G.R. No. 93397 March 3, 1997 7.
97 7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27,
TRADERS ROYAL BANK, petitioner,
vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of
the PHILIPPINES, respondents.
TORRES, JR., J.:
Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of
Appeals dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank
Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000.00, from the
Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal
Bank (TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached
Assignment 4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the
action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court,
to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to
petitioner Traders Royal Bank (TRB).
In the said petition, TRB stated that:
3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters)
executed a "Detached Assignment" . . ., whereby Filriters, as registered owner, sold,
transferred, assigned and delivered unto Philippine Underwriters Finance Corporation
(Philfinance) all its rights and title to Central Bank Certificates of Indebtedness of PESOS: FIVE
HUNDRED THOUSAND (P500,000) and having an aggregate value of PESOS: THREE MILLION
FIVE HUNDRED THOUSAND (P3,500,000.00);
4. The aforesaid Detached Assignment (Annex "A") contains an express authorization
executed by the transferor intended to complete the assignment through the registration of
the transfer in the name of PhilFinance, which authorization is specifically phrased as follows:
'(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said
bond/certificates on the books of its fiscal agent;
5. On February 4, 1981, petitioner entered into a Repurchase Agreement with
PhilFinance . . ., whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED
THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4-
year, 8th series, Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among
those previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the
Petition;
6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to
repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED
NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27,
1981;
1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds;
8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of
the Petitioner to enable the latter to have its title completed and registered in the books of
the respondent. And by means of said Detachment, Philfinance transferred and assigned all,
its rights and title in the said CBCI (Annex "C") to petitioner and, furthermore, it did thereby
"irrevocably authorize the said issuer (respondent herein) to transfer the said bond/certificate
on the books of its fiscal agent." . . .
9. Petitioner presented the CBCI (Annex "C"), together with the two (2)
aforementioned Detached Assignments (Annexes "B" and "D"), to the Securities Servicing
Department of the respondent, and requested the latter to effect the transfer of the CBCI on
its books and to issue a new certificate in the name of petitioner as absolute owner thereof;
10. Respondent failed and refused to register the transfer as requested, and continues
to do so notwithstanding petitioner's valid and just title over the same and despite repeated
demands in writing, the latest of which is hereto attached as Annex "E" and made an integral
part hereof;
11. The express provisions governing the transfer of the CBCI were substantially
complied with the petitioner's request for registration, to wit:
"No transfer thereof shall be valid unless made at said office (where the Certificate has been
registered) by the registered owner hereof, in person or by his attorney duly authorized in
writing, and similarly noted hereon, and upon payment of a nominal transfer fee which may
be required, a new Certificate shall be issued to the transferee of the registered holder
thereof."
and, without a doubt, the Detached Assignments presented to respondent were sufficient
authorizations in writing executed by the registered owner, Filriters, and its transferee,
PhilFinance, as required by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the ministerial duties of
registering a transfer of ownership over the CBCI and issuing a new certificate to the
transferee devolves upon the respondent;
Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI
in its name.
On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant
Central Bank of the Philippines' Motion for Admission of Amended Answer with Counter
Claim for Interpleader 6 thereby calling to fore the respondent Filriters Guaranty Assurance
Corporation (Filriters), the registered owner of the subject CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI No. 891;
12. The CBCI constitutes part of the reserve investment against liabilities required of
respondent as an insurance company under the Insurance Code;
13. Without any consideration or benefit whatsoever to Filriters, in violation of law and
the trust fund doctrine and to the prejudice of policyholders and to all who have present or
future claim against policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-
Treasury of Filriters, without any board resolution, knowledge or consent of the board of
directors of Filriters, and without any clearance or authorization from the Insurance
Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to
Philfinance;
xxx xxx xxx
14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe,
Vice-President-Treasury of Filriters (both of whom were holding the same positions in
Philfinance), without any consideration or benefit redounding to Filriters and to the grave
prejudice of Filriters, its policy holders and all who have present or future claims against its
policies, executed similar detached assignment forms transferring the CBCI to plaintiff;
xxx xxx xxx
15. The detached assignment is patently void and inoperative because the assignment
is without the knowledge and consent of directors of Filriters, and not duly authorized in
writing by the Board, as requiring by Article V, Section 3 of CB Circular No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and
not the corporate act of Filriters and such null and void;
a) The assignment was executed without consideration and for that reason, the
assignment is void from the beginning (Article 1409, Civil Code);
b) The assignment was executed without any knowledge and consent of the board of
directors of Filriters;
c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a
requirement under the Insurance Code for its existence as an insurance company and the
pursuit of its business operations. The assignment of the CBCI is illegal act in the sense of
malum in se or malum prohibitum, for anyone to make, either as corporate or personal act;
d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited
by law, is immoral and against public policy;
e) The assignment of the CBCI has resulted in the capital impairment and in the
solvency deficiency of Filriters (and has in fact helped in placing Filriters under
conservatorship), an inevitable result known to the officer who executed assignment.
17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of
the assignment.
a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness
is not payable to bearer but is a registered in the name of Filriters;
b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the
registered owner as the absolute owner and that the value of the registered certificates shall
be payable only to the registered owner; a sufficient notice to plaintiff that the assignments
do not give them the registered owner's right as absolute owner of the CBCI's;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides
that the registered certificates are payable only to the registered owner (Article II, Section 1).
18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by
Filriters is not a regular transaction made in the usual of ordinary course of business;
a) The CBCI constitutes part of the reserve investments of Filriters against liabilities
requires by the Insurance Code and its assignment or transfer is expressly prohibited by law.
There was no attempt to get any clearance or authorization from the Insurance
Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or
regular course of its business;
c) The CBCI involved substantial amount and its assignment clearly constitutes
disposition of "all or substantially all" of the assets of Filriters, which requires the affirmative
action of the stockholders (Section 40, Corporation [sic] Code. 7
In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found
the assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of
the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and
effect. The dispositive portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty
Assurance Corporation and against the plaintiff Traders Royal Bank:
(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the
subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as
null and void and of no force and effect;
(b) Ordering the respondent Central Bank of the Philippines to disregard the said
assignment and to pay the value of the proceeds of the CBCI No. D891 to the Filriters
Guaranty Assurance Corporation;
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty
Assurance Corp. The sum of P10,000 as attorney's fees; and
(d) to pay the costs.
SO ORDERED. 9
The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their
appeals likewise failed. The findings of the fact of the said court are hereby reproduced:
The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a
deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to
Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance
transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant
Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated
February 4, 1981, granting Philfinance the right to repurchase the instrument on or before
April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a
deed of assignment, dated April 27, 1981, conveying to appellant TRB all its right and the title
to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI
No. D891 in its name before the Security and Servicing Department of the Central Bank (CB).
Central Bank, however, refused to effect the transfer and registration in view of an adverse
claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the Central
Bank in the Regional Trial Court of Manila. The suit, however, was subsequently treated by
the lower court as a case of interpleader when CB prayed in its amended answer that Filriters
be impleaded as a respondent and the court adjudge which of them is entitled to the
ownership of CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this
Court on appeal. 11
In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument,
and having acquired the said certificate from Philfinance as a holder in due course, its
possession of the same is thus free fro any defect of title of prior parties and from any
defense available to prior parties among themselves, and it may thus, enforce payment of the
instrument for the full amount thereof against all parties liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument,
since the instrument clearly stated that it was payable to Filriters, the registered owner,
whose name was inscribed thereon, and that the certificate lacked the words of negotiability
which serve as an expression of consent that the instrument may be transferred by
negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having
made without consideration, and did not conform to Central Bank Circular No. 769, series of
1980, better known as the "Rules and Regulations Governing Central Bank Certificates of
Indebtedness", which provided that any "assignment of registered certificates shall not be
valid unless made . . . by the registered owner thereof in person or by his representative duly
authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from Philfinance whose
interest was inexistent, having acquired the certificate through simulation. What happened
was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to
guarantee its financing operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and
on behalf of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated as the same time Central Bank Circular No. 769 which has
the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94
Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that Philfinance owns 90% of
Filriters equity and the two corporations have identical corporate officers, thus demanding
the application of the doctrine or piercing the veil of corporate fiction, as to give validity to
the transfer of the CBCI from registered owner to petitioner TRB. 14 This renders the
payment by TRB to Philfinance of CBCI, as actual payment to Filriters. Thus, there is no merit
to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance was null
and void for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of
negotiability within the meaning of the negotiable instruments law (Act 2031).
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay
bearer, of if this Certificate of indebtedness be registered, to FILRITERS GUARANTY
ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED
THOUSAND PESOS.
xxx xxx xxx
Properly understood, a certificate of indebtedness pertains to certificates for the creation and
maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn.
202). Being equivalent to a bond, it is properly understood as acknowledgment of an
obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance
Corporation, the registered owner hereof." Very clearly, the instrument is payable only to
Filriters, the registered owner, whose name is inscribed thereon. It lacks the words of
negotiability which should have served as an expression of consent that the instrument may
be transferred by negotiation. 15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY
ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioner's submission
that the same is a negotiable instrument, and that it is a holder in due course of the
certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is
its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the
touchtone relating to the protection of holders in due course, and the freedom of
negotiability is the foundation for the protection which the law throws around a holder in due
course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate
indebtedness as it merely to pay a sum of money to a specified person or entity for a period
of time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:
The accepted rule is that the negotiability or non-negotiability of an instrument is determined
from the writing, that is, from the face of the instrument itself. In the construction of a bill or
note, the intention of the parties is to control, if it can be legally ascertained. While the
writing may be read in the light of surrounding circumstance in order to more perfectly
understand the intent and meaning of the parties, yet as they have constituted the writing to
be the only outward and visible expression of their meaning, no other words are to be added
to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the
parties may have secretly intended as contradistinguished from what their words express, but
what is the meaning of the words they have used. What the parties meant must be
determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and
is not governed by the negotiable instruments law. The pertinent question then is, was the
transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in
accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the
Central Bank?
The following are the appellate court's pronouncements on the matter:
Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective
since it acquired the instrument from Filriters fictitiously. Although the deed of assignment
stated that the transfer was for "value received", there was really no consideration involved.
What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister
corporation. Thus, for lack of any consideration, the assignment made is a complete nullity.
What is more, We find that the transfer made by Filriters to Philfinance did not conform to
Central Bank Circular No. 769, series of 1980, otherwise known as the "Rules and Regulations
Governing Central Bank Certificates of Indebtedness", under which the note was issued.
Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any
assignment of registered certificates shall not be valid unless made . . . by the registered
owner thereof in person or by his representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and
on behalf of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has
the force and effect of a law, resulting in the nullity of the transfer (People vs. Que Po Lay, 94
Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the
respondent Filriters and Philfinance, though separate corporate entities on paper, have used
their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now
is refused registration by the Central Bank.
Says the petitioner;
Since Philfinance own about 90% of Filriters and the two companies have the same corporate
officers, if the principle of piercing the veil of corporate entity were to be applied in this case,
then TRB's payment to Philfinance for the CBCI purchased by it could just as well be
considered a payment to Filriters, the registered owner of the CBCI as to bar the latter from
claiming, as it has, that it never received any payment for that CBCI sold and that said CBCI
was sold without its authority.
xxx xxx xxx
We respectfully submit that, considering that the Court of Appeals has held that the CBCI was
merely borrowed by Philfinance from Filriters, a sister corporation, to guarantee its
(Philfinance's) financing operations, if it were to be consistent therewith, on the issued raised
by TRB that there was a piercing a veil of corporate entity, the Court of Appeals should have
ruled that such veil of corporate entity was, in fact, pierced, and the payment by TRB to
Philfinance should be construed as payment to Filriters. 17
We disagree with Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an
equitable remedy, and may be awarded only in cases when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person. 18
Peiercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily, they could be subject to, or
distinguished one corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the corporate fiction was
misused, to such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third
persons dealing with the corporate entity which the law aims to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners
insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by
Philfinance, and the identity of one shall be maintained as to the other, there is nothing else
which could lead the court under circumstance to disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity
with a juridical personality separate from its stockholders and from other corporations may
be disregarded, 19 in the absence of such grounds, the general rule must upheld. The fact
that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the
independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal
Revenue, 20 the mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all
when it acquired the subject certificate of indebtedness from Philfinance.
On its face the subject certificates states that it is registered in the name of Filriters. This
should have put the petitioner on notice, and prompted it to inquire from Filriters as to
Philfinance's title over the same or its authority to assign the certificate. As it is, there is no
showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it
make inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at
any office of the Bank or any agency duly authorized by the Bank, and such registration is
noted hereon. After such registration no transfer thereof shall be valid unless made at said
office (where the Certificates has been registered) by the registered owner hereof, in person,
or by his attorney, duly authorized in writing and similarly noted hereon and upon payment of
a nominal transfer fee which may be required, a new Certificate shall be issued to the
transferee of the registered owner thereof. The bank or any agency duly authorized by the
Bank may deem and treat the bearer of this Certificate, or if this Certificate is registered as
herein authorized, the person in whose name the same is registered as the absolute owner of
this Certificate, for the purpose of receiving payment hereof, or on account hereof, and for all
other purpose whether or not this Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written authorization for the transfer or
to require Philfinance to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a
non-owner was disposing of the registered CBCI owned by another entity was a good reason
for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the
Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article
V of which provides that:
Sec. 3. Assignment of Registered Certificates. Assignment of registered certificates shall
not be valid unless made at the office where the same have been issued and registered or at
the Securities Servicing Department, Central Bank of the Philippines, and by the registered
owner thereof, in person or by his representative, duly authorized in writing. For this purpose,
the transferee may be designated as the representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and
its requirements. An entity which deals with corporate agents within circumstances showing
that the agents are acting in excess of corporate authority, may not hold the corporation
liable. 22 This is only fair, as everyone must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith. 23
The transfer made by Filriters to Philfinance did not conform to the said. Central Bank
Circular, which for all intents, is considered part of the law. As found by the courts a quo,
Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance,
purportedly for and in favor of Filriters, did not have the necessary written authorization from
the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to
Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for
the same. This is fatal to the petitioner's cause, for then, Philfinance had no title over the
subject certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure potest
no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital
reserves, which are required by law 24 to be maintained at a mandated level. This was
pointed out by Elias Garcia, Manager-in-Charge of respondent Filriters, in his testimony given
before the court on May 30, 1986.
Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891
in the face value of P5000,000.00 subject of this case?
A Yes, sir.
Q Why do you know this?
A Well, this was CBCI of the company sought to be examined by the Insurance
Commission sometime in early 1981 and this CBCI No. 891 was among the CBCI's that were
found to be missing.
Q Let me take you back further before 1981. Did you have the knowledge of this CBCI
No. 891 before 1981?
A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission
as legal reserve of the company.
Q Legal reserve for the purpose of what?
A Well, you see, the Insurance companies are required to put up legal reserves under
Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and
further, the Insurance Commission requires this reserve to be invested preferably in
government securities or government binds. This is how this CBCI came to be purchased by G.R. No. 166018 June 4, 2014
the company.
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES,
It cannot, therefore, be taken out of the said funds, without violating the requirements of the Petitioner,
law. Thus, the anauthorized use or distribution of the same by a corporate officer of Filriters vs.
cannot bind the said corporation, not without the approval of its Board of Directors, and the COMMISSIONER OF INTERNAL REVENUE, Respondent;
maintenance of the required reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld x-----------------------x
over the claimed interest of Traders Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, G.R. No. 167728
1990 is hereby AFFIRMED.
SO ORDERED. THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES,
Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

These petitions for review on certiorari1 assail the Decision2 and Resolution dated July 8,
2004 and October 25, 2004, respectively, of the Court of Appeals in CA-G.R. SP No. 77580, as
well as the Decision3 and Resolution dated September 2, 2004 and April 4, 2005, respectively,
of the Court of Appeals in CA-G.R. SP No. 70814. The respective Decisions in the said cases
similarly reversed and set aside the decisions of the Court of Tax Appeals (CTA) in CTA Case
Nos. 59514 and 6009,5 respectively, and dismissed the petitions of petitioner Hongkong and
Shanghai Banking Corporation Limited-Philippine Branches (HSBC). The corresponding
Resolutions, on the other hand, denied the respective motions for reconsideration of the said
Decisions.

HSBC performs, among others, custodial services on behalf of its investor-clients, corporate
and individual, resident or non-resident of the Philippines, with respect to their passive
investments in the Philippines, particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the collection/payment agent with respect
to dividends and other income derived from its investor-clients passive investments.6

HSBCs investor-clients maintain Philippine peso and/or foreign currency accounts, which are
managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or "Society for
Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and other
investment in securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay the purchase
price therefor upon receipt of the securities.7

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively, broken
down as follows:
 An overseas client sends instruction to its bank in the Philippines to either:
A. September to December 1997
(i) debit its local or foreign currency account and to pay a named recipient in the Philippines;
September 1997 P 6,981,447.90 or
October 1997 6,209,316.60
November 1997 3,978,510.30 (ii) receive funds from another bank in the Philippines for deposit into its account and to pay
December 1997 2,403,717.30 a named recipient in the Philippines."
Total P19,572,992.10
B. January to December 1998 The foregoing transactions are carried out under instruction from abroad and [do] not involve
actual fund transfer since the funds are already in the Philippine accounts. The instructions
January 1998 P 3,328,305.60 are in the form of electronic messages (i.e., SWIFT MT100 or MT 202 and/or MT 521). In both
February 1998 4,566,924.90 cases, the payment is against the delivery of investments purchased. The purchase of
March 1998 5,371,797.30 investments and the payment comprise one single transaction. DST has already been paid
April 1998 4,197,235.50 under Section 176 for the investment purchase.
May 1998 2,519,587.20
June 1998 2,301,333.00 B. Other transactions:
July 1998 1,586,404.50
August 1998 1,787,359.50 An overseas client sends an instruction to its bank in the Philippines to either:
September 1998 1,231,828.20
October 1998 1,303,184.40 (i) debit its local or foreign currency account and to pay a named recipient, who may be
November 1998 2,026,379.70 another bank, a corporate entity or an individual in the Philippines; or
December 1998 2,684,097.50
Total P32,904,437.30 (ii) receive funds from another bank in the Philippines for deposit to its account and to pay a
On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then Commissioner, named recipient, who may be another bank, a corporate entity or an individual in the
Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or advises from Philippines."
abroad on the management of funds located in the Philippines which do not involve transfer
of funds from abroad are not subject to DST. BIR Ruling No. 132-99 reads: The above instruction is in the form of an electronic message (i.e., SWIFT MT 100 or MT 202)
or tested cable, and may not refer to any particular transaction.
Date: August 23, 1999
The opening and maintenance by a non-resident of local or foreign currency accounts with a
FERRY TOLEDO VICTORINO GONZAGA bank in the Philippines is permitted by the Bangko Sentral ng Pilipinas, subject to certain
& ASSOCIATES conditions.
G/F AFC Building, Alfaro St.
Salcedo Village, Makati In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code, which
Metro Manila provides that

Attn: Atty. Tomas C. Toledo
Tax Counsel
Gentlemen:
This refers to your letter dated July 26, 1999 requesting on behalf of your clients, the
CITIBANK & STANDARD CHARTERED BANK, for a ruling as to whether or not the electronic
instructions involving the following transactions of residents and non-residents of the
Philippines with respect to their local or foreign currency accounts are subject to
documentary stamp tax under Section 181 of the 1997 Tax Code, viz:
A. Investment purchase transactions:
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be
drawn in a foreign country but payable in the Philippines, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or
fractional part thereof, of the face value of any such bill of exchange, or order, or Philippine
equivalent of such value, if expressed in foreign currency. (Underscoring supplied.)
a documentary stamp tax shall be imposed on any bill of exchange or order for payment
purporting to be drawn in a foreign country but payable in the Philippines.
Under the foregoing provision, the documentary stamp tax shall be levied on the instrument,
i.e., a bill of exchange or order for the payment of money, which purports to draw money
from a foreign country but payable in the Philippines. In the instant case, however, while the
payor is residing outside the Philippines, he maintains a local and foreign currency account in
the Philippines from where he will draw the money intended to pay a named recipient. The
instruction or order to pay shall be made through an electronic message, i.e., SWIFT MT 100
or MT 202 and/or MT 521. Consequently, there is no negotiable instrument to be made,
signed or issued by the payee. In the meantime, such electronic instructions by the non-
resident payor cannot be considered as a transaction per se considering that the same do not
involve any transfer of funds from abroad or from the place where the instruction originates.
Insofar as the local bank is concerned, such instruction could be considered only as a
memorandum and shall be entered as such in its books of accounts. The actual debiting of
the payors account, local or foreign currency account in the Philippines, is the actual
transaction that should be properly entered as such.
Under the Documentary Stamp Tax Law, the mere withdrawal of money from a bank deposit,
local or foreign currency account, is not subject to DST, unless the account so maintained is a
current or checking account, in which case, the issuance of the check or bank drafts is subject
to the documentary stamp tax imposed under Section 179 of the 1997 Tax Code. In the
instant case, and subject to the physical impossibility on the part of the payor to be present
and prepare and sign an instrument purporting to pay a certain obligation, the withdrawal
and payment shall be made in cash. In this light, the withdrawal shall not be subject to
documentary stamp tax. The case is parallel to an automatic bank transfer of local funds from
a savings account to a checking account maintained by a depositor in one bank.
Likewise, the receipt of funds from another bank in the Philippines for deposit to the payees
account and thereafter upon instruction of the non-resident depositor-payor, through an
electronic message, the depository bank to debit his account and pay a named recipient shall
not be subject to documentary stamp tax.
It should be noted that the receipt of funds from another local bank in the Philippines by a
local depository bank for the account of its client residing abroad is part of its regular banking
transaction which is not subject to documentary stamp tax. Neither does the receipt of funds
makes the recipient subject to the documentary stamp tax. The funds are deemed to be part
of the deposits of the client once credited to his account, and which, thereafter can be
disposed in the manner he wants. The payor-clients further instruction to debit his account
and pay a named recipient in the Philippines does not involve transfer of funds from abroad.
Likewise, as stated earlier, such debit of local or foreign currency account in the Philippines is
not subject to the documentary stamp tax under the aforementioned Section 181 of the Tax
Code.
In the light of the foregoing, this Office hereby holds that the instruction made through an
electronic message by non-resident payor-client to debit his local or foreign currency account
maintained in the Philippines and to pay a certain named recipient also residing in the
Philippines is not the transaction contemplated under Section 181 of the 1997 Tax Code. Such
being the case, such electronic instruction purporting to draw funds from a local account
intended to be paid to a named recipient in the Philippines is not subject to documentary
stamp tax imposed under the foregoing Section.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed that the facts are different, this ruling shall be considered
null and void.
Very truly yours,
(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue8
With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an administrative claim
for the refund of the amount of P19,572,992.10 allegedly representing erroneously paid DST
to the BIR for the period covering September to December 1997.
Subsequently, on January 31, 2000, HSBC filed another administrative claim for the refund of
the amount of P32,904,437.30 allegedly representing erroneously paid DST to the BIR for the
period covering January to December 1998.
As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the
matter to the CTA as CTA Case Nos. 5951 and 6009, respectively, in order to suspend the
running of the two-year prescriptive period.
The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in
CTA Case No. 5951 favored HSBC. Respondent Commissioner of Internal Revenue was
ordered to refund or issue a tax credit certificate in favor of HSBC in the reduced amounts of
P30,360,570.75 in CTA Case No. 6009 and P16,436,395.83 in CTA Case No. 5951, representing
erroneously paid DST that have been sufficiently substantiated with documentary evidence.
The CTA ruled that HSBC is entitled to a tax refund or tax credit because Sections 180 and 181
of the 1997 Tax Code do not apply to electronic message instructions transmitted by HSBCs
non-resident investor-clients:
The instruction made through an electronic message by a nonresident investor-client, which
is to debit his local or foreign currency account in the Philippines and pay a certain named
recipient also residing in the Philippines is not the transaction contemplated in Section 181 of
the Code. In this case, the withdrawal and payment shall be made in cash. It is parallel to an
automatic bank transfer of local funds from a savings account to a checking account
maintained by a depositor in one bank. The act of debiting the account is not subject to the
documentary stamp tax under Section 181. Neither is the transaction subject to the
documentary stamp tax under Section 180 of the same Code. These electronic message
instructions cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred (Words and Phrases).
These instructions are considered as mere memoranda and entered as such in the books of
account of the local bank, and the actual debiting of the payors local or foreign currency
account in the Philippines is the actual transaction that should be properly entered as such.9
The respective dispositive portions of the Decisions dated May 2, 2002 in CTA Case No. 6009
and dated December 18, 2002 in CTA Case No. 5951 read:
II. CTA Case No. 6009
WHEREFORE, in the light of all the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in
favor of Petitioner the amount of P30,360,570.75 representing erroneous payment of
documentary stamp tax for the taxable year 1998.10
II. CTA Case No. 5951
WHEREFORE, in the light of the foregoing, the instant petition is hereby partially granted.
Accordingly, respondent is hereby ORDERED to REFUND, or in the alternative, ISSUE A TAX
CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of P16,436,395.83
representing erroneously paid documentary stamp tax for the months of September 1997 to
December 1997.11
However, the Court of Appeals reversed both decisions of the CTA and ruled that the
electronic messages of HSBCs investor-clients are subject to DST. The Court of Appeals
explained:
At bar, [HSBC] performs custodial services in behalf of its investor-clients as regards their
passive investments in the Philippines mainly involving shares of stocks in domestic
corporations. These investor-clients maintain Philippine peso and/or foreign currency
accounts with [HSBC]. Should they desire to purchase shares of stock and other investments
securities in the Philippines, the investor-clients send their instructions and advises via
electronic messages from abroad to [HSBC] in the form of SWIFT MT 100, MT 202, or MT 521
directing the latter to debit their local or foreign currency account and to pay the purchase
price upon receipt of the securities (CTA Decision, pp. 1-2; Rollo, pp. 41-42). Pursuant to
Section 181 of the NIRC, [HSBC] was thus required to pay [DST] based on its acceptance of
these electronic messages which, as [HSBC] readily admits in its petition filed before the
[CTA], were essentially orders to pay the purchases of securities made by its client-investors
(Rollo, p. 60).
Appositely, the BIR correctly and legally assessed and collected the [DST] from [HSBC]
considering that the said tax was levied against the acceptances and payments by [HSBC] of
the subject electronic messages/orders for payment. The issue of whether such electronic
messages may be equated as a written document and thus be subject to tax is beside the
point. As We have already stressed, Section 181 of the law cited earlier imposes the [DST] not
on the bill of exchange or order for payment of money but on the acceptance or payment of
the said bill or order. The acceptance of a bill or order is the signification by the drawee of its
assent to the order of the drawer to pay a given sum of money while payment implies not
only the assent to the said order of the drawer and a recognition of the drawers obligation to
pay such aforesaid sum, but also a compliance with such obligation (Philippine National Bank
vs. Court of Appeals, 25 SCRA 693 [1968]; Prudential Bank vs. Intermediate Appellate Court,
216 SCRA 257 [1992]). What is vital to the valid imposition of the [DST] under Section 181 is
the existence of the requirement of acceptance or payment by the drawee (in this case,
[HSBC]) of the order for payment of money from its investor-clients and that the said order
was drawn from a foreign country and payable in the Philippines. These requisites are surely
present here.
It would serve the parties well to understand the nature of the tax being imposed in the case
at bar. In Philippine Home Assurance Corporation vs. Court of Appeals (301 SCRA 443 [1999]),
the Supreme Court ruled that [DST is] levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal relationships
through the execution of specific instruments, independently of the legal status of the
transactions giving rise thereto. In the same case, the High Court also declared citing Du
Pont vs. United States (300 U.S. 150, 153 [1936])
The tax is not upon the business transacted but is an excise upon the privilege, opportunity,
or facility offered at exchanges for the transaction of the business. It is an excise upon the
facilities used in the transaction of the business separate and apart from the business itself. x
x x.
To reiterate, the subject [DST] was levied on the acceptance and payment made by [HSBC]
pursuant to the order made by its client-investors as embodied in the cited electronic
messages, through which the herein parties privilege and opportunity to transact business
respectively as drawee and drawers was exercised, separate and apart from the
circumstances and conditions related to such acceptance and subsequent payment of the
sum of money authorized by the concerned drawers. Stated another way, the [DST] was
exacted on [HSBCs] exercise of its privilege under its drawee-drawer relationship with its
client-investor through the execution of a specific instrument which, in the case at bar, is the
acceptance of the order for payment of money. The acceptance of a bill or order for payment
may be done in writing by the drawee in the bill or order itself, or in a separate instrument
(Prudential Bank vs. Intermediate Appellate Court, supra.)Here, [HSBC]s acceptance of the
orders for the payment of money was veritably done in writing in a separate instrument
each time it debited the local or foreign currency accounts of its client-investors pursuant to
the latters instructions and advises sent by electronic messages to [HSBC]. The [DST]
therefore must be paid upon the execution of the specified instruments or facilities covered
by the tax in this case, the acceptance by [HSBC] of the order for payment of money sent by
the client-investors through electronic messages. x x x.12
Hence, these petitions.
HSBC asserts that the Court of Appeals committed grave error when it disregarded the factual
and legal conclusions of the CTA. According to HSBC, in the absence of abuse or improvident
exercise of authority, the CTAs ruling should not have been disturbed as the CTA is a highly
specialized court which performs judicial functions, particularly for the review of tax cases.
HSBC further argues that the Commissioner of Internal Revenue had already settled the issue
on the taxability of electronic messages involved in these cases in BIR Ruling No. 132-99 and
reiterated in BIR Ruling No. DA-280-2004.13
The Commissioner of Internal Revenue, on the other hand, claims that Section 181 of the
1997 Tax Code imposes DST on the acceptance or payment of a bill of exchange or order for
the payment of money. The DST under Section 18 of the 1997 Tax Code is levied on HSBCs
exercise of a privilege which is specifically taxed by law. BIR Ruling No. 132-99 is inconsistent
with prevailing law and long standing administrative practice, respondent is not barred from
questioning his own revenue ruling. Tax refunds like tax exemptions are strictly construed
against the taxpayer.14
The Court finds for HSBC.
The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but
payable in the Philippines" and that "a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum
certain in money to order or to bearer." A bill of exchange is one of two general forms of
negotiable instruments under the Negotiable Instruments Law.15
The Court further agrees with the CTA that the electronic messages of HSBCs investor-clients
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel
to an automatic bank transfer of local funds from a savings account to a checking account
maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA
that the electronic messages "cannot be considered negotiable instruments as they lack the
feature of negotiability, which, is the ability to be transferred" and that the said electronic
messages are "mere memoranda" of the transaction consisting of the "actual debiting of the
[investor-client-payors] local or foreign currency account in the Philippines" and "entered as
such in the books of account of the local bank," HSBC.16
More fundamentally, the instructions given through electronic messages that are subjected to
DST in these cases are not negotiable instruments as they do not comply with the requisites
of negotiability under Section 1 of the Negotiable Instruments Law, which provides:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The electronic messages are not signed by the investor-clients as supposed drawers of a bill
of exchange; they do not contain an unconditional order to pay a sum certain in money as the
payment is supposed to come from a specific fund or account of the investor-clients; and,
they are not payable to order or bearer but to a specifically designated third party. Thus, the
electronic messages are not bills of exchange. As there was no bill of exchange or order for
the payment drawn abroad and made payable here in the Philippines, there could have been
no acceptance or payment that will trigger the imposition of the DST under Section 181 of
the Tax Code.
Section 181 of the 1997 Tax Code, which governs HSBCs claim for tax refund for taxable year
1998 subject of G.R. No. 167728, provides:
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any
acceptance or payment of any bill of exchange or order for the payment of money purporting
to be drawn in a foreign country but payable in the Philippines, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or
fractional part thereof, of the face value of any such bill of exchange, or order, or the
Philippine equivalent of such value, if expressed in foreign currency. (Emphasis supplied.)
Section 230 of the 1977 Tax Code, as amended, which governs HSBCs claim for tax refund for
DST paid during the period September to December 1997 and subject of G.R. No. 166018, is
worded exactly the same as its counterpart provision in the 1997 Tax Code quoted above.
The origin of the above provision is Section 117 of the Tax Code of 1904,17 which provided:
SECTION 117. The acceptor or acceptors of any bill of exchange or order for the payment of
any sum of money drawn or purporting to be drawn in any foreign country but payable in the
Philippine Islands, shall, before paying or accepting the same, place thereupon a stamp in
payment of the tax upon such document in the same manner as is required in this Act for the
stamping of inland bills of exchange or promissory notes, and no bill of exchange shall be paid
nor negotiated until such stamp shall have been affixed thereto.18 (Emphasis supplied.)
It then became Section 30(h) of the 1914 Tax Code19:
SEC. 30. Stamp tax upon documents and papers. Upon documents, instruments, and
papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or
property incident thereto documentary taxes for and in respect of the transaction so had or
accomplished shall be paid as hereinafter prescribed, by the persons making, signing, issuing,
accepting, or transferring the same, and at the time such act is done or transaction had:
xxxx
(h) Upon any acceptance or payment upon acceptance of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign country but payable in the Philippine
Islands, on each two hundred pesos, or fractional part thereof, of the face value of any such
bill of exchange or order, or the Philippine equivalent of such value, if expressed in foreign
currency, two centavos[.] (Emphasis supplied.)
It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26,20
as amended:
SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds of orders for
the payment of money, payable at sight or on demand, or after a specific period after sight or
from a stated date."
SEC. 46. Bill of Exchange, etc. When any bill of exchange or order for the payment of money
drawn in a foreign country but payable in this country whether at sight or on demand or after
a specified period after sight or from a stated date, is presented for acceptance or payment,
there must be affixed upon acceptance or payment of documentary stamp equal to P0.02 for
each P200 or fractional part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939,21 which provided:
SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any
acceptance or payment of any bill of exchange or order for the payment of money purporting
to be drawn in a foreign country but payable in the Philippines, there shall be collected a
documentary stamp tax of four centavos on each two hundred pesos, or fractional part
thereof, of the face value of any such bill of exchange or order, or the Philippine equivalent of
such value, if expressed in foreign currency. (Emphasis supplied.)
It then became Section 230 of the 1977 Tax Code,22 as amended by Presidential Decree Nos.
1457 and 1959,which, as stated earlier, was worded exactly as Section 181 of the current Tax
Code:
SEC. 230. Stamp tax upon acceptance of bills of exchange and others. Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be
drawn in a foreign country but payable in the Philippines, there shall be collected a
documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part
thereof, of the face value of any such bill of exchange, or order, or the Philippine equivalent of
such value, if expressed in foreign currency. (Emphasis supplied.)
The pertinent provision of the present Tax Code has therefore remained substantially the
same for the past one hundred years.1wphi1 The identical text and common history of
Section 230 of the 1977 Tax Code, as amended, and the 1997 Tax Code, as amended, show
that the law imposes DST on either (a) the acceptance or (b) the payment of a foreign bill of
exchange or order for the payment of money that was drawn abroad but payable in the
Philippines.
DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto.23 Under Section 173 of the 1997 Tax Code, the persons primarily
liable for the payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting,
or (5) transferring the taxable documents, instruments or papers.24
In general, DST is levied on the exercise by persons of certain privileges conferred by law for
the creation, revision, or termination of specific legal relationships through the execution of
specific instruments. Examples of such privileges, the exercise of which, as effected through
the issuance of particular documents, are subject to the payment of DST are leases of lands,
mortgages, pledges and trusts, and conveyances of real property.25
As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997
Tax Code, levies DST on either (a) the acceptance or (b) the payment of a foreign bill of
exchange or order for the payment of money that was drawn abroad but payable in the
Philippines. In other words, it levies DST as an excise tax on the privilege of the drawee to
accept or pay a bill of exchange or order for the payment of money, which has been drawn
abroad but payable in the Philippines, and on the corresponding privilege of the drawer to
have acceptance of or payment for the bill of exchange or order for the payment of money
which it has drawn abroad but payable in the Philippines.
Acceptance applies only to bills of exchange.26 Acceptance of a bill of exchange has a very
definite meaning in law.27 In particular, Section 132 of the Negotiable Instruments Law
provides:
Sec. 132. Acceptance; how made, by and so forth. The acceptance of a bill [of exchange28]
is the signification by the drawee of his assent to the order of the drawer. The acceptance
must be in writing and signed by the drawee. It must not express that the drawee will
perform his promise by any other means than the payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of
exchange is both the manifestation of the drawees consent to the drawers order to pay
money and the expression of the drawees promise to pay. It is "the act by which the drawee
manifests his consent to comply with the request contained in the bill of exchange directed to
him and it contemplates an engagement or promise to pay."29 Once the drawee accepts, he
becomes an acceptor.30 As acceptor, he engages to pay the bill of exchange according to the
tenor of his acceptance.31
Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such
presentment.32 Presentment for acceptance is the production or exhibition of the bill of
exchange to the drawee for the purpose of obtaining his acceptance.33
Presentment for acceptance is necessary only in the instances where the law requires it.34 In
the instances where presentment for acceptance is not necessary, the holder of the bill of
exchange can proceed directly to presentment for payment.
Presentment for payment is the presentation of the instrument to the person primarily liable
for the purpose of demanding and obtaining payment thereof.35
Thus, whether it be presentment for acceptance or presentment for payment, the negotiable
instrument has to be produced and shown to the drawee for acceptance or to the acceptor
for payment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange
or orders for the payment of money that have been drawn abroad but payable in the
Philippines) that is subjected to DST under Section 181 of the 1997 Tax Code is done after
presentment for acceptance or presentment for payment, respectively. In other words, the
acceptance or payment of the subject bill of exchange or order for the payment of money is
done when there is presentment either for acceptance or for payment of the bill of exchange
or order for the payment of money.
Applying the above concepts to the matter subjected to DST in these cases, the electronic
messages received by HSBC from its investor-clients abroad instructing the former to debit
the latter's local and foreign currency accounts and to pay the purchase price of shares of
stock or investment in securities do not properly qualify as either presentment for acceptance
or presentment for payment. There being neither presentment for acceptance nor
presentment for payment, then there was no acceptance or payment that could have been
subjected to DST to speak of.
Indeed, there had been no acceptance of a bill of exchange or order for the payment of
money on the part of HSBC. To reiterate, there was no bill of exchange or order for the
payment drawn abroad and made payable here in the Philippines. Thus, there was no
acceptance as the electronic messages did not constitute the written and signed
manifestation of HSBC to a drawer's order to pay money. As HSBC could not have been an CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS FINANCE CORPORATION,
acceptor, then it could not have made any payment of a bill of exchange or order for the doing business under the name and style of FNCB Finance,
payment of money drawn abroad but payable here in the Philippines. In other words, HSBC Petitioners,
could not have been held liable for DST under Section 230 of the 1977 Tax Code, as amended, - versus-
and Section 181 of the 1997 Tax Code as it is not "a person making, signing, issuing, MODESTA R. SABENIANO,
accepting, or, transferring" the taxable instruments under the said provision. Thus, HSBC Respondent.
erroneously paid DST on the said electronic messages for which it is entitled to a tax refund. G.R. No. 156132
Present:
WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA PANGANIBAN, C.J.
Case No. 6009 and dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax Chairperson,
Appeals are REINSTATED. YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
SO ORDERED. CALLEJO, SR., and
CHICO-NAZARIO, JJ.
Promulgated:
October 16, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised Rules
of Court, of the Decision[2] of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March
2002, and the Resolution,[3] dated 20 November 2002, of the same court which, although
modifying its earlier Decision, still denied for the most part the Motion for Reconsideration of
herein petitioners.

Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking
corporation duly authorized and existing under the laws of the United States of America and
licensed to do commercial banking activities and perform trust functions in the Philippines.

Petitioner Investors Finance Corporation, which did business under the name and style of
FNCB Finance, was an affiliate company of petitioner Citibank, specifically handling money
market placements for its clients. It is now, by virtue of a merger, doing business as part of its
successor-in-interest, BPI Card Finance Corporation. However, so as to consistently establish
its identity in the Petition at bar, the said petitioner shall still be referred to herein as FNCB
Finance.[4]

Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB
Finance. Regrettably, the business relations among the parties subsequently went awry.

On 8 August 1985, respondent filed a Complaint[5] against petitioners, docketed as Civil Case
No. 11336, before the Regional Trial Court (RTC) of Makati City. Respondent claimed to have
substantial deposits and money market placements with the petitioners, as well as money
market placements with the Ayala Investment and Development Corporation (AIDC), the
proceeds of which were supposedly deposited automatically and directly to respondents
accounts with petitioner Citibank. Respondent alleged that petitioners refused to return her
deposits and the proceeds of her money market placements despite her repeated demands,
thus, compelling respondent to file Civil Case No. 11336 against petitioners for Accounting,
Sum of Money and Damages. Respondent eventually filed an Amended Complaint[6] on 9
October 1985 to include additional claims to deposits and money market placements
inadvertently left out from her original Complaint.
In their joint Answer[7] and Answer to Amended Complaint,[8] filed on 12 September 1985
and 6 November 1985, respectively, petitioners admitted that respondent had deposits and
money market placements with them, including dollar accounts in the Citibank branch in
Geneva, Switzerland (Citibank-Geneva). Petitioners further alleged that the respondent later
obtained several loans from petitioner Citibank, for which she executed Promissory Notes
(PNs), and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva,
and (b) Deeds of Assignment of her money market placements with petitioner FNCB Finance.
When respondent failed to pay her loans despite repeated demands by petitioner Citibank,
the latter exercised its right to off-set or compensate respondents outstanding loans with her
deposits and money market placements, pursuant to the Declaration of Pledge and the Deeds
of Assignment executed by respondent in its favor. Petitioner Citibank supposedly informed
respondent Sabeniano of the foregoing compensation through letters, dated 28 September
1979 and 31 October 1979. Petitioners were therefore surprised when six years later, in 1985,
respondent and her counsel made repeated requests for the withdrawal of respondents
deposits and money market placements with petitioner Citibank, including her dollar
accounts with Citibank-Geneva and her money market placements with petitioner FNCB
Finance. Thus, petitioners prayed for the dismissal of the Complaint and for the award of
actual, moral, and exemplary damages, and attorneys fees.
When the parties failed to reach a compromise during the pre-trial hearing,[9] trial proper
ensued and the parties proceeded with the presentation of their respective evidence. Ten
years after the filing of the Complaint on 8 August 1985, a Decision[10] was finally rendered
in Civil Case No. 11336 on 24 August 1995 by the fourth Judge[11] who handled the said case,
Judge Manuel D. Victorio, the dispositive portion of which reads
WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows:
(1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner
Citibank] of plaintiffs [respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the
amount of US$149,632.99, and ordering the said defendant [petitioner Citibank] to refund
the said amount to the plaintiff with legal interest at the rate of twelve percent (12%) per
annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at
the time of payment;
(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner
Citibank] in the amount of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff
[respondent Sabeniano] to pay said amount, however, there shall be no interest and penalty
charges from the time the illegal setoff was effected on 31 October 1979;
(3) Dismissing all other claims and counterclaims interposed by the parties against each other.
Costs against the defendant Bank.
All the parties appealed the foregoing Decision of the RTC to the Court of Appeals, docketed
as CA-G.R. CV No. 51930. Respondent questioned the findings of the RTC that she was still
indebted to petitioner Citibank, as well as the failure of the RTC to order petitioners to render
an accounting of respondents deposits and money market placements with them. On the
other hand, petitioners argued that petitioner Citibank validly compensated respondents
outstanding loans with her dollar accounts with Citibank-Geneva, in accordance with the
Declaration of Pledge she executed in its favor. Petitioners also alleged that the RTC erred in
not declaring respondent liable for damages and interest.
On 26 March 2002, the Court of Appeals rendered its Decision[12] affirming with
modification the RTC Decision in Civil Case No. 11336, dated 24 August 1995, and ruling
entirely in favor of respondent in this wise
Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is
hereby AFFIRMED with MODIFICATION, as follows:
1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of
the plaintiff-appellants dollar deposit with Citibank, Switzerland, in the amount of
US$149,632.99, and ordering defendant-appellant Citibank to refund the said amount to the
plaintiff-appellant with legal interest at the rate of twelve percent (12%) per annum,
compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time
of payment;
2. As defendant-appellant Citibank failed to establish by competent evidence the alleged
indebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms.
Sabeniano is hereby declared as without legal and factual basis;
3. As defendants-appellants failed to account the following plaintiff-appellants money market
placements, savings account and current accounts, the former is hereby ordered to return
the same, in accordance with the terms and conditions agreed upon by the contending
parties as evidenced by the certificates of investments, to wit:
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17
March 1977, P318,897.34 with 14.50% interest p.a.;
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17
March 1977, P203,150.00 with 14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02
June 1977, P500,000.00 with 17% interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02
June 1977, P500,000.00 with 17% interest per annum;

(v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the
Ayala Investment & Development Corporation (AIDC) with legal interest at the rate of twelve
percent (12%) per annum compounded yearly, from 30 September 1976 until fully paid;
4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum
of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE
HUNDRED THOUSAND PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED
THOUSAND PESOS (P100,000.00) as attorneys fees.
Apparently, the parties to the case, namely, the respondent, on one hand, and the
petitioners, on the other, made separate attempts to bring the aforementioned Decision of
the Court of Appeals, dated 26 March 2002, before this Court for review.
G.R. No. 152985
Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in CA-
G.R. CV No. 51930, dated 26 March 2002, and instead, filed immediately with this Court on 3
May 2002 a Motion for Extension of Time to File a Petition for Review,[13] which, after
payment of the docket and other lawful fees, was assigned the docket number G.R. No.
152985. In the said Motion, respondent alleged that she received a copy of the assailed Court
of Appeals Decision on 18 April 2002 and, thus, had 15 days therefrom or until 3 May 2002
within which to file her Petition for Review. Since she informed her counsel of her desire to
pursue an appeal of the Court of Appeals Decision only on 29 April 2002, her counsel neither
had enough time to file a motion for reconsideration of the said Decision with the Court of
Appeals, nor a Petition for Certiorari with this Court. Yet, the Motion failed to state the exact
extension period respondent was requesting for.
Since this Court did not act upon respondents Motion for Extension of Time to file her
Petition for Review, then the period for appeal continued to run and still expired on 3 May
2002.[14] Respondent failed to file any Petition for Review within the prescribed period for
appeal and, hence, this Court issued a Resolution,[15] dated 13 November 2002, in which it
pronounced that
G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). It appearing that
petitioner failed to file the intended petition for review on certiorari within the period which
expired on May 3, 2002, the Court Resolves to DECLARE THIS CASE TERMINATED and DIRECT
the Division Clerk of Court to INFORM the parties that the judgment sought to be reviewed
has become final and executory.
The said Resolution was duly recorded in the Book of Entries of Judgments on 3 January 2003.
G.R. No. 156132
Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of its
Decision in CA-G.R. CV No. 51930, dated 26 March 2002. Acting upon the said Motion, the
Court of Appeals issued the Resolution,[16] dated 20 November 2002, modifying its Decision
of 26 March 2002, as follows
WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY
GRANTED as Sub-paragraph (V) paragraph 3 of the assailed Decisions dispositive portion is
hereby ordered DELETED.
The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION.
Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51930, dated
26 March 2002 and 20 November 2002, respectively, petitioners filed the present Petition,
docketed as G.R. No. 156132. The Petition was initially denied[17] by this Court for failure of
the petitioners to attach thereto a Certification against Forum Shopping. However, upon
petitioners Motion and compliance with the requirements, this Court resolved[18] to
reinstate the Petition.
The Petition presented fourteen (14) assignments of errors allegedly committed by the Court
of Appeals in its Decision, dated 26 March 2002, involving both questions of fact and
questions of law which this Court, for the sake of expediency, discusses jointly, whenever
possible, in the succeeding paragraphs.
I
The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985, declaring the
Decision of the Court of Appeals, dated 26 March 2002, final and executory, pertains to
respondent Sabeniano alone.
Before proceeding to a discussion of the merits of the instant Petition, this Court wishes to
address first the argument, persistently advanced by respondent in her pleadings on record,
as well as her numerous personal and unofficial letters to this Court which were no longer
made part of the record, that the Decision of the Court of Appeals in CA-G.R. CV No. 51930,
dated 26 March 2002, had already become final and executory by virtue of the Resolution of
this Court in G.R. No. 152985, dated 13 November 2002.
G.R. No. 152985 was the docket number assigned by this Court to respondents Motion for
Extension of Time to File a Petition for Review. Respondent, though, did not file her supposed
Petition. Thus, after the lapse of the prescribed period for the filing of the Petition, this Court
issued the Resolution, dated 13 November 2002, declaring the Decision of the Court of
Appeals, dated 26 March 2002, final and executory. It should be pointed out, however, that
the Resolution, dated 13 November 2002, referred only to G.R. No. 152985, respondents
appeal, which she failed to perfect through the filing of a Petition for Review within the
prescribed period. The declaration of this Court in the same Resolution would bind
respondent solely, and not petitioners which filed their own separate appeal before this
Court, docketed as G.R. No. 156132, the Petition at bar. This would mean that respondent, on
her part, should be bound by the findings of fact and law of the Court of Appeals, including
the monetary amounts consequently awarded to her by the appellate court in its Decision,
dated 26 March 2002; and she can no longer refute or assail any part thereof. [19]

This Court already explained the matter to respondent when it issued a Resolution[20] in G.R.
No. 156132, dated 2 February 2004, which addressed her Urgent Motion for the Release of
the Decision with the Implementation of the Entry of Judgment in the following manner
[A]cting on Citibanks and FNCB Finances Motion for Reconsideration, we resolved to grant
the motion, reinstate the petition and require Sabeniano to file a comment thereto in our
Resolution of June 23, 2003. Sabeniano filed a Comment dated July 17, 2003 to which
Citibank and FNCB Finance filed a Reply dated August 20, 2003.
From the foregoing, it is clear that Sabeniano had knowledge of, and in fact participated in,
the proceedings in G.R. No. 156132. She cannot feign ignorance of the proceedings therein
and claim that the Decision of the Court of Appeals has become final and executory. More
precisely, the Decision became final and executory only with regard to Sabeniano in view of
her failure to file a petition for review within the extended period granted by the Court, and
not to Citibank and FNCB Finance whose Petition for Review was duly reinstated and is now
submitted for decision.
Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis supplied.)
To sustain the argument of respondent would result in an unjust and incongruous situation
wherein one party may frustrate the efforts of the opposing party to appeal the case by
merely filing with this Court a Motion for Extension of Time to File a Petition for Review,
ahead of the opposing party, then not actually filing the intended Petition.[21] The party who
fails to file its intended Petition within the reglementary or extended period should solely
bear the consequences of such failure.
Respondent Sabeniano did not commit forum shopping.
Another issue that does not directly involve the merits of the present Petition, but raised by
petitioners, is whether respondent should be held liable for forum shopping.
Petitioners contend that respondent committed forum shopping on the basis of the following
facts:
While petitioners Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930, dated
26 March 2002, was still pending before the Court of Appeals, respondent already filed with
this Court on 3 May 2002 her Motion for Extension of Time to File a Petition for Review of the
same Court of Appeals Decision, docketed as G.R. No. 152985. Thereafter, respondent
continued to participate in the proceedings before the Court of Appeals in CA-G.R. CV No.
51930 by filing her Comment, dated 17 July 2002, to petitioners Motion for Reconsideration;
and a Rejoinder, dated 23 September 2002, to petitioners Reply. Thus, petitioners argue that
by seeking relief concurrently from this Court and the Court of Appeals, respondent is
undeniably guilty of forum shopping, if not indirect contempt.
This Court, however, finds no sufficient basis to hold respondent liable for forum shopping.
Forum shopping has been defined as the filing of two or more suits involving the same parties
for the same cause of action, either simultaneously or successively, for the purpose of
obtaining a favorable judgment.[22] The test for determining forum shopping is whether in
the two (or more) cases pending, there is an identity of parties, rights or causes of action, and
relief sought.[23] To guard against this deplorable practice, Rule 7, Section 5 of the revised
Rules of Court imposes the following requirement
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under
oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith: (a) that he has not
theretofore commenced any action or filed any claim involving the same issues in any court,
tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or
claim is pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the same or
similar action or claim has been filed or is pending, he shall report that fact within five (5)
days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been
filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment
of the complaint or other initiatory pleading but shall be cause for the dismissal of the case
without prejudice, unless otherwise provided, upon motion and after hearing. The
submission of a false certification or non-compliance with any of the undertakings therein
shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute
willful and deliberate forum shopping, the same shall be ground for summary dismissal with
prejudice and shall constitute direct contempt, as well as cause for administrative sanctions.
Although it may seem at first glance that respondent was simultaneously seeking recourse
from the Court of Appeals and this Court, a careful and closer scrutiny of the details of the
case at bar would reveal otherwise.
It should be recalled that respondent did nothing more in G.R. No. 152985 than to file with
this Court a Motion for Extension of Time within which to file her Petition for Review. For
unexplained reasons, respondent failed to submit to this Court her intended Petition within
the reglementary period. Consequently, this Court was prompted to issue a Resolution, dated
13 November 2002, declaring G.R. No. 152985 terminated, and the therein assailed Court of
Appeals Decision final and executory. G.R. No. 152985, therefore, did not progress and
respondents appeal was unperfected.
The Petition for Review would constitute the initiatory pleading before this Court, upon the
timely filing of which, the case before this Court commences; much in the same way a case is
initiated by the filing of a Complaint before the trial court. The Petition for Review establishes
the identity of parties, rights or causes of action, and relief sought from this Court, and
without such a Petition, there is technically no case before this Court. The Motion filed by
respondent seeking extension of time within which to file her Petition for Review does not
serve the same purpose as the Petition for Review itself. Such a Motion merely presents the
important dates and the justification for the additional time requested for, but it does not go
into the details of the appealed case.

Without any particular idea as to the assignments of error or the relief respondent intended
to seek from this Court, in light of her failure to file her Petition for Review, there is actually
no second case involving the same parties, rights or causes of action, and relief sought, as
that in CA-G.R. CV No. 51930.
It should also be noted that the Certification against Forum Shopping is required to be
attached to the initiatory pleading, which, in G.R. No. 152985, should have been respondents
Petition for Review. It is in that Certification wherein respondent certifies, under oath, that:
(a) she has not commenced any action or filed any claim involving the same issues in any
court, tribunal or quasi-judicial agency and, to the best of her knowledge, no such other
action or claim is pending therein; (b) if there is such other pending action or claim, that she
is presenting a complete statement of the present status thereof; and (c) if she should
thereafter learn that the same or similar action or claim has been filed or is pending, she shall
report that fact within five days therefrom to this Court. Without her Petition for Review,
respondent had no obligation to execute and submit the foregoing Certification against
Forum Shopping. Thus, respondent did not violate Rule 7, Section 5 of the Revised Rules of
Court; neither did she mislead this Court as to the pendency of another similar case.
Lastly, the fact alone that the Decision of the Court of Appeals, dated 26 March 2002,
essentially ruled in favor of respondent, does not necessarily preclude her from appealing the
same. Granted that such a move is ostensibly irrational, nonetheless, it does not amount to
malice, bad faith or abuse of the court processes in the absence of further proof. Again, it
should be noted that the respondent did not file her intended Petition for Review. The
Petition for Review would have presented before this Court the grounds for respondents
appeal and her arguments in support thereof. Without said Petition, any reason attributed to
the respondent for appealing the 26 March 2002 Decision would be grounded on mere
speculations, to which this Court cannot give credence.
II
As an exception to the general rule, this Court takes cognizance of questions of fact raised in
the Petition at bar.
It is already a well-settled rule that the jurisdiction of this Court in cases brought before it
from the Court of Appeals by virtue of Rule 45 of the Revised Rules of Court is limited to
reviewing errors of law. Findings of fact of the Court of Appeals are conclusive upon this
Court. There are, however, recognized exceptions to the foregoing rule, namely: (1) when the
findings are grounded entirely on speculation, surmises, or conjectures; (2) when the
interference made is manifestly mistaken, absurd, or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when in making its findings, the Court of Appeals went
beyond the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioners main and reply
briefs are not disputed by the respondent; and (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence on record.[24]
Several of the enumerated exceptions pertain to the Petition at bar.
It is indubitable that the Court of Appeals made factual findings that are contrary to those of
the RTC,[25] thus, resulting in its substantial modification of the trial courts Decision, and a
ruling entirely in favor of the respondent. In addition, petitioners invoked in the instant
Petition for Review several exceptions that would justify this Courts review of the factual
findings of the Court of Appeals, i.e., the Court of Appeals made conflicting findings of fact;
findings of fact which went beyond the issues raised on appeal before it; as well as findings of
fact premised on the supposed absence of evidence and contradicted by the evidence on
record.
On the basis of the foregoing, this Court shall proceed to reviewing and re-evaluating the
evidence on record in order to settle questions of fact raised in the Petition at bar.
The fact that the trial judge who rendered the RTC Decision in Civil Case No. 11336, dated 24
August 1995, was not the same judge who heard and tried the case, does not, by itself,
render the said Decision erroneous.
The Decision in Civil Case No. 11336 was rendered more than 10 years from the institution of
the said case. In the course of its trial, the case was presided over by four (4) different RTC
judges.[26] It was Judge Victorio, the fourth judge assigned to the case, who wrote the RTC
Decision, dated 24 August 1995. In his Decision,[27] Judge Victorio made the following
findings
After carefully evaluating the mass of evidence adduced by the parties, this Court is not
inclined to believe the plaintiffs assertion that the promissory notes as well as the deeds of
assignments of her FNCB Finance money market placements were simulated. The evidence is
overwhelming that the plaintiff received the proceeds of the loans evidenced by the various
promissory notes she had signed. What is more, there was not an iota of proof save the
plaintiffs bare testimony that she had indeed applied for loan with the Development Bank of
the Philippines.
More importantly, the two deeds of assignment were notarized, hence they partake the
nature of a public document. It makes more than preponderant proof to overturn the effect
of a notarial attestation. Copies of the deeds of assignments were actually filed with the
Records Management and Archives Office.
Finally, there were sufficient evidence wherein the plaintiff had admitted the existence of her
loans with the defendant Bank in the total amount of P1,920,000.00 exclusive of interests and
penalty charges (Exhibits 28, 31, 32, and 33).
In fine, this Court hereby finds that the defendants had established the genuineness and due
execution of the various promissory notes heretofore identified as well as the two deeds of
assignments of the plaintiffs money market placements with defendant FNCB Finance, on the
strength of which the said money market placements were applied to partially pay the
plaintiffs past due obligation with the defendant Bank. Thus, the total sum of P1,053,995.80
of the plaintiffs past due obligation was partially offset by the said money market placement
leaving a balance of P1,069,847.40 as of 5 September 1979 (Exhibit 34).
Disagreeing in the foregoing findings, the Court of Appeals stressed, in its Decision in CA-G.R.
CV No. 51930, dated 26 March 2002, that the ponente of the herein assailed Decision is not
the Presiding Judge who heard and tried the case.[28] This brings us to the question of
whether the fact alone that the RTC Decision was rendered by a judge other than the judge
who actually heard and tried the case is sufficient justification for the appellate court to
disregard or set aside the findings in the Decision of the court a quo?
This Court rules in the negative.
What deserves stressing is that, in this jurisdiction, there exists a disputable presumption that
the RTC Decision was rendered by the judge in the regular performance of his official duties.
While the said presumption is only disputable, it is satisfactory unless contradicted or
overcame by other evidence.[29] Encompassed in this presumption of regularity is the
presumption that the RTC judge, in resolving the case and drafting his Decision, reviewed,
evaluated, and weighed all the evidence on record. That the said RTC judge is not the same
judge who heard the case and received the evidence is of little consequence when the
records and transcripts of stenographic notes (TSNs) are complete and available for
consideration by the former.
In People v. Gazmen,[30] this Court already elucidated its position on such an issue
Accused-appellant makes an issue of the fact that the judge who penned the decision was
not the judge who heard and tried the case and concludes therefrom that the findings of the
former are erroneous. Accused-appellants argument does not merit a lengthy discussion. It is
well-settled that the decision of a judge who did not try the case is not by that reason alone
erroneous.
It is true that the judge who ultimately decided the case had not heard the controversy at all,
the trial having been conducted by then Judge Emilio L. Polig, who was indefinitely
suspended by this Court. Nonetheless, the transcripts of stenographic notes taken during the
trial were complete and were presumably examined and studied by Judge Baguilat before he
rendered his decision. It is not unusual for a judge who did not try a case to decide it on the
basis of the record. The fact that he did not have the opportunity to observe the demeanor of
the witnesses during the trial but merely relied on the transcript of their testimonies does not
for that reason alone render the judgment erroneous.
(People vs. Jaymalin, 214 SCRA 685, 692 [1992])
Although it is true that the judge who heard the witnesses testify is in a better position to
observe the witnesses on the stand and determine by their demeanor whether they are
telling the truth or mouthing falsehood, it does not necessarily follow that a judge who was
not present during the trial cannot render a valid decision since he can rely on the transcript
of stenographic notes taken during the trial as basis of his decision.
Accused-appellants contention that the trial judge did not have the opportunity to observe
the conduct and demeanor of the witnesses since he was not the same judge who conducted
the hearing is also untenable. While it is true that the trial judge who conducted the hearing
would be in a better position to ascertain the truth and falsity of the testimonies of the
witnesses, it does not necessarily follow that a judge who was not present during the trial
cannot render a valid and just decision since the latter can also rely on the transcribed
stenographic notes taken during the trial as the basis of his decision.
(People vs. De Paz, 212 SCRA 56, 63 [1992])
At any rate, the test to determine the value of the testimony of the witness is whether or not
such is in conformity with knowledge and consistent with the experience of mankind (People
vs. Morre, 217 SCRA 219 [1993]). Further, the credibility of witnesses can also be assessed on
the basis of the substance of their testimony and the surrounding circumstances (People v.
Gonzales, 210 SCRA 44 [1992]). A critical evaluation of the testimony of the prosecution
witnesses reveals that their testimony accords with the aforementioned tests, and carries
with it the ring of truth end perforce, must be given full weight and credit.
Irrefragably, by reason alone that the judge who penned the RTC Decision was not the same
judge who heard the case and received the evidence therein would not render the findings in
the said Decision erroneous and unreliable. While the conduct and demeanor of witnesses
may sway a trial court judge in deciding a case, it is not, and should not be, his only
consideration. Even more vital for the trial court judges decision are the contents and
substance of the witnesses testimonies, as borne out by the TSNs, as well as the object and
documentary evidence submitted and made part of the records of the case.
This Court proceeds to making its own findings of fact.
Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002,
has become final and executory as to the respondent, due to her failure to interpose an
appeal therefrom within the reglementary period, she is already bound by the factual
findings in the said Decision. Likewise, respondents failure to file, within the reglementary
period, a Motion for Reconsideration or an appeal of the Resolution of the Court of Appeals
in the same case, dated 20 November 2002, which modified its earlier Decision by deleting
paragraph 3(v) of its dispositive portion, ordering petitioners to return to respondent the
proceeds of her money market placement with AIDC, shall already bar her from questioning
such modification before this Court. Thus, what is for review before this Court is the Decision
of the Court of Appeals, dated 26 March 2002, as modified by the Resolution of the same
court, dated 20 November 2002.
Respondent alleged that she had several deposits and money market placements with
petitioners. These deposits and money market placements, as determined by the Court of
Appeals in its Decision, dated 26 March 2002, and as modified by its Resolution, dated 20
November 2002, are as follows
Deposit/Placement
Amount
Dollar deposit with Citibank-Geneva
$ 149,632.99
Money market placement with Citibank, evidenced by Promissory Note (PN) No. 23356
(which cancels and supersedes PN No. 22526), earning 14.5% interest per annum (p.a.) Amount
(P)

Interest
P 318,897.34 (p.a.)
Money market placement with Citibank, evidenced by PN No. 23357 (which cancels and 12/06/1976
supersedes PN No. 22528), earning 14.5% interest p.a. 20773
None
01/13/1977
500,000.00
P 203,150.00 16%
Money market placement with FNCB Finance, evidenced by PN No. 5757 (which cancels and 01/14/1977
supersedes PN No. 4952), earning 17% interest p.a. 21686
20773
02/08/1977
P 500,000.00 508,444.44
Money market placement with FNCB Finance, evidenced by PN No. 5758 (which cancels and 15%
supersedes PN No. 2962), earning 17% interest p.a. 02/09/1977
22526
21686
03/16/1977
P 500,000.00
313,952.59
This Court is tasked to determine whether petitioners are indeed liable to return the
15-3/4%
foregoing amounts, together with the appropriate interests and penalties, to respondent. It
22528
shall trace respondents transactions with petitioners, from her money market placements
21686
with petitioner Citibank and petitioner FNCB Finance, to her savings and current accounts
03/16/1977
with petitioner Citibank, and to her dollar accounts with Citibank-Geneva.
200,000.00
15-3/4%
Money market placements with petitioner Citibank 03/17/1977
23356
The history of respondents money market placements with petitioner Citibank began on 6 22526
December 1976, when she made a placement of P500,000.00 as principal amount, which was 04/20/1977
supposed to earn an interest of 16% p.a. and for which PN No. 20773 was issued. Respondent 318,897.34
did not yet claim the proceeds of her placement and, instead, rolled-over or re-invested the 14-1/2%
principal and proceeds several times in the succeeding years for which new PNs were issued 23357
by petitioner Citibank to replace the ones which matured. Petitioner Citibank accounted for 22528
respondents original placement and the subsequent roll-overs thereof, as follows 04/20/1977
203,150.00
Date 14-1/2%
(mm/dd/yyyy)
Petitioner Citibank alleged that it had already paid to respondent the principal amounts and
PN No. proceeds of PNs No. 23356 and 23357, upon their maturity. Petitioner Citibank further
averred that respondent used the P500,000.00 from the payment of PNs No. 23356 and
23357, plus P600,000.00 sourced from her other funds, to open two time deposit (TD)
Cancels PN No.
accounts with petitioner Citibank, namely, TD Accounts No. 17783 and 17784.
Maturity Date
(mm/dd/yyyy)
Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No.
23356 and 23357 it issued in favor of respondent for her money market placements. In fact, it
admitted the genuineness and due execution of the said PNs, but qualified that they were no
longer outstanding.[31] In Hibberd v. Rohde and McMillian,[32] this Court delineated the
consequences of such an admission
By the admission of the genuineness and due execution of an instrument, as provided in this
section, is meant that the party whose signature it bears admits that he signed it or that it
was signed by another for him with his authority; that at the time it was signed it was in
words and figures exactly as set out in the pleading of the party relying upon it; that the
document was delivered; and that any formal requisites required by law, such as a seal, an
acknowledgment, or revenue stamp, which it lacks, are waived by him. Hence, such defenses
as that the signature is a forgery (Puritan Mfg. Co. vs. Toti & Gradi, 14 N. M., 425; Cox vs.
Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind., 198; Smith vs. Ehnert,
47 Wis., 479; Faelnar vs. Escao, 11 Phil. Rep., 92); or that it was unauthorized, as in the case
of an agent signing for his principal, or one signing in behalf of a partnership (Country Bank
vs. Greenberg, 127 Cal., 26; Henshaw vs. Root, 60 Inc., 220; Naftzker vs. Lantz, 137 Mich.,
441) or of a corporation (Merchant vs. International Banking Corporation, 6 Phil Rep., 314;
Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer & Barnes Co., 162 Mich., 509); or that, in
the case of the latter, that the corporation was authorized under its charter to sign the
instrument (Merchant vs. International Banking Corporation, supra); or that the party
charged signed the instrument in some other capacity than that alleged in the pleading
setting it out (Payne vs. National Bank, 16 Kan., 147); or that it was never delivered (Hunt vs.
Weir, 29 Ill., 83; Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire
Association of Philadelphia vs. Ruby, 60 Neb., 216) are cut off by the admission of its
genuineness and due execution.
The effect of the admission is such that in the case of a promissory note a prima facie case is
made for the plaintiff which dispenses with the necessity of evidence on his part and entitles
him to a judgment on the pleadings unless a special defense of new matter, such as payment,
is interposed by the defendant (Papa vs. Martinez, 12 Phil. Rep., 613; Chinese Chamber of
Commerce vs. Pua To Ching, 14 Phil. Rep., 222; Banco Espaol-Filipino vs. McKay & Zoeller, 27
Phil. Rep., 183). x x x
Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested,
respondent was able to establish prima facie that petitioner Citibank is liable to her for the
amounts stated therein. The assertion of petitioner Citibank of payment of the said PNs is an
affirmative allegation of a new matter, the burden of proof as to such resting on petitioner
Citibank. Respondent having proved the existence of the obligation, the burden of proof was
upon petitioner Citibank to show that it had been discharged.[33] It has already been
established by this Court that
As a general rule, one who pleads payment has the burden of proving it. Even where the
plaintiff must allege non-payment, the general rule is that the burden rests on the defendant
to prove payment, rather than on the plaintiff to prove non-payment. The debtor has the
burden of showing with legal certainty that the obligation has been discharged by payment.
When the existence of a debt is fully established by the evidence contained in the record, the
burden of proving that it has been extinguished by payment devolves upon the debtor who
offers such defense to the claim of the creditor. Where the debtor introduces some evidence
of payment, the burden of going forward with the evidence as distinct from the general
burden of proof shifts to the creditor, who is then under the duty of producing some evidence
of non-payment.[34]
Reviewing the evidence on record, this Court finds that petitioner Citibank failed to
satisfactorily prove that PNs No. 23356 and 23357 had already been paid, and that the
amount so paid was actually used to open one of respondents TD accounts with petitioner
Citibank.
Petitioner Citibank presented the testimonies of two witnesses to support its contention of
payment: (1) That of Mr. Herminio Pujeda,[35] the officer-in-charge of loans and placements
at the time when the questioned transactions took place; and (2) that of Mr. Francisco Tan,
[36] the former Assistant Vice-President of Citibank, who directly dealt with respondent with
regard to her deposits and loans.
The relevant portion[37] of Mr. Pujedas testimony as to PNs No. 23356 and 23357 (referred
to therein as Exhibits No. 47 and 48, respectively) is reproduced below
Atty. Mabasa:
Okey [sic]. Now Mr. Witness, you were asked to testify in this case and this case is [sic] consist
[sic] of several documents involving transactions between the plaintiff and the defendant.
Now, were you able to make your own memorandum regarding all these transactions?
A Yes, based on my recollection of these facts, I did come up of [sic] the outline of the
chronological sequence of events.
Court:
Are you trying to say that you have personal knowledge or participation to these
transactions?
A Yes, your Honor, I was the officer-in charge of the unit that was processing these
transactions. Some of the documents bear my signature.
Court:
And this resume or summary that you have prepared is based on purely your recollection or
documents?
A Based on documents, your Honor.
 Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta Sabeneano [sic] had time
Court: deposit placements with Citibank in the amount of P500,000.00 which is the proceeds of Exh.
47 and 48 and another P600,000.00, is it not?
Are these documents still available now?
A Yes, sir.
A Yes, your honor.
Q And would you know where did the other P600,000 placed by Mrs. Sabeneano [sic] in a
time deposit with Citibank, N.A. came [sic] from?
Court:

A She funded it directly.

Better present the documents.

Q What are you saying Mr. Witness is that the P600,000 is a [sic] fresh money coming from
Atty. Mabasa:
Mrs. Modesta Sabeneano [sic]?

Yes, your Honor, that is why your Honor.

A That is right.

Atty. Mabasa:
In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs No. 23356 and
23357 (referred to therein as Exhibits E and F, respectively), as follows
Q Now, basing on the notes that you prepared, Mr. Witness, and according to you basing also
on your personal recollection about all the transactions involved between Modesta
Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan from Exhibits A to F,
Sabeniano and defendant City Bank [sic] in this case. Now, would you tell us what happened
which are Exhibits of the plaintiff. Now, do I understand from you that the original amount is
to the money market placements of Modesta Sabeniano that you have earlier identified in
Five Hundred Thousand and thereafter renewed in the succeeding exhibits?
Exhs. 47 and 48?

Mr. Tan : Yes, Sir.

A The transactions which I said earlier were terminated and booked to time deposits.

Atty. Mabasa : Alright, after these Exhibits E and F matured, what happened thereafter?
Q And you are saying time deposits with what bank?

Mr. Tan : Split into two time deposits.

A With First National Citibank.

Atty. Mabasa : Exhibits E and F?

Q Is it the same bank as Citibank, N.A.?

A Yes, sir.
Q And how much was the amount booked as time deposit with defendant Citibank?
A In the amount of P500,000.00.
Q And outside this P500,000.00 which you said was booked out of the proceeds of Exhs. 47
and 48, were there other time deposits opened by Mrs. Modesta Sabeniano at that time.
A Yes, she also opened another time deposit for P600,000.00.
Before anything else, it should be noted that when Mr. Pujedas testimony before the RTC was
made on 12 March 1990 and Mr. Tans deposition in Hong Kong was conducted on 3
September 1990, more than a decade had passed from the time the transactions they were
testifying on took place. This Court had previously recognized the frailty and unreliability of
human memory with regards to figures after the lapse of five years.[38] Taking into
consideration the substantial length of time between the transactions and the witnesses
testimonies, as well as the undeniable fact that bank officers deal with multiple clients and
process numerous transactions during their tenure, this Court is reluctant to give much
weight to the testimonies of Mr. Pujeda and Mr. Tan regarding the payment of PNs No. 23356
and 23357 and the use by respondent of the proceeds thereof for opening TD accounts. This
Court finds it implausible that they should remember, after all these years, this particular
transaction with respondent involving her PNs No. 23356 and 23357 and TD accounts. Both
witnesses did not give any reason as to why, from among all the clients they had dealt with
and all the transactions they had processed as officers of petitioner Citibank, they specially
remembered respondent and her PNs No. 23356 and 23357. Their testimonies likewise
lacked details on the circumstances surrounding the payment of the two PNs and the opening
of the time deposit accounts by respondent, such as the date of payment of the two PNs,
mode of payment, and the manner and context by which respondent relayed her instructions
to the officers of petitioner Citibank to use the proceeds of her two PNs in opening the TD
accounts.
Moreover, while there are documentary evidences to support and trace respondents money
market placements with petitioner Citibank, from the original PN No. 20773, rolled-over
several times to, finally, PNs No. 23356 and 23357, there is an evident absence of any
documentary evidence on the payment of these last two PNs and the use of the proceeds
thereof by respondent for opening TD accounts. The paper trail seems to have ended with
the copies of PNs No. 23356 and 23357. Although both Mr. Pujeda and Mr. Tan said that they
based their testimonies, not just on their memories but also on the documents on file, the
supposed documents on which they based those portions of their testimony on the payment
of PNs No. 23356 and 23357 and the opening of the TD accounts from the proceeds thereof,
were never presented before the courts nor made part of the records of the case.
Respondents money market placements were of substantial amounts consisting of the
principal amount of P500,000.00, plus the interest it should have earned during the years of
placement and it is difficult for this Court to believe that petitioner Citibank would not have
had documented the payment thereof.
When Mr. Pujeda testified before the RTC on 6 February 1990,[39] petitioners counsel
attempted to present in evidence a document that would supposedly support the claim of
petitioner Citibank that the proceeds of PNs No. 23356 and 23357 were used by respondent
to open one of her two TD accounts in the amount of P500,000.00. Respondents counsel
objected to the presentation of the document since it was a mere xerox" copy, and was
blurred and hardly readable. Petitioners counsel then asked for a continuance of the hearing
so that they can have time to produce a better document, which was granted by the court.
However, during the next hearing and continuance of Mr. Pujedas testimony on 12 March
1990, petitioners counsel no longer referred to the said document.
As respondent had established a prima facie case that petitioner Citibank is obligated to her
for the amounts stated in PNs No. 23356 and 23357, and as petitioner Citibank failed to
present sufficient proof of payment of the said PNs and the use by the respondent of the
proceeds thereof to open her TD accounts, this Court finds that PNs No. 23356 and 23357 are
still outstanding and petitioner Citibank is still liable to respondent for the amounts stated
therein.
The significance of this Courts declaration that PNs No. 23356 and 23357 are still outstanding
becomes apparent in the light of petitioners next contentions that respondent used the
proceeds of PNs No. 23356 and 23357, together with additional money, to open TD Accounts
No. 17783 and 17784 with petitioner Citibank; and, subsequently, respondent pre-terminated
these TD accounts and transferred the proceeds thereof, amounting to P1,100,000.00, to
petitioner FNCB Finance for money market placements. While respondents money market
placements with petitioner FNCB Finance may be traced back with definiteness to TD
Accounts No. 17783 and 17784, there is only flimsy and unsubstantiated connection between
the said TD accounts and the supposed proceeds paid from PNs No. 23356 and 23357. With
PNs No. 23356 and 23357 still unpaid, then they represent an obligation of petitioner
Citibank separate and distinct from the obligation of petitioner FNCB Finance arising from
respondents money market placements with the latter.
Money market placements with petitioner FNCB Finance
According to petitioners, respondents TD Accounts No. 17783 and 17784, in the total amount
of P1,100,000.00, were supposed to mature on 15 March 1978. However, respondent,
through a letter dated 28 April 1977,[40] pre-terminated the said TD accounts and transferred
all the proceeds thereof to petitioner FNCB Finance for money market placement. Pursuant
to her instructions, TD Accounts No. 17783 and 17784 were pre-terminated and petitioner
Citibank (then still named First National City Bank) issued Managers Checks (MC) No.
199253[41] and 199251[42] for the amounts of P500,000.00 and P600,00.00, respectively.
Both MCs were payable to Citifinance (which, according to Mr. Pujeda,[43] was one with and
the same as petitioner FNCB Finance), with the additional notation that A/C MODESTA R.
SABENIANO. Typewritten on MC No. 199253 is the phrase Ref. Proceeds of TD 17783, and on
MC No. 199251 is a similar phrase, Ref. Proceeds of TD 17784. These phrases purportedly
established that the MCs were paid from the proceeds of respondents pre-terminated TD
accounts with petitioner Citibank. Upon receipt of the MCs, petitioner FNCB Finance
deposited the same to its account with Feati Bank and Trust Co., as evidenced by the rubber
stamp mark of the latter found at the back of both MCs. In exchange, petitioner FNCB Finance
booked the amounts received as money market placements, and accordingly issued PNs No.
4952 and 4962, for the amounts of P500,000.00 and P600,000.00, respectively, payable to
respondents savings account with petitioner Citibank, S/A No. 25-13703-4, upon their
maturity on 1 June 1977. Once again, respondent rolled-over several times the principal
amounts of her money market placements with petitioner FNCB Finance, as follows
Date
(mm/dd/yyyy)
PN No.
Cancels PN No.
Maturity Date
(mm/dd/yyyy)
Amount
(P)
Interest
(p.a.)
04/29/1977
4952
None
06/01/1977
500,000.00
17%
4962
None
06/01/1977 Check No.
600,000.00 Amount
17% (P)
06/02/1977
5757
Notation
4952
09/01/1978
08/31/1977
500,000.00
17% 76962
5758 12,833.34
4962 Interest payment on PN#08167
08/31/1977 09/01/1978
500,000.00
17% 76961
08/31/1977 12,833.34
8167 Interest payment on PN#08169
5757 09/05/1978
08/25/1978 77035
500,000.00 500,000.00
14% Full payment of principal on PN#08167 which is hereby cancelled
8169 09/05/ 1978
5752 77034
08/25/1978 500,000.00
500,000.00 Full payment of principal on PN#08169 which is hereby cancelled
14% Then again, Checks No. 77035 and 77034 were later returned to petitioner FNCB Finance
together with a memo,[47] dated 6 September 1978, from Mr. Tan of petitioner Citibank, to a
As presented by the petitioner FNCB Finance, respondent rolled-over only the principal Mr. Bobby Mendoza of petitioner FNCB Finance. According to the memo, the two checks, in
amounts of her money market placements as she chose to receive the interest income the total amount of P1,000,000.00, were to be returned to respondents account with
therefrom. Petitioner FNCB Finance also pointed out that when PN No. 4962, with principal instructions to book the said amount in money market placements for one more year.
amount of P600,000.00, matured on 1 June 1977, respondent received a partial payment of Pursuant to the said memo, Checks No. 77035 and 77034 were invested by petitioner FNCB
the principal which, together with the interest, amounted to P102,633.33;[44] thus, only the Finance, on behalf of respondent, in money market placements for which it issued PNs No.
amount of P500,000.00 from PN No. 4962 was rolled-over to PN No. 5758. 20138 and 20139. The PNs each covered P500,000.00, to earn 11% interest per annum, and
to mature on 3 September 1979.
Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon their
maturity, were rolled over to PNs No. 8167 and 8169, respectively. PN No. 8167[45] expressly On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay to the order of
canceled and superseded PN No. 5757, while PN No. 8169[46] also explicitly canceled and Citibank N.A. A/C Modesta Sabeniano, in the amount of P1,022,916.66, as full payment of the
superseded PN No. 5758. Thus, it is patently erroneous for the Court of Appeals to still award principal amounts and interests of both PNs No. 20138 and 20139 and, resultantly, canceling
to respondent the principal amounts and interests covered by PNs No. 5757 and 5758 when the said PNs.[48] Respondent actually admitted the issuance and existence of Check No.
these were already canceled and superseded. It is now incumbent upon this Court to 100168, but with the qualification that the proceeds thereof were turned over to petitioner
determine what subsequently happened to PNs No. 8167 and 8169. Citibank.[49] Respondent did not clarify the circumstances attending the supposed turn over,
but on the basis of the allegations of petitioner Citibank itself, the proceeds of PNs No. 20138
and 20139, amounting to P1,022,916.66, was used by it to liquidate respondents outstanding
Petitioner FNCB Finance presented four checks as proof of payment of the principal amounts
loans. Therefore, the determination of whether or not respondent is still entitled to the
and interests of PNs No. 8167 and 8169 upon their maturity. All the checks were payable to
return of the proceeds of PNs No. 20138 and 20139 shall be dependent on the resolution of
respondents savings account with petitioner Citibank, with the following details
the issues raised as to the existence of the loans and the authority of petitioner Citibank to
use the proceeds of the said PNs, together with respondents other deposits and money
Date of Issuance market placements, to pay for the same.
(mm/dd/yyyy)
Savings and current accounts with petitioner Citibank Interest at 3,875% p.a. from 12.07. 25.10.79
- US$
Respondent presented and submitted before the RTC deposit slips and bank statements to 95.--
prove deposits made to several of her accounts with petitioner Citibank, particularly,
Accounts No. 00484202, 59091, and 472-751, which would have amounted to a total of Commission (minimum)
P3,812,712.32, had there been no withdrawals or debits from the said accounts from the
time the said deposits were made. US$
30244.06
Although the RTC and the Court of Appeals did not make any definitive findings as to the
status of respondents savings and current accounts with petitioner Citibank, the Decisions of Total proceeds on 25.10.1979
both the trial and appellate courts effectively recognized only the P31,079.14 coming from
respondents savings account which was used to off-set her alleged outstanding loans with
US$
petitioner Citibank.[50]
114000.--

Since both the RTC and the Court of Appeals had consistently recognized only the P31,079.14
Principal Fid. Placement
of respondents savings account with petitioner Citibank, and that respondent failed to move
+ US$
for reconsideration or to appeal this particular finding of fact by the trial and appellate courts,
1358.50
it is already binding upon this Court. Respondent is already precluded from claiming any
greater amount in her savings and current accounts with petitioner Citibank. Thus, this Court
shall limit itself to determining whether or not respondent is entitled to the return of the Interest at 4,125% p.a. from 12.07. 25.10.79
amount of P31,079.14 should the off-set thereof by petitioner Citibank against her supposed - US$
loans be found invalid. 41.17

Commission
Dollar accounts with Citibank-Geneva
US$
115317.33
Respondent made an effort of preparing and presenting before the RTC her own
computations of her money market placements and dollar accounts with Citibank-Geneva,
purportedly amounting to a total of United States (US) $343,220.98, as of 23 June 1985.[51] Total proceeds on 25.10.1979
In her Memorandum filed with the RTC, she claimed a much bigger amount of deposits and
money market placements with Citibank-Geneva, totaling US$1,336,638.65.[52] However, US$
respondent herself also submitted as part of her formal offer of evidence the computation of 145561.39
her money market placements and dollar accounts with Citibank-Geneva as determined by
the latter.[53] Citibank-Geneva accounted for respondents money market placements and Total proceeds of both placements on 25.10.1979
dollar accounts as follows + US$
11381.31
MODESTA SABENIANO &/OR
================== total of both current accounts

US$ US$
30000.-- 156942.70

Principal Fid. Placement Total funds available

+ US$
339.06 - US$
149632.99 In sum, the following amounts were used by petitioner Citibank to liquidate respondents
purported outstanding loans
Transfer to Citibank Manila on 26.10.1979
(counter value of Pesos 1102944.78) Description
Amount
US$ Principal and interests of PNs No. 20138 and 20139
7309.71
(money market placements with petitioner FNCB Finance)
Balance in current accounts P 1,022,916.66
Savings account with petitioner Citibank
31,079.14
- US$
Dollar remittance from Citibank-Geneva (peso equivalent
6998.84

Of US$149,632.99)
Transfer to Citibank Zuerich ac no. 121359 on March
1,102,944.78

13, 1980
Total

US$
P 2,156,940.58
310.87

According to petitioner Citibank, respondent incurred her loans under the circumstances
various charges including closing charges
narrated below.
As early as 9 February 1978, respondent obtained her first loan from petitioner Citibank in
According to the foregoing computation, by 25 October 1979, respondent had a total of
the principal amount of P200,000.00, for which she executed PN No. 31504.[54] Petitioner
US$156,942.70, from which, US$149,632.99 was transferred by Citibank-Geneva to petitioner
Citibank extended to her several other loans in the succeeding months. Some of these loans
Citibank in Manila, and was used by the latter to off-set respondents outstanding loans. The
were paid, while others were rolled-over or renewed. Significant to the Petition at bar are the
balance of respondents accounts with Citibank-Geneva, after the remittance to petitioner
loans which respondent obtained from July 1978 to January 1979, appropriately covered by
Citibank in Manila, amounted to US$7,309.71, which was subsequently expended by a
PNs (first set).[55] The aggregate principal amount of these loans was P1,920,000.00, which
transfer to another account with Citibank-Zuerich, in the amount of US$6,998.84, and by
could be broken down as follows
payment of various bank charges, including closing charges, in the amount of US$310.87.
Rightly so, both the RTC and the Court of Appeals gave more credence to the computation of
Citibank-Geneva as to the status of respondents accounts with the said bank, rather than the
one prepared by respondent herself, which was evidently self-serving. Once again, this Court PN No.
shall limit itself to determining whether or not respondent is entitled to the return of the Date of Issuance
amount of US$149,632.99 should the off-set thereof by petitioner Citibank against her (mm/dd/yyyy)
alleged outstanding loans be found invalid. Respondent cannot claim any greater amount Date of Maturity
since she did not perfect an appeal of the Decision of the Court of Appeals, dated 26 March (mm/dd/yyyy)
2002, which found that she is entitled only to the return of the said amount, as far as her
accounts with Citibank-Geneva is concerned. Principal
Amount
III Date of Release
(mm/dd/yyyy)
Petitioner Citibank was able to establish by preponderance of evidence the existence of
respondents loans. MC No.
32935
Petitioners version of events 07/20/1978
09/18/1978
P 400,000.00 228357
07/20/1978 34740
220701 01/30/1979
33751 03/30/1979
10/13/1978 220,000.00
12/12/1978 01/30/1979
100,000.00 228400
Unrecovered
33798 Total
10/19/1978
11/03/1978
P 1,920,000.00
100,000.00
10/19/1978
When respondent was unable to pay the first set of PNs upon their maturity, these were
226285
rolled-over or renewed several times, necessitating the execution by respondent of new PNs
34025
in favor of petitioner Citibank. As of 5 April 1979, respondent had the following outstanding
11/15/1978
PNs (second set),[56] the principal amount of which remained at P1,920,000.00
01/15/1979
150,000.00
11/16/1978
226439 PN No.
34079 Date of Issuance
11/21/1978 (mm/dd/yyyy)
01/19/1979 Date of Maturity
250,000.00 (mm/dd/yyyy)
11/21/1978
226467 Principal Amount
34192 34510
12/04/1978 01/01/1979
01/18/1979 03/02/1979
100,000.00 P 400,000.00
12/05/1978 34509
228057 01/02/1979
34402 03/02/1979
12/26/1978 100,000.00
02/23/1979 34534
300,000.00 01/09/1979
12/26/1978 03/09/1979
228203 150,000.00
34534 34612
01/09/1979 01/19/1979
03/09/1979 03/16/1979
150,000.00 150,000.00
01/09/1979 34741
228270 01/26/1979
34609 03/12/1979
01/17/1979 100,000.00
03/19/1979 35689
150,000.00 02/23/1979
01/17/1979
05/29/1979
300,000.00
35694
03/19/1979
05/29/1979
150,000.00
35695
03/19/1979
05/29/1979
100,000.00
356946
03/20/1979
05/29/1979
250,000.00
35697
03/30/1979
05/29/1979
220,000.00
Total
P 1,920,000.00
All the PNs stated that the purpose of the loans covered thereby is To liquidate existing
obligation, except for PN No. 34534, which stated for its purpose personal investment.
Respondent secured her foregoing loans with petitioner Citibank by executing Deeds of
Assignment of her money market placements with petitioner FNCB Finance. On 2 March
1978, respondent executed in favor of petitioner Citibank a Deed of Assignment[57] of PN
No. 8169, which was issued by petitioner FNCB Finance, to secure payment of the credit and
banking facilities extended to her by petitioner Citibank, in the aggregate principal amount of
P500,000.00. On 9 March 1978, respondent executed in favor of petitioner Citibank another
Deed of Assignment,[58] this time, of PN No. 8167, also issued by petitioner FNCB Finance, to
secure payment of the credit and banking facilities extended to her by petitioner Citibank, in
the aggregate amount of P500,000.00. When PNs No. 8167 and 8169, representing
respondents money market placements with petitioner FNCB Finance, matured and were
rolled-over to PNs No. 20138 and 20139, respondent executed new Deeds of Assignment,[59]
in favor of petitioner Citibank, on 25 August 1978. According to the more recent Deeds,
respondent assigned PNs No. 20138 and 20139, representing her rolled-over money market
placements with petitioner FNCB Finance, to petitioner Citibank as security for the banking
and credit facilities it extended to her, in the aggregate principal amount of P500,000.00 per
Deed.
In addition to the Deeds of Assignment of her money market placements with petitioner
FNCB Finance, respondent also executed a Declaration of Pledge,[60] in which she supposedly
pledged [a]ll present and future fiduciary placements held in my personal and/or joint name
with Citibank, Switzerland, to secure all claims the petitioner Citibank may have or, in the
future, acquire against respondent. The petitioners copy of the Declaration of Pledge is
undated, while that of the respondent, a copy certified by a Citibank-Geneva officer, bore the
date 24 September 1979.[61]
When respondent failed to pay the second set of PNs upon their maturity, an exchange of
letters ensued between respondent and/or her representatives, on one hand, and the
representatives of petitioners, on the other.
The first letter[62] was dated 5 April 1979, addressed to respondent and signed by Mr. Tan, as
the manager of petitioner Citibank, which stated, in part, that
Despite our repeated requests and follow-up, we regret you have not granted us with any
response or payment.
We, therefore, have no alternative but to call your loan of P1,920,000.00 plus interests and
other charges due and demandable. If you still fail to settle this obligation by 4/27/79, we
shall have no other alternative but to refer your account to our lawyers for legal action to
protect the interest of the bank.
Respondent sent a reply letter[63] dated 26 April 1979, printed on paper bearing the
letterhead of respondents company, MC Adore International Palace, the body of which reads
This is in reply to your letter dated April 5, 1979 inviting my attention to my loan which has
become due. Pursuant to our representation with you over the telephone through Mr. F. A.
Tan, you allow us to pay the interests due for the meantime.
Please accept our Comtrust Check in the amount of P62,683.33.
Please bear with us for a little while, at most ninety days. As you know, we have a pending
loan with the Development Bank of the Philippines in the amount of P11-M. This loan has
already been recommended for approval and would be submitted to the Board of Governors.
In fact, to further facilitate the early release of this loan, we have presented and furnished
Gov. J. Tengco a xerox copy of your letter.
You will be doing our corporation a very viable service, should you grant us our request for a
little more time.
A week later or on 3 May 1979, a certain C. N. Pugeda, designated as Executive Secretary,
sent a letter[64] to petitioner Citibank, on behalf of respondent. The letter was again printed
on paper bearing the letterhead of MC Adore International Palace. The pertinent paragraphs
of the said letter are reproduced below
Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-computation
of the interest and penalty charges on her loan in the aggregate amount of P1,920,000.00
with maturity date of all promissory notes at June 30, 1979. As she has personally discussed
with you yesterday, this date will more or less assure you of early settlement.
In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be replaced by
another check with amount resulting from the new computation. Also, to facilitate the
processing of the same, may we request for another set of promissory notes for the signature
of Mrs. Sabeniano and to cancel the previous ones she has signed and forwarded to you.
This was followed by a telegram,[65] dated 5 June 1979, and received by petitioner Citibank
the following day. The telegram was sent by a Dewey G. Soriano, Legal Counsel. The telegram
acknowledged receipt of the telegram sent by petitioner Citibank regarding the re-past due
obligation of McAdore International Palace. However, it reported that respondent, the
President and Chairman of MC Adore International Palace, was presently abroad negotiating
for a big loan. Thus, he was requesting for an extension of the due date of the obligation until
respondents arrival on or before 31 July 1979.
The next letter,[66] dated 21 June 1979, was signed by respondent herself and addressed to
Mr. Bobby Mendoza, a Manager of petitioner FNCB Finance. Respondent wrote therein
Re: PN No. 20138 for P500,000.00 & PN No. 20139 for P500,000.00 totalling P1 Million, both
PNs will mature on 9/3/1979.
This is to authorize you to release the accrued quarterly interests payment from my
captioned placements and forward directly to Citibank, Manila Attention: Mr. F. A. Tan,
Manager, to apply to my interest payable on my outstanding loan with Citibank.
Please note that the captioned two placements are continuously pledged/hypothecated to
Citibank, Manila to support my personal outstanding loan. Therefore, please do not release
the captioned placements upon maturity until you have received the instruction from
Citibank, Manila.
On even date, respondent sent another letter[67] to Mr. Tan of petitioner Citibank, stating
that
Re: S/A No. 25-225928
and C/A No. 484-946
This letter serves as an authority to debit whatever the outstanding balance from my
captioned accounts and credit the amount to my loan outstanding account with you.
Unlike respondents earlier letters, both letters, dated 21 June 1979, are printed on plain
paper, without the letterhead of her company, MC Adore International Palace.
By 5 September 1979, respondents outstanding and past due obligations to petitioner
Citibank totaled P2,123,843.20, representing the principal amounts plus interests. Relying on
respondents Deeds of Assignment, petitioner Citibank applied the proceeds of respondents
money market placements with petitioner FNCB Finance, as well as her deposit account with
petitioner Citibank, to partly liquidate respondents outstanding loan balance,[68] as follows
Respondents outstanding obligation (principal and interest)
P 2,123,843.20
Less:
Proceeds from respondents money market placements
with petitioner FNCB Finance (principal and interest)
(1,022,916.66)
Deposits in respondents bank accounts with petitioner
Citibank
(31,079.14)
Balance of respondents obligation
P 1,069,847.40
Mr. Tan of petitioner Citibank subsequently sent a letter,[69] dated 28 September 1979,
notifying respondent of the status of her loans and the foregoing compensation which
petitioner Citibank effected. In the letter, Mr. Tan informed respondent that she still had a
remaining past-due obligation in the amount of P1,069,847.40, as of 5 September 1979, and
should respondent fail to pay the amount by 15 October 1979, then petitioner Citibank shall
proceed to off-set the unpaid amount with respondents other collateral, particularly, a money
market placement in Citibank-Hongkong.
On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper bearing the
letterhead of MC Adore International Palace, as regards the P1,920,000.00 loan account
supposedly of MC Adore Finance & Investment, Inc., and requested for a statement of
account covering the principal and interest of the loan as of 31 October 1979. She stated
therein that the loan obligation shall be paid within 60 days from receipt of the statement of
account.
Almost three weeks later, or on 25 October 1979, a certain Atty. Moises Tolentino dropped by
the office of petitioner Citibank, with a letter, dated 9 October 1979, and printed on paper
with the letterhead of MC Adore International Palace, which authorized the bearer thereof to
represent the respondent in settling the overdue account, this time, purportedly, of MC
Adore International Palace Hotel. The letter was signed by respondent as the President and
Chairman of the Board.
Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner Citibank,
sent a letter to respondent, dated 31 October 1979, informing her that petitioner Citibank
had effected an off-set using her account with Citibank-Geneva, in the amount of
US$149,632.99, against her outstanding, overdue, demandable and unpaid obligation to
petitioner Citibank. Atty. Agcaoili claimed therein that the compensation or off-set was made
pursuant to and in accordance with the provisions of Articles 1278 through 1290 of the Civil
Code. He further declared that respondents obligation to petitioner Citibank was now fully
paid and liquidated.
Unfortunately, on 7 October 1987, a fire gutted the 7th floor of petitioner Citibanks building
at Paseo de Roxas St., Makati, Metro Manila. Petitioners submitted a Certification[70] to this
effect, dated 17 January 1991, issued by the Chief of the Arson Investigation Section, Fire
District III, Makati Fire Station, Metropolitan Police Force. The 7th floor of petitioner Citibanks
building housed its Control Division, which was in charge of keeping the necessary documents
for cases in which it was involved. After compiling the documentary evidence for the present
case, Atty. Renato J. Fernandez, internal legal counsel of petitioner Citibank, forwarded them
to the Control Division. The original copies of the MCs, which supposedly represent the
proceeds of the first set of PNs, as well as that of other documentary evidence related to the
case, were among those burned in the said fire.[71]
Respondents version of events
Respondent disputed petitioners narration of the circumstances surrounding her loans with
petitioner Citibank and the alleged authority she gave for the off-set or compensation of her
money market placements and deposit accounts with petitioners against her loan obligation.
Respondent denied outright executing the first set of PNs, except for one (PN No. 34534 in
particular). Although she admitted that she obtained several loans from petitioner Citibank,
these only amounted to P1,150,000.00, and she had already paid them. She secured from
petitioner Citibank two loans of P500,000.00 each. She executed in favor of petitioner
Citibank the corresponding PNs for the loans and the Deeds of Assignment of her money
market placements with petitioner FNCB Finance as security.[72] To prove payment of these
loans, respondent presented two provisional receipts of petitioner Citibank No. 19471,[73]
dated 11 August 1978, and No. 12723,[74] dated 10 November 1978 both signed by Mr. Tan,
and acknowledging receipt from respondent of several checks in the total amount of
P500,744.00 and P500,000.00, respectively, for liquidation of loan.
She borrowed another P150,000.00 from petitioner Citibank for personal investment, and for
which she executed PN No. 34534, on 9 January 1979. Thus, she admitted to receiving the
proceeds of this loan via MC No. 228270. She invested the loan amount in another money
market placement with petitioner FNCB Finance. In turn, she used the very same money
market placement with petitioner FNCB Finance as security for her P150,000.00 loan from
petitioner Citibank. When she failed to pay the loan when it became due, petitioner Citibank
allegedly forfeited her money market placement with petitioner FNCB Finance and, thus, the
loan was already paid.[75]
Respondent likewise questioned the MCs presented by petitioners, except for one (MC No.
228270 in particular), as proof that she received the proceeds of the loans covered by the
first set of PNs. As recounted in the preceding paragraph, respondent admitted to obtaining a
loan of P150,000.00, covered by PN No. 34534, and receiving MC No. 228270 representing
the proceeds thereof, but claimed that she already paid the same. She denied ever receiving
MCs No. 220701 (for the loan of P400,000.00, covered by PN No. 33935) and No. 226467 (for
the loan of P250,000.00, covered by PN No. 34079), and pointed out that the checks did not
bear her indorsements. She did not deny receiving all other checks but she interposed that
she received these checks, not as proceeds of loans, but as payment of the principal amounts
and/or interests from her money market placements with petitioner Citibank. She also raised
doubts as to the notation on each of the checks that reads RE: Proceeds of
PN#[corresponding PN No.], saying that such notation did not appear on the MCs when she
originally received them and that the notation appears to have been written by a typewriter
different from that used in writing all other information on the checks (i.e., date, payee, and
amount).[76] She even testified that MCs were not supposed to bear notations indicating the
purpose for which they were issued.
As to the second set of PNs, respondent acknowledged having signed them all. However, she
asserted that she only executed these PNs as part of the simulated loans she and Mr. Tan of
petitioner Citibank concocted. Respondent explained that she had a pending loan application
for a big amount with the Development Bank of the Philippines (DBP), and when Mr. Tan
found out about this, he suggested that they could make it appear that the respondent had
outstanding loans with petitioner Citibank and the latter was already demanding payment
thereof; this might persuade DBP to approve respondents loan application. Mr. Tan made the
respondent sign the second set of PNs, so that he may have something to show the DBP
investigator who might inquire with petitioner Citibank as to respondents loans with the
latter. On her own copies of the said PNs, respondent wrote by hand the notation, This isa
(sic) simulated non-negotiable note, signed copy given to Mr. Tan., (sic) per agreement to be
shown to DBP representative. itwill (sic) be returned to me if the P11=M (sic) loan for MC
Adore Palace Hotel is approved by DBP.[77]
Findings of this Court as to the existence of the loans
After going through the testimonial and documentary evidence presented by both sides to
this case, it is this Courts assessment that respondent did indeed have outstanding loans with
petitioner Citibank at the time it effected the off-set or compensation on 25 July 1979 (using
respondents savings deposit with petitioner Citibank), 5 September 1979 (using the proceeds
of respondents money market placements with petitioner FNCB Finance) and 26 October
1979 (using respondents dollar accounts remitted from Citibank-Geneva). The totality of
petitioners evidence as to the existence of the said loans preponderates over respondents.
Preponderant evidence means that, as a whole, the evidence adduced by one side outweighs
that of the adverse party.[78]
Respondents outstanding obligation for P1,920,000.00 had been sufficiently documented by
petitioner Citibank.
The second set of PNs is a mere renewal of the prior loans originally covered by the first set
of PNs, except for PN No. 34534. The first set of PNs is supported, in turn, by the existence of
the MCs that represent the proceeds thereof received by the respondent.
It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with
the respondent specifically named as payee. MCs checks are drawn by the banks manager
upon the bank itself and regarded to be as good as the money it represents.[79] Moreover,
the MCs were crossed checks, with the words Payees Account Only.
In general, a crossed check cannot be presented to the drawee bank for payment in cash.
Instead, the check can only be deposited with the payees bank which, in turn, must present it
for payment against the drawee bank in the course of normal banking hours. The crossed
check cannot be presented for payment, but it can only be deposited and the drawee bank
may only pay to another bank in the payees or indorsers account.[80] The effect of crossing a
check was described by this Court in Philippine Commercial International Bank v. Court of
Appeals[81]
[T]he crossing of a check with the phrase Payees Account Only is a warning that the check
should be deposited in the account of the payee. Thus, it is the duty of the collecting bank PCI
Bank to ascertain that the check be deposited in payees account only. It is bound to scrutinize
the check and to know its depositors before it can make the clearing indorsement all prior
indorsements and/or lack of indorsement guaranteed.
The crossed MCs presented by petitioner Bank were indeed deposited in several different
bank accounts and cleared by the Clearing Office of the Central Bank of the Philippines, as
evidenced by the stamp marks and notations on the said checks. The crossed MCs are already
in the possession of petitioner Citibank, the drawee bank, which was ultimately responsible
for the payment of the amount stated in the checks. Given that a check is more than just an
instrument of credit used in commercial transactions for it also serves as a receipt or
evidence for the drawee bank of the cancellation of the said check due to payment,[82] then,
the possession by petitioner Citibank of the said MCs, duly stamped Paid gives rise to the
presumption that the said MCs were already paid out to the intended payee, who was in this
case, the respondent.
This Court finds applicable herein the presumptions that private transactions have been fair
and regular,[83] and that the ordinary course of business has been followed.[84] There is no
question that the loan transaction between petitioner Citibank and the respondent is a
private transaction. The transactions revolving around the crossed MCs from their issuance
by petitioner Citibank to respondent as payment of the proceeds of her loans; to its deposit
in respondents accounts with several different banks; to the clearing of the MCs by an
independent clearing house; and finally, to the payment of the MCs by petitioner Citibank as
the drawee bank of the said checks are all private transactions which shall be presumed to
have been fair and regular to all the parties concerned. In addition, the banks involved in the
foregoing transactions are also presumed to have followed the ordinary course of business in
the acceptance of the crossed MCs for deposit in respondents accounts, submitting them for
clearing, and their eventual payment and cancellation.
The afore-stated presumptions are disputable, meaning, they are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence.[85] Respondent,
however, was unable to present sufficient and credible evidence to dispute these
presumptions.
It should be recalled that out of the nine MCs presented by petitioner Citibank, respondent
admitted to receiving one as proceeds of a loan (MC No. 228270), denied receiving two (MCs
No. 220701 and 226467), and admitted to receiving all the rest, but not as proceeds of her
loans, but as return on the principal amounts and interests from her money market
placements.
Respondent admitted receiving MC No. 228270 representing the proceeds of her loan
covered by PN No. 34534. Although the principal amount of the loan is P150,000.00,
respondent only received P146,312.50, because the interest and handling fee on the loan
transaction were already deducted therefrom.[86] Stamps and notations at the back of MC
No. 228270 reveal that it was deposited at the Bank of the Philippine Islands (BPI), Cubao
Branch, in Account No. 0123-0572-28.[87] The check also bore the signature of respondent at
the back.[88] And, although respondent would later admit that she did sign PN No. 34534
and received MC No. 228270 as proceeds of the loan extended to her by petitioner Citibank,
she contradicted herself when, in an earlier testimony, she claimed that PN No. 34534 was
among the PNs she executed as simulated loans with petitioner Citibank.[89]
Respondent denied ever receiving MCs No. 220701 and 226467. However, considering that
the said checks were crossed for payees account only, and that they were actually deposited,
cleared, and paid, then the presumption would be that the said checks were properly
deposited to the account of respondent, who was clearly named the payee in the checks.
Respondents bare allegations that she did not receive the two checks fail to convince this
Court, for to sustain her, would be for this Court to conclude that an irregularity had occurred
somewhere from the time of the issuance of the said checks, to their deposit, clearance, and
payment, and which would have involved not only petitioner Citibank, but also BPI, which
accepted the checks for deposit, and the Central Bank of the Philippines, which cleared the
checks. It falls upon the respondent to overcome or dispute the presumption that the crossed
checks were issued, accepted for deposit, cleared, and paid for by the banks involved
following the ordinary course of their business.
The mere fact that MCs No. 220701 and 226467 do not bear respondents signature at the
back does not negate deposit thereof in her account. The liability for the lack of indorsement
on the MCs no longer fall on petitioner Citibank, but on the bank who received the same for
deposit, in this case, BPI Cubao Branch. Once again, it must be noted that the MCs were
crossed, for payees account only, and the payee named in both checks was none other than
respondent. The crossing of the MCs was already a warning to BPI to receive said checks for
deposit only in respondents account. It was up to BPI to verify whether it was receiving the
crossed MCs in accordance with the instructions on the face thereof. If, indeed, the MCs were
deposited in accounts other than respondents, then the respondent would have a cause of
action against BPI.[90]
BPI further stamped its guarantee on the back of the checks to the effect that, All prior
endorsement and/or Lack of endorsement guaranteed. Thus, BPI became the indorser of the
MCs, and assumed all the warranties of an indorser,[91] specifically, that the checks were
genuine and in all respects what they purported to be; that it had a good title to the checks;
that all prior parties had capacity to contract; and that the checks were, at the time of their
indorsement, valid and subsisting.[92] So even if the MCs deposited by BPI's client, whether it
be by respondent herself or some other person, lacked the necessary indorsement, BPI, as
the collecting bank, is bound by its warranties as an indorser and cannot set up the defense
of lack of indorsement as against petitioner Citibank, the drawee bank.[93]
Furthermore, respondents bare and unsubstantiated denial of receipt of the MCs in question
and their deposit in her account is rendered suspect when MC No. 220701 was actually
deposited in Account No. 0123-0572-28 of BPI Cubao Branch, the very same account in which
MC No. 228270 (which respondent admitted to receiving as proceeds of her loan from
petitioner Citibank), and MCs No. 228203, 228357, and 228400 (which respondent admitted
to receiving as proceeds from her money market placements) were deposited. Likewise, MC
No. 226467 was deposited in Account No. 0121-002-43 of BPI Cubao Branch, to which MCs
No. 226285 and 226439 (which respondent admitted to receiving as proceeds from her
money market placements) were deposited. It is an apparent contradiction for respondent to
claim having received the proceeds of checks deposited in an account, and then deny
receiving the proceeds of another check deposited in the very same account.
Another inconsistency in respondents denial of receipt of MC No. 226467 and her deposit of
the same in her account, is her presentation of Exhibit HHH, a provisional receipt which was
supposed to prove that respondent turned over P500,000.00 to Mr. Tan of petitioner
Citibank, that the said amount was split into three money market placements, and that MC
No. 226467 represented the return on her investment from one of these placements.[94]
Because of her Exhibit HHH, respondent effectively admitted receipt of MC No. 226467,
although for reasons other than as proceeds of a loan.
Neither can this Court give credence to respondents contention that the notations on the
MCs, stating that they were the proceeds of particular PNs, were not there when she
received the checks and that the notations appeared to be written by a typewriter different
from that used to write the other information on the checks. Once more, respondents
allegations were uncorroborated by any other evidence. Her and her counsels observation
that the notations on the MCs appear to be written by a typewriter different from that used
to write the other information on the checks hardly convinces this Court considering that it
constitutes a mere opinion on the appearance of the notation by a witness who does not
possess the necessary expertise on the matter. In addition, the notations on the MCs were
written using both capital and small letters, while the other information on the checks were
written using capital letters only, such difference could easily confuse an untrained eye and
lead to a hasty conclusion that they were written by different typewriters.
Respondents testimony, that based on her experience transacting with banks, the MCs were
not supposed to include notations on the purpose for which the checks were issued, also
deserves scant consideration. While respondent may have extensive experience dealing with
banks, it still does not qualify her as a competent witness on banking procedures and
practices. Her testimony on this matter is even belied by the fact that the other MCs issued by
petitioner Citibank (when it was still named First National City Bank) and by petitioner FNCB
Finance, the existence and validity of which were not disputed by respondent, also bear
similar notations that state the reason for which they were issued.
Respondent presented several more pieces of evidence to substantiate her claim that she
received MCs No. 226285, 226439, 226467, 226057, 228357, and 228400, not as proceeds of
her loans from petitioner Citibank, but as the return of the principal amounts and payment of
interests from her money market placements with petitioners. Part of respondents exhibits
were personal checks[95] drawn by respondent on her account with Feati Bank & Trust Co.,
which she allegedly invested in separate money market placements with both petitioners, the
returns from which were paid to her via MCs No. 226285 and 228400. Yet, to this Court, the
personal checks only managed to establish respondents issuance thereof, but there was
nothing on the face of the checks that would reveal the purpose for which they were issued
and that they were actually invested in money market placements as respondent claimed.
Respondent further submitted handwritten notes that purportedly computed and presented
the returns on her money market placements, corresponding to the amount stated in the
MCs she received from petitioner Citibank. Exhibit HHH-1[96] was a handwritten note, which
respondent attributed to Mr. Tan of petitioner Citibank, showing the breakdown of her BPI
Check for P500,000.00 into three different money market placements with petitioner
Citibank. This Court, however, noticed several factors which render the note highly suspect.
One, it was written on the reversed side of Provisional Receipt No. 12724 of petitioner
Citibank which bore the initials of Mr. Tan acknowledging receipt of respondents BPI Check
No. 120989 for P500,000.00; but the initials on the handwritten note appeared to be that of
Mr. Bobby Mendoza of petitioner FNCB Finance.[97] Second, according to Provisional Receipt
No. 12724, BPI Check No. 120989 for P500,000.00 was supposed to be invested in three
money market placements with petitioner Citibank for the period of 60 days. Since all these
money market placements were made through one check deposited on the same day, 10
November 1978, it made no sense that the handwritten note at the back of Provisional
Receipt No. 12724 provided for different dates of maturity for each of the money market
placements (i.e., 16 November 1978, 17 January 1979, and 21 November 1978), and such
dates did not correspond to the 60 day placement period stated on the face of the provisional
receipt. And third, the principal amounts of the money market placements as stated in the
handwritten note P145,000.00, P145,000.00 and P242,000.00 totaled P532,000.00, and was
obviously in excess of the P500,000.00 acknowledged on the face of Provisional Receipt No.
12724.
Exhibits III and III-1, the front and bank pages of a handwritten note of Mr. Bobby Mendoza of
petitioner FNCB Finance,[98] also did not deserve much evidentiary weight, and this Court
cannot rely on the truth and accuracy of the computations presented therein. Mr. Mendoza
was not presented as a witness during the trial before the RTC, so that the document was not
properly authenticated nor its contents sufficiently explained. No one was able to
competently identify whether the initials as appearing on the note were actually Mr.
Mendozas.
Also, going by the information on the front page of the note, this Court observes that
payment of respondents alleged money market placements with petitioner FNCB Finance
were made using Citytrust Checks; the MCs in question, including MC No. 228057, were
issued by petitioner Citibank. Although Citytrust (formerly Feati Bank & Trust Co.), petitioner
FNCB Finance, and petitioner Citibank may be affiliates of one another, they each remained
separate and distinct corporations, each having its own financial system and records. Thus,
this Court cannot simply assume that one corporation, such as petitioner Citibank or
Citytrust, can issue a check to discharge an obligation of petitioner FNCB Finance. It should be
recalled that when petitioner FNCB Finance paid for respondents money market placements,
covered by its PNs No. 8167 and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB
Finance issued its own checks.
As a last point on this matter, if respondent truly had money market placements with
petitioners, then these would have been evidenced by PNs issued by either petitioner
Citibank or petitioner FNCB Finance, acknowledging the principal amounts of the
investments, and stating the applicable interest rates, as well as the dates of their of issuance
and maturity. After respondent had so meticulously reconstructed her other money market
placements with petitioners and consolidated the documentary evidence thereon, she came
surprisingly short of offering similar details and substantiation for these particular money
market placements.
Since this Court is satisfied that respondent indeed received the proceeds of the first set of
PNs, then it proceeds to analyze her evidence of payment thereof.
In support of respondents assertion that she had already paid whatever loans she may have
had with petitioner Citibank, she presented as evidence Provisional Receipts No. 19471,
dated 11 August 1978, and No. 12723, dated 10 November 1978, both of petitioner Citibank
and signed by Mr. Tan, for the amounts of P500,744.00 and P500,000.00, respectively. While
these provisional receipts did state that Mr. Tan, on behalf of petitioner Citibank, received
respondents checks as payment for her loans, they failed to specifically identify which loans
were actually paid. Petitioner Citibank was able to present evidence that respondent had
executed several PNs in the years 1978 and 1979 to cover the loans she secured from the said
bank. Petitioner Citibank did admit that respondent was able to pay for some of these PNs,
and what it identified as the first and second sets of PNs were only those which remained
unpaid. It thus became incumbent upon respondent to prove that the checks received by Mr.
Tan were actually applied to the PNs in either the first or second set; a fact that,
unfortunately, cannot be determined from the provisional receipts submitted by respondent
since they only generally stated that the checks received by Mr. Tan were payment for
respondents loans.
Mr. Tan, in his deposition, further explained that provisional receipts were issued when
payment to the bank was made using checks, since the checks would still be subject to
clearing. The purpose for the provisional receipts was merely to acknowledge the delivery of
the checks to the possession of the bank, but not yet of payment.[99] This bank practice finds
legitimacy in the pronouncement of this Court that a check, whether an MC or an ordinary
check, is not legal tender and, therefore, cannot constitute valid tender of payment. In
Philippine Airlines, Inc. v. Court of Appeals, [100] this Court elucidated that:
Since a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs.
Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco, v.
Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary check, is
not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment
and may be refused receipt by the obligee or creditor. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually realized (Art. 1249, Civil
Code, par. 3).
In the case at bar, the issuance of an official receipt by petitioner Citibank would have been
dependent on whether the checks delivered by respondent were actually cleared and paid for
by the drawee banks.
As for PN No. 34534, respondent asserted payment thereof at two separate instances by two
different means. In her formal offer of exhibits, respondent submitted a deposit slip of
petitioner Citibank, dated 11 August 1978, evidencing the deposit of BPI Check No. 5785 for
P150,000.00.[101] In her Formal Offer of Documentary Exhibits, dated 7 July 1989,
respondent stated that the purpose for the presentation of the said deposit slip was to prove
that she already paid her loan covered by PN No. 34534.[102] In her testimony before the
RTC three years later, on 28 November 1991, she changed her story. This time she narrated
that the loan covered by PN No. 34534 was secured by her money market placement with
petitioner FNCB Finance, and when she failed to pay the said PN when it became due, the
security was applied to the loan, therefore, the loan was considered paid.[103] Given the
foregoing, respondents assertion of payment of PN No. 34534 is extremely dubious.
According to petitioner Citibank, the PNs in the second set, except for PN No. 34534, were
mere renewals of the unpaid PNs in the first set, which was why the PNs stated that they
were for the purpose of liquidating existing obligations. PN No. 34534, however, which was
part of the first set, was still valid and subsisting and so it was included in the second set
without need for its renewal, and it still being the original PN for that particular loan, its
stated purpose was for personal investment.[104] Respondent essentially admitted executing
the second set of PNs, but they were only meant to cover simulated loans. Mr. Tan
supposedly convinced her that her pending loan application with DBP would have a greater
chance of being approved if they made it appear that respondent urgently needed the money
because petitioner Citibank was already demanding payment for her simulated loans.
Respondents defense of simulated loans to escape liability for the second set of PNs is truly a
novel one. It is regrettable, however, that she was unable to substantiate the same. Yet again,
respondents version of events is totally based on her own uncorroborated testimony. The
notations on the second set of PNs, that they were non-negotiable simulated notes, were
admittedly made by respondent herself and were, thus, self-serving. Equally self-serving was
respondents letter, written on 7 October 1985, or more than six years after the execution of
the second set of PNs, in which she demanded return of the simulated or fictitious PNs,
together with the letters relating thereto, which Mr. Tan purportedly asked her to execute.
Respondent further failed to present any proof of her alleged loan application with the DBP,
and of any circumstance or correspondence wherein the simulated or fictitious PNs were
indeed used for their supposed purpose.
In contrast, petitioner Citibank, as supported by the testimonies of its officers and available
documentation, consistently treated the said PNs as regular loans accepted, approved, and
paid in the ordinary course of its business.
The PNs executed by the respondent in favor of petitioner Citibank to cover her loans were
duly-filled out and signed, including the disclosure statement found at the back of the said
PNs, in adherence to the Central Bank requirement to disclose the full finance charges to a
loan granted to borrowers.
Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank,
testified that he dealt directly with respondent; he facilitated the loans; and the PNs, at least
in the second set, were signed by respondent in his presence.[105]

Mr. Pujeda, the officer who was previously in charge of loans and placements, confirmed that
the signatures on the PNs were verified against respondents specimen signature with the
bank.[106]
Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan processor, was
responsible for booking respondents loans. Booking the loans means recording it in the
General Ledger. She explained the procedure for booking loans, as follows: The account
officer, in the Marketing Department, deals directly with the clients who wish to borrow
money from petitioner Citibank. The Marketing Department will forward a loan booking
checklist, together with the borrowing clients PNs and other supporting documents, to the
loan pre-processor, who will check whether the details in the loan booking checklist are the
same as those in the PNs. The documents are then sent to Signature Control for verification
of the clients signature in the PNs, after which, they are returned to the loan pre-processor,
to be forwarded finally to the loan processor. The loan processor shall book the loan in the
General Ledger, indicating therein the client name, loan amount, interest rate, maturity date,
and the corresponding PN number. Since she booked respondents loans personally, Ms.
Dondoyano testified that she saw the original PNs. In 1986, Atty. Fernandez of petitioner
Citibank requested her to prepare an accounting of respondents loans, which she did, and
which was presented as Exhibit 120 for the petitioners. The figures from the said exhibit were
culled from the bookings in the General Ledger, a fact which respondents counsel was even
willing to stipulate.[107]
Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at the Control
Department of petitioner Citibank. She was presented by petitioner Citibank to expound on
the microfilming procedure at the bank, since most of the copies of the PNs were retrieved
from microfilm. Microfilming of the documents are actually done by people at the Operations
Department. At the end of the day or during the day, the original copies of all bank
documents, not just those pertaining to loans, are microfilmed. She refuted the possibility
that insertions could be made in the microfilm because the microfilm is inserted in a cassette;
the cassette is placed in the microfilm machine for use; at the end of the day, the cassette is
taken out of the microfilm machine and put in a safe vault; and the cassette is returned to the
machine only the following day for use, until the spool is full. This is the microfilming
procedure followed everyday. When the microfilm spool is already full, the microfilm is
developed, then sent to the Control Department, which double checks the contents of the
microfilms against the entries in the General Ledger. The Control Department also conducts a
random comparison of the contents of the microfilms with the original documents; a random
review of the contents is done on every role of microfilm.[108]
Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from the ranks, initially
working as a secretary in the Personnel Group; then as a secretary to the Personnel Group
Head; a Service Assistant with the Marketing Group, in 1972 to 1974, dealing directly with
corporate and individual clients who, among other things, secured loans from petitioner
Citibank; the Head of the Collection Group of the Foreign Department in 1974 to 1976; the
Head of the Money Transfer Unit in 1976 to 1978; the Head of the Loans and Placements Unit
up to the early 1980s; and, thereafter, she established operations training for petitioner
Citibank in the Asia-Pacific Region responsible for the training of the officers of the bank. She
testified on the standard loan application process at petitioner Citibank. According to Ms.
Rubio, the account officer or marketing person submits a proposal to grant a loan to an
individual or corporation. Petitioner Citibank has a worldwide policy that requires a credit
committee, composed of a minimum of three people, which would approve the loan and
amount thereof. There can be no instance when only one officer has the power to approve
the loan application. When the loan is approved, the account officer in charge will obtain the
corresponding PNs from the client. The PNs are sent to the signature verifier who would
validate the signatures therein against those appearing in the signature cards previously
submitted by the client to the bank. The Operations Unit will check and review the
documents, including the PNs, if it is a clean loan, and securities and deposits, if it is
collateralized. The loan is then recorded in the General Ledger. The Loans and Placements
Department will not book the loans without the PNs. When the PNs are liquidated, whether
they are paid or rolled-over, they are returned to the client.[109] Ms. Rubio further explained
that she was familiar with respondents accounts since, while she was still the Head of the
Loan and Placements Unit, she was asked by Mr. Tan to prepare a list of respondents
outstanding obligations.[110] She thus calculated respondents outstanding loans, which was
sent as an attachment to Mr. Tans letter to respondent, dated 28 September 1979, and
presented before the RTC as Exhibits 34-B and 34-C.[111]
Lastly, the exchange of letters between petitioner Citibank and respondent, as well as the
letters sent by other people working for respondent, had consistently recognized that
respondent owed petitioner Citibank money.
In consideration of the foregoing discussion, this Court finds that the preponderance of
evidence supports the existence of the respondents loans, in the principal sum of
P1,920,000.00, as of 5 September 1979. While it is well-settled that the term preponderance
of evidence should not be wholly dependent on the number of witnesses, there are certain
instances when the number of witnesses become the determining factor
The preponderance of evidence may be determined, under certain conditions, by the number
of witnesses testifying to a particular fact or state of facts. For instance, one or two witnesses
may testify to a given state of facts, and six or seven witnesses of equal candor, fairness,
intelligence, and truthfulness, and equally well corroborated by all the remaining evidence,
who have no greater interest in the result of the suit, testify against such state of facts. Then
the preponderance of evidence is determined by the number of witnesses. (Wilcox vs. Hines,
100 Tenn. 524, 66 Am. St. Rep., 761.)[112]
Best evidence rule
This Court disagrees in the pronouncement made by the Court of Appeals summarily
dismissing the documentary evidence submitted by petitioners based on its broad and
indiscriminate application of the best evidence rule.
In general, the best evidence rule requires that the highest available degree of proof must be
produced. Accordingly, for documentary evidence, the contents of a document are best
proved by the production of the document itself,[113] to the exclusion of any secondary or
substitutionary evidence.[114]
The best evidence rule has been made part of the revised Rules of Court, Rule 130, Section 3,
which reads
SEC. 3. Original document must be produced; exceptions. When the subject of inquiry is the
contents of a document, no evidence shall be admissible other than the original document
itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without
bad faith on the part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the
evidence is offered, and the latter fails to produce it after reasonable notice;
(c) When the original consists of numerous accounts or other documents which cannot be
examined in court without great loss of time and the fact sought to be established from them
is only the general result of the whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a
public office.
As the afore-quoted provision states, the best evidence rule applies only when the subject of
the inquiry is the contents of the document. The scope of the rule is more extensively
explained thus
But even with respect to documentary evidence, the best evidence rule applies only when
the content of such document is the subject of the inquiry. Where the issue is only as to
whether such document was actually executed, or exists, or on the circumstances relevant to
or surrounding its execution, the best evidence rule does not apply and testimonial evidence
is admissible (5 Moran, op. cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any other substitutionary
evidence is likewise admissible without need for accounting for the original.
Thus, when a document is presented to prove its existence or condition it is offered not as
documentary, but as real, evidence. Parol evidence of the fact of execution of the documents
is allowed (Hernaez, et al. vs. McGrath, etc., et al., 91 Phil 565). x x x [115]
In Estrada v. Desierto,[116] this Court had occasion to rule that
It is true that the Court relied not upon the original but only copy of the Angara Diary as
published in the Philippine Daily Inquirer on February 4-6, 2001. In doing so, the Court, did
not, however, violate the best evidence rule. Wigmore, in his book on evidence, states that:
Production of the original may be dispensed with, in the trial courts discretion, whenever in
the case in hand the opponent does not bona fide dispute the contents of the document and
no other useful purpose will be served by requiring production.24
xxxx
In several Canadian provinces, the principle of unavailability has been abandoned, for certain
documents in which ordinarily no real dispute arised. This measure is a sensible and
progressive one and deserves universal adoption (post, sec. 1233). Its essential feature is
that a copy may be used unconditionally, if the opponent has been given an opportunity to
inspect it. (Emphasis supplied.)
This Court did not violate the best evidence rule when it considered and weighed in evidence
the photocopies and microfilm copies of the PNs, MCs, and letters submitted by the
petitioners to establish the existence of respondents loans. The terms or contents of these
documents were never the point of contention in the Petition at bar. It was respondents
position that the PNs in the first set (with the exception of PN No. 34534) never existed, while
the PNs in the second set (again, excluding PN No. 34534) were merely executed to cover
simulated loan transactions. As for the MCs representing the proceeds of the loans, the
respondent either denied receipt of certain MCs or admitted receipt of the other MCs but for
another purpose. Respondent further admitted the letters she wrote personally or through
her representatives to Mr. Tan of petitioner Citibank acknowledging the loans, except that she
claimed that these letters were just meant to keep up the ruse of the simulated loans. Thus,
respondent questioned the documents as to their existence or execution, or when the former
is admitted, as to the purpose for which the documents were executed, matters which are,
undoubtedly, external to the documents, and which had nothing to do with the contents
thereof.
Alternatively, even if it is granted that the best evidence rule should apply to the evidence
presented by petitioners regarding the existence of respondents loans, it should be borne in
mind that the rule admits of the following exceptions under Rule 130, Section 5 of the revised
Rules of Court
SEC. 5. When the original document is unavailable. When the original document has been
lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution or
existence and the cause of its unavailability without bad faith on his part, may prove its
contents by a copy, or by a recital of its contents in some authentic document, or by the
testimony of witnesses in the order stated.
The execution or existence of the original copies of the documents was established through
the testimonies of witnesses, such as Mr. Tan, before whom most of the documents were
personally executed by respondent. The original PNs also went through the whole loan
booking system of petitioner Citibank from the account officer in its Marketing Department,
to the pre-processor, to the signature verifier, back to the pre-processor, then to the
processor for booking.[117] The original PNs were seen by Ms. Dondoyano, the processor,
who recorded them in the General Ledger. Mr. Pujeda personally saw the original MCs,
proving respondents receipt of the proceeds of her loans from petitioner Citibank, when he
helped Attys. Cleofe and Fernandez, the banks legal counsels, to reconstruct the records of
respondents loans. The original MCs were presented to Atty. Cleofe who used the same
during the preliminary investigation of the case, sometime in years 1986-1987. The original
MCs were subsequently turned over to the Control and Investigation Division of petitioner
Citibank.[118]
It was only petitioner FNCB Finance who claimed that they lost the original copies of the PNs
when it moved to a new office. Citibank did not make a similar contention; instead, it
explained that the original copies of the PNs were returned to the borrower upon liquidation
of the loan, either through payment or roll-over. Petitioner Citibank proffered the excuse that
they were still looking for the documents in their storage or warehouse to explain the delay
and difficulty in the retrieval thereof, but not their absence or loss. The original documents in
this case, such as the MCs and letters, were destroyed and, thus, unavailable for presentation
before the RTC only on 7 October 1987, when a fire broke out on the 7th floor of the office
building of petitioner Citibank. There is no showing that the fire was intentionally set. The fire
destroyed relevant documents, not just of the present case, but also of other cases, since the
7th floor housed the Control and Investigation Division, in charge of keeping the necessary
documents for cases in which petitioner Citibank was involved.
The foregoing would have been sufficient to allow the presentation of photocopies or
microfilm copies of the PNs, MCs, and letters by the petitioners as secondary evidence to
establish the existence of respondents loans, as an exception to the best evidence rule.
The impact of the Decision of the Court of Appeals in the Dy case
In its assailed Decision, the Court of Appeals made the following pronouncement
Besides, We find the declaration and conclusions of this Court in CA-G.R. CV No. 15934
entitled Sps. Dr. Ricardo L. Dy and Rosalind O. Dy vs. City Bank, N.A., et al, promulgated on 15
January 1990, as disturbing taking into consideration the similarities of the fraud,
machinations, and deceits employed by the defendant-appellant Citibank and its Account
Manager Francisco Tan.
Worthy of note is the fact that Our declarations and conclusions against Citibank and the
person of Francisco Tan in CA-G.R. CV No. 15934 were affirmed in toto by the Highest
Magistrate in a Minute Resolution dated 22 August 1990 entitled Citibank, N.A., vs. Court of
Appeals, G.R. 93350.
As the factual milieu of the present appeal created reasonable doubts as to whether the nine
(9) Promissory Notes were indeed executed with considerations, the doubts, coupled by the
findings and conclusions of this Court in CA-G.R. CV No. 15934 and the Supreme Court in G.R.
No. 93350. should be construed against herein defendants-appellants Citibank and FNCB
Finance.
What this Court truly finds disturbing is the significance given by the Court of Appeals in its
assailed Decision to the Decision[119] of its Third Division in CA-G.R. CV No. 15934 (or the Dy
case), when there is an absolute lack of legal basis for doing such.
Although petitioner Citibank and its officer, Mr. Tan, were also involved in the Dy case, that is
about the only connection between the Dy case and the one at bar. Not only did the Dy case
tackle transactions between parties other than the parties presently before this Court, but
the transactions are absolutely independent and unrelated to those in the instant Petition.
In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner Citibank
amounting to P7,000,000.00, secured to the extent of P5,000,000.00 by a Third Party Real
Estate Mortgage of the properties of Caedos aunt, Rosalind Dy. It turned out that Rosalind Dy
and her husband were unaware of the said loans and the mortgage of their properties. The
transactions were carried out exclusively between Caedo and Mr. Tan of petitioner Citibank.
The RTC found Mr. Tan guilty of fraud for his participation in the questionable transactions,
essentially because he allowed Caedo to take out the signature cards, when these should
have been signed by the Dy spouses personally before him. Although the Dy spouses
signatures in the PNs and Third Party Real Estate Mortgage were forged, they were approved
by the signature verifier since the signature cards against which they were compared to were
also forged. Neither the RTC nor the Court of Appeals, however, categorically declared Mr.
Tan personally responsible for the forgeries, which, in the narration of the facts, were more
likely committed by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third party
involved who could have perpetrated any fraud or forgery in her loan transactions. Although
respondent attempted to raise suspicion as to the authenticity of her signatures on certain
documents, these were nothing more than naked allegations with no corroborating evidence;
worse, even her own allegations were replete with inconsistencies. She could not even
establish in what manner or under what circumstances the fraud or forgery was committed,
or how Mr. Tan could have been directly responsible for the same.
While the Court of Appeals can take judicial notice of the Decision of its Third Division in the
Dy case, it should not have given the said case much weight when it rendered the assailed
Decision, since the former does not constitute a precedent. The Court of Appeals, in the
challenged Decision, did not apply any legal argument or principle established in the Dy case
but, rather, adopted the findings therein of wrongdoing or misconduct on the part of herein
petitioner Citibank and Mr. Tan. Any finding of wrongdoing or misconduct as against herein
petitioners should be made based on the factual background and pieces of evidence
submitted in this case, not those in another case.
It is apparent that the Court of Appeals took judicial notice of the Dy case not as a legal
precedent for the present case, but rather as evidence of similar acts committed by petitioner
Citibank and Mr. Tan. A basic rule of evidence, however, states that, Evidence that one did or
did not do a certain thing at one time is not admissible to prove that he did or did not do the
same or similar thing at another time; but it may be received to prove a specific intent or
knowledge, identity, plan, system, scheme, habit, custom or usage, and the like.[120] The
rationale for the rule is explained thus
The rule is founded upon reason, public policy, justice and judicial convenience. The fact that
a person has committed the same or similar acts at some prior time affords, as a general rule,
no logical guaranty that he committed the act in question. This is so because, subjectively, a
mans mind and even his modes of life may change; and, objectively, the conditions under
which he may find himself at a given time may likewise change and thus induce him to act in
a different way. Besides, if evidence of similar acts are to be invariably admitted, they will give
rise to a multiplicity of collateral issues and will subject the defendant to surprise as well as
confuse the court and prolong the trial.[121]
The factual backgrounds of the two cases are so different and unrelated that the Dy case
cannot be used to prove specific intent, knowledge, identity, plan, system, scheme, habit,
custom or usage on the part of petitioner Citibank or its officer, Mr. Tan, to defraud
respondent in the present case.
IV
The liquidation of respondents outstanding loans were valid in so far as petitioner Citibank
used respondents savings account with the bank and her money market placements with
petitioner FNCB Finance; but illegal and void in so far as petitioner Citibank used respondents
dollar accounts with Citibank-Geneva.
Savings Account with petitioner Citibank
Compensation is a recognized mode of extinguishing obligations. Relevant provisions of the
Civil Code provides
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary;
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
There is little controversy when it comes to the right of petitioner Citibank to compensate
respondents outstanding loans with her deposit account. As already found by this Court,
petitioner Citibank was the creditor of respondent for her outstanding loans. At the same
time, respondent was the creditor of petitioner Citibank, as far as her deposit account was
concerned, since bank deposits, whether fixed, savings, or current, should be considered as
simple loan or mutuum by the depositor to the banking institution.[122] Both debts consist in
sums of money. By June 1979, all of respondents PNs in the second set had matured and
became demandable, while respondents savings account was demandable anytime. Neither
was there any retention or controversy over the PNs and the deposit account commenced by
a third person and communicated in due time to the debtor concerned. Compensation takes
place by operation of law,[123] therefore, even in the absence of an expressed authority from
respondent, petitioner Citibank had the right to effect, on 25 June 1979, the partial
compensation or off-set of respondents outstanding loans with her deposit account,
amounting to P31,079.14.
Money market placements with FNCB Finance
Things though are not as simple and as straightforward as regards to the money market
placements and bank account used by petitioner Citibank to complete the compensation or
off-set of respondents outstanding loans, which came from persons other than petitioner
Citibank.
Respondents money market placements were with petitioner FNCB Finance, and after several
roll-overs, they were ultimately covered by PNs No. 20138 and 20139, which, by 3 September
1979, the date the check for the proceeds of the said PNs were issued, amounted to
P1,022,916.66, inclusive of the principal amounts and interests. As to these money market
placements, respondent was the creditor and petitioner FNCB Finance the debtor; while, as
to the outstanding loans, petitioner Citibank was the creditor and respondent the debtor.
Consequently, legal compensation, under Article 1278 of the Civil Code, would not apply
since the first requirement for a valid compensation, that each one of the obligors be bound
principally, and that he be at the same time a principal creditor of the other, was not met.
What petitioner Citibank actually did was to exercise its rights to the proceeds of respondents
money market placements with petitioner FNCB Finance by virtue of the Deeds of
Assignment executed by respondent in its favor.
The Court of Appeals did not consider these Deeds of Assignment because of petitioners
failure to produce the original copies thereof in violation of the best evidence rule. This Court
again finds itself in disagreement in the application of the best evidence rule by the appellate
court.
To recall, the best evidence rule, in so far as documentary evidence is concerned, requires the
presentation of the original copy of the document only when the context thereof is the
subject of inquiry in the case. Respondent does not question the contents of the Deeds of
Assignment. While she admitted the existence and execution of the Deeds of Assignment,
dated 2 March 1978 and 9 March 1978, covering PNs No. 8169 and 8167 issued by petitioner
FNCB Finance, she claimed, as defense, that the loans for which the said Deeds were
executed as security, were already paid. She denied ever executing both Deeds of
Assignment, dated 25 August 1978, covering PNs No. 20138 and 20139. These are again
issues collateral to the contents of the documents involved, which could be proven by
evidence other than the original copies of the said documents.
Moreover, the Deeds of Assignment of the money market placements with petitioner FNCB
Finance were notarized documents, thus, admissible in evidence. Rule 132, Section 30 of the
Rules of Court provides that
SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and
certified as provided by law, may be presented in evidence without further proof, the
certificate of acknowledgement being prima facie evidence of the execution of the
instrument or document involved.
Significant herein is this Courts elucidation in De Jesus v. Court of Appeals,[124] which reads
On the evidentiary value of these documents, it should be recalled that the notarization of a
private document converts it into a public one and renders it admissible in court without
further proof of its authenticity (Joson vs. Baltazar, 194 SCRA 114 [1991]). This is so because a
public document duly executed and entered in the proper registry is presumed to be valid
and genuine until the contrary is shown by clear and convincing proof (Asido vs. Guzman, 57
Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil 241 [1902]; Favor vs. Court of Appeals, 194 SCRA 308
[1991]). As such, the party challenging the recital of the document must prove his claim with
clear and convincing evidence (Diaz vs. Court of Appeals, 145 SCRA 346 [1986]).
The rule on the evidentiary weight that must be accorded a notarized document is clear and
unambiguous. The certificate of acknowledgement in the notarized Deeds of Assignment
constituted prima facie evidence of the execution thereof. Thus, the burden of refuting this
presumption fell on respondent. She could have presented evidence of any defect or
irregularity in the execution of the said documents[125] or raised questions as to the verity of
the notary publics acknowledgment and certificate in the Deeds.[126] But again, respondent
admitted executing the Deeds of Assignment, dated 2 March 1978 and 9 March 1978,
although claiming that the loans for which they were executed as security were already paid.
And, she assailed the Deeds of Assignment, dated 25 August 1978, with nothing more than
her bare denial of execution thereof, hardly the clear and convincing evidence required to
trounce the presumption of due execution of a notarized document.
Petitioners not only presented the notarized Deeds of Assignment, but even secured certified
literal copies thereof from the National Archives.[127] Mr. Renato Medua, an archivist,
working at the Records Management and Archives Office of the National Library, testified that
the copies of the Deeds presented before the RTC were certified literal copies of those
contained in the Notarial Registries of the notary publics concerned, which were already in
the possession of the National Archives. He also explained that he could not bring to the RTC
the Notarial Registries containing the original copies of the Deeds of Assignment, because the
Department of Justice (DOJ) Circular No. 97, dated 8 November 1968, prohibits the bringing
of original documents to the courts to prevent the loss of irreplaceable and priceless
documents.[128]
Accordingly, this Court gives the Deeds of Assignment grave importance in establishing the
authority given by the respondent to petitioner Citibank to use as security for her loans her
money her market placements with petitioner FNCB Finance, represented by PNs No. 8167
and 8169, later to be rolled-over as PNs No. 20138 and 20139. These Deeds of Assignment
constitute the law between the parties, and the obligations arising therefrom shall have the
force of law between the parties and should be complied with in good faith.[129] Standard
clauses in all of the Deeds provide that
The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
xxxx
2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as the case may
be, the ASSIGNEE is fully authorized and empowered to collect and receive the PLACEMENT
(or so much thereof as may be necessary) and apply the same in payment of the
OBLIGATIONS. Furthermore, the ASSIGNOR agrees that at any time, and from time to time,
upon request by the ASSIGNEE, the ASSIGNOR will promptly execute and deliver any and all
such further instruments and documents as may be necessary to effectuate this Assignment.
xxxx
5. This Assignment shall be considered as sufficient authority to FNCB Finance to pay and
deliver the PLACEMENT or so much thereof as may be necessary to liquidate the
OBLIGATIONS, to the ASSIGNEE in accordance with terms and provisions hereof.[130]
Petitioner Citibank was only acting upon the authority granted to it under the foregoing
Deeds when it finally used the proceeds of PNs No. 20138 and 20139, paid by petitioner
FNCB Finance, to partly pay for respondents outstanding loans. Strictly speaking, it did not
effect a legal compensation or off-set under Article 1278 of the Civil Code, but rather, it partly
extinguished respondents obligations through the application of the security given by the
respondent for her loans. Although the pertinent documents were entitled Deeds of
Assignment, they were, in reality, more of a pledge by respondent to petitioner Citibank of
her credit due from petitioner FNCB Finance by virtue of her money market placements with
the latter. According to Article 2118 of the Civil Code
ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may
collect and receive the amount due. He shall apply the same to the payment of his claim, and
deliver the surplus, should there be any, to the pledgor.
PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed by
respondent, so that petitioner Citibank collected from petitioner FNCB Finance the proceeds
thereof, which included the principal amounts and interests earned by the money market
placements, amounting to P1,022,916.66, and applied the same against respondents
outstanding loans, leaving no surplus to be delivered to respondent.
Dollar accounts with Citibank-Geneva
Despite the legal compensation of respondents savings account and the total application of
the proceeds of PNs No. 20138 and 20139 to respondents outstanding loans, there still
remained a balance of P1,069,847.40. Petitioner Citibank then proceeded to applying
respondents dollar accounts with Citibank-Geneva against her remaining loan balance,
pursuant to a Declaration of Pledge supposedly executed by respondent in its favor.
Certain principles of private international law should be considered herein because the
property pledged was in the possession of an entity in a foreign country, namely, Citibank-
Geneva. In the absence of any allegation and evidence presented by petitioners of the
specific rules and laws governing the constitution of a pledge in Geneva, Switzerland, they
will be presumed to be the same as Philippine local or domestic laws; this is known as
processual presumption.[131]
Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly
suspicious and irregular.
First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of
Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court
would think that petitioner Citibank would take greater cautionary measures with the
preparation and execution of the Declaration of Pledge because it involved respondents all
present and future fiduciary placements with a Citibank branch in another country,
specifically, in Geneva, Switzerland. While there is no express legal requirement that the
Declaration of Pledge had to be notarized to be effective, even so, it could not enjoy the same
prima facie presumption of due execution that is extended to notarized documents, and
petitioner Citibank must discharge the burden of proving due execution and authenticity of
the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge
was actually executed. The photocopy of the Declaration of Pledge submitted by petitioner
Citibank before the RTC was undated.[132] It presented only a photocopy of the pledge
because it already forwarded the original copy thereof to Citibank-Geneva when it requested
for the remittance of respondents dollar accounts pursuant thereto. Respondent, on the
other hand, was able to secure a copy of the Declaration of Pledge, certified by an officer of
Citibank-Geneva, which bore the date 24 September 1979.[133] Respondent, however,
presented her passport and plane tickets to prove that she was out of the country on the said
date and could not have signed the pledge. Petitioner Citibank insisted that the pledge was
signed before 24 September 1979, but could not provide an explanation as to how and why
the said date was written on the pledge. Although Mr. Tan testified that the Declaration of
Pledge was signed by respondent personally before him, he could not give the exact date
when the said signing took place. It is important to note that the copy of the Declaration of
Pledge submitted by the respondent to the RTC was certified by an officer of Citibank-Geneva,
which had possession of the original copy of the pledge. It is dated 24 September 1979, and
this Court shall abide by the presumption that the written document is truly dated.[134]
Since it is undeniable that respondent was out of the country on 24 September 1979, then
she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard
printed form. It was constituted in favor of Citibank, N.A., otherwise referred to therein as the
Bank. It should be noted, however, that in the space which should have named the pledgor,
the name of petitioner Citibank was typewritten, to wit
The pledge right herewith constituted shall secure all claims which the Bank now has or in the
future acquires against Citibank, N.A., Manila (full name and address of the Debtor),
regardless of the legal cause or the transaction (for example current account, securities
transactions, collections, credits, payments, documentary credits and collections) which gives
rise thereto, and including principal, all contractual and penalty interest, commissions,
charges, and costs.
The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a
mistake made by whoever filled-out the form? Yes, it could be a possibility. Nonetheless,
considering the value of such a document, the mistake as to a significant detail in the pledge
could only be committed with gross carelessness on the part of petitioner Citibank, and
raised serious doubts as to the authenticity and due execution of the same. The Declaration
of Pledge had passed through the hands of several bank officers in the country and abroad,
yet, surprisingly and implausibly, no one noticed such a glaring mistake.
Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed
that the signature was a forgery. When a document is assailed on the basis of forgery, the
best evidence rule applies
Basic is the rule of evidence that when the subject of inquiry is the contents of a document,
no evidence is admissible other than the original document itself except in the instances
mentioned in Section 3, Rule 130 of the Revised Rules of Court. Mere photocopies of
documents are inadmissible pursuant to the best evidence rule. This is especially true when
the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing
evidence and the burden of proof lies on the party alleging forgery. The best evidence of a
forged signature in an instrument is the instrument itself reflecting the alleged forged
signature. The fact of forgery can only be established by a comparison between the alleged
forged signature and the authentic and genuine signature of the person whose signature is
theorized upon to have been forged. Without the original document containing the alleged
forged signature, one cannot make a definitive comparison which would establish forgery. A
comparison based on a mere xerox copy or reproduction of the document under controversy
cannot produce reliable results.[135]
Respondent made several attempts to have the original copy of the pledge produced before
the RTC so as to have it examined by experts. Yet, despite several Orders by the RTC,[136]
petitioner Citibank failed to comply with the production of the original Declaration of Pledge.
It is admitted that Citibank-Geneva had possession of the original copy of the pledge. While
petitioner Citibank in Manila and its branch in Geneva may be separate and distinct entities,
they are still incontestably related, and between petitioner Citibank and respondent, the
former had more influence and resources to convince Citibank-Geneva to return, albeit
temporarily, the original Declaration of Pledge. Petitioner Citibank did not present any
evidence to convince this Court that it had exerted diligent efforts to secure the original copy
of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it
back, when such document would have been very vital to the case of petitioner Citibank.
There is thus no justification to allow the presentation of a mere photocopy of the
Declaration of Pledge in lieu of the original, and the photocopy of the pledge presented by
petitioner Citibank has nil probative value.[137] In addition, even if this Court cannot make a
categorical finding that respondents signature on the original copy of the pledge was forged,
it is persuaded that petitioner Citibank willfully suppressed the presentation of the original
document, and takes into consideration the presumption that the evidence willfully
suppressed would be adverse to petitioner Citibank if produced.[138]
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the
remittance of respondents dollar accounts with Citibank-Geneva and to apply them to her
outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code
since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity.
As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor;
and as for the outstanding loans, petitioner Citibank was the creditor and respondent was the
debtor. The parties in these transactions were evidently not the principal creditor of each
other.

Therefore, this Court declares that the remittance of respondents dollar accounts from
Citibank-Geneva and the application thereof to her outstanding loans with petitioner Citibank
was illegal, and null and void. Resultantly, petitioner Citibank is obligated to return to
respondent the amount of US$149,632,99 from her Citibank-Geneva accounts, or its present
equivalent value in Philippine currency; and, at the same time, respondent continues to be
obligated to petitioner Citibank for the balance of her outstanding loans which, as of 5
September 1979, amounted to P1,069,847.40.
V Citibank-Geneva by virtue of a highly-suspect Declaration of Pledge to be applied to the
The parties shall be liable for interests on their monetary obligations to each other, as
determined herein.
In summary, petitioner Citibank is ordered by this Court to pay respondent the proceeds of
her money market placements, represented by PNs No. 23356 and 23357, amounting to
P318,897.34 and P203,150.00, respectively, earning an interest of 14.5% per annum as
stipulated in the PNs,[139] beginning 17 March 1977, the date of the placements.
Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99, or
its equivalent in Philippine currency, which had been remitted from her Citibank-Geneva
accounts. These dollar accounts, consisting of two fiduciary placements and current accounts
with Citibank-Geneva shall continue earning their respective stipulated interests from 26
October 1979, the date of their remittance by Citibank-Geneva to petitioner Citibank in
Manila and applied against respondents outstanding loans.
As for respondent, she is ordered to pay petitioner Citibank the balance of her outstanding
loans, which amounted to P1,069,847.40 as of 5 September 1979. These loans continue to
earn interest, as stipulated in the corresponding PNs, from the time of their respective
maturity dates, since the supposed payment thereof using respondents dollar accounts from
Citibank-Geneva is deemed illegal, null and void, and, thus, ineffective.
VI
Petitioner Citibank shall be liable for damages to respondent.
Petitioners protest the award by the Court of Appeals of moral damages, exemplary damages,
and attorneys fees in favor of respondent. They argued that the RTC did not award any
damages, and respondent, in her appeal before the Court of Appeals, did not raise in issue
the absence of such.
While it is true that the general rule is that only errors which have been stated in the
assignment of errors and properly argued in the brief shall be considered, this Court has also
recognized exceptions to the general rule, wherein it authorized the review of matters, even
those not assigned as errors in the appeal, if the consideration thereof is necessary in arriving
at a just decision of the case, and there is a close inter-relation between the omitted
assignment of error and those actually assigned and discussed by the appellant.[140] Thus,
the Court of Appeals did not err in awarding the damages when it already made findings that
would justify and support the said award.
Although this Court appreciates the right of petitioner Citibank to effect legal compensation
of respondents local deposits, as well as its right to the proceeds of PNs No. 20138 and 20139
by virtue of the notarized Deeds of Assignment, to partly extinguish respondents outstanding
loans, it finds that petitioner Citibank did commit wrong when it failed to pay and properly
account for the proceeds of respondents money market placements, evidenced by PNs No.
23356 and 23357, and when it sought the remittance of respondents dollar accounts from
remaining balance of respondents outstanding loans. It bears to emphasize that banking is
impressed with public interest and its fiduciary character requires high standards of integrity
and performance.[141] A bank is under the obligation to treat the accounts of its depositors
with meticulous care whether such accounts consist only of a few hundred pesos or of
millions of pesos.[142] The bank must record every single transaction accurately, down to the
last centavo, and as promptly as possible.[143] Petitioner Citibank evidently failed to exercise
the required degree of care and transparency in its transactions with respondent, thus,
resulting in the wrongful deprivation of her property.
Respondent had been deprived of substantial amounts of her investments and deposits for
more than two decades. During this span of years, respondent had found herself in desperate
need of the amounts wrongfully withheld from her. In her testimony[144] before the RTC,
respondent narrated
Q By the way Mrs. Witness will you kindly tell us again, you said before that you are a
businesswoman, will you tell us again what are the businesses you are engaged into [sic]?
A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in San Mateo,
Rizal. I am also the President and Chairman of the Board of Macador [sic] Co. and Business
Inc. which operates the Macador [sic] International Palace Hotel. I am also the President of
the Macador [sic] International Palace Hotel, and also the Treasures Home Industries, Inc.
which I am the Chairman and president of the Board and also operating affiliated company in
the name of Treasures Motor Sales engaged in car dealers [sic] like Delta Motors, we are the
dealers of the whole Northern Luzon and I am the president of the Disto Company, Ltd.,
based in Hongkong licensed in Honkong [sic] and now operating in Los Angeles, California.
Q What is the business of that Disto Company Ltd.?
A Disto Company, Ltd., is engaged in real estate and construction.
Q Aside from those businesses are you a member of any national or community organization
for social and civil activities?
A Yes sir.
Q What are those?
A I am the Vice-President of thes [sic] Subdivision Association of the Philippines in 1976, I am
also an officer of the Chamber of Real Estate Business Association; I am also an officer of the
Chatholic [sic] Womens League and I am also a member of the CMLI, I forgot the definition.
Q How about any political affiliation or government position held if any?
A I was also a candidate for Mayo last January 30, 1980.
Q Where?
A In Dagupan City, Pangasinan.
Q What else?
A I also ran as an Assemblywoman last May, 1984, Independent party in Regional I,
Pangasinan.
Q What happened to your businesses you mentioned as a result of your failure to recover you
[sic] investments and bank deposits from the defendants?
A They are not all operating, in short, I was hampered to push through the businesses that I
have.
A [sic] Of all the businesses and enterprises that you mentioned what are those that are
paralyzed and what remain inactive?
A Of all the company [sic] that I have, only the Disto Company that is now operating in
California.
Q How about your candidacy as Mayor of Dagupan, [sic] City, and later as Assemblywoman of
Region I, what happened to this?
A I won by voting but when election comes on [sic] the counting I lost and I protested this, it
is still pending and because I dont have financial resources I was not able to push through the
case. I just have it pending in the Comelec.
Q Now, do these things also affect your social and civic activities?
A Yes sir, definitely.
Q How?
A I was embarrassed because being a businesswoman I would like to inform the Honorable
Court that I was awarded as the most outstanding businesswoman of the year in 1976 but
when this money was not given back to me I was not able to comply with the commitments
that I have promised to these associations that I am engaged into [sic], sir.
For the mental anguish, serious anxiety, besmirched reputation, moral shock and social
humiliation suffered by the respondent, the award of moral damages is but proper. However,
this Court reduces the amount thereof to P300,000.00, for the award of moral damages is
meant to compensate for the actual injury suffered by the respondent, not to enrich her.[145]
Having failed to exercise more care and prudence than a private individual in its dealings with
respondent, petitioner Citibank should be liable for exemplary damages, in the amount of
P250,000.00, in accordance with Article 2229[146] and 2234[147] of the Civil Code.
With the award of exemplary damages, then respondent shall also be entitled to an award of
attorneys fees.[148] Additionally, attorney's fees may be awarded when a party is compelled
to litigate or to incur expenses to protect his interest by reason of an unjustified act of the
other party.[149] In this case, an award of P200,000.00 attorneys fees shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to petitioners. Respondent
was compelled to institute the present case in the exercise of her rights and in the protection
of her interests. In fact, although her Complaint before the RTC was not sustained in its
entirety, it did raise meritorious points and on which this Court rules in her favor. Any injury
resulting from the exercise of ones rights is damnum absque injuria.[150]
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision
of the Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by
its Resolution, dated 20 November 2002, is hereby AFFIRMED WITH MODIFICATION, as
follows
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is
ORDERED to return to respondent the principal amounts of the said PNs, amounting to Three
Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos
(P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00),
respectively, plus the stipulated interest of Fourteen and a half percent (14.5%) per annum,
beginning 17 March 1977;
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars
and Ninety-Nine Cents (US$149,632.99) from respondents Citibank-Geneva accounts to
petitioner Citibank in Manila, and the application of the same against respondents
outstanding loans with the latter, is DECLARED illegal, null and void. Petitioner Citibank is
ORDERED to refund to respondent the said amount, or its equivalent in Philippine currency
using the exchange rate at the time of payment, plus the stipulated interest for each of the
fiduciary placements and current accounts involved, beginning 26 October 1979;
3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three
Hundred Thousand Pesos (P300,000.00); exemplary damages in the amount of Two Hundred
Fifty Thousand Pesos (P250,000.00); and attorneys fees in the amount of Two Hundred
Thousand Pesos (P200,000.00); and

4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans,
which, from the respective dates of their maturity to 5 September 1979, was computed to be
in the sum of One Million Sixty-Nine Thousand Eight Hundred Forty-Seven Pesos and Forty
Centavos (P1,069,847.40), inclusive of interest. These outstanding loans shall continue to
earn interest, at the rates stipulated in the corresponding PNs, from 5 September 1979 until
payment thereof.
SO ORDERED.
[G.R. No. 148582. January 16, 2002]
FAR EAST BANK AND TRUST COMPANY, petitioner, vs. ESTRELLA O. QUERIMIT, respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking review of the decision, dated March 6, 2001,
and resolution, dated June 19, 2001, of the Court of Appeals[1] in CA-G.R. CV No. 67147,
entitled Estrella O. Querimit v. Far East Bank and Trust Company, which affirmed with
modification the decision of the Regional Trial Court, Branch 38, Manila,[2] ordering
petitioner Far East Bank and Trust Co. (FEBTC) to allow respondent Estrella O. Querimit to
withdraw her time deposit with the FEBTC.
The facts are as follows:
Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings Bank
(PSB) for 19 years, from 1963 to 1992.[3] On November 24, 1986, she opened a dollar savings
account in petitioners Harrison Plaza branch,[4] for which she was issued four (4) Certificates
of Deposit (Nos. 79028, 79029, 79030, and 79031), each certificate representing the amount
of $15,000.00, or a total amount of $60,000.00. The certificates were to mature in 60 days,
on January 23, 1987, and were payable to bearer at 4.5% interest per annum. The certificates
bore the word accrued, which meant that if they were not presented for encashment or pre-
terminated prior to maturity, the money deposited with accrued interest would be rolled
over by the bank and annual interest would accumulate automatically.[5] The petitioner
banks manager assured respondent that her deposit would be renewed and earn interest
upon maturity even without the surrender of the certificates if these were not indorsed and
withdrawn.[6] Respondent kept her dollars in the bank so that they would earn interest and
so that she could use the fund after she retired.[7]
In 1989, respondent accompanied her husband Dominador Querimit to the United States for
medical treatment. She used her savings in the Bank of the Philippine Islands (BPI) to pay for
the trip and for her husbands medical expenses.[8] In January 1993, her husband died and
Estrella returned to the Philippines. She went to petitioner FEBTC to withdraw her deposit
but, to her dismay, she was told that her husband had withdrawn the money in deposit.[9]
Through counsel, respondent sent a demand letter to petitioner FEBTC. In another letter,
respondent reiterated her request for updating and payment of the certificates of deposit,
including interest earned.[10] As petitioner FEBTC refused respondents demands, the latter
filed a complaint, joining in the action Edgardo F. Blanco, Branch Manager of FEBTC Harrison
Plaza Branch, and Octavio Espiritu, FEBTC President.[11]
Petitioner FEBTC alleged that it had given respondents late husband Dominador an
accommodation to allow him to withdraw Estrellas deposit.[12] Petitioner presented certified
true copies of documents showing that payment had been made, to wit:
1. Four FEBTC Harrison Plaza Branch Dollar Demand Drafts Nos. 886694903, 886694904,
886694905 and 886694906 for US$15,110.96 each, allegedly issued by petitioner to
respondents husband Dominador after payment on the certificates of deposit;[13]
2. A letter of Alicia de Bustos, branch cashier of FEBTC at Harrison Plaza, dated January 23,
1987, which was sent to Citibank, N.A., Citibank Center, Paseo de Roxas, Makati, Metro
Manila, informing the latter that FEBTC had issued the four drafts and requesting Citibank
New York to debit from petitioners account $60,443.84, the aggregate value of the four
drafts;[14]
3. Citicorp Remittance Service: Daily Summary and Payment Report dated January 23, 1987;
[15]
4. Debit Ticket dated January 23, 1987, showing the debit of US$60,443.84 or its equivalent at
the time of P1,240,912.04 from the FEBTC Harrison Plaza Branch;[16] and
5. An Interbranch Transaction Ticket Register or Credit Ticket dated January 23, 1987 showing
that US$60,443.84 or P1,240,912.04 was credited to petitioners International Operation
Division (IOD).[17]
On May 6, 2000, the trial court rendered judgment for respondent. The dispositive portion of
the decision stated:
WHEREFORE, judgment is hereby rendered in favor of plaintiff [Estrella O. Querimit] and
against defendants [FEBTC et al.]:
1. ORDERING defendants to allow plaintiff to withdraw her U.S.$ Time Deposit of $60,000.00
plus accrued interests;
2. ORDERING defendants to pay moral damages in the amount of P50,000.00;
3. ORDERING defendants to pay exemplary damages in the amount of P50,000.00;
4. ORDERING defendants to pay attorneys fees in the amount of P100,000.00 plus P10,000.00
per appearance of counsel; and
5. ORDERING defendants to pay the costs of the suit.
SO ORDERED.[18]
On May 15, 2000, petitioner appealed to the Court of Appeals which, on March 6, 2001,
affirmed through its Fourteenth Division the decision of the trial court, with the modification
that FEBTC was declared solely liable for the amounts adjudged in the decision of the trial
court. The appeals court stated that petitioner FEBTC failed to prove that the certificates of
deposit had been paid out of its funds, since the evidence by the [respondent] stands
unrebutted that the subject certificates of deposit until now remain unindorsed, undelivered
and unwithdrawn by [her].[19] But the Court of Appeals held that the individual defendants,
Edgardo F. Blanco, FEBTC-Harrison Plaza Branch Manager, and Octavio Espiritu, FEBTC
President, could not be held solidarily liable with the FEBTC because the latter has a
personality separate from its officers and stockholders.[20]
Hence this appeal.
As stated by the Court of Appeals, the main issue in this case is whether the subject
certificates of deposit have already been paid by petitioner.[21] Petitioner contends that-
I. Petitioner is not liable to respondent for the value of the four (4) Certificates of Deposit,
including the interest thereon as well as moral and exemplary damages, attorneys and
appearance fees.
II. The aggregate value - both principal and interest earned at maturity - of the four (4)
certificates of deposit was already paid to or withdrawn at maturity by the late Dominador
Querimit who was the respondents deceased husband.
III. Respondent is guilty of laches since the four (4) certificates of deposit were all issued on
24 November 1986 but she attempted to withdraw their aggregate value on 29 July 1996 only
on or after the lapse of more than nine (9) years and eight (8) months.
IV. Respondent is not liable to petitioner for attorneys fees.[22]
After reviewing the records, we find the petition to be without merit.
First. Petitioner bank failed to prove that it had already paid Estrella Querimit, the bearer and
lawful holder of the subject certificates of deposit. The finding of the trial court on this point,
as affirmed by the Court of Appeals, is that petitioner did not pay either respondent Estrella
or her husband the amounts evidenced by the subject certificates of deposit. This Court is not
a trier of facts and generally does not weigh anew the evidence already passed upon by the There is no absolute rule as to what constitutes laches or staleness of demand; each case is to
Court of Appeals.[23] The finding of respondent court which shows that the subject be determined according to its particular circumstances. The question of laches is addressed
certificates of deposit are still in the possession of Estrella Querimit and have not been to the sound discretion of the court and, being an equitable doctrine, its application is
indorsed or delivered to petitioner FEBTC is substantiated by the record and should therefore controlled by equitable considerations. It cannot be used to defeat justice or perpetrate fraud
stand.[24] and injustice. Courts will not be guided or bound strictly by the statute of limitations or the
A certificate of deposit is defined as a written acknowledgment by a bank or banker of the doctrine of laches when to do so, manifest wrong or injustice would result.[37]
receipt of a sum of money on deposit which the bank or banker promises to pay to the In this case, it would be unjust to allow the doctrine of laches to defeat the right of
depositor, to the order of the depositor, or to some other person or his order, whereby the respondent to recover her savings which she deposited with the petitioner. She did not
relation of debtor and creditor between the bank and the depositor is created. The principles withdraw her deposit even after the maturity date of the certificates of deposit precisely
governing other types of bank deposits are applicable to certificates of deposit,[25] as are the because she wanted to set it aside for her retirement. She relied on the banks assurance, as
rules governing promissory notes when they contain an unconditional promise to pay a sum reflected on the face of the instruments themselves, that interest would accrue or
certain of money absolutely.[26] The principle that payment, in order to discharge a debt, accumulate annually even after their maturity.[38]
must be made to someone authorized to receive it is applicable to the payment of certificates Third. Respondent is entitled to moral damages because of the mental anguish and
of deposit. Thus, a bank will be protected in making payment to the holder of a certificate humiliation she suffered as a result of the wrongful refusal of the FEBTC to pay her even after
indorsed by the payee, unless it has notice of the invalidity of the indorsement or the holders she had delivered the certificates of deposit.[39] In addition, petitioner FEBTC should pay
want of title.[27] A bank acts at its peril when it pays deposits evidenced by a certificate of respondent exemplary damages, which the trial court imposed by way of example or
deposit, without its production and surrender after proper indorsement.[28] As a rule, one correction for the public good.[40] Finally, respondent is entitled to attorneys fees since
who pleads payment has the burden of proving it. Even where the plaintiff must allege non- petitioners act or omission compelled her to incur expenses to protect her interest, making
payment, the general rule is that the burden rests on the defendant to prove payment, rather such award just and equitable.[41] However, we find the award of attorneys fees to be
than on the plaintiff to prove payment. The debtor has the burden of showing with legal excessive and accordingly reduce it to P20,000.00.[42]
certainty that the obligation has been discharged by payment.[29] WHEREFORE, premises considered, the present petition is hereby DENIED and the Decision in
In this case, the certificates of deposit were clearly marked payable to bearer, which means, CA-G.R. CV No. 67147 AFFIRMED, with the modification that the award of attorneys fees is
to [t]he person in possession of an instrument, document of title or security payable to reduced to P20,000.00.
bearer or indorsed in blank.[30] Petitioner should not have paid respondents husband or any SO ORDERED.
third party without requiring the surrender of the certificates of deposit.
Petitioner claims that it did not demand the surrender of the subject certificates of deposit
since respondents husband, Dominador Querimit, was one of the banks senior managers. But
even long after respondents husband had allegedly been paid respondents deposit and
before his retirement from service, the FEBTC never required him to deliver the certificates of
deposit in question.[31] Moreover, the accommodation given to respondents husband was
made in violation of the banks policies and procedures.[32]
Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature of its
business.[33] Because the business of banks is impressed with public interest, the degree of
diligence required of banks is more than that of a good father of the family or of an ordinary
business firm. The fiduciary nature of their relationship with their depositors requires them to
treat the accounts of their clients with the highest degree of care.[34] A bank is under
obligation to treat the accounts of its depositors with meticulous care whether such accounts
consist only of a few hundred pesos or of millions of pesos. Responsibility arising from
negligence in the performance of every kind of obligation is demandable.[35] Petitioner failed
to prove payment of the subject certificates of deposit issued to the respondent and,
therefore, remains liable for the value of the dollar deposits indicated thereon with accrued
interest.
Second. The equitable principle of laches is not sufficient to defeat the rights of respondent
over the subject certificates of deposit.
Laches is the failure or neglect, for an unreasonable length of time, to do that which, by
exercising due diligence, could or should have been done earlier. It is negligence or omission
to assert a right within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it.[36]
G.R. No. 89252 May 24, 1993
April 6, 1981
RAUL SESBREO, petitioner,
vs. MATURITY DATE
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.
NO. 10805
Salva, Villanueva & Associates for Delta Motors Corporation.
DENOMINATED CUSTODIAN RECEIPT
Reyes, Salazar & Associates for Pilipinas Bank.
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE
UNDERWRITES FINANCE CORPORATION, we have in our custody the following securities to
you [sic] the extent herein indicated.
FELICIANO, J.:
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT
On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the NUMBER DATE VALUE BY HOLDER PAYEE
amount of P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"),
Cebu Branch; the placement, with a term of thirty-two (32) days, would mature on 13 March 2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
1981, Philfinance, also on 9 February 1981, issued the following documents to petitioner: UNDERWRITERS
FINANCE CORP.
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1)
Delta Motors Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at We further certify that these securities may be inspected by you or your duly authorized
17.0% per annum; representative at any time during regular banking hours.

(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC Upon your written instructions we shall undertake physical delivery of the above securities
PN No. 2731 to petitioner, with the notation that the said security was in custodianship of fully assigned to you should this Denominated Custodianship Receipt remain outstanding in
Pilipinas Bank, as per Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February your favor thirty (30) days after its maturity.
1981; and
PILIPINAS BANK
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's (By Elizabeth De Villa
investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and Illegible Signature) 1
America as drawee, in the total amount of P304,533.33.
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas,
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. Makati Branch, and handed her a demand letter informing the bank that his placement with
However, the checks were dishonored for having been drawn against insufficient funds. Philfinance in the amount reflected in the DCR No. 10805 had remained unpaid and
outstanding, and that he in effect was asking for the physical delivery of the underlying
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private promissory note. Petitioner then examined the original of the DMC PN No. 2731 and found:
respondent Pilipinas Bank ("Pilipinas"). It reads as follows: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that
it had a face value of P2,300,833.33, with the Philfinance as "payee" and private respondent
PILIPINAS BANK Delta Motors Corporation ("Delta") as "maker;" and that on face of the promissory note was
Makati Stock Exchange Bldg., stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of
Ayala Avenue, Makati, participation in respect thereof, to petitioner.
Metro Manila
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again
February 9, 1981 asking private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731.
Pilipinas allegedly referred all of petitioner's demand letters to Philfinance for written
VALUE DATE instructions, as has been supposedly agreed upon in "Securities Custodianship Agreement"
between Pilipinas and Philfinance. Philfinance did not provide the appropriate instructions;
TO Raul Sesbreo Pilipinas never released DMC PN No. 2731, nor any other instrument in respect thereof, to
petitioner.

Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for
the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had
assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to
petitioner on the promissory note, and explained in turn that it had previously agreed with
Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance
PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of
the Securities and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to
the SEC DMC PN No. 2731, which to date apparently remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed on 28
September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu City,
Branch 21, against private respondents Delta and Pilipinas. 5 The trial court, in a decision
dated 5 August 1987, dismissed the complaint and counterclaims for lack of merit and for lack
of cause of action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision
dated 21 March 1989, the Court of Appeals denied the appeal and held: 6
Be that as it may, from the evidence on record, if there is anyone that appears liable for the
travails of plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN
No. 2731 when its entire face value was already obligated or earmarked for set-off or
compensation is difficult to comprehend and may have been motivated with bad faith.
Philfinance, therefore, is solely and legally obligated to return the investment of plaintiff,
together with its earnings, and to answer all the damages plaintiff has suffered incident
thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of the defendants
in this case at bar; hence, this Court is without jurisdiction to pronounce judgement against it.
(p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby
affirmed in toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court
resolved to give due course to the petition and required the parties to file their respective
memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and
contends that respondent court of Appeals gravely erred: (i) in concluding that he cannot
recover from private respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing
to hold private respondent Pilipinas solidarily liable on the DMC PN No. 2731 in view of the
provisions stipulated in DCR No. 10805 issued in favor r of petitioner, and (iii) in refusing to
pierce the veil of corporate entity between Philfinance, and private respondents Delta and
Pilipinas, considering that the three (3) entities belong to the "Silverio Group of Companies"
under the leadership of Mr. Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the
relationship of petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of
Pilipinas. Actually, of course, there is a third relationship that is of critical importance: the
relationship of petitioner and Philfinance. However, since Philfinance has not been impleaded
in this case, neither the trial court nor the Court of Appeals acquired jurisdiction over the
person of Philfinance. It is, consequently, not necessary for present purposes to deal with this
third relationship, except to the extent it necessarily impinges upon or intersects the first and
second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect
of the Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse"
to petitioner, to the extent of P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is
"non-negotiable" as stamped on its face (Exhibit "6"), negotiation being defined as the
transfer of an instrument from one person to another so as to constitute the transferee the
holder of the instrument (Sec. 30, Negotiable Instruments Law). A person not a holder cannot
sue on the instrument in his own name and cannot demand or receive payment (Section 51,
id.) 9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had
been validly transferred, in part to him by assignment and that as a result of such transfer,
Delta as debtor-maker of the Note, was obligated to pay petitioner the portion of that Note
assigned to him by the payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred
by Philfinance as manifested by the word "non-negotiable" stamp across the face of the Note
10 and because maker Delta and payee Philfinance intended that this Note would be offset
against the outstanding obligation of Philfinance represented by Philfinance PN No. 143-A
issued to Delta as payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's
consent, if not against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner was
valid, petitioner took the Note subject to the defenses available to Delta, in particular, the
offsetting of DMC PN No. 2731 against Philfinance PN No. 143-A. 11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an instrument whether that be negotiable or
non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant
statute may be negotiated either by indorsement thereof coupled with delivery, or by
delivery alone where the negotiable instrument is in bearer form. A negotiable instrument
may, however, instead of being negotiated, also be assigned or transferred. The legal
consequences of negotiation as distinguished from assignment of a negotiable instrument
are, of course, different. A non-negotiable instrument may, obviously, not be negotiated; but
it may be assigned or transferred, absent an express prohibition against assignment or
transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee
taking subject to the equities between the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-
transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance
from assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and
which should be quoted in full:
April 10, 1980
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory
Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for
P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A
upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.)
Florencio B. Biagan
Senior Vice President 13
We find nothing in his "Letter of Agreement" which can be reasonably construed as a
prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731, before
the maturity thereof. It is scarcely necessary to add that, even had this "Letter of Agreement"
set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be
invoked against an assignee or transferee of the Note who parted with valuable consideration
in good faith and without notice of such prohibition. It is not disputed that petitioner was
such an assignee or transferee. Our conclusion on this point is reinforced by the fact that
what Philfinance and Delta were doing by their exchange of their promissory notes was this:
Delta invested, by making a money market placement with Philfinance, approximately
P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the bulk of
that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730
and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731
had been effected without the consent of Delta, we note that such consent was not
necessary for the validity and enforceability of the assignment in favor of petitioner. 14
Delta's argument that Philfinance's sale or assignment of part of its rights to DMC PN No.
2731 constituted conventional subrogation, which required its (Delta's) consent, is quite
mistaken. Conventional subrogation, which in the first place is never lightly inferred, 15 must
be clearly established by the unequivocal terms of the substituting obligation or by the
evident incompatibility of the new and old obligations on every point. 16 Nothing of the sort
is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No.
2731 to Philfinance, an entity engaged in the business of buying and selling debt instruments
and other securities, and more generally, in money market transactions. In Perez v. Court of
Appeals, 17 the Court, speaking through Mme. Justice Herrera, made the following important
statement:
There is another aspect to this case. What is involved here is a money market transaction. As
defined by Lawrence Smith "the money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and borrowers do not deal
directly with each other but through a middle manor a dealer in the open market." It involves
"commercial papers" which are instruments "evidencing indebtness of any person or
entity. . ., which are issued, endorsed, sold or transferred or in any manner conveyed to
another person or entity, with or without recourse". The fundamental function of the money
market device in its operation is to match and bring together in a most impersonal manner
both the "fund users" and the "fund suppliers." The money market is an "impersonal market",
free from personal considerations. "The market mechanism is intended to provide quick
mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or entities
concerned. The issuer of a commercial paper in the money market necessarily knows in
advance that it would be expenditiously transacted and transferred to any investor/lender
without need of notice to said issuer. In practice, no notification is given to the borrower or
issuer of commercial paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution in the
Philippine commercial scene. It has been intended to facilitate the flow and acquisition of
capital on an impersonal basis. And as specifically required by Presidential Decree No. 678,
the investing public must be given adequate and effective protection in availing of the credit
of a borrower in the commercial paper market. 18 (Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC
PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the time Philfinance
sold part of its rights under DMC PN No. 2731 to petitioner on 9 February 1981, no
compensation had as yet taken place and indeed none could have taken place. The essential
requirements of compensation are listed in the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This
was explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance,
where Delta acknowledged that the relevant promissory notes were "to be offsetted (sic)
against [Philfinance] PN No. 143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49)
days before the "co-terminal maturity" date, that is to say, before any compensation had
taken place. Further, the assignment to petitioner would have prevented compensation had
taken place between Philfinance and Delta, to the extent of P304,533.33, because upon
execution of the assignment in favor of petitioner, Philfinance and Delta would have ceased
to be creditors and debtors of each other in their own right to the extent of the amount
assigned by Philfinance to petitioner. Thus, we conclude that the assignment effected by
Philfinance in favor of petitioner was a valid one and that petitioner accordingly became
owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him
only on 14 July 1981, 19 that is, after the maturity not only of the money market placement
made by petitioner but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other
words, petitioner notified Delta of his rights as assignee after compensation had taken place
by operation of law because the offsetting instruments had both reached maturity. It is a
firmly settled doctrine that the rights of an assignee are not any greater that the rights of the
assignor, since the assignee is merely substituted in the place of the assignor 20 and that the
assignee acquires his rights subject to the equities i.e., the defenses which the debtor
could have set up against the original assignor before notice of the assignment was given to
the debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by a
creditor in favor of a third person, cannot set up against the assignee the compensation
which would pertain to him against the assignor, unless the assignor was notified by the
debtor at the time he gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the
latter may set up the compensation of debts previous to the cession, but not of subsequent
ones.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had knowledge of
the assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the obligation." In Sison v. Yap-Tico, 21
the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay;
and if he pay before notice that his debt has been assigned, the law holds him exonerated, for
the reason that it is the duty of the person who has acquired a title by transfer to demand
payment of the debt, to give his debt or notice. 22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July
1981, DMC PN No. 2731 had already been discharged by compensation. Since the assignor
Philfinance could not have then compelled payment anew by Delta of DMC PN No. 2731,
petitioner, as assignee of Philfinance, is similarly disabled from collecting from Delta the
portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale
was effected on 9 February 1981. He could have notified Delta as soon as his money market
placement matured on 13 March 1981 without payment thereof being made by Philfinance;
at that time, compensation had yet to set in and discharge DMC PN No. 2731. Again
petitioner could have notified Delta on 26 March 1981 when petitioner received from
Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private
respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta at any
time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and
because the record is bare of any indication that Philfinance had itself notified Delta of the
assignment to petitioner, the Court is compelled to uphold the defense of compensation
raised by private respondent Delta. Of course, Philfinance remains liable to petitioner under
the terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas.
Petitioner contends that Pilipinas became solidarily liable with Philfinance and Delta when
Pilipinas issued DCR No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above
securities fully assigned to you . 23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the
part of Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability
in solidum with Philfinance and Delta under DMC PN No. 2731. We read the DCR as a
confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a
certain face value, to mature on 6 April 1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to
petitioner (9 February 1981), holding that Note on behalf and for the benefit of petitioner, at
least to the extent it had been assigned to petitioner by payee Philfinance; 24
(3) petitioner may inspect the Note either "personally or by authorized
representative", at any time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC
PN No. 2731 (or a participation therein to the extent of P307,933.33) "should this
Denominated Custodianship receipt remain outstanding in [petitioner's] favor thirty (30) days
after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as
converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to
petitioner, either upon maturity thereof or any other time. We note that both in his
complaint and in his testimony before the trial court, petitioner referred merely to the
obligation of private respondent Pilipinas to effect the physical delivery to him of DMC PN No.
2731. 25 Accordingly, petitioner's theory that Pilipinas had assumed a solidary obligation to
pay the amount represented by a portion of the Note assigned to him by Philfinance, appears
to be a new theory constructed only after the trial court had ruled against him. The solidary
liability that petitioner seeks to impute Pilipinas cannot, however, be lightly inferred. Under
article 1207 of the Civil Code, "there is a solidary liability only when the law or the nature of
the obligation requires solidarity," The record here exhibits no express assumption of solidary
liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law
which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of
the custodianship assumed by private respondent Pilipinas necessarily implies solidary
liability under the securities, custody of which was taken by Pilipinas. Accordingly, we are
unable to hold Pilipinas solidarily liable with Philfinance and private respondent Delta under
DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in
respect of petitioner under the terms of the DCR. To the contrary, we find, after prolonged
analysis and deliberation, that private respondent Pilipinas had breached its undertaking
under the DCR to petitioner Sesbreo.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance;
the obligation of the depository was owed, however, to petitioner Sesbreo as beneficiary of
the custodianship or depository agreement. We do not consider that this is a simple case of a
stipulation pour autri. The custodianship or depositary agreement was established as an
integral part of the money market transaction entered into by petitioner with Philfinance.
Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited
that Note with Pilipinas in order that the thing sold would be placed outside the control of
the vendor. Indeed, the constituting of the depositary or custodianship agreement was
equivalent to constructive delivery of the Note (to the extent it had been sold or assigned to
petitioner) to petitioner. It will be seen that custodianship agreements are designed to
facilitate transactions in the money market by providing a basis for confidence on the part of
the investors or placers that the instruments bought by them are effectively taken out of the
pocket, as it were, of the vendors and placed safely beyond their reach, that those
instruments will be there available to the placers of funds should they have need of them.
The depositary in a contract of deposit is obliged to return the security or the thing deposited
upon demand of the depositor (or, in the presented case, of the beneficiary) of the contract,
even though a term for such return may have been established in the said contract. 26
Accordingly, any stipulation in the contract of deposit or custodianship that runs counter to
the fundamental purpose of that agreement or which was not brought to the notice of and
accepted by the placer-beneficiary, cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If
there is any party that needs the equalizing protection of the law in money market
transactions, it is the members of the general public whom place their savings in such market
for the purpose of generating interest revenues. 27 The custodian bank, if it is not related
either in terms of equity ownership or management control to the borrower of the funds, or
the commercial paper dealer, is normally a preferred or traditional banker of such borrower
or dealer (here, Philfinance). The custodian bank would have every incentive to protect the
interest of its client the borrower or dealer as against the placer of funds. The providers of
such funds must be safeguarded from the impact of stipulations privately made between the
borrowers or dealers and the custodian banks, and disclosed to fund-providers only after
trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security
deposited with it when petitioner first demanded physical delivery thereof on 2 April 1981.
We must again note, in this connection, that on 2 April 1981, DMC PN No. 2731 had not yet
matured and therefore, compensation or offsetting against Philfinance PN No. 143-A had not
yet taken place. Instead of complying with the demand of the petitioner, Pilipinas purported
to require and await the instructions of Philfinance, in obvious contravention of its
undertaking under the DCR to effect physical delivery of the Note upon receipt of "written
instructions" from petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should
this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a
defense against petitioner's demand for physical surrender of the Note on at least three
grounds: firstly, such term was never brought to the attention of petitioner Sesbreo at the
time the money market placement with Philfinance was made; secondly, such term runs
counter to the very purpose of the custodianship or depositary agreement as an integral part
of a money market transaction; and thirdly, it is inconsistent with the provisions of Article
1988 of the Civil Code noted above. Indeed, in principle, petitioner became entitled to
demand physical delivery of the Note held by Pilipinas as soon as petitioner's money market
placement matured on 13 March 1981 without payment from Philfinance.

We conclude, therefore, that private respondent Pilipinas must respond to petitioner for
damages sustained by arising out of its breach of duty. By failing to deliver the Note to the
petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully
deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted
from such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for
present purposes. Prima facie, the damages suffered by petitioner consisted of P304,533.33,
the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of
discharge of the Note by compensation, plus legal interest of six percent (6%) per annum
containing from 14 March 1981.

The conclusion we have reached is, of course, without prejudice to such right of
reimbursement as Pilipinas may have vis-a-vis Philfinance.

III.

The third principal contention of petitioner that Philfinance and private respondents Delta
and Pilipinas should be treated as one corporate entity need not detain us for long.

In the first place, as already noted, jurisdiction over the person of Philfinance was never
acquired either by the trial court nor by the respondent Court of Appeals. Petitioner similarly
did not seek to implead Philfinance in the Petition before us.

Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have
been organized as separate corporate entities. Petitioner asks us to pierce their separate
corporate entities, but has been able only to cite the presence of a common Director Mr.
Ricardo Silverio, Sr., sitting on the Board of Directors of all three (3) companies. Petitioner has
neither alleged nor proved that one or another of the three (3) concededly related companies
used the other two (2) as mere alter egos or that the corporate affairs of the other two (2)
were administered and managed for the benefit of one. There is simply not enough evidence
of record to justify disregarding the separate corporate personalities of delta and Pilipinas
and to hold them liable for any assumed or undetermined liability of Philfinance to petitioner.
28

WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in
C.A.-G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby
MODIFIED and SET ASIDE, to the extent that such Decision and Resolution had dismissed
petitioner's complaint against Pilipinas Bank. Private respondent Pilipinas bank is hereby
ORDERED to indemnify petitioner for damages in the amount of P304,533.33, plus legal
interest thereon at the rate of six percent (6%) per annum counted from 2 April 1981. As so
modified, the Decision and Resolution of the Court of Appeals are hereby AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
G.R. No. L-22405 June 30, 1971
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra
and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.
DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint
filed by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and
Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10)
money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon.
After the postal teller had made out money ordersnumbered 124685, 124687-124695,
Montinola offered to pay for them with a private checks were not generally accepted in
payment of money orders, the teller advised him to see the Chief of the Money Order
Division, but instead of doing so, Montinola managed to leave building with his own check
and the ten(10) money orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money
orders, an urgent message was sent to all postmasters, and the following day notice was
likewise served upon all banks, instructing them not to pay anyone of the money orders
aforesaid if presented for payment. The Bank of America received a copy of said notice three
days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received
by appellant as part of its sales receipts. The following day it deposited the same with the
Bank of America, and one day thereafter the latter cleared it with the Bureau of Posts and
received from the latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of
the Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar,
notified the Bank of America that money order No. 124688 attached to his letter had been
found to have been irregularly issued and that, in view thereof, the amount it represented
had been deducted from the bank's clearing account. For its part, on August 2 of the same
year, the Bank of America debited appellant's account with the same amount and gave it
advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action
taken by his office deducting the sum of P200.00 from the clearing account of the Bank of
America, but his request was denied. So was appellant's subsequent request that the matter
be referred to the Secretary of Justice for advice. Thereafter, appellant elevated the matter to
the Secretary of Public Works and Communications, but the latter sustained the actions taken
by the postal officers.
In connection with the events set forth above, Montinola was charged with theft in the Court
of First Instance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the
ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of
Manila praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on September 27, 1961,
deducting from the said Bank's clearing account the sum of P200.00 represented by postal
money order No. 124688, or in the alternative indemnify the plaintiff in the same amount
with interest at 8-% per annum from September 27, 1961, which is the rate of interest being
paid by plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual
and moral damages in the amount of P1,000.00 or in such amount as will be proved and/or
determined by this Honorable Court: exemplary damages in the amount of P1,000.00,
attorney's fees of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at
pages 12 to 15 of the Record on Appeal, the above-named court rendered judgment as
follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the
notice given to the Bank of America on September 27, 1961, deducting from said Bank's
clearing account the sum of P200.00 representing the amount of postal money order No.
124688, or in the alternative, to indemnify the plaintiff in the said sum of P200.00 with
interest thereon at the rate of 8-% per annum from September 27, 1961 until fully paid;
without any pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had
resubmitted the same stipulation of facts, the appealed decision dismissing the complaint,
with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related to
the other and will therefore be discussed jointly. They raise this main issue: that the postal
money order in question is a negotiable instrument; that its nature as such is not in anyway
affected by the letter dated October 26, 1948 signed by the Director of Posts and addressed
to all banks with a clearing account with the Post Office, and that money orders, once issued,
create a contractual relationship of debtor and creditor, respectively, between the
government, on the one hand, and the remitters payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United
States. For this reason, ours are generally construed in accordance with the construction
given in the United States to their own postal statutes, in the absence of any special reason
justifying a departure from this policy or practice. The weight of authority in the United States
is that postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395;
U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in
establishing and operating a postal money order system, the government is not engaging in
commercial transactions but merely exercises a governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders
by postal laws and regulations are inconsistent with the character of negotiable instruments.
For instance, such laws and regulations usually provide for not more than one endorsement;
payment of money orders may be withheld under a variety of circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down
in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for
the redemption of postal money orders received by it from its depositors. Among others, the
condition is imposed that "in cases of adverse claim, the money order or money orders
involved will be returned to you (the bank) and the, corresponding amount will have to be
refunded to the Postmaster, Manila, who reserves the right to deduct the value thereof from
any amount due you if such step is deemed necessary." The conditions thus imposed in order
to enable the bank to continue enjoying the facilities theretofore enjoyed by its depositors,
were accepted by the Bank of America. The latter is therefore bound by them. That it is so is
clearly referred from the fact that, upon receiving advice that the amount represented by the
money order in question had been deducted from its clearing account with the Manila Post
Office, it did not file any protest against such action.

Moreover, not being a party to the understanding existing between the postal officers, on the
one hand, and the Bank of America, on the other, appellant has no right to assail the terms
and conditions thereof on the ground that the letter setting forth the terms and conditions
aforesaid is void because it was not issued by a Department Head in accordance with Sec. 79
(B) of the Revised Administrative Code. In reality, however, said legal provision does not apply
to the letter in question because it does not provide for a department regulation but merely
sets down certain conditions upon the privilege granted to the Bank of Amrica to accept and
pay postal money orders presented for payment at the Manila Post Office. Such being the
case, it is clear that the Director of Posts had ample authority to issue it pursuant to Sec. 1190
of the Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third
and fourth assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby
affirmed with costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and
Villamor, JJ., concur.