G.R. No.

184458, January 14, 2015

On 24 February 1995, Rivera obtained a loan from
the Spouses Chua:

RODRIGO RIVERA, Petitioner, v. SPOUSES

SALVADOR CHUA AND S. VIOLETA
CHUA,Respondents.

PROMISSORY NOTE

[G.R. NO. 184472]

120,000.00

SPS. SALVADOR CHUA AND VIOLETA S.

CHUA, Petitioners, v. RODRIGO RIVERA, Respondent.

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise

to pay spouses SALVADOR C. CHUA and VIOLETA SY
CHUA, the sum of One Hundred Twenty Thousand
Philippine Currency (P120,000.00) on December 31,
1995.

DECISION
PEREZ, J.:

Before us are consolidated Petitions for Review

on Certiorari under Rule 45 of the Rules of Court
1
assailing the Decision of the Court of Appeals in CAG.R. SP No. 90609 which affirmed with modification
the separate rulings of the Manila City trial courts,
the Regional Trial Court, Branch 17 in Civil Case No.
2
02-105256 and the Metropolitan Trial Court
3
(MeTC), Branch 30, in Civil Case No. 163661, a case
for collection of a sum of money due a promissory
note. While all three (3) lower courts upheld the
validity and authenticity of the promissory note as
duly signed by the obligor, Rodrigo Rivera (Rivera),
petitioner in G.R. No. 184458, the appellate court
modified the trial courts consistent awards: (1) the
stipulated interest rate of sixty percent (60%)
reduced
to
twelve
percent
(12%) per
annum computed from the date of judicial or
extrajudicial demand, and (2) reinstatement of the
award of attorneys fees also in a reduced amount of
P50,000.00.
In G.R. No. 184458, Rivera persists in his contention
that there was no valid promissory note and
questions the entire ruling of the lower courts. On
the other hand, petitioners in G.R. No. 184472,
Spouses Salvador and Violeta Chua (Spouses Chua),
take exception to the appellate courts reduction of
the stipulated interest rate of sixty percent (60%) to
twelve
percent
(12%) per
annum.
We

proceed

to

the

facts.

The parties were friends of long standing having

known each other since 1973: Rivera and Salvador
are kumpadres, the former is the godfather of the
Spouses
Chuas
son.

It is agreed and understood that failure on my part

to pay the amount of (P120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. (sic)
I agree to pay the sum equivalent to FIVE PERCENT
(5%) interest monthly from the date of default until
the entire obligation is fully paid for.
Should this note be referred to a lawyer for
collection, I agree to pay the further sum equivalent
to twenty percent (20%) of the total amount due
and payable as and for attorneys fees which in no
case shall be less than P5,000.00 and to pay in
addition the cost of suit and other incidental
litigation
expense.
Any action which may arise in connection with this
note shall be brought in the proper Court of the City
of
Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA

In October 1998, almost three years from the date of

payment stipulated in the promissory note, Rivera,
as partial payment for the loan, issued and delivered
to the Spouses Chua, as payee, a check numbered
012467, dated 30 December 1998, drawn against
Riveras current account with the Philippine
Commercial International Bank (PCIB) in the amount
of
P25,000.00.
On 21 December 1998, the Spouses Chua received
another check presumably issued by Rivera, likewise
drawn against Riveras PCIB current account,
numbered 013224, duly signed and dated, but blank
as to payee and amount. Ostensibly, as per
understanding by the parties, PCIB Check No.
013224 was issued in the amount of P133,454.00

with cash as payee. Purportedly, both checks were

simply partial payment for Riveras loan in the
principal
amount
of
P120,000.00.
Upon presentment for payment, the two checks
were dishonored for the reason account closed.
As of 31 May 1999, the amount due the Spouses
Chua was pegged at P366,000.00 covering the
principal of P120,000.00 plus five percent (5%)
interest per month from 1 January 1996 to 31 May
1999.
The Spouses Chua alleged that they have repeatedly
demanded payment from Rivera to no avail. Because
of Riveras unjustified refusal to pay, the Spouses
Chua were constrained to file a suit on 11 June 1999.
The case was raffled before the MeTC, Branch 30,
Manila and docketed as Civil Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera
countered that: (1) he never executed the subject
Promissory Note; (2) in all instances when he
obtained a loan from the Spouses Chua, the loans
were always covered by a security; (3) at the time of
the filing of the complaint, he still had an existing
indebtedness to the Spouses Chua, secured by a real
estate mortgage, but not yet in default; (4) PCIB
Check No. 132224 signed by him which he delivered
to the Spouses Chua on 21 December 1998, should
have been issued in the amount of only P1,300.00,
representing the amount he received from the
Spouses Chuas saleslady; (5) contrary to the
supposed agreement, the Spouses Chua presented
the check for payment in the amount of
P133,454.00; and (6) there was no demand for
payment of the amount of P120,000.00 prior to the
encashment
of
PCIB
Check
No.
5
0132224. chanRoblesvirtualLawlibrary
In the main, Rivera claimed forgery of the subject
Promissory Note and denied his indebtedness
thereunder.
The MeTC summarized the testimonies of both
parties
respective
witnesses:chanroblesvirtuallawlibrary
[The spouses Chuas] evidence include[s]
documentary evidence and oral evidence (consisting
of the testimonies of [the spouses] Chua and NBI
Senior Documents Examiner Antonio Magbojos). x x
x

Witness Magbojos enumerated his credentials as

follows: joined the NBI (1987); NBI document
examiner (1989); NBI Senior Document Examiner
(1994 to the date he testified); registered
criminologist; graduate of 18th Basic Training Course
[i]n Questioned Document Examination conducted
by the NBI; twice attended a seminar on US Dollar
Counterfeit Detection conducted by the US Embassy
in Manila; attended a seminar on Effective
Methodology in Teaching and Instructional design
conducted by the NBI Academy; seminar lecturer on
Questioned Documents, Signature Verification
and/or Detection; had examined more than a
hundred thousand questioned documents at the
time
he
testified.
Upon [order of the MeTC], Mr. Magbojos examined
the purported signature of [Rivera] appearing in the
Promissory Note and compared the signature
thereon with the specimen signatures of [Rivera]
appearing on several documents. After a thorough
study, examination, and comparison of the signature
on the questioned document (Promissory Note) and
the specimen signatures on the documents
submitted to him, he concluded that the questioned
signature appearing in the Promissory Note and the
specimen signatures of [Rivera] appearing on the
other documents submitted were written by one
and the same person. In connection with his
findings, Magbojos prepared Questioned Documents
Report No. 712-1000 dated 8 January 2001, with the
following conclusion: The questioned and the
standard specimen signatures RODGRIGO RIVERA
were written by one and the same person.
[Rivera] testified as follows: he and [respondent]
Salvador are kumpadres; in May 1998, he obtained
a loan from [respondent] Salvador and executed a
real estate mortgage over a parcel of land in favor of
[respondent Salvador] as collateral; aside from this
loan, in October, 1998 he borrowed P25,000.00 from
Salvador and issued PCIB Check No. 126407 dated 30
December 1998; he expressly denied execution of
the Promissory Note dated 24 February 1995 and
alleged that the signature appearing thereon was
not his signature; [respondent Salvadors] claim that
PCIB Check No. 0132224 was partial payment for the
Promissory Note was not true, the truth being that
he delivered the check to [respondent Salvador] with
the space for amount left blank as he and

[respondent] Salvador had agreed that the latter was

to fill it in with the amount of ?1,300.00 which
amount he owed [the spouses Chua]; however, on
29 December 1998 [respondent] Salvador called him
and told him that he had written P133,454.00
instead of P1,300.00; x x x. To rebut the testimony of
NBI Senior Document Examiner Magbojos, [Rivera]
reiterated his averment that the signature appearing
on the Promissory Note was not his signature and
6
that he did not execute the Promissory Note.
After trial, the MeTC ruled in favor of the Spouses
Chua:chanroblesvirtuallawlibrary
WHEREFORE, [Rivera] is required to pay [the spouses
Chua]: P120,000.00 plus stipulated interest at the
rate of 5% per month from 1 January 1996, and legal
interest at the rate of 12% percent per annum from
11 June 1999, as actual and compensatory damages;
7
20% of the whole amount due as attorneys fees.
On appeal, the Regional Trial Court, Branch 17,
Manila affirmed the Decision of the MeTC, but
deleted the award of attorneys fees to the Spouses
Chua:chanroblesvirtuallawlibrary
WHEREFORE, except as to the amount of attorneys
fees which is hereby deleted, the rest of the Decision
8
dated October 21, 2002 is hereby AFFIRMED.
Both trial courts found the Promissory Note as
authentic and validly bore the signature of Rivera.
Undaunted, Rivera appealed to the Court of Appeals
which affirmed Riveras liability under the
Promissory Note, reduced the imposition of interest
on the loan from 60% to 12% per annum, and
reinstated the award of attorneys fees in favor of
the Spouses Chua:chanroblesvirtuallawlibrary
WHEREFORE, the judgment appealed from is
hereby AFFIRMED,
subject
to
theMODIFICATION that the interest rate of 60% per
annum is hereby reduced to 12% per annum and the
award of attorneys fees is reinstated at the reduced
9
amount of P50,000.00 Costs against [Rivera].
Hence, these consolidated petitions for review
on certiorari of Rivera in G.R. No. 184458 and the
Spouses Chua in G.R. No. 184472, respectively
raising
the
following
issues:chanroblesvirtuallawlibrary

A.

In

G.R.

No.

184458

1. WHETHER OR NOT THE HONORABLE COURT OF

APPEALS ERRED IN UPHOLDING THE RULING OF THE
RTC AND M[e]TC THAT THERE WAS A VALID
PROMISSORY NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN HOLDING THAT DEMAND IS NO
LONGER NECESSARY AND IN APPLYING THE
PROVISIONS OF THE NEGOTIABLE INSTRUMENTS
LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN AWARDING ATTORNEYS FEES
DESPITE THE FACT THAT THE SAME HAS NO BASIS IN
FACT AND IN LAW AND DESPITE THE FACT THAT
[THE SPOUSES CHUA] DID NOT APPEAL FROM THE
DECISION OF THE RTC DELETING THE AWARD OF
10
ATTORNEYS
FEES. chanRoblesvirtualLawlibrary
B.

In

G.R.

No.

184472

[WHETHER OR NOT] THE HONORABLE COURT OF

APPEALS COMMITTED GROSS LEGAL ERROR WHEN
IT MODIFIED THE APPEALED JUDGMENT BY
REDUCING THE INTEREST RATE FROM 60% PER
ANNUM TO 12% PER ANNUM IN SPITE OF THE FACT
THAT RIVERA NEVER RAISED IN HIS ANSWER THE
DEFENSE THAT THE SAID STIPULATED RATE OF
INTEREST IS EXORBITANT, UNCONSCIONABLE,
UNREASONABLE, INEQUITABLE, ILLEGAL, IMMORAL
11
OR VOID.
As early as 15 December 2008, we already disposed
of G.R. No. 184472 and denied the petition, via a
Minute Resolution, for failure to sufficiently show
any reversible error in the ruling of the appellate
court specifically concerning the correct rate of
interest on Riveras indebtedness under the
12
Promissory
Note. chanRoblesvirtualLawlibrary
On 26 February 2009, Entry of Judgment was made
in
G.R.
No.
184472.
Thus, what remains for our disposition is G.R. No.
184458, the appeal of Rivera questioning the entire
ruling of the Court of Appeals in CA-G.R. SP No.
90609.
Rivera continues to deny that he executed the
Promissory Note; he claims that given his friendship
with the Spouses Chua who were money lenders, he

has been able to maintain a loan account with them.

However, each of these loan transactions was
respectively secured by checks or sufficient
collateral.
Rivera points out that the Spouses Chua never
demanded payment for the loan nor interest thereof
(sic) from [Rivera] for almost four (4) years from the
time of the alleged default in payment [i.e., after
13
December 31, 1995]. chanRoblesvirtualLawlibrary
On the issue of the supposed forgery of the
promissory note, we are not inclined to depart from
the lower courts uniform rulings that Rivera indeed
signed
it.
Rivera offers no evidence for his asseveration that
his signature on the promissory note was forged,
only that the signature is not his and varies from his
usual signature. He likewise makes a confusing
defense of having previously obtained loans from
the Spouses Chua who were money lenders and who
had allowed him a period of almost four (4) years
before demanding payment of the loan under the
Promissory
Note.
First, we cannot give credence to such a naked claim
of forgery over the testimony of the National Bureau
of Investigation (NBI) handwriting expert on the
integrity
of
the
promissory
note.
On that score, the appellate court aptly disabled
Riveras contention:chanroblesvirtuallawlibrary
[Rivera] failed to adduce clear and convincing
evidence that the signature on the promissory note
is a forgery. The fact of forgery cannot be presumed
but must be proved by clear, positive and convincing
evidence. Mere variance of signatures cannot be
considered as conclusive proof that the same was
forged. Save for the denial of Rivera that the
signature on the note was not his, there is nothing in
the records to support his claim of forgery. And
while it is true that resort to experts is not
mandatory or indispensable to the examination of
alleged forged documents, the opinions of
handwriting experts are nevertheless helpful in the
courts determination of a documents authenticity.
To be sure, a bare denial will not suffice to overcome
the positive value of the promissory note and the
testimony of the NBI witness. In fact, even a
perfunctory comparison of the signatures offered in

evidence would lead to the conclusion that the

signatures were made by one and the same person.
It is a basic rule in civil cases that the party having
the burden of proof must establish his case by
preponderance of evidence, which simply means
evidence which is of greater weight, or more
convincing than that which is offered in opposition
to
it.
Evaluating the evidence on record, we are convinced
that [the Spouses Chua] have established a prima
facie case in their favor, hence, the burden of
evidence has shifted to [Rivera] to prove his
allegation of forgery. Unfortunately for [Rivera], he
14
failed to substantiate his defense.
Well-entrenched in jurisprudence is the rule that
factual findings of the trial court, especially when
affirmed by the appellate court, are accorded the
highest degree of respect and are considered
15
conclusive between the parties. A review of such
findings by this Court is not warranted except upon a
showing of highly meritorious circumstances, such
as: (1) when the findings of a trial court are
grounded entirely on speculation, surmises or
conjectures; (2) when a lower court's inference from
its factual findings is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the
findings of the appellate court go beyond the issues
of the case, or fail to notice certain relevant facts
which, if properly considered, will justify a different
conclusion; (5) when there is a misappreciation of
facts; (6) when the findings of fact are conclusions
without mention of the specific evidence on which
they are based, are premised on the absence of
evidence, or are contradicted by evidence on
16
record. None of these exceptions obtains in this
instance. There is no reason to depart from the
separate factual findings of the three (3) lower
courts on the validity of Riveras signature reflected
in
the
Promissory
Note.
Indeed, Rivera had the burden of proving the
material allegations which he sets up in his Answer
to the plaintiffs claim or cause of action, upon which
issue is joined, whether they relate to the whole
case or only to certain issues in the
17
case. chanRoblesvirtualLawlibrary
In this case, Riveras bare assertion is
unsubstantiated and directly disputed by the

testimony of a handwriting expert from the NBI.

While it is true that resort to experts is not
mandatory or indispensable to the examination or
the comparison of handwriting, the trial courts in
this case, on its own, using the handwriting expert
testimony only as an aid, found the disputed
18
document
valid. chanRoblesvirtualLawlibrary
Hence,
the
MeTC
that:chanroblesvirtuallawlibrary

ruled

[Rivera] executed the Promissory Note after

consideration of the following: categorical statement
of [respondent] Salvador that [Rivera] signed the
Promissory Note before him, in his ([Riveras])
house; the conclusion of NBI Senior Documents
Examiner that the questioned signature (appearing
on the Promissory Note) and standard specimen
signatures Rodrigo Rivera were written by one
and the same person; actual view at the hearing of
the enlarged photographs of the questioned
19
signature and the standard specimen signatures.
Specifically, Rivera insists that: [i]f that promissory
note indeed exists, it is beyond logic for a money
lender to extend another loan on May 4, 1998
secured by a real estate mortgage, when he was
already in default and has not been paying any
interest for a loan incurred in February
20
1995. chanRoblesvirtualLawlibrary
We

disagree.

It is likewise likely that precisely because of the long

standing friendship of the parties as kumpadres,
Rivera was allowed another loan, albeit this time
secured by a real estate mortgage, which will cover
Riveras loan should Rivera fail to pay. There is
nothing inconsistent with the Spouses Chuas two (2)
and successive loan accommodations to Rivera: one,
secured by a real estate mortgage and the other,
secured
by
only
a
Promissory
Note.
Also completely plausible is that given the
relationship between the parties, Rivera was allowed
a substantial amount of time before the Spouses
Chua demanded payment of the obligation due
under
the
Promissory
Note.
In all, Riveras evidence or lack thereof consisted
only of a barefaced claim of forgery and a discordant
defense to assail the authenticity and validity of the
Promissory Note. Although the burden of proof

rested on the Spouses Chua having instituted the

civil case and after they established a prima
facie case against Rivera, the burden of evidence
shifted to the latter to establish his
21
defense. Consequently, Rivera failed to discharge
the burden of evidence, refute the existence of the
Promissory Note duly signed by him and
subsequently, that he did not fail to pay his
obligation thereunder. On the whole, there was no
question left on where the respective evidence of
the parties preponderatedin favor of plaintiffs, the
Spouses
Chua.
Rivera next argues that even assuming the validity of
the Promissory Note, demand was still necessary in
order to charge him liable thereunder. Rivera argues
that it was grave error on the part of the appellate
court to apply Section 70 of the Negotiable
22
Instruments Law (NIL). chanRoblesvirtualLawlibrary
We agree that the subject promissory note is not a
negotiable instrument and the provisions of the NIL
do not apply to this case. Section 1 of the NIL
requires the concurrence of the following elements
to
be
a
negotiable
instrument:chanroblesvirtuallawlibrary
(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.
On the other hand, Section 184 of the NIL defines
what
negotiable
promissory
note
is:chanroblesvirtuallawlibrary
SECTION 184. Promissory Note, Defined. A
negotiable promissory note within the meaning of
this Act is an unconditional promise in writing made
by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to
order or to bearer. Where a note is drawn to the
makers own order, it is not complete until indorsed
by him.
The Promissory Note in this case is made out to

specific persons, herein respondents, the Spouses

Chua, and not to order or to bearer, or to the order
of
the
Spouses
Chua
as
payees.
However, even if Riveras Promissory Note is not a
negotiable instrument and therefore outside the
coverage of Section 70 of the NIL which provides
that presentment for payment is not necessary to
charge the person liable on the instrument, Rivera is
still liable under the terms of the Promissory Note
that
he
issued.
The Promissory Note is unequivocal about the date
when the obligation falls due and becomes
demandable31 December 1995. As of 1 January
1996, Rivera had already incurred in delay when he
failed to pay the amount of P120,000.00 due to the
Spouses Chua on 31 December 1995 under the
Promissory
Note.
Article 1169 of the Civil Code
provides:chanroblesvirtuallawlibrary

explicitly

Art. 1169. Those obliged to deliver or to do

something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment
of
their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declare;
or
(2) When from the nature and the circumstances of
the obligation it appears that the designation of the
time when the thing is to be delivered or the service
is to be rendered was a controlling motive for the
establishment
of
the
contract;
or
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay
if the other does not comply or is not ready to
comply in a proper manner with what is incumbent
upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
(Emphasis supplied)
There are four instances when demand is not
necessary to constitute the debtor in default: (1)
when there is an express stipulation to that effect;
(2) where the law so provides; (3) when the period is
the controlling motive or the principal inducement
for the creation of the obligation; and (4) where

demand would be useless. In the first two

paragraphs, it is not sufficient that the law or
obligation fixes a date for performance; it must
further state expressly that after the period lapses,
default
will
commence.
We refer to the clause in the Promissory Note
containing
the
stipulation
of
interest:chanroblesvirtuallawlibrary
It is agreed and understood that failure on my part
to pay the amount of (P120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. (sic)
I agree to pay the sum equivalent to FIVE PERCENT
(5%) interest monthly from the date of default until
23
the entire obligation is fully paid for.
which expressly requires the debtor (Rivera) to pay a
5% monthly interest from the date of default until
the entire obligation is fully paid for. The parties
evidently agreed that the maturity of the obligation
at a date certain, 31 December 1995, will give rise to
the obligation to pay interest. The Promissory Note
expressly provided that after 31 December 1995,
default commences and the stipulation on payment
of
interest
starts.
The date of default under the Promissory Note is 1
January 1996, the day following 31 December 1995,
the due date of the obligation. On that date, Rivera
became liable for the stipulated interest which the
Promissory Note says is equivalent to 5% a month. In
sum, until 31 December 1995, demand was not
necessary before Rivera could be held liable for the
principal amount of P120,000.00. Thereafter, on 1
January 1996, upon default, Rivera became liable to
pay the Spouses Chua damages, in the form of
stipulated
interest.
The liability for damages of those who default,
including those who are guilty of delay, in the
performance of their obligations is laid down on
24
Article
1170 of
the
Civil
Code.
Corollary thereto, Article 2209 solidifies the
consequence of payment of interest as an indemnity
for damages when the obligor incurs in
delay:chanroblesvirtuallawlibrary
Art. 2209. If the obligation consists in the payment
of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of

the interest agreed upon, and in the absence of

stipulation, the legal interest, which is six percent
per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance
where: (1) the obligation is for a sum of money; (2)
the debtor, Rivera, incurred in delay when he failed
to pay on or before 31 December 1995; and (3) the
Promissory Note provides for an indemnity for
damages upon default of Rivera which is the
payment of a 5% monthly interest from the date of
default.
We do not consider the stipulation on payment of
interest in this case as a penal clause although
Rivera, as obligor, assumed to pay additional 5%
monthly interest on the principal amount of
P120,000.00
upon
default.
Article
1226
of
the
Civil
provides:chanroblesvirtuallawlibrary

Code

Art. 1226. In obligations with a penal clause, the

penalty shall substitute the indemnity for damages
and the payment of interests in case of
noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud
in
the
fulfillment
of
the
obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of
this Code.
The penal clause is generally undertaken to insure
performance and works as either, or both,
punishment and reparation. It is an exception to the
general rules on recovery of losses and damages. As
an exception to the general rule, a penal clause must
be
specifically
set
forth
in
the
25
obligation. chanRoblesvirtualLawlibrary
In high relief, the stipulation in the Promissory Note
is designated as payment of interest, not as a penal
clause, and is simply an indemnity for damages
incurred by the Spouses Chua because Rivera
defaulted in the payment of the amount of
P120,000.00. The measure of damages for the
Riveras delay is limited to the interest stipulated in
the Promissory Note. In apt instances, in default of
stipulation, the interest is that provided by
26
law. chanRoblesvirtualLawlibrary

In this instance, the parties stipulated that in case of

default, Rivera will pay interest at the rate of 5% a
month or 60% per annum. On this score, the
appellate court ruled:chanroblesvirtuallawlibrary
It bears emphasizing that the undertaking based on
the note clearly states the date of payment to be 31
December 1995. Given this circumstance, demand
by the creditor is no longer necessary in order that
delay may exist since the contract itself already
expressly so declares. The mere failure of [Spouses
Chua] to immediately demand or collect payment of
the value of the note does not exonerate [Rivera]
from his liability therefrom. Verily, the trial court
committed no reversible error when it imposed
interest from 1 January 1996 on the ratiocination
that [Spouses Chua] were relieved from making
demand under Article 1169 of the Civil Code.
x

As observed by [Rivera], the stipulated interest of 5%

per month or 60% per annum in addition to legal
interests and attorneys fees is, indeed, highly
iniquitous and unreasonable. Stipulated interest
rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when
necessary. Since the interest rate agreed upon is
void, the parties are considered to have no
stipulation regarding the interest rate, thus, the rate
of interest should be 12% per annum computed
from the date of judicial or extrajudicial
[27
demand. chanRoblesvirtualLawlibrary
The appellate court found the 5% a month or
60% per annum interest rate, on top of the legal
interest and attorneys fees, steep, tantamount to it
being illegal, iniquitous and unconscionable.
Significantly, the issue on payment of interest has
been squarely disposed of in G.R. No. 184472
denying the petition of the Spouses Chua for failure
to sufficiently show any reversible error in the ruling
of the appellate court, specifically the reduction of
the interest rate imposed on Riveras indebtedness
under the Promissory Note. Ultimately, the denial of
the petition in G.R. No. 184472 isres judicata in its
concept of bar by prior judgment on whether the
Court of Appeals correctly reduced the interest rate
stipulated
in
the
Promissory
Note.
Res judicata applies in the concept of bar by prior
judgment if the following requisites concur: (1) the

former judgment or order must be final; (2) the

judgment or order must be on the merits; (3) the
decision must have been rendered by a court having
jurisdiction over the subject matter and the parties;
and (4) there must be, between the first and the
second action, identity of parties, of subject matter
and
of
causes
of
28
action. chanRoblesvirtualLawlibrary
In this case, the petitions in G.R. Nos. 184458 and
184472 involve an identity of parties and subject
matter raising specifically errors in the Decision of
the Court of Appeals. Where the Court of Appeals
disposition on the propriety of the reduction of the
interest rate was raised by the Spouses Chua in G.R.
No. 184472, our ruling thereon affirming the Court
of Appeals is a bar by prior judgment.
At the time interest accrued from 1 January 1996,
the date of default under the Promissory Note, the
then prevailing rate of legal interest was 12% per
annum under Central Bank (CB) Circular No. 416 in
cases involving the loan or forbearance of
29
money. Thus, the legal interest accruing from the
Promissory Note is 12% per annum from the date of
default
on
1
January
1996.
However, the 12% per annum rate of legal interest is
only applicable until 30 June 2013, before the advent
and effectivity of Bangko Sentral ng Pilipinas (BSP)
Circular No. 799, Series of 2013 reducing the rate of
legal interest to 6% per annum. Pursuant to our
30
ruling in Nacar v. Gallery Frames, BSP Circular No.
799 is prospectively applied from 1 July 2013. In
short, the applicable rate of legal interest from 1
January 1996, the date when Rivera defaulted, to
date when this Decision becomes final and executor
is divided into two periods reflecting two rates of
legal interest: (1) 12% per annumfrom 1 January
1996 to 30 June 2013; and (2) 6% per annum FROM
1 July 2013 to date when this Decision becomes final
and
executory.
As for the legal interest accruing from 11 June 1999,
when judicial demand was made, to the date when
this Decision becomes final and executory, such is
likewise divided into two periods: (1) 12%per
annum from 11 June 1999, the date of judicial
demand to 30 June 2013; and (2) 6% per annumfrom
1 July 2013 to date when this Decision becomes final
31
and executor. We base this imposition of interest
on interest due earning legal interest on Article
2212 of the Civil Code which provides that interest

due shall earn legal interest from the time it is

judicially demanded, although the obligation may be
silent
on
this
point.
From the time of judicial demand, 11 June 1999, the
actual amount owed by Rivera to the Spouses Chua
could already be determined with reasonable
certainty given the wording of the Promissory
32
Note. chanRoblesvirtualLawlibrary
We cite our recent ruling in Nacar v. Gallery
33
Frames: chanRoblesvirtualLawlibrary
I. When an obligation, regardless of its source, i.e.,
law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII
on Damages of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in
the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is
imposed, as follows:ChanRoblesVirtualawlibrary
1.

When the obligation is breached, and it

consists in the payment of a sum of
money, i.e., a loan or forbearance of
money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself
earn legal interest from the time it is
judicially demanded. In the absence of
stipulation, the rate of interest shall be 6%
per annum to be computed from default,
i.e., from judicial or extrajudicial demand
under and subject to the provisions of
Article 1169 of the Civil Code.

2.

When an obligation, not constituting a loan

or forbearance of money, is breached, an
interest on the amount of damages
awarded may be imposed at the discretion
of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on
unliquidated claims or damages, except
when or until the demand can be
established with reasonable certainty.
Accordingly, where the demand is
established with reasonable certainty, the
interest shall begin to run from the time the
claim is made judicially or extrajudicially

(Art. 1169, Civil Code), but when such

certainty cannot be so reasonably
established at the time the demand is
made, the interest shall begin to run only
from the date the judgment of the court is
made (at which time the quantification of
damages may be deemed to have been
reasonably ascertained). The actual base for
the computation of legal interest shall, in
any case, be on the amount finally
adjudged.
3.

When the judgment of the court awarding a

sum of money becomes final and executory,
the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2,
above, shall be 6% per annum from such
finality until its satisfaction, this interim
period being deemed to be by then an
equivalent to a forbearance of credit.
And, in addition to the above, judgments
that have become final and executory prior
to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying
the rate of interest fixed therein. (Emphasis
supplied)

On the reinstatement of the award of attorneys fees

based on the stipulation in the Promissory Note, we
agree with the reduction thereof but not the
ratiocination of the appellate court that the
attorneys fees are in the nature of liquidated
damages or penalty. The interest imposed in the
Promissory Note already answers as liquidated
damages for Riveras default in paying his obligation.
We award attorneys fees, albeit in a reduced
amount, in recognition that the Spouses Chua were
compelled to litigate and incurred expenses to
34
protect their interests. Thus, the award of
P50,000.00 as attorneys fees is proper.
For clarity and to obviate confusion, we chart the
breakdown of the total amount owed by Rivera to
the Spouses Chua:
The total amount owing to the Spouses Chua set
forth in this Decision shall further earn legal interest
at the rate of 6% per annum computed from its
finality until full payment thereof, the interim period
being deemed to be a forbearance of

credit.chanrobleslaw
WHEREFORE, the petition in G.R. No. 184458
is DENIED. The Decision of the Court of Appeals in
CA-G.R. SP No. 90609 is MODIFIED. Petitioner
Rodrigo Rivera is ordered to pay respondents Spouse
Salvador
and
Violeta
Chua
the
following:chanroblesvirtuallawlibrary
(1) the principal amount of P120,000.00;
(2) legal interest of 12% per annum of the principal
amount of P120,000.00 reckoned from 1 January
1996 until 30 June 2013;
(3) legal interest of 6% per annum of the principal
amount of P120,000.00 form 1 July 2013 to date
when this Decision becomes final and executory;
(4) 12% per annum applied to the total of
paragraphs 2 and 3 from 11 June 1999, date of
judicial demand, to 30 June 2013, as interest due
earning legal interest;
(5) 6% per annum applied to the total amount of
paragraphs 2 and 3 from 1 July 2013 to date
when this Decision becomes final and executor,
as interest due earning legal interest;
(6) Attorneys fees in the amount of P50,000.00; and
(7) 6% per annum interest on the total of the
monetary awards from the finality of this
Decision until full payment thereof.
Costs against petitioner Rodrigo Rivera.
SO ORDERED
Sereno, C.J., (Chairperson), Leonardo-De Castro,
Bersamin, and Perlas-Bernabe, JJ., concur.

State Investment House Inc. vs. CA

GR No. 101163 January 11, 1993
Bellosillo, J.:
Facts:
Nora Moulic issued to Corazon Victoriano,
as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of
fifty thousand each. Thereafter, Victoriano
negotiated the checks to State Investment House,
Inc. When Moulic failed to sell the jewellry, she
returned it to Victoriano before the maturity of the
checks. However, the checks cannot be retrieved as
they have been negotiated. Before the maturity date
Moulic withdrew her funds from the bank contesting
that she incurred no obligation on the checks
because the jewellery was never sold and the checks
are negotiated without her knowledge and consent.
Upon presentment of for payment, the checks were
dishonoured for insufficiency of funds.
Issues:
1. Whether or not State Investment House inc. was a
holder of the check in due course
2. Whether or not Moulic can set up against the
petitioner the defense that there was failure or
absence of consideration

Held:
Yes, Section 52 of the NIL provides what constitutes
a holder in due course. The evidence shows that: on
the faces of the post dated checks were complete
and regular; that State Investment House Inc. bought
the checks from Victoriano before the due dates;
that it was taken in good faith and for value; and
there was no knowledge with regard that the checks
were issued as security and not for value. A prima
facie presumption exists that a holder of a
negotiable instrument is a holder in due course.
Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the
petitioner if it was a privy to the purpose for which
they were issued and therefore is not a holder in due
course.
No, Section 119 of NIL provides how an instruments
be discharged. Moulic can only invoke paragraphs c
and d as possible grounds for the discharge of the
instruments. Since Moulic failed to get back the

possession of the checks as provided by paragraph c,

intentional cancellation of instrument is impossible.
As provided by paragraph d, the acts which will
discharge a simple contract of payment of money
will discharge the instrument. Correlating Article
1231 of the Civil Code which enumerates the modes
of extinguishing obligation, none of those modes
outlined therein is applicable in the instant
case. Thus, Moulic may not unilaterally discharge
herself from her liability by mere expediency of
withdrawing her funds from the drawee bank. She is
thus liable as she has no legal basis to excuse herself
from liability on her check to a holder in due course.
Moreover, the fact that the petitioner failed to give
notice of dishonor is of no moment. The need for
such notice is not absolute; there are exceptions
provided by Sec 114 of NIL.

GSIS vs Court of Appeals and Mr. & Mrs. Racho, GR

No. L-40824 February 23, 1989
(Negotiable Instruments payable to order or to
bearer)
Facts: Spouses Racho together with Spouses Lagasca
executed a deed of mortgage in favor of GSIS in
connection with 2 loans granted by the latter in the
sums of p11,500.00 and p3,000.00, respectively. A
parcel of land co-owned by the mortgagor spouses
was govern as security under the aforesaid deeds
and executed a promissory note promising to pay
the said amounts to GSIS jointly, severally and
solidarily.
The Lagasca spouses executed an instrument
obligating themselves in the assumption of the
aforesaid obligation and to secure the release of the
mortgage.

Failing to comply with the conditions of the

mortgage, GSIS extrajudicially foreclosed the
mortgage and caused the property to be sold at
public auction.

More than 2 years after, Spouses Racho filed a

complaint against GSIS and Spouses Lagasca praying
that the extrajudicial foreclosure be declared null
and void. They allege that they signed the mortgage
contracts not as sureties for the Lagasca spouses but
merely as accommodation party
Issue: WON the promissory note and mortgage
deeds are negotiable.
Held: No. Section 29 of the NIL provides that an
accommodation party is one who has signed an
instrument as maker, drawer, acceptor of indorser
without receiving value therefore, but is held liable
on the instrument to a holder for value although the
latter knew him to be only an accommodation party.

Both parties appears to be misdirected and their

reliance misplaced. The promissory note, as well as
the mortgage deeds subject of this case, are clearly
not negotiable instrument because it did not comply
with the fourth requisite to be considered as such
under Sec. 1 of the NIL they are neither payable to
order nor to bearer. The note is payable to a
specified party, the GSIS.

Metropolitan Bank & Trust Company vs. Court of

Appeals
G.R. No. 88866
February, 18, 1991
Cruz, J.:
Facts:
Eduardo Gomez opened an account with
Golden Savings and deposited 38 treasury warrants.
All warrants were subsequently indorsed by Gloria
Castillo as Cashier of Golden Savings and deposited
to its Savings account in Metrobank branch in
Calapan, Mindoro. They were sent for clearance.
Meanwhile, Gomez is not allowed to withdraw from
his account, later, however, exasperated over
Floria repeated inquiries and also as an
accommodation for a valued client Metrobank
decided to allow Golden Savings to withdraw from
proceeds of the warrants. In turn, Golden Savings
subsequently allowed Gomez to make withdrawals
from his own account. Metrobank informed Golden
Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury and demanded the refund
by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account. The
demand was rejected. Metrobank then sued Golden
Savings.
Issue:
1. Whether or not Metrobank can demand
refund agaist Golden Savings with regard to the
amount withdraws to make up with the deficit as a
result of the dishonored treasury warrants.
2. Whether or not treasury warrants are
negotiable instruments
Held:
No. Metrobank is negligent in giving Golden
Savings the impression that the treasury warrants
had been cleared and that, consequently, it was safe
to allow Gomez to withdraw. Without such
assurance, Golden Savings would not have allowed
the withdrawals. Indeed, Golden Savings might even
have incurred liability for its refusal to return the
money that all appearances belonged to the
depositor, who could therefore withdraw it anytime
and for any reason he saw fit.

It was, in fact, to secure the clearance of the

treasury warrants that Golden Savings deposited
them to its account with Metrobank. Golden Savings
had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants
through its own services. The proceeds of the
warrants were withheld from Gomez until
Metrobank allowed Golden Savings itself to
withdraw them from its own deposit.
Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed that
they were genuine and in all respects what they
purport to be, in accordance with Sec. 66 of NIL.
The simple reason that NIL is not applicable to non
negotiable instruments, treasury warrants.
No. The treasury warrants are not negotiable
instruments. Clearly stamped on their face is the
word: non negotiable. Moreover, and this is equal
significance, it is indicated that they are payable
from a particular fund, to wit, Fund 501. An
instrument to be negotiable instrument must
contain an unconditional promise or orders to pay a
sum certain in money. As provided by Sec 3 of NIL an
unqualified order or promise to pay is unconditional
st
though coupled with: 1 , an indication of a particular
fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or
nd
2 , a statement of the transaction which give rise to
the instrument. But an order to promise to pay out
of particular fund is not unconditional. The
indication of Fund 501 as the source of the payment
to be made on the treasury warrants makes the
order or promise to pay not conditional and the
warrants themselves non-negotiable. There should
be no question that the exception on Section 3 of
NIL is applicable in the case at bar.

Negotiable Instrument as a Money Substitute

Lozano v. Martinez
Petitioners, charged with Batas Pambansa Bilang 22
(BP 22 for short), popularly known as the Bouncing
Check Law, assail the law's constitutionality.
BP 22 punishes a person "who makes or draws and
issues any check on account or for value, knowing at
the time of issue that he does not have sufficient
funds in or credit with the draweebank for the
payment of said check in full upon presentment,
which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit
or would have been dishonored for the same reason
had not the drawer, without any valid reason,
ordered the bank to stop payment." The penalty
prescribed for the offense is imprisonment of not
less than 30 days nor more than one year or a fine or
not less than the amount of the check nor more than
double said amount, but in no case to exceed
P200,000.00, or both such fine and imprisonment at
the
discretion
of
the
court.
The statute likewise imposes the same penalty on
"any person who, having sufficient funds in or credit
with the drawee bank when he makes or draws and
issues a check, shall fail to keep sufficient funds or to
maintain a credit to cover the full amount of the
check if presented within a period of ninety (90) days
from the date appearing thereon, for which reason it
is
dishonored
by
the drawee bank.
An essential element of the offense is "knowledge"
on the part of the maker or drawer of the check of
the insufficiency of his funds in or credit with the
bank to cover the check upon its presentment. Since
this involves a state of mind difficult to establish, the
statute itself creates aprima facie presumption of
such knowledge where payment of the check "is
refused by thedrawee because of insufficient funds
in or credit with such bank when presented within
ninety (90) days from the date of the check. To
mitigate the harshness of the law in its application,
the statute provides that such presumption shall not
arise if within five (5) banking days from receipt of
the notice of dishonor, the maker or drawer makes
arrangements for payment of the check by the bank
or pays the holder the amount of the check.
Another provision of the statute, also in the nature
of a rule of evidence, provides that the introduction

in evidence of the unpaid and dishonored check with

the drawee bank's refusal to pay "stamped or
written thereon or attached thereto, giving the
reason therefor, "shall constitute primafacie proof of
"the making or issuance of said check, and the due
presentment to the drawee for payment and the
dishonor thereof ... for the reason written, stamped
or attached by the drawee on such dishonored
check."
The presumptions being merely prima facie, it is
open to the accused of course to present proof to
the contrary to overcome the said presumptions.
ISSUE: Whether or not (W/N) BP 22 violates the
constitutional provision forbidding imprisonment for
debt.
HELD: No.
The gravamen of the offense punished by BP 22 is
the act of making and issuing a worthless check or a
check that is dishonored upon its presentation for
payment. It is not the non-payment of an obligation
which the law punishes. The law is not intended or
designed to coerce a debtor to pay his debt. The
thrust of the law is to prohibit, under pain of penal
sanctions, the making of worthless checks and
putting them in circulation. Because of its
deleterious effects on the public interest, the
practice is proscribed by the law. The law punishes
the act not as an offense against property, but an
offense
against
public
order.
The effects of the issuance of a worthless check
transcends the private interests of the parties
directly involved in the transaction and touches the
interests of the community at large. The mischief it
creates is not only a wrong to the payee or holder,
but also an injury to the public. The harmful practice
of putting valueless commercial papers in
circulation, multiplied a thousand fold, can very wen
pollute the channels of trade and commerce, injure
the banking system and eventually hurt the welfare
of
society
and
the
public
interest.
The enactment of BP 22 is a declaration by the
legislature that, as a matter of public policy, the
making and issuance of a worthless check is deemed
public nuisance to be abated by the imposition of
penal
sanctions.
ISSUE: W/N BP 22 impairs the freedom to contract.
HELD: No. The freedom of contract which is

constitutionally protected is freedom to enter into

"lawful" contracts. Contracts which contravene
public policy are not lawful. Besides, we must bear in
mind that checks can not be categorized as mere
contracts. It is a commercial instrument which, in
this modem day and age, has become a convenient
substitute for money; it forms part of the banking
system and therefore not entirely free from the
regulatory
power
of
the
state.
ISSUE: W/N it violates the equal protection clause.
HELD: No. Petitioners contend that the payee is just
as responsible for the crime as the drawer of the
check, since without the indispensable participation
of the payee by his acceptance of the check there
would be no crime. This argument is tantamount to
saying that, to give equal protection, the law should
punish both the swindler and the swindled.
Moreover, the clause does not preclude
classification of individuals, who may be accorded
different treatment under the law as long as the
classification is no unreasonable or arbitrary.

G.R. No. 175851

July 4, 2012

EMILIA
LIM, Petitioner,
vs.
MINDANAO WINES & LIQUOR GALLERIA, a Single
Proprietorship Business Outfit Owned by Evelyn S.
Valdevieso, Respondent.
DECISION
DEL CASTILLO, J.:
Acquittal from a crime does not necessarily mean
absolution from civil liability.
Despite her acquittal from the charges of violation of
Batas Pambansa Bilang 22 (BP 22) or the Bouncing
Checks Law, the lower courts still found petitioner
Emilia Lim (Emilia) civilly liable and ordered her to
pay the value of the bounced checks, a ruling which
was upheld by the Court of Appeals (CA) in its June
1
30, 2006 Decision and November 9, 2006
2
Resolution in CA-G.R. SP No. 64897.
In this Petition for Review on Certiorari, Emilia prays
for the reversal and setting aside of the said rulings
of the CA. She contends that since her acquittal was
based on insuffiency of evidence, it should then
follow that the civil aspect of the criminal cases filed
against her be likewise dismissed. Hence, there is no
basis for her adjudged civil liability.
Factual Antecedents
3

Sales Invoice No. 1711 dated November 24, 1995,

4
as well as Statement of Accounts No. 076 indicate
that respondent Mindanao Wines and Liquor
Galleria (Mindanao Wines) delivered several cases of
liquors to H & E Commercial owned by Emilia, for
which the latter issued four Philippine National Bank
(PNB) postdated checks worth P25,000.00 each.
When two of these checks, particularly PNB Check
5
6
Nos. 951453 and 951454 dated October 10, 1996
and October 20, 1996, respectively, bounced for the
reasons ACCOUNT CLOSED and DRAWN AGAINST
INSUFFICIENT FUNDS, Mindanao Wines, thru its
proprietress Evelyn Valdevieso, demanded from H &
E Commercial the payment of their value through
two separate letters both dated November 18,
7
1996. When the demands went unheeded,
Mindanao Wines filed before Branch 2 of the

Municipal Trial Court in Cities (MTCC) of Davao City

Criminal Case Nos. 68,309-B-98 and 68,310-B-98
8
against Emilia for violations of BP 22.
During trial, the prosecution presented its sole
witness, Nieves Veloso
(Nieves), accountant and officer-in-charge of
Mindanao Wines. She testified that Emilia has been
a customer of Mindanao Wines who purchased from
it assorted liquors. In fact, Sales Invoice No. 1711
covered the orders made by Emilia from Mindanao
Wines and these orders were delivered by the
9
latters salesman Marcelino Bersaluna (Marcelino)
to H & E Commercial in San Francisco, Agusan del
Sur. For the same, Marcelino received the four PNB
checks and accordingly endorsed them to Mindanao
Wines. Out of these four PNB checks, two were
already paid, i.e., one was collected while the other
10
redeemed in court.
With regard to the bounced PNB Check Nos. 951453
and 951454, Nieves claimed that upon her
instructions Marcelino went to H & E Commercial
more than 10 times to collect their value. But since
his efforts were in vain, two demand letters were
thus sent to Emilia which were duly received by her
as the same were signed by the recipient of the
11
letters.
On cross, Nieves admitted that she neither saw
Emilia issue the checks nor accompanied Marcelino
in delivering the orders to H & E Commercial or in
12
collecting the unpaid checks. Asked about the
corresponding sales order covering Sales Invoice No.
1711, she acknowledged that the sales order was
unsigned and explained that sales orders of
customers are handled by the Credit and Collection
13
Department of Mindanao Wines.
After the prosecution rested its case, Emilia filed a
14
Demurrer to Evidence claiming insufficiency of
evidence. She asserted that not one of the elements
of BP 22 was proven because the witness merely
relied upon the reports of the salesman; that the
purchases covered by Sales Invoice No. 1711 were
unauthorized because the corresponding job order
was unsigned; and that it was never established that
the bank dishonored the checks or that she was even
sent a notice of dishonor.
Ruling of the Municipal Trial Court in Cities

15

In its December 10, 1999 Order, the MTCC granted

the Demurrer to Evidence. It ruled that while Emilia
did issue the checks for value, the prosecution
nevertheless miserably failed to prove one essential
element that consummates the crime of BP 22, i.e.,
the fact of dishonor of the two subject checks. It
noted that other than the checks, no bank
representative testified about presentment and
dishonor. Hence, the MTCC acquitted Emilia of the
criminal charges. However, the MTCC still found her
civilly liable because when she redeemed one of the
checks during the pendency of the criminal cases,
the MTCC considered the same as an
acknowledgement on her part of her obligation with
Mindanao Wines. Pertinent portions of the MTCC
Order read:
The elements of B.P. Blg. 22 must concur before one
can be convicted of this offense. Since one element
is wanting, it is believed that the guilt of the accused
has not been established beyond reasonable doubt.
The Court, however, opines that the accused is civilly
liable. There is evidence on record that an account
was contracted. She should, therefore, pay.
WHEREFORE, the demurrer to evidence is granted
and these cases are ordered DISMISSED.
Accused, however, is adjudged to pay complainant
the total amounts of the 2 checks which
is P50,000.00, with interest at the rate of 12% per
annum to be computed from the date of notice
which is November 18, 1996 until the amount is paid
in full; to reimburse complainant of the expenses
incurred in filing these cases in the amount
ofP1,245.00, and to pay attorneys fees
of P10,000.00.
SO ORDERED.

16

Ruling of the Regional Trial Court

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

been dismissed on reasonable doubt upon proof of

preponderance of evidence.
The RTC was not persuaded by Emilias contentions.
The RTC clarified that the MTCC dismissed the
criminal cases based on reasonable doubt and not
on insufficiency of evidence. And while the
prosecution failed to prove criminal liability beyond
reasonable doubt, Emilias indebtedness was
nonetheless proven by preponderance of evidence,
the quantum of evidence required to prove the
same. Thus, the RTC declared in its January 5, 2001
17
Order that:
The prosecution however had established that the
accused had issued the checks subject of these
cases. The accused had impliedly admitted that she
was the maker of the checks subject of [these]
case[s] when she redeemed a third check from the
complainant. In fact, the accused had never
categorically denied having issued the checks subject
of these cases. When the accused filed the Demurrer
to Evidence, she had hypothetically admitted the
evidence presented by the prosecution to be true,
and this includes the allegation of the prosecution
that the accused issued the checks subject of these
18
cases for value.
Thus, it dismissed the appeal, viz:
WHEREFORE, in view of the foregoing, the appeal of
the accused in these cases is hereby DISMISSED, and
the decision appealed from is hereby AFFIRMED IN
TOTO.
SO ORDERED.

19

Ruling of the Court of Appeals

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

In its June 30, 2006 Decision, the CA emphasized

that even if acquitted, an accused may still be held
civilly liable if a) the acquittal was based on
reasonable doubt or b) the court declared that the
liability of the accused is only civil. Just like the RTC,
the CA ruled that the dismissal of the criminal cases
against Emilia was expressly based on reasonable
doubt, hence, she is not free from civil liability
because the same is not automatically extinguished
by acquittal based on said ground. The CA further
declared that even granting that her acquittal was
for insufficiency of evidence, the same is still akin
to a dismissal based on reasonable doubt.
Respecting the factual conclusions of the lower
courts anent Emilias civil liability, the CA noted that
Emilia had never denied issuing the subject checks
for value which, in themselves constituted evidence
of indebtedness. Moreover, she failed to refute the
prosecutions evidence when she filed a Demurrer to
Evidence. The CA therefore affirmed the assailed
Order of the RTC except that it deleted the award of
attorneys fees, thus:
WHEREFORE, premises considered, the assailed
Order of the Regional Trial Court (RTC), Br. 13, Davao
City, affirming in toto the Order of the Municipal
Trial Court in Cities (MTCC), Br. 2, Davao City as to
the civil liability of Emilia Lim, is hereby AFFIRMED
with the sole modification that the award of
attorneys fees in favor of the Respondent is
DELETED.
SO ORDERED.

21

22

On Motion for Reconsideration, Emilia asserted

that by granting her Demurrer to Evidence based on
insufficiency of evidence, the MTCC acknowledged
that there is absolutely no case against her. She
alleged that the preponderance of evidence
required in determining civil liability does not apply
to her as she never presented any evidence at all,
implying that in such a determination, both parties
should have presented their respective evidence for
the purpose of ascertaining as to which of the
evidence presented is superior.
The CA, however, rejected the motion in its
23
Resolution dated November 9, 2006. It held that
insufficiency does not mean the total absence of
evidence, but that evidence is lacking of what is
necessary or required to make out her case. The CA

explained that the MTCC acquitted Emilia because

the quantum of evidence required for a finding of
guilt beyond reasonable doubt was insufficient to
convict her of BP 22. However, the extinction of the
civil aspect does not necessarily follow such
acquittal. The CA also disregarded Emilias argument
that a preponderance of evidence should be a
comparison of evidence of the opposing parties as
such interpretation would lead to absurdity because
by simply refusing to present evidence, a defendant
can then be easily absolved from a civil suit.
Hence, this petition raising the following assignment
of errors:
1) THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT
THE AWARD OF CIVIL LIABILITY IN FAVOR
OF THE RESPONDENT AND AGAINST THE
PETITIONER IS A NULLITY FOR LACK OF DUE
PROCESS, APART FROM THE FACT THAT THE
COMPLAINANT IS NOT A JURIDICAL PERSON
OR IS NOT THE REAL PARTY IN INTEREST.
2) THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT
BECAUSE THE GROUND FOR THE DISMISSAL
WAS FOR "INSUFFICIENCY OF EVIDENCE"
AND NOT ON "REASONABLE DOUBT," THE
DISMISSAL OF THE CRIMINAL CASES
CARRIES WITH IT THE DISMISSAL OF THE
CIVIL CASES DEEMED INSTITUTED THEREIN.
3) THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN ITS APPLICATION OF
THE CONCEPT OF "PREPONDERANCE OF
EVIDENCE."
4) THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT
THERE IS NO PIECE OF "ADMISSIBLE
EVIDENCE" PRESENTED THAT MAY BE
TAKEN INTO ACCOUNT TO PROVE CIVIL
24
LIABILITY.
In sum, the core issue in this petition is whether the
dismissal of Emilias BP 22 cases likewise includes
the dismissal of their civil aspect.
Our Ruling

The petition lacks merit.

Emilias allegations that she was denied due process
and that Mindanao Wines is not the real party in
interest do not merit our attention as these were
never raised for resolution before the courts below.
Emilia claims that she was deprived of due process
when the courts below declared her civilly liable. In
25
support of this, she cites Salazar v. People wherein
it was held that a court cannot rule upon the civil
aspect of the case should it grant a demurrer to
evidence with leave of court since the accused is
entitled to adduce controverting evidence on the
civil liability. Emilia likewise contends that Mindanao
Wines is not a juridical person, it being a single
proprietorship only and thus, not the real party in
interest in this case.
We note, however, that Emilia had never invoked
before the courts below the ruling in
Salazar.1wphi1 Neither did she specify in her
pleadings filed therein whether her demurrer was
filed with or without leave of court. It is only now
that Emilia is claiming that the same was filed with
leave of court in an apparent attempt to conform
the facts of this case with that in Salazar. The same
goes true with regard to the questioned locus standi
of Mindanao Wines. Emilia likewise did not raise in
her pleadings filed with the RTC or the CA that the
civil aspect is dismissible for lack of cause of action
because Mindanao Wines is not a juridical person
and thus not a real party in interest. In fact, the
courts below all along considered Mindanao Wines
as the plaintiff and the trial proceeded as such.
Obviously,
these
new
issues are
mere
afterthoughts.1wphi1 They were raised only for the
first time in this petition for review on certiorari.
Never were they presented before the RTC and the
CA for resolution. To allow Emilia to wage a legal
blitzkrieg and blindside Mindanao Wines is a
violation of the latters due process rights:
It is well-settled that no question will be entertained
on appeal unless it has been raised in the
proceedings below. Points of law, theories, issues
and arguments not brought to the attention of the
lower court, administrative agency or quasi-judicial
body, need not be considered by a reviewing court,
as they cannot be raised for the first time at that late
stage. Basic considerations of fairness and due

process impel this rule. Any issue raised for the first
26
time on appeal is barred by estoppel.
For this reason, the said issues do not merit the
Courts consideration.
Notwithstanding her acquittal, Emilia is civilly liable.
"The extinction of the penal action does not carry
with it the extinction of the civil liability where x x x
the acquittal is based on reasonable doubt as only
27
preponderance of evidence is required" in civil
cases. On this basis, Emilia insists that the MTCC
dismissed the BP 22 cases against her not on the
ground of reasonable doubt but on insufficiency of
evidence. Hence, the civil liability should likewise be
extinguished. Emilias Demurrer to Evidence,
however, betrays this claim. Asserting insufficiency
of evidence as a ground for granting said demurrer,
Emilia herself argued therein that the prosecution
has not proven [her] guilt beyond reasonable
28
doubt. And in consonance with such assertion, the
MTCC in its judgment expressly stated that her guilt
was indeed not established beyond reasonable
29
doubt, hence the acquittal.
In any case, even if the Court treats the subject
dismissal as one based on insufficiency of evidence
as Emilia wants to put it, the same is still tantamount
to a dismissal based on reasonable doubt. As may be
recalled, the MTCC dismissed the criminal cases
because one essential element of BP 22 was missing,
i.e., the fact of the banks dishonor. The evidence
was insufficient to prove said element of the crime
as no proof of dishonor of the checks was presented
by the prosecution. This, however, only means that
the trial court cannot convict Emilia of the crime
since the prosecution failed to prove her guilt
beyond reasonable doubt, the quantum of evidence
required in criminal cases. Conversely, the lack of
such proof of dishonor does not mean that Emilia
has no existing debt with Mindanao Wines, a civil
aspect which is proven by another quantum of
evidence, a mere preponderance of evidence.
Emilia also avers that a courts determination of
preponderance of evidence necessarily entails the
presentation of evidence of both parties. She thus
believes that she should have been first required to
present evidence to dispute her civil liability before
the lower courts could determine preponderance of
evidence.

We disagree.
"Preponderance of evidence is [defined as] the
weight, credit, and value of the aggregate evidence
on either side and is usually considered to be
synonymous with the term greater weight of the
evidence or greater weight of the credible
evidence. It is evidence which is more convincing to
the court as worthy of belief than that which is
30
offered in opposition thereto." Contrary to Emilias
interpretation, a determination of this quantum of
evidence does not need the presentation of
evidence by both parties. As correctly reasoned out
by the CA, Emilias interpretation is absurd as this
will only encourage defendants to waive their
presentation of evidence in order for them to be
absolved from civil liability for lack of preponderance
of evidence. Besides, Emilia should note that even
when a respondent does not present evidence, a
complainant in a civil case is nevertheless burdened
to substantiate his or her claims by preponderance
of evidence before a court may rule on the reliefs
prayed for by the latter. Settled is the principle that
"parties must rely on the strength of their own
evidence, not upon the weakness of the defense
31
offered by their opponent."
Lastly, we see no reason to disturb the ruling of the
CA anent Emilias civil liability. As may be recalled,
the CA affirmed the lower courts factual findings on
the matter. Factual findings of the trial court, when
32
affirmed by the CA, will not be disturbed. Also, "[i]t
is a settled rule that in a petition for review on
certiorari under Rule 45 of the Rules of [Court], only
questions of law may be raised by the parties and
33
passed upon by this Court." Moreover, "it is well to
remember that a check may be evidence of
indebtedness. A check, the entries of which are in
34
writing, could prove a loan transaction." While
Emilia is acquitted of violations of BP 22, she should
nevertheless pay the debt she owes.
WHEREFORE, the petition for review on certiorari is
DENIED. The challenged June 30, 2006 Decision and
November 9, 2006 Resolution of the Court of
Appeals in CA-G.R. SP No. 64897 are hereby
AFFIRMED in toto.
SO ORDERED.

CHUA-GAW

vs.

CHUA

G.R. No. 160855 April 16, 2008

period. Chua sent the couple a demand letter

requesting them to settle their obligation with the
warning that he will be constrained to take the

Facts:

appropriate legal action if they fail to do so. Failing

to heed his demand, Chua filed a Complaint for Sum

Spouses Chua Chin and Chan Chi were the founders

of Money against the spouses Gaw with the RTC.

of three business enterprises[3] namely: Hagonoy

Lumber, Capitol Sawmill Corporation, and Columbia

Defense of Gaw: Spouses Gaw contended that the

Wood Industries. At the time of Chua Chins death,

P200,000.00 was not a loan but petitioners share in

the net worth of Hagonoy Lumber was P415,487.20.

the profits of Hagonoy Lumber, one of her familys

The heirs executed a Deed of Extra-Judicial Partition

businesses. According to the spouses, when they

and Renunciation of Hereditary Rights in Favor of a

transferred residence to Marilao, Bulacan, petitioner

Co-Heir, wherein the heirs settled their interest in

asked respondent for an accounting, and payment of

Hagonoy Lumber as follows: one-half (1/2) thereof

her share in the profits, of Capital Sawmills

will pertain to the surviving spouse, Chan Chi, as her

Corporation, Columbia Wood Industries Corporation,

share in the conjugal partnership; and the other half

and Hagonoy Lumber. They claimed that respondent

will be divided among Chan Chi and the seven

persuaded petitioner to temporarily forego her

children in equal pro indiviso shares equivalent to

demand as it would offend their mother who still

P25K each. Chan Chi and the six children likewise

wanted to remain in control of the family

agreed to voluntarily renounce and waive their

businesses. To insure that she will defer her demand,

shares over Hagonoy Lumber in favor of their co-

respondent allegedly gave her P200,000.00 as her

heir, Chua Sioc Huan.

share in the profits of Hagonoy Lumber.

Concepcion Chua Gaw and her husband, Antonio

According to Chua, Gaw did not demand from him

Gaw, asked respondent, Suy Ben Chua, to lend them

an accounting of Capitol Sawmills Corporation,

P200,000.00 which they will use for the construction

Columbia Wood Industries, and Hagonoy Lumber. He

of their house in Marilao, Bulacan. The parties

asserted that the spouses Gaw, in fact, have no right

agreed that the loan will be payable within six (6)

whatsoever in these businesses that would entitle

months without interest. Chua issued in their favor

them to an accounting thereof. His sister, Chua Sioc

China Banking Corporation Check No. 240810 for

Huan, became the sole owner of Hagonoy Lumber

P200,000.00 which he delivered to the couples

when the heirs executed the Deed of Partition on

house in Marilao, Bulacan. Antonio Gaw later

December 8, 1986. In turn, he became the sole

encashed the check.

owner of Hagonoy Lumber when he bought it from

Chua Sioc Huan, as evidenced by the Deed of Sale.

Spouses Gaw failed to pay the amount they

RTC held in favour of respondent Chua. It noted that

borrowed from respondent within the designated

respondent personally issued Check No. 240810 to

petitioner and her husband upon their request to

became the sole owner and proprietor of Hagonoy

lend them the aforesaid amount. The trial court

Lumber. When Chua delivered the check for

concluded that the P200,000.00 was a loan

P200,000.00 to the petitioner on June 7, 1988, Chua

advanced by the respondent from his own funds and

Sioc Huan was already the sole owner of Hagonoy

not remunerations for services rendered to Hagonoy

Lumber.

Lumber nor petitioners advance share in the profits

respondent no longer had any interest in the

of

business enterprise; neither had a right to demand a

their

CA

parents

businesses.
affirmed.

At

that

time,

both

petitioner

and

share in the profits of the business.

Issue: WON the P200 was a loan obligation and not

profits from the lumber business which Gaw was

Even assuming, arguendo, that the check was an

entitled to?

advance on the petitioners share in the profits of

the business, it was highly unlikely that the

Held:

respondent would deliver a check drawn against his

personal, and not against the business enterprises

Yes. RTCs finding that the P200,000.00 was given to

the petitioner and her husband as a loan is
supported by the evidence on record. On the issue
of whether the P200,000.00 was really a loan, it is
well to remember that a check may be evidence of
indebtedness. A check, the entries of which are in
writing, could prove a loan transaction. It is pure
naivet to insist that an entrepreneur who has
several sources of income and has access to
considerable bank credit, no longer has any reason
to borrow any amount.

The petitioners allegation that the P200,000.00 was

advance on her share in the profits of Hagonoy
Lumber is implausible. It is true that Hagonoy
Lumber was originally owned by the parents of
petitioner and respondent. However, on December
8, 1986, the heirs freely renounced and waived in
favor of their sister Chua Sioc Huan all their
hereditary shares and interest therein, as shown by
the Deed of Partition which the petitioner herself
signed. By virtue of this deed, Chua Sioc Huan

account.

Traders Royal Bank v CA (Negotiable Instruments

Law)
TRADERS ROYAL BANK V CA G.R. No. 93397 March 3,
1997
FACTS:
Filriters registered owner of Central Bank Certificate
of Indebtedness (CBCI). Filriters transferred it to
Philfinance by one of its officers without
authorization from the company. Subsequently,
Philfinance transferred same CBCI to Traders Royal
Bank (TRB) under a repurchase agreement. When
Philfinance failed to do so, The TRB tried to register
in its name in the CBCI. The Central Bank did not
want to recognize the transfer.
Docketed as Civil Case No. 83-17966 in the Regional
Trial Court of Manila, Branch 32, the action was
originally filed as a Petition for Mandamus 5 under
Rule 65 of the Rules of Court, to compel the Central
Bank of the Philippines to register the transfer of the
subject CBCI to petitioner Traders Royal Bank (TRB).
DECISION OF LOWER COURTS: * RTC: transfer is null
and void. * CA: The appellate court ruled that the
subject CBCI is not a negotiable instrument.
Philfinance acquired no title or rights under CBCI No.
D891 which it could assign or transfer to Traders
Royal Bank and which the latter can register with the
Central Bank. Thus, the transfer of the instrument
from Philfinance to TRB was merely an assignment,
and is not governed by the negotiable instruments
law.

states that the assignment of registered certificates

shall not be valid unless made at the office where
the same have been issued and registered or at the
Securities Servicing Department, Central Bank of the
Philippines, and by the registered owner thereof, in
person or by his representative, duly authorized in
writing. For this purpose, the transferee may be
designated as the representative of the registered
owner. ISSUES & RULING: 1. Whether the CBCI is
negotiable instrument or not.
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for
value received, hereby promises to pay bearer, of if
this Certificate of indebtedness be registered, to
FILRITERS GUARANTY ASSURANCE CORPORATION,
the registered owner hereof, the principal sum of
FIVE HUNDRED THOUSAND PESOS.
NO. The CBCI is not a negotiable instrument, since
the instrument clearly stated that it was payable to
Filriters, and the certificate lacked the words of
negotiability which serve as an expression of consent
that the instrument may be transferred by
negotiation.
Before the instruments become negotiable
instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law.
Otherwise instrument shall not bind the parties.
2. Whether the Assignment of registered certificate
is valid or null and void.

APPLICABLE LAWS:
Under section 1 of Act no. 2031 an instrument to be
negotiable must conform to the following
requirements: (a) It must be in writing and signed by
the maker or drawer; (b) Must contain an
unconditional promise or order to pay a sum certain
in money; (c) Must be payable on demand, or at a
fixed or determinable future time; (d) Must be
payable to order or to bearer; and (e) Where the
instrument is addressed to a drawee, he must be
named or otherwise indicated therein with
reasonable certainty.
Under section 3, Article V of Rules and Regulations
Governing Central Bank Certificates of Indebtedness

IT'S NULL AND VOID. Obviously the Assignment of

certificate from Filriters to Philfinance was null and
void. One of officers who signed the deed of
assignment in behalf of Filriters did not have the
necessary written authorization from the Board of
Directors of Filriters. For lack of such authority the
assignment is considered null and void.
Clearly shown in the record is the fact that
Philfinance's title over CBCI is defective since it a
cquired the instrument from Filriters fictitiously.
Under 1409 of the Civil Code those contracts which
are absolutely simulated or fictitious are considered
void and inexistent from the beginning.

Petitioner knew that Philfinance is not registered

owner of the CBCI No. D891. The fact that a nonowner was disposing of the registered CBCI owned
by another entity was a good reason for petitioner
to verify of inquire as to the title Philfinance to
dispose to the CBCI.
OTHER NOTES:
1. the mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate
corporate personalities.

G.R. No. 166018

June 4, 2014

THE HONGKONG AND SHANGHAI BANKING

CORPORATION
LIMITED-PHILIPPINE
BRANCHES, Petitioner,
vs.
COMMISSIONER
OF
INTERNAL
REVENUE, Respondent;
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING
CORPORATION
LIMITED-PHILIPPINE
BRANCHES, Petitioner,
vs.
COMMISSIONER
OF
INTERNAL
REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
1

These petitions for review on certiorari assail the

2
Decision and Resolution dated July 8, 2004 and
October 25, 2004, respectively, of the Court of
Appeals in CA-G.R. SP No. 77580, as well as the
3
Decision and Resolution dated September 2, 2004
and April 4, 2005, respectively, of the Court of
Appeals in CA-G.R. SP No. 70814. The respective
Decisions in the said cases similarly reversed and set
aside the decisions of the Court of Tax Appeals (CTA)
4
5
in CTA Case Nos. 5951 and 6009, respectively, and
dismissed the petitions of petitioner Hongkong and
Shanghai Banking Corporation Limited-Philippine
Branches (HSBC). The corresponding Resolutions, on
the other hand, denied the respective motions for
reconsideration of the said Decisions.
HSBC performs, among others, custodial services on
behalf of its investor-clients, corporate and
individual, resident or non-resident of the
Philippines, with respect to their passive investments
in the Philippines, particularly investments in shares
of stocks in domestic corporations. As a custodian
bank, HSBC serves as the collection/payment agent
with respect to dividends and other income derived
6
from its investor-clients passive investments.

HSBCs investor-clients maintain Philippine peso

and/or foreign currency accounts, which are
managed by HSBC through instructions given
through electronic messages. The said instructions
are standard forms known in the banking industry as
SWIFT, or "Society for Worldwide Interbank Financial
Telecommunication." In purchasing shares of stock
and other investment in securities, the investorclients would send electronic messages from abroad
instructing HSBC to debit their local or foreign
currency accounts and to pay the purchase price
7
therefor upon receipt of the securities.
Pursuant to the electronic messages of its investorclients, HSBC purchased and paid Documentary
Stamp Tax (DST) from September to December 1997
and also from January to December 1998 amounting
to P19,572,992.10 and P32,904,437.30, respectively,
broken down as follows:
On August 23, 1999, the Bureau of Internal Revenue
(BIR), thru its then Commissioner, Beethoven Rualo,
issued BIR Ruling No. 132-99 to the effect that
instructions or advises from abroad on the
management of funds located in the Philippines
which do not involve transfer of funds from abroad
are not subject to DST. BIR Ruling No. 132-99 reads:

An overseas client sends instruction to its bank in

the Philippines to either:
(i) debit its local or foreign
currency account and to pay a
named recipient in the Philippines;
or
(ii) receive funds from another
bank in the Philippines for deposit
into its account and to pay a
named
recipient
in
the
Philippines."
The foregoing transactions are carried out under
instruction from abroad and [do] not involve actual
fund transfer since the funds are already in the
Philippine accounts. The instructions are in the form
of electronic messages (i.e., SWIFT MT100 or MT 202
and/or MT 521). In both cases, the payment is
against the delivery of investments purchased. The
purchase of investments and the payment comprise
one single transaction. DST has already been paid
under Section 176 for the investment purchase.
B. Other transactions:

Date: August 23, 1999

FERRY
TOLEDO
VICTORINO
GONZAGA
&
ASSOCIATES
G/F
AFC
Building,
Alfaro
St.
Salcedo
Village,
Makati
Metro Manila
Attn:
Atty.
Tax Counsel

A. Investment purchase transactions:

Tomas

C.

Toledo

Gentlemen:
This refers to your letter dated July 26, 1999
requesting on behalf of your clients, the CITIBANK &
STANDARD CHARTERED BANK, for a ruling as to
whether or not the electronic instructions involving
the following transactions of residents and nonresidents of the Philippines with respect to their
local or foreign currency accounts are subject to
documentary stamp tax under Section 181 of the
1997 Tax Code, viz:

An overseas client sends an instruction to its bank in

the Philippines to either:
(i) debit its local or foreign
currency account and to pay a
named recipient, who may be
another bank, a corporate entity or
an individual in the Philippines; or
(ii) receive funds from another
bank in the Philippines for deposit
to its account and to pay a named
recipient, who may be another
bank, a corporate entity or an
individual in the Philippines."
The above instruction is in the form of an electronic
message (i.e., SWIFT MT 100 or MT 202) or tested
cable, and may not refer to any particular
transaction.

The opening and maintenance by a non-resident of

local or foreign currency accounts with a bank in the
Philippines is permitted by the Bangko Sentral ng
Pilipinas, subject to certain conditions.
In reply, please be informed that pursuant to Section
181 of the 1997 Tax Code, which provides that
SEC. 181. Stamp Tax Upon Acceptance of Bills of
Exchange and Others. Upon any acceptance or
payment of any bill of exchange or order for the
payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there
shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos (P200),
or fractional part thereof, of the face value of any
such bill of exchange, or order, or Philippine
equivalent of such value, if expressed in foreign
currency. (Underscoring supplied.)
a documentary stamp tax shall be imposed on any
bill of exchange or order for payment purporting to
be drawn in a foreign country but payable in the
Philippines.
Under the foregoing provision, the documentary
stamp tax shall be levied on the instrument, i.e., a
bill of exchange or order for the payment of money,
which purports to draw money from a foreign
country but payable in the Philippines. In the instant
case, however, while the payor is residing outside
the Philippines, he maintains a local and foreign
currency account in the Philippines from where he
will draw the money intended to pay a named
recipient. The instruction or order to pay shall be
made through an electronic message, i.e., SWIFT MT
100 or MT 202 and/or MT 521. Consequently, there
is no negotiable instrument to be made, signed or
issued by the payee. In the meantime, such
electronic instructions by the non-resident payor
cannot be considered as a transaction per se
considering that the same do not involve any
transfer of funds from abroad or from the place
where the instruction originates. Insofar as the local
bank is concerned, such instruction could be
considered only as a memorandum and shall be
entered as such in its books of accounts. The actual
debiting of the payors account, local or foreign
currency account in the Philippines, is the actual
transaction that should be properly entered as such.

Under the Documentary Stamp Tax Law, the mere

withdrawal of money from a bank deposit, local or
foreign currency account, is not subject to DST,
unless the account so maintained is a current or
checking account, in which case, the issuance of the
check or bank drafts is subject to the documentary
stamp tax imposed under Section 179 of the 1997
Tax Code. In the instant case, and subject to the
physical impossibility on the part of the payor to be
present and prepare and sign an instrument
purporting to pay a certain obligation, the
withdrawal and payment shall be made in cash. In
this light, the withdrawal shall not be subject to
documentary stamp tax. The case is parallel to an
automatic bank transfer of local funds from a savings
account to a checking account maintained by a
depositor in one bank.
Likewise, the receipt of funds from another bank in
the Philippines for deposit to the payees account
and thereafter upon instruction of the non-resident
depositor-payor, through an electronic message, the
depository bank to debit his account and pay a
named recipient shall not be subject to documentary
stamp tax.
It should be noted that the receipt of funds from
another local bank in the Philippines by a local
depository bank for the account of its client residing
abroad is part of its regular banking transaction
which is not subject to documentary stamp tax.
Neither does the receipt of funds makes the
recipient subject to the documentary stamp tax. The
funds are deemed to be part of the deposits of the
client once credited to his account, and which,
thereafter can be disposed in the manner he wants.
The payor-clients further instruction to debit his
account and pay a named recipient in the Philippines
does not involve transfer of funds from abroad.
Likewise, as stated earlier, such debit of local or
foreign currency account in the Philippines is not
subject to the documentary stamp tax under the
aforementioned Section 181 of the Tax Code.
In the light of the foregoing, this Office hereby holds
that the instruction made through an electronic
message by non-resident payor-client to debit his
local or foreign currency account maintained in the
Philippines and to pay a certain named recipient also
residing in the Philippines is not the transaction
contemplated under Section 181 of the 1997 Tax
Code. Such being the case, such electronic

instruction purporting to draw funds from a local

account intended to be paid to a named recipient in
the Philippines is not subject to documentary stamp
tax imposed under the foregoing Section.
This ruling is being issued on the basis of the
foregoing facts as represented. However, if upon
investigation it shall be disclosed that the facts are
different, this ruling shall be considered null and
void.
Very truly yours,
(Sgd.)
BEETHOVEN
L.
8
Commissioner of Internal Revenue

RUALO

With the above BIR Ruling as its basis, HSBC filed on

October 8, 1999 an administrative claim for the
refund of the amount of P19,572,992.10 allegedly
representing erroneously paid DST to the BIR for the
period covering September to December 1997.
Subsequently, on January 31, 2000, HSBC filed
another administrative claim for the refund of the
amount ofP32,904,437.30 allegedly representing
erroneously paid DST to the BIR for the period
covering January to December 1998.
As its claims for refund were not acted upon by the
BIR, HSBC subsequently brought the matter to the
CTA as CTA Case Nos. 5951 and 6009, respectively, in
order to suspend the running of the two-year
prescriptive period.
The CTA Decisions dated May 2, 2002 in CTA Case
No. 6009 and dated December 18, 2002 in CTA Case
No. 5951 favored HSBC. Respondent Commissioner
of Internal Revenue was ordered to refund or issue a
tax credit certificate in favor of HSBC in the reduced
amounts of P30,360,570.75 in CTA Case No. 6009
and P16,436,395.83 in CTA Case No. 5951,
representing erroneously paid DST that have been
sufficiently substantiated with documentary
evidence. The CTA ruled that HSBC is entitled to a
tax refund or tax credit because Sections 180 and
181 of the 1997 Tax Code do not apply to electronic
message instructions transmitted by HSBCs nonresident investor-clients:
The instruction made through an electronic message
by a nonresident investor-client, which is to debit his

local or foreign currency account in the Philippines

and pay a certain named recipient also residing in
the Philippines is not the transaction contemplated
in Section 181 of the Code. In this case, the
withdrawal and payment shall be made in cash. It is
parallel to an automatic bank transfer of local funds
from a savings account to a checking account
maintained by a depositor in one bank. The act of
debiting the account is not subject to the
documentary stamp tax under Section 181. Neither
is the transaction subject to the documentary stamp
tax under Section 180 of the same Code. These
electronic message instructions cannot be
considered negotiable instruments as they lack the
feature of negotiability, which, is the ability to be
transferred (Words and Phrases).
These instructions are considered as mere
memoranda and entered as such in the books of
account of the local bank, and the actual debiting of
the payors local or foreign currency account in the
Philippines is the actual transaction that should be
9
properly entered as such.
The respective dispositive portions of the Decisions
dated May 2, 2002 in CTA Case No. 6009 and dated
December 18, 2002 in CTA Case No. 5951 read:
II. CTA Case No. 6009
WHEREFORE, in the light of all the foregoing, the
instant Petition for Review is PARTIALLY GRANTED.
Respondent is hereby ORDERED to REFUND or ISSUE
A TAX CREDIT CERTIFICATE in favor of Petitioner the
amount of P30,360,570.75 representing erroneous
payment of documentary stamp tax for the taxable
10
year 1998.
II. CTA Case No. 5951
WHEREFORE, in the light of the foregoing, the
instant petition is hereby partially granted.
Accordingly, respondent is hereby ORDERED to
REFUND, or in the alternative, ISSUE A TAX CREDIT
CERTIFICATE in favor of the petitioner in the reduced
amount of P16,436,395.83 representing erroneously
paid documentary stamp tax for the months of
11
September 1997 to December 1997.
However, the Court of Appeals reversed both
decisions of the CTA and ruled that the electronic

messages of HSBCs investor-clients are subject to

DST. The Court of Appeals explained:
At bar, [HSBC] performs custodial services in behalf
of its investor-clients as regards their passive
investments in the Philippines mainly involving
shares of stocks in domestic corporations. These
investor-clients maintain Philippine peso and/or
foreign currency accounts with [HSBC]. Should they
desire to purchase shares of stock and other
investments securities in the Philippines, the
investor-clients send their instructions and advises
via electronic messages from abroad to [HSBC] in the
form of SWIFT MT 100, MT 202, or MT 521 directing
the latter to debit their local or foreign currency
account and to pay the purchase price upon receipt
of the securities (CTA Decision, pp. 1-2; Rollo, pp. 4142). Pursuant to Section 181 of the NIRC, [HSBC] was
thus required to pay [DST] based on its acceptance
of these electronic messages which, as [HSBC]
readily admits in its petition filed before the [CTA],
were essentially orders to pay the purchases of
securities made by its client-investors (Rollo, p. 60).
Appositely, the BIR correctly and legally assessed
and collected the [DST] from [HSBC] considering that
the said tax was levied against the acceptances and
payments by [HSBC] of the subject electronic
messages/orders for payment. The issue of whether
such electronic messages may be equated as a
written document and thus be subject to tax is
beside the point. As We have already stressed,
Section 181 of the law cited earlier imposes the
[DST] not on the bill of exchange or order for
payment of money but on the acceptance or
payment of the said bill or order. The acceptance of
a bill or order is the signification by the drawee of its
assent to the order of the drawer to pay a given sum
of money while payment implies not only the assent
to the said order of the drawer and a recognition of
the drawers obligation to pay such aforesaid sum,
but also a compliance with such obligation
(Philippine National Bank vs. Court of Appeals, 25
SCRA 693 [1968]; Prudential Bank vs. Intermediate
Appellate Court, 216 SCRA 257 [1992]). What is vital
to the valid imposition of the [DST] under Section
181 is the existence of the requirement of
acceptance or payment by the drawee (in this case,
[HSBC]) of the order for payment of money from its
investor-clients and that the said order was drawn
from a foreign country and payable in the
Philippines. These requisites are surely present here.

It would serve the parties well to understand the

nature of the tax being imposed in the case at bar. In
Philippine Home Assurance Corporation vs. Court of
Appeals (301 SCRA 443 [1999]), the Supreme Court
ruled that [DST is] levied on the exercise by persons
of certain privileges conferred by law for the
creation, revision, or termination of specific legal
relationships through the execution of specific
instruments, independently of the legal status of the
transactions giving rise thereto. In the same case,
the High Court also declared citing Du Pont vs.
United States (300 U.S. 150, 153 [1936])
The tax is not upon the business transacted but is an
excise upon the privilege, opportunity, or facility
offered at exchanges for the transaction of the
business. It is an excise upon the facilities used in the
transaction of the business separate and apart from
the business itself. x x x.
To reiterate, the subject [DST] was levied on the
acceptance and payment made by [HSBC] pursuant
to the order made by its client-investors as
embodied in the cited electronic messages, through
which the herein parties privilege and opportunity
to transact business respectively as drawee and
drawers was exercised, separate and apart from the
circumstances and conditions related to such
acceptance and subsequent payment of the sum of
money authorized by the concerned drawers. Stated
another way, the [DST] was exacted on [HSBCs]
exercise of its privilege under its drawee-drawer
relationship with its client-investor through the
execution of a specific instrument which, in the case
at bar, is the acceptance of the order for payment of
money. The acceptance of a bill or order for
payment may be done in writing by the drawee in
the bill or order itself, or in a separate instrument
(Prudential Bank vs. Intermediate Appellate Court,
supra.)Here, [HSBC]s acceptance of the orders for
the payment of money was veritably done in writing
in a separate instrument each time it debited the
local or foreign currency accounts of its clientinvestors pursuant to the latters instructions and
advises sent by electronic messages to [HSBC]. The
[DST] therefore must be paid upon the execution of
the specified instruments or facilities covered by the
tax in this case, the acceptance by [HSBC] of the
order for payment of money sent by the client12
investors through electronic messages. x x x.
Hence, these petitions.

HSBC asserts that the Court of Appeals committed

grave error when it disregarded the factual and legal
conclusions of the CTA. According to HSBC, in the
absence of abuse or improvident exercise of
authority, the CTAs ruling should not have been
disturbed as the CTA is a highly specialized court
which performs judicial functions, particularly for the
review of tax cases. HSBC further argues that the
Commissioner of Internal Revenue had already
settled the issue on the taxability of electronic
messages involved in these cases in BIR Ruling No.
132-99 and reiterated in BIR Ruling No. DA-28013
2004.
The Commissioner of Internal Revenue, on the other
hand, claims that Section 181 of the 1997 Tax Code
imposes DST on the acceptance or payment of a bill
of exchange or order for the payment of money. The
DST under Section 18 of the 1997 Tax Code is levied
on HSBCs exercise of a privilege which is specifically
taxed by law. BIR Ruling No. 132-99 is inconsistent
with prevailing law and long standing administrative
practice, respondent is not barred from questioning
his own revenue ruling. Tax refunds like tax
exemptions are strictly construed against the
14
taxpayer.
The Court finds for HSBC.
The Court agrees with the CTA that the DST under
Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange
purporting to be drawn in a foreign country but
payable in the Philippines" and that "a bill of
exchange is an unconditional order in writing
addressed by one person to another, signed by the
person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to
order or to bearer." A bill of exchange is one of two
general forms of negotiable instruments under the
15
Negotiable Instruments Law.
The Court further agrees with the CTA that the
electronic messages of HSBCs investor-clients
containing instructions to debit their respective local
or foreign currency accounts in the Philippines and
pay a certain named recipient also residing in the
Philippines is not the transaction contemplated
under Section 181 of the Tax Code as such
instructions are "parallel to an automatic bank
transfer of local funds from a savings account to a

checking account maintained by a depositor in one

bank." The Court favorably adopts the finding of the
CTA that the electronic messages "cannot be
considered negotiable instruments as they lack the
feature of negotiability, which, is the ability to be
transferred" and that the said electronic messages
are "mere memoranda" of the transaction consisting
of the "actual debiting of the [investor-clientpayors] local or foreign currency account in the
Philippines" and "entered as such in the books of
16
account of the local bank," HSBC.
More fundamentally, the instructions given through
electronic messages that are subjected to DST in
these cases are not negotiable instruments as they
do not comply with the requisites of negotiability
under Section 1 of the Negotiable Instruments Law,
which provides:
Sec. 1. Form of negotiable instruments. An
instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the
maker or drawer;
(b) Must contain an unconditional promise
or order to pay a sum certain in money;
(c) Must be payable on demand, or at a
fixed or determinable future time;
(d) Must be payable to order or to bearer;
and
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The electronic messages are not signed by the
investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional
order to pay a sum certain in money as the payment
is supposed to come from a specific fund or account
of the investor-clients; and, they are not payable to
order or bearer but to a specifically designated third
party. Thus, the electronic messages are not bills of
exchange. As there was no bill of exchange or order
for the payment drawn abroad and made payable
here in the Philippines, there could have been no
acceptance or payment that will trigger the

imposition of the DST under Section 181 of the Tax

Code.
Section 181 of the 1997 Tax Code, which governs
HSBCs claim for tax refund for taxable year 1998
subject of G.R. No. 167728, provides:
SEC. 181. Stamp Tax Upon Acceptance of Bills of
Exchange and Others. Upon any acceptance or
payment of any bill of exchange or order for the
payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there
shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos (P200),
or fractional part thereof, of the face value of any
such bill of exchange, or order, or the Philippine
equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)
Section 230 of the 1977 Tax Code, as amended,
which governs HSBCs claim for tax refund for DST
paid during the period September to December 1997
and subject of G.R. No. 166018, is worded exactly
the same as its counterpart provision in the 1997 Tax
Code quoted above.
The origin of the above provision is Section 117 of
17
the Tax Code of 1904, which provided: SECTION
117. The acceptor or acceptors of any bill of
exchange or order for the payment of any sum of
money drawn or purporting to be drawn in any
foreign country but payable in the Philippine Islands,
shall, before paying or accepting the same, place
thereupon a stamp in payment of the tax upon such
document in the same manner as is required in this
Act for the stamping of inland bills of exchange or
promissory notes, and no bill of exchange shall be
paid nor negotiated until such stamp shall have been
18
affixed thereto. (Emphasis supplied.)
19

It then became Section 30(h) of the 1914 Tax Code :

SEC. 30. Stamp tax upon documents and papers.
Upon documents, instruments, and papers, and
upon acceptances, assignments, sales, and transfers
of the obligation, right, or property incident thereto
documentary taxes for and in respect of the
transaction so had or accomplished shall be paid as
hereinafter prescribed, by the persons making,
signing, issuing, accepting, or transferring the same,
and at the time such act is done or transaction had:

xxxx
(h) Upon any acceptance or payment upon
acceptance of any bill of exchange or order for the
payment of money purporting to be drawn in a
foreign country but payable in the Philippine Islands,
on each two hundred pesos, or fractional part
thereof, of the face value of any such bill of
exchange or order, or the Philippine equivalent of
such value, if expressed in foreign currency, two
centavos[.] (Emphasis supplied.)
It was implemented by Section 46 in relation to
20
Section 39 of Revenue Regulations No. 26, as
amended:
SEC. 39. A Bill of Exchange is one that "denotes
checks, drafts, and all other kinds of orders for the
payment of money, payable at sight or on demand,
or after a specific period after sight or from a stated
date."
SEC. 46. Bill of Exchange, etc. When any bill of
exchange or order for the payment of money drawn
in a foreign country but payable in this country
whether at sight or on demand or after a specified
period after sight or from a stated date, is presented
for acceptance or payment, there must be affixed
upon acceptance or payment of documentary stamp
equal to P0.02 for each P200 or fractional part
thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax
21
Code of 1939, which provided:
SEC. 218. Stamp Tax Upon Acceptance of Bills of
Exchange and Others. Upon any acceptance or
payment of any bill of exchange or order for the
payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there
shall be collected a documentary stamp tax of four
centavos on each two hundred pesos, or fractional
part thereof, of the face value of any such bill of
exchange or order, or the Philippine equivalent of
such value, if expressed in foreign currency.
(Emphasis supplied.)
It then became Section 230 of the 1977 Tax
22
Code, as amended by Presidential Decree Nos.
1457 and 1959,which, as stated earlier, was worded
exactly as Section 181 of the current Tax Code:

SEC. 230. Stamp tax upon acceptance of bills of

exchange and others. Upon any acceptance or
payment of any bill of exchange or order for the
payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there
shall be collected a documentary stamp tax of thirty
centavos on each two hundred pesos, or fractional
part thereof, of the face value of any such bill of
exchange, or order, or the Philippine equivalent of
such value, if expressed in foreign currency.
(Emphasis supplied.)
The pertinent provision of the present Tax Code has
therefore remained substantially the same for the
past one hundred years.1wphi1 The identical text
and common history of Section 230 of the 1977 Tax
Code, as amended, and the 1997 Tax Code, as
amended, show that the law imposes DST on either
(a) the acceptance or (b) the payment of a foreign
bill of exchange or order for the payment of money
that was drawn abroad but payable in the
Philippines.
DST is an excise tax on the exercise of a right or
privilege to transfer obligations, rights or properties
23
incident thereto. Under Section 173 of the 1997
Tax Code, the persons primarily liable for the
payment of the DST are those (1) making, (2) signing,
(3) issuing, (4) accepting, or (5) transferring the
24
taxable documents, instruments or papers.
In general, DST is levied on the exercise by persons
of certain privileges conferred by law for the
creation, revision, or termination of specific legal
relationships through the execution of specific
instruments. Examples of such privileges, the
exercise of which, as effected through the issuance
of particular documents, are subject to the payment
of DST are leases of lands, mortgages, pledges and
25
trusts, and conveyances of real property.
As stated above, Section 230 of the 1977 Tax Code,
as amended, now Section 181 of the 1997 Tax Code,
levies DST on either (a) the acceptance or (b) the
payment of a foreign bill of exchange or order for
the payment of money that was drawn abroad but
payable in the Philippines. In other words, it levies
DST as an excise tax on the privilege of the drawee
to accept or pay a bill of exchange or order for the
payment of money, which has been drawn abroad
but payable in the Philippines, and on the
corresponding privilege of the drawer to have

acceptance of or payment for the bill of exchange or

order for the payment of money which it has drawn
abroad but payable in the Philippines.
Acceptance
applies
only
to
bills
of
26
exchange. Acceptance of a bill of exchange has a
27
very definite meaning in law. In particular, Section
132 of the Negotiable Instruments Law provides:
Sec. 132. Acceptance; how made, by and so forth.
28
The acceptance of a bill [of exchange ] is the
signification by the drawee of his assent to the order
of the drawer. The acceptance must be in writing
and signed by the drawee. It must not express that
the drawee will perform his promise by any other
means than the payment of money.
Under the law, therefore, what is accepted is a bill of
exchange, and the acceptance of a bill of exchange is
both the manifestation of the drawees consent to
the drawers order to pay money and the expression
of the drawees promise to pay. It is "the act by
which the drawee manifests his consent to comply
with the request contained in the bill of exchange
directed to him and it contemplates an engagement
29
or promise to pay." Once the drawee accepts, he
30
becomes an acceptor. As acceptor, he engages to
pay the bill of exchange according to the tenor of his
31
acceptance.
Acceptance is made upon presentment of the bill of
exchange, or within 24 hours after such
32
presentment. Presentment for acceptance is the
production or exhibition of the bill of exchange to
the drawee for the purpose of obtaining his
33
acceptance.
Presentment for acceptance is necessary only in the
34
instances where the law requires it. In the
instances where presentment for acceptance is not
necessary, the holder of the bill of exchange can
proceed directly to presentment for payment.
Presentment for payment is the presentation of the
instrument to the person primarily liable for the
purpose of demanding and obtaining payment
35
thereof.
Thus, whether it be presentment for acceptance or
presentment for payment, the negotiable
instrument has to be produced and shown to the

drawee for acceptance or to the acceptor for

payment.

6009 and dated December 18, 2002 in CT A Case No.

5951 of the Court of Tax Appeals are REINSTATED.

Revenue Regulations No. 26 recognizes that the

acceptance or payment (of bills of exchange or
orders for the payment of money that have been
drawn abroad but payable in the Philippines) that is
subjected to DST under Section 181 of the 1997 Tax
Code is done after presentment for acceptance or
presentment for payment, respectively. In other
words, the acceptance or payment of the subject bill
of exchange or order for the payment of money is
done when there is presentment either for
acceptance or for payment of the bill of exchange or
order for the payment of money.

SO ORDERED.

Applying the above concepts to the matter subjected

to DST in these cases, the electronic messages
received by HSBC from its investor-clients abroad
instructing the former to debit the latter's local and
foreign currency accounts and to pay the purchase
price of shares of stock or investment in securities
do not properly qualify as either presentment for
acceptance or presentment for payment. There
being neither presentment for acceptance nor
presentment for payment, then there was no
acceptance or payment that could have been
subjected to DST to speak of.
Indeed, there had been no acceptance of a bill of
exchange or order for the payment of money on the
part of HSBC. To reiterate, there was no bill of
exchange or order for the payment drawn abroad
and made payable here in the Philippines. Thus,
there was no acceptance as the electronic messages
did not constitute the written and signed
manifestation of HSBC to a drawer's order to pay
money. As HSBC could not have been an acceptor,
then it could not have made any payment of a bill of
exchange or order for the payment of money drawn
abroad but payable here in the Philippines. In other
words, HSBC could not have been held liable for DST
under Section 230 of the 1977 Tax Code, as
amended, and Section 181 of the 1997 Tax Code as it
is not "a person making, signing, issuing, accepting,
or, transferring" the taxable instruments under the
said provision. Thus, HSBC erroneously paid DST on
the said electronic messages for which it is entitled
to a tax refund.
WHEREFORE, the petitions are hereby GRANTED and
the Decisions dated May 2, 2002 in CTA Case No.

Citibank NA vs. Sabeniano

Far East Bank and Trust Co. (FEBTC) vs. Querimit

[G.R. No. 148582, Jan. 16, 2002]

Facts: Respondent Modesta R. Sabeniano was a

client of both petitioners Citibank and FNCB Finance.
Respondent filed a complaint to recover substantial
deposits and money market placements with
petitioner. Petitioners admitted them however when
respondent failed to pay her loans with FNCB
Finance despite repeated demands by petitioner
Citibank, the latter exercised its right to off-set. In
support of respondents assertion that she had
already paid whatever loans she may have had with
petitioner Citibank, she presented as evidence
provisional receipts for the acceptance of the checks.

Facts: Respondent Estrella Querimit opened a dollar

savings account in FEBTC for which she was issued 4
Certificates of Deposit. In 1989, respondent
accompanied her husband to the US for medical
treatment. In 1993, her husband died and Estrella
Querimit returned to the Philippines. She went to
petitioner FEBTC to withdraw her deposit but she
was told that her husband had withdrawn the
money in deposit. Respondent demanded payment
including interests earned. Respondent filed a
complaint upon refusal of petitioner to pay.

Issue: Whether or not petitioner the provisional

receipts upon acceptance of checks evidenced the
payment.

The trial court rendered its judgment in favor of

respondent. Petitioner appealed but the CA affirmed
the trial courts decision. It ruled that FEBTC failed to
prove that the certificates of deposit had been paid
out of its funds.

Held: Since a negotiable instrument is only a

substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as
payment. A check, whether a managers check or
ordinary check, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee
or creditor. Mere delivery of checks does not
discharge the obligation under a judgment. The
obligation is not extinguished and remains
suspended until the payment by commercial
document is actually realized. Since the provisional
receipt was issued for the the receipt of the check,
the same cannot be considered as evidence of
payment hence the loan still subsist.

Issue: Whether or not petitioner bank is liable in

paying the certificates of deposit without the
production of such certificates.
Held: Yes. A certificate of deposit is defined as a
written acknowledgement by a bank or banker of
the receipt of a sum of money on deposit which the
bank or banker promises to pay to the depositor, to
the order of the depositor, or to some other person
or his order, whereby the relation of debtor and
creditor between the bank and the depositor is
created. The principle that payment, in order to
discharge a debt, must be made to someone
authorized to receive it is applicable to the payment
of certificates of deposit.
In this case, the certificates of deposit were clearly
marked payable to bearer, which means to the
person in possession of an instrument, document of
title or security payable to bearer or indorsed in
blank. Petitioner should not have paid respondents
husband or any third party without requiring the
surrender of the certificates of deposit. The subject
certificates of deposit until now remain unendorsed,
undelivered and unwithdrawn by respondent
Estrella Querimit.
Petitioner FEBTC thus failed to exercise that degree
of diligence required by the nature of its business.