, Quezon, Respondent. X-----------------------------------------------A .. rvl. No. P- f 2--308,ii (I I' ~H'Hler;~ y A .lf\~ l'Wi . -,~\ I( J ..1 1a -'ti- /.' l ,'\ i1. (- 1' <t'.[ . ." } SL'RENO, t.'.J, < 'ARPfO, ,;~~~ ~\'-' l II) \ t~ _,, uC( , . '-, I.J~'ONAI<UO-DL CAS'llzU, BRf< )N-, Pr:r~.Al:J'A, H i':I<SA fvlll\J, 1'" -JJ:.' I ('.A"'"'I-1 L <->- j - ~.J i _j - ~ ABAD, VILLARAl'v1A, JR.,~ I".'< ~z ,_ .. l _li .. A -- ') tv11:NDC).ZA, !U:YES, and PEHLAS-BI.ltl\)1\~~F, )J ------------------------------------X l{ E S () L lJ T I () N 1\'[END(lZA, .J .. : This ad1ninistralivc: 11WHer stemnlt~d ti(HH the financial audit r~port, 1 dated Noventbc:r 22, 20 I l, cunduckd by lile Courl J'vlanagcm~nt Office, Ou Ulficial Lcilve. t1o p<~rl. RESOLUTION A.M .No. P-12-3086 2 Office of the Court Administrator (CMO-OCA), on the books of accounts of Susana R. Fontanilla (Fontanilla), Clerk of Court, Municipal Circuit Trial Court, San Narciso-Buenavista, San Narciso, Quezon (MCTC). On January 26, 2009, the OCA requested for authority from the Court to withhold Fontanillas salaries for her continuous failure to submit the required monthly reports of collections, deposits and withdrawals for the Judiciary Development Fund (JDF), Special Allowance for the Judiciary Fund and Fiduciary Fund. The request was approved on January 27, 2009. 2 In her Letter, 3 Fontanilla admitted that she used some of her collections for her personal needs because of financial difficulties. She explained that, as she was the bread winner of the family, she used the money for the familys sustenance, education of her children and medical expenses of her husband and parent. In another Letter, 4 dated December 17, 2010, Fontanilla informed

Page 1472 of 1485

the OCA that she had submitted the required monthly reports and deposited all the cash balances on hand and attached the validated deposit slips as proof thereof. In the same letter, Fontanilla requested the release of her withheld salaries. Upon recommendation of the OCA, the Court, in its Resolution,5 dated July 19, 2011, ordered the release of the salaries of Fontanilla beginning April 2011 and authorized the Fiscal Monitoring Division, CMOOCA, to conduct a financial audit on the books of accounts covering the period from October 1984 to September 8, 2011. Subsequently, Fontanilla 1 Rollo, pp. 14-29. 2 Id. at 5. 3 Id. at 4. 4 Id. at 8. 5 Id. at 10. RESOLUTION A.M .No. P-12-3086 3 was relieved as Clerk of Court and Ericson E. Musa (Musa), Court Stenographer I, was designated as Officer-in-Charge. Based on the audit conducted, Fontanillas collections were all accounted for in the Courts financial records. It was, however, revealed that there were unauthorized withdrawals amounting to 28,000.00, resulting in a cash shortage in the Fiduciary Fund. The amounts and dates of the withdrawals were: 4,000.00 on March 8, 2006, 12,000.00 on December 11, 2006, and another 12,000.00 on January 23, 2008. On October 20, 2011, Fontanilla restituted the said amounts. The audit team noted that although no cash shortage was found in the other judiciary funds, Fontanilla delayed the remittances of collections which deprived the Court of the interests that would have accrued had the collections been deposited on time. During the audit, it was also discovered that, as of August 31, 2011, the MCTC had Fiduciary Fund deposits with the Municipal Treasurers Office, San Narciso, Quezon, in the amount of 141,500.00, which should have been withdrawn and deposited in the Land Bank of the Philippines (LBP), Mulanay, Quezon Branch, the Courts authorized depository bank. The audit team likewise found out that the MCTC was not collecting the Process Servers Fee and the Mediation Fee as required under Section 9 of the Amended Administrative Circular No. 35-2004. The audit team, thus, advised Musa to collect the process servers fee and disburse the same in accordance with the aforementioned circular; and to collect the mediation fee, remit it to its corresponding account, and prepare the monthly reports relative thereto. RESOLUTION A.M .No. P-12-3086 4 In its Memorandum, 6 dated July 25, 2012, the OCA adopted the recommendation of the audit team, as follows: 1) This report be DOCKETED as a regular administrative matter against Ms. Susana R. Fontanilla, Clerk of Court, Municipal Circuit Trial Court, San Narciso-Buenavista, Quezon; 2) A FINE of 10,000.00 be IMPOSED upon Ms. Fontanilla for not depositing her collections and not submitting the required Monthly Reports of Collections, Deposits and Withdrawals within the prescribed period; 3) The Finance Division, FMO, OCA, be DIRECTED to RELEASE the withheld salaries of Ms. Susana R. Fontanilla and to DEDUCT therefrom the FINE of 10,000.00 and the amount of

Page 1473 of 1485

52,799.87 representing interests that could have been earned had the collections [been] deposited within the prescribed period; 4) The Cash Division, FMO, OCA, be DIRECTED to DEPOSIT amounts of 10,000.00 and 52,799.87 referred to in no. 3 above, to the accounts of the Special Allowance for the Judiciary Fund and Judiciary Development Fund, respectively, and FURNISH the Fiscal Monitoring Division, CMO, OCA, with copies of machine-validated deposits slips as proof of compliance thereof; 5) Incumbent Officer-in-Charge Mr. Ericson E. Musa be DIRECTED to: a. WITHDRAW the fiduciary fund deposits of 141,500.00 [from] the Municipal Treasurers Office (MTO), San Narciso, Quezon and TRANSFER the amount to the fiduciary fund account with the Land Bank of the Philippines pursuant to Circular No. 50-95; and b. FURNISH the Fiscal Monitoring Division, CMO, OCA, with the copy of the machine-validated deposit slip/certified true copy of passbook as proof of remittance of the amount of 141,500.00 transferred from MTO; 6) Hon. Walter Inocencio V. Arreza, Acting Presiding Judge, MCTC, San Narciso-Buenavista, Quezon, be DIRECTED to STRICTLY MONITOR the incumbent Officer-in-Charge relative to the compliance with the circulars and issuances of the Court particularly in the handling of judiciary funds, otherwise, he 6 Id. at 12-13. RESOLUTION A.M .No. P-12-3086 5 shall be held equally liable for the infraction committed by the employee under his command/supervision. The Court finds the recommendation of the OCA to be well-taken except as to the amount of the fine. SC Circular No. 13-92 mandates that all fiduciary collections shall be deposited immediately by the Clerk of Court concerned, upon receipt thereof, with an authorized government depository bank. Section 3, in relation to Section 5 of SC Circular No. 5-93, specifically designates the LBP as the authorized government depositary of the JDF. It reads: 3. Duty of the Clerks of Court, Officers-in-Charge or accountable officers. The Clerks of Court, Officers-inCharge, or their accountable duly authorized representatives designated by them in writing, who must be accountable officers, shall receive the Judiciary Development Fund collections, issue the proper receipt therefore, maintain a separate cash book properly marked x x x deposit such collections in the manner herein prescribed and render the proper Monthly Report of Collections for said Fund. 4. x x x x 5. Systems and Procedures: xxxx c. In the RTC, SDC, MeTC, MTCC, MTC, and SCC. The daily collections for the Fund in these courts shall be deposited every day with the local or nearest LBP branch For the account of the Judiciary Development Fund, Supreme

Page 1474 of 1485

Court, Manila Savings Account No. 15901163; or if depositing daily is not possible, deposits of the Fund shall be every second and third Fridays and at the end of every month, provided, however, that whenever collections for the Fund reach 500.00, the same shall be deposited immediately even before the days before indicated. Where there is no LBP branch at the station of the judge concerned, the collections shall be sent by postal money order payable to the Chief RESOLUTION A.M .No. P-12-3086 6 Accountant of the Supreme Court at the latest before 3:00 of that particular week. xxxx d. Rendition of Monthly Report. Separate Monthly Report of Collections shall be regularly prepared for the Judiciary Development Fund, which shall be submitted to the Chief Accountant of the Supreme Court within ten (10) days after the end of every month, together with the duplicate of the official receipts issued during such month covered and validated copy of the Deposit Slips. The aggregate total of the Deposit Slips for any particular month should always equal to, and tally with, the total collections for that month as reflected in the Monthly Report of Collections. If no collection is made during any month, notice to that effect should be submitted to the Chief Accountant of the Supreme Court by way of a formal letter within ten (10) days after the end of every month. These directives in the circulars are mandatory, designed to promote full accountability for government funds.7 Clerks of Court, tasked with the collections of court funds, are duty bound to immediately deposit with the LBP or with the authorized government depositories their collections on various funds because they are not authorized to keep funds in their custody. 8 The unwarranted failure to fulfill this responsibility deserves administrative sanction and not even the full payment, as in this case, of the collection shortages will exempt the accountable officer from liability.9 In the case at bench, Fontanilla did not only delay the remittance of her collections but also incurred shortages amounting to 28,000.00. She admitted her fault, explaining that she used the money for her familys 7 Re: Initial Report on the Financial Audit conducted in the Municipal Trial Court of Pulilan, Bulacan, A.M. No. 01-11-291-MTC, July 7, 2004, 433 SCRA 486, 493. 8 Re: Report on the Financial Audit Conducted in the MTCC-OCC, Angeles City , 525 Phil. 548, 560, (2006). 9 Office of the Court Administrator v. Elumbaring , A.M. No. P-10-2765 (Formerly A.M. No. 0911-199MCTC), September 13, 2011, 657 SCRA 453, 464. RESOLUTION A.M .No. P-12-3086 7 sustenance, for the education of her children, and for the medical expenses

Page 1475 of 1485

of her spouse and mother. Although the Court understands the plight of Fontanilla, it cannot condone her wrongdoing. As custodian of the courts funds and revenues, she was entrusted with the primary responsibility of correctly and effectively implementing regulations regarding fiduciary funds. 10 She was an accountable officer entrusted with the great responsibility of collecting money belonging to the funds of the court. She was, therefore, liable for any loss, shortage, destruction, or impairment of said funds and property.11 As held in Report on the Financial Audit Conducted on the Books of Accounts of the Municipal Circuit Trial Court, Mondragon-San Roque, Northern Samar,12 shortages in the amounts to be remitted and the years of delay in the actual remittance constitute gross neglect of duty for which the clerk of court shall be administratively liable. Delay in the remittance of collection is a serious breach of duty.13 It deprives the Court of the interest that may be earned if the amounts are promptly deposited in a bank;14 and more importantly, it diminishes the faith of the people in the Judiciary. 15 This act constitutes dishonesty which carries the extreme penalty of dismissal from the service even if committed for the first time.16 10 Re: Misappropriation of the Judiciary Fund Collections by Ms. Juliet C. Banag, Clerk of Court, MTC, Plaridel , Bulacan, 465 Phil. 24, 37, (2004). 11 Office of the Court Administrator v. Lising, A.M. No. P-03-1736, March 8, 2005, 453 SCRA 16, 22. 12 A.M. No. P-09-2721 (Formerly A.M. No. 09-9-162-MCTC), February 16, 2010, 612 SCRA 509. 13 In re: Delayed Remittance of Collections of Teresita Lydia R. Odtuhan, Officer-in-charge, Regional Trial Court, Branch 117, Pasay City, 445 Phil. 220 (2003). 14 In-House Financial Audit Conducted in the Books of Accounts of Khalil B. Dipatuan, RTCMalabang, Lanao Del Sur, A.M. No. P-06-2121 (Formerly OCA A.M. No. 05-12-746-RTC), June 26, 2008, 555 SCRA 417, 423. 15 Re: Report on the Financial Audit Conducted on the Books of Accounts of Atty. Raquel G. Kho, A.M. No. P-06-2177, 526 Phil. 42 (2006). 16 Id. RESOLUTION A.M .No. P-12-3086 8 In this case, however, Fontanilla, in a show of remorse, immediately returned the withdrawals and complied with the directives of the audit team. Considering that this is her first offense, the Court finds the penalty of 40,000.00 fine as sufficient. Every public official should realize that public office is a public trust. Those charged with the dispensation of justice, from the justices and judges to the lowliest clerks, should be circumscribed with the heavy burden of responsibility. Not only must their conduct, at all times, be characterized by propriety and decorum but, above all else, it must be beyond suspicion.17 Again, the OCA is reminded to expand the coverage of the check payment system in all cities and capital towns in the provinces in order to minimize, if not to eliminate the irregularities in the collection of court funds.18 WHEREFORE, finding Susan R. Fontanilla, Clerk of Court, Municipal Circuit Trial Court, San Narciso-Buenavista, San Narciso,

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Quezon, GUILTY of grave misconduct for her failure to make timely remittance of judiciary funds in her custody, the Court hereby orders her to pay a FINE of 40,000.00 with a STERN WARNING that a repetition of the same or similar act will be dealt with more severely. The Finance Division, Fiscal Management Office, Office of the Court Administrator, is DIRECTED to RELEASE the withheld salary of Susana Fontanilla, deducting the fine of P40,000.00, to DEPOSIT said amounts to the accounts of the Special Allowance for the Judiciary Fund and Judiciary 17 Office of the Court Administrator v. Nini , A.M. No. P-11-3002 (Formerly A.M. No. 11-9-96MTCC), April 11, 2012. 18 Office of the Court Administrator v. Lometillo, A.M. No. P-09-2637, March 29, 2011, 646 SCRA 542, 565. RESOI J JTIU~~ 9 D~velopment Fund, respectively, and lo :[) RN ~sn the l,'is,.a! tv1o11i(ming Divbion, Court rvlan.:tgement Ort!.__c_,, < )ftl._,~ of the Court Atltujnisrrato!, copies of machiue validated deptk>il slip~; as r;.-oof of t><llltpl!<i!lCe. DIHJ1~CTED to \VITB Ul~A \,Y the llduciary !imd dt:pnsit or~ l ~l! ,."OO.U; from the l'vlunic:ipal Treasurer's Ortic~\ San N~!rci:_,i), ()uezon, and to TUANSFEll the said amount tu the Jiducia;y h1!!d ~lccou!\t with the ! ,and Bank of lhe Phit;pp:nes pnrsmmt. tu SC C'ifctd;n No.. :)() . .1).'); :md to FUUNISIJ the Fiscal rvlonitoring Divisiou, Court Oftice of the Court Admini:.;trator, cupies of HJ<.~cLine- validated deposit slips/certified true copy of passbook as pr<}t)f of cl.>mpliance. The Hon. v\' aller lnocencil) V. Arrcza, A ding Presiding Judge, Municipal Circuit 'frial C:unrt, ~;an Narciso-Bucllavista, (~.<e:.ron, is EN.JOINI~D to strictly nKuitor the financi, l lran::>adions of l'vlCTC, San Narciso-Bueuavista, Quezon, in s!rict c:<Jmpliance with t.he issuancl:-s of the Court and to avoid recurrence of irregulat ity in the colkction, deposit and withdrawal of court funds; othcrwi~c, be ,v:ll be hdd equally liable l~n lhe infractions tu be committed by erring employees under his supervision. Lastly, the Ot11ce of the Cmu t Adminis!rat<<Jr is LereLy 01 d1Ted to expand the coverage of the check payment sys1ew in all cities and capital towns in the provinces. SO ORDERED. RESOLUrtON \\'E CONCUn: l\1AIHA LOlHHH~S P. / . SEIH~NO <'!lief .ltiJlic~~ t:);4~~r2~-r-~ .J ANTONIO T. CARPIO Associate Justice fl.t/t~~ .f~#'JUJ.tllo ,f.tJ tJ.A.,it-v TEil.ESIT A .J.lfjEONAUfJ{):nE CASTRO Associate Justice /~~_u~.,_; IVIARIANO C. DEL CAS'l'ILLO Associate J usticc Ltl;tfbl.J.;t.i I U<Hni:RTO A. ABAD Associate .' usCcc (On Official Leave) (No parl) .i MAH.TIN S. VILLAl<AIVIA, .JH. ~/V;;trJ\/ .JOS Otr~lJGAL PEUEZ Associate Justice

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