FIRST DIVISION

G.R. No. 184458, January 14, 2015

RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR CHUA AND S. VIOLETA CHUA, Respondents.
[G.R. NO. 184472]
SPS. SALVADOR CHUA AND VIOLETA S. CHUA, Petitioners, v. RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
1
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals in CA-G.R. SP No.
2
90609 which affirmed with modification the separate rulings of the Manila City trial courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-105256 and the
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Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No. 163661, a case for collection of a sum of money due a promissory note. While all three (3) lower
courts upheld the validity and authenticity of the promissory note as duly signed by the obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate
court modified the trial courts consistent awards: (1) the stipulated interest rate of sixty percent (60%) reduced to twelve percent (12%) per annum computed from the
date of judicial or extrajudicial demand, and (2) reinstatement of the award of attorneys fees also in a reduced amount of P50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory note and questions the entire ruling of the lower courts. On the other hand,
petitioners in G.R. No. 184472, Spouses Salvador and Violeta Chua (Spouses Chua), take exception to the appellate courts reduction of the stipulated interest rate of
sixty percent (60%) to twelve percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other since 1973: Rivera and Salvador are kumpadres, the former is the godfather of the Spouses Chuas
son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:chanroblesvirtuallawlibrary
PROMISSORY NOTE

120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One
Hundred Twenty Thousand Philippine Currency (P120,000.00) on December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995.
(sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to twenty percent (20%) of the total amount due and
payable as and for attorneys fees which in no case shall be less than P5,000.00 and to pay in addition the cost of suit and other incidental litigation
expense.
Any action which may arise in connection with this note shall be brought in the proper Court of the City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in the promissory note, Rivera, as partial payment for the loan, issued and deliveed to the
Spouses Chua, as payee, a check numbered 012467, dated 30 December 1998, drawn against Riveras current account with the Philippine Commercial International
Bank (PCIB) in the amount of P25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably issued by Rivera, likewise drawn against Riveras PCIB current account, numbered
013224, duly signed and dated, but blank as to payee and amount. Ostensibly, as per understanding by the parties, PCIB Check No. 013224 was issued in the amount of
P133,454.00 with cash as payee. Purportedly, both checks were simply partial payment for Riveras loan in the principal amount of P120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason account closed.
As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00 covering the principal of P120,000.00 plus five percent (5%) interest per month from
1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. Because of Riveras unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. The case was raffled before the MeTC, Branch 30, Manila and docketed as Civil Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never executed the subject Promissory Note; (2) in all instances when he obtained a loan
from the Spouses Chua, the loans were always covered by a security; (3) at the time of the filing of the complaint, he still had an existing indebtedness to the Spouses
Chua, secured by a real estate mortgage, but not yet in default; (4) PCIB Check No. 132224 signed by him which he delivered to the Spouses Chua on 21 December
1998, should have been issued in the amount of only P1,300.00, representing the amount he received from the Spouses Chuas saleslady; (5) contrary to the supposed
agreement, the Spouses Chua presented the check for payment in the amount of P133,454.00; and (6) there was no demand for payment of the amount of P120,000.00
prior to the encashment of PCIB Check No. 0132224. 5chanRoblesvirtualLawlibrary
In the main, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness thereunder.
The MeTC summarized the testimonies of both parties respective witnesses:chanroblesvirtuallawlibrary
[The spouses Chuas] evidence include[s] documentary evidence and oral evidence (consisting of the testimonies of [the spouses] Chua and NBI
Senior Documents Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI document examiner (1989); NBI Senior Document Examiner
(1994 to the date he testified); registered criminologist; graduate of 18th Basic Training Course [i]n Questioned Document Examination conducted by
the NBI; twice attended a seminar on US Dollar Counterfeit Detection conducted by the US Embassy in Manila; attended a seminar on Effective
Methodology in Teaching and Instructional design conducted by the NBI Academy; seminar lecturer on Questioned Documents, Signature Verification
and/or Detection; had examined more than a hundred thousand questioned documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera] appearing in the Promissory Note and compared the signature
thereon with the specimen signatures of [Rivera] appearing on several documents. After a thorough study, examination, and comparison of the
signature on the questioned document (Promissory Note) and the specimen signatures on the documents submitted to him, he concluded that the
questioned signature appearing in the Promissory Note and the specimen signatures of [Rivera] appearing on the other documents submitted were
written by one and the same person. In connection with his findings, Magbojos prepared Questioned Documents Report No. 712-1000 dated 8 January
2001, with the following conclusion: The questioned and the standard specimen signatures RODGRIGO RIVERA were written by one and the same
person.
[Rivera] testified as follows: he and [respondent] Salvador are kumpadres; in May 1998, he obtained a loan from [respondent] Salvador and
executed a real estate mortgage over a parcel of land in favor of [respondent Salvador] as collateral; aside from this loan, in October, 1998 he
borrowed P25,000.00 from Salvador and issued PCIB Check No. 126407 dated 30 December 1998; he expressly denied execution of the Promissory
Note dated 24 February 1995 and alleged that the signature appearing thereon was not his signature; [respondent Salvadors] claim that PCIB Check
No. 0132224 was partial payment for the Promissory Note was not true, the truth being that he delivered the check to [respondent Salvador] with the
space for amount left blank as he and [respondent] Salvador had agreed that the latter was to fill it in with the amount of ?1,300.00 which amount he
 owed [the spouses Chua]; however, on 29 December 1998 [respondent] Salvador called him and told him that he had written P133,454.00 instead of
P1,300.00; x x x. To rebut the testimony of NBI Senior Document Examiner Magbojos, [Rivera] reiterated his averment that the signature appearing
on the Promissory Note was not his signature and that he did not execute the Promissory Note. 6
After trial, the MeTC ruled in favor of the Spouses Chua:chanroblesvirtuallawlibrary
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: P120,000.00 plus stipulated interest at the rate of 5% per month from 1 January 1996,
and legal interest at the rate of 12% percent per annum from 11 June 1999, as actual and compensatory damages; 20% of the whole amount due as
attorneys fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC, but deleted the award of attorneys fees to the Spouses
Chua:chanroblesvirtuallawlibrary
WHEREFORE, except as to the amount of attorneys fees which is hereby deleted, the rest of the Decision dated October 21, 2002 is hereby
8
AFFIRMED.
Both trial courts found the Promissory Note as authentic and validly bore the signature of Rivera.
Undaunted, Rivera appealed to the Court of Appeals which affirmed Riveras liability under the Promissory Note, reduced the imposition of interest on the loan from
60% to 12% per annum, and reinstated the award of attorneys fees in favor of the Spouses Chua:chanroblesvirtuallawlibrary
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the interest rate of 60% per annum is
9
hereby reduced to 12% per annum and the award of attorneys fees is reinstated at the reduced amount of P50,000.00 Costs against [Rivera].
Hence, these consolidated petitions for review on certiorari of Rivera in G.R. No. 184458 and the Spouses Chua in G.R. No. 184472, respectively raising the following
issues:chanroblesvirtuallawlibrary
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE RTC AND M[e]TC THAT
THERE WAS A VALID PROMISSORY NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT DEMAND IS NO LONGER NECESSARY AND
IN APPLYING THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING ATTORNEYS FEES DESPITE THE FACT THAT
THE SAME HAS NO BASIS IN FACT AND IN LAW AND DESPITE THE FACT THAT [THE SPOUSES CHUA] DID NOT APPEAL FROM THE
DECISION OF THE RTC DELETING THE AWARD OF ATTORNEYS FEES.10chanRoblesvirtualLawlibrary
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL ERROR WHEN IT MODIFIED THE
APPEALED JUDGMENT BY REDUCING THE INTEREST RATE FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE FACT
THAT RIVERA NEVER RAISED IN HIS ANSWER THE DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST IS EXORBITANT,
UNCONSCIONABLE, UNREASONABLE, INEQUITABLE, ILLEGAL, IMMORAL OR VOID. 11
As early as 15 December 2008, we already disposed of G.R. No. 184472 and denied the petition, via a Minute Resolution, for failure to sufficiently show any reversible
error in the ruling of the appellate court specifically concerning the correct rate of interest on Riveras indebtedness under the Promissory
Note.12chanRoblesvirtualLawlibrary
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera questioning the entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that he executed the Promissory Note; he claims that given his friendship with the Spouses Chua who were money lenders, he has been able to
maintain a loan account with them. However, each of these loan transactions was respectively secured by checks or sufficient collateral.
Rivera points out that the Spouses Chua never demanded payment for the loan nor interest thereof (sic) from [Rivera] for almost four (4) years from the time of the
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alleged default in payment [i.e., after December 31, 1995]. chanRoblesvirtualLawlibrary
On the issue of the supposed forgery of the promissory note, we are not inclined to depart from the lower courts uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the promissory note was forged, only that the signature is not his and varies from his usual signature.
He likewise makes a confusing defense of having previously obtained loans from the Spouses Chua who were money lenders and who had allowed him a period of
almost four (4) years before demanding payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the testimony of the National Bureau of Investigation (NBI) handwriting expert on the integrity of
the promissory note.
On that score, the appellate court aptly disabled Riveras contention:chanroblesvirtuallawlibrary
[Rivera] failed to adduce clear and convincing evidence that the signature on the promissory note is a forgery. The fact of forgery cannot be presumed
but must be proved by clear, positive and convincing evidence. Mere variance of signatures cannot be considered as conclusive proof that the same
was forged. Save for the denial of Rivera that the signature on the note was not his, there is nothing in the records to support his claim of forgery. And
while it is true that resort to experts is not mandatory or indispensable to the examination of alleged forged documents, the opinions of handwriting
experts are nevertheless helpful in the courts determination of a documents authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the promissory note and the testimony of the NBI witness. In fact, even a
perfunctory comparison of the signatures offered in evidence would lead to the conclusion that the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must establish his case by preponderance of evidence, which simply means
evidence which is of greater weight, or more convincing than that which is offered in opposition to it.
Evaluating the evidence on record, we are convinced that [the Spouses Chua] have established a prima facie case in their favor, hence, the burden of
14
evidence has shifted to [Rivera] to prove his allegation of forgery. Unfortunately for [Rivera], he failed to substantiate his defense.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties. 15 A review of such findings by this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded entirely on speculation, surmises or conjectures; (2) when a lower court's inference from its
factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the
appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when there is
a misappreciation of facts; (6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence
of evidence, or are contradicted by evidence on record. 16 None of these exceptions obtains in this instance. There is no reason to depart from the separate factual
findings of the three (3) lower courts on the validity of Riveras signature reflected in the Promissory Note.
Indeed, Rivera had the burden of proving the material allegations which he sets up in his Answer to the plaintiffs claim or cause of action, upon which issue is joined,
whether they relate to the whole case or only to certain issues in the case.17chanRoblesvirtualLawlibrary
In this case, Riveras bare assertion is unsubstantiated and directly disputed by the testimony of a handwriting expert from the NBI. While it is true that resort to experts
is not mandatory or indispensable to the examination or the comparison of handwriting, the trial courts in this case, on its own, using the handwriting expert testimony
only as an aid, found the disputed document valid.18chanRoblesvirtualLawlibrary
Hence, the MeTC ruled that:chanroblesvirtuallawlibrary
 [Rivera] executed the Promissory Note after consideration of the following: categorical statement of [respondent] Salvador that [Rivera] signed the
Promissory Note before him, in his ([Riveras]) house; the conclusion of NBI Senior Documents Examiner that the questioned signature (appearing on
the Promissory Note) and standard specimen signatures Rodrigo Rivera were written by one and the same person; actual view at the hearing of the
enlarged photographs of the questioned signature and the standard specimen signatures. 19
Specifically, Rivera insists that: [i]f that promissory note indeed exists, it is beyond logic for a money lender to extend another loan on May 4, 1998 secured by a real
estate mortgage, when he was already in default and has not been paying any interest for a loan incurred in February 1995. 20chanRoblesvirtualLawlibrary
We disagree.
It is likewise likely that precisely because of the long standing friendship of the parties as kumpadres, Rivera was allowed another loan, albeit this time secured by a
real estate mortgage, which will cover Riveras loan should Rivera fail to pay. There is nothing inconsistent with the Spouses Chuas two (2) and successive loan
accommodations to Rivera: one, secured by a real estate mortgage and the other, secured by only a Promissory Note.
Also completely plausible is that given the relationship between the parties, Rivera was allowed a substantial amount of time before the Spouses Chua demanded
payment of the obligation due under the Promissory Note.
In all, Riveras evidence or lack thereof consisted only of a barefaced claim of forgery and a discordant defense to assail the authenticity and validity of the Promissory
Note. Although the burden of proof rested on the Spouses Chua having instituted the civil case and after they established a prima facie case against Rivera, the burden of
21
evidence shifted to the latter to establish his defense. Consequently, Rivera failed to discharge the burden of evidence, refute the existence of the Promissory Note
duly signed by him and subsequently, that he did not fail to pay his obligation thereunder. On the whole, there was no question left on where the respective evidence of
the parties preponderatedin favor of plaintiffs, the Spouses Chua.
Rivera next argues that even assuming the validity of the Promissory Note, demand was still necessary in order to charge him liable thereunder. Rivera argues that it was
grave error on the part of the appellate court to apply Section 70 of the Negotiable Instruments Law (NIL). 22chanRoblesvirtualLawlibrary
We agree that the subject promissory note is not a negotiable instrument and the provisions of the NIL do not apply to this case. Section 1 of the NIL requires the
concurrence of the following elements to be a negotiable instrument:chanroblesvirtuallawlibrary
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note is:chanroblesvirtuallawlibrary
SECTION 184. Promissory Note, Defined. A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made
by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order
or to bearer. Where a note is drawn to the makers own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua, and not to order or to bearer, or to the order of the Spouses
Chua as payees.
However, even if Riveras Promissory Note is not a negotiable instrument and therefore outside the coverage of Section 70 of the NIL which provides that presentment
for payment is not necessary to charge the person liable on the instrument, Rivera is still liable under the terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable31 December 1995. As of 1 January 1996, Rivera had
already incurred in delay when he failed to pay the amount of P120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:chanroblesvirtuallawlibrary
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement for the creation of the obligation; and (4) where demand would be useless. In the first
two paragraphs, it is not sufficient that the law or obligation fixes a date for performance; it must further state expressly that after the period lapses, default will
commence.
We refer to the clause in the Promissory Note containing the stipulation of interest:chanroblesvirtuallawlibrary
It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995.
(sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid for.23

which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the date of default until the entire obligation is fully paid for. The parties evidently
agreed that the maturity of the obligation at a date certain, 31 December 1995, will give rise to the obligation to pay interest. The Promissory Note expressly provided
that after 31 December 1995, default commences and the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following 31 December 1995, the due date of the obligation. On that date, Rivera became
liable for the stipulated interest which the Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995, demand was not necessary before Rivera
could be held liable for the principal amount of P120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to pay the Spouses Chua damages, in
the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of delay, in the performance of their obligations is laid down on Article 1170 24 of the
Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for damages when the obligor incurs in
delay:chanroblesvirtuallawlibrary
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent
per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of money; (2) the debtor, Rivera, incurred in delay when he failed to pay on
or before 31 December 1995; and (3) the Promissory Note provides for an indemnity for damages upon default of Rivera which is the payment of a 5% monthly interest
from the date of default.
We do not consider the stipulation on payment of interest in this case as a penal clause although Rivera, as obligor, assumed to pay additional 5% monthly interest on
the principal amount of P120,000.00 upon default.
Article 1226 of the Civil Code provides:chanroblesvirtuallawlibrary
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of
 fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
The penal clause is generally undertaken to insure performance and works as either, or both, punishment and reparation. It is an exception to the general rules on
25
recovery of losses and damages. As an exception to the general rule, a penal clause must be specifically set forth in the obligation. chanRoblesvirtualLawlibrary
In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a penal clause, and is simply an indemnity for damages incurred by the
Spouses Chua because Rivera defaulted in the payment of the amount of P120,000.00. The measure of damages for the Riveras delay is limited to the interest stipulated
26
in the Promissory Note. In apt instances, in default of stipulation, the interest is that provided by law. chanRoblesvirtualLawlibrary
In this instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of 5% a month or 60% per annum. On this score, the appellate court
ruled:chanroblesvirtuallawlibrary
It bears emphasizing that the undertaking based on the note clearly states the date of payment to be 31 December 1995. Given this circumstance,
demand by the creditor is no longer necessary in order that delay may exist since the contract itself already expressly so declares. The mere failure of
[Spouses Chua] to immediately demand or collect payment of the value of the note does not exonerate [Rivera] from his liability therefrom. Verily, the
trial court committed no reversible error when it imposed interest from 1 January 1996 on the ratiocination that [Spouses Chua] were relieved from
making demand under Article 1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in addition to legal interests and attorneys fees is, indeed, highly
iniquitous and unreasonable. Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when
necessary. Since the interest rate agreed upon is void, the parties are considered to have no stipulation regarding the interest rate, thus, the rate of
interest should be 12% per annum computed from the date of judicial or extrajudicial demand. [27chanRoblesvirtualLawlibrary
The appellate court found the 5% a month or 60% per annum interest rate, on top of the legal interest and attorneys fees, steep, tantamount to it being illegal, iniquitous
and unconscionable.
Significantly, the issue on payment of interest has been squarely disposed of in G.R. No. 184472 denying the petition of the Spouses Chua for failure to sufficiently
show any reversible error in the ruling of the appellate court, specifically the reduction of the interest rate imposed on Riveras indebtedness under the Promissory Note.
Ultimately, the denial of the petition in G.R. No. 184472 is res judicata in its concept of bar by prior judgment on whether the Court of Appeals correctly reduced the
interest rate stipulated in the Promissory Note.
Res judicata applies in the concept of bar by prior judgment if the following requisites concur: (1) the former judgment or order must be final; (2) the judgment or
order must be on the merits; (3) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties; and (4) there must be,
28
between the first and the second action, identity of parties, of subject matter and of causes of action. chanRoblesvirtualLawlibrary
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of parties and subject matter raising specifically errors in the Decision of the Court of
Appeals. Where the Court of Appeals disposition on the propriety of the reduction of the interest rate was raised by the Spouses Chua in G.R. No. 184472, our ruling
thereon affirming the Court of Appeals is a bar by prior judgment.
At the time interest accrued from 1 January 1996, the date of default under the Promissory Note, the then prevailing rate of legal interest was 12% per annum under
29
Central Bank (CB) Circular No. 416 in cases involving the loan or forbearance of money. Thus, the legal interest accruing from the Promissory Note is 12% per
annum from the date of default on 1 January 1996.
However, the 12% per annum rate of legal interest is only applicable until 30 June 2013, before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular
30
No. 799, Series of 2013 reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery Frames, BSP Circular No. 799 is prospectively
applied from 1 July 2013. In short, the applicable rate of legal interest from 1 January 1996, the date when Rivera defaulted, to date when this Decision becomes final
and executor is divided into two periods reflecting two rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM 1
July 2013 to date when this Decision becomes final and executory.
As for the legal interest accruing from 11 June 1999, when judicial demand was made, to the date when this Decision becomes final and executory, such is likewise
divided into two periods: (1) 12% per annum from 11 June 1999, the date of judicial demand to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date when this
31
Decision becomes final and executor. We base this imposition of interest on interest due earning legal interest on Article 2212 of the Civil Code which provides that
interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point.
From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to the Spouses Chua could already be determined with reasonable certainty given
the wording of the Promissory Note.32chanRoblesvirtualLawlibrary
33
We cite our recent ruling in Nacar v. Gallery Frames: chanRoblesvirtualLawlibrary
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:ChanRoblesVirtualawlibrary
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of
the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein. (Emphasis supplied)

On the reinstatement of the award of attorneys fees based on the stipulation in the Promissory Note, we agree with the
reduction thereof but not the ratiocination of the appellate court that the attorneys fees are in the nature of liquidated
 damages or penalty. The interest imposed in the Promissory Note already answers as liquidated damages for Riveras
default in paying his obligation. We award attorneys fees, albeit in a reduced amount, in recognition that the Spouses
Chua were compelled to litigate and incurred expenses to protect their interests. 34 Thus, the award of P50,000.00 as
attorneys fees is proper.
For clarity and to obviate confusion, we chart the breakdown of the total amount owed by Rivera to the Spouses
Chua:chanroblesvirtuallawlibrary
Face value of the Stipulated Interest A & B Interest due earning legal interest A & B Attorneys fees Total Amount
Promissory Note
February 24, 1995 to A. January 1, 1996 to June 30, 2013 A. June 11, 1999 (date of judicial demand) Wholesale amount
December 31, 1995 to June 30, 2013
B. July 1 2013 to date when this Decision B. July 1, 2013 to date when this Decision
becomes final and executory becomes final and executory
P120,000.00 A. 12 % per annum on the principal amount A. 12% per annum on the total amount of P50,000.00 Total amount of
of P120,000.00 column 2 Columns 1-4
B. 6% per annum on the principal amount B. 6% per annum on the total amount of
of P120,000.00 35
column 2
The total amount owing to the Spouses Chua set forth in this Decision shall further earn legal interest at the rate of 6% per annum computed from its finality until full
payment thereof, the interim period being deemed to be a forbearance of credit.chanrobleslaw
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo
Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua the following:chanroblesvirtuallawlibrary
(1) the principal amount of P120,000.00;
(2) legal interest of 12% per annum of the principal amount of P120,000.00 reckoned from 1 January 1996 until 30 June 2013;
(3) legal interest of 6% per annum of the principal amount of P120,000.00 form 1 July 2013 to date when this Decision becomes final and executory;
(4) 12% per annum applied to the total of paragraphs 2 and 3 from 11 June 1999, date of judicial demand, to 30 June 2013, as interest due earning legal interest;
-5 6% per annum applied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date when this Decision becomes final and executor, as interest due earnin
(6) Attorneys fees in the amount of P50,000.00; and
(7) 6% per annum interest on the total of the monetary awards from the finality of this Decision until full payment thereof.
Costs against petitioner Rodrigo Rivera.
SO ORDERED..

Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the same. As security for the jewelries, Moulic
issued to Victoriano two post-dated checks in the aggregate amount of P100,000.00. Moulic was not able to sell the jewelries so she returned the
same to Victoriano. Victoriano was however unable to return the checks hence Moulic withdrew all her funds from the bank.
Apparently, the checks were negotiated by Victoriano to State Investment House, Inc. So when the checks were dishonored, State Investment
demanded Moulic to pay. Moulic refused to pay because she said the checks were merely used as security for the jewelry. Moulic further averred that
she received no notice of dishonor.

ISSUE:
Whether or not State Investment House is entitled to be paid.

HELD:
Yes. State Investment is a holder in due course as it met all the requirements to be one pursuant to Section 52 of the Negotiable Instruments
Law. In particular, it is clearly shown that: (a) on their faces the post-dated checks were complete and regular: (b) State Investment bought these
checks from Victoriano, before their due dates; (c) State Investment took these checks in good faith and for value, (d) State Investment was never
informed nor made aware that these checks were merely issued to Victoriano as security and not for value.
Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew her funds, she could not have expected her checks to be
honored. It would only be futile for State Investment to be sending her notices of dishonor for the two checks.
FIRST DIVISION
G.R. No. 101163 January 11, 1993
STATE INVESTMENT HOUSE, INC., petitioner,
vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.

BELLOSILLO, J.:
The liability to a holder in due course of the drawer of checks issued to another merely as security, and the right of a real estate
mortgagee after extrajudicial foreclosure to recover the balance of the obligation, are the issues in this Petition for Review of the
Decision of respondent Court of Appeals.
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two (2)
post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August
1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State Investment House. Inc.
(STATE).
MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The checks, however,
could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates, MOULIC withdrew her
funds from the drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979, STATE allegedly
notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead, although MOULIC avers that no such
notice was given her.
On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the checks because the jewelry was never sold and the checks
were negotiated without her knowledge and consent. She also instituted a Third-Party Complaint against Corazon Victoriano, who
later assumed full responsibility for the checks.
On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered STATE to pay MOULIC
P3,000.00 for attorney's fees.
STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground that the
Notice of Dishonor to MOULIC was made beyond the period prescribed by the Negotiable Instruments Law and that even if STATE
did serve such notice on MOULIC within the reglementary period it would be of no consequence as the checks should never have
been presented for payment. The sale of the jewelry was never effected; the checks, therefore, ceased to serve their purpose as
security for the jewelry.
We are not persuaded.
The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the pre-trial, the parties agreed to
limit the issue to whether or not STATE was a holder of the checks in due course. 1
In this regard, Sec. 52 of the Negotiable Instruments Law provides
Sec. 52. What constitutes a holder in due course. A holder in due course is a holder who has taken the
instrument under the following conditions: (a) 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 was 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.
Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable instrument is a holder in due course. 2
Consequently, the burden of proving that STATE is not a holder in due course lies in the person who disputes the presumption. In this
regard, MOULIC failed.
The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner bought these
checks from the payee, Corazon Victoriano, before their due dates; 3 (c) petitioner took these checks in good faith and for value,
albeit at a discounted price; and, (d) petitioner was never informed nor made aware that these checks were merely issued to payee as
security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties,
and from defenses available to prior parties among themselves; STATE may, therefore, enforce full payment of the checks. 4
MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. MOULIC can only invoke this
defense against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course.
That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in
due course. For the only grounds are those outlined in Sec. 119 of the Negotiable Instruments Law:
Sec. 119. Instrument; how discharged. A negotiable instrument is discharged: (a) By payment in due course by
or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal
debtor becomes the holder of the instrument at or after maturity in his own right.
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the
intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing
it up, 5 burning it, 6 or writing the word "cancelled" on the instrument. The act of destroying the instrument must also be made by
the holder of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the intentional
cancellation of the said checks is altogether impossible.
On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by
other existing legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code 7 which enumerates
the modes of extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Sec. 119
contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. In the present action, the
payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned.
Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her
funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in
due course.
Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The need for such notice is not
absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law:
Sec. 114. When notice need not be given to drawer. Notice of dishonor is not required to be given to the
drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is
a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the
instrument is presented for payment: (d) Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument; (e) Where the drawer had countermanded payment.
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she returned the jewelry. She simply
withdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing her funds, she could
not have expected her checks to be honored. In other words, she was responsible for the dishonor of her checks, hence, there was no
need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either
verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been
paid, and that the party notified is expected to pay it. 8
In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in
commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order
to meet the necessities in a single case. 9
The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the
instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the
instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon
which it is drawn. 10 Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot
prejudice the rights of holders in due course. In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to
STATE, a holder in due course of the checks.
Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the drawee bank to meet her obligation
on the checks, 11 so that Notice of Dishonor would be futile.
The Court of Appeals also held that allowing recovery on the checks would constitute unjust enrichment on the part of STATE
Investment House, Inc. This is error.
The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of Corazon Victoriano and her husband
at the time their property mortgaged to STATE was extrajudicially foreclosed amounted to P1.9 million; the bid price at public
auction was only P1 million. 12 Thus, the value of the property foreclosed was not even enough to pay the debt in full.
Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled
to claim the deficiency from the debtor. 13 The step thus taken by the mortgagee-bank in resorting to an extra-judicial foreclosure
was merely to find a proceeding for the sale of the property and its action cannot be taken to mean a waiver of its right to demand
payment for the whole debt. 14 For, while Act 3135, as amended, does not discuss the mortgagee's right to recover such deficiency, it
does not contain any provision either, expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to
foreclose the right of a creditor to sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation, it
so expressly provides. For instance, with respect to pledges, Art. 2115 of the Civil Code 15 does not allow the creditor to recover the
deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold on installment basis, in the
event of foreclosure, the vendor "shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary will be void". 16
It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot be concluded that the creditor loses
his right recognized by the Rules of Court to take action for the recovery of any unpaid balance on the principal obligation simply
because he has chosen to extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him by the
mortgagor in the contract of mortgage. 17
The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC and the VICTORIANO spouses,
respectively, is just another means of recovering the unpaid balance of the debt of the VICTORIANOs.
In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due course, STATE, without prejudice to
any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants who had already been declared as
in default.
WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a new one entered declaring private
respondent NORA B. MOULIC liable to petitioner STATE INVESTMENT HOUSE, INC., for the value of EBC Checks Nos.
30089658 and 30089660 in the total amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to
any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants.
Costs against private respondent.
SO ORDERED.
 FIRST DIVISION
G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO,
respondents.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was, at the
time these events happened, operating in Calapan, Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of
P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of
these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait.
Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the
warrants. 3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979,
in the amount of P150,000.00. The total withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the
proceeds of the apparently cleared warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund
by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings,
which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association, Inc. and defendant Spouses Magno
Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such account
such amount existing before the debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and
thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses of litigation in the amount of
P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions on the deposit slips allowing Metrobank to
charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be held liable for its failure to
collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants already dishonored, thereby perpetuating
the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants had
been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would
not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred liability for its
refusal to return the money that to all appearances belonged to the depositor, who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities
of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until
Metrobank allowed Golden Savings itself to withdraw them from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by
Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the personal circumstances of Gomez before accepting his deposit does not
hold water. It was Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his signature as checked by
Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under
the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling more than one and a half million pesos (and this was 1979). There
was no reason why it should not have waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such
clearance and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses it allowed Gold

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit slips through which the treasury warrants were
deposited by Golden Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent, assuming no responsibility beyond care in
selecting correspondents, and until such time as actual payment shall have come into possession of this bank, the right is reserved to charge back to the
depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks drawn on local banks and bankers and
their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason. (Emphasis
supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings and give it the right to "charge back to the
depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding on Golden
Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed by the bank unilaterally, without the consent of the
depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth in the given
 permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were considered a contract,
the petitioner could still not validly disclaim responsibility thereunder in the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a mere agent it cannot be liable to the principal. This
is not exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less rigor by the courts, according to
whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it that assured Golden Savings it was already safe to
allow Gomez to withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have been no express clearance, as
Metrobank insists (although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing Golden Savings to withdraw from its
account not only once or even twice but three times. The total withdrawal was in excess of its original balance before the treasury warrants were deposited, which only
added to its belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable. Any reason does not mean no reason at all.
Otherwise, there would have been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to wait
until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being
arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the supposed dishonor of the warrants was not communicated to Golden
Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the treasury warrants and allowing payments
therefrom to Golden Savings. But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager and the
auditor of the drawer corporation, has not been established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court
of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive and convincing evidence. This was not done
in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-
negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants
themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion
conforms to Abubakar vs. Auditor General 11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the rights and privileges of a holder in due
course, free from defenses. But this treasury warrant is not within the scope of the negotiable instrument law. For one thing, the document bearing on its face
the words "payable from the appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not unconditional and
does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The
indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It
was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan
Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel this case is inapplicable to the present controversy.1wphi1 That
case involved checks whereas this case involves treasury warrants. Golden Savings never represented that the warrants were negotiable but signed them only for the
purpose of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation
negligent in accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear
that he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the petitioner to credit Golden Savings with the full amount
of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was notified
of the dishonor. The amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the
balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit because of the
dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the
fact that it has already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive portion of the judgment of the lower court shall be
reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant Golden Savings & Loan Association, Inc. to
withdraw the amou

\
 SECOND DIVISION
G.R. No. L-40824 February 23, 1989
GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,
vs.
COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.
The Government Corporate Counsel for petitioner.
Lorenzo A. Sales for private respondents.

REGALADO , J.:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in
favor of petitioner Government Service Insurance System (hereinafter referred to as GSIS) and subsequently, another deed of mortgage, dated April 14, 1958, in connection
with two loans granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively. 1 A parcel of land covered by Transfer Certificate of Title No. 38989 of the
Register of Deed of Quezon City, co-owned by said mortgagor spouses, was given as security under the aforesaid two deeds. 2 They also executed a 'promissory note"
which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY, promise to pay the GOVERNMENT SERVICE
INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine Currency, with interest at the rate of six (6%) per centum compounded monthly
payable in . . . (120)equal monthly installments of . . . (P 127.65) each. 3
On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of Mortgage" under which they obligated themselves to assume the aforesaid
obligation to the GSIS and to secure the release of the mortgage covering that portion of the land belonging to herein private respondents and which was mortgaged to the
GSIS. 4 This undertaking was not fulfilled. 5
Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the amortizations due, GSIS extrajudicially foreclosed the
mortgage and caused the mortgaged property to be sold at public auction on December 3, 1962. 6
More than two years thereafter, or on August 23, 1965, herein private respondents filed a complaint against the petitioner and the Lagasca spouses in the former Court of
First Instance of Quezon City, 7 praying that the extrajudicial foreclosure "made on, their property and all other documents executed in relation thereto in favor of the
Government Service Insurance System" be declared null and void. It was further prayed that they be allowed to recover said property, and/or the GSIS be ordered to pay
them the value thereof, and/or they be allowed to repurchase the land. Additionally, they asked for actual and moral damages and attorney's fees.
In their aforesaid complaint, private respondents alleged that they signed the mortgage contracts not as sureties or guarantors for the Lagasca spouses but they merely gave
their common property to the said co-owners who were solely benefited by the loans from the GSIS.
The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to establish a cause of action. 8
Said decision was reversed by the respondent Court of Appeals 9 which held that:
... although formally they are co-mortgagors, they are so only for accomodation (sic) in that the GSIS required their consent to the mortgage of the
entire parcel of land which was covered with only one certificate of title, with full knowledge that the loans secured thereby were solely for the
benefit of the appellant (sic) spouses who alone applied for the loan.
xxxx
'It is, therefore, clear that as against the GSIS, appellants have a valid cause for having foreclosed the mortgage without having given sufficient
notice to them as required either as to their delinquency in the payment of amortization or as to the subsequent foreclosure of the mortgage by
reason of any default in such payment. The notice published in the newspaper, 'Daily Record (Exh. 12) and posted pursuant to Sec 3 of Act 3135 is
not the notice to which the mortgagor is entitled upon the application being made for an extrajudicial foreclosure. ... 10
On the foregoing findings, the respondent court consequently decreed that-
In view of all the foregoing, the judgment appealed from is hereby reversed, and another one entered (1) declaring the foreclosure of the mortgage
void insofar as it affects the share of the appellants; (2) directing the GSIS to reconvey to appellants their share of the mortgaged property, or the
value thereof if already sold to third party, in the sum of P 35,000.00, and (3) ordering the appellees Flaviano Lagasca and Esther Lagasca to pay
the appellants the sum of P 10,00.00 as moral damages, P 5,000.00 as attorney's fees, and costs. 11
The case is now before us in this petition for review.
In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments Law, which
provide that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefor, but is held liable on the
instrument to a holder for value although the latter knew him to be only an accommodation party.
This approach of both parties appears to be misdirected and their reliance misplaced. The promissory note hereinbefore quoted, as well as the mortgage deeds subject of this
case, are clearly not negotiable instruments. These documents do not comply with the fourth requisite to be considered as such under Section 1 of Act No. 2031 because
they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not
apply; governance shall be afforded, instead, by the provisions of the Civil Code and special laws on mortgages.
As earlier indicated, the factual findings of respondent court are that private respondents signed the documents "only to give their consent to the mortgage as required by
GSIS", with the latter having full knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. 12 This appears to be duly supported by
sufficient evidence on record. Indeed, it would be unusual for the GSIS to arrange for and deduct the monthly amortizations on the loans from the salary as an army officer
of Flaviano Lagasca without likewise affecting deductions from the salary of Isabelo Racho who was also an army sergeant. Then there is also the undisputed fact, as
already stated, that the Lagasca spouses executed a so-called "Assumption of Mortgage" promising to exclude private respondents and their share of the mortgaged property
from liability to the mortgagee. There is no intimation that the former executed such instrument for a consideration, thus confirming that they did so pursuant to their
original agreement.
The parol evidence rule 13 cannot be used by petitioner as a shield in this case for it is clear that there was no objection in the court below regarding the admissibility of the
testimony and documents that were presented to prove that the private respondents signed the mortgage papers just to accommodate their co-owners, the Lagasca spouses.
Besides, the introduction of such evidence falls under the exception to said rule, there being allegations in the complaint of private respondents in the court below regarding
the failure of the mortgage contracts to express the true agreement of the parties. 14
However, contrary to the holding of the respondent court, it cannot be said that private respondents are without liability under the aforesaid mortgage contracts. The factual
context of this case is precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect that third persons who are not parties to the
principal obligation may secure the latter by pledging or mortgaging their own property
So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with respect to private
respondents' share in the property. In consenting thereto, even assuming that private respondents may not be assuming personal liability for the debt, their share in the
property shall nevertheless secure and respond for the performance of the principal obligation. The parties to the mortgage could not have intended that the same would
apply only to the aliquot portion of the Lagasca spouses in the property, otherwise the consent of the private respondents would not have been required.
The supposed requirement of prior demand on the private respondents would not be in point here since the mortgage contracts created obligations with specific terms for
the compliance thereof. The facts further show that the private respondents expressly bound themselves as solidary debtors in the promissory note hereinbefore quoted.
Coming now to the extrajudicial foreclosure effected by GSIS, We cannot agree with the ruling of respondent court that lack of notice to the private respondents of the
extrajudicial foreclosure sale impairs the validity thereof. In Bonnevie, et al. vs. Court of appeals, et al., 15 the Court ruled that Act No. 3135, as amended, does not require
personal notice on the mortgagor, quoting the requirement on notice in such cases as follows:
Section 3. Notice shall be given by posting notices of sale for not less than twenty days in at least three public places of the municipality where the
property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or city.
There is no showing that the foregoing requirement on notice was not complied with in the foreclosure sale complained of .
The respondent court, therefore, erred in annulling the mortgage insofar as it affected the share of private respondents or in directing reconveyance of their property or the
payment of the value thereof Indubitably, whether or not private respondents herein benefited from the loan, the mortgage and the extrajudicial foreclosure proceedings
were valid.
WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of Appeals and REINSTATING the decision of the court a quo in Civil
Case No. Q-9418 thereof.
SO ORDERED.

EN BANC
G.R. No. 16454 September 29, 1921
GEORGE A. KAUFFMAN, plaintiff-appellee,
vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.
Roman J. Lacson for appellant.
Ross and Lawrence for appellee.
STREET, J.:
At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the president of a domestic corporation engaged
chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the
plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board of directors of said company, declared
a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was
accordingly placed to his credit on the books of the company, and so remained until in October of the same year when an unsuccessful effort was
made to transmit the whole, or a greater part thereof, to the plaintiff in New York City.
In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented himself in
the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the
plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. He was informed that the total cost of said transfer, including
exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce Company, thereupon drew
and delivered a check for that amount on the Philippine National Bank; and the same was accepted by the officer selling the exchange in payment of
the transfer in question. As evidence of this transaction a document was made out and delivered to Wicks, which is referred to by the bank's assistant
cashier as its official receipt. This memorandum receipt is in the following language:
October 9th, 1918.

CABLE TRANSFER BOUGHT FROM PHILIPPINE NATIONAL BANK, Manila, P.I

Foreign Amount Rate
$45,000. 3/8 % P90,337.50
Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50. Account of Philippine Fiber and
Produce Company. Sold to Messrs. Philippine Fiber and Produce Company, Manila.
(Sgd.) Y LERMA,
Manager, Foreign Department.
On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect:
Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.
Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply suggesting the advisability of
withholding this money from Kauffman, in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine
National Bank acquiesced in this and on October 11 dispatched to its New York agency another message to withhold the Kauffman payment as
suggested.
Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York, advising him that $45,000 had been
placed to his credit in the New York agency of the Philippine National Bank; and in response to this advice Kauffman presented himself at the office
of the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time, however, the message from the
Philippine National Bank of October 11, directing the withholding of payment had been received in New York, and payment was therefore refused.
In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of Manila to recover said sum, with
interest and costs; and judgment having been there entered favorably to the plaintiff, the defendant appealed.
Among additional facts pertinent to the case we note the circumstance that at the time of the transaction above-mentioned, the Philippines Fiber and
Produce Company did not have on deposit in the Philippine National Bank money adequate to pay the check for P90,355.50, which was delivered in
payment of the telegraphic order; but the company did have credit to that extent, or more, for overdraft in current account, and the check in question
was charged as an overdraft against the Philippine Fiber and Produce Company and has remained on the books of the bank as an interest-bearing item
in the account of said company.
It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with respect to the amount paid for said
telegraphic order. It is true that in the defendant's answer it is suggested that the failure of the bank to pay over the amount of this remittance to the
plaintiff in New York City, pursuant to its agreement, was due to a desire to protect the bank in its relations with the Philippine Fiber and Produce
Company, whose credit was secured at the bank by warehouse receipts on Philippine products; and it is alleged that after the exchange in question
was sold the bank found that it did not have sufficient to warrant payment of the remittance. In view, however, of the failure of the bank to
substantiate these allegations, or to offer any other proof showing failure of consideration, it must be assumed that the obligation of the bank was
supported by adequate consideration.
In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff Kauffman was not a party to the
contract with the bank for the transmission of this credit, no right of action can be vested in him for the breach thereof. "In this situation," we here
quote the words of the appellant's brief, "if there exists a cause of action against the defendant, it would not be in favor of the plaintiff who had
taken no part at all in the transaction nor had entered into any contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company,
the party which contracted in its own name with the defendant."
The question thus placed before us is one purely of law; and at the very threshold of the discussion it can be stated that the provisions of the
Negotiable Instruments Law can come into operation there must be a document in existence of the character described in section 1 of the Law; and no
rights properly speaking arise in respect to said instrument until it is delivered. In the case before us there was an order, it is true, transmitted by the
defendant bank to its New York branch, for the payment of a specified sum of money to George A. Kauffman. But this order was not made payable
"to order or "to bearer," as required in subsection (d) of that Act; and inasmuch as it never left the possession of the bank, or its representative in New
York City, there was no delivery in the sense intended in section 16 of the same Law. In this connection it is unnecessary to point out that the official
receipt delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable
instrument, although it affords complete proof of the obligation actually assumed by the bank.
Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the Philippine Fiber and Produce
Company agreed on October 9, 1918, to cause a sum of money to be paid to the plaintiff in New York City; and the question is whether the plaintiff
 can maintain an action against the bank for the nonperformance of said undertaking. In other words, is the lack of privity with the contract on the part
of the plaintiff fatal to the maintenance of an action by him?
The only express provision of law that has been cited as bearing directly on this question is the second paragraph of article 1257 of the Civil Code;
and unless the present action can be maintained under the provision, the plaintiff admittedly has no case. This provision states an exception to the
more general rule expressed in the first paragraph of the same article to the effect that contracts are productive of effects only between the parties who
execute them; and in harmony with this general rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibaez de
Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs. Compaia Trasatlantica and Atlantic, Gulf and
Pacific Co., 38 Phil., 873, 894.)
The paragraph introducing the exception which we are now to consider is in these words:
Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his
acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.)
In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and interpretation of the paragraph
above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say
that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the right of the person for whose benefit
a contract is made to maintain an action for the breach thereof in the following words:
So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a
stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.
If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the contracting parties
desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor
upon such third person? In resolving this question, of course, the ordinary rules of construction and interpretation of writings must be
observed. (Uy Tam and Uy Yet vs. Leonard, supra.)
Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the nature of a
gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in
determining whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.)
In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's
promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph
above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the
plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies
in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question were not applicable to the facts now before
us, it would be difficult to conceive of a case arising under it.
It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance
before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although the Philippine
National Bank had already directed its New York agency to withhold payment when this demand was made, the rights of the plaintiff cannot be
considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the
party purchasing he exchange.
In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the Court of
Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary
course, a bank incurs a simple contractual obligation, and cannot be considered as holding the money which was paid for the transfer in the character
of a specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has
the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will
make payment to the beneficiary described in the cable. All these transaction are matters of purchase and sale create no trust relationship."
As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely that of the right of the beneficiary to
maintain an action against the bank selling the transfer.
Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be affirmed. It is so ordered, with
costs against the appellant. Interest will be computed as prescribed in section 510 of the Code of Civil Procedure.

FACTS
Wicks, the treasurer of the Philippine Fiber and Produce Company (PFPC), presented himself in the exchange department of the Philippine National Bank in Manila
and requested that a telegraphic transfer of $45,000 should be made to Kauffman in New York City, upon account of the PFPC.
Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.
PNBs representative in New York withheld the money from Kauffman, in view of his reluctance to accept certain bills of the PFPC. Kauffman demanded the money
but was refused to be paid.

ISSUE
Whether or not Kauffman has a right of action based on Negotiable Instruments Law.

RULING
NO. Kauffman has no right of action based on Negotiable Instruments Law on the ground that it can only come into operation if there is a document in existence of the
character described in Section 1 of the said Law, and rights properly speaking arise in respect to said instrument until it is delivered. In this case, there was an order
transmitted by PNB to its New York branch, for the payment of a specified sum of money to Kauffman. But this order was not made payable to order or to bearer,
as required in subsection (d) of that Act; and inasmuch as it never left the possession of the bank, or its representative in New York City, there was no delivery in the
sense intended in Section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the
telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation actually
assumed by the bank. Kauffman, however, has remedy based on the Civil Code, particularly on stipulations pour atrui.