Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 158262

July 21, 2008

SPS. PEDRO AND FLORENCIA VIOLAGO, Petitioners,

vs.
BA FINANCE CORPORATION and AVELINO VIOLAGO, Respondents.
DECISION
VELASCO, JR., J.:
This is a Petition for Review on Certiorari of the August 20, 2002 Decision 1 and
May 15, 2003 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
48489 entitled BA Finance Corporation, Plaintiff-Appellee v. Sps. Pedro and
Florencia Violago, Defendants and Third Party Plaintiffs-Appellants v. Avelino
Violago, Third Party Defendant-Appellant. Petitioners-spouses Pedro and
Florencia Violago pray for the reversal of the appellate courts ruling which
held them liable to respondent BA Finance Corporation (BA Finance) under a
promissory note and a chattel mortgage. Petitioners likewise pray that
respondent Avelino Violago be adjudged directly liable to BA Finance.
The Facts
Sometime in 1983, Avelino Violago, President of Violago Motor Sales
Corporation (VMSC), offered to sell a car to his cousin, Pedro F. Violago, and
the latters wife, Florencia. Avelino explained that he needed to sell a vehicle
to increase the sales quota of VMSC, and that the spouses would just have to
pay a down payment of PhP 60,500 while the balance would be financed by
respondent BA Finance. The spouses would pay the monthly installments to
BA Finance while Avelino would take care of the documentation and approval
of financing of the car. Under these terms, the spouses then agreed to
purchase a Toyota Cressida Model 1983 from VMSC.3

On August 4, 1983, the spouses and Avelino signed a promissory note under
which they bound themselves to pay jointly and severally to the order of VMSC
the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a
month, the first installment to be due and payable on September 16, 1983.
Avelino prepared a Disclosure Statement of Loan/Credit Transportation which
showed the net purchase price of the vehicle, down payment, balance, and
finance charges. VMSC then issued a sales invoice in favor of the spouses
with a detailed description of the Toyota Cressida car. In turn, the spouses
executed a chattel mortgage over the car in favor of VMSC as security for the
amount of PhP 209,601. VMSC, through Avelino, endorsed the promissory
note to BA Finance without recourse. After receiving the amount of PhP
209,601, VMSC executed a Deed of Assignment of its rights and interests
under the promissory note and chattel mortgage in favor of BA Finance.
Meanwhile, the spouses remitted the amount of PhP 60,500 to VMSC through
Avelino.4
The sales invoice was filed with the Land Transportation Office (LTO)-Baliwag
Branch, which issued Certificate of Registration No. 0137032 in the name of
Pedro on August 8, 1983. The spouses were unaware that the same car had
already been sold in 1982 to Esmeraldo Violago, another cousin of Avelino,
and registered in Esmeraldos name by the LTO-San Rafael Branch. Despite
the spouses demand for the car and Avelinos repeated assurances, there
was no delivery of the vehicle. Since VMSC failed to deliver the car, Pedro did
not pay any monthly amortization to BA Finance. 5
On March 1, 1984, BA Finance filed with the Regional Trial Court (RTC),
Branch 116 in Pasay City a complaint for Replevin with Damages against the
spouses. The complaint, docketed as Civil Case No. 1628-P, prayed for the
delivery of the vehicle in favor of BA Finance or, if delivery cannot be effected,
for the payment of PhP 199,049.41 plus penalty at the rate of 3% per month
from February 15, 1984 until fully paid. BA Finance also asked for the payment
of attorneys fees, liquidated damages, replevin bond premium, expenses in
the seizure of the vehicle, and costs of suit. The RTC issued an Order of
Replevin on March 28, 1984. The Violago spouses, as defendants a quo, were
declared in default for failing to file an answer. Eventually, the RTC rendered
on December 3, 1984 a decision in favor of BA Finance. A writ of execution
was thereafter issued on January 11, 1985, followed by an alias writ of
execution.6

In the meantime, Esmeraldo conveyed the vehicle to Jose V. Olvido who was
then issued Certificate of Registration No. 0014830-4 by the LTO-Cebu City
Branch on April 29, 1985. On May 8, 1987, Jose executed a Chattel Mortgage
over the vehicle in favor of Generoso Lopez as security for a loan covered by
a promissory note in the amount of PhP 260,664. This promissory note was
later endorsed to BA Finance, Cebu City branch.7
On August 21, 1989, the spouses Violago filed a Motion for Reconsideration
and Motion to Quash Writ of Execution on the basis of lack of a valid service of
summons on them, among other reasons. The RTC denied the motions;
hence, the spouses filed a petition for certiorari under Rule 65 before the CA,
docketed as CA G.R. No. 2002-SP. On May 31, 1991, the CA nullified the
RTCs order. This CA decision became final and executory.
On January 28, 1992, the spouses filed their Answer before the RTC, alleging
the following: they never received the vehicle from VMSC; the vehicle was
previously sold to Esmeraldo; BA Finance was not a holder in due course
under Section 59 of the Negotiable Instruments Law (NIL); and the recourse of
BA Finance should be against VMSC. On February 25, 1995, the Violago
spouses, with prior leave of court, filed a Third Party Complaint against Avelino
praying that he be held liable to them in the event that they be held liable to
BA Finance, as well as for damages. VMSC was not impleaded as third party
defendant. In his Motion to Dismiss and Answer, Avelino contended that he
was not a party to the transaction personally, but VMSC. Avelinos motion was
denied and the third party complaint against him was entertained by the trial
court. Subsequently, the spouses belabored to prove that they affixed their
signatures on the promissory note and chattel mortgage in favor of VMSC in
blank.8
The RTC rendered a Decision on March 5, 1994, finding for BA Finance but
against the Violago spouses. The RTC, however, declared that they are
entitled to be indemnified by Avelino. The dispositive portion of the RTCs
decision reads:

mortgage dated August 4, 1983; or if such delivery cannot be made, to pay,

jointly and severally, to the plaintiff the sum of P198,003.06 together with the
penalty [thereon] at three percent (3%) a month, from March 1, 1984, until the
amount is fully paid.
In either case, the defendant-third-party plaintiffs are required to pay, jointly
and severally, to the plaintiff a sum equivalent to twenty-five percent (25%) of
P198,003.06 as attorneys fees, and another amount also equivalent to twenty
five percent (25%) of the said unpaid balance, as liquidated damages. The
defendant-third party-plaintiffs are also required to shoulder the litigation
expenses and costs.
1awphil

As indemnification, third-party defendant Avelino Violago is ordered to deliver

to defendants-third-party plaintiffs spouses Pedro F. Violago and Florencia R.
Violago the aforedescribed motor vehicle; or if such delivery is not possible, to
pay to the said spouses the sum of P198,003.06, together with the penalty
thereon at three (3%) a month from March 1, 1984, until the amount is entirely
paid.
In either case, the third-party defendant should pay to the defendant-thirdparty plaintiffs spouses a sum equivalent to twenty-five percent (25%) of
P198,003.06 as attorneys fees, and another sum equivalent also to twentyfive percent (25%) of the said unpaid balance, as liquidated damages.
Third-party defendant Avelino Violago is further ordered to return to the thirdparty plaintiffs the sum of P60,500.00 they paid to him as down payment for
the car; and to pay them P15,000.00 as moral damages; P10,000.00 as
exemplary damages; and reimburse them for all the expenses and costs of the
suit.
The counterclaims of the defendants and third-party defendant, for lack of
merit, are dismissed.9
The Ruling of the CA

WHEREFORE, defendant-[third]-party plaintiffs spouses Pedro F. Violago and

Florencia R. Violago are ordered to deliver to plaintiff BA Finance Corporation,
at its principal office the BAFC Building, Gamboa St., Legaspi Village, Makati,
Metro Manila the Toyota Cressida car, model 1983, bearing Engine No. 21R02854117, and with Serial No. RX60-804614, covered by the deed of chattel

Petitioners-spouses and Avelino appealed to the CA. The spouses argued that
the promissory note is a negotiable instrument; hence, the trial court should
have applied the NIL and not the Civil Code. The spouses also asserted that
since VMSC was not the owner of the vehicle at the time of sale, the sale was

null and void for the failure in the "cause or consideration" of the promissory
note, which in this case was the sale and delivery of the vehicle. The spouses
also alleged that BA Finance was not a holder in due course of the note since
it knew, through its Cebu City branch, that the car was never delivered to the
spouses.10 On the other hand, Avelino prayed for the dismissal of the
complaint against him because he was not a party to the transaction, and for
an order to the spouses to pay him moral damages and costs of suit.
The appellate court ruled that the promissory note was a negotiable
instrument and that BA Finance was a holder in due course, applying Secs. 8,
24, and 52 of the NIL. The CA faulted petitioners for failing to implead VMSC,
the seller of the vehicle and creditor in the promissory note, as a party in their
Third Party Complaint. Citing Salas v. Court of Appeals,11 the appellate court
reasoned that since VMSC is an indispensable party, any judgment will not
bind it or be enforced against it. The absence of VMSC rendered the
proceedings in the RTC and the judgment in the Third Party Complaint "null
and void, not only as to the absent party but also to the present parties,
namely the Defendants-Appellants (petitioners herein) and the Third-PartyDefendant-Appellant (Avelino Violago)." The CA set aside the trial courts
order holding Avelino liable for damages to the spouses without prejudice to
the action of the spouses against VMSC and Avelino in a separate action. 12
The dispositive portion of the August 20, 2002 CA Decision reads:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the PlaintiffsAppellants is DISMISSED. The appeal of the Third-Party-Defendant-Appellant
is GRANTED. The Decision of the Court a quo is AFFIRMED, with the
modification that the Third-Party Complaint against the Third-Party-Defendantappellant is DISMISSED, without prejudice. The counterclaims of the ThirdParty Defendant Appellant against the Defendants-Appellants are
DISMISSED, also without prejudice.13
The spouses Violago sought but were denied reconsideration by the CA per its
Resolution of May 15, 2003.

The Issues
Petitioners raise the following issues:
WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE
PROMISSORY NOTE MAY BE CONSIDERED A HOLDER IN DUE
COURSE
WHETHER OR NOT A CHATTEL MORTGAGE SHOULD BE
CONSIDERED VALID DESPITE VITIATION OF CONSENT OF, AND
THE FRAUD COMMITTED ON, THE MORTGAGORS BY AVELINO,
AND THE CLEAR ABSENCE OF OBJECT CERTAIN
WHETHER OR NOT THE VEIL OF CORPORATE ENTITY MAY BE
INVOKED AND SUSTAINED DESPITE THE FRAUD AND DECEPTION
OF AVELINO

The Courts Ruling

The ruling of the appellate court is set aside insofar as it dismissed, without
prejudice, the third party complaint of petitioners against Avelino thereby
effectively absolving Avelino from any liability under the third party complaint.
In addressing the threshold issue of whether BA Finance is a holder in due
course of the promissory note, we must determine whether the note is a
negotiable instrument and, hence, covered by the NIL. In their appeal to the
CA, petitioners argued that the promissory note is a negotiable instrument and
that the provisions of the NIL, not the Civil Code, should be applied. In the
present petition, however, petitioners claim that Article 1318 of the Civil
Code14 should be applied since their consent was vitiated by fraud, and, thus,
the promissory note does not carry any legal effect despite its negotiation.
Either way, the petitioners arguments deserve no merit.
The promissory note is clearly negotiable. The appellate court was correct in
finding all the requisites of a negotiable instrument present. The NIL provides:

Section 1. Form of Negotiable Instruments. An instrument to be negotiable

must conform to the following requirements:

xxxx
Notice of demand, presentment, dishonor and protest are hereby waived.

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain
in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named
or otherwise indicated therein with reasonable certainty.
The promissory note signed by petitioners reads:

(Sgd.)
PEDRO F. VIOLAGO

(Sgd.)
FLORENCIA R. VIOLAGO

763 Constancia St., Sampaloc, Manila

(Address)

same
(Address)

(Sgd.)
Marivic Avaria

(Sgd.)
Jesus Tuazon

(WITNESS)

(WITNESS)

PAY TO THE ORDER OF BA FINANCE CORPORATION

WITHOUT RECOURSE

209,601.00 Makati, Metro Manila, Philippines, August 4, 1983

VIOLAGO MOTOR SALES CORPORATION

For value received, I/we, jointly and severally, promise to pay to the order of
VIOLAGO MOTOR SALES CORPORATION, its office, the principal sum of
TWO HUNDRED NINE THOUSAND SIX HUNDRED ONE ONLY Pesos
(P209,601.00), Philippines Currency, with interest at the rate stipulated herein
below, in installments as follows:

By: (Sgd.)
AVELINO A. VIOLAGO, Pres. 15

Thirty Six (36) successive monthly installments of P5,822.25, the first

installment to be paid on 9-16-83, and the succeeding monthly installments on
the 16th day of each and every succeeding month thereafter until the account
is fully paid, provided that the penalty charge of three (3%) per cent per month
or a fraction thereof shall be added on each unpaid installment from maturity
thereof until fully paid.

The promissory note clearly satisfies the requirements of a negotiable

instrument under the NIL. It is in writing; signed by the Violago spouses; has
an unconditional promise to pay a certain amount, i.e., PhP 209,601, on
specific dates in the future which could be determined from the terms of the
note; made payable to the order of VMSC; and names the drawees with
certainty. The indorsement by VMSC to BA Finance appears likewise to be
valid and regular.
The more important issue now is whether or not BA Finance is a holder in due
course. The resolution of this issue will determine whether petitioners defense
of fraud and nullity of the sale could validly be raised against respondent
corporation. Sec. 52 of the NIL provides:

Section 52. What constitutes a holder in due course.A holder in due course
is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating
it.
The law presumes that a holder of a negotiable instrument is a holder thereof
in due course. 16 In this case, the CA is correct in finding that BA Finance
meets all the foregoing requisites:
In the present recourse, on its face, (a) the "Promissory Note", Exhibit "A",
is complete and regular; (b) the "Promissory Note" was endorsed by the
VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note,
acted in good faith and for value; (d) the Appellee was never informed, before
and at the time the "Promissory Note" was endorsed to the Appellee, that the
vehicle sold to the Defendants-Appellants was not delivered to the latter and
that VMSC had already previously sold the vehicle to Esmeraldo Violago.
Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who
assigned his rights to the BA Finance Corporation (Cebu Branch), the same
occurred only on May 8, 1987, much later than August 4, 1983, when VMSC
assigned its rights over the "Chattel Mortgage" by the Defendants-Appellants
to the Appellee. Hence, Appellee was a holder in due course. 17
In the hands of one other than a holder in due course, a negotiable instrument
is subject to the same defenses as if it were non-negotiable. 18 A holder in due
course, however, holds the instrument free from any defect of title of prior
parties and from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount thereof. 19 Since BA
Finance is a holder in due course, petitioners cannot raise the defense of nondelivery of the object and nullity of the sale against the corporation. The NIL
considers every negotiable instrument prima facie to have been issued for a

valuable consideration.20 In Salas, we held that a party holding an instrument

may enforce payment of the instrument for the full amount thereof. As such,
the maker cannot set up the defense of nullity of the contract of sale. 21 Thus,
petitioners are liable to respondent corporation for the payment of the amount
stated in the instrument.
From the third party complaint to the present petition, however, petitioners
pray that the veil of corporate fiction be set aside and Avelino be adjudged
directly liable to BA Finance. Petitioners likewise pray for damages for the
fraud committed upon them.
In Concept Builders, Inc. v. NLRC, we held:
It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to
which it may be connected. But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat
public convenience, justify wrong, protect fraud or defend crime, or is used as
a device to defeat the labor laws, this separate personality of the corporation
may be disregarded or the veil of corporate fiction pierced. This is true likewise
when the corporation is merely an adjunct, a business conduit or an alter ego
of another corporation.
xxxx
The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust acts in contravention of plaintiffs legal
rights; and

3. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.22
This case meets the foregoing test. VMSC is a family-owned corporation of
which Avelino was president. Avelino committed fraud in selling the vehicle to
petitioners, a vehicle that was previously sold to Avelinos other cousin,
Esmeraldo. Nowhere in the pleadings did Avelino refute the fact that the
vehicle in this case was already previously sold to Esmeraldo; he merely
insisted that he cannot be held liable because he was not a party to the
transaction. The fact that Avelino and Pedro are cousins, and that Avelino
claimed to have a need to increase the sales quota, was likely among the
factors which motivated the spouses to buy the car. Avelino, knowing fully well
that the vehicle was already sold, and with abuse of his relationship with the
spouses, still proceeded with the sale and collected the down payment from
petitioners. The trial court found that the vehicle was not delivered to the
spouses. Avelino clearly defrauded petitioners. His actions were the proximate
cause of petitioners loss. He cannot now hide behind the separate corporate
personality of VMSC to escape from liability for the amount adjudged by the
trial court in favor of petitioners.

personality conferred upon such corporation by law should be disregarded.

Significantly, petitioner does not seriously challenge the [CAs] application of
the doctrine which permits the piercing of the corporate veil and the
disregarding of the fiction of a separate juridical personality; this is because he
knows only too well that from the beginning, he merely used the corporation
for his personal purposes.23
WHEREFORE, the CAs August 20, 2002 Decision and May 15, 2003
Resolution in CA-G.R. CV No. 48489 areSET ASIDE insofar as they
dismissed without prejudice the third party complaint of petitioners-spouses
Pedro and Florencia Violago against respondent Avelino Violago. The March
5, 1994 Decision of the RTC is REINSTATEDand AFFIRMED. Costs against
Avelino Violago.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR:

The fact that VMSC was not included as defendant in petitioners third party
complaint does not preclude recovery by petitioners from Avelino; neither
would such non-inclusion constitute a bar to the application of the piercing-ofthe-corporate-veil doctrine. We suggested as much in Arcilla v. Court of
Appeals, an appellate proceeding involving petitioner Arcillas bid to avoid the
adverse CA decision on the argument that he is not personally liable for the
amount adjudged since the same constitutes a corporate liability which
nevertheless cannot even be enforced against the corporation which has not
been impleaded as a party below. In that case, the Court found as well-taken
the CAs act of disregarding the separate juridical personality of the
corporation and holding its president, Arcilla, liable for the obligations incurred
in the name of the corporation although it was not a party to the collection suit
before the trial court. An excerpt from Arcilla:
x x x In short, even if We are to assume arguendo that the obligation was
incurred in the name of the corporation, the petitioner [Arcilla] would still be
personally liable therefor because for all legal intents and purposes, he and
the corporation are one and the same. Csar Marine Resources, Inc. is nothing
more than his business conduit and alter ego. The fiction of separate juridical

LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONSUELO YNARESSANTIAGO*
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

DANTE O. TINGA
Associate Justice
AT T E S TAT I O N
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.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

Id.

10

Id. at 20-26.

C E R T I F I C AT I O N

11

G.R. No. 76788, January 22, 1990, 181 SCRA 296.

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.

12

Rollo, p. 19.

13

Supra note 1, at 27.

14

Art. 1318. There is no contract unless the following requisites concur:

REYNATO S. PUNO
Chief Justice

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Footnotes
*

15

Rollo, p. 21.

16

NIL, Sec. 59.

17

Rollo, p. 25.

18

NIL, Sec. 58.

19

Id., Sec. 57.

20

Id., Sec. 24.

21

Supra note 11, at 302-303.

22

G.R. No. 108734, May 29, 1996, 257 SCRA 149, 157-159.

23

G.R. No. 89804, October 23, 1992, 215 SCRA 120, 129.

Additional member as per Special Order No. 509 dated July 1, 2008.

Rollo, pp. 14-28. Penned by Associate Justice Romeo J. Callejo, Sr.

(former member of this Court) and concurred in by Associate Justices
Remedios Salazar-Fernando and Danilo B. Pine (now retired).
1

Id. at 30-31.
Id. at 15.
Id. at 15-16.
Id.

Id. at 16-17.

Id. at 18.

Id. at 18-19.

Republic of the Philippines

SUPREME COURT
Manila

with the specific instruction not to fill them out without previous notification to
and approval by the petitioner. According to petitioner, the arrangement was
made so that he could verify the validity of the payment and make the proper
arrangements to fund the account.

SECOND DIVISION
G.R. No. 187769

June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari 1 under Rule 45 of the Revised
Rules of Court is the decision 2 dated September 24, 2008 and the
resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV
No. 82301. The appellate court affirmed the decision of the Regional Trial
Court (RTC) of Quezon City, Branch 77, dismissing the complaint for
declaration of nullity of loan filed by petitioner Alvin Patrimonio and ordering
him to pay respondent Octavio Marasigan III (Marasigan) the sum
of P200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into
a business venture under the name of Slam Dunk Corporation (Slum Dunk), a
production outfit that produced mini-concerts and shows related to basketball.
Petitioner was already then a decorated professional basketball player while
Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to
answer for the expenses of Slam Dunk. Although signed, these checks had no
payees name, date or amount. The blank checks were entrusted to Gutierrez

In the middle of 1993, without the petitioners knowledge and consent,

Gutierrez went to Marasigan (the petitioners former teammate), to secure a
loan in the amount of P200,000.00 on the excuse that the petitioner needed
the money for the construction of his house. In addition to the payment of the
principal, Gutierrez assured Marasigan that he would be paid an interest of 5%
per month from March to May 1994.
After much contemplation and taking into account his relationship with the
petitioner and Gutierrez, Marasigan acceded to Gutierrez request and gave
him P200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed with
Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank
portions filled out with the words "Cash" "Two Hundred Thousand Pesos
Only", and the amount of "P200,000.00". The upper right portion of the check
corresponding to the date was also filled out with the words "May 23, 1994"
but the petitioner contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for
the reason "ACCOUNT CLOSED." It was later revealed that petitioners
account with the bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent
several demand letters to the petitioner asking for the payment
of P200,000.00, but his demands likewise went unheeded. Consequently, he
filed a criminal case for violation of B.P. 22 against the petitioner, docketed as
Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court
(RTC) a Complaint for Declaration of Nullity of Loan and Recovery of
Damages against Gutierrez and co-respondent Marasigan. He completely
denied authorizing the loan or the checks negotiation, and asserted that he
was not privy to the parties loan agreement.

Only Marasigan filed his answer to the complaint. In the RTCs order dated
December 22, 1997,Gutierrez was declared in default.

After the CA denied the subsequent motion for reconsideration that followed,
the petitioner filed the present petition for review on certiorari under Rule 45 of
the Revised Rules of Court.

The Ruling of the RTC

The Petition
4

The RTC ruled on February 3,2003 in favor of Marasigan. It found that the
petitioner, in issuing the pre-signed blank checks, had the intention of issuing
a negotiable instrument, albeit with specific instructions to Gutierrez not to
negotiate or issue the check without his approval. While under Section 14 of
the Negotiable Instruments Law Gutierrez had the prima facie authority to
complete the checks by filling up the blanks therein, the RTC ruled that he
deliberately violated petitioners specific instructions and took advantage of the
trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and
accordingly dismissed the petitioners complaint for declaration of nullity of the
loan. It ordered the petitioner to pay Marasigan the face value of the check
with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that
Marasigan is not a holder in due course. He contended that when Marasigan
received the check, he knew that the same was without a date, and hence,
incomplete. He also alleged that the loan was actually between Marasigan and
Gutierrez with his check being used only as a security.

The petitioner argues that: (1) there was no loan between him and Marasigan
since he never authorized the borrowing of money nor the checks negotiation
to the latter; (2) under Article 1878 of the Civil Code, a special power of
attorney is necessary for an individual to make a loan or borrow money in
behalf of another; (3) the loan transaction was between Gutierrez and
Marasigan, with his check being used only as a security; (4) the check had not
been completely and strictly filled out in accordance with his authority since
the condition that the subject check can only be used provided there is prior
approval from him, was not complied with; (5) even if the check was strictly
filled up as instructed by the petitioner, Marasigan is still not entitled to claim
the checks value as he was not a holder in due course; and (6) by reason of
the bad faith in the dealings between the respondents, he is entitled to claim
for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:

The Ruling of the CA

1. Whether the contract of loan in the amount of P200,000.00 granted

by respondent Marasigan to petitioner, through respondent Gutierrez,
may be nullified for being void;

On September 24, 2008, the CA affirmed the RTC ruling, although premised
on different factual findings. After careful analysis, the CA agreed with the
petitioner that Marasigan is not a holder in due course as he did not receive
the check in good faith.

2. Whether there is basis to hold the petitioner liable for the payment of
the P200,000.00 loan;

The CA also concluded that the check had been strictly filled out by Gutierrez
in accordance with the petitioners authority. It held that the loan may not be
nullified since it is grounded on an obligation arising from law and ruled that
the petitioner is still liable to pay Marasigan the sum of P200,000.00.

3. Whether respondent Gutierrez has completely filled out the subject

check strictly under the authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.

The Courts Ruling

The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially
factual in nature. The main point of inquiry of whether the contract of loan may
be nullified, hinges on the very existence of the contract of loan a question
that, as presented, is essentially, one of fact. Whether the petitioner authorized
the borrowing; whether Gutierrez completely filled out the subject check strictly
under the petitioners authority; and whether Marasigan is a holder in due
course are also questions of fact, that, as a general rule, are beyond the
scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by
certiorari, as a petition for review under Rule 45 is limited only to questions of
law, is not an absolute rule that admits of no exceptions. One notable
exception is when the findings off act of both the trial court and the CA are
conflicting, making their review necessary.5 In the present case, the tribunals
below arrived at two conflicting factual findings, albeit with the same
conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly,
we will examine the parties evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never
authorized the borrowing of money. He points to Article 1878, paragraph 7 of
the Civil Code, which explicitly requires a written authority when the loan is
contracted through an agent. The petitioner contends that absent such
authority in writing, he should not be held liable for the face value of the check
because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract
whereby a person "binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the
latter." Agency may be express, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.

As a general rule, a contract of agency may be oral. 6 However, it must be

written when the law requires a specific form, for example, in a sale of a piece
of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power
of authority before an agent can loan or borrow money in behalf of the
principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable
for the preservation of the things which are under administration. (emphasis
supplied)
Article 1878 does not state that the authority be in writing. As long as the
mandate is express, such authority may be either oral or written. We
unequivocably declared in Lim Pin v. Liao Tian, et al., 7 that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization
and not to its form. Be that as it may, the authority must be duly established by
competent and convincing evidence other than the self serving assertion of
the party claiming that such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil
Code and of a special authority in Rule 138 of the Rules of Court refer to the
nature of the authorization and not its form. The requirements are met if there
is a clear mandate from the principal specifically authorizing the performance
of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil.
680) stated that such a mandate may be either oral or written, the one vital
thing being that it shall be express. And more recently, We stated that, if the
special authority is not written, then it must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the special
authority be in writing the Court has every reason to expect that, if not in
writing, the same be duly established by evidence other than the self-serving
assertion of counsel himself that such authority was verbally given him.(Home

Insurance Company vs. United States lines Company, et al., 21 SCRA 863;
866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner
Should be Nullified for Being Void; Petitioner is Not Bound by the Contract of
Loan.
A review of the records reveals that Gutierrez did not have any authority to
borrow money in behalf of the petitioner.1wphi1 Records do not show that
the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioners testimony confirmed that he never authorized
Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow
money in his behalf, nor was he aware of any such transaction:

no special power of attorney conferring authority on de Villa was ever

presented. x x x There was no showing that respondent corporation ever
authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no
basis to hold the corporation liable since there was no authority, express,
implied or apparent, given to de Villa to borrow money from petitioner. Neither
was there any subsequent ratification of his act.
xxxx

ALVIN PATRIMONIO (witness)

The liability arising from the loan was the sole indebtedness of de Villa (or of
his estate after his death). (citations omitted; emphasis supplied).

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in
writing authorizing him to borrow using your money?

This principle was also reiterated in the case of Gozun v. Mercado, 10 where
this court held:

WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105) 8

Petitioner submits that his following testimony suffices to establish that

respondent had authorized Lilian to obtain a loan from him.

xxxx
xxxx
Marasigan however submits that the petitioners acts of pre-signing the blank
checks and releasing them to Gutierrez suffice to establish that the petitioner
had authorized Gutierrez to fill them out and contract the loan in his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract
of loan in behalf of the petitioner. As held in Yasuma v. Heirs of De
Villa,9 involving a loan contracted by de Villa secured by real estate mortgages
in the name of East Cordillera Mining Corporation, in the absence of an SPA
conferring authority on de Villa, there is no basis to hold the corporation liable,
to wit:
The power to borrow money is one of those cases where corporate officers as
agents of the corporation need a special power of attorney. In the case at bar,

Petitioners testimony failed to categorically state, however, whether the loan

was made on behalf of respondent or of his wife. While petitioner claims that
Lilian was authorized by respondent, the statement of account marked as
Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs.
Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf of respondent. She thus
bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its face purport
to be made, signed and sealed in the name of the principal, otherwise, it will

bind the agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the name of the
principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to
act for and in behalf of the petitioner, the loan agreement Gutierrez entered
into with Marasigan is null and void. Thus, the petitioner is not bound by the
parties loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to
Gutierrez is not legally sufficient because the authority to enter into a loan can
never be presumed. The contract of agency and the special fiduciary
relationship inherent in this contract must exist as a matter of fact. The person
alleging it has the burden of proof to show, not only the fact of agency, but also
its nature and extent.11 As we held in People v. Yabut:12

release of the check. He was thus bound by the risk accompanying his trust on
the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as
The Latters Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a
contract of loan, like any other contract, is subject to the rules governing the
requisites and validity of contracts in general. 13 Article 1318 of the Civil
Code14enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.

Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or
Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the
respondent Judges, be licitly taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not
take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there
appears to beno contract of agency between Yambao and Andan so as to bind
the latter for the acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but her "messenger"
or "part-time employee." There was no special fiduciary relationship that
permeated their dealings. For a contract of agency to exist, the consent of
both parties is essential, the principal consents that the other party, the agent,
shall act on his behalf, and the agent consents so to act. It must exist as a
fact. The law makes no presumption thereof. The person alleging it has the
burden of proof to show, not only the fact of its existence, but also its nature
and extent. This is more imperative when it is considered that the transaction
dealt with involves checks, which are not legal tender, and the creditor may
validly refuse the same as payment of obligation.(at p. 630). (emphasis
supplied)
The records show that Marasigan merely relied on the words of Gutierrez
without securing a copy of the SPA in favor of the latter and without verifying
from the petitioner whether he had authorized the borrowing of money or

In this case, the petitioner denied liability on the ground that the contract
lacked the essential element of consent. We agree with the petitioner. As we
explained above, Gutierrez did not have the petitioners written/verbal
authority to enter into a contract of loan. While there may be a meeting of the
minds between Gutierrez and Marasigan, such agreement cannot bind the
petitioner whose consent was not obtained and who was not privy to the loan
agreement. Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of
which fell into the hands of Marasigan. This act, however, does not constitute
sufficient authority to borrow money in his behalf and neither should it be
construed as petitioners grant of consent to the parties loan agreement.
Without any evidence to prove Gutierrez authority, the petitioners signature in
the check cannot be taken, even remotely, as sufficient authorization, much
less, consent to the contract of loan. Without the consent given by one party in
a purported contract, such contract could not have been perfected; there
simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the
petitioner can be made liable under the check he signed.

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in Section
14 of the Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie
authority to complete it by filling up the blanks therein. And a signature on a
blank paper delivered by the person making the signature in order that the
paper may be converted into a negotiable instrument operates as a prima
facie authority to fill it up as such for any amount. In order, however, that any
such instrument when completed may be enforced against any person who
became a party thereto prior to its completion, it must be filled up strictly in
accordance with the authority given and within a reasonable time. But if any
such instrument, after completion, is negotiated to a holder in due course, it is
valid and effectual for all purposes in his hands, and he may enforce it as if it
had been filled up strictly in accordance with the authority given and within a
reasonable time.
This provision applies to an incomplete but delivered instrument. Under this
rule, if the maker or drawer delivers a pre-signed blank paper to another
person for the purpose of converting it into a negotiable instrument, that
person is deemed to have prima facie authority to fill it up. It merely requires
that the instrument be in the possession of a person other than the drawer or
maker and from such possession, together with the fact that the instrument is
wanting in a material particular, the law presumes agency to fill up the
blanks.16
In order however that one who is not a holder in due course can enforce the
instrument against a party prior to the instruments completion, two requisites
must exist: (1) that the blank must be filled strictly in accordance with the
authority given; and (2) it must be filled up within a reasonable time. If it was
proven that the instrument had not been filled up strictly in accordance with
the authority given and within a reasonable time, the maker can set this up as
a personal defense and avoid liability. However, if the holder is a holder in due
course, there is a conclusive presumption that authority to fill it up had been
given and that the same was not in excess of authority.17

In the present case, the petitioner contends that there is no legal basis to hold
him liable both under the contract and loan and under the check because: first,
the subject check was not completely filled out strictly under the authority he
has given and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating
it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes
the instrument "in good faith and for value." It also provides in Section 52(d)
that in order that one may be a holder in due course, it is necessary that at the
time it was negotiated to him he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities
of any sort which could beset up against a prior holder of the instrument. 18 It
means that he does not have any knowledge of fact which would render it
dishonest for him to take a negotiable paper. The absence of the defense,
when the instrument was taken, is the essential element of good faith. 19
As held in De Ocampo v. Gatchalian:20

In order to show that the defendant had "knowledge of such facts that his
action in taking the instrument amounted to bad faith," it is not necessary to
prove that the defendant knew the exact fraud that was practiced upon the
plaintiff by the defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong about his assignor's
acquisition of title, although he did not have notice of the particular wrong that
was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note
was in some way tainted with fraud. It is not necessary that he should know
the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad faith.
The term bad faith does not necessarily involve furtive motives, but means
bad faith in a commercial sense. The manner in which the defendants
conducted their Liberty Loan department provided an easy way for thieves to
dispose of their plunder. It was a case of "no questions asked." Although gross
negligence does not of itself constitute bad faith, it is evidence from which bad
faith may be inferred. The circumstances thrust the duty upon the defendants
to make further inquiries and they had no right to shut their eyes deliberately
to obvious facts. (emphasis supplied).
In the present case, Marasigans knowledge that the petitioner is not a party or
a privy to the contract of loan, and correspondingly had no obligation or liability
to him, renders him dishonest, hence, in bad faith. The following exchange is
significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call after your birthday. Tell us what you talked
about?
A: Since I celebrated my birthday in that place where Nap and I live together
with the other crew, there were several visitors that included Danny Espiritu.
So a week after my birthday, Bong Marasigan called me up again and he was
fuming mad. Nagmumura na siya. Hinahanap niya si hinahanap niya si Nap,
dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya
yung utang ni Nap, dahil

xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa
kung saan ang tsekeng tumalbog (He told me that we have to fix it up
before it) mauwi pa kung saan
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvins check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from
you or what you want to appear
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang
maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis
supplied)21
Since he knew that the underlying obligation was not actually for the petitioner,
the rule that a possessor of the instrument is prima facie a holder in due
course is inapplicable. As correctly noted by the CA, his inaction and failure to
verify, despite knowledge of that the petitioner was not a party to the loan, may
be construed as gross negligence amounting to bad faith.

Yet, it does not follow that simply because he is not a holder in due course,
Marasigan is already totally barred from recovery. The NIL does not provide
that a holder who is not a holder in due course may not in any case recover on
the instrument.22 The only disadvantage of a holder who is not in due course is
that the negotiable instrument is subject to defenses as if it were nonnegotiable.23 Among such defenses is the filling up blank not within the
authority.

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write
the date, May 23, 1994?

On this point, the petitioner argues that the subject check was not filled up
strictly on the basis of the authority he gave. He points to his instruction not to
use the check without his prior approval and argues that the check was filled
up in violation of said instruction.

A: No, sir.

Check Was Not Completed Strictly Under The Authority Given by The
Petitioner

A: No, sir.

Our own examination of the records tells us that Gutierrez has exceeded the
authority to fill up the blanks and use the check.1wphi1 To repeat, petitioner
gave Gutierrez pre-signed checks to be used in their business provided that
he could only use them upon his approval. His instruction could not be any
clearer as Gutierrez authority was limited to the use of the checks for the
operation of their business, and on the condition that the petitioners prior
approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e., subsequent
transfer or negotiation)once the check is completed. In other words, only the
authority to complete the check is presumed. Further, the law used the term
"prima facie" to underscore the fact that the authority which the law accords to
a holder is a presumption juris tantumonly; hence, subject to subject to
contrary proof. Thus, evidence that there was no authority or that the authority
granted has been exceeded may be presented by the maker in order to avoid
liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior
approval from the petitioner to fill up the blank or to use the check. In his
testimony, petitioner asserted that he never authorized nor approved the filling
up of the blank checks, thus:

WITNESS: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In
the check?

Q: Did you authorize anyone including Nap Gutierrez to write the

figure P200,000 in this check?

Q: And lastly, did you authorize anyone including Nap Gutierrez to write the
words P200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999). 24
Notably, Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to pay the
loan he supposedly contracted for the construction of petitioner's house. This
is a clear violation of the petitioner's instruction to use the checks for the
expenses of Slam Dunk. It cannot therefore be validly concluded that the
check was completed strictly in accordance with the authority given by the
petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can
validly set up the personal defense that the blanks were not filled up in
accordance with the authority he gave. Consequently, Marasigan has no right
to enforce payment against the petitioner and the latter cannot be obliged to
pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered
GRANTING the petitioner Alvin Patrimonio's petition for review on certiorari.
The appealed Decision dated September 24, 2008 and the Resolution dated

April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET
ASIDE. Costs against the respondents.

MARIA LOURDES P. A. SERENO

Chief Justice

SO ORDERED.
ARTURO D. BRION
Associate Justice

Footnotes
1

WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
MARIANO C. DEL CASTILLO
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice
AT T E S TAT I O N
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
Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairperson's 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 Court's Division.

Under Rule 45 of the Rules of Coui1, rollo, pp. 9-31,

Id. at 30-47; penned by Associate Justice Monina Arevalo-Zenarosa,

and concurred in by Associate Justice Regalado E. Maambong and
Associate Justice Sixto C. Marella, Jr.
3

Id. at 48-50.

Rollo, pp. 67-72.

Republic v. Bellate, G.R. No. 175685, August 7, 2013, 703 SCRA 210,
218.
6

Article 1869, Civil Code of the Philippines.

200 Phil. 685 (1982).

Rollo, p. 82.

G.R. No. 150350, August 22, 2006, 499 SCRA 466, 472.

10

G.R. No. 167812, December 19, 2006, 511 SCRA 305, 313-314.

11

People v. Yabut, G.R. No. L-42847 and L-42902, April 29, 1977, 167
Phil. 336, 343.
12

13

Id.

Pentacapital Investment Corporation v. Mahinay, G.R. No. 171736,

July 5, 2010, 623 SCRA 284, 302.

14

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261).

15

Deheza-Inamarga v. Alano, G.R. No. 171321, December 18, 2008,

574 SCRA 651, 660.
16

Dy v. People, G.R. No. 158312, November 14, 2008, 571 SCRA 59,
71-72.
17

T.B. Aquino, Notes and Cases on Banks, Negotiable Instruments and

Other Commercial Documents, p. 234 (2006 ed.).
18

A.F. Agbayani, Commentaries and Jurisprudence on the Commercial

Laws of the Philippines, p. 281 (1992 ed.).
19

Id.

20

G.R. No. L-15126, November 30, 1961, 3 SCRA 596, 598.

21

Rollo, pp. 141-142.

22

Dino v. Loot, G.R. No. 170912, April 19, 2010, 618 SCRA 393, 404.

23

Id.

24

Rollo, p: 117.

Republic of the Philippines

SUPREME COURT
Manila

Criminal Case No. 102,004-B-2001:

The undersigned accuses the above-named accused for
violation of Batas Pambansa Bilang 22, committed as follows:

SECOND DIVISION
G.R. No. 166405

August 6, 2008

CLAUDE P. BAUTISTA, petitioner,

vs.
AUTO PLUS TRADERS, INCORPORATED and COURT OF APPEALS
(Twenty-First Division),respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision 1 dated August 10,
2004 of the Court of Appeals in CA-G.R. CR No. 28464 and the
Resolution2 dated October 29, 2004, which denied petitioner's motion for
reconsideration. The Court of Appeals affirmed the February 24, 2004
Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao
City, Branch 16, in Criminal Case Nos. 52633-03 and 52634-03.
The antecedent facts are as follows:
Petitioner Claude P. Bautista, in his capacity as President and Presiding
Officer of Cruiser Bus Lines and Transport Corporation, purchased various
spare parts from private respondent Auto Plus Traders, Inc. and issued two
postdated checks to cover his purchases. The checks were subsequently
dishonored. Private respondent then executed an affidavit-complaint for
violation ofBatas Pambansa Blg. 223 against petitioner. Consequently, two
Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court
in Cities (MTCC) of Davao City against the petitioner. These were docketed as
Criminal Case Nos. 102,004-B-2001 and 102,005-B-2001. The
Informations4 read:

That on or about December 15, 2000, in the City of Davao,

Philippines, and within the jurisdiction of this Honorable Court,
the above-mentioned accused, knowing fully well that he had no
sufficient funds and/or credit with the drawee bank, wilfully,
unlawfully and feloniously issued and made out Rural Bank of
Digos, Inc. Check No. 058832, dated December 15, 2000, in the
amount of P151,200.00, in favor of Auto Plus Traders, Inc., but
when said check was presented to the drawee bank for
encashment, the same was dishonored for the reason "DRAWN
AGAINST INSUFFICIENT FUNDS" and despite notice of
dishonor and demands upon said accused to make good the
check, accused failed and refused to make payment to the
damage and prejudice of herein complainant.
CONTRARY TO LAW.
Criminal Case No. 102,005-B-2001:
The undersigned accuses the above-named accused for
violation of Batas Pambansa Bilang 22, committed as follows:
That on or about October 30, 2000, in the City of Davao,
Philippines, and within the jurisdiction of this Honorable Court,
the above-mentioned accused, knowing fully well that he had no
sufficient funds and/or credit with the drawee bank, wilfully,
unlawfully and feloniously issued and made out Rural Bank of
Digos, Inc. Check No. 059049, dated October 30, 2000, in the
amount of P97,500.00, in favor of Auto Plus Traders, [Inc.], but
when said check was presented to the drawee bank for
encashment, the same was dishonored for the reason "DRAWN
AGAINST INSUFFICIENT FUNDS" and despite notice of
dishonor and demands upon said accused to make good the
check, accused failed and refused to make payment, to the
damage and prejudice of herein complainant.

CONTRARY TO LAW.
Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation
of the prosecution's evidence, petitioner filed a demurrer to evidence. On April
21, 2003, the MTCC granted the demurrer, thus:
WHEREFORE, the demurrer to evidence is granted, premised on
reasonable doubt as to the guilt of the accused. Cruiser Bus Line[s] and
Transport Corporation, through the accused is directed to pay the
complainant the sum of P248,700.00 representing the value of the two
checks, with interest at the rate of 12% per annum to be computed from
the time of the filing of these cases in Court, until the account is paid in
full; ordering further Cruiser Bus Line[s] and Transport Corporation,
through the accused, to reimburse complainant the expense
representing filing fees amounting to P1,780.00 and costs of litigation
which this Court hereby fixed at P5,000.00.
SO ORDERED.5
Petitioner moved for partial reconsideration but his motion was denied.
Thereafter, both parties appealed to the RTC. On February 24, 2004, the trial
court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby
MODIFIED to read as follows: Accused is directed to pay and/or
reimburse the complainant the following sums: (1)P248,700.00
representing the value of the two checks, with interest at the rate of
12% per annum to be computed from the time of the filing of these
cases in Court, until the account is paid in full; (2) P1,780.00 for filing
fees and P5,000.00 as cost of litigation.
SO ORDERED.6
Petitioner moved for reconsideration, but his motion was denied on May 11,
2004. Petitioner elevated the case to the Court of Appeals, which affirmed the
February 24, 2004 Decision and May 11, 2004 Order of the RTC:
WHEREFORE, premises considered, the instant petition is DENIED.
The assailed Decision of the Regional Trial Court, Branch 16, Davao

City, dated February 24, 2004 and its Order dated May 11, 2004
are AFFIRMED.
SO ORDERED.7
Petitioner now comes before us, raising the sole issue of whether the Court of
Appeals erred in upholding the RTC's ruling that petitioner, as an officer of the
corporation, is personally and civilly liable to the private respondent for the
value of the two checks.8
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the
accused and that the corporation, which has a separate personality from its
officers, is solely liable for the value of the two checks.
Private respondent counters that petitioner should be held personally liable for
both checks. Private respondent alleged that petitioner issued two postdated
checks: a personal check in his name for the amount of P151,200 and a
corporation check under the account of Cruiser Bus Lines and Transport
Corporation for the amount of P97,500. According to private respondent,
petitioner, by issuing his check to cover the obligation of the corporation,
became an accommodation party. Under Section 29 9of the Negotiable
Instruments Law, an accommodation party is liable on the instrument to a
holder for value. Private respondent adds that petitioner should also be liable
for the value of the corporation check because instituting another civil action
against the corporation would result in multiplicity of suits and delay.
At the outset, we note that private respondent's allegation that petitioner
issued a personal check disputes the factual findings of the MTCC. The MTCC
found that the two checks belong to Cruiser Bus Lines and Transport
Corporation while the RTC found that one of the checks was a personal check
of the petitioner. Generally this Court, in a petition for review on certiorari
under Rule 45 of the Rules of Court, has no jurisdiction over questions of
facts. But, considering that the findings of the MTCC and the RTC are at
variance,10 we are compelled to settle this issue.
A perusal of the two check return slips11 in conjunction with the Current
Account Statements12 would show that the check for P151,200 was drawn
against the current account of Claude Bautista while the check for P97,500

was drawn against the current account of Cruiser Bus Lines and Transport
Corporation. Hence, we sustain the factual finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the decision of
the RTC holding petitioner liable for the value of the checks considering that
petitioner was acquitted of the crime charged and that the debts are clearly
corporate debts for which only Cruiser Bus Lines and Transport Corporation
should be held liable.
Juridical entities have personalities separate and distinct from its officers and
the persons composing it.13 Generally, the stockholders and officers are not
personally liable for the obligations of the corporation except only when the
veil of corporate fiction is being used as a cloak or cover for fraud or illegality,
or to work injustice.14 These situations, however, do not exist in this case. The
evidence shows that it is Cruiser Bus Lines and Transport Corporation that has
obligations to Auto Plus Traders, Inc. for tires. There is no agreement that
petitioner shall be held liable for the corporation's obligations in his personal
capacity. Hence, he cannot be held liable for the value of the two checks
issued in payment for the corporation's obligation in the total amount
of P248,700.
Likewise, contrary to private respondent's contentions, petitioner cannot be
considered liable as an accommodation party for Check No. 58832. Section
29 of the Negotiable Instruments Law defines an accommodation party as a
person "who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his
name to some other person." As gleaned from the text, an accommodation
party is one who meets all the three requisites, viz: (1) he must be a party to
the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must
not receive value therefor; and (3) he must sign for the purpose of lending his
name or credit to some other person. 15 An accommodation party lends his
name to enable the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes liability to
the other party/ies thereto. 16 The first two elements are present here, however
there is insufficient evidence presented in the instant case to show the
presence of the third requisite. All that the evidence shows is that petitioner
signed Check No. 58832, which is drawn against his personal account. The
said check, dated December 15, 2000, corresponds to the value of 24 sets of
tires received by Cruiser Bus Lines and Transport Corporation on August 29,

2000.17 There is no showing of when petitioner issued the check and in what
capacity. In the absence of concrete evidence it cannot just be assumed that
petitioner intended to lend his name to the corporation. Hence, petitioner
cannot be considered as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the
checks especially since there is no evidence that the debts covered by the
subject checks have been paid.
WHEREFORE, the petition is GRANTED. The Decision dated August 10,
2004 and the Resolution dated October 29, 2004 of the Court of Appeals in
CA-G.R. CR No. 28464 are REVERSED and SET ASIDE. Criminal Case Nos.
52633-03 and 52634-03 are DISMISSED, without prejudice to the right of
private respondent Auto Plus Traders, Inc., to file the proper civil action against
Cruiser Bus Lines and Transport Corporation for the value of the two checks.
No pronouncement as to costs.
SO ORDERED.
LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

DANTE O. TINGA
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ARTURO D. BRION
Associate Justice

Rollo, pp. 36-40. Penned by Associate Justice Estela M. PerlasBernabe, with Associate Justices Arturo A. Tayag and Edgardo G.
Camello concurring.
2

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
Court's Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson

Id. at 41.

AN ACT PENALIZING THE MAKING OR DRAWING AND ISSUANCE

OF A CHECK WITHOUT SUFFICIENT FUNDS OR CREDIT AND FOR
OTHER PURPOSES.
4

Rollo, pp. 48-49.

Id. at 87-88.

Id. at 107.

Id. at 40.

Id. at 29.

CERTIFICATION
9

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairperson's Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.
REYNATO S. PUNO
Chief Justice

Sec. 29. Liability of accommodation party. - An accommodation party

is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending
his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder, at the
time of taking the instrument, knew him to be only an accommodation
party.
10

See MEA Builders, Inc. v. Court of Appeals, G.R. No. 121484,

January 31, 2005, 450 SCRA 155, 165.
11

Rollo, pp. 70, 71.

12

Id. at 68, 72.

Footnotes
*

In lieu of Associate Justice Conchita Carpio Morales who inhibited

herself.

13

Construction & Development Corporation of the Philippines v.

Cuenca, G.R. No. 163981, August 12, 2005, 466 SCRA 714, 727.

14

See Jardine Davies, Inc. v. JRB Realty, Inc., G.R. No. 151438, July
15, 2005, 463 SCRA 555, 563.
15

Ang v. Associated Bank, G.R. No. 146511, September 5, 2007, 532

SCRA 244, 272-273; Lim v. Saban, G.R. No. 163720, December 16,
2004, 447 SCRA 232, 244; Crisologo-Jose v. Court of Appeals, G.R.
No. 80599, September 15, 1989, 177 SCRA 594, 598.
16

Ang v. Associated Bank, supra at 273.

17

Exhibit "C," Records, p. 114.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 132560

January 30, 2002

WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner,

vs.
EUGENE ONG, respondent.
DECISION
QUISUMBING, J.:
This is a petition for review of the decision 1 dated January 13, 1998, of the
Court of Appeals in CA-G.R. CV No. 28304 ordering the petitioner to pay
respondent P1,754,787.50 plus twelve percent (12%) interest per annum
computed from October 7, 1977, the date of the first extrajudicial demand,
plus damages.
The facts of this case are undisputed.
Respondent Eugene Ong maintained a current account with petitioner,
formerly the Associated Banking Corporation, but now known as Westmont
Bank. Sometime in May 1976, he sold certain shares of stocks through Island
Securities Corporation. To pay Ong, Island Securities purchased two (2)
Pacific Banking Corporation managers checks, 2 both dated May 4, 1976,
issued in the name of Eugene Ong as payee. Before Ong could get hold of the
checks, his friend Paciano Tanlimco got hold of them, forged Ongs signature
and deposited these with petitioner, where Tanlimco was also a depositor.
Even though Ongs specimen signature was on file, petitioner accepted and
credited both checks to the account of Tanlimco, without verifying the
signature indorsements appearing at the back thereof. Tanlimco then
immediately withdrew the money and absconded.

Instead of going straight to the bank to stop or question the payment, Ong first
sought the help of Tanlimcos family to recover the amount. Later, he reported
the incident to the Central Bank, which like the first effort, unfortunately proved
futile.
It was only on October 7, 1977, about five (5) months from discovery of the
fraud, did Ong cry foul and demanded in his complaint that petitioner pay the
value of the two checks from the bank on whose gross negligence he imputed
his loss. In his suit, he insisted that he did not "deliver, negotiate, endorse or
transfer to any person or entity" the subject checks issued to him and asserted
that the signatures on the back were spurious.3
The bank did not present evidence to the contrary, but simply contended that
since plaintiff Ong claimed to have never received the originals of the two (2)
checks in question from Island Securities, much less to have authorized
Tanlimco to receive the same, he never acquired ownership of these checks.
Thus, he had no legal personality to sue as he is not a real party in interest.
The bank then filed a demurrer to evidence which was denied.
On February 8, 1989, after trial on the merits, the Regional Trial Court of
Manila, Branch 38, rendered a decision, thus:
IN VIEW OF THE FOREGOING, the court hereby renders judgment for the
plaintiff and against the defendant, and orders the defendant to pay the
plaintiff:
1. The sum of P1,754,787.50 representing the total face value of the
two checks in question, exhibits "A" and "B", respectively, with interest
thereon at the legal rate of twelve percent (12%) per annum computed
from October 7, 1977 (the date of the first extrajudicial demand) up to
and until the same shall have been paid in full;
2. Moral damages in the amount of P250,000.00;
3. Exemplary or corrective damages in the sum of P100,000.00 by way
of example or correction for the public good;
4. Attorneys fees of P50,000.00 and costs of suit.

Defendants counterclaims are dismissed for lack of merit.

SO ORDERED.4
Petitioner elevated the case to the Court of Appeals without success. In its
decision, the appellate court held:
WHEREFORE, in view of the foregoing, the appealed decision is
AFFIRMED in toto.5
Petitioner now comes before this Court on a petition for review, alleging that
the Court of Appeals erred:
I
... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT
RESPONDENT HAS A CAUSE OF ACTION AGAINST THE
PETITIONER.
II
... IN AFFIRMING THE TRIAL COURTS DECISION FINDING
PETITIONER LIABLE TO RESPONDENT AND DECLARING THAT
THE LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND
III
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN
NOT ABSOLVING PETITIONER FROM LIABILITY.
Essentially the issues in this case are: (1) whether or not respondent Ong has
a cause of action against petitioner Westmont Bank; and (2) whether or not
Ong is barred to recover the money from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of
the two (2) checks of the Island Securities nor did he authorize Tanlimco or
any of the latters representative to demand, accept and receive the same. For
this reason, petitioner argues, respondent cannot sue petitioner because

under Section 51 of the Negotiable Instruments Law 6 it is only when a person

becomes a holder of a negotiable instrument can he sue in his own name.
Conversely, prior to his becoming a holder, he had no right or cause of action
under such negotiable instrument. Petitioner further argues that since Section
1917 of the Negotiable Instruments Law defines a "holder" as the payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof, in
order to be a holder, it is a requirement that he be in possession of the
instrument or the bearer thereof. Simply stated, since Ong never had
possession of the checks nor did he authorize anybody, he did not become a
holder thereof hence he cannot sue in his own name. 8
Petitioner also cites Article 1249 9 of the Civil Code explaining that a check,
even if it is a managers check, is not legal tender. Hence, the creditor cannot
be compelled to accept payment thru this means. 10 It is petitioners position
that for all intents and purposes, Island Securities has not yet tendered
payment to respondent Ong, thus, any action by Ong should be directed
towards collecting the amount from Island Securities. Petitioner claims that
Ongs cause of action against it has not ripened as of yet. It may be that
petitioner would be liable to the drawee bank - - but that is a matter between
petitioner and drawee-bank, Pacific Banking Corporation. 11
For its part, respondent Ong leans on the ruling of the trial court and the Court
of Appeals which held that the suit of Ong against the petitioner bank is a
desirable shortcut to reach the party who ought in any event to be ultimately
liable.12 It likewise cites the ruling of the courts a quo which held that according
to the general rule, a bank who has obtained possession of a check upon an
unauthorized or forged indorsement of the payees signature and who collects
the amount of the check from the drawee is liable for the proceeds thereof to
the payee. The theory of said rule is that the collecting banks possession of
such check is wrongful.13
Respondent also cites Associated Bank vs. Court of Appeals 14 which held that
the collecting bank or last endorser generally suffers the loss because it has
the duty to ascertain the genuineness of all prior endorsements. The collecting
bank is also made liable because it is privy to the depositor who negotiated
the check. The bank knows him, his address and history because he is a
client. Hence, it is in a better position to detect forgery, fraud or irregularity in
the indorsement.15

Anent Article 1249 of the Civil Code, Ong points out that bank checks are
specifically governed by the Negotiable Instruments Law which is a special law
and only in the absence of specific provisions or deficiency in the special law
may the Civil Code be invoked.16
Considering the contentions of the parties and the evidence on record, we find
no reversible error in the assailed decisions of the appellate and trial courts,
hence there is no justifiable reason to grant the petition.
Petitioners claim that respondent has no cause of action against the bank is
clearly misplaced. As defined, a cause of action is the act or omission by
which a party violates a right of another.17 The essential elements of a cause
of action are: (a) a legal right or rights of the plaintiff, (b) a correlative
obligation of the defendant, and (c) an act or omission of the defendant in
violation of said legal right.18
The complaint filed before the trial court expressly alleged
respondents right as payee of the managers checks to receive the amount
involved, petitioners correlative duty as collecting bank to ensure that the
amount gets to the rightful payee or his order, and a breach of that duty
because of a blatant act of negligence on the part of petitioner which violated
respondents rights.19
Under Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.
Since the signature of the payee, in the case at bar, was forged to make it
appear that he had made an indorsement in favor of the forger, such signature
should be deemed as inoperative and ineffectual. Petitioner, as the collecting
bank, grossly erred in making payment by virtue of said forged signature. The
payee, herein respondent, should therefore be allowed to recover from the
collecting bank.

The collecting bank is liable to the payee and must bear the loss because it is
its legal duty to ascertain that the payees endorsement was genuine before
cashing the check.20 As a general rule, a bank or corporation who has
obtained possession of a check upon an unauthorized or forged indorsement
of the payees signature and who collects the amount of the check from the
drawee, is liable for the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to the person from whom the
check was obtained.21
The theory of the rule is that the possession of the check on the forged or
unauthorized indorsement is wrongful, and when the money had been
collected on the check, the bank or other person or corporation can be held as
for moneys had and received, and the proceeds are held for the rightful
owners who may recover them. The position of the bank taking the check on
the forged or unauthorized indorsement is the same as if it had taken the
check and collected the money without indorsement at all and the act of the
bank amounts to conversion of the check.22
Petitioners claim that since there was no delivery yet and respondent has
never acquired possession of the checks, respondents remedy is with the
drawer and not with petitioner bank. Petitioner relies on the view to the effect
that where there is no delivery to the payee and no title vests in him, he ought
not to be allowed to recover on the ground that he lost nothing because he
never became the owner of the check and still retained his claim of debt
against the drawer.23 However, another view in certain cases holds that even if
the absence of delivery is considered, such consideration is not material. The
rationale for this view is that in said cases the plaintiff uses one action to
reach, by a desirable short cut, the person who ought in any event to be
ultimately liable as among the innocent persons involved in the transaction. In
other words, the payee ought to be allowed to recover directly from the
collecting bank, regardless of whether the check was delivered to the payee or
not.24
Considering the circumstances in this case, in our view, petitioner could not
escape liability for its negligent acts. Admittedly, respondent Eugene Ong at
the time the fraudulent transaction took place was a depositor of petitioner
bank. Banks are engaged in a business impressed with public interest, and it
is their duty to protect in return their many clients and depositors who transact
business with them.25 They have the obligation to treat their clients account

meticulously and with the highest degree of care, considering the fiduciary
nature of their relationship. The diligence required of banks, therefore, is more
than that of a good father of a family.26 In the present case, petitioner was held
to be grossly negligent in performing its duties. As found by the trial court:
xxx (A)t the time the questioned checks were accepted for deposit to Paciano
Tanlimcos account by defendant bank, defendant bank, admittedly had in its
files specimen signatures of plaintiff who maintained a current account with
them (Exhibits "L-1" and "M-1"; testimony of Emmanuel Torio). Given the
substantial face value of the two checks, totalling P1,754,787.50, and the fact
that they were being deposited by a person not the payee, the very least
defendant bank should have done, as any reasonable prudent man would
have done, was to verify the genuineness of the indorsements thereon. The
Court cannot help but note that had defendant conducted even the most
cursory comparison with plaintiffs specimen signatures in its files (Exhibit "L1" and "M-1") it would have at once seen that the alleged indorsements were
falsified and were not those of the plaintiff-payee. However, defendant
apparently failed to make such a verification or, what is worse did so but,
chose to disregard the obvious dissimilarity of the signatures. The first
omission makes it guilty of gross negligence; the second of bad faith. In either
case, defendant is liable to plaintiff for the proceeds of the checks in
question.27
These findings are binding and conclusive on the appellate and the reviewing
courts.
On the second issue, petitioner avers that respondent Ong is barred by laches
for failing to assert his right for recovery from the bank as soon as he
discovered the scam. The lapse of five months before he went to seek relief
from the bank, according to petitioner, constitutes laches.

and presented for payment to Pacific Banking Corporation. So even if the theft
of the checks were discovered and reported earlier, respondent argues, it
would not have altered the situation as the encashment of the checks was
consummated within twenty four hours and facilitated by the gross negligence
of the petitioner bank.28
Laches may be defined as the failure or neglect for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence, could
or should have been done earlier. It is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled
thereto has either abandoned or declined to assert it. 29 It concerns itself with
whether or not by reason of long inaction or inexcusable neglect, a person
claiming a right should be barred from asserting the same, because to allow
him to do so would be unjust to the person against whom such right is sought
to be enforced.30
In the case at bar, it cannot be said that respondent sat on his rights. He
immediately acted after knowing of the forgery by proceeding to seek help
from the Tanlimco family and later the Central Bank, to remedy the situation
and recover his money from the forger, Paciano Tanlimco. Only after he had
exhausted possibilities of settling the matter amicably with the family of
Tanlimco and through the CB, about five months after the unlawful transaction
took place, did he resort to making the demand upon the petitioner and
eventually before the court for recovery of the money value of the two checks.
These acts cannot be construed as undue delay in or abandonment of the
assertion of his rights.

In turn, respondent contends that petitioner presented no evidence to support

its claim of laches. On the contrary, the established facts of the case as found
by the trial court and affirmed by the Court of Appeals are that respondent left
no stone unturned to obtain relief from his predicament.

Moreover, the claim of petitioner that respondent should be barred by laches is

clearly a vain attempt to deflect responsibility for its negligent act.1wphi1 As
explained by the appellate court, it is petitioner which had the last clear
chance to stop the fraudulent encashment of the subject checks had it
exercised due diligence and followed the proper and regular banking
procedures in clearing checks.31 As we had earlier ruled, the one who had the
last clear opportunity to avoid the impending harm but failed to do so is
chargeable with the consequences thereof. 32

On the matter of delay in reporting the loss, respondent calls attention to the
fact that the checks were issued on May 4, 1976, and on the very next day,
May 5, 1976, these were already credited to the account of Paciano Tanlimco

WHEREFORE, the instant petition is DENIED for lack of merit. The assailed
decision of the Court of Appeals, sustaining the judgment of the Regional Trial
Court of Manila, is AFFIRMED.

Costs against petitioner.

Art. 1249. xxx

SO ORDERED.

The delivery of promissory notes payable to order, or bills of

exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

In the meantime, the action derived from the original obligation

shall be held in abeyance.

Footnotes
1

10

Supra, note 1 at 25.

11

Id. at 26.

12

Id. at 47-48.

Rollo, pp. 32-39.

No. NI-141439 for P880,850.00 (Exh. "A") and No. 141476 for
P873,937.50 (Exh. "B"), RTC Records, pp. 9-10.
3

Supra, note 1 at 34-35.

13

Id. at 48.

CA Rollo, pp. 99-100.

14

G.R. No. 107382, 252 SCRA 620, 633 (1996).

Supra, note 1 at 38.

15

Supra, note 1 at 48.

Sec. 51. Right of holder to sue payment. - The holder of a negotiable

instrument may sue thereon in his own name; and payment to him in
due course discharges the instrument.

16

17

Sec. 191. Definitions and meaning of terms. In this Act, unless the
contract otherwise requires:

Supra, note 1 at 49-50 citing Art. 18. Civil Code of the Philippines. "In
matters which are governed by the Code of Commerce and special
laws, their deficiency shall be supplied by the provisions of this Code."
Sec. 2, Rule 2, 1997 Rules of Court.

18

xxx
"Holder" means the payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof;
xxx
8

Supra, note 1 at 24-25.

R.J. Francisco, Civil Procedure 86 (First Edition 2001) Vol. I, citing

Ma-ao Sugar Central Co. vs. Barrios, G.R. No. L-1539, 79 Phil. 666,
667 (1947).
19

20

RTC Records, pp. 5-6.

A. F. Agbayani, Commercial Laws of the Philippines 200 (Vol. I 1987)

citing Great Eastern Life Ins. Co.vs. Hongkong & Shanghai Bank, G.R.
No. 18657, 43 Phil 678, 682-683 (1922).

21

Agbayani, op. cit. 201 citing 21 A.L.R. 1068.

22

Agbayani, op. cit. 202 citing 31 A.L.R. 1070; U.S. Portland

Co. vs. U.S. Nat. Bank; L.R.A. 1917-A, 145, 146.; 21 A.L.R. 1072; 31
A.L.R. 1071.
23

Agbayani, op. cit. 207 citing 31 Mich. L. Rev. 819.

24

Agbayani, op. cit. 206-207 citing 31 A.L.R. 1021-2; Brannan, 7th ed.,
453.
25

Citytrust Banking Corp. vs. Intermediate Appellate Court, G.R. No.

84281, 232 SCRA 559, 563 (1994).

28

Supra, note 1 at 50-52.

29

Felizardo et. al. vs. Fernandez, G.R. No. 137509, August 15, 2001, p.
8, citing Heirs of Pedro Lopez vs.De Castro, G.R. No. 112905, 324
SCRA 591, 614-615 (2000), Catholic Bishop of Balanga vs. Court of
Appeals, G.R. No. 112519, 332 Phil. 206, 218-219 (1996), 264 SCRA
181, 192-194 (1996).
30

Felizardo vs. Fernandez, id. citing Heirs of Teodoro Dela

Cruz vs. Court of Appeals, G.R. No. 117384, 298 SCRA 172, 182
(1998), Pablate vs. Echarri, Jr., G.R. No. L- 24357, 37 SCRA 518, 521522 (1971).
31

Supra, note 1 at 51-52.

26

Bank of the Philippine Islands vs. Court of Appeals, G.R. No. 112392,
326 SCRA 641, 657 (2000),Philippine Bank of Commerce vs. Court of
Appeals, G.R. No. 97626, 269 SCRA 695, 708-709 (1997).
27

Supra, note 2 at 251-252.

32

Philippine Bank of Commerce vs. CA, G.R. No. 97626, 269 SCRA
695, 707-708 (1997).