Nego Cases Chapter 1

SECOND DIVISION paragraph paragraph paragraph
[ G . R . No . 93397 . March
3 , 1997 ] paragraph paragraph paragraph
TRADERS
ROYAL
BANK , petitioner , vs . COURT
OF
APPEALS , FILRITERS
GUARANTY
ASSURANCE
CORPORATION
and
CENTAL
BANK
of
the
PHILIPPINES , respondents . paragraph paragraph paragr
aph
D E C I S I O N paragraph paragraph paragraph
TORRES ,
JR .
J .
paragraph paragraph paragraph
Assailed in this Petition for Review on Certiorari is the Decision of the respondent
Court of Appeals dated January 29 , 1990 , [1] affirming the nullity of the transfer of
Central Bank Certificate of Indebtedness ( CBCI ) No . D891 , [2] with a face
value
of P500 , 000 , from
the
Philippine
Underwriters
Finance
Corporation ( Philfinance ) to
the
petitioner Trader s
Royal
Bank ( TRB )
, under
a
Repurchase
Agreement[3] dated
February
4 , 1981 , and
a
Detached
Assignment[4] dated
April
27 , 1981 .
Docketed as Civil Case No . 83 - 17966 in the Regional Trial Court of
Manila , Branch 32 , the action was originally filed as a Petition
for Mandamus[5] under Rule 65 of the Rules of Court , to compel the Central Bank of
the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal
Bank ( TRB )
. paragraph paragraph paragraph
In
the
said
that :
petition ,
TRB
stated
3 . On November 27 , 1979 , Filriters Guaranty Assurance

Corporation ( Filriters ) executed a Detached
Assignment xxx , whereby Filriters , as registered
owner , sold , transferred , assigned and delivered unto Philippine
Underwriters Finance Corporation ( Philfinance ) all its rights and title to
Central Bank Certificates of Indebtedness ( CBCI ) Nos . D890 to
D896 , inclusive , each in the denomination of PESOS : FIVE HUNDRED
THOUSAND ( P500 , 000 ) and having an aggregate value of
PESOS : THREE MILLION FIVE HUNDRED
THOUSAND ( P3 , 500 , 000 . 00 )
4 . The aforesaid Detached Assignment ( Annex A ) contains an

express authorization executed by the transferor intended to complete the assignment
through the registration of the transfer in the name of PhilFinance , which
authorization is specifically phrased as follows :
( Filriters ) hereby
irrevocably authorized the said issuer ( Central Bank ) to transfer the said
bond / certificates on the books of its fiscal
agent ; paragraph paragraph paragraph
5 . On February 4 , 1981 , petitioner entered into a Repurchase Agreement
with PhilFinance xxx , whereby , for and in consideration of the sum of
PESOS : FIVE HUNDRED
THOUSAND ( P500 , 000 . 00 ) , PhilFinance sold , transferred and
delivered to petitioner CBCI 4 - year , 8th series , Serial No . D891 with a
face value of P500 , 000 . 00 xxx , which CBCI was among those previously
acquired by PhilFinance from Filriters as averred in paragraph 3 of the
Petition ; paragraph paragraph paragraph
6 . Pursuant to the aforesaid Repurchase
Agreement ( Annex B ) , Philfinance agreed to repurchase CBCI
Serial No . D891 ( Annex C ) , at the stipulated price of
PESOS : FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED
SIXTY - ONE & 11 / 100 ( P519 , 361 . 11 ) on April
27 , 1981 ; paragraph paragraph paragraph
7 . PhilFinance failed to repurchase the CBCI on the agreed date of
maturity , April 27 , 1981 , when the checks it issued in favor of petitioner
were dishonored for insufficient
funds ;
8 . Owing to the default of PhilFinance , it executed a Detached Assignment in
favor of the Petitioner to enable the latter to have its title completed and registered in
the books of the respondent . And by means of said Detachment
Assignment , Philfinance transferred and assigned all its rights and title in the said
CBCI ( Annex C ) to petitioner and , furthermore , it did
thereby irrevocably authorize the said issuer ( respondent herein ) to
transfer the said bond / certificate on the books of its fiscal agent . xxx
9 . Petitioner presented the CBCI ( Annex C ) , together with the

two ( 2 ) aforementioned Detached
Assignments ( Annexes B and D ) , to the Securities
Servicing Department of the respondent , and requested the latter to effect the
transfer of the CBCI on its books and to issue a new certificate in the name of
petitioner as absolute owner thereof ; paragraph paragraph paragraph
10 . Respondent failed and refused to register the transfer as requested , and
continues to do so notwithstanding petitioner s valid and just title over the same
and despite repeated demands in writing , the latest of which is hereto attached as
Annex E and made an integral part
hereof ;
11 . The express provisions governing the transfer of the CBCI were substantially
complied with in petitioner s request for registration , to
wit : paragraph paragraph paragraph
No transfer thereof shall be valid unless made at said office ( where the
Certificate has been registered ) by the registered owner hereof , in person or by
his attorney duly authorized in writing , and similarly noted hereon , and upon
payment of a nominal transfer fee which may be required , a new Certificate shall
be issued to the transferee of the registered holder
thereof . paragraph paragraph paragraph
and , without a doubt , the Detached Assignments presented to respondent were
sufficient authorizations in writing executed by the registered
owner , Filriters , and its transferee , PhilFinance , as required by the
above - quoted provision ;
12 . Upon such compliance with the aforesaid requirements , the ministerial
duties of registering a transfer of ownership over the CBCI and issuing a new
certificate to the transferee devolves upon the
respondent ; paragraph paragraph paragraph
Upon these assertions , TRB prayed for the registration by the Central Bank of
the subject CBCI in its name . paragraph paragraph paragraph
On December 4 , 1984 , the Regional Trial Court trying the case took
cognizance of the defendant Central Bank of the Philippines Motion for Admission
of Amended Answer with Counter Claim for Interpleader , [6] thereby calling to fore the
respondent Filriters Guaranty Assurance Corporation ( Filriters )
, the
registered
owner
of
the
subject
CBCI
as
respondent . paragraph paragraph paragraph
For
its
part , Filriters
interjected
following : paragraph paragraph paragraph
as
Special
Defenses
the
11 . Respondent is the registered owner of CBCI

No . 891 ;
12 . The CBCI constitutes part of the reserve investment against liabilities required
of respondent as an insurance company under the Insurance
Code ; paragraph paragraph paragraph
13 . Without any consideration or benefit whatsoever to Filriters , in violation of
law and the trust fund doctrine and to the prejudice of policyholders and to all who
have present or future claim against policies issued by Filriters , Alfredo
Banaria , then Senior Vice - President - Treasury of Filriters , without any
board resolution , knowledge or consent of the board of directors of Filriters and
without any clearance or authorization from the Insurance
Commissioner , executed a detached assignment purportedly assigning CBCI
No . 891 to Philfinance ; paragraph paragraph paragraph
xxx
14 . Subsequently , Alberto Fabella , Senior Vice - President Comptroller and Pilar Jacobe , Vice - President - Treasury of
Filriters ( both of whom were holding the same positions in
Philfinance ) , without any consideration or benefit redounding to Filriters and
to the grave prejudice of Filriters , its policy holders and all who have present or
future claims against its policies , executed similar detached assignment forms
transferring the CBCI to plaintiff ; paragraph paragraph paragraph
xxx paragraph paragraph paragraph
15 . The detached assignment is patently void and inoperative because the

assignment is without the knowledge and consent of directors of Filriters , and not
duly authorized in writing by the Board , as required by Article V , Section 3 of
CB Circular No . 769 ; paragraph paragraph paragraph
16 . The assignment of the CBCI to Philfinance is a personal act of Alfredo
Banaria and not the corporate act of Filriters and as such null and
void ; paragraph paragraph paragraph
a ) The assignment was executed without consideration and for that reason , the
assignment is void from the beginning ( Article 1409 , Civil
Code ) ; paragraph paragraph paragraph
b ) The assignment was executed without any knowledge and consent of the board
of directors of Filriters ; paragraph paragraph paragraph
c ) The CBCI constitutes reserve investment of Filriters against
liabilities , which is a requirement under the Insurance Code for its existence as an
insurance company and the pursuit of its business operations . The assignment of
the CBCI is illegal act , in the sense of malum in se or malum prohibitum , for
anyone to make , either as corporate or personal
act ;
d ) The transfer or diminution of reserve investments of Filriters is expressly
prohibited by law , is immoral and against public
policy ; paragraph paragraph paragraph
e ) The assignment of the CBCI has resulted in the capital impairment and in the
solvency deficiency of Filriters ( and has in fact helped in placing Filriters under
conservatorship ) , an inevitable result known to the officer who executed the
detached assignment . paragraph paragraph paragraph
17 . Plaintiff had acted in bad faith and with knowledge of the illegality and
invalidity of the assignment ; paragraph paragraph paragraph
a ) The CBCI No . 891 is not a negotiable instrument and as a certificate of
indebtedness is not payable to bearer but is registered in the name of
Filriters ; paragraph paragraph paragraph
b ) The provision on transfer of the CBCIs , provides that the Central Bank shall
treat the registered owner as the absolute ownerand that the value of the registered
certificates shall be payable only to the registered owner ; a sufficient notice to
plaintiff that the assignments do not give them the registered owner s right as
absolute owner of the CBCIs ; paragraph paragraph paragraph
c ) CB Circular 769 , Series of 1980 ( Rules and Regulations Governing
CBCIs ) provides that registered certificates are payable only to the registered
owner ( Article II , Section 1 ) . paragraph paragraph paragraph
18 . Plaintiff knew full well that the assignment by Philfinance of CBCI
No . 891 by Filriters is not a regular transaction made in the usual or ordinary
course of business ; paragraph paragraph paragraph
a ) The CBCI constitutes part of the reserve investments of Filriters against
liabilities required by the Insurance Code and its assignment or transfer is expressly
prohibited by law . There was no attempt to get any clearance or authorization

from the Insurance Commissioner ;
b ) The assignment by Filriters of the CBCI is clearly not a transaction in the usual
or regular course of its business ; paragraph paragraph paragraph
c ) The CBCI involved substantial amount and its assignment clearly constitutes
disposition of all or substantially all of the assets of Filriters , which
requires the affirmative action of the stockholders ( Section
40 , Corporation [ sic ] Code ) . paragraph paragraph paragraph
[7]
In its Decision[8] dated April 29 , 1988 , the Regional Trial Court of

Manila , Branch XXXII found the assignment of CBCI No . D891 in favor of
Philfinance , and the subsequent assignment of the same CBCI by Philfinance in
favor of Traders Royal Bank null and void and of no force and effect . The dispositive
portion of the decision reads : paragraph paragraph paragraph
ACCORDINGLY , judgment is hereby rendered in favor of the respondent

Filriters Guaranty Assurance Corporation and against the plaintiff Traders Royal
Bank : paragraph paragraph paragraph
( a ) Declaring the assignment of CBCI No . 891 in favor of
PhilFinance , and the subsequent assignment of CBCI by PhilFinance in favor of
the plaintiff Traders Royal Bank as null and void and of no force and
effect ; paragraph paragraph paragraph
( b ) Ordering the respondent Central Bank of the Philippines to disregard the
said assignment and to pay the value of the proceeds of the CBCI No . D891 to the
Filtriters Guaranty Assurance Corporation ; paragraph paragraph paragraph
( c ) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters
Guaranty Assurance Corp . The sum of P10 , 000 as attorney s
fees ; and
( d ) to pay the costs . paragraph paragraph paragraph
SO ORDERED .
[9]
The petitioner assailed the decision of the trial court in the Court of
Appeals , [10] but their appeal likewise failed . The findings of fact of the said court
are hereby reproduced : paragraph paragraph paragraph
The records reveal that defendant Filriters is the registered owner of CBCI
No . D891 . Under a deed of assignment dated November
27 , 1971 , Filriters transferred CBCI No . D891 to Philippine Underwriters
Finance Corporation ( Philfinance ) . Subsequently , Philfinance
transferred CBCI No . D891 , which was still registered in the name of
Filriters , to appellant Traders Royal Bank ( TRB ) . The transfer was
made under a repurchase agreement dated February 4 , 1981 , granting
Philfinance the right to repurchase the instrument on or before April
27 , 1981 . When Philfinance failed to buy back the note on maturity date , it
executed a deed of assignment , dated April 27 , 1981 , conveying to
appellant TRB all its rights and title to CBCI
No . D891 . paragraph paragraph paragraph
Armed with the deed of assignment , TRB then sought the transfer and registration
of CBCI No . D891 in its name before the Security and Servicing Department of
the Central Bank ( CB ) . Central Bank , however , refused to effect
the transfer and registration in view of an adverse claim filed by defendant
Filriters . paragraph paragraph paragraph
Left with no other recourse , TRB filed a special civil action for mandamus against
the Central Bank in the Regional Trial Court of Manila . The
suit , however , was subsequently treated by the lower court as a case of
interpleader when CB prayed in its amended answer that Filriters be impleaded as a
respondent and the court adjudge which of them is entitled to the ownership of CBCI
No . D891 . Failing to get a favorable judgment . TRB now comes to this
Court on appeal .
[11]
In the appellate court , petitioner argued that the subject CBCI was a negotiable
instrument , and having acquired the said certificate from Philfinance as a holder in
due course , its possession of the same is thus free from any defect of title of prior
parties and from any defense available to prior parties among themselves , and it
may thus , enforce payment of the instrument for the full amount thereof against all
parties liable thereon . [12] paragraph paragraph paragraph
In ignoring said argument , the appellate court said that the CBCI is not a
negotiable instrument , since the instrument clearly stated that it was payable to
Filriters , the registered owner , whose name was inscribed thereon , and that
the certificate lacked the words of negotiability which serve as an expression of consent
that
the
instrument
may
be
transferred
by
negotiation .
Obviously , the assignment of the certificate from Filriters to Philfinance was
fictitious , having been made without consideration , and did not conform to
Central Bank Circular No . 769 , series of 1980 , better known as
the Rules and Regulations Governing Central Bank Certificates of

Indebtedness
, which provided that any assignment of registered certificates
shall not be valid unless made xxx by the registered owner thereof in person or by his
representative duly authorized in writing .

Petitioner s claimed interest has no basis , since it was derived from
Philfinance , whose interest was inexistent , having acquired the certificate
through simulation . What happened was Philfinance merely borrowed CBCI
No . D891 from Filriters , a sister corporation , to guarantee its financing
operations . paragraph paragraph paragraph
Said the Court :
In the case at bar , Alfredo O . Banaria , who signed the deed of

assignment purportedly for and on behalf of Filriters , did not have the necessary
written authorization from the Board of Directors of Filriters to act for the
latter . For lack of such authority , the assignment did not therefore bind
Filriters and violated at the same time Central Bank Circular No . 769 which has
the force and effect of a law , resulting in the nullity of the
transfer ( People v . Que Po Lay , 94 Phil 640 ; 3M
Philippines , Inc . vs . Commissioner of Internal Revenue , 165 SCRA
778 ) . paragraph paragraph paragraph
In sum , Philfinance acquired no title or rights under CBCI No . D891 which it
could assign or transfer to Traders Royal Bank and which the latter can register with
the Central Bank . paragraph paragraph paragraph
WHEREFORE , the judgment appealed from is AFFIRMED , with costs
against plaintiff - appellant . paragraph paragraph paragraph
SO ORDERED .
[13]
Petitioner s present position rests solely on the argument that Philfinance owns
90% of Filriter s equity and the two corporations have identical corporate
officers , thus demanding the application of the doctrine of piercing the veil of
corporate fiction , as to give validity to the transfer of the CBCI from the registered
owner to petitioner TRB . [14] This renders the payment by TRB to Philfinance for
CBCI , as actual payment to Filriters . Thus , there is no merit to the lower
courts ruling that the transfer of the CBCI from Filriters to Philfinance was null and
void for lack of consideration . paragraph paragraph paragraph
Admittedly , the subject CBCI is not a negotiable instrument in the absence of
words of negotiability within the meaning of the negotiable instruments law ( Act
2031 )
. paragraph paragraph paragraph
The
pertinent
portions
read : paragraph paragraph paragraph
of
the
subject
CBCI
The Central Bank of the Philippines ( the Bank ) for value received , hereby
promises to pay to bearer , or if this Certificate of indebtedness be registered , to
FILRITERS GUARANTY ASSURANCE CORPORATION , the registered owner
hereof , the principal sum of FIVE HUNDRED THOUSAND
PESOS . paragraph paragraph paragraph
Properly understood , a certificate of indebtedness pertains to certificates for the
creation and maintenance of a permanent improvement revolving fund , is similar to
a bond ,
( 82 Minn . 202 )
. Being equivalent to a bond , it is
properly understood as an acknowledgment of an obligation to pay a fixed sum of
money . It
is
usually
used
for
the
purpose
of
long
term
loans . paragraph paragraph paragraph
The appellate court ruled that the subject CBCI is not
instrument , stating that :
negotiable
As worded , the instrument provides a promise to pay Filriters Guaranty

Assurance Corporation , the registered owner hereof . Very clearly , the
instrument is payable only to Filriters , the registered owner , whose name is
inscribed thereon . It lacks the words of negotiability which should have served as
an expression of consent that the instrument may be transferred by
negotiation .
[15]
A reading of the subject CBCI indicates that the same is payable to FILRITERS
GUARANTY
ASSURANCE
CORPORATION , and
to
no
one
else , thus , discounting the petitioner s submission that the same is a
negotiable instrument , and that it is a holder in due course of the
certificate . paragraph paragraph paragraph
The language of negotiability which characterize a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money . Hence , freedom
of negotiability is the touchstone relating to the protection of holders in due
course , and the freedom of negotiability is the foundation for the protection which
the
law
throws
around
a
holder
in
due
course ( 11
Am . Jur . 2d , 32 )
. This freedom in negotiability is totally absent in a
certificate of indebtedness as it merely acknowledges to pay a sum of money to a
specified person or entity for a period of time . paragraph paragraph paragraph
As
held
in
Caltex ( Philippines )
[16]
Appeals :
Inc .
vs .
Court
of
The accepted rule is that the negotiability or non - negotiability of an

instrument is determined from the writing , that is , from the face of the
instrument itself . In the construction of a bill or note , the intention of the
parties is to control , if it can be legally ascertained . While the writing may be
read in the light of surrounding circumstances in order to more perfectly understand
the intent and meaning of the parties , yet as they have constituted the writing to be
the only outward and visible expression of their meaning , no other words are to be
added to it or substituted in its stead . The duty of the court in such case is to
ascertain , not what the parties may have secretly intended as contradistinguished
from what their words express , but what is the meaning of the words they have
used . What the parties meant must be determined by what they
said . paragraph paragraph paragraph
Thus , the transfer of the instrument from Philfinance to TRB was merely an
assignment , and is not governed by the negotiable instruments law . The
pertinent question then is , was the transfer of the CBCI from Filriters to Philfinance
and subsequently from Philfinance to TRB , in accord with existing law , so as to
entitle TRB to have the CBCI registered in its name with the Central
Bank ? paragraph paragraph paragraph
The following are the appellate court s
matter :
pronouncements
on
Clearly shown in the record is the fact that Philfinance s title over
CBCI No . D891 is defective since it acquired the instrument from
Filriters fictitiously . Although the deed of assignment stated that the
transfer was for value received , there was really no
consideration involved . What happened was Philfinance merely
borrowed CBCI No . D891 from Filriters , a sister
corporation . Thus , for lack of any consideration , the assignment
made is a complete nullity . paragraph paragraph paragraph
What is more , We find that the transfer made by Filriters to Philfinance
did not conform to Central Bank Circular No . 769 , series of
1980 , otherwise known as the Rules and Regulations Governing
Central Bank Certificates of Indebtedness , under which the note was
issued . Published in the Official Gazette on November
19 , 1980 , Section 3 thereof provides that any assignment of
registered certificates shall not be valid unless made xxx by the registered
owner thereof in person or by his representative duly authorized in
writing . paragraph paragraph paragraph
In the case at bar , Alfredo O . Banaria , who signed the deed of
assignment purportedly for and on behalf of Filriters , did not have the
the
necessary written authorization from the Board of Directors of Filriters to act

for the latter . For lack of such authority , the assignment did not
therefore bind Filriters and violated at the same time Central Bank Circular
No . 769 which has the force and effect of a law , resulting in the
nullity of the transfer ( People vs . Que Po Lay , 94 Phil
640 ; 3M Philippines , Inc . vs . Commissioner of Internal
Revenue , 165 SCRA 778 ) . paragraph paragraph paragraph
In sum , Philfinance acquired no title or rights under CBCI No . D891
which it could assign or transfer to Traders Royal Bank and which the latter
can register with the Central Bank . paragraph paragraph paragraph
Petitioner now argues that the transfer of the subject CBCI to TRB must be
upheld , as the respondent Filriters and Philfinance , though separate corporate
entities on paper , have used their corporate fiction to defraud TRB into purchasing
the subject CBCI , which purchase now is refused registration by the Central
Bank . paragraph paragraph paragraph
Says the petitioner ; paragraph paragraph paragraph

Since Philfinance owns about 90% of Filriters and the two companies have the
same corporate officers , if the principle of piercing the veil of corporate entity
were to be applied in this case , then TRB s payment to Philfinance for the
CBCI purchased by it could just as well be considered a payment to Filriters , the
registered owner of the CBCI as to bar the latter from claiming , as it has , that it
never received any payment for that CBCI sold and that said CBCI was sold without
its authority . paragraph paragraph paragraph
x x x paragraph paragraph paragraph
We respectfully submit that , considering that the Court of Appeals has held that
the CBCI21 was merely borrowed by Philfinance from Filriters , a sister
corporation , to guarantee its ( Philfinance s ) financing operations , if
it were to be consistent therewith , on the issue raised by TRB that there was a
piercing a veil of corporate entity , the Court of Appeals should have ruled that
such veil of corporate entity was , in fact , pierced , and the payment by TRB
to Philfinance should be construed as payment to
Filriters .
[17]
We disagree with the Petitioner .
Petitioner cannot put up the excuse of piercing the veil of corporate entity , as
this is merely an equitable remedy , and may be awarded only in cases when the
corporate fiction is used to defeat public convenience , justify wrong , protect fraud
or defend crime or where a corporation is a mere alter ego or business conduit of a

person . [18] paragraph paragraph paragraph
Piercing the veil of corporate entity requires the court to see through the protective
shroud which exempts its stockholders from liabilities that ordinarily , they could be
subject to , or distinguishes one corporation from a seemingly separate
one , were it not for the existing corporate fiction . But to do this , the court
must be sure that the corporate fiction was misused , to such an extent that
injustice , fraud , or
crime
was
committed
upon
another , disregarding , thus , his , her , or its rights . It is the
protection of the interests of innocent third persons dealing with the corporate entity
which the law aims to protect by this doctrine . paragraph paragraph paragraph
The corporate separateness between Filriters and Philfinance remains , despite
the petitioners insistence on the contrary . For one , other than the allegation that
Filriters is 90% owned by Philfinance , and the identity of one shall be maintained as
to the other , there is nothing else which could lead the court under the
circumstances
to
disregard
their
corporate
personalities .
Though it is true that when valid reasons exist , the legal fiction that a
corporation is an entity with a juridical personality separate from its stockholders and
from other corporations may be disregarded , [19] in the absence of such
grounds , the general rule must be upheld . The fact that Philfinance owns
majority shares in Filriters is not by itself a ground to disregard the independent
corporate status of Filriters . In Liddel & Co .
, Inc . vs . Collector of
Internal Revenue , [20] the mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself a
sufficient
reason
for
disregarding
the
fiction
of
separate
corporate
personalities . paragraph paragraph paragraph
In the case at bar , there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness from
Philfinance . paragraph paragraph paragraph
On its face , the subject certificates states that it is registered in the name of
Filriters . This should have put the petitioner on notice , and prompted it to inquire
from Filriters as to Philfinance s title over the same or its authority to assign the
certificate . As it is , there is no showing to the effect that petitioner had any
dealings whatsoever with Filriters , nor did it make inquiries as to the ownership of
the certificate . paragraph paragraph paragraph
The terms of the CBCI No . D891 contain a provision
TRANSFER . Thus :
on
its
TRANSFER : This Certificate shall pass by delivery unless it is registered in

the owner s name at any office of the Bank or any agency duly authorized by the
Bank , and such registration is noted hereon . After such registration no transfer
thereof shall be valid unless made at said office ( where the Certificate has been
registered ) by the registered owner hereof , in person , or by his

attorney , duly authorized in writing and similarly noted hereon and upon payment
of a nominal transfer fee which may be required , a new Certificate shall be issued
to the transferee of the registered owner thereof . The bank or any agency duly
authorized by the Bank may deem and treat the bearer of this Certificate , or if this
Certificate is registered as herein authorized , the person in whose name the same is
registered as the absolute owner of this Certificate , for the purpose of receiving
payment hereof , or on account hereof , and for all other purpose whether or not
this Certificate shall be overdue . paragraph paragraph paragraph
This is notice to petitioner to secure from Filriters a written authorization for the
transfer or to require Philfinance to submit such an authorization from
Filriters . paragraph paragraph paragraph
Petitioner knew that Philfinance is not the registered owner of CBCI
No . D891 . The fact that a non - owner was disposing of the registered CBCI
owned by another entity was a good reason for petitioner to verify or inquire as to the
title of Philfinance to dispose of the CBCI . paragraph paragraph paragraph
Moreover , CBCI
No . D891
is
governed
by
CB
Circular
[21]
No . 769 , series of 1980 ,
known as the Rules and Regulations Governing
Central Bank Certificates of Indebtedness , Section 3 , Article V of which provides
that : paragraph paragraph paragraph
SECTION 3 . Assignment of Registered Certificates .

- Assignment of
registered certificates shall not be valid unless made at the office where the same have
been issued and registered or at the Securities Servicing Department , Central Bank
of the Philippines , and by the registered owner thereof , in person or by his
representative , duly authorized in writing . For this purpose , the transferee
may be designated as the representative of the registered
owner . paragraph paragraph paragraph
Petitioner , being a commercial bank , cannot feign ignorance of Central Bank
Circular 769 , and its requirements . An entity which deals with corporate agents
within circumstances showing that the agents are acting in excess of corporate
authority , may not hold the corporation liable . [22] This is only fair , as everyone
must , in the exercise of his rights and in the performance of his duties , act with
justice , give everyone his due , and observe honesty and good
faith . [23] paragraph paragraph paragraph
The transfer made by Filriters to Philfinance did not conform to the said Central
Bank Circular , which for all intents , is considered part of the law . As found by
the courts a quo , Alfredo O . Banaria , who had signed the deed of
assignment from Filriters to Philfinance , purportedly for and in favor of
Filriters , did not have the necessary written authorization from the Board of Directors
of Filriters to act for the latter . As it is , the sale from Filriters to Philfinance was
fictitious , and therefore void and inexistent , as there was no consideration for
the same . This is fatal to the petitioner s cause , for then , Philfinance had
no title over the subject certificate to convey to Traders Royal Bank . Nemo potest
nisi quod de jure potest - no man can do anything except what he can do
lawfully . paragraph paragraph paragraph
Concededly , the subject CBCI was acquired by Filriters to form part of its legal
and capital reserves , which are required by law[24] to be maintained at a mandated
level . This was pointed out by Elias Garcia , Manager - in - Charge of
respondent Filriters , in his testimony given before the court on May
30 , 1986 . paragraph paragraph paragraph
Q Do you know this Central Bank Certificate of Indebtedness , in
short , CBCI No . D891 in the face value of P500 , 000 . 00 subject of
this case ? paragraph paragraph paragraph
A Yes ,
sir .
Q Why do you know this ?
A Well , this was the CBCI of the company sought to be examined by the Insurance
Commission sometime in early 1981 and this CBCI No . 891 was among the
CBCI s that were found to be missing . paragraph paragraph paragraph
Q Let me take you back further before 1981 . Did you have the knowledge of this
CBCI No . 891 before 1981 ? paragraph paragraph paragraph
A Yes , sir . This CBCI is an investment of Filriters required by the Insurance
Commission
as
legal
reserve
of
the
company .
Q Legal reserve for the purpose of what ?
A Well , you see , the Insurance companies are required to put up legal reserves
under Section 213 of the Insurance Code equivalent to 40 percent of the premiums
receipt and further , the Insurance Commission requires this reserve to be
invested preferably in government securities or government bonds . This is how
this
CBCI
came
to
be
purchased
by
the
company .
It cannot , therefore , be taken out of the said fund , without violating the
requirements of the law . Thus , the unauthorized use or distribution of the same
by a corporate officer of Filriters cannot bind the said corporation , not without the
approval of its Board of Directors , and the maintenance of the required reserve
fund . paragraph paragraph paragraph
Consequently , the title of Filriters over the subject certificate of indebtedness
must
be
upheld
over
the
claimed
interest
of
Traders
Royal
Bank . paragraph paragraph paragraph
ACCORDINGLY , the petition is DISMISSED and the decision appealed from
dated January 29 , 1990 is hereby AFFIRMED . paragraph paragraph paragraph
SO ORDERED .
Regalado ,
( Chairman )
, Romero ,
.
, concur . paragraph paragraph paragraph
paragraph paragraph
paragraph
Puno ,
and Mendoza ,
JJ
[1]
Justice Ricardo L . Pronove , Jr . , ponente ; concurred in by Justices Alfredo L . Benipayo

and Serafin V . C . Guingona , p . 18 , Rollo .
[2]
p . 143 , Record
[3]
Ibid .
, at p . 146 .
[4]
Ibid .
, at p . 148 .
[5]
p . 1 , Record .
[6]
p . 75 , Record .
[7]
Answer , p . 97 , Record .
[8]
p . 315 , Record .
[9]
Pp . 16 - 17 , RTC Decision , p . 330 , Rollo .
[10]
Annex A
[11]
Court of Appeals Decision , pp . 18 - 19 , Rollo .
[12]
Section 57 . Negotiable Instruments Law .
[13]
Petition , Annex A
[14]
Ibid .
[15]
Campos and Campos , Negotiable Instruments Law , p . 38 , 1971 ed .
[16]
G . R . No . 97753 , August 10 , 1992 , 212 SCRA 448 .
[17]
Petition .
[18]
Yu vs . National Labor Relations Commission 245 SCRA 134 .
[19]
Guatson International Travel and Tours , Inc . vs . National Labor Relations Commission , 230
SCRA 815 .
[20]
2 SCRA 632 .
[21]
76 Official Gazette 9370 .
[22]
See Article 1883 , Civil Code .
[23]
See Article 19 , Civil Code .
[24]
Section 213 . Every insurance company , other than life , shall maintain a reserve for unearned
premiums on its policies in force , which shall be charged as a liability in any determination of its
financial condition . Such reserve shall be equal to forty percentum of the gross
premiums , less returns and cancellations , received on policies or risks having more than one
year to run ; Provided that for marine cargo risks , the reserve shall be equal to forty per
centum of the premiums written in the policies of risks , and the full amount of premiums written
Petition , supra .
, pp . 21 - 22 , Rollo .
during the last two months of the calendar year upon all other marine risks not
terminated . Presidential Decree No . 612 ( The Insurance Code of the Philippines . )
Republic of the Philippines
Supreme Court
Manila
THIRD DIVISION
PHILIPPINE NATIONAL BANK,
Petitioner,
G.R. No. 170325

Present:
- versus -
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
ERLANDO T. RODRIGUEZ
Promulgated:
and NORMA RODRIGUEZ,
Respondents.
September 26, 2008
x--------------------------------------------------x
DECISION
REYES, R.T., J.:
WHEN the payee of the check is not intended to be the true recipient of its
proceeds, is it payable to order or bearer? What is the fictitious-payee rule and
who is liable under it? Is there any exception?
These questions seek answers in this petition for review on certiorari of the
Amended Decision[1] of the Court of Appeals (CA) which affirmed with
modification that of the Regional Trial Court (RTC).[2]
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of
petitioner
Philippine
National
Bank
(PNB),
Amelia
Avenue
Branch, Cebu City. They maintained savings and demand/checking accounts,
namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under
the account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit
(Checking/Current Account No. 810480-4 under the account name Erlando T.
Rodriguez).
The spouses were engaged in the informal lending business. In line with
their business, they had a discounting[3]arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an association
of PNBemployees. Naturally, PEMSLA was likewise a client of PNB Amelia
Avenue Branch. The association maintained current and savings accounts with
petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would
rediscount the postdated checks issued to members whenever the association was
short of funds. As was customary, the spouses would replace the postdated checks
with their own checks issued in the name of the members.
It was PEMSLAs policy not to approve applications for loans of members
with outstanding debts. To subvert this policy, some PEMSLA officers devised a
scheme to obtain additional loans despite their outstanding loan accounts. They
took out loans in the names of unknowing members, without the knowledge or
consent of the latter. The PEMSLA checks issued for these loans were then given
to the spouses for rediscounting. The officers carried this out by forging the
indorsement of the named payees in the checks.
In return, the spouses issued their personal checks (Rodriguez checks) in the
name of the members and delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited by the spouses to their
account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its
savings account without any indorsement from the named payees. This was an
irregular procedure made possible through the facilitation of Edmundo Palermo,
Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this
became the usual practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty
nine (69) checks, in the total amount of P2,345,804.00. These were payable to
forty seven (47) individual payees who were all members of PEMSLA.[4]
Petitioner PNB eventually found out about these fraudulent acts. To put a
stop to this scheme, PNB closed the current account of PEMSLA. As a result, the
PEMSLA checks deposited by the spouses were returned or dishonored for the
reason Account Closed. The corresponding Rodriguez checks, however, were
deposited as usual to the PEMSLA savings account. The amounts were duly
debited from the Rodriguez account. Thus, because the PEMSLA checks given as
payment were returned, spouses Rodriguez incurred losses from the rediscounting
transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a
civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of
Philnabankers (MCP), and petitioner PNB. They sought to recover the value of
their checks that were deposited to the PEMSLA savings account amounting
to P2,345,804.00. The spouses contended that because PNB credited the checks
to the PEMSLA account even without indorsements, PNBviolated its
contractual obligation to them as depositors. PNB paid the wrong payees, hence, it
should bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of

action. PNB argued that the claim for damages should come from the payees of
the checks, and not from spouses Rodriguez. Since there was no demand from the
said payees, the obligation should be considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNBs motion to
dismiss.
In its Answer,[5] PNB claimed it is not liable for the checks which it paid to
the PEMSLA account without any indorsement from the payees. The bank
contended that spouses Rodriguez, the makers, actually did not intend for the
named payees to receive the proceeds of the checks. Consequently, the payees
were considered as fictitious payees as defined under the Negotiable
Instruments Law (NIL). Being checks made to fictitious payees which are bearer
instruments, the checks were negotiable by mere delivery. PNBs Answer
included its cross-claim against its co-defendants PEMSLA and the MCP, praying
that in the event that judgment is rendered against the bank, the cross-defendants
should be ordered to reimburse PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez
(plaintiffs). It ruled that PNB (defendant) is liable to return the value of the
checks. All counterclaims and cross-claims were dismissed. The dispositive
portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment, as follows:
1.
Defendant is hereby ordered to pay the plaintiffs the total amount

of P2,345,804.00 or reinstate or restore the amount of P775,337.00 in the
PNBig Demand Deposit Checking/Current Account No. 810480-4 of
Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig
Demand Deposit, Checking/Current Account No. 810624-6 of Erlando T.
Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon to
be computed from the filing of this complaint until fully paid;
2.
The defendant PNB is hereby ordered to pay the plaintiffs the following
reasonable amount of damages suffered by them taking into consideration
the standing of the plaintiffs being sugarcane planters, realtors, residential

subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount
of P4,000,000.00, as a result of their having incurred great
dificulty (sic) especially in the residential subdivision
business, which was not pushed through and the contractor
even threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorneys fees in the amount of P150,000.00 considering that
this case does not involve very complicated issues; and for the
(e) Costs of suit.
3.
Other claims and counterclaims are hereby dismissed.[6]
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal
ground that the disputed checks should be considered as payable to bearer and not
to order.
In a Decision[7] dated July 22, 2004, the CA reversed and set aside
the RTC disposition. The CA concluded that the checks were obviously meant by
the spouses to be really paid to PEMSLA. The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses
Rodriguez) that their cause of action arose from the alleged breach of contract by
the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA
despite the checks being payable to order. Rather, we are more convinced by the
strong and credible evidence for the defendant-appellant with regard to the
plaintiffs-appellees and PEMSLAs business arrangement that the value of the
rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLAs
account for payment of the loans it has approved in exchange for PEMSLAs
checks with the full value of the said loans. This is the only obvious explanation
as to why all the disputed sixty-nine (69) checks were in the possession of
PEMSLAs errand boy for presentment to the defendant-appellant that led to this
present controversy. It also appears that the teller who accepted the said checks
was PEMSLAs officer, and that such was a regular practice by the parties until
the defendant-appellant discovered the scam. The logical conclusion, therefore, is
that the checks were never meant to be paid to order, but instead, to
PEMSLA. We thus find no breach of contract on the part of the defendantappellant.
According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA
allegedly issued post-dated checks to its qualified members who had applied for
loans. However, because of PEMSLAs insufficiency of funds, PEMSLA
approached the plaintiffs-appellees for the latter to issue rediscounted checks in
favor of said applicant members. Based on the investigation of the defendantappellant, meanwhile, this arrangement allowed the plaintiffs-appellees to make a
profit by issuing rediscounted checks, while the officers of PEMSLA and other
members would be able to claim their loans, despite the fact that they were
disqualified for one reason or another. They were able to achieve this conspiracy
by using other members who had loaned lesser amounts of money or had not
applied at all. x x x.[8] (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not
require indorsement for negotiation; and that spouses Rodriguez and PEMSLA
conspired with each other to accomplish this money-making scheme. The payees
in the checks were fictitious payees because they were not the intended payees at
all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia,
that the checks on their faces were unquestionably payable to order; and
that PNB committed a breach of contract when it paid the value of the checks to
PEMSLA without indorsement from the payees. They also argued that their cause
of action is not only against PEMSLA but also against PNB to recover the value of
the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the
last paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffsappellees Sps. Rodriguez for the following:
1.
Actual damages in the amount of P2,345,804 with interest at

6% per annum from 14 May 1999 until fully paid;
2.
Moral damages in the amount of P200,000;
3.
Attorneys fees in the amount of P100,000; and
4.
Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby

rendered by Us AFFIRMING WITH MODIFICATION the assailed decision
rendered in Civil Case No. 99-10892, as set forth in the immediately next
preceding paragraph hereof, and SETTING ASIDE Our original decision
promulgated in this case on 22 July 2004.
SO ORDERED.[9]
The CA ruled that the checks were payable to order. According to the
appellate court, PNB failed to present sufficient proof to defeat the claim of the
spouses Rodriguez that they really intended the checks to be received by the
specified payees. Thus, PNB is liable for the value of the checks which it paid to
PEMSLA without indorsements from the named payees. The award for damages
was deemed appropriate in view of the failure of PNB to treat the Rodriguez
account with the highest degree of care considering the fiduciary nature of
their relationship, which constrained respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to
order or to bearer and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed
checks, they did not intend for the named payees to receive the proceeds. Thus,
they are bearer instruments that could be validly negotiated by mere
delivery. Further, testimonial and documentary evidence presented during trial
amply proved that spouses Rodriguez and the officers of PEMSLA conspired with
each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous
judgment attaining finality to the prejudice of innocent parties. A court
discovering an erroneous judgment before it becomes final may, motu proprioor
upon motion of the parties, correct its judgment with the singular objective of
achieving justice for the litigants.[10]
However, a word of caution to lower courts, the CA in Cebu in this
particular case, is in order. The Court does not sanction careless disposition of
cases by courts of justice. The highest degree of diligence must go into the study
of every controversy submitted for decision by litigants. Every issue and factual
detail must be closely scrutinized and analyzed, and all the applicable laws
judiciously studied, before the promulgation of every judgment by the court. Only
in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true
recipient of the proceeds, the check is considered as a bearer instrument. A
check is a bill of exchange drawn on a bank payable on demand.[11] It is either
an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order
where it is drawn payable to the order of a specified person or to him or his
order. It may be drawn payable to the order of
(a)
(b)
(c)
(d)
(e)
(f)
A payee who is not maker, drawer, or drawee; or

The drawer or maker; or
The drawee; or
Two or more payees jointly; or
One or some of several payees; or
The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or

otherwise indicated therein with reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer

(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person,
and such fact is known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any
person; or
(e) Where the only or last indorsement is an indorsement in
blank.[12] (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of
negotiation. Under Section 30 of the NIL, an order instrument requires an
indorsement from the payee or holder before it may be validly negotiated. A
bearer instrument, on the other hand, does not require an indorsement to be validly
negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated
when it is transferred from one person to another in such manner as to constitute
the transferee the holder thereof. If payable to bearer, it is negotiated by delivery;
if payable to order, it is negotiated by the indorsement of the holder completed by
delivery.
A check that is payable to a specified payee is an order

instrument. However, under Section 9(c) of the NIL, a check payable to a
specified payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non-existing person, and such fact is known
to the person making it so payable. Thus, checks issued to Prinsipe Abante or
Si Malakas at si Maganda, who are well-known characters in Philippine
mythology, are bearer instruments because the named payees are fictitious and
non-existent.
We have yet to discuss a broader meaning of the term fictitious as used in
the NIL. It is for this reason that We look elsewhere for guidance. Court rulings in
the United States are a logical starting point since our law on negotiable
instruments was directly lifted from the Uniform Negotiable Instruments Law of
the United States.[13]
A review of US jurisprudence yields that an actual, existing, and living

payee may also be fictitious if the maker of the check did not intend for the
payee to in fact receive the proceeds of the check. This usually occurs when the
maker places a name of an existing payee on the check for convenience or to cover
up an illegal activity.[14] Thus, a check made expressly payable to a non-fictitious
and existing person is not necessarily an order instrument. If the payee is not the
intended recipient of the proceeds of the check, the payee is considered a
fictitious payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability
and the drawer bears the loss. When faced with a check payable to a fictitious
payee, it is treated as a bearer instrument that can be negotiated by delivery. The
underlying theory is that one cannot expect a fictitious payee to negotiate the check
by placing his indorsement thereon. And since the maker knew this limitation, he
must have intended for the instrument to be negotiated by mere delivery. Thus, in
case of controversy, the drawer of the check will bear the loss. This rule is
justified for otherwise, it will be most convenient for the maker who desires to
escape payment of the check to always deny the validity of the indorsement. This
despite the fact that the fictitious payee was purposely named without any intention
that the payee should receive the proceeds of the check.[15]
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty
Insurance Bank.[16] In the said case, the corporation Mueller & Martin was
defrauded by George L. Martin, one of its authorized signatories. Martin drew
seven checks payable to the German Savings Fund Company Building Association
(GSFCBA) amounting to $2,972.50 against the account of the corporation without
authority from the latter. Martin was also an officer of the GSFCBA but did not
have signing authority. At the back of the checks, Martin placed the rubber stamp
of the GSFCBA and signed his own name as indorsement. He then successfully
drew the funds from Liberty Insurance Bank for his own personal profit. When the
corporation filed an action against the bank to recover the amount of the checks,
the claim was denied.
The US Supreme Court held in Mueller that when the person making the
check so payable did not intend for the specified payee to have any part in the
transactions, the payee is considered as a fictitious payee. The check is then

considered as a bearer instrument to be validly negotiated by mere delivery. Thus,
the US Supreme Court held that Liberty Insurance Bank, as drawee, was
authorized to make payment to the bearer of the check, regardless of whether prior
indorsements were genuine or not.[17]
The more recent Getty Petroleum Corp. v. American Express Travel Related
Services Company, Inc.[18]upheld the fictitious-payee rule. The rule protects the
depositary bank and assigns the loss to the drawer of the check who was in a better
position to prevent the loss in the first place. Due care is not even required from
the drawee or depositary bank in accepting and paying the checks. The effect is
that a showing of negligence on the part of the depositary bank will not defeat the
protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitiouspayee rule. A showing of commercialbad faith on the part of the drawee bank,
or any transferee of the check for that matter, will work to strip it of this
defense. The exception will cause it to bear the loss. Commercial bad faith is
present if the transferee of the check acts dishonestly, and is a party to the
fraudulent scheme. Said the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of
suspicious circumstances which might have well induced a prudent banker to
investigate and other permutations of negligence are not relevant considerations
under Section 3-405 x x x. Rather, there is a commercial bad faith exception
to UCC 3-405, applicable when the transferee acts dishonestly where it has
actual knowledge of facts and circumstances that amount to bad faith, thus itself
becoming a participant in a fraudulent scheme. x x x Such a test finds support in
the text of the Code, which omits a standard of care requirement from UCC 3-405
but imposes on all parties an obligation to act with honesty in fact. x x
x[19](Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection
even to non-bank transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified
payees. It is unrefuted that the 69 checks were payable to specific
persons. Likewise, it is uncontroverted that the payees were actual, existing, and
living persons who were members of PEMSLA that had a rediscounting
arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons,
were fictitious in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show
that the makers did not intend for the named payees to be part of the transaction
involving the checks. At most, the banks thesis shows that the payees did not
have knowledge of the existence of the checks. This lack of knowledge on the
part of the payees, however, was not tantamount to a lack of intention on the
part of respondents-spouses that the payees would not receive the checks
proceeds. Considering that respondents-spouses were transacting with PEMSLA
and not the individual payees, it is understandable that they relied on the
information given by the officers of PEMSLA that the payees would be receiving
the checks.
Verily, the subject checks are presumed order instruments. This is because,
as found by both lower courts, PNBfailed to present sufficient evidence to defeat
the claim of respondents-spouses that the named payees were the intended
recipients of the checks proceeds. The bank failed to satisfy a requisite condition
of a fictitious-payee situation that the maker of the check intended for the payee
to have no interest in the transaction.
Because of a failure to show that the payees were fictitious in its broader
sense, the fictitious-payee rule doesnot apply. Thus, the checks are to be deemed
payable to order. Consequently, the drawee bank bears the loss.[20]
PNB was remiss in its duty as the drawee bank. It does not dispute the
fact that its teller or tellers accepted the 69 checks for deposit to the PEMSLA
account even without any indorsement from the named payees. It bears stressing
that order instruments can only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the
customer nor duly indorsed by the payee is apparently grossly negligent in its
operations.[21] This Court has recognized the unique public interest possessed by
the banking industry and the need for the people to have full trust and confidence
in their banks.[22] For this reason, banks are minded to treat their customers
accounts with utmost care, confidence, and honesty.[23]
In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in
accordance with the drawers instructions, i.e., to the named payee in the check. It
should charge to the drawers accounts only the payables authorized by the
latter. Otherwise, the drawee will be violating the instructions of the drawer and it
shall be liable for the amount charged to the drawers account.[24]
In the case at bar, respondents-spouses were the banks depositors. The
checks were drawn against respondents-spouses accounts. PNB, as the drawee
bank, had the responsibility to ascertain the regularity of the indorsements, and the
genuineness of the signatures on the checks before accepting them for
deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the
instructions of the drawers. Petitioner miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of
PEMSLA absent any type of indorsement, forged or otherwise. The facts clearly
show that the bank did not pay the checks in strict accordance with the instructions
of the drawers, respondents-spouses. Instead, it paid the values of the checks not
to the named payees or their order, but to PEMSLA, a third party to the transaction
between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its
employees. The trustworthiness of bank employees is indispensable to maintain
the stability of the banking industry. Thus, banks are enjoined to be extra vigilant
in the management and supervision of their employees. In Bank of the
Philippine Islands v. Court of Appeals,[25] this Court cautioned thus:
Banks handle daily transactions involving millions of pesos. By the very
nature of their work the degree of responsibility, care and trustworthiness
expected
of
their
employees
and
officials
is
far
greater
than those of ordinary clerks and employees. For obvious reasons, the banks are
expected to exercise the highest degree of diligence in the selection and
supervision of their employees.[26]
PNBs tellers and officers, in violation of banking rules of procedure,

permitted the invalid deposits of checks to the PEMSLA account. Indeed, when it
is the gross negligence of the bank employees that caused the loss, the bank should
be held liable.[27]
PNBs argument that there is no loss to compensate since no demand for
payment has been made by the payees must also fail. Damage was caused to
respondents-spouses when the PEMSLA checks they deposited were returned for
the reason Account Closed. These PEMSLA checks were the corresponding
payments to the Rodriguez checks. Since they could not encash the PEMSLA
checks, respondents-spouses were unable to collect payments for the amounts they
had advanced.
A bank that has been remiss in its duty must suffer the consequences of its
negligence. Being issued to named payees, PNB was duty-bound by law and by
banking rules and procedure to require that the checks be properly indorsed before
accepting them for deposit and payment. In fine, PNB should be held liable for the
amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-claim
against its co-defendants PEMSLA and MPC. The records are bereft of any
pleading filed by these two defendants in answer to the complaint of respondentsspouses and cross-claim of PNB. The Rules expressly provide that failure to file
an
answer
is
a
ground
for
a
declaration
that
defendant
is in default.[28] Yet, the RTC failed to sanction the failure of both PEMSLA and
MPC to file responsive pleadings. Verily, the RTC dismissal of PNBs cross-claim
has no basis. Thus, this judgment shall be without prejudice to whatever action the
bank might take against its co-defendants in the trial court.
To PNBs credit, it became involved in the controversial transaction not of
its own volition but due to the actions of some of its employees. Considering that
moral damages must be understood to be in concept of grants, not punitive or
corrective in nature, We resolve to reduce the award of moral damages
to P50,000.00.[29]
WHEREFORE, the appealed Amended Decision is AFFIRMED with the
MODIFICATION that the award for moral damages is reduced to P50,000.00,
and that this is without prejudice to whatever civil, criminal, or administrative
action PNB might take against PEMSLA, MPC, and the employees involved.
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
ANTONIO EDUARDO B. NACHURA

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
[1]
CA-G.R. CV No. 76645 dated October 11, 2005. Penned by Associate Justice Isaias P. Dicdican, with Associate
Justices Pampio A. Abarintos and Ramon M. Bato, Jr., concurring; rollo, pp. 29-42.
[2]
Civil Case No. 99-10892, Regional Trial Court in Negros Occidental, Branch 51, Bacolod City, dated May 10,
2002; CA rollo, pp. 63-72.
[3]
A financing scheme where a postdated check is exchanged for a current check with a discounted face value.
[4]
Current Account No. 810480-4 in the name of Erlando T. Rodriguez

Name of Payees
Check No.
Date Issued
01. Simon Carmelo B. Libo-on
0001110
11.27.98
02. Simon Carmelo Libo-on
0000011589
02.01.99
03. Simon Libo-on
0000011567
01.25.99
04. Pacifico Castillo
0000011565
01.22.99
05. Jose Bago-od
0000011587
02.01.99
06. Dioleto Delcano
0000011594
02.02.99
07. Antonio Maravilla
0000011593
02.02.99
08. Josel Juguan
0000011595
02.02.99
09. Domingo Roa, Jr.
0000011591
02.01.99
10. Antonio Maravilla
0001657
02.05.99
11. Christy Mae Berden
0001655
02.05.99
12. Nelson Guadalupe
0000011588
02.01.99
13. Antonio Londres
0000011596
02.05.99
14. Arnel Navarosa
0000011597
02.05.99
15. Estrella Alunan
0000011600
02.05.99
16. Dennis Montemayor
0000011598
02.05.99
17. Mickle Argusar
0000011599
02.05.99
18. Perlita Gallego
0000011564
01.21.99
19. Sheila Arcobillas
0000011563
01.19.99
20. Danilo Villarosa
0001656
02.05.99
21. Almie Borce
0000011583
02.01.99
22. Ronie Aragon
0000011566
01.20.99
Total:
Amount
40,934.00
29,877.00
50,350.00
39,995.00
38,000.00
28,500.00
37,715.00
45,002.00
35,373.00
39,900.00
28,595.00
34,819.00
32,851.00
28,785.00
32,509.00
43,691.00
31,498.00
38,000.00
38,000.00
32,006.00
20,093.00
28,844.00
775,337.00
Current Account No. 810624-6 in the name of Erlando and/or Norma Rodriguez
Name of Payees
Check No.
Date Issued
01. Elma Bacarro
0001944
01.15.99
02. Delfin Recarder
0001927
01.14.99
03. Elma Bacarro
0001926
01.14.99
04. Perlita Gallego
0001924
01.14.99
05. Jose Weber
0001932
01.14.99
06. Rogelio Alfonso
0001922
01.14.99
07. Gianni Amantillo
0001928
01.14.99
08. Eddie Bago-od
0001929
01.14.99
09. Manuel Longero
0001933
01.14.99
10. Anavic Lorenzo
0001923
01.14.99
11. Corazon Salva
0001945
01.15.99
12. Arlene Diamante
0001951
01.18.99
13. Joselin Laurilla
0001955
01.18.99
14. Andy Javellana
0001960
01.22.99
15. Erdelinda Porras
0001958
01.22.99
16. Nelson Guadalupe
0001956
01.18.99
17. Barnard Escano
0001969
01/22/99
Amount
37,449.00
30,020.00
34,884.00
35,502.00
38,323.00
43,852.00
32,414.00
38,361.00
38,285.00
29,982.00
37,449.00
39,995.00
37,221.00
30,923.00
40,679.00
24,700.00
38,304.00
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
Name of Payees
Buena Coscolluela
Erdelinda Porras
Neda Algara
Eddie Bago-od
Gianni Amantillo
Alfredo Llena
Emmanuel Fermo
Yvonne Ano-os
Joel Abibuag
Ma. Corazon Salva
Jose Bago-od
Avelino Brion
Mickle Algusar
Jose Weber
Joel Velasco
Elma Bacarro
Grace Tambis
Proceso Mailim
Ronnie Aragon
Danilo Villarosa
Joel Abibuag
Danilo Villarosa
Reynard Guia
Estrella Alunan
Eddie Bago-od
Jose Bago-od
Nicandro Aguilar
Guandencia Banaston
Dennis Montemayor
Eduardo Buglosa
Check No.
0001968
0002021
0002023
0002030
0002032
0002020
0001972
0001967
0002022
0002029
0001957
0001965
0001962
0001959
0002028
0002031
0001952
0001980
0001983
0001931
0001954
0001984
0001985
0001925
0001982
0001982
0001964
0001963
0001961
0002027
Date Issued
01/22/99
02/01/99
02/01/99
02/02/99
02/02/99
02/01/99
01/22/99
01/22/99
02/01/99
02/02/99
01/18/99
01/22/99
01/22/99
01/22/99
02/02/99
02/02/99
01/18/99
01/21/99
01/22/99
01/14/99
01/18/99
01/22/99
01/22/99
01/14/99
01/22/99
01/22/99
01/22/99
01/22/99
01/22/99
01/02/99
Amount
37,706.00
36,727.00
38,000.00
26,600.00
19,000.00
32,282.00
36,376.00
36,566.00
37,981.00
25,270.00
34,656.00
31,882.00
25,004.00
37,001.00
9,500.00
23,750.00
39,995.00
37,193.00
30,324.00
31,008.00
26,600.00
26,790.00
42,959.00
39,596.00
31,018.00
37,240.00
52,250.00
38,000.00
26,600.00
14,250.00
Total 1,570,467.00
Grand Total . 2,345,804.00
[5]
Rollo, pp. 64-69.

CA rollo, pp. 71-72.
[7]
Rollo, pp. 44-49. Penned by Associate Justice Isaias P. Dicdican, with Associate Justices Elvi John S. Asuncion
and Ramon M. Bato, Jr., concurring.
[8]
Id. at 47.
[9]
Id. at 41.
[10]
Veluz v. Justice of the Peace of Sariaga, 42 Phil. 557 (1921).
[11]
Negotiable Instruments Law, Sec. 185. Check defined. A check is a bill of exchange drawn on a bank payable
on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable
on demand apply to a check.
Section 126. Bill of exchange defined. A bill of exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or
at a fixed or determinable future time a sum certain in money to order or to bearer.
[12]
Id.
[13]
Campos, J.C., Jr. and Lopez-Campos, M.C., Notes and Selected Cases on Negotiable Instruments Law (1994),
5th ed., pp. 8-9.
[14]
Bourne v. Maryland Casualty, 192 SE 605 (1937); Norton v. City Bank & Trust Co., 294 F. 839 (1923); United
States v. Chase Nat. Bank, 250 F. 105 (1918).
[15]
Mueller & Martin v. Liberty Insurance Bank, 187 Ky. 44, 218 SW 465 (1920).
[16]
Id.
[17]
Mueller & Martin v. Liberty Insurance Bank, id.
[6]
[18]
90 NY 2d 322 (1997), citing the Uniform Commercial Code, Sec. 3-405.

Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc., id., citing Peck v. Chase
Manhattan Bank, 190 AD 2d 547, 548-549 (1993); Touro Coll. v. Bank Leumi Trust Co., 186 AD 2d 425, 427
(1992); Prudential-Bache Sec. v. Citibank, N.A., 73 NY 2d 276 (1989); Merrill Lynch, Pierce, Fenner & Smith v.
Chemical Bank, 57 NY 2d 447 (1982).
[20]
See Traders Royal Bank v. Radio Philippines Network, Inc., G.R. No. 138510, October 10, 2002, 390 SCRA
608.
[21]
Id.
[22]
Metropolitan Bank and Trust Company v. Cabilzo, G.R. No. 154469, December 6, 2006, 510 SCRA 259.
[23]
Citytrust Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281, May 27, 1994, 232 SCRA
559; Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, February 21, 1992, 206 SCRA
408.
[24]
Associated Bank v. Court of Appeals, G.R. Nos. 107382 & 107612, January 31, 1996, 252 SCRA 620, 631.
[25]
G.R. No. 102383, November 26, 1992, 216 SCRA 51.
[26]
Bank of the Philippine Islands v. Court of Appeals, id. at 71.
[27]
Id. at 77.
[28]
Rules of Civil Procedure, Rule 9, Sec. 3. Default: declaration of. If the defending party fails to answer within
the time allowed therefor, the court shall, upon motion of the claiming party with notice to the defending party, and
proof of such failure, declare the defending party in default. Thereupon, the court shall proceed to render judgment
granting the claimant such relief as his pleading may warrant, unless the court in its discretion requires the claimant
to submit evidence. Such reception of evidence may be delegated to the clerk of court.
[29]
Morales v. Court of Appeals, G.R. No. 117228, June 19, 1997, 274 SCRA 282.
[19]
FIRST DIVISION
[G.R. No. 126670. December 2, 1999]
ERNESTO T. PACHECO and VIRGINIA O. PACHECO, petitioners, vs.

HON. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
DECISION
_
YNARES SANTIAGO, J.:
Petitioner spouses are engaged in the construction business. Complainant Romualdo

Vicencio was a former Judge and his wife, Luz Vicencio, owns a pawnshop in Samar. On May
17, 1989, due to financial difficulties arising from the repeated delays in the payment of their
receivables for the construction projects from the DPWH,[1] petitioners were constrained to
obtain a loan of P10,000.00 from Mrs. Vicencio. The latter acceded. Instead of merely requiring
a note of indebtedness, however, her husband Mr. Vicencio required petitioners to issue an
undated check as evidence of the loan which allegedly will not be presented to the bank. Despite
being informed by petitioners that their bank account no longer had any funds, Mrs. Vicencio
insisted that they issue the check, which according to her was only a formality. Thus, petitioner
Virginia Pacheco issued on May 17, 1989 an undated RCBC[2] check with number CT 101756
for P10,000.00. However, she only received the amount of P9,000.00 as the 10% interest on the
loan was already deducted. Mrs. Vicencio also required Virginias husband, herein petitioner
Ernesto Pacheco, to sign the check on the same understanding that the check is not to be
encashed but merely intended as an evidence of indebtedness which cannot be negotiated.
On June 14, 1989, Virginia obtained another loan of P50,000.00 from Mrs. Vicencio. She
received only P35,000.00 as the previous loan of P10,000.00 as well as the 10% interest
amounting to P5,000.00 on the new loan were deducted by the latter. With the payment of the
previous debt, Virginia asked for the return of the first check (RCBC check no. 101756) but Mrs.
Vicencio told her that her filing clerk was absent. Despite several demands for the return of the
first check, Mrs. Vicencio told Virginia that they can no longer locate the folder containing that
check. For the new loan, she also required Virginia to issue three (3) more checks in various
amounts two checks for P20,000.00 each and the third check for P10,000.00. Petitioners were
not amenable to these requirements, but Mrs. Vicencio insisted that they issue the same assuring
them that the checks will not be presented to the banks but will merely serve as guarantee for the
loan since there was no promissory note required of them. Due to her dire financial needs,
Virginia issued three undated RCBC checks numbered 101783 and 101784 in the sum of
P20,000.00 each and 101785 for P10,000.00, and again informed Mrs. Vicencio that the checks
cannot be encashed as the same were not funded. Petitioner Ernesto also signed the three checks
as required by Mrs. Vicencio on the same conditions as the first check.
On June 20 and July 21, 1989, petitioner Virginia obtained two more loans, one for
P10,000.00 and another for P15,000.00. Again she issued two more RCBC checks (No. 101768
for P10,000.00 and No. 101774 for P15,000.00) as required by Mrs. Vicencio with the same
assurance that the checks shall not be presented for payment but shall stand only as evidence of
indebtedness in lieu of the usual promissory note.
All the checks were undated at the time petitioners handed them to Mrs. Vicencio. The six
checks represent a total obligation of P85,000.00. However, since the loan of P10,000.00 under
the first check was already paid when the amount thereof was deducted from the proceeds of the
second loan, the remaining account was only P75,000.00. Of this amount, petitioners were able
to settle and pay in cash P60,000.00 in July 1989. Petitioners never had any transaction nor ever
dealt with Mrs. Vicencios husband, the complainant herein.
When the remaining balance of P15,000.00 on the loans became due and demandable,
petitioners were not able to pay despite demands to do so. On August 3, 1992, Mrs. Vicencio
together with her husband and their daughter Lucille, went to petitioners residence to persuade
Virginia to place the date August 15, 1992 on checks nos. 101756 and 101774, although said
checks were respectively given undated to Mrs. Vicencio on May 17, 1989 and July 21, 1989.
Check no. 101756 was required by Mrs. Vicencio to be dated as additional guarantee for the
P15,000.00 unpaid balance allegedly under check no. 101774. Despite being informed by
petitioner Virginia that their account with RCBC had been closed as early as August 17, 1989,
Mrs. Vicencio and her daughter insisted that she place a date on the checks allegedly so that it
will become evidence of their indebtedness. The former reluctantly wrote the date on the checks
for fear that she might not be able to obtain future loans from Mrs. Vicencio.
Later, petitioners were surprised to receive on August 29, 1992 a demand letter from Mrs.
Vicencios spouse informing them that the checks when presented for payment on August 25,
1992 were dishonored due to Account Closed. Consequently, upon the complaint of Mrs.
Vicencios husband with whom petitioners never had any transaction, two informations for
estafa, defined in Article 315(2)(d) of the Revised Penal Code, were filed against them. The
informations which were amended on April 1, 1993 alleged that petitioners through fraud and
false pretenses and in payment of a diamond ring (gold necklace) issued checks which when
presented for payment were dishonored due to account closed.[3] After entering a plea of not
guilty during arraignment, petitioners were tried and sentenced to suffer imprisonment and
ordered to indemnify the complainant in the total amount of P25,000.00.[4] On appeal, the Court
of Appeals (CA) affirmed the decision of the court a quo.[5] Hence this petition.
Estafa may be committed in several ways. One of these is by postdating a check or issuing a
check in payment of an obligation, as provided in Article 315, paragraph 2(d) of the RPC, viz:
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the
means mentioned hereinbelow shall be punished by:
xxx
xxx
xxx
2. By means of any of the following false pretenses or fraudulent acts executed prior
to or simultaneously with the commission of the fraud:
xxx
xxx
xxx
(d) By postdating a check, or issuing a check in payment of an obligation when the

offender had no funds in the bank, or his funds deposited therein were not sufficient to
cover the amount of the check. The failure of the drawer of the check to deposit the
amount necessary to cover his check within three (3) days from receipt of notice from
the bank and/or the payee or holder that said check has been dishonored for lack or
insufficiency of funds shall be prima facie evidence of deceit constituting false
pretense or fraudulent act.
The essential elements in order to sustain a conviction under the above paragraph are:
1. that the offender postdated or issued a check in payment of an obligation contracted at the
time the check was issued;
2. that such postdating or issuing a check was done when the offender had no funds in the bank,
or his funds deposited therein were not sufficient to cover the amount of the check;
3. deceit or damage to the payee thereof.[6]

The first and third elements are not present in this case. A check has the character of
negotiability and at the same time it constitutes an evidence of indebtedness. By mutual
agreement of the parties, the negotiable character of a check may be waived and the instrument
may be treated simply as proof of an obligation. There cannot be deceit on the part of the obligor,
petitioners herein, because they agreed with the obligee at the time of the issuance and postdating
of the checks that the same shall not be encashed or presented to the banks. As per assurance of
the lender, the checks are nothing but evidence of the loan or security thereof in lieu of and for
the same purpose as a promissory note. By their own covenant, therefore, the checks became
mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or
evidence of investment is not liable for estafa.[7] Mrs. Vicencio could not have been deceived nor
defrauded by petitioners in order to obtain the loans because she was informed that they no
longer have funds in their RCBC accounts. In 1992, when the Vicencio family asked Virginia to
place a date on the check, the latter again informed Mrs. Vicencio that their account with RCBC
was already closed as early as August 1989. With the assurance, however, that the check will
only stand as a firm evidence of indebtedness, Virginia placed a date on the check. Under these
circumstances, Mrs. Vicencio cannot claim that she was deceived or defrauded by petitioners in
obtaining the loan. In the absence of the essential element of deceit,[8] no estafa was committed
by petitioners.
Both courts below relied so much on the fact that Mrs. Vicencios husband is a former Judge
who knows the law. He should have known, then, that he need not even ask the petitioners to
place a date on the check, because as holder of the check, he could have inserted the date
pursuant to Section 13 of the Negotiable Instruments Law (NIL).[9] Moreover, as stated in
Section 14 thereof, complainant, as the person in possession of the check, has prima
facie authority to complete it by filling up the blanks therein. Besides, pursuant to Section 12 of
the same law, a negotiable instrument is not rendered invalid by reason only that it is antedated
or postdated.[10] Thus, the allegation of Mrs. Vicencio that the date to be placed by Virginia was
necessary so as to make the check evidence of indebtedness is nothing but a ploy. Petitioners
openly disclosed and never hid the fact that they no longer have funds in the bank as their bank
account was already closed. Knowledge by the complainant that the drawer does not have
sufficient funds in the bank at the time it was issued to him does not give rise to a case for estafa
through bouncing checks.[11]
Moreover, a check must be presented within a reasonable time from issue.[12] By current
banking practice, a check becomes stale after more than six (6) months. In fact a check long
overdue for more than two and one-half years is considered stale.[13] In this case, the checks were
issued more than three years prior to their presentment. In his complaint, complainant alleged
that petitioners bought jewelry from him and that he would not have parted with his jewelry had
not petitioners issued the checks. The evidence on record, however, does not support the theory
of the crime.
There were six checks given by petitioners to Mrs. Vicencio but only two were presented for
encashment. If all were issued in payment of the alleged jewelry, why were not all the checks
presented? There was a deliberate choice of these two checks as the total amount reflected
therein is equivalent to the amount due under the unpaid obligation. The other checks, on the
other hand, could not be used as the amounts therein do not jibe with the amount of the unpaid
balance. Following complainants theory that he would not have sold the jewelries had not
petitioners issued postdated checks, still no estafa can be imputed to petitioners. It is clear that
the checks were not intended for encashment with the bank, but were delivered as mere security
for the payment of the loan and under an agreement that the checks would be redeemed with
cash as they fell due. Hence, the checks were not intended by the parties to be modes of payment
but only as promissory notes. Since complainant and his wife were well aware of that fact, they
cannot now complain there was deception on the part of petitioners. Awareness by the
complainant of the fictitious nature of the pretense cannot give rise to estafa by means of
deceit.[14] When the payee was informed by the drawer that the checks are not covered by
adequate funds it does not give rise to bad faith or estafa.[15]
Moreover, complainants allegations that the two subject checks were issued in 1992 as
payment for the jewelry he allegedly sold to petitioners is belied by the evidence on record. First,
complainant is not engaged in the sale of jewelry.[16] Neither are petitioners. If the pieces of
jewelry were important to complainant considering that they were with him for more than
twenty-five years already,[17] he would not have easily parted with them in consideration for
unfunded personal checks in favor of persons whose means of living or source of income were
unknown to him.[18] Applicable here is the legal precept that persons are presumed to have taken
care of their business.[19]
Second, petitioners bank account with RCBC was opened on March 26, 1987 and was
closed on April 17, 1989, during the span of which they were issued 10 check booklets with the
last booklet issued on April 6, 1989. This last booklet contains 50 checks consecutively
numbered from 101751 to 101800. The two subject checks came from this booklet. All the
checks in this booklet were issued in the year 1989 including the two subject checks, so that the
complainants theory that the jewelry were sold in 1992 cannot be believed.
The rule that factual findings of the trial court bind this court is not absolute but admits of
exceptions such as when the conclusion is a finding grounded on speculation, surmise, and
conjecture and when the findings of the lower court is premised on the absence of evidence and
is contradicted by the evidence on record.[20] Based on the foregoing discussions, this Court is
constrained to depart from the general rule. Equally applicable is what Vice-Chancellor Van
Fleet once said:[21]
Evidence to be believed must not only proceed from the mouth of a credible witness
but must be credible in itself such as the common experience and observation of
mankind can approve as probable under the circumstances. We have no test of the
truth of human testimony, except its conformity to our knowledge, observation and
experience. Whatever is repugnant to these belongs to the miraculous, and is outside
of judicial cognizance.
Petitioners, however, are not without liability. An accused acquitted of a criminal charge
may nevertheless be held civilly liable in the same case where the facts established by the
evidence so warrant.[22] Based on the records, they still have an outstanding obligation of
P15,000.00 in favor of Mrs. Vicencio. There was mention that the loan shall earn interests.
However, an agreement as to payment of interest must be in writing, otherwise it cannot be
valid,[23] although there was actual payment of interests by virtue of the advance deductions from
the loan. Once the judgment becomes final and executory, the amount due is deemed equivalent
to a forbearance of credit during the interim period from the finality of judgment until full
payment, in which case it shall earn legal interest at the rate of twelve per cent (12%) per
annum pursuant to Central Bank (CB) Circular No. 416.[24]
WHEREFORE, the assailed Decision is REVERSED and SET ASIDE. Petitioners are
ACQUITTED of the charge of estafa but they are ORDERED to pay Mrs. Vicencio the amount
of P15,000.00 without interest. However, from the time this judgment becomes final and
executory, the amount due shall earn legal interest of twelve percent (12%) per annum until full
payment.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
[1]
Department of Public Works and Highways.
[2]
Rizal Commercial Banking Corporation.
[3]
Except as to the date and time of commission, the jewelries involved, the amount of the check and the check
number, the amended informations in Criminal Case No. C-1708-1709 identically read: That on or about the
15th day of August, 1992, at about 8:00 oclock in the morning, in the Municipality of Catarman, Province of
Northern Samar, Philippines and within the jurisdiction of this Honorable Court, the above-named accused,
conspiring, confederating and helping one another, with intent to gain, through fraud and false pretenses and in
payment of a diamond ring, did, then and there wilfully and unlawfully issue an RCBC Check with No. CT 101774
in the amount of FIFTEEN THOUSAND (P15,000.00) PESOS, and when presented for payment on August 19,
1992, the RCBC in Catarman dishonored the check on the ground that it was drawn against ACCOUNT
CLOSED, and despite notice accused failed to pay to the actual damage and prejudice of Romualdo Vicencio in
the amount aforestated. (Regional Trial Court (RTC) Records in Criminal Case No. C-1709, p. 24).
[4]
The dispositive portion of the RTC Decision (Branch 19, Catarman, Northern Samar) dated August 4, 1993
penned by Judge Cesar R. Cinco, p. 6 reads: WHEREFORE, the Court hereby finds Ernesto Pacheco y Tambuyat,
also known as Erning, and Virginia Pacheco y Oledan, also known as Virgie, GUILTY beyond reasonable doubt as
co-principals in the crimes of estafa defined and penalized under paragraph 2(d) of Article 315 of the Revised Penal
Code, amended by Republic Act 4885 and Presidential Decree 818, as charged under the informations and sentences
each, to wit:
In Criminal Case No. C-1708, to suffer an imprisonment ranging from EIGHT (8) YEARS, EIGHT (8) MONTHS
and ONE (1) DAY of prision mayor, as minimum, to FOURTEEN (14) YEARS, EIGHT (8) MONTHS and ONE
(1) DAY of reclusion temporal, as maximum, to jointly and severally indemnify Atty. Romualdo Vicencio in the
amount of P15,000.00 and to pay the costs; and,
In Criminal Case No. C-1709, to suffer an imprisonment ranging from EIGHT (8) YEARS, EIGHT (8) MONTHS
and ONE (1) DAY, as minimum, to TEN (10) YEARS, EIGHT (8) MONTHS and ONE (1) day, as maximum,
of prision mayor, to indemnify jointly and severally Atty. Romualdo Vicencio in the amount of P10,000.00 and to
pay the costs. SO ORDERED. (Rollo, p. 128).
[5]
The dispositive portion of the Court of Appeals (CA) Decision promulgated March 19, 1996 penned by Justice
Romeo Callejo, Sr. with Justices Antonio Martinez (now a retired member of this Court) and Delilah VidallonMagtolis, concurring, p. 14 reads: IN THE LIGHT OF THE FOREGOING, the Decision appealed from is hereby
AFFIRMED in toto. With costs against the Appellants. SO ORDERED. (Rollo, p. 21).
[6]
People v. Ong, 204 SCRA 942 (1991); People v. Tugbang, 196 SCRA 341 (1991); Sales v. CA, 164 SCRA 717
(1988); People v. Sabio, Jr., 86 SCRA 568 (1978).
[7]
People v. Tugbang, 196 SCRA 341 (1991).
[8]
Buaya v. Polo, 169 SCRA 471 (1989); People v. Grospe, 157 SCRA 154 (1988); US v. Rivera, 23 Phil. 383.
[9]
When date may be inserted. Where an instrument expressed to be payable at a fixed period after date is issued
undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may
insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of
a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date
so inserted is to be regarded as the true date. (Italics supplied).
[10]
Ante-dated and post-dated. The instrument is not invalid for the reason only that it is ante-dated or post-dated,
provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is
delivered acquires the title thereto as of the date of delivery.
[11]
See Magno v. CA, 210 SCRA 471 (1992).
[12]
Section 186, NIL. Within what time a check must be presented. - A check must be presented for payment within
a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss
caused by the delay.
[13]
Montinola v. Philippine National Bank, 88 Phil. 178 (1951).
[14]
People v. Concepcion, 44 Phil. 544.
[15]
Firestone Tire and Rubber Co. of the Philippines v. Inez Chavez and Co., 18 SCRA 356 (1966).
[16]
Transcript of Stenographic Notes (TSN), July 20, 1993, p. 49.
[17]
TSN, April 29, 1993, p. 12.
[18]
TSN, April 29, 1993, p. 9.
[19]
Rules of Court, Rule 131, Sec. 3. Disputable presumptions. - The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:
xxx
xxx
xxx
(d) That a person takes ordinary care of his concerns;

xxx
xxx
xxx
(p) That private transactions have been fair and regular.

[20]
Smith Kline & French Laboratories, Ltd. v. CA, 342 Phil. 187 citing among others Vda. De Alcantara v. CA, 252
SCRA 457 (1996); Republic v. IAC, 196 SCRA 335 (1991); Fernan v. CA, et al., 181 SCRA 546 (1990); People v.
Traya, 147 SCRA 381 (1987); Tolentino v. de Jesus, 56 SCRA 67 (1974).
[21]
Cited in Daggers v. Van Dyck, 37 N.J. Eq., 130, 132; See also People v. Cara, 283 SCRA 96 (1997).
[22]
People v. Tugbang, 196 SCRA 341 (1991); Nuez v. CA, G.R. No. 80216, December 7, 1988, Minute
Resolution.
[23]
Article 1956, New Civil Code.
[24]
Philippine National Bank v. CA, 331 Phil. 1079, 263 SCRA 766 (1996) citing Eastern Shipping Lines v. CA, 234
SCRA 78 (1994).
THIRD DIVISION
[G.R. No. 148864. August 21, 2003]
SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C.

EVANGELISTA, petitioners, vs.MERCATOR FINANCE CORP.,
LYDIA
P.
SALAZAR,
LAMECS REALTY
AND
DEVELOPMENTCORP. and the REGISTER OF DEEDS OF
BULACAN, respondents.
**
DECISION
PUNO, J.:
Petitioners, Spouses Evangelista (Petitioners), are before this Court on a Petition

for Review on Certiorari under Rule 45 of the Revised Rules of Court, assailing the
decision of the Court of Appeals dismissing their petition.
Petitioners filed a complaint[1] for annulment of titles against respondents, Mercator
Finance Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation,
and the Register of Deeds of Bulacan. Petitioners claimed being the registered owners
of five (5) parcels of land[2] contained in the Real Estate Mortgage[3] executed by them
and Embassy Farms, Inc. (Embassy Farms). They alleged that they executed the Real
Estate Mortgage in favor of Mercator Financing Corporation (Mercator) only as officers
of Embassy Farms. They did not receive the proceeds of the loan evidenced by a
promissory note, as all of it went to Embassy Farms. Thus, they contended that the
mortgage was without any consideration as to them since they did not personally obtain
any loan or credit accommodations. There being no principal obligation on which the
mortgage rests, the real estate mortgage is void.[4] With the void mortgage, they assailed
the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the
highest bidder in the public auction, the issuance of the transfer certificates of title to it,
the subsequent sale of the same parcels of land to respondent Lydia P. Salazar
(Salazar), and the transfer of the titles to her name, and lastly, the sale and transfer of
the properties to respondent Lamecs Realty & Development Corporation (Lamecs).
Mercator admitted that petitioners were the owners of the subject parcels of land. It,
however, contended that on February 16, 1982, plaintiffs executed a Mortgage in favor
of defendant Mercator Finance Corporation for and in consideration of certain loans,
and/or other forms of credit accommodations obtained from the Mortgagee (defendant
Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR
THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) PESOS,
Philippine Currency and to secure the payment of the same and those others that the
MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x.[5] It contended that
since petitioners and Embassy Farms signed the promissory note [6] as co-makers, aside
from the Continuing Suretyship Agreement[7] subsequently executed to guarantee the
indebtedness of Embassy Farms, and the succeeding promissory notes [8] restructuring
the loan, then petitioners are jointly and severally liable with Embassy Farms. Due to
their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged
properties are valid.
Respondents Salazar and Lamecs asserted that they are innocent purchasers for
value and in good faith, relying on the validity of the title of Mercator. Lamecs admitted
the prior ownership of petitioners of the subject parcels of land, but alleged that they are
the present registered owner. Both respondents likewise assailed the long silence and
inaction by petitioners as it was only after a lapse of almost ten (10) years from the
foreclosure of the property and the subsequent sales that they made their claim. Thus,
Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches. [9]
During pre-trial, the parties agreed on the following issues:
a.
Whether or not the Real Estate Mortgage executed by the plaintiffs in

favor of defendant Mercator Finance Corp. is null and void;
b.
Whether or not the extra-judicial foreclosure proceedings undertaken on

subject parcels of land to satisfy the indebtedness of Embassy Farms,
Inc. is (sic) null and void;
c.
Whether or not the sale made by defendant Mercator Finance Corp. in

favor of Lydia Salazar and that executed by the latter in favor of
defendant Lamecs Realty and Development Corp. are null and void;
d.
Whether or not the parties are entitled to damages.
[10]
After pre-trial, Mercator moved for summary judgment on the ground that except as
to the amount of damages, there is no factual issue to be litigated. Mercator argued that
petitioners had admitted in their pre-trial brief the existence of the promissory note, the
continuing suretyship agreement and the subsequent promissory notes restructuring the
loan, hence, there is no genuine issue regarding their liability. The mortgage,
foreclosure proceedings and the subsequent sales are valid and the complaint must be
dismissed.[11]
Petitioners opposed the motion for summary judgment claiming that because their
personal liability to Mercator is at issue, there is a need for a full-blown trial.[12]
The RTC granted the motion for summary judgment and dismissed the complaint. It
held:
A reading of the promissory notes show (sic) that the liability of the signatories
thereto are solidary in view of the phrase jointly and severally. On the promissory
note appears (sic) the signatures of Eduardo B. Evangelista, Epifania C. Evangelista
and another signature of Eduardo B. Evangelista below the words Embassy Farms,
Inc. It is crystal clear then that the plaintiffs-spouses signed the promissory note not
only as officers of Embassy Farms, Inc. but in their personal capacity as well(.)
Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound
themselves as solidary debtor(s) with Embassy Farms, Inc. to pay defendant Mercator
Finance Corporation the amount of indebtedness. That the principal contract of loan is
void for lack of consideration, in the light of the foregoing is untenable.
[13]
Petitioners motion for reconsideration was denied for lack of merit. [14] Thus,
petitioners went up to the Court of Appeals, but again were unsuccessful. The appellate
court held:
The appellants insistence that the loans secured by the mortgage they executed were
not personally theirs but those of Embassy Farms, Inc. is clearly self-serving and
misplaced. The fact that they signed the subject promissory notes in the(ir) personal
capacities and as officers of the said debtor corporation is manifest on the very face of
the said documents of indebtedness (pp. 118, 128-131, Orig. Rec.). Even
assuming arguendo that they did not, the appellants lose sight of the fact that third
persons who are not parties to a loan may secure the latter by pledging or mortgaging
their own property (Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In
constituting a mortgage over their own property in order to secure the purported
corporate debt of Embassy Farms, Inc., the appellants undeniably assumed the
personality of persons interested in the fulfillment of the principal obligation who, to
save the subject realities from foreclosure and with a view towards being subrogated
to the rights of the creditor, were free to discharge the same by payment (Articles
1302 [3] and 1303, Civil Code of the Philippines). (emphases in the original)
[15]
The appellate court also observed that if the appellants really felt aggrieved by the
foreclosure of the subject mortgage and the subsequent sales of the realties to other
parties, why then did they commence the suit only on August 12, 1997 (when the
certificate of sale was issued on January 12, 1987, and the certificates of title in the
name of Mercator on September 27, 1988)? Petitioners procrastination for about nine
(9) years is difficult to understand. On so flimsy a ground as lack of consideration, (w)e
may even venture to say that the complaint was not worth the time of the courts.[16]
A motion for reconsideration by petitioners was likewise denied for lack of
merit.[17] Thus, this petition where they allege that:
THE COURT A QUO ERRED AND ACTED WITH GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
AFFIRMING IN TOTO THE MAY 4, 1998 ORDER OF THE TRIAL COURT
GRANTING RESPONDENTS MOTION FOR SUMMARY JUDGMENT DESPITE
THE EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS AND ITS
NON-ENTITLEMENT TO A JUDGMENT AS A MATTER OF LAW, THEREBY
DECIDING THE CASE IN A WAY PROBABLY NOT IN ACCORD WITH
APPLICABLE DECISIONS OF THIS HONORABLE COURT.
[18]
We affirm.
Summary judgment is a procedural technique aimed at weeding out sham claims
or defenses at an early stage of the litigation.[19] The crucial question in a motion for
summary judgment is whether the issues raised in the pleadings are genuine or
fictitious, as shown by affidavits, depositions or admissions accompanying the motion. A
genuine issue means an issue of fact which calls for the presentation of evidence, as
distinguished from an issue which is fictitious or contrived so as not to constitute a
genuine issue for trial.[20] To forestall summary judgment, it is essential for the nonmoving party to confirm the existence of genuine issues where he has substantial,
plausible and fairly arguable defense, i.e., issues of fact calling for the presentation of
evidence upon which a reasonable finding of fact could return a verdict for the non-
moving party. The proper inquiry would therefore be whether the affirmative defenses
offered by petitioners constitute genuine issue of fact requiring a full-blown trial.[21]
In the case at bar, there are no genuine issues raised by petitioners. Petitioners do
not deny that they obtained a loan from Mercator. They merely claim that they got the
loan as officers of Embassy Farms without intending to personally bind themselves or
their property. However, a simple perusal of the promissory note and the continuing
suretyship agreement shows otherwise. These documentary evidence prove that
petitioners are solidary obligors with Embassy Farms.
The promissory note[22] states:
For value received, I/We jointly and severally promise to pay to the order of
MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT
HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS
& 78/100 (P 844,625.78), Philippine currency, x x x, in installments as follows:
September 16, 1982
October 16, 1982
November 16, 1982
December 16, 1982
January 16, 1983
February 16, 1983
x
x
P154,267.87
P154,267.87
P154,267.87
P154,267.87
P154,267.87
P154,267.87
x x x.
The note was signed at the bottom by petitioners Eduardo B. Evangelista and
Epifania C. Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B.
Evangelista below it.
The Continuing Suretyship Agreement[23] also proves the solidary obligation of
petitioners, viz:
(Embassy Farms, Inc.)

Principal
(Eduardo B. Evangelista)
Surety
(Epifania C. Evangelista)
Surety
(Mercator Finance Corporation)
Creditor
To: MERCATOR FINANCE COPORATION
(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and

EPIFANIA C. EVANGELISTA (hereinafter called Surety), jointly and severally
unconditionally guarantees (sic) to MERCATOR FINANCE COPORATION
(hereinafter called Creditor), the full, faithful and prompt payment and discharge of
any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called Principal)
to the Creditor.
x
x
xxx
(3) The obligations hereunder are joint and several and independent of the obligations
of the Principal. A separate action or actions may be brought and prosecuted against
the Surety whether or not the action is also brought and prosecuted against the
Principal and whether or not the Principal be joined in any such action or actions.
x
x
x x x.
The agreement was signed by petitioners on February 16, 1982. The promissory
notes[24] subsequently executed by petitioners and Embassy Farms, restructuring their
loan, likewise prove that petitioners are solidarily liable with Embassy Farms.
Petitioners further allege that there is an ambiguity in the wording of the promissory
note and claim that since it was Mercator who provided the form, then the ambiguity
should be resolved against it.
Courts can interpret a contract only if there is doubt in its letter. [25] But, an
examination of the promissory note shows no such ambiguity. Besides,
assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments
Law states, viz:
SECTION 17. Construction where instrument is ambiguous. Where the

language of the instrument is ambiguous or there are omissions therein, the following
rules of construction apply:
xxx
xxx
xxx
(g) Where an instrument containing the word I promise to pay is signed by two or
more persons, they are deemed to be jointly and severally liable thereon.
Petitioners also insist that the promissory note does not convey their true intent in
executing the document. The defense is unavailing. Even if petitioners intended to sign
the note merely as officers of Embassy Farms, still this does not erase the fact that they
subsequently executed a continuing suretyship agreement. A surety is one who is
solidarily liable with the principal.[26] Petitioners cannot claim that they did not personally
receive any consideration for the contract for well-entrenched is the rule that the
consideration necessary to support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being sufficient. A surety is bound
by the same consideration that makes the contract effective between the principal
parties thereto.[27] Having executed the suretyship agreement, there can be no dispute
on the personal liability of petitioners.
Lastly, the parol evidence rule does not apply in this case. [28] We held in Tarnate v.
Court of Appeals,[29] that where the parties admitted the existence of the loans and the
mortgage deeds and the fact of default on the due repayments but raised the contention
that they were misled by respondent bank to believe that the loans were long-term
accommodations, then the parties could not be allowed to introduce evidence of
conditions allegedly agreed upon by them other than those stipulated in the loan
documents because when they reduced their agreement in writing, it is presumed that
they have made the writing the only repository and memorial of truth, and whatever is
not found in the writing must be understood to have been waived and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.
SO ORDERED.
Panganiban, and Sandoval-Gutierrez, JJ., concur.
Corona, and Carpio-Morales, JJ., on official leave.
**
Sometimes spelled as Lamecs.
[1]
RTC of Malolos, Bulacan, Br. 85, Rollo, pp. 23-29.
[2]
With Transfer Certificates of Title Nos. T-193458, T-192133, T-193136, T-193137 and T-193138; Id. at
30-39.
[3]
Id. at 40.
[4]
Id. at 26.
[5]
Id. at 63.
[6]
Id. at 71.
[7]
Id. at 72-73.
[8]
Id. at 80-83.
[9]
Id. at 85-97.
[10]
Id. at 118.
[11]
Id. at 119-123.
[12]
Id. at 128-131.
[13]
Id. at 134, dated May 4, 1998.
[14]
Id. at 159, dated July 17, 1998.
[15]
Id. at 222-223, Decision dated May 12, 2000.
[16]
Id. at 223.
[17]
Id. at 234, dated May 14, 2001.
[18]
Id. at 12.
[19]
Evadel Realty and Development Corporation v. Soriano, 357 SCRA 395 (2001).
[20]
Manufacturers Hanover Trust Co. and/or Chemical Bank v. Rafael Ma. Guerrero, G.R. No. 136804,
February 19, 2003.
[21]
Spouses Guillermo Agbada & Maxima Agbada v. Inter-urban Developers, et al., G.R. No. 144029,
September 19, 2002.
[22]
Rollo, p. 71.
[23]
Id. at 72-73.
[24]
Id. at 80-83.
[25]
Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control. (Civil Code of the
Philippines); Ong Yong, et al., v. David S. Tiu, et al., G.R. Nos. 144476 & 144629, February 1,
2002.
[26]
Goldenrod, Incorporated v. Court of Appeals, 366 SCRA 217 (2001).
[27]
Charles Lee v. Court of Appeals, et al., G.R. Nos. 117913-14, February 1, 2002.
[28]
SEC. 9. Evidence of written agreements When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the contents of the
written agreement.
However, a party may present evidence to modify, explain or add to the terms of the written agreement if
he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties of their successors in interest after the execution
of the written agreement.
The term agreement includes wills.
[29]
241 SCRA 254 (1995).

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SECOND DIVISION paragraph paragraph paragraph

paragraph paragraph paragraph

3 . On November 27 , 1979 , Filriters Guaranty Assurance

THOUSAND ( P3 , 500 , 000 . 00 )

4 . The aforesaid Detached Assignment ( Annex A ) contains an

9 . Petitioner presented the CBCI ( Annex C ) , together with the

11 . Respondent is the registered owner of CBCI

15 . The detached assignment is patently void and inoperative because the

prohibited by law . There was no attempt to get any clearance or authorization

In its Decision[8] dated April 29 , 1988 , the Regional Trial Court of

ACCORDINGLY , judgment is hereby rendered in favor of the respondent

paragraph paragraph paragraph

the Rules and Regulations Governing Central Bank Certificates of

paragraph paragraph paragraph

In the case at bar , Alfredo O . Banaria , who signed the deed of

paragraph paragraph paragraph

xxx paragraph paragraph paragraph

As worded , the instrument provides a promise to pay Filriters Guaranty

The accepted rule is that the negotiability or non - negotiability of an

necessary written authorization from the Board of Directors of Filriters to act

Says the petitioner ; paragraph paragraph paragraph

We disagree with the Petitioner .

paragraph paragraph paragraph

or defend crime or where a corporation is a mere alter ego or business conduit of a

TRANSFER : This Certificate shall pass by delivery unless it is registered in

registered ) by the registered owner hereof , in person , or by his

SECTION 3 . Assignment of Registered Certificates .

paragraph paragraph paragraph

Q Why do you know this ?

paragraph paragraph paragraph

paragraph paragraph paragraph

paragraph paragraph paragraph

Justice Ricardo L . Pronove , Jr . , ponente ; concurred in by Justices Alfredo L . Benipayo

Pp . 16 - 17 , RTC Decision , p . 330 , Rollo .

Court of Appeals Decision , pp . 18 - 19 , Rollo .

Section 57 . Negotiable Instruments Law .

Campos and Campos , Negotiable Instruments Law , p . 38 , 1971 ed .

G . R . No . 97753 , August 10 , 1992 , 212 SCRA 448 .

Yu vs . National Labor Relations Commission 245 SCRA 134 .

76 Official Gazette 9370 .

See Article 1883 , Civil Code .

See Article 19 , Civil Code .

Republic of the Philippines

G.R. No. 170325

REYES, R.T., J.:

PNB moved to dismiss the complaint on the ground of lack of cause of

Defendant is hereby ordered to pay the plaintiffs the total amount

the standing of the plaintiffs being sugarcane planters, realtors, residential

Other claims and counterclaims are hereby dismissed.[6]

Actual damages in the amount of P2,345,804 with interest at

Moral damages in the amount of P200,000;

Attorneys fees in the amount of P100,000; and

WHEREFORE, in view of the foregoing premises, judgment is hereby

A payee who is not maker, drawer, or drawee; or

Where the instrument is payable to order, the payee must be named or

SEC. 9. When payable to bearer. The instrument is payable to bearer

A check that is payable to a specified payee is an order

A review of US jurisprudence yields that an actual, existing, and living

transactions, the payee is considered as a fictitious payee. The check is then

PNBs tellers and officers, in violation of banking rules of procedure,

MA. ALICIA AUSTRIA-MARTINEZ

ANTONIO EDUARDO B. NACHURA

Current Account No. 810480-4 in the name of Erlando T. Rodriguez

Rollo, pp. 64-69.