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Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs Flaviano Lagasca, executed a deed of
mortgage, dated November 13, 1957, in favor of petitioner Government Service Insurance System (hereinafter referred to as GSIS) and
subsequently, another deed of mortgage, dated April 14, 1958, in connection with two loans granted by the latter in the sums of P 11,500.00
and P 3,000.00, respectively. 1 A parcel of land covered by Transfer Certificate of Title No. 38989 of the Register of Deed of Quezon City,
co-owned by said mortgagor spouses, was given as security under the aforesaid two deeds. 2 They also executed a 'promissory note"
which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY, promise to pay the GOVERNMENT SERVICE
INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine Currency, with interest at the rate of six (6%) per centum compounded
monthly payable in . . . (120)equal monthly installments of . . . (P 127.65) each. 3
On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of Mortgage" under which they obligated
themselves to assume the aforesaid obligation to the GSIS and to secure the release of the mortgage covering that portion of the land
belonging to herein private respondents and which was mortgaged to the GSIS. 4 This undertaking was not fulfilled. 5
Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the amortizations due, GSIS
extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction on December 3, 1962. 6
More than two years thereafter, or on August 23, 1965, herein private respondents filed a complaint against the petitioner and the Lagasca
spouses in the former Court of
First Instance of Quezon City, 7 praying that the extrajudicial foreclosure "made on, their property and all other documents executed in
relation thereto in favor of the Government Service Insurance System" be declared null and void. It was further prayed that they be allowed
to recover said property, and/or the GSIS be ordered to pay them the value thereof, and/or they be allowed to repurchase the land.
Additionally, they asked for actual and moral damages and attorney's fees.
In their aforesaid complaint, private respondents alleged that they signed the mortgage contracts not as sureties or guarantors for the
Lagasca spouses but they merely gave their common property to the said co-owners who were solely benefited by the loans from the
The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to establish a cause of action. 8
Said decision was reversed by the respondent Court of Appeals 9 which held that:
... although formally they are co-mortgagors, they are so only for accomodation (sic) in that the GSIS required their consent to the mortgage
of the entire parcel of land which was covered with only one certificate of title, with full knowledge that the loans secured thereby were
solely for the benefit of the appellant (sic) spouses who alone applied for the loan.
x x x x
'It is, therefore, clear that as against the GSIS, appellants have a valid cause for having foreclosed the mortgage without having given
sufficient notice to them as required either as to their delinquency in the payment of amortization or as to the subsequent foreclosure of the
mortgage by reason of any default in such payment. The notice published in the newspaper, 'Daily Record (Exh. 12) and posted pursuant to
Sec 3 of Act 3135 is not the notice to which the mortgagor is entitled upon the application being made for an extrajudicial foreclosure. ... 10
On the foregoing findings, the respondent court consequently decreed thatIn view of all the foregoing, the judgment appealed from is hereby reversed, and another one entered (1) declaring the foreclosure of the
mortgage void insofar as it affects the share of the appellants; (2) directing the GSIS to reconvey to appellants their share of the mortgaged
property, or the value thereof if already sold to third party, in the sum of P 35,000.00, and (3) ordering the appellees Flaviano Lagasca and
Esther Lagasca to pay the appellants the sum of P 10,00.00 as moral damages, P 5,000.00 as attorney's fees, and costs. 11
The case is now before us in this petition for review.
In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, which provide that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser
without receiving value therefor, but is held liable on the instrument to a holder for value although the latter knew him to be only an
accommodation party.
This approach of both parties appears to be misdirected and their reliance misplaced. The promissory note hereinbefore quoted, as well as
the mortgage deeds subject of this case, are clearly not negotiable instruments. These documents do not comply with the fourth requisite to
be considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable to a
specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply; governance shall be afforded,
instead, by the provisions of the Civil Code and special laws on mortgages.
As earlier indicated, the factual findings of respondent court are that private respondents signed the documents "only to give their consent
to the mortgage as required by GSIS", with the latter having full knowledge that the loans secured thereby were solely for the benefit of the
Lagasca spouses. 12 This appears to be duly supported by sufficient evidence on record. Indeed, it would be unusual for the GSIS to
arrange for and deduct the monthly amortizations on the loans from the salary as an army officer of Flaviano Lagasca without likewise
affecting deductions from the salary of Isabelo Racho who was also an army sergeant. Then there is also the undisputed fact, as already
stated, that the Lagasca spouses executed a so-called "Assumption of Mortgage" promising to exclude private respondents and their share
of the mortgaged property from liability to the mortgagee. There is no intimation that the former executed such instrument for a
consideration, thus confirming that they did so pursuant to their original agreement.
The parol evidence rule 13 cannot be used by petitioner as a shield in this case for it is clear that there was no objection in the court below
regarding the admissibility of the testimony and documents that were presented to prove that the private respondents signed the mortgage
papers just to accommodate their co-owners, the Lagasca spouses. Besides, the introduction of such evidence falls under the exception to
said rule, there being allegations in the complaint of private respondents in the court below regarding the failure of the mortgage contracts
to express the true agreement of the parties. 14
However, contrary to the holding of the respondent court, it cannot be said that private respondents are without liability under the aforesaid
mortgage contracts. The factual context of this case is precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code
to the effect that third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own

So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate the
mortgage with respect to private respondents' share in the property. In consenting thereto, even assuming that private respondents may not
be assuming personal liability for the debt, their share in the property shall nevertheless secure and respond for the performance of the
principal obligation. The parties to the mortgage could not have intended that the same would apply only to the aliquot portion of the
Lagasca spouses in the property, otherwise the consent of the private respondents would not have been required.
The supposed requirement of prior demand on the private respondents would not be in point here since the mortgage contracts created
obligations with specific terms for the compliance thereof. The facts further show that the private respondents expressly bound themselves
as solidary debtors in the promissory note hereinbefore quoted.
Coming now to the extrajudicial foreclosure effected by GSIS, We cannot agree with the ruling of respondent court that lack of notice to the
private respondents of the extrajudicial foreclosure sale impairs the validity thereof. In Bonnevie, et al. vs. Court of appeals, et al., 15 the
Court ruled that Act No. 3135, as amended, does not require personal notice on the mortgagor, quoting the requirement on notice in such
cases as follows:
Section 3. Notice shall be given by posting notices of sale for not less than twenty days in at least three public places of the municipality
where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.
There is no showing that the foregoing requirement on notice was not complied with in the foreclosure sale complained of .
The respondent court, therefore, erred in annulling the mortgage insofar as it affected the share of private respondents or in directing
reconveyance of their property or the payment of the value thereof Indubitably, whether or not private respondents herein benefited from
the loan, the mortgage and the extrajudicial foreclosure proceedings were valid.
WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of Appeals and REINSTATING the decision
of the court a quo in Civil Case No. Q-9418 thereof.
AMANCIO SUN and the COURT OF APPEALS, Respondents.
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, 1985, setting aside the Decision of the former Court of the First Instance of Rizal, Branch X,
in Civil Case No. 19466.chanroblesvirtual|awlibrary
The antecedent facts are as follows:chanrob1es virtual 1aw library
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.chanrobles law library : red
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:chanrob1es
virtual 1aw library
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:chanrob1es virtual 1aw library
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:chanrob1es virtual 1aw library
1. Ordering the dismissal of the complaint as to defendant-appellants;
2. Ordering plaintiff-appellee on appellants counterclaim to pay the latter:chanrob1es virtual 1aw library
a) P 20,000.00 as moral damages;
b) P 10,000.00 as exemplary damages;
c) P 10,000.00 as attorneys fees.
3. Ordering plaintiff-appellee to pay the costs. 5chanrobles.com : virtual law library
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 v. 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:chanrob1es virtual 1aw library
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.chanroblesvirtuallawlibrary:red
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 on 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:chanrob1es virtual 1aw library
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.
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.chanrobles law library

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
1950-1957. 8
After hearing the arguments the lawyers of record advanced on the said "Report" of the PC Crime Laboratory, the Court of
Appeals resolved:jgc:chanrobles.com.ph

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;chanrobles virtual lawlibrary
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:jgc:chanrobles.com.ph
"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.
Therefrom, petitioners found their way to this court via the present Petition; theorizing that:chanrobles.com.ph : virtual
law library
DATED IN 1974.
The Petition is barren of merit.
Well-settled is the rule that "factual finding 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." 11chanroblesvirtualawlibrary
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. So also, the same conclusion was arrived at by the court 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 (Tabayoyongs) 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 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 involve. 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 Fernandez, respondents
expert witness, found the said signatures similar to each other after subjecting the same to stereomicroscopic
examination and analysis because the intrinsic and natural characteristic of Federico O. Borromeos handwriting were
present in all the exemplar signatures used by both Segundo Tabayoyong and Col. Jose Fernandez.cralawnad
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 competency of the examiner concerned. While the Court finds merit in the contention of the petitioners,
that they did not actually waived 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.
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.chanrobles virtual lawlibrary
GEORGE A. KAUFFMAN, plaintiff-appellee, vs.THE PHILIPPINE NATIONAL BANK, defendant-appellant.
At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the president of a domestic corporation
engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which
company the plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board of directors of
said company, declared a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of
P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in October of the same year
when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New York City.
In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented
himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should
be made to the plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. He was informed that the total cost of
said transfer, including exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and
Produce Company, thereupon drew and delivered a check for that amount on the Philippine National Bank; and the same was accepted by
the officer selling the exchange in payment of the transfer in question. As evidence of this transaction a document was made out and
delivered to Wicks, which is referred to by the bank's assistant cashier as its official receipt. This memorandum receipt is in the following

October 9th, 1918.

Foreign Amount Rate$45,000. 3/8 % P90,337.50
Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50. Account of Philippine Fiber and
Produce Company. Sold to Messrs. Philippine Fiber and Produce Company, Manila.

(Sgd.) Y LERMA, Manager, Foreign Department.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect:
Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.
Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply suggesting the advisability
of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. The
Philippine National Bank acquiesced in this and on October 11 dispatched to its New York agency another message to withhold the
Kauffman payment as suggested.
Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York, advising him that $45,000
had been placed to his credit in the New York agency of the Philippine National Bank; and in response to this advice Kauffman presented
himself at the office of the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time,
however, the message from the Philippine National Bank of October 11, directing the withholding of payment had been received in New
York, and payment was therefore refused.
In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of Manila to recover said
sum, with interest and costs; and judgment having been there entered favorably to the plaintiff, the defendant appealed.
Among additional facts pertinent to the case we note the circumstance that at the time of the transaction above-mentioned, the Philippines
Fiber and Produce Company did not have on deposit in the Philippine National Bank money adequate to pay the check for P90,355.50,

which was delivered in payment of the telegraphic order; but the company did have credit to that extent, or more, for overdraft in current
account, and the check in question was charged as an overdraft against the Philippine Fiber and Produce Company and has remained on
the books of the bank as an interest-bearing item in the account of said company.
It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with respect to the amount paid
for said telegraphic order. It is true that in the defendant's answer it is suggested that the failure of the bank to pay over the amount of this
remittance to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect the bank in its relations with the
Philippine Fiber and Produce Company, whose credit was secured at the bank by warehouse receipts on Philippine products; and it is
alleged that after the exchange in question was sold the bank found that it did not have sufficient to warrant payment of the remittance. In
view, however, of the failure of the bank to substantiate these allegations, or to offer any other proof showing failure of consideration, it must
be assumed that the obligation of the bank was supported by adequate consideration.
In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff Kauffman was not a party to
the contract with the bank for the transmission of this credit, no right of action can be vested in him for the breach thereof. "In this situation,"
we here quote the words of the appellant's brief, "if there exists a cause of action against the defendant, it would not be in favor of the
plaintiff who had taken no part at all in the transaction nor had entered into any contract with the plaintiff, but in favor of the Philippine Fiber
and Produce Company, the party which contracted in its own name with the defendant."
The question thus placed before us is one purely of law; and at the very threshold of the discussion it can be stated that the provisions of
the Negotiable Instruments Law can come into operation there must be a document in existence of the character described in section 1 of
the Law; and no rights properly speaking arise in respect to said instrument until it is delivered. In the case before us there was an order, it
is true, transmitted by the defendant bank to its New York branch, for the payment of a specified sum of money to George A. Kauffman. But
this order was not made payable "to order or "to bearer," as required in subsection ( d) of that Act; and inasmuch as it never left the
possession of the bank, or its representative in New York City, there was no delivery in the sense intended in section 16 of the same Law. In
this connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic order, and
already set out above, cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation
actually assumed by the bank.
Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the Philippine Fiber and
Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the plaintiff in New York City; and the question is
whether the plaintiff can maintain an action against the bank for the nonperformance of said undertaking. In other words, is the lack of
privity with the contract on the part of the plaintiff fatal to the maintenance of an action by him?
The only express provision of law that has been cited as bearing directly on this question is the second paragraph of article 1257 of the Civil
Code; and unless the present action can be maintained under the provision, the plaintiff admittedly has no case. This provision states an
exception to the more general rule expressed in the first paragraph of the same article to the effect that contracts are productive of effects
only between the parties who execute them; and in harmony with this general rule are numerous decisions of this court (Wolfson vs. Estate
of Martinez, 20 Phil., 340; Ibaez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs.
Compaia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.)
The paragraph introducing the exception which we are now to consider is in these words:
Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his
acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.)
In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and interpretation of the
paragraph above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same
matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the
right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words:
So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a
stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.
If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the contracting parties
desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor
upon such third person? In resolving this question, of course, the ordinary rules of construction and interpretation of writings must be
observed. (Uy Tam and Uy Yet vs. Leonard, supra.)
Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the
nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some
degree assist in determining whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and Uy Yet
vs. Leonard, supra.)
In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the
bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of
the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the
contracting parties that the plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the
plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question
were not applicable to the facts now before us, it would be difficult to conceive of a case arising under it.
It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his
acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and
although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was made, the
rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the
contracting parties, or at least by direction of the party purchasing he exchange.
In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the
Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling a cable transfer of funds on a foreign country
in ordinary course, a bank incurs a simple contractual obligation, and cannot be considered as holding the money which was paid for the
transfer in the character of a specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable
wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing
the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these transaction are matters of
purchase and sale create no trust relationship."
As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely that of the right of the
beneficiary to maintain an action against the bank selling the transfer.
Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be affirmed. It is so
ordered, with costs against the appellant. Interest will be computed as prescribed in section 510 of the Code of Civil Procedure.

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on March 8, 1991 in
CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the Regional Trial Court of Manila, Branch XLII, 2 which
dismissed the complaint filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in
favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of P1,120,000.00, as follows: (Joint Partial
Stipulation of Facts and Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to 280);
CTD CTDDates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,00026 Feb. 82 74602 to 74691 90 360,0002 Mar. 82 74701 to 74740 40 160,0004 Mar. 82 90127 to
90146 20 80,0005 Mar. 82 74797 to 94800 4 16,0005 Mar. 82 89965 to 89986 22 88,0005 Mar. 82 70147 to 90150 4 16,0008 Mar. 82
90001 to 90020 20 80,0009 Mar. 82 90023 to 90050 28 112,0009 Mar. 82 89991 to 90000 10 40,0009 Mar. 82 90251 to 90272 22 88,000
Total 280 P1,120,000===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his purchased of fuel products from the
latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost all the certificates of
time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss, as required by defendant
bank's procedure, if he desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss (Defendant's Exhibit 281).
On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight Hundred Seventy Five
Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of Assignment of Time Deposit (Exhibit 562)
which stated, among others, that he (de la Cruz) surrenders to defendant bank "full control of the indicated time deposits from and after
date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of
whatever amount or amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and
presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally informing it of its possession
of the CTDs in question and of its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the document evidencing the
guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which plaintiff proposed to
apply the time deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7,
1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off and
applied the time deposits in question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the
certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral and
exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition wherein petitioner
faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable instruments;
(2) that petitioner did not become a holder in due course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of
the Code of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved in this
SECURITY BANKAND TRUST COMPANY6778 Ayala Ave., Makati No. 90101Metro Manila, PhilippinesSUCAT OFFICEP 4,000.00
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date, upon presentation and surrender
of this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)


Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important to note that after the word
"BEARER" stamped on the space provided supposedly for the name of the depositor, the words "has deposited" a certain amount follows.
The document further provides that the amount deposited shall be "repayable to said depositor" on the period indicated. Therefore, the text
of the instrument(s) themselves manifest with clarity that they are payable, not to whoever purports to be the "bearer" but only to the
specified person indicated therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel dela Cruz as the person
who made the deposit and further engages itself to pay said depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable instruments. Section 1 Act No.
2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz:
(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 CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is with regard to
requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified in open
court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the bank, the depositor referred ( sic) in these certificates states that it was
Angel dela Cruz?
a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the bank is concerned?
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, 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. 9 In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. 10
While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the
parties, yet as they have 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. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the amounts deposited shall be
repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer." The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to
the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact
in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the space provided for the name of the
depositor in each CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be the bearer
thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but
obviously other parties not privy to the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain import of what is written
thereon to unravel the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to
be avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The records reveal that
Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00
to petitioner without informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer instruments,
a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery

and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz'
purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been
dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This
admission is conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. 14 A party may
not go back on his own acts and representations to the prejudice of the other party who relied upon them. 15 In the law of evidence,
whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true,
and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily said so, instead of
using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill
of particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to aver with sufficient definiteness or particularity (a)
the due date or dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt
showing that the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed
the motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly was the fact, that the CTDs were delivered as
payment and not as security. Having opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed
would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National Bank, et al .



. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:

The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what
the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some
other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object and
character might still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the property as collateral
security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the debt continues in inexistence and is not discharged by the transfer, and that accordingly
the use of the terms ordinarily importing conveyance of absolute ownership will not be given that effect in such a transaction if they are also
commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of
clear and unambiguous language or other circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an instrument is
negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, 21 and a
holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case, however, there
was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere
delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we
even disregard the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the
terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually
provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to
the extent of his lien. 23 As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof,
not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, 24
which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the right pledged shall
be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear
in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at the start of this
opinion show that petitioner failed to produce any document evidencing any contract of pledge or guarantee agreement between it and
Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding
upon respondent bank. The requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode
whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing a condition without which the
execution of a pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public
instrument. 27 With regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument,
or the instrument is recorded in the Registry of Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or lien holder of the
CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument which could affect or bind
private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the
CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private respondent observed the
requirements of the law in the case of lost negotiable instruments and the issuance of replacement certificates therefor, on the ground that
petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was not included in the
stipulation of the parties and in the statement of issues submitted by them to the trial court. 29 The issues agreed upon by them for
resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's loan by virtue of the assignment
(Annex "C").
3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and the depositor's outstanding
account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing enumeration does not include
the issue of negligence on the part of respondent bank. An issue raised for the first time on appeal and not raised timely in the proceedings
in the lower court is barred by estoppel. 30 Questions raised on appeal must be within the issues framed by the parties and, consequently,
issues not raised in the trial court cannot be raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. Thus, to obviate the
element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial,
except such as may involve privileged or impeaching matters. The determination of issues at a pre-trial conference bars the consideration
of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the issues on its right
to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner could raise on appeal any issue. We
agree with private respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates can be
premised on a multitude of other legal reasons and causes of action, of which respondent bank's supposed negligence is only one. Hence,
petitioner's submission, if accepted, would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have the odds in its favor. A
close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of lost instruments payable to bearer,
which it invokes, will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, are merely permissive and
not mandatory. The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of competent jurisdiction, asking that
the principal, interest or dividends due or about to become due, be not paid a third person, as well as in order to prevent the ownership of
the instrument that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the "dispossessed owner" to
apply to the judge or court of competent jurisdiction for the issuance of a duplicate of the lost instrument. Where the provision reads "may,"
this word shows that it is not mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb
indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on which petitioner seeks to
anchor respondent bank's supposed negligence, merely established, on the one hand, a right of recourse in favor of a dispossessed owner
or holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the other, an option in favor of the party liable
thereon who, for some valid ground, may elect to refuse to issue a replacement of the instrument. Significantly, none of the provisions cited
by petitioner categorically restricts or prohibits the issuance a duplicate or replacement instrument sans compliance with the procedure
outlined therein, and none establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is hereby AFFIRMED.

Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance
& Leasing Corporation v. Salas", which modified the decision of the Regional Trial Court of San Fernando, Pampanga in Civil Case No.
5915, a collection suit between the same parties.
Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner) bought a motor vehicle from the Violago
Motor Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to
Filinvest Finance & Leasing Corporation (hereinafter referred to as private respondent) which financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in the engine and chassis numbers of the
vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she
discovered when the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of money against petitioner before the Regional
Trial Court of San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:
WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of
P28,414.40 with interest thereon at the rate of 14% from October 2, 1980 until the said sum is fully paid; and the further amount of
P1,000.00 as attorney's fees.
The counterclaim of defendant is dismissed.
With costs against defendant. 1
Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner, the latter prayed for a
reversal of the trial court's decision so that she may be absolved from the obligation under the contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion of which is quoted hereunder:
The allegations, statements, or admissions contained in a pleading are conclusive as against the pleader. A party cannot subsequently take

a position contradictory of, or inconsistent with his pleadings (Cunanan vs. Amparo, 80 Phil. 227). Admissions made by the parties in the
pleadings, or in the course of the trial or other proceedings, do not require proof and cannot be contradicted unless previously shown to
have been made through palpable mistake (Sec. 2, Rule 129, Revised Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24
SCRA 1018).
When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the
preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath,
specifically denied them, and sets forth what he claims to be the facts (Sec. 8, Rule 8, Revised Rules of Court; Hibbered vs. Rohde and
McMillian, 32 Phil. 476).
A perusal of the evidence shows that the amount of P58,138.20 stated in the promissory note is the amount assumed by the plaintiff in
financing the purchase of defendant's motor vehicle from the Violago Motor Sales Corp., the monthly amortization of winch is Pl,614.95 for
36 months. Considering that the defendant was able to pay twice (as admitted by the plaintiff, defendant's account became delinquent only
beginning May, 1980) or in the total sum of P3,229.90, she is therefore liable to pay the remaining balance of P54,908.30 at l4% per annum
from October 2, 1980 until full payment.
WHEREFORE, considering the foregoing, the appealed decision is hereby modified ordering the defendant to pay the plaintiff the sum of
P54,908.30 at 14% per annum from October 2, 1980 until full payment. The decision is AFFIRMED in all other respects. With costs to
defendant. 2
Petitioner's motion for reconsideration was denied; hence, the present recourse.
In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud, bad faith and misrepresentation of Violago
Motor Sales Corporation in the conduct of its business and which fraud, bad faith and misrepresentation supposedly released petitioner
from any liability to private respondent who should instead proceed against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by description 4 which she alleges is applicable here, no contract ever
existed between her and VMS and therefore none had been assigned in favor of private respondent.
She contends that it is not necessary, as opined by the appellate court, to implead VMS as a party to the case before it can be made to
answer for damages because VMS was earlier sued by her for "breach of contract with damages" before the Regional Trial Court of
Olongapo City, Branch LXXII, docketed as Civil Case No. 2916-0. She cites as authority the decision therein where the court originally
ordered petitioner to pay the remaining balance of the motor vehicle installments in the amount of P31,644.30 representing the difference
between the agreed consideration of P49,000.00 as shown in the sales invoice and petitioner's initial downpayment of P17,855.70 allegedly
evidenced by a receipt. Said decision was however reversed later on, with the same court ordering defendant VMS instead to return to
petitioner the sum of P17,855.70. Parenthetically, said decision is still pending consideration by the First Civil Case Division of the Court of
Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922. 5
Private respondent in its comment, prays for the dismissal of the petition and counters that the issues raised and the allegations adduced
therein are a mere rehash of those presented and already passed upon in the court below, and that the judgment in the "breach of contract"
suit cannot be invoked as an authority as the same is still pending determination in the appellate court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar completely all the
available defenses of the petitioner against private respondent.
Petitioner's liability on the promissory note, the due execution and genuineness of which she never denied under oath is, under the
foregoing factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear, where the assignee
merely steps into the shoes of, is open to all defenses available against and can enforce payment only to the same extent as, the assignorvendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 6 this Court had the occasion to clearly
distinguish between a negotiable and a non-negotiable instrument.
Among others, the instrument in order to be considered negotiable must contain the so-called "words of negotiability i.e., must be
payable to "order" or "bearer"". Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be
made payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person
designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words "or order or "to the
order of", the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser
thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person
designated in the instrument and will thus be open to all defenses available against the latter. Such being the situation in the above-cited
case, it was held that therein private respondent is not a holder in due course but a mere assignee against whom all defenses available to
the assignor may be raised. 7
In the case at bar, however, the situation is different. Indubitably, the basis of private respondent's claim against petitioner is a promissory
note which bears all the earmarks of negotiability.
The pertinent portion of the note reads:
P58,138.20 San Fernando, Pampanga, PhilippinesFeb. 11, 1980
For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or order, at its office in San Fernando,
Pampanga, the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine currency,
which amount includes interest at 14% per annum based on the diminishing balance, the said principal sum, to be payable, without need of
notice or demand, in installments of the amounts following and at the dates hereinafter set forth, to wit: P1,614.95 monthly for "36" months
due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of February 21, 1983. P_________ monthly for
______ months due and payable on the ______ day of each month starting _____198__ thru and inclusive of _____, 198________
provided that interest at 14% per annum shall be added on each unpaid installment from maturity hereof until fully paid.
xxx xxx xxx
Maker; Co-Maker:

(SIGNED) JUANITA SALAS _________________
____________________ ____________________
A careful study of the questioned promissory note shows that it is a negotiable instrument, having complied with the requisites under the
law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of
P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36 months due and payable on the 21 st
day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or
order and as such, [e] the drawee is named or indicated with certainty. 9
It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation 10 and
it is an indorsement of the entire instrument. 11
Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the instrument under the
following conditions: [a] it is complete and regular upon its face; [b] it became the holder thereof before it was overdue, and without notice
that it had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter
had no notice of any infirmity in the instrument or defect in the title of VMS Corporation. 12
Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses available to
prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. 13 This being so, petitioner cannot
set up against respondent the defense of nullity of the contract of sale between her and VMS.
Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there was in fact deception made upon
her in that the vehicle she purchased was different from that actually delivered to her, this matter cannot be passed upon in the case before
us, where the VMS was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court when it held:
We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident. Indeed, there is nothing We can do as
far as the Violago Motor Sales Corporation is concerned since it is not a party in this case. To even discuss the issue as to whether or not
the Violago Motor Sales Corporation is liable in the transaction in question would amount, to denial of due process, hence, improper and
unconstitutional. She should have impleaded Violago Motor Sales. 14
IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against petitioner.
ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent.
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 Review[1] under Rule 45 of the Rules of Court, seeking to nullify the November 26, 2001 Decision [2]
and the June 26, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 60521. The appellate court disposed as follows:
The challenged Resolution, on the other hand, denied petitioners Motion for Reconsideration.
The Antecedents

The antecedents of the case are narrated by the CA as follows:


On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows:
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.[7]

Petitioner submits the following issues for our consideration:


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:

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,[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. [10] Article 1293 of the Civil Code defines novation as
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.[11] Both modes of substitution by the debtor require the consent of the creditor.[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.[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.[14] For novation to take place, the following requisites must concur:
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. [16] The test of
incompatibility is whether the two obligations can stand together, each one with its own independent existence.[17]
Applying the foregoing to the instant case, we hold that no novation took place.
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 novation [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.[19] Well-settled is the rule that novation is never presumed.[20] Consequently, that which arises from a
purported change in the person of the debtor must be clear and express. [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:
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.[23] Since novation implies a waiver of the right the creditor had before the novation, such waiver must be
express.[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.[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.[26] It is up to the former to determine against whom to enforce collection. [27] Having made himself jointly and severally
liable with De Jesus, petitioner is therefore liable[28] for the entire obligation.[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:
By its terms, the note was made payable to a specific person rather than to bearer or to order [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
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.[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.[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.[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.[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.[36] A summary judgment may be applied for by either a claimant or a defending party.
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.[38] A judgment on the pleadings may be sought only by a claimant, who is the party seeking to recover
upon a claim, counterclaim or cross-claim; or to obtain a declaratory relief. [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[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:
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,[42] he stated that judgment on the pleadings may now be rendered without further evidence,
considering the allegations and admissions of the parties.[43]
In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had issued against
WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
BANK, respondents.
This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.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

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, Fojas-Arca 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:



June 15, 1978



July 15, 1978



Aug. 15, 1978



Sep. 15, 1978



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,
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 21765 in relation to Articles 19 6 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
At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable. 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 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
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
Before us is the joint and consolidated petition for review of the Decision[1] dated June 15, 1994 of the Court of Appeals in CAG.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,[2] Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co.[3]
The dispositive portion of the said Decision of the Court of Appeals, reads:
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 defendantsappellees unpaid obligations arising from ordinary loans granted by the plaintiff plus legal interest until fully paid.
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
c) Ordering defendants-appellees jointly and severally to pay PBCom the sum of P50,000.00 as attorneys fees.
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:

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.[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. [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 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.[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
On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal capacities
executed a Surety Agreement[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.[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 [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
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:
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).[12] The corresponding irrevocable letter of credit was approved and opened under LC No. L-16060.[13]
Thereafter, the domestic letter of credit was negotiated and accepted by MICO as evidenced by the corresponding bank draft issued for the
purpose.[14] After the supplier of the merchandise was paid, a trust receipt upon MICOs own initiative, was executed in favor of PBCom.
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).[16] The corresponding irrevocable letter of credit was issued on September 22, 1981 under LC No. L16334.[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 receipt[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., [19] and
thus, the corresponding letter of credit[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. [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[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).[23] As in past transactions, MICO executed in favor of PBCom
a corresponding trust receipt.[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.[25] Upon approval, the corresponding letter of credit denominated as LC No. 62293[26] was issued
whereupon PBCom advised its correspondent bank and MICO[27] of the same. Negotiation and proper acceptance of the letter of credit
were then made by MICO. Again, a corresponding trust receipt[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.[29]
Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment. [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 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 SixtyOne 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 that said negotiable instruments were issued for
valuable consideration. The Court of Appeals also cited the case of Gatmaitan vs. Court of Appeals[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.[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. [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.
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
2) Promissory Note No. BNA 26219 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in favor of
3) Promissory Note No. BNA 26253 dated May 25, 1982 in the sum of P1,000,000.00 executed by MICO in favor of
4) Promissory Note No. BNA 7458 dated May 21, 1982 in the sum of P377,000.00 executed by MICO in favor of
5) Promissory Note No. TA 094 dated July 29, 1980 in the sum of P4,000.000.00 executed by MICO in favor of
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
9) Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom covering the merchandise purchased under
Letter of Credit No. 16060.

Irrevocable letter of credit No. L-16334 dated September 22, 1981 issued in favor of Perez Battery Center for
account of MICO Metals Corp.


Draft dated September 22, 1981 in the sum of P290,000.00 issued by Perez Battery Center and accepted by


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.


Trust Receipt dated September 22, 1981 executed by MICO in favor of PBCom covering the merchandise
under Letter of Credit No. L-16334.


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.


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.


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.


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.


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.


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.


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.


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.


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 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[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.[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.[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.
Q: Why did it was credited to the proceeds to the account of Mico Metals Corp? (sic)
A: Well, that is our understanding.
Your honor, may we be given a chance to object, the best evidence is the so-called current account...

Can you produce the ledger account?
A: Yes, Your Honor, I will bring.
The ledger or record of the current account of Mico Metals Corp.
A: Yes, Your Honor.
Your Honor, these are a confidential record, and they might not be disclosed without the consent of the person
concerned. (sic)
Well, you are the one who is asking that.
Your Honor, Im precisely want to show for the ... (sic)
But the amount covered by the current account of defendant Mico Metals Corp. is the subject matter of this
xxx xxx xxx
Q: Are those availments were release? (sic)
A: Yes, Your Honor, to the defendant corporation.
Q: By what means?
A: By the credit to their current account.
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?
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)[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.[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. 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
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
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. [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.[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).[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.[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 MICO[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 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;[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.[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.
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,[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. [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.
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant, vs.MAURICIO A. SORIANO, ET AL., defendant-appellees.
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by the Philippine Education Co., Inc.
against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of P200.00 each payable to
E.P. Montinola withaddress at Lucena, Quezon. After the postal teller had made out money ordersnumbered 124685, 124687-124695,

Montinola offered to pay for them with a private checks were not generally accepted in payment of money orders, the teller advised him to
see the Chief of the Money Order Division, but instead of doing so, Montinola managed to leave building with his own check and the ten(10)
money orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an urgent message was sent to all
postmasters, and the following day notice was likewise served upon all banks, instructing them not to pay anyone of the money orders
aforesaid if presented for payment. The Bank of America received a copy of said notice three days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by appellant as part of its sales receipts. The
following day it deposited the same with the Bank of America, and one day thereafter the latter cleared it with the Bureau of Posts and
received from the latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting for and in behalf
of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that money order No. 124688 attached to his letter had been
found to have been irregularly issued and that, in view thereof, the amount it represented had been deducted from the bank's clearing
account. For its part, on August 2 of the same year, the Bank of America debited appellant's account with the same amount and gave it
advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his office deducting the sum of
P200.00 from the clearing account of the Bank of America, but his request was denied. So was appellant's subsequent request that the
matter be referred to the Secretary of Justice for advice. Thereafter, appellant elevated the matter to the Secretary of Public Works and
Communications, but the latter sustained the actions taken by the postal officers.
In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila (Criminal Case No.
43866) but after trial he was acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting from the said Bank's clearing account the
sum of P200.00 represented by postal money order No. 124688, or in the alternative indemnify the plaintiff in the same amount with interest
at 8-% per annum from September 27, 1961, which is the rate of interest being paid by plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral damages in the amount of P1,000.00 or in
such amount as will be proved and/or determined by this Honorable Court: exemplary damages in the amount of P1,000.00, attorney's fees
of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12 to 15 of the Record on Appeal, the
above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice given to the Bank of America on
September 27, 1961, deducting from said Bank's clearing account the sum of P200.00 representing the amount of postal money order No.
124688, or in the alternative, to indemnify the plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-% per annum from
September 27, 1961 until fully paid; without any pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same stipulation of facts, the
appealed decision dismissing the complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will therefore be discussed jointly.
They raise this main issue: that the postal money order in question is a negotiable instrument; that its nature as such is not in anyway
affected by the letter dated October 26, 1948 signed by the Director of Posts and addressed to all banks with a clearing account with the
Post Office, and that money orders, once issued, create a contractual relationship of debtor and creditor, respectively, between the
government, on the one hand, and the remitters payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this reason, ours are generally
construed in accordance with the construction given in the United States to their own postal statutes, in the absence of any special reason
justifying a departure from this policy or practice. The weight of authority in the United States is that postal money orders are not negotiable
instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that,
in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely
exercises a governmental power for the public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent
with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement;
payment of money orders may be withheld under a variety of circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid down in the letter of the Director of Posts of October
26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money orders received by it from its depositors. Among others, the
condition is imposed that "in cases of adverse claim, the money order or money orders involved will be returned to you (the bank) and the,
corresponding amount will have to be refunded to the Postmaster, Manila, who reserves the right to deduct the value thereof from any
amount due you if such step is deemed necessary." The conditions thus imposed in order to enable the bank to continue enjoying the
facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The latter is therefore bound by them. That it is so is
clearly referred from the fact that, upon receiving advice that the amount represented by the money order in question had been deducted
from its clearing account with the Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the Bank of America, on the
other, appellant has no right to assail the terms and conditions thereof on the ground that the letter setting forth the terms and conditions
aforesaid is void because it was not issued by a Department Head in accordance with Sec. 79 (B) of the Revised Administrative Code. In
reality, however, said legal provision does not apply to the letter in question because it does not provide for a department regulation but
merely sets down certain conditions upon the privilege granted to the Bank of Amrica to accept and pay postal money orders presented for
payment at the Manila Post Office. Such being the case, it is clear that the Director of Posts had ample authority to issue it pursuant to Sec.
1190 of the Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with costs.

BENJAMIN ABUBAKAR, petitioner, vs.THE AUDITOR GENERAL, respondent.
We are asked to overrule the decision of the Auditor General refusing to authorize the payment of Treasury warrant No. A-2867376 for
P1,000 which was issued in favor of Placido S. Urbanes on December 10, 1941, but is now in the hands of herein petitioner Benjamin
For his refusal the respondent gave two reasons: first, because the money available for the redemption of treasury warrants issued before
January 2, 1942, is appropriated by Republic Act No. 80 (Item F-IV-8) and this warrant does not come within the purview of said
appropriation; and second, because on of the requirements of his office had not been complied with, namely, that it must be shown that the
holders of warrants covering payment or replenishment of cash advances for official expenditures (as this warrant is) received them in
payment of definite government obligations.
Finding the first reason to be sufficiently valid we shall not discuss, nor pass upon the second.
There is no doubt as to the authenticity and date of the treasury warrant. There is no question that it was regularly indorsed by the payee
and is now in the custody of the herein petitioner who is a private individual. On the other hand, it is admitted that the warrant was originally
made payable to Placido S. Urbanes in his capacity as disbursing officer of the Food Administration for "additional cash advance for Food
Production Campaign in La Union" (Annex A). It is thus apparent that this is a treasury warrant issued in favor of a public officer or
employee and held in possession by a private individual. Such being the case, the Auditor General can hardly be blamed for not authorizing
its redemption out of an appropriation specifically for "treasury warrants issued ... in favor of and held in possession by private individuals."
(Republic Act No. 80, Item F-IV-8.) This warrant was not issued in favor of a private individual. It was issued in favor of a government
The distinction is not without a difference. Outstanding treasury warrants issued prior to January 2, 1942, amount to more than four million
pesos. The appropriation herein mentioned is only for P1,750,000. Obviously Congress wished to provide for redemption of one class of
warrants those issued to private individuals as distinguished from those issued in favor of government officials. Basis for the
discrimination is not lacking. Probably the Government is not so sure that those warrants to officials have all been properly used by the
latter during the Japanese occupation or maybe it wants to conduct further inquiries as to the equities of the present holders thereof.
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument an dis entitled to the rights and privileges of a
holder in due course, free from defenses. But this treasury warrant is not within the scope of the negotiable instruments law. For one thing,
the document bearing on its face the words "payable from the appropriation for food administration," is actually an order for payment out of
"a particular fund," and is not unconditional, and does not fulfill one of the essential requirements of a negotiable instrument. (Section 3 last
sentenced and section 1[b] of the Negotiable Instruments Law.) In the United States, government warrants for the payment of money are
not negotiable instruments nor commercial proper1
Anyway the question here is not whether the Government should eventually pay this warrant, or is ultimately responsible for it, but whether
the Auditor General erred in refusing to permit payment out of the particular appropriation in Item F-IV-8 of Republic Act No. 80. We think
that he did not. Petition dismissed, with costs.
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 fictitiouspayee rule and who is liable under it? Is there any exception?
These questions seek answers in this petition for review on certiorari of the Amended Decision 1 of the Court of Appeals (CA) which affirmed
with modification that of the Regional Trial Court (RTC). 2
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB), Amelia Avenue Branch,
Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No.
810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 8104804 under the account name Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they had a discounting 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. The association maintained current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever
the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the
name of the members.
It was 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. 4
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA.
As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason "Account Closed." The
corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from
the Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the
rediscounting transactions.

RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against PEMSLA, the Multi-Purpose
Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to recover the value of their checks that were deposited to the
PEMSLA savings account amounting to P2,345,804.00. The spouses contended that because PNB credited the checks to the PEMSLA
account even without indorsements, PNB violated its contractual obligation to them as depositors. PNB paid the wrong payees, hence, it
should bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim for damages should come from
the payees of the checks, and not from spouses Rodriguez. Since there was no demand from the said payees, the obligation should be
considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.
In its Answer,5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any indorsement from the payees.
The bank contended that spouses Rodriguez, the makers, actually did not intend for the named payees to receive the proceeds of the
checks. Consequently, the payees were considered as "fictitious payees" as defined under the Negotiable Instruments Law (NIL). Being
checks made to fictitious payees which are bearer instruments, the checks were negotiable by mere delivery. 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, the
cross-defendants should be ordered to reimburse PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to return the value of
the checks. All counterclaims and cross-claims were dismissed. The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or restore the amount of P775,337.00 in
the PNBig Demand Deposit Checking/Current Account No. 810480-4 of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the
PNBig Demand Deposit, Checking/Current Account No. 810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of
interest thereon to be computed from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages suffered by them taking into
consideration the standing of the plaintiffs being sugarcane planters, realtors, residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their having incurred great dificulty (sic)
especially in the residential subdivision business, which was not pushed through and the contractor even threatened to file a case against
the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) 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. 6
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be considered as payable to
bearer and not to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA concluded that the checks were obviously
meant by the spouses to be really paid to PEMSLA. The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from the alleged
breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to
order. Rather, we are more convinced by the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees
and PEMSLAs business arrangement that the value of the rediscounted checks of the plaintiffs-appellees 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 sixty-nine (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 plaintiffs-appellees to make a profit by issuing rediscounted checks, while the officers of PEMSLA and other
members would be able to claim their loans, despite the fact that they were disqualified for one reason or another. They were able to
achieve this conspiracy by using other members who had loaned lesser amounts of money or had not applied at all. x x x. 8 (Emphasis
The CA found that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that spouses Rodriguez
and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in the checks were "fictitious payees"
because they were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces were unquestionably payable to
order; and that PNB committed a breach of contract when it paid the value of the checks to PEMSLA without indorsement from the payees.
They also argued that their cause of action is not only against PEMSLA but also against PNB to recover the value of the checks.

On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May 1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorneys fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING WITH MODIFICATION the assailed
decision rendered in Civil Case No. 99-10892, as set forth in the immediately next preceding paragraph hereof, and SETTING ASIDE Our
original decision promulgated in this case on 22 July 2004.
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.
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
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice of innocent parties. A
court discovering an erroneous judgment before it becomes final may, motu proprio or upon motion of the parties, correct its judgment with
the singular objective of achieving justice for the litigants. 10
However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court does not sanction careless
disposition of cases by courts of justice. The highest degree of diligence must go into the study of every controversy submitted for decision
by litigants. Every issue and factual detail must be closely scrutinized and analyzed, and all the applicable laws judiciously studied, before
the promulgation of every judgment by the court. Only in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer
instrument. A check is "a bill of exchange drawn on a bank payable on demand." 11 It is either an order or a bearer instrument. Sections 8
and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to the order of a specified person or to him
or his order. It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or

(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank. 12 (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an order instrument
requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not
require an indorsement to be validly negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one person to another in such manner as
to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder completed by delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to a specified
payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such
fact is known to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda," who are wellknown characters in Philippine mythology, are bearer instruments because the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this reason that We look elsewhere for
guidance. Court rulings in the United States are a logical starting point since our law on negotiable instruments was directly lifted from the
Uniform Negotiable Instruments Law of the United States. 13
A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious" if the maker of the check did not intend
for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the
check for convenience or to cover up an illegal activity. 14 Thus, a check made expressly payable to a non-fictitious and existing person is
not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a
"fictitious" payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a check payable to
a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a
fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended
for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is
justified for otherwise, it will be most convenient for the maker who desires to escape payment of the check to always deny the validity of
the indorsement. This despite the fact that the fictitious payee was purposely named without any intention that the payee should receive the
proceeds of the check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank. 16 In the said case, the corporation Mueller & Martin
was defrauded by George L. Martin, one of its authorized signatories. Martin drew seven checks payable to the German Savings Fund
Company Building Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without authority from the latter.
Martin was also an officer of the GSFCBA but did not have signing authority. At the back of the checks, Martin placed the rubber stamp of
the GSFCBA and signed his own name as indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own
personal profit. When the corporation filed an action against the bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified payee to have
any part in the transactions, the payee is considered as a fictitious payee. The check is then considered as a bearer instrument to be validly
negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was authorized to make payment
to the bearer of the check, regardless of whether prior indorsements were genuine or not. 17
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc. 18 upheld the fictitious-payee rule. The
rule protects the depositary bank and assigns the loss to the drawer of the check who was in a better position to prevent the loss in the first
place. Due care is not even required from the drawee or depositary bank in accepting and paying the checks. The effect is that a showing of
negligence on the part of the depositary bank will not defeat the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee
bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss.
Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. Said the US
Supreme Court in Getty:
Consequently, a 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 x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were payable to
specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who were members of PEMSLA
that had a rediscounting arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were "fictitious" in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named payees to be part of
the transaction involving the checks. At most, the 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 respondentsspouses that the payees would not receive the checks proceeds. Considering that respondents-spouses were transacting with PEMSLA
and not the individual payees, it is understandable that they relied on the information given by the officers of PEMSLA that the payees
would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to present sufficient
evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks proceeds. The
bank failed to satisfy a requisite condition of a fictitious-payee situation that the maker of the check intended for the payee to have no
interest in the transaction.

Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply. Thus, the checks
are to be deemed payable to order. Consequently, the drawee bank bears the loss. 20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69 checks for deposit to the
PEMSLA account even without any indorsement from the named payees. It bears stressing that order instruments can only be negotiated
with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is apparently grossly
negligent in its operations. 21 This Court has recognized the unique public interest possessed by the banking industry and the need for the
people to have full trust and confidence in their banks. 22 For this reason, banks are minded to treat their customers accounts with utmost
care, confidence, and honesty.23
In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check
strictly in accordance with the 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. 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. Petitioner miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or otherwise. The
facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the drawers, respondents-spouses.
Instead, it paid the values of the checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the
drawers and the payees.alf-ITC
Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is indispensable to
maintain the stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of their
employees. In Bank of the Philippine Islands v. Court of Appeals, 25 this Court cautioned thus:
Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. For obvious reasons,
the banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. 26
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. 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 dutybound 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 is in default. 28 Yet, the RTC failed to sanction the
failure of both PEMSLA and MPC to file responsive pleadings. Verily, the RTC dismissal of 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 P50,000.00.29
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.
ANG TEK LIAN, petitioner, vs.THE COURT OF APPEALS, respondent.
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of Manila. The Court of Appeals
affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16, 1946, the check Exhibits A upon the
China Banking Corporation for the sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong in exchange for money
which the latter handed in act. On November 18, 1946, the next business day, the check was presented by Lee Hua Hong to the drawee
bank for payment, but it was dishonored for insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335
The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16, 1946, appellant went to his
(complainant's) office, at 1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which he (appellant) then brought with him
with cash alleging that he needed badly the sum of P4,000 represented by the check, but could not withdraw it from the bank, it being then
already closed; that in view of this request and relying upon appellant's assurance that he had sufficient funds in the blank to meet Exhibit
A, and because they used to borrow money from each other, even before the war, and appellant owns a hotel and restaurant known as the
North Bay Hotel, said complainant delivered to him, on the same date, the sum of P4,000 in cash; that despite repeated efforts to notify him
that the check had been dishonored by the bank, appellant could not be located any-where, until he was summoned in the City Fiscal's
Office in view of the complaint for estafa filed in connection therewith; and that appellant has not paid as yet the amount of the check, or
any part thereof."

Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for decision is whether under the facts found,
estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed "By post dating a check, or issuing such
check in payment of an obligation the offender knowing that at the time he had no funds in the bank, or the funds deposited by him in the
bank were not sufficient to cover the amount of the check, and without informing the payee of such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection, it must be stated that, as explained in
People vs. Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated check or an ordinary check to accomplish the
It is argued, however, that as the check had been made payable to "cash" and had not been endorsed by Ang Tek Lian, the defendant is not
guilty of the offense charged. Based on the proposition that "by uniform practice of all banks in the Philippines a check so drawn is
invariably dishonored," the following line of reasoning is advanced in support of the argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the appellant, he did so with full knowledge that it would
be dishonored upon presentment. In that sense, the appellant could not be said to have acted fraudulently because the complainant, in so
accepting the check as it was drawn, must be considered, by every rational consideration, to have done so fully aware of the risk he was
running thereby." (Brief for the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein the Bank required the indorsement of
the drawer before honoring a check payable to "cash." But cases there are too, where no such requirement had been made . It depends
upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a check payable to bearer, and the bank
may pay it to the person presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument. Bacal vs. National City Bank of New York (1933), 146 Misc., 732; 262 N. Y. S.,
839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh
Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818. See also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash "does not purport to be the name of any person", and hence the
instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it
without any indorsement. . . . (Zollmann, Banks and Banking, Permanent Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand identification and /or assurance
against possible complications, for instance, (a) forgery of drawer's signature, (b) loss of the check by the rightful owner, (c) raising of the
amount payable, etc. The bank may therefore require, for its protection, that the indorsement of the drawer or of some other person
known to it be obtained. But where the Bank is satisfied of the identity and /or the economic standing of the bearer who tenders the
check for collection, it will pay the instrument without further question; and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check is in the ordinary form, and is payable to bearer, so that no
indorsement is required, a bank, to which it is presented for payment, need not have the holder identified, and is not negligent in falling to
do so. . . . (Michie on Banks and Banking, Permanent Edition, Vol. 5, p. 343.)
. . . Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily have the holder identified and
ordinarily may not be charged with negligence in failing to do so. See Opinions 6C:2 and 6C:3 If the bank has no reasonable cause for
suspecting any irregularity, it will be protected in paying a bearer check, "no matter what facts unknown to it may have occurred prior to the
presentment." 1 Morse, Banks and Banking, sec. 393.
Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely reasonable for the bank to insist that
holder give satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected with its dishonor. The Court of Appeals
declared that it was returned unsatisfied because the drawer had insufficient funds not because the drawer's indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty imposed on the appellant, the writ of certiorari is denied and the
decision of the Court of Appeals is hereby affirmed, with costs.
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC., defendant-appellant.
The question of first impression raised in this case concerns the validity in this jurisdiction of a provision in a promissory note whereby in
case the same is not paid at maturity, the maker authorizes any attorney to appear and confess judgment thereon for the principal amount,
with interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property exceptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil Refining & By-Products Company, Inc., executed and delivered to the
Philippine National Bank, a written instrument reading as follows:
RENEWAL. P61,000.00
MANILA, P.I., May 8, 1920.
On demand after date we promise to pay to the order of the Philippine National Bank sixty-one thousand only pesos at Philippine National
Bank, Manila, P.I.
Without defalcation, value received; and to hereby authorize any attorney in the Philippine Islands, in case this note be not paid at maturity,
to appear in my name and confess judgment for the above sum with interest, cost of suit and attorney's fees of ten (10) per cent for
collection, a release of all errors and waiver of all rights to inquisition and appeal, and to the benefit of all laws exempting property, real or
personal, from levy or sale. Value received. No. ____ Due ____
(Sgd.) VICENTE SOTELO, Manager.

(Sgd.) RAFAEL LOPEZ,Treasurer
The Manila Oil Refining and By-Products Company, Inc. failed to pay the promissory note on demand. The Philippine National Bank
brought action in the Court of First Instance of Manila, to recover P61,000, the amount of the note, together with interest and costs. Mr.
Elias N. Rector, an attorney associated with the Philippine National Bank, entered his appearance in representation of the defendant, and
filed a motion confessing judgment. The defendant, however, in a sworn declaration, objected strongly to the unsolicited representation of
attorney Recto. Later, attorney Antonio Gonzalez appeared for the defendant and filed a demurrer, and when this was overruled, presented
an answer. The trial judge rendered judgment on the motion of attorney Recto in the terms of the complaint.
The foregoing facts, and appellant's three assignments of error, raise squarely the question which was suggested in the beginning of this
opinion. In view of the importance of the subject to the business community, the advice of prominent attorneys-at-law with banking
connections, was solicited. These members of the bar responded promptly to the request of the court, and their memoranda have proved
highly useful in the solution of the question. It is to the credit of the bar that although the sanction of judgement notes in the Philippines
might prove of immediate value to clients, every one of the attorneys has looked upon the matter in a big way, with the result that out of
their independent investigations has come a practically unanimous protest against the recognition in this jurisdiction of judgment notes. 1
Neither the Code of Civil Procedure nor any other remedial statute expressly or tacitly recognizes a confession of judgment commonly
called a judgment note. On the contrary, the provisions of the Code of Civil Procedure, in relation to constitutional safeguards relating to the
right to take a man's property only after a day in court and after due process of law, contemplate that all defendants shall have an
opportunity to be heard. Further, the provisions of the Code of Civil Procedure pertaining to counter claims argue against judgment notes,
especially as the Code provides that in case the defendant or his assignee omits to set up a counterclaim, he cannot afterwards maintain
an action against the plaintiff therefor. (Secs. 95, 96, 97.) At least one provision of the substantive law, namely, that the validity and
fulfillment of contracts cannot be left to the will of one of the contracting parties (Civil Code, art. 1356), constitutes another indication of
fundamental legal purposes.
The attorney for the appellee contends that the Negotiable Instruments Law (Act No. 2031) expressly recognizes judgment notes, and that
they are enforcible under the regular procedure. The Negotiable Instruments Law, in section 5, provides that "The negotiable character of
an instrument otherwise negotiable is not affected by a provision which ". . . ( b) Authorizes a confession of judgment if the instrument be not
paid at maturity." We do not believe, however, that this provision of law can be taken to sanction judgments by confession, because it is a
portion of a uniform law which merely provides that, in jurisdiction where judgment notes are recognized, such clauses shall not affect the
negotiable character of the instrument. Moreover, the same section of the Negotiable Instruments. Law concludes with these words: "But
nothing in this section shall validate any provision or stipulation otherwise illegal."
The court is thus put in the position of having to determine the validity in the absence of statute of a provision in a note authorizing an
attorney to appear and confess judgment against the maker. This situation, in reality, has its advantages for it permits us to reach that
solution which is best grounded in the solid principles of the law, and which will best advance the public interest.
The practice of entering judgments in debt on warrants of attorney is of ancient origin. In the course of time a warrant of attorney to confess
judgement became a familiar common law security. At common law, there were two kinds of judgments by confession; the one a judgment
by cognovit actionem, and the other by confession relicta verificatione. A number of jurisdictions in the United States have accepted the
common law view of judgments by confession, while still other jurisdictions have refused to sanction them. In some States, statutes have
been passed which have either expressly authorized confession of judgment on warrant of attorney, without antecedent process, or have
forbidden judgments of this character. In the absence of statute, there is a conflict of authority as to the validity of a warrant of attorney for
the confession of judgement. The weight of opinion is that, unless authorized by statute, warrants of attorney to confess judgment are void,
as against public policy.
Possibly the leading case on the subject is First National Bank of Kansas City vs. White ([1909], 220 Mo., 717; 16 Ann. Cas., 889; 120 S.
W., 36; 132 Am. St. Rep., 612). The record in this case discloses that on October 4, 1990, the defendant executed and delivered to the
plaintiff an obligation in which the defendant authorized any attorney-at-law to appear for him in an action on the note at any time after the
note became due in any court of record in the State of Missouri, or elsewhere, to waive the issuing and service of process, and to confess
judgement in favor of the First National Bank of Kansas City for the amount that might then be due thereon, with interest at the rate therein
mentioned and the costs of suit, together with an attorney's fee of 10 per cent and also to waive and release all errors in said proceedings
and judgment, and all proceedings, appeals, or writs of error thereon. Plaintiff filed a petition in the Circuit Court to which was attached the
above-mentioned instrument. An attorney named Denham appeared pursuant to the authority given by the note sued on, entered the
appearance of the defendant, and consented that judgement be rendered in favor of the plaintiff as prayed in the petition. After the Circuit
Court had entered a judgement, the defendants, through counsel, appeared specially and filed a motion to set it aside. The Supreme Court
of Missouri, speaking through Mr. Justice Graves, in part said:
But going beyond the mere technical question in our preceding paragraph discussed, we come to a question urged which goes to the very
root of this case, and whilst new and novel in this state, we do not feel that the case should be disposed of without discussing and passing
upon that question.
x x x x x x x x x
And if this instrument be considered as security for a debt, as it was by the common law, it has never so found recognition in this state. The
policy of our law has been against such hidden securities for debt. Our Recorder's Act is such that instruments intended as security for debt
should find a place in the public records, and if not, they have often been viewed with suspicion, and their bona fides often questioned.
Nor do we thing that the policy of our law is such as to thus place a debtor in the absolute power of his creditor. The field for fraud is too far
enlarged by such an instrument. Oppression and tyranny would follow the footsteps of such a diversion in the way of security for debt. Such
instruments procured by duress could shortly be placed in judgment in a foreign court and much distress result therefrom.
Again, under the law the right to appeal to this court or some other appellate court is granted to all persons against whom an adverse
judgment is rendered, and this statutory right is by the instrument stricken down. True it is that such right is not claimed in this case, but it is
a part of the bond and we hardly know why this pound of flesh has not been demanded. Courts guard with jealous eye any contract
innovations upon their jurisdiction. The instrument before us, considered in the light of a contract, actually reduces the courts to mere clerks
to enter and record the judgment called for therein. By our statute (Rev. St. 1899, sec. 645) a party to a written instrument of this character
has the right to show a failure of consideration, but this right is brushed to the wind by this instrument and the jurisdiction of the court to
hear that controversy is by the whose object is to oust the jurisdiction of the courts are contrary to public policy and will not be enforced.
Thus it is held that any stipulation between parties to a contract distinguishing between the different courts of the country is contrary to
public policy. The principle has also been applied to a stipulation in a contract that a party who breaks it may not be sued, to an agreement
designating a person to be sued for its breach who is nowise liable and prohibiting action against any but him, to a provision in a lease that
the landlord shall have the right to take immediate judgment against the tenant in case of a default on his part, without giving the notice and
demand for possession and filing the complaint required by statute, to a by-law of a benefit association that the decisions of its officers on
claim shall be final and conclusive, and to many other agreements of a similar tendency. In some courts, any agreement as to the time for
suing different from time allowed by the statute of limitations within which suit shall be brought or the right to sue be barred is held void.
x x x x x x x x x
We shall not pursue this question further. This contract, in so far as it goes beyond the usual provisions of a note, is void as against the
public policy of the state, as such public policy is found expressed in our laws and decisions. Such agreements are iniquitous to the
uttermost and should be promptly condemned by the courts, until such time as they may receive express statutory recognition, as they
have in some states.

x x x x x x x x x
From what has been said, it follows that the Circuit Court never had jurisdiction of the defendant, and the judgement is reversed.
The case of Farquhar and Co. vs. Dehaven ([1912], 70 W. Va., 738; 40 L.R.A. [N. S.], 956; 75 S.E., 65; Ann. Cas. [1914-A], 640), is another
well-considered authority. The notes referred to in the record contained waiver of presentment and protest, homestead and exemption
rights real and personal, and other rights, and also the following material provision: "And we do hereby empower and authorize the said A.
B. Farquhar Co. Limited, or agent, or any prothonotary or attorney of any Court of Record to appear for us and in our name to confess
judgement against us and in favor of said A. B. Farquhar Co., Limited, for the above named sum with costs of suit and release of all errors
and without stay of execution after the maturity of this note." The Supreme Court of West Virginia, on consideration of the validity of the
judgment note above described, speaking through Mr. Justice Miller, in part said:
As both sides agree the question presented is one of first impression in this State. We have no statutes, as has Pennsylvania and many
other states, regulating the subject. In the decision we are called upon to render, we must have recourse to the rules and principles of the
common law, in force here, and to our statute law, applicable, and to such judicial decisions and practices in Virginia, in force at the time of
the separation, as are properly binding on us. It is pertinent to remark in this connection, that after nearly fifty years of judicial history this
question, strong evidence, we think, that such notes, if at all, have never been in very general use in this commonwealth. And in most
states where they are current the use of them has grown up under statutes authorizing them, and regulating the practice of employing them
in commercial transactions.
x x x x x x x x x
It is contended, however, that the old legal maxim, qui facit per alium, facit per se, is as applicable here as in other cases. We do not think
so. Strong reasons exist, as we have shown, for denying its application, when holders of contracts of this character seek the aid of the
courts and of their execution process to enforce them, defendant having had no day in court or opportunity to be heard. We need not say in
this case that a debtor may not, by proper power of attorney duly executed, authorize another to appear in court, and by proper
endorsement upon the writ waive service of process, and confess judgement. But we do not wish to be understood as approving or
intending to countenance the practice employing in this state commercial paper of the character here involved. Such paper has heretofore
had little if any currency here. If the practice is adopted into this state it ought to be, we think, by act of the Legislature, with all proper
safeguards thrown around it, to prevent fraud and imposition. The policy of our law is, that no man shall suffer judgment at the hands of our
courts without proper process and a day to be heard. To give currency to such paper by judicial pronouncement would be to open the door
to fraud and imposition, and to subject the people to wrongs and injuries not heretofore contemplated. This we are unwilling to do.
A case typical of those authorities which lend support to judgment notes is First National Bank of Las Cruces vs. Baker ([1919], 180 Pac.,
291). The Supreme Court of New Mexico, in a per curiam decision, in part, said:
In some of the states the judgments upon warrants of attorney are condemned as being against public policy. (Farquhar and Co. vs.
Dahaven, 70 W. Va., 738; 75 S.E., 65; 40 L.R.A. [N. S.], 956; Ann. Cas. [1914 A]. 640, and First National Bank of Kansas City vs. White,
220 Mo., 717; 120 S. W., 36; 132 Am. St. Rep., 612; 16 Ann. Cas., 889, are examples of such holding.) By just what course of reasoning it
can be said by the courts that such judgments are against public policy we are unable to understand. It was a practice from time
immemorial at common law, and the common law comes down to us sanctioned as justified by the reason and experience of Englishspeaking peoples. If conditions have arisen in this country which make the application of the common law undesirable, it is for the
Legislature to so announce, and to prohibit the taking of judgments can be declared as against the public policy of the state. We are aware
that the argument against them is that they enable the unconscionable creditor to take advantage of the necessities of the poor debtor and
cut him off from his ordinary day in court. On the other hand, it may be said in their favor that it frequently enables a debtor to obtain money
which he could by no possibility otherwise obtain. It strengthens his credit, and may be most highly beneficial to him at times. In some of the
states there judgments have been condemned by statute and of course in that case are not allowed.
Our conclusion in this case is that a warrant of attorney given as security to a creditor accompanying a promissory note confers a valid
power, and authorizes a confession of judgment in any court of competent jurisdiction in an action to be brought upon said note; that our
cognovit statute does not cover the same field as that occupied by the common-law practice of taking judgments upon warrant of attorney,
and does not impliedly or otherwise abrogate such practice; and that the practice of taking judgments upon warrants of attorney as it was
pursued in this case is not against any public policy of the state, as declared by its laws.
With reference to the conclusiveness of the decisions here mentioned, it may be said that they are based on the practice of the EnglishAmerican common law, and that the doctrines of the common law are binding upon Philippine courts only in so far as they are founded on
sound principles applicable to local conditions.
Judgments by confession as appeared at common law were considered an amicable, easy, and cheap way to settle and secure debts.
They are a quick remedy and serve to save the court's time. They also save the time and money of the litigants and the government the
expenses that a long litigation entails. In one sense, instruments of this character may be considered as special agreements, with power to
enter up judgments on them, binding the parties to the result as they themselves viewed it.
On the other hand, are disadvantages to the commercial world which outweigh the considerations just mentioned. Such warrants of
attorney are void as against public policy, because they enlarge the field for fraud, because under these instruments the promissor bargains
away his right to a day in court, and because the effect of the instrument is to strike down the right of appeal accorded by statute. The
recognition of such a form of obligation would bring about a complete reorganization of commercial customs and practices, with reference
to short-term obligations. It can readily be seen that judgement notes, instead of resulting to the advantage of commercial life in the
Philippines might be the source of abuse and oppression, and make the courts involuntary parties thereto. If the bank has a meritorious
case, the judgement is ultimately certain in the courts.
We are of the opinion that warrants of attorney to confess judgment are not authorized nor contemplated by our law. We are further of the
opinion that provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this
jurisdiction by implication and should only be considered as valid when given express legislative sanction.
The judgment appealed from is set aside, and the case is remanded to the lower court for further proceedings in accordance with this
decision. Without special finding as to costs in this instance, it is so ordered.