1 6 Case

Noel Odrada sold a second-hand Mitsubishi Montero to Toedoro for 1.
5M
Pesos. Having paid initially the amount of P610,000.00, Lim paid Odrada thru
a car loan obtained from financed by RCBC Savings Bank. As a requirement
for approval of the loan, RCBC required Lim to submit the OR and CR of the
vehicle. Because Odrada failed to give the OR/CR, Lim requested RCBC to
write a letter to Odrada, which RCBC did. After the initial payment, Odrada
executed a Deed of Absolute Sale, while Lim took possession of the
Montero. RCBC then delivered to Odrada two managers checks for
P900,000.0 and P13,500. Prior to the checks presentation, Lim wrote Odrada
informing him that there a problem with the roadworthiness of the
vehicle. He invited Odrada to personally check the vehicle and see for
himself the noted defects, and requested him not to deposit the managers
checks.
Odrad did not heed the letter, and instead the managers checks. Both checks
were dishonoured upon Lims instruction to RCBC. Because of the
dishonour, Odrada filed a collection case against both Lim and RCBC. Lim
countered that the cancellation was not done ex parte but thru a letter. RCBC
contended that the dishonour was due to Lims cancellation of the loan.
The RTC ruled in favour of Odrada. It held that the proper party who can ask for the
rescission in the case is Odrada, not Lim, since the former had already complied with
his undertaking under the contract, while Lim failed to pay the payment. The
defective condition of the Montero was not a supervening event that would justify the
dishonour of the checks, which is equivalent to cash, and maybe treated as a
promissory note with the bank as maker. The bank being the party primarily liable for
the check, the court ruled that RCBC was liable to Odrada for the value of the
managers checks.
Both Lim and RCBC appealed to the CA, which however denied their appeal. It ruled
that the two managers checks, which were complete and regular, reached the hands
of Lim who deposited the same in his bank account with Ibank. RCBC knew that the
amount reflected on the managers checks represented Lims payment for the
remaining balance of the Monteros purchase price. The appellate court held that
when RCBC issued the managers checks in favor of Odrada, RCBC admitted the
existence of the payee and his then capacity to endorse, and undertook that on due
presentment the checks which were negotiable instruments would be accepted or paid,
or both according to its tenor. The appellate court held that the effective delivery of
the checks to Odrada made RCBC liable for the checks. It negated RCBCs defense
of want of consideration, finding Odrada a holder in due course of the managers
checks.
The Issue:
Whether or not RCBC is liable for the managers checks.
The Ruling:
The Ruling of this Court
We grant the petition.
Under the law on sales, a contract of sale is perfected the moment there is a meeting
of the minds upon the thing which is the object of the contract and upon the price
which is the consideration. From that moment, the parties may reciprocally demand
performance. Performance may be done through delivery, actual or constructive.
Through delivery, ownership is transferred to the vendee. However, the obligations
between the parties do not cease upon delivery of the subject matter. The vendor and
vendee remain concurrently bound by specific obligations. The vendor, in particular,
is responsible for an implied warranty against hidden defects.
Article 1547 of the Civil Code states: In a contract of sale, unless a contrary intention
appears, there is an implied warranty that the thing shall be free from any hidden
faults or defects. Article 1566 of the Civil Code provides that the vendor is
responsible to the vendee for any hidden faults or defects in the thing sold, even
though he was not aware thereof. As a consequence, the law fixes the liability of the
vendor for hidden defects whether known or unknown to him at the time of the sale.
The law defines a hidden defect as one which would render the thing sold unfit for the
use for which it is intended, or would diminish its fitness for such use to such an
extent that, had the vendee been aware thereof, he would not have acquired it or
would have given a lower price for it.
In this case, Odrada and Lim entered into a contract of sale of the Montero. Following
the initial downpayment and execution of the deed of sale, the Montero was delivered
by Odrada to Lim and the latter took possession of the Montero. Notably, under the
law, Odradas warranties against hidden defects continued even after the Monteros
delivery. Consequently, a misrepresentation as to the Monteros roadworthiness
constitutes a breach of warranty against hidden defects.
In Supercars Management & Development Corporation v. Flores, we held that a

breach of warranty against hidden defects occurred when the vehicle, after it was
delivered to respondent, malfunctioned despite repairs by petitioner. In the present
case, when Lim acquired possession, he discovered that the Montero was not
roadworthy. The engine was misaligned, the automatic transmission was
malfunctioning, and the brake rotor disks needed refacing. However, during the
proceedings in the trial court, Lims testimony was stricken off the record because he
failed to appear during cross-examination. In effect, Lim was not able to present clear
preponderant evidence of the Monteros defective condition.
RCBC May Refuse to Pay Managers Checks
We address the legal question of whether or not the drawee bank of a managers
check has the option of refusing payment by interposing a personal defense of the
purchaser of the managers check who delivered the check to a third party.
In resolving this legal question, this Court will examine the nature of a managers
check and its relation to personal defenses under the Negotiable Instruments Law.
Jurisprudence defines a managers check as a check drawn by the banks manager
upon the bank itself and accepted in advance by the bank by the act of its issuance. It
is really the banks own check and may be treated as a promissory note with the bank
as its maker. Consequently, upon its purchase, the check becomes the primary
obligation of the bank and constitutes its written promise to pay the holder upon
demand. It is similar to a cashiers check both as to effect and use in that the bank
represents that the check is drawn against sufficient funds.
As a general rule, the drawee bank is not liable until it accepts. Prior to a bills
acceptance, no contractual relation exists between the holder and the drawee.
Acceptance, therefore, creates a privity of contract between the holder and the drawee
so much so that the latter, once it accepts, becomes the party primarily liable on the
instrument. Accordingly, acceptance is the act which triggers the operation of the
liabilities of the drawee (acceptor) under Section 62 of the Negotiable Instruments
Law. Thus, once he accepts, the drawee admits the following: (a) existence of the
drawer; (b) genuineness of the drawers signature; (c) capacity and authority of the
drawer to draw the instrument; and (d) existence of the payee and his then capacity to
endorse.
As can be gleaned in a long line of cases decided by this Court, a managers check is
accepted by the bank upon its issuance. As compared to an ordinary bill of exchange
where acceptance occurs after the bill is presented to the drawee, the distinct feature
of a managers check is that it is accepted in advance. Notably, the mere issuance of a
managers check creates a privity of contract between the holder and the drawee bank,
the latter primarily binding itself to pay according to the tenor of its acceptance.
The drawee bank, as a result, has the unconditional obligation to pay a managers
check to a holder in due course irrespective of any available personal defenses.
However, while this Court has consistently held that a managers check is
automatically accepted, a holder other than a holder in due course is still subject to
defenses. In International Corporate Bank v. Spouses Gueco, which involves a
delivered managers check, the Court still considered whether the check had become
stale:
It has been held that, if the check had become stale, it becomes imperative that the
circumstances that caused its non-presentment be determined. In the case at bar, there
is no doubt that the petitioner bank held on the check and refused to encash the same
because of the controversy surrounding the signing of the joint motion to dismiss. We
see no bad faith or negligence in this position taken by the bank.
In International Corporate Bank, this Court considered whether the holder presented
the managers check within a reasonable time after its issuance a circumstance
required for holding the instrument in due course.
Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development
Corporation, the Court observed that the mere issuance of a managers check does
not ipso facto work as an automatic transfer of funds to the account of the payee. In
order for the holder to acquire title to the instrument, there still must have been
effective delivery. Accordingly, the Court, taking exception to the managers check
automatic transfer of funds to the payee, declared that: the doctrine that the deposit
represented by a managers check automatically passes to the payee is inapplicable,
because the instrument although accepted in advance remains undelivered. This
Court ruled that the holder did not acquire the instrument in due course since title had
not passed for lack of delivery.
We now address the main legal question: if the holder of a managers check is not a
holder in due course, can the drawee bank interpose a personal defense of the
purchaser?
Our rulings in Mesina v. Intermediate Appellate Court and United Coconut Planters
Bank v. Intermediate Appellate Court shed light on the matter.
In Mesina, Jose Go purchased a managers check from Associated Bank. As he left
the bank, Go inadvertently left the check on top of the desk of the bank manager. The
bank manager entrusted the check for safekeeping to another bank official who at the
time was attending to a customer named Alexander Lim. After the bank official
answered the telephone and returned from the mens room, the managers check could
no longer be found. After learning that his managers check was missing, Go
immediately returned to the bank to give a stop payment order on the check. A third
party named Marcelo Mesina deposited the managers check with Prudential Bank but
the drawee bank sent back the managers check to the collecting bank with the words
payment stopped. When asked how he obtained the managers check, Mesina
claimed it was paid to him by Lim in a certain transaction.
While this Court acknowledged the general causes and effects of a managers check, it
noted that other factors were needed to be considered, namely the manner by which
Mesina acquired the instrument. This Court declared:
Petitioners allegations hold no water. Theories and examples advanced by petitioner

on causes and effects of a cashiers check such as (1) it cannot be countermanded in
the hands of a holder in due course and (2) a cashiers check is a bill of exchange
drawn by the bank against itself are general principles which cannot be aptly applied
to the case at bar, without considering other things. Petitioner failed to substantiate his
claim that he is a holder in due course and for consideration or value as shown by the
established facts of the case. Admittedly, petitioner became the holder of the cashiers
check as endorsed by Alexander Lim who stole the check. He refused to say how and
why it was passed to him. He had therefore notice of the defect of his title over the
check from the start.
Ultimately, the notice of defect affected Mesinas claim as a holder of the managers
check. This Court ruled that the issuing bank could validly refuse payment
because Mesina was not a holder in due course. Unequivocally, the Court
declared: the holder of a cashiers check who is not a holder in due course
cannot enforce such check against the issuing bank which dishonors the same.
In the same manner, in United Coconut Planters Bank (UCPB), this Court ruled that
the drawee bank was legally justified in refusing to pay the holder of a managers
check who did not hold the check in due course. In UCPB, Altiura Investors, Inc.
purchased a managers check from UCPB, which then issued a managers check in the
amount of Four Hundred Ninety Four Thousand Pesos (P494,000) to Makati Bel-Air
Developers, Inc. The managers check represented the payment of Altiura Investors,
Inc. for a condominium unit it purchased from Makati Bel-Air Developers, Inc.
Subsequently, Altiura Investors, Inc. instructed UCPB to hold payment due to
material misrepresentations by Makati Bel-Air Developers, Inc. regarding the
condominium unit. Pending negotiations; and while the stop payment order was in
effect, Makati Bel-Air Developers, Inc. insisted that UCPB pay the value of the
managers check. UCPB refused to pay and filed an interpleader to allow Altiura
Investors, Inc. and Makati Bel-Air Developers, Inc. to litigate their respective claims.
Makati Bel-Air Developers, Inc. also filed a counterclaim against UCPB in the
amount of Five Million Pesos (P5,000,000) based on UCPBs violation of its warranty
on its managers check.
In upholding UCPBs refusal to pay the value of the managers check, this Court
reasoned that Makati Bel-Air Developers, Inc.s title to the instrument became
defective when there arose a partial failure of consideration. We held that UCPB
could validly invoke a personal defense of the purchaser against Makati Bel-Air
Developers, Inc. because the latter was not a holder in due course of the managers
check:
There are other considerations supporting the conclusion reached by this Court that
respondent appellate court had committed reversible error. Makati Bel-Air was a party
to the contract of sale of an office condominium unit to Altiura, for the payment of
which the managers check was issued. Accordingly, Makati Bel-Air was fully aware,
at the time it had received the managers check, that there was, or had arisen, at least
partial failure of consideration since it was unable to comply with its obligation to
deliver office space amounting to 165 square meters to Altiura. Makati Bel-Air was
also aware that petitioner Bank had been informed by Altiura of the claimed defect in
Makati Bel-Airs title to the managers check or its right to the proceeds thereof. Vis-
a-vis both Altiura and petitioner Bank, Makati Bel-Air was not a holder in due course
of the managers check.
The foregoing rulings clearly establish that the drawee bank of a managers check
may interpose personal defenses of the purchaser of the managers check if the holder
is not a holder in due course. In short, the purchaser of a managers check may validly
countermand payment to a holder who is not a holder in due course. Accordingly, the
drawee bank may refuse to pay the managers check by interposing a personal defense
of the purchaser. Hence, the resolution of the present case requires a determination of
the status of Odrada as holder of the managers checks.
In this case, the Court of Appeals gravely erred when it considered Odrada as a holder
in due course. Section 52 of the Negotiable Instruments Law defines a holder in due
course as one who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it
has been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it. (Emphasis supplied)
To be a holder in due course, the law requires that a party must have acquired the
instrument in good faith and for value.
Good faith means that the person taking the instrument has acted with due honesty
with regard to the rights of the parties liable on the instrument and that at the time
he,took the instrument, the holder has no knowledge of any defect or infirmity of the
instrument. To constitute notice of an infirmity in the instrument or defect in the title
of the person negotiating the same, the person to whom it is negotiated must have had
actual knowledge of the infirmity or defect, or knowledge of such facts that his action
in taking the instrument would amount to bad faith.
Value, on the other hand, is defined as any consideration sufficient to support a simple
contract.
In the present case, Odrada attempted to deposit the managers checks on 16 April
2002, a day after Lim had informed him that there was a serious problem with the
Montero. Instead of addressing the issue, Odrada decided to deposit the managers
checks. Odradas actions do not amount to good faith. Clearly, Odrada failed to make
an inquiry even when the circumstances strongly indicated that there arose, at the very
least, a partial failure of consideration due to the hidden defects of the Montero.
Odradas action in depositing the managers checks despite knowledge of the
Monteros defects amounted to bad faith. Moreover, when Odrada redeposited the
managers checks on 19 April 2002, he was already formally notified by RCBC the
previous day of the cancellation of Lims auto loan transaction.
Following UCPB, RCBC may refuse payment by interposing a personal defense of
Lim that the title of Odrada had become defective when there arose a partial failure
or lack of consideration.
RCBC acted in good faith in following the instructions of Lim. The records show that
Lim notified RCBC of the defective condition of the Montero before Odrada
presented the managers checks. Lim informed RCBC of the hidden defects of the
Montero including a misaligned engine, smashed condenser, crippled bumper support,
and defective transmission. RCBC also received a formal notice of cancellation of the
auto loan from Lim and this prompted RCBC to cancel the managers checks since the
auto loan was the consideration for issuing the managers checks. RCBC acted in
good faith in stopping the payment of the managers checks.
Section 58 of the Negotiable Instruments Law provides: In the hands of any holder
other than a holder in due course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable, x x x. Since Odrada was not a holder in due
course, the instrument becomes subject to personal defenses under the Negotiable
Instruments Law. Hence, RCBC may legally act on a countermand by Lim, the
purchaser of the managers checks.
Lastly, since Lims testimony involving the Monteros hidden defects was stricken off
the record by the trial court, Lim failed to prove the existence of the hidden defects
and thus Lim remains liable to Odrada for the purchase price of the Montero. Lims
failure to file an appeal from the decision of the Court of Appeals made the decision
of the appellate court final and executory as to Lim. RCBC cannot be made liable
because it acted in good faith in carrying out the stop payment order of Lim who
presented to RCBC the complaint letter to Odrada when Lim issued the stop payment
order.
WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26

March 2014 Decision and the 18 June 2015 Resolution of the Court of Appeals in
CA-G.R. CV No. 94890 only insofar as RCBC Savings Bank is concerned.(Citations
omitted. Please click case title to see the original of the court decision)
SO ORDERED.
RCBC SAVINGS BANK v. NOEL M. ODRADA, GR No. 219037, 2016-10-19

Facts:
respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to
Teodoro L. Lim (Lim) for One Million Five Hundred Ten Thousand Pesos (P1,510,000)
(P610,000) was initially paid by Lim and the balance of Nine Hundred Thousand Pesos
(P900,000) was financed by petitioner RCBC Savings Bank (RCBC) through a car loan
RCBC required Lim to submit the original copies of the Certificate of Registration (CR) and
Official Receipt (OR) in his name. Unable to produce the Montero's OR and CR, Lim
requested RCBC to execute a letter addressed to Odrada informing the latter that his
application for a car loan had been approved.
Odrada executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and the latter took
possession of the Montero.
When RCBC received the documents, RCBC issued two manager's checks... for Nine
Hundred Thousand Pesos (P900,000) and Thirteen Thousand Five Hundred Pesos
(P13,500).
After the issuance of the manager's checks and their turnover to Odrada but prior to the
checks' presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was an
issue regarding the roadworthiness of the Montero.
when you open its engine cover there is a trace of a head-on collision
The 4-wheel drive shift is not functioning.
the odometer has still an original mileage data but found tampered.
represented the vehicle as model 1998 however; it is indicated in the front left A-pillar
inscribed at the identification plate [as] model 1997.
please show your sincerity by personally inspecting the said vehicle at RCBC, Pacific Bldg.
Pearl Drive, Ortigas Center, Pasig City.
Odrada... drada did not go to the slated meeting and instead deposited the manager's
checks... checks were dishonored both times apparently upon Lim's instruction to RCBC.
Odrada filed a collection suit[9] against Lim and RCBC
Lim claimed that the cancellation was not done ex parte but through a letter[... the letter was
delivered to Odrada prior to the presentation of the manager's checks to RCBC.
RCBC contended that the manager's checks were dishonored because Lim had cancelled
the loan.
prior to the presentation of the manager's checks.
RCBC also sent a formal notice of cancellation of the loan on 18 April 2002 to both Odrada
and Lim.
trial court ruled in favor of Odrada.
Odrada was the proper party to ask for rescission.
the right of rescission is implied in reciprocal obligations where one party fails to perform
what is incumbent upon him when the other is willing and ready to comply.
it was not proper for Lim to exercise the right of rescission since Odrada had already
complied with the contract of sale by delivering the Montero while Lim remained delinquent
in payment.
the defective condition of the Montero was not a supervening event that would justify the
dishonor of the manager's checks.
a manager's check is equivalent to cash and is really the bank's own check. It may be
treated as a promissory note with the bank as maker.
constitutes a written promise to pay on demand.
Being the party primarily liable, the trial court ruled that RCBC was liable to Odrada for the
value of the manager's checks.
Court of Appeals dismissed the appeal... when RCBC issued the manager's checks in favor
of Odrada, RCBC admitted the existence of the payee and his then capacity to endorse,
and undertook that on due presentment the checks which were negotiable instruments
would be accepted or paid, or both according to its tenor.
RCBC alone[28] filed this petition before the Court. Thus, the decision of the Court of
Appeals became final and executory as to Lim.
Issues:
Whether or not the court a quo erred in holding that Lim cannot cancel the auto loan despite
the failure in consideration due to the contested roadworthiness of the vehicle delivered by
Odrada to him.
Whether or not Lim can validly countermand the manager's checks in the hands of a holder
who does not hold the same in due course.
Ruling:
Principles:
a contract of sale is perfected the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price which is the consideration. From that
moment, the parties may reciprocally demand performance.
However, the obligations between the parties do not cease upon delivery of the subject
matter. The vendor and vendee remain concurrently bound by specific obligations. The
vendor, in particular, is responsible for an implied warranty against hidden defects.
Article 1547 of the Civil Code... e states: "In a contract of sale, unless a contrary intention
appears, there is an implied warranty that the thing shall be free from any hidden faults or
defects."
Article 1566 of the Civil Code provides that "the vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he was not aware thereof."... under
the law, Odrada's warranties against hidden defects continued even after the Montero's
delivery. Consequently, a misrepresentation as to the Montero's roadworthiness constitutes
a breach of warranty against hidden defects.
Supercars Management & Development Corporation v. Flores... a breach of warranty
against hidden defects occurred when the vehicle, after it was delivered to respondent,
malfunctioned despite repairs by petitioner.
when Lim acquired possession, he discovered that the Montero was not roadworthy.
However, during the proceedings in the trial court, Lim's testimony was stricken off the
record because he failed to appear during cross-examination.
Jurisprudence defines a manager's check as a check drawn by the bank's manager upon
the bank itself and accepted in advance by the bank by the act of its issuance.
It is really the bank's own check and may be treated as a promissory note with the bank as
its maker.
upon its purchase, the check becomes the primary obligation of the bank and constitutes its
written promise to pay the holder upon demand
As a general rule, the drawee bank is not liable until it accepts.
Prior to a bill's acceptance, no contractual relation exists between the holder... and the
drawee.
Acceptance,... creates a privity of contract between the holder and the drawee so much so
that the latter, once it accepts, becomes the party primarily liable on the instrument.
acceptance is the act which triggers the operation of the liabilities of the drawee (acceptor)
under Section 62... of the Negotiable Instruments Law... once he accepts, the drawee
admits the following: (a) existence of the drawer; (b) genuineness of the drawer's signature;
(c) capacity and authority of the drawer to draw the instrument; and (d) existence of the
payee and his then capacity to endorse.
a manager's check is accepted by the bank upon its issuance.
the distinct feature of a manager's check is that it is accepted in advance.
the mere issuance of a manager's check creates a privity of contract between the holder
and the drawee bank, the latter primarily binding itself to pay according to the tenor of its
acceptance.
The drawee bank, as a result, has the unconditional obligation to pay a manager's check to
a holder in due course irrespective of any available personal defenses.
However, while this Court has consistently held that a manager's check is automatically
accepted, a holder other than a holder in due course is still subject to defenses.
the mere issuance of a manager's check does not ipso facto work as an automatic transfer
of funds to the account of the payee.
In order for the holder to acquire title to the instrument, there still must have been effective
delivery.
the doctrine that the deposit represented by a manager's check automatically passes to the
payee is inapplicable, because the instrument - although accepted in advance remains
undelivered."[57]... if the holder of a manager's check is not a holder in due course, can the
drawee bank interpose a personal defense of the purchaser?
"the holder of a cashier's check who is not a holder in due course cannot enforce such
check against the issuing bank which dishonors the same."[64]... the purchaser of a
manager's check may validly countermand payment to a holder who is not a holder in due
course. Accordingly, the drawee bank may refuse to pay the manager's check by
interposing a personal defense of the purchaser. Hence, the resolution of the present case
requires a determination of the status of Odrada as holder of the manager's checks.
the Court of Appeals gravely erred when it considered Odrada as a holder in due course.
Section 52 of the Negotiable Instruments Law defines a holder in due course as one who
has taken the instrument under the following conditions:(a) That it is complete and regular
upon its face;(b) That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;(c) That he took it in good faith
and for value;(d) That at the time it was negotiated to him, he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.
To be a holder in due course, the law requires that a party must have acquired the
instrument in good faith and for value.
Good faith means that the person taking the instrument has acted with due honesty with
regard to the rights of the parties liable on the instrument and that at the time he,took the
instrument, the holder has no knowledge of any defect or infirmity of the instrument
To constitute notice of an infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated must have had actual knowledge
of the infirmity or defect, or knowledge of such facts that his action in taking the instrument
would amount to bad faith.
Value, on the other hand, is defined as any consideration sufficient to support a simple
contract.
Odrada attempted to deposit the manager's checks on 16 April 2002, a day after Lim had
informed him that there was a serious problem with the Montero. Instead of addressing the
issue, Odrada decided to deposit the manager's checks. Odrada's actions do not amount to
good faith.
Odrada's action in depositing the manager's checks despite knowledge of the Montero's
defects amounted to bad faith.
Moreover, when Odrada redeposited the manager's checks on 19 April 2002, he was
already formally notified by RCBC the previous day of the cancellation of Lim's auto loan
transaction.
CBC may refuse payment by interposing a personal defense of Lim - that the title of Odrada
had become defective when there arose a partial failure or lack of consideration.
RCBC acted in good faith in following the instructions of Lim. The records show that Lim
notified RCBC of the defective condition of the Montero before Odrada presented the
manager's checks.
RCBC also received a formal notice of cancellation of the auto loan from Lim and this
prompted RCBC to cancel the manager's checks since the auto loan was the consideration
for issuing the manager's checks. RCBC acted in good faith in stopping the payment of the
manager's checks.
Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other
than a holder in due course, a negotiable instrument is subject to the same defenses as if it
were non-negotiable, x x x." Since Odrada was not a holder in due course, the instrument
becomes subject to personal defenses under the Negotiable Instruments Law.
SECOND DIVISION
G.R. No. 219037, October 19, 2016
RCBC SAVINGS BANK, Petitioner, v. NOEL M. ODRADA, Respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1 assailing the 26 March 2014 Decision2 and the 18 June
2015 Resolution3 of the Court of Appeals in CA-G.R. CV No. 94890.
The Facts
In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to
Teodoro L. Lim (Lim) for One Million Five Hundred Ten Thousand Pesos (P1,510,000). Of the total
consideration, Six Hundred Ten Thousand Pesos (P610,000) was initially paid by Lim and the balance of Nine
Hundred Thousand Pesos (P900,000) was financed by petitioner RCBC Savings Bank (RCBC) through a car
loan obtained by Lim.4 As a requisite for the approval of the loan, RCBC required Lim to submit the original
copies of the Certificate of Registration (CR) and Official Receipt (OR) in his name. Unable to produce the
Montero's OR and CR, Lim requested RCBC to execute a letter addressed to Odrada informing the latter that
his application for a car loan had been approved.
On 5 April 2002, RCBC issued a letter that the balance of the loan would be delivered to Odrada upon
submission of the OR and CR. Following the letter and initial down payment, Odrada executed a Deed of
Absolute Sale on 9 April 2002 in favor of Lim and the latter took possession of the Montero.5chan robles law
When RCBC received the documents, RCBC issued two manager's checks dated 12 April 2002 payable to
Odrada for Nine Hundred Thousand Pesos (P900,000) and Thirteen Thousand Five Hundred Pesos
(P13,500).6 After the issuance of the manager's checks and their turnover to Odrada but prior to the checks'
presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was an issue regarding the
roadworthiness of the Montero. The letter states:
chanRoble svirtual Lawlib ra ry
April 15, 2002
Mr. Noel M. Odrada

C/o Kotse Pilipinas
Fronting Ultra, Pasig City
Thru: Shan Mendez;.
Dear Mr. Odrada,
Please be inform[ed] that I am going to cancel or exchange the (1) one unit Montero that you sold to me
thru Mr. Shan Mendez because it did not match your representations the way Mr. Shan Mendez explained to
me like: Cha nRobles Vi rtua lawlib rary
1. You told me that the said vehicle has not experience [d] collision. However, it is hidden, when you open
its engine cover there is a trace of a head-on collision. The condenser is smashed,; the fender support is not
align[ed], both bumper supports] connecting [the] chassis were crippled and welded, the hood support was
repaired, etc.
2. The 4-wheel drive shift is not functioning. When Mr. Mendez was asked about it, he said it would not
function until you can reach the speed of 30 miles.
3. During Mr. Mendez['s] representation, he said the odometer has still an original mileage data but found
tampered.
4. You represented the vehicle as model 1998 however; it is indicated in the front left A-pillar inscribed at
the identification plate [as] model 1997.
Therefore, please show your sincerity by personally inspecting the said vehicle at RCBC, Pacific Bldg. Pearl
Drive, Ortigas Center, Pasig City. Let us meet at the said bank at 10:00 A.M., April 17, 2002.
Meanwhile, kindly hold or do not encash the manager's check[s] issued to you by RCBC until you have
clarified and satisfied my complaints.
Sincerely yours,
Teodoro L. Lim
Cc: Dario E. Santiago, RCBC loan

Legal7
Odrada did not go to the slated meeting and instead deposited the manager's checks with International
Exchange Bank (Ibank) on 16 April 2002 and redeposited them on 19 April 2002 but the checks were
dishonored both times apparently upon Lim's instruction to RCBC.8 Consequently, Odrada filed a collection
suit9 against Lim and RCBC in the Regional Trial Court of Makati.10 chanrobles law
In his Answer,11 Lim alleged that the cancellation of the loan was at his instance, upon discovery of the
misrepresentations by Odrada about the Montero's roadworthiness. Lim claimed that the cancellation was
not done ex parte but through a letter12 dated 15 April 2002.13 He further alleged that the letter was
delivered to Odrada prior to the presentation of the manager's checks to RCBC.14 chanrobles law
On the other hand, RCBC contended that the manager's checks were dishonored because Lim had cancelled
the loan. RCBC claimed that the cancellation of the loan was prior to the presentation of the manager's
checks. Moreover, RCBC alleged that despite notice of the defective condition of the Montero, which
constituted a failure of consideration, Odrada still proceeded with presenting the manager's checks.
It was later disclosed during trial that RCBC also sent a formal notice of cancellation of the loan on 18 April
2002 to both Odrada and Lim.15 chanro bles law
The Regional Trial Court's Ruling
In its Decision16 dated 1 October 2009, the trial court ruled in favor of Odrada. The trial court held that
Odrada was the proper party to ask for rescission.17 The lower court reasoned that the right of rescission is
implied in reciprocal obligations where one party fails to perform what is incumbent upon him when the
other is willing and ready to comply. The trial court ruled that it was not proper for Lim to exercise the right
of rescission since Odrada had already complied with the contract of sale by delivering the Montero while
Lim remained delinquent in payment.18 Since Lim was not ready, willing, and able to comply with the
contract of sale, he was not the proper party entitled to rescind the contract.
The trial court ruled that the defective condition of the Montero was not a supervening event that would
justify the dishonor of the manager's checks. The trial court reasoned that a manager's check is equivalent
to cash and is really the bank's own check. It may be treated as a promissory note with the bank as maker.
Hence, the check becomes the primary obligation of the bank which issued it and constitutes a written
promise to pay on demand.19 Being the party primarily liable, the trial court ruled that RCBC was liable to
Odrada for the value of the manager's checks.
Finally, the trial court found that Odrada suffered sleepless nights, humiliation, and was constrained to hire
the services of a lawyer meriting the award of damages.20 chan roble slaw
The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered: ChanRo bles Vi rtual awlib rary
(a) Directing defendant RCBC to pay plaintiff the amount of Php 913,500.00 representing the cash
equivalent of the two (2) manager's checks, plus 12% interest from the date of filing of the case until fully
paid;
(b) Directing defendants to solidarity pay moral damages in the amount of Php 500,000.00 and exemplary
damages in the amount of Php 500,000.00;
(c) Directing defendants to solidarity pay attorney's fees in the amount of Php 300,000.00.
Finally, granting the cross-claim of defendant RCBC, Teodoro L. Lim is hereby directed to indemnify RCBC
Savings Bank for the amount adjudged for it to pay plaintiff.
SO ORDERED.21
RCBC and Lim appealed from the trial court's decision.
The Court of Appeals' Ruling
In its assailed 26 March 2014 Decision, the Court of Appeals dismissed the appeal and affirmed the trial
court's 1 October 2009 Decision.
The Court of Appeals ruled that the two manager's checks, which were complete and regular, reached the
hands of Lim who deposited the same in his bank account with Ibank. RCBC knew that the amount reflected
on the manager's checks represented Lim's payment for the remaining balance of the Montero's purchase
price. The appellate court held that when RCBC issued the manager's checks in favor of Odrada, RCBC
admitted the existence of the payee and his then capacity to endorse, and undertook that on due
presentment the checks which were negotiable instruments would be accepted or paid, or both according to
its tenor.22 The appellate court held that the effective delivery of the checks to Odrada made RCBC liable for
the checks.23 chanrob leslaw
On RCBC's defense of want of consideration, the Court of Appeals affirmed the finding of the trial court that
Odrada was a holder in due course. The appellate court ruled that the defense of want of consideration is
not available against a holder in due course.24 cha nrob leslaw
Lastly, the Court of Appeals found that the award of moral and exemplary damages and attorney's fees was
excessive. Hence, modification was proper.
The dispositive portion of the Decision reads:

WHEREFORE, the impugned Decision of the court a quo in Civil Case No. 02-453 is hereby AFFIRMED with
MODIFICATION insofar as the reduction of awards for moral, exemplary damages and attorney's fees to
P50,000.00, P20,000.00, and P20,000.00 respectively.
SO ORDERED.25 cralawred
RCBC and Lim filed a motion for reconsideration26 on 28 April 2014. In its 18 June 2015 Resolution, the
Court of Appeals denied the motion for lack of merit.27 chan roble slaw
RCBC alone28 filed this petition before the Court. Thus, the decision of the Court of Appeals became final and
executory as to Lim.
The Issues
RCBC presented the following, issues in this petition:

A. The court a quo gravely erred in finding that as between Odrada as seller and Lim as buyer of the vehicle,
only the former has the right to rescind the contract of sale finding failure to perform an obligation under the
contract of sale on the part of the latter only despite the contested roadworthiness of the vehicle, subject
matter of the sale.
1. Whether or not the court a quo erred in holding that Lim cannot cancel the auto loan despite the failure in
consideration due to the contested roadworthiness of the vehicle delivered by Odrada to him.29
B. The court a quo gravely erred when it found that Odrada is a holder in due course of the manager's
checks in question despite being informed of the cancellation of the auto loan by the borrower, Lim.
1. Whether or not Lim can validly countermand the manager's checks in the hands of a holder who does not
hold the same in due course.30
Odrada failed to file a comment31 within the period prescribed by this Court.32chan roble slaw
The Ruling of this Court
Under the law on sales, a contract of sale is perfected the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price which is the consideration. From that moment,
the parties may reciprocally demand performance.33 Performance may be done through delivery, actual or
constructive. Through delivery, ownership is transferred to the vendee.34However, the obligations between
the parties do not cease upon delivery of the subject matter. The vendor and vendee remain concurrently
bound by specific obligations. The vendor, in particular, is responsible for an implied warranty against
hidden defects.
Article 1547 of the Civil Code states: "In a contract of sale, unless a contrary intention appears, there is an
implied warranty that the thing shall be free from any hidden faults or defects."35 Article 1566 of the Civil
Code provides that "the vendor is responsible to the vendee for any hidden faults or defects in the thing
sold, even though he was not aware thereof."36 As a consequence, the law fixes the liability of the vendor for
hidden defects whether known or unknown to him at the time of the sale.
The law defines a hidden defect as one which would render the thing sold unfit for the use for which it is
intended, or would diminish its fitness for such use to such an extent that, had the vendee been aware
thereof, he would not have acquired it or would have given a lower price for it.37 chan roble slaw
In this case, Odrada and Lim entered into a contract of sale of the Montero. Following the initial
downpayment and execution of the deed of sale, the Montero was delivered by Odrada to Lim and the latter
took possession of the Montero. Notably, under the law, Odrada's warranties against hidden defects
continued even after the Montero's delivery. Consequently, a misrepresentation as to the Montero's
roadworthiness constitutes a breach of warranty against hidden defects.
In Supercars Management & Development Corporation v. Flores,38 we held that a breach of warranty against
hidden defects occurred when the vehicle, after it was delivered to respondent, malfunctioned despite
repairs by petitioner.39 In the present case, when Lim acquired possession, he discovered that the Montero
was not roadworthy. The engine was misaligned, the automatic transmission was malfunctioning, and the
brake rotor disks needed refacing.40 However, during the proceedings in the trial court, Lim's testimony was
stricken off the record because he failed to appear during cross-examination.41 In effect, Lim was not able to
present clear preponderant evidence of the Montero's defective condition.
RCBC May Refuse to Pay Manager's Checks
We address the legal question of whether or not the drawee bank of a manager's check has the option of
refusing payment by interposing a personal defense of the purchaser of the manager's check who delivered
the check to a third party.
In resolving this legal question, this Court will examine the nature of a manager's check and its relation to
personal defenses under the Negotiable Instruments Law.42 chanrobles law
Jurisprudence defines a manager's check as a check drawn by the bank's manager upon the bank itself and
accepted in advance by the bank by the act of its issuance.43 It is really the bank's own check and may be
treated as a promissory note with the bank as its maker.44 Consequently, upon its purchase, the check
becomes the primary obligation of the bank and constitutes its written promise to pay the holder upon
demand.45 It is similar to a cashier's check46 both as to effect and use in that the bank represents that the
check is drawn against sufficient funds.47 chanro bleslaw
As a general rule, the drawee bank is not liable until it accepts.48 Prior to a bill's acceptance, no contractual
relation exists between the holder49 and the drawee. Acceptance, therefore, creates a privity of contract
between the holder and the drawee so much so that the latter, once it accepts, becomes the party primarily
liable on the instrument.50 Accordingly, acceptance is the act which triggers the operation of the liabilities of
the drawee (acceptor) under Section 6251of the Negotiable Instruments Law. Thus, once he accepts, the
drawee admits the following: (a) existence of the drawer; (b) genuineness of the drawer's signature; (c)
capacity and authority of the drawer to draw the instrument; and (d) existence of the payee and his then
capacity to endorse.
As can be gleaned in a long line of cases decided by this Court, a manager's check is accepted by the bank
upon its issuance. As compared to an ordinary bill of exchange where acceptance occurs after the bill is
presented to the drawee, the distinct feature of a manager's check is that it is accepted in advance. Notably,
the mere issuance of a manager's check creates a privity of contract between the holder and the drawee
bank, the latter primarily binding itself to pay according to the tenor of its acceptance.
The drawee bank, as a result, has the unconditional obligation to pay a manager's check to a holder in due
course irrespective of any available personal defenses. However, while this Court has consistently held that
a manager's check is automatically accepted, a holder other than a holder in due course is still subject to
defenses. In International Corporate Bank v. Spouses Gueco,52 which involves a delivered manager's check,
the Court still considered whether the check had become stale:
It has been held that, if the check had become stale, it becomes imperative that the circumstances that
caused its non-presentment be determined. In the case at bar, there is no doubt that the petitioner bank
held on the check and refused to encash the same because of the controversy surrounding the signing of the
joint motion to dismiss. We see no bad faith or negligence in this position taken by the bank.53
In International Corporate Bank, this Court considered whether the holder presented the manager's check
within a reasonable time after its issuance - a circumstance required for holding the instrument in due
course.54 chan robles law
Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation,55 the Court observed
that the mere issuance of a manager's check does not ipso facto work as an automatic transfer of funds to
the account of the payee.56 In order for the holder to acquire title to the instrument, there still must have
been effective delivery. Accordingly, the Court, taking exception to the manager's check automatic transfer
of funds to the payee, declared that: "the doctrine that the deposit represented by a manager's check
automatically passes to the payee is inapplicable, because the instrument - although accepted in advance
remains undelivered."57 This Court ruled that the holder did not acquire the instrument in due course since
title had not passed for lack of delivery.58 chan roble slaw
We now address the main legal question: if the holder of a manager's check is not a holder in due course,
can the drawee bank interpose a personal defense of the purchaser?
Our rulings in Mesina v. Intermediate Appellate Court59 and United Coconut Planters Bank v. Intermediate
Appellate Court60 shed light on the matter.
In Mesina, Jose Go purchased a manager's check from Associated Bank. As he left the bank, Go
inadvertently left the check on top of the desk of the bank manager. The bank manager entrusted the check
for safekeeping to another bank official who at the time was attending to a customer named Alexander
Lim.61 After the bank official answered the telephone and returned from the men's room, the manager's
check could no longer be found. After learning that his manager's check was missing, Go immediately
returned to the bank to give a stop payment order on the check. A third party named Marcelo Mesina
deposited the manager's check with Prudential Bank but the drawee bank sent back the manager's check to
the collecting bank with the words "payment stopped." When asked how he obtained the manager's check,
Mesina claimed it was paid to him by Lim in a "certain transaction."62 chanroble slaw
While this Court acknowledged the general causes and effects of a manager's check, it noted that other
factors were needed to be considered, namely the manner by which Mesina acquired the instrument. This
Court declared:
Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and effects
of a cashier's check such as (1) it cannot be countermanded in the hands of a holder in due course and (2) a
cashier's check is a bill of exchange drawn by the bank against itself - are general principles which cannot be
aptly applied to the case at bar, without considering other things. Petitioner failed to substantiate his claim
that he is a holder in due course and for consideration or value as shown by the established facts of the
case. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who
stole the check. He refused to say how and why it was passed to him. He had therefore notice of the defect
of his title over the check from the start.63
Ultimately, the notice of defect affected Mesina's claim as a holder of the manager's check. This Court
ruled that the issuing bank could validly refuse payment because Mesina was not a holder in due
course. Unequivocally, the Court declared: "the holder of a cashier's check who is not a holder in due
course cannot enforce such check against the issuing bank which dishonors the same."64 chanro bleslaw
In the same manner, in United Coconut Planters Bank (UCPB),65 this Court ruled that the drawee bank was
legally justified in refusing to pay the holder of a manager's check who did not hold the check in due course.
In UCPB, Altiura Investors, Inc. purchased a manager's check from UCPB, which then issued a manager's
check in the amount of Four Hundred Ninety Four Thousand Pesos (P494,000) to Makati Bel-Air Developers,
Inc. The manager's check represented the payment of Altiura Investors, Inc. for a condominium unit it
purchased from Makati Bel-Air Developers, Inc. Subsequently, Altiura Investors, Inc. instructed UCPB to hold
payment due to material misrepresentations by Makati Bel-Air Developers, Inc. regarding the condominium
unit.66 Pending negotiations; and while the stop payment order was in effect, Makati Bel-Air Developers, Inc.
insisted that UCPB pay the value of the manager's check. UCPB refused to pay and filed an interpleader to
allow Altiura Investors, Inc. and Makati Bel-Air Developers, Inc. to litigate their respective claims. Makati
Bel-Air Developers, Inc. also filed a counterclaim against UCPB in the amount of Five Million Pesos
(P5,000,000) based on UCPB's violation of its warranty on its manager's check.67 chanrobles law
In upholding UCPB's refusal to pay the value of the manager's check, this Court reasoned that Makati Bel-Air
Developers, Inc.'s title to the instrument became defective when there arose a partial failure of
consideration.68 We held that UCPB could validly invoke a personal defense of the purchaser against Makati
Bel-Air Developers, Inc. because the latter was not a holder in due course of the manager's check:
There are other considerations supporting the conclusion reached by this Court that respondent appellate
court had committed reversible error. Makati Bel-Air was a party to the contract of sale of an office
condominium unit to Altiura, for the payment of which the manager's check was issued. Accordingly, Makati
Bel-Air was fully aware, at the time it had received the manager's check, that there was, or had arisen, at
least partial failure of consideration since it was unable to comply with its obligation to deliver office space
amounting to 165 square meters to Altiura. Makati Bel-Air was also aware that petitioner Bank had been
informed by Altiura of the claimed defect in Makati Bel-Air's title to the manager's check or its right to the
proceeds thereof. Vis-a-vis both Altiura and petitioner Bank, Makati Bel-Air was not a holder in due course of
the manager's check.69
The foregoing rulings clearly establish that the drawee bank of a manager's check may interpose personal
defenses of the purchaser of the manager's check if the holder is not a holder in due course. In short, the
purchaser of a manager's check may validly countermand payment to a holder who is not a holder in due
course. Accordingly, the drawee bank may refuse to pay the manager's check by interposing a personal
defense of the purchaser. Hence, the resolution of the present case requires a determination of the status of
Odrada as holder of the manager's checks.
In this case, the Court of Appeals gravely erred when it considered Odrada as a holder in due course.
Section 52 of the Negotiable Instruments Law defines a holder in due course as one who has taken the
instrument under the following conditions:
(b) That he became the holder of it before it was overdue, and without notice that it has been previously
dishonored, if such was the fact;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it. (Emphasis supplied)
To be a holder in due course, the law requires that a party must have acquired the instrument in good
faith and for value.
Good faith means that the person taking the instrument has acted with due honesty with regard to the
rights of the parties liable on the instrument and that at the time he,took the instrument, the holder has no
knowledge of any defect or infirmity of the instrument.70 To constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated
must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in
taking the instrument would amount to bad faith.71 chanrobles law
Value, on the other hand, is defined as any consideration sufficient to support a simple contract.72chanroble slaw
In the present case, Odrada attempted to deposit the manager's checks on 16 April 2002, a day after Lim
had informed him that there was a serious problem with the Montero. Instead of addressing the issue,
Odrada decided to deposit the manager's checks. Odrada's actions do not amount to good faith. Clearly,
Odrada failed to make an inquiry even when the circumstances strongly indicated that there arose, at the
very least, a partial failure of consideration due to the hidden defects of the Montero. Odrada's action in
depositing the manager's checks despite knowledge of the Montero's defects amounted to bad faith.
Moreover, when Odrada redeposited the manager's checks on 19 April 2002, he was already formally
notified by RCBC the previous day of the cancellation of Lim's auto loan transaction. Following UCPB,73 RCBC
may refuse payment by interposing a personal defense of Lim - that the title of Odrada had become
defective when there arose a partial failure or lack of consideration.74
chan roble slaw
RCBC acted in good faith in following the instructions of Lim. The records show that Lim notified RCBC of the
defective condition of the Montero before Odrada presented the manager's checks.75Lim informed RCBC of
the hidden defects of the Montero including a misaligned engine, smashed condenser, crippled bumper
support, and defective transmission. RCBC also received a formal notice of cancellation of the auto loan from
Lim and this prompted RCBC to cancel the manager's checks since the auto loan was the consideration for
issuing the manager's checks. RCBC acted in good faith in stopping the payment of the manager's checks.
Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a holder in
due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable, x x x."
Since Odrada was not a holder in due course, the instrument becomes subject to personal defenses under
the Negotiable Instruments Law. Hence, RCBC may legally act on a countermand by Lim, the purchaser of
the manager's checks.
Lastly, since Lim's testimony involving the Montero's hidden defects was stricken off the record by the trial
court, Lim failed to prove the existence of the hidden defects and thus Lim remains liable to Odrada for the
purchase price of the Montero. Lim's failure to file an appeal from the decision of the Court of Appeals made
the decision of the appellate court final and executory as to Lim. RCBC cannot be made liable because it
acted in good faith in carrying out the stop payment order of Lim who presented to RCBC the complaint
letter to Odrada when Lim issued the stop payment order.
WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26 March 2014 Decision and the
18 June 2015 Resolution of the Court of Appeals in CA-G.R. CV No. 94890 only insofar as RCBC Savings
Bank is concerned.
LEONARDO-DE CASTRO, J.:

The three consolidated petitions herein all assail the Decision[1] of the Court
of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the
Resolution[2] in the same case dated November 6, 2006.
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading

for several years. He usually buys dollars from Gonzalo B. Nuguid (Nuguid)
at the exchange rate prevailing on the date of the sale. Chiok pays Nuguid
either in cash or manager's check, to be picked up by the latter or deposited
in the latter's bank account. Nuguid delivers the dollars either on the same
day or on a later date as may be agreed upon between them, up to a week
later. Chiok and Nuguid had been dealing in this manner for about six to
eight years, with their transactions running into millions of pesos. For this
purpose, Chiok maintained accounts with petitioners Metropolitan Bank
and Trust Company (Metrobank) and Global Business Bank, Inc.
(Global Bank), the latter being then referred to as the Asian Banking
Corporation (Asian Bank). Chiok likewise entered into a Bills Purchase Line
Agreement (BPLA) with Asian Bank. Under the BPLA, checks drawn in
favor of, or negotiated to, Chiok may be purchased by Asian Bank. Upon
such purchase, Chiok receives a discounted cash equivalent of the amount
of the check earlier than the normal clearing period.
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased"

Security Bank & Trust Company (SBTC) Manager's Check (MC) No. 037364
in the amount of P25,500,000.00 issued in the name of Chiok, and credited
the same amount to the latter's Savings Account No. 2-007-03-00201-3.
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the
amount of P7,550,000.00 and MC No. 025939 in the amount of
P10,905,350.00 to Gonzalo Bernardo, who is the same person as Gonzalo
B. Nuguid. The two Asian Bank manager's checks, with a total value of
P18,455,350.00 were issued pursuant to Chiok's instruction and was
debited from his account. Likewise upon Chiok's
application, Metrobank issued Cashier's Check (CC) No. 003380 in the
amount of P7,613,000.00 in the name of Gonzalo Bernardo. The same was
debited from Chiok's Savings Account No. 154-42504955. The checks
bought by Chiok for payee Gonzalo Bernardo are therefore summarized as
follows:
Drawee Bank/Check No. Amount (P) Source of fund

Chiok's Asian Bank
Savings Account No. 2-
007-03-00201-3, which had
been credited with the value
Asian Bank MC No. of SBTC MC No.
7,550,000.00
025935 037364 (P25,500,000.00)
when the latter was
purchased by Asian Bank
from Chiok pursuant to their
BPLA.
Asian Bank MC No. (aggregate value of Asian
10,905,350.00
025939 Bank MCs: 18,455,350.00)
Chiok's Metrobank
Metrobank CC No.
7,613,000.00Savings Account No. 154-
003380
42504955[3]
TOTAL 26,068,350.00
Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and
025939, and Metrobank CC No. 003380), with an aggregate value of
P26,068,350.00 in Nuguid's account with Far East Bank & Trust Company
(FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine
Islands (BPI). Nuguid was supposed to deliver US$1,022,288.50,[4] the
dollar equivalent of the three checks as agreed upon, in the afternoon of the
same day. Nuguid, however, failed to do so, prompting Chiok to request
that payment on the three checks be stopped. Chiok was allegedly advised
to secure a court order within the 24-hour clearing period.
On the following day, July 6, 1995, Chiok filed a Complaint for damages
with application for ex parte restraining order and/or preliminary
injunction with the Regional Trial Court (RTC) of Quezon City against the
spouses Gonzalo and Marinella Nuguid, and the depositary banks, Asian
Bank and Metrobank, represented by their respective managers, Julius de
la Fuente and Alice Rivera. The complaint was docketed as Civil Case No.
Q-95-24299 and was raffled to Branch 96. The complaint was later
amended[5] to include the prayer of Chiok to be declared the legal owner of
the proceeds of the subject checks and to be allowed to withdraw the entire
proceeds thereof.
On the same day, July 6, 1995, the RTC issued a temporary

restraining order (TRO) directing the spouses Nuguid to
refrain from presenting the said checks for payment and the
depositary banks from honoring the same until further orders from
the court.[6]
Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to

the TRO. Metrobank claimed that when it received the TRO on July 6, 1995,
it refused to honor CC No. 003380 and stopped payment thereon.
However, in a letter also dated July 6, 1995, Ms. Jocelyn T. Paz of FEBTC,
Cubao-Araneta Branch informed Metrobank that the TRO was issued a day
after the check was presented for payment. Thus, according to Paz, the
transaction was already consummated and FEBTC had already validly
accepted the same. In another letter, FEBTC informed Metrobank that "the
restraining order indicates the name of the payee of the check as GONZALO
NUGUID, but the check is in fact payable to GONZALO BERNARDO. We
believe there is a defect in the restraining order and as such should not bind
your bank."[7] Alice Rivera of Metrobank replied to said letters, reiterating
Metrobank's position to comply with the TRO lest it be cited for contempt
by the trial court. However, as would later be alleged in Metrobank's
Answer before the trial court, Metrobank eventually acknowledged the
check when it became clear that nothing more can be done to retrieve the
proceeds of the check. Metrobank furthermore claimed that since it is the
issuer of CC No. 003380, the check is its primary obligation and should not
be affected by any prior transaction between the purchaser (Chiok) and the
payee (Nuguid).
In the meantime, FEBTC, as the collecting bank, filed a complaint against

Asian Bank before the Philippine Clearing House Corporation (PCHC)
Arbitration Committee for the collection of the value of Asian Bank MC No.
025935 and 025939, which FEBTC had allegedly allowed Nuguid to
withdraw on July 5, 1995, the same day the checks were deposited. The case
was docketed as Arbicom Case No. 95-082. The PCHC Arbitration
Committee later relayed, in a letter dated August 4, 1995, its refusal to
assume jurisdiction over the case on the ground that any step it may take
might be misinterpreted as undermining the jurisdiction of the RTC over
the case or a violation of the July 6, 1995 TRO.
On July 25, 1995, the RTC issued an Order directing the issuance of
a writ of preliminary prohibitory injunction:
WHEREFORE, upon filing by the plaintiff of a sufficient bond in the

amount of P26,068,350.00, to be executed in favor of the defendants under
the condition that the same shall answer for whatever damages they may
sustain by reason of this injunction should the Court ultimately determine
that he was not entitled thereto, let a writ of preliminary prohibitory
injunction issue restraining and preventing during the pendency of the
case:
a) Defendant Asian Bank from paying Manager's Checks No. 025935 in the
amount of P7,550,000.00 and No. 025939 in the amount of
P10,905,350.00; and
b) Defendant Metro Bank from paying Cashier's Check No. 003380 in the
amount of P7,613,000.00.
The application for preliminary mandatory injunction is hereby denied

and the order issued on July 7, 1995 directing defendant Metro Bank
(Annapolis, Greenhills Branch) to allow the plaintiff to withdraw the
proceeds of Cashier's Check No. 003380 in the amount of P7,613,000.00 is
hereby set aside.
The plaintiff's urgent motion to declare defendants Asian Bank and Metro
Bank in contempt of court filed last July 13, 1995 is hereby denied for lack
of legal basis.
The writ of preliminary prohibitory injunction and a copy of this order shall
be served on the defendants by Deputy Sheriff Jose Martinez of this
Branch.[8]
Upon the filing by Chiok of the requisite bond, the Writ was subsequently
issued on July 26, 1995.
Before the RTC, Asian Bank pointed out that SBTC returned and issued a
Stop Payment Order on SBTC MC No. 037364 (payable to Chiok in the
amount of P25,500,000.00) on the basis of an Affidavit of Loss &
Undertaking executed by a certain Helen Tan. Under said Affidavit of Loss
& Undertaking, Tan claims that she purchased SBTC MC No. 037364 from
SBTC, but the manager's check got lost on that day. Asian Bank argued that
Chiok would therefore be liable for the dishonor of the manager's check
under the terms of the BPLA, which provides for recourse against the seller
(Chiok) of the check when it is dishonored by the drawee (SBTC) for any
reason, whether valid or not.
On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case

No. Q-95-24299. On February 6, 1996, the RTC initially denied FEBTC's
intervention in the case. On Motion for Reconsideration, however, the RTC,
on April 15, 1996, reversed itself and allowed the same.
In the Complaint-in-Intervention, FEBTC claimed that it allowed the

immediate withdrawal of the proceeds of Asian Bank MC Nos. 025935 and
025939 on the ground that, as manager's checks, they were the direct
obligations of Asian Bank and were accepted in advance by Asian Bank by
the mere issuance thereof. FEBTC presented the checks for payment on
July 5, 1995 through the PCHC. Asian Bank, as admitted in its Answer
before the RTC, received the same on that day. Consequently, Asian Bank
was deemed to have confirmed and booked payment of the subject checks
in favor of FEBTC or, at the latest, during the first banking hour of July 6,
1995, when payment should have been made. FEBTC claimed that Asian
Bank exhibited bad faith when, in anticipation of the TRO, it opted to float
the checks until it received the TRO at 12:00 noon of July 6, 1995 to justify
the nonpayment thereof.
In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had
delivered much more dollars than what was required for the three checks at
the time of payment. By way of special affirmative defense, the spouses
Nuguid also claims that since the subject checks had already been paid to
him, Chiok is no longer entitled to an injunction (to hold the payment of the
subject checks), and Civil Case No. Q-95-24299 has already become moot.
On August 29, 2002, the RTC rendered its Decision, the dispositive portion
of which states:
WHEREFORE, judgment is rendered:
1. Declaring as permanent the writ of preliminary injunction issued under

the Order of July 25, 1995;
2. Ordering Global Business Bank, Inc. to pay the plaintiff [Chiok]:
a.) The amount of P34,691,876.71 (less the attorney's fees of P255,000.00

which shall remain with Global Business Bank, Inc.), plus interest at the
legal rate of 12%/p.a. from September 30, 1999 until fully paid;
b.) The amount of P215,000.00, representing the excess amount debited

from the plaintiff's deposit in his account with Global Business Bank, Inc.
on July 7, 1995, plus interest of 12%/p.a. from July 7, 1995, until fully paid;
c.) Attorney's fees equivalent of 5% of the total amount due; and

3. Ordering Metropolitan Bank & Trust Company to pay the plaintiff:
a. The amount of his deposit of P7,613,000.00, plus interest of 12%/p.a.

from July 5, 1995 until said amount is fully paid; and
b. Attorney's fees of 5% of the total amount due;

4. Ordering Spouses Gonzalo B. Nuguid and Marinella O.
Nuguid liable jointly and severally with Global Business Bank,
Inc. and Metropolitan Bank & Trust Company, Inc. for the
respective attorney's fees;
5. Dismissing the complaint-in-intervention of BPI for lack of merit;
6. Ordering the defendants and the intervenor to pay, jointly and

severally, the costs of suit.[9] (Emphases supplied.)
The RTC held that Nuguid failed to prove the delivery of dollars to Chiok.
According to the RTC, Nuguid's claim that Chiok was still liable for seven
dishonored China Banking Corporation (CBC) checks with a total worth of
P72,984,020.00 is highly doubtful since such claim was not presented as a
counterclaim in the case. Furthermore, the court ruled that the certification
of CBC stating the reasons[10] for the stop payment order "are indicative of
Chiok's non-liability to Nuguid." The RTC further noted that there was a
criminal case filed by Chiok against Nuguid on March 29, 1996 for estafa
and other deceit on account of Nuguid's alleged failure to return the
originals of the seven CBC checks.[11]
The RTC went on to rule that manager's checks and cashier's checks may be
the subject of a Stop Payment Order from the purchaser on the basis of the
payee's contractual breach. As explanation for this ruling, the RTC adopted
its pronouncements when it issued the July 25, 1995 Order:
Defendant Nuguid's argument that the injunction could

render manager's and cashier's checks unworthy of the faith they should
have and could impair their nature as independent undertakings of the
issuing banks is probably an undistinguished simplification. While the
argument may be applicable to such checks in general, it does not
adequately address the situation, as here, when specific
manager's and cashier's checks are already covered by reciprocal
undertakings between their purchaser and their payee, in which the latter
allegedly failed to perform. The agreement herein was supposedly one in
which Nuguid would deliver the equivalent amount in US dollars
($1,022,288.23) "on the same date" that the plaintiff purchased and
delivered themanager's and cashier's checks (P26,068,350.00). Assuming
that such a reciprocity was true, the purchaser should have the legal
protection of the injunctive writ (which, after all, the legal departments of
the issuing banks themselves allegedly advised the plaintiff to obtain),
since the usual order or instruction to stop payment available in case of
ordinary checks did not avail. This was probably the reason that Asian Bank
has expressly announced in its own comment/opposition of July 14, 1995
that it was not opposing the application for the prohibitory injunction.
The dedication of such checks pursuant to

specific reciprocal undertakings between their purchasers and payees
authorizes rescission by the former to prevent substantial and material
damage to themselves, which authority includes stopping the payment of
the checks.[12]
According to the RTC, both manager's and cashier's checks are still subject
to regular clearing under the regulations of the Bangko Sentral ng Pilipinas.
Since manager's and cashier's checks are the subject of regular clearing,
they may consequently be refused for cause by the drawee, which refusal is
in fact provided for in the PCHC Rule Book.
The RTC found the argument by BPI that the manager's and cashier's
checks are pre-cleared untenable under Section 60 of the New Central Bank
Act and Article 1249 of the Civil Code, which respectively provides:
Section 60. Legal Character. Checks representing demand deposits do not

have legal tender power and their acceptance in the payment of debts, both
public and private, is at the option of the creditor; Provided, however, that
a check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an amount equal
to the amount credited to his account.
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or

other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be
held in the abeyance.
The RTC went on to rule that due to the timely service of the TRO and the
injunction, the value of the three checks remained with Global Bank and
Metrobank.[13] The RTC concluded that since Nuguid did not have a valid
title to the proceeds of the manager's and cashier's checks, Chiok is entitled
to be paid back everything he had paid to the drawees for the checks.[14]
With respect to Global Bank, the RTC ruled that the entire amount of
P34,691,876.71 it recovered from SBTC from the September 15, 1997 PCHC
Decision, as reflected in the September 29, 1999 Charge Slip No. 114977,
less the sum of P225,000.00 awarded by the arbitration committee's
decision as attorney's fees, should be paid to Chiok, with interest at 12% per
annum from September 30, 1999 until full payment. The RTC likewise
ordered Global Bank to pay Chiok the amount of P215,390.00, an amount
debited from Chiok's account as payment for outstanding bills purchase.[15]
With respect to Metrobank, the RTC ruled that it should pay Chiok
P7,613,000.00, the amount paid by Chiok to purchase the CC, plus interest
of 12 percent per annum from July 5, 1995 until full payment. The RTC
explained this finding as follows:
The same conclusion is true with respect to Metro Bank, with whom the
funds amounting to P7,613,000.00 for the purchase of CC No. 003380 has
remained. According to Chiok, Metro Bank used such funds in its
operations.
In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness
for Metro Bank, but in lieu of her testimony, the parties agreed to stipulate
on the following as her testimony, to wit:
1. That Metro Bank paid the amount of CC No. 003280;
2. That the payment on July 12, 1995 was made while the TRO of July 5,
1995 was in force;
3. [That] the payment on July 12, 1995 was on the third clearing of CC
No. 003380; and
4. That the PCHC Rule book was the authority on the rules and
regulations on the clearing operations of banks.
The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995
was an open defiance of the TRO of July 6, 1995. Metro Bank's Branch
Manager Alice Rivera, through her letter of July 10, 1995 to FEBTC as the
collecting bank, returned the CC to FEBTC in compliance with the TRO
which was received about 12:10 noon of July 6, 1999. Hence, Metro Bank
should not have paid because the TRO was served within the 24-hour
period to clear checks.
Moreover, the payment, being made on third clearing, was unjustified for
violating existing regulations, particularly paragraph 1 of the Clearing
House Operating Memo (CHOM), effective September 1, 1984, which
prohibited the reclearing of a check after its first presentation if it was
returned for the reason of "stop payment" or "closed account."
It also seems that Metro Bank paid the CC without first checking whether,
in fact, any actual payment of the 3 checks had been made on July 5, 1995
to the payee when the checks were deposited in payee's account with
FEBTC on July 5, 1995. The records show no such payment was ever made
to render the TRO of July 6, 1995 or the writ of preliminary injunction
applied for moot and academic.
Jessy A. Degaos adopted by Metro Bank as its own witness in injunction

hearing of July 24, 1995 stated that the payment of the 3 checks consisted
of the accounting entry made at the PCHC during the presenting process by
debiting the respective accounts of the drawees and crediting the account of
collecting bank FEBTC. Yet, as already found hereinabove, such process
was reversed due to the return by the drawees of the checks which they
dishonored on account of the TRO.
Also, Degaos, testifying on January 17, 2002 for intervenor BPI, was
asked in what form was the withdrawal of the amounts of the checks made
by Nuguid on July 5, 1995, that is, whether:- 1) cash withdrawal; or 2)
credit to Nuguid's account; or 3) draft issued to Nuguid. His reply was that
only the bank's branch which serviced the payee's account could provide
the answer. Yet, BPI did not present any competent personnel from the
branch concerned to enlighten the Court on this material point.
This amount of P7,613,000.00, having remained with Metro Bank since the
service of the TRO of July 6, 1995 and the writ of preliminary injunction
issued under the Order of July 25, 1998, should be returned to Chiok with
interest of 12%/p.a. from July 7, 1995 until full payment.[16] (Citations
omitted.)
The RTC likewise denied BPI's complaint-in-intervention to recover the

value of the three checks from drawees Global Bank and Metrobank for lack
of merit. The RTC, after reprimanding Global Bank and Metrobank for
siding with BPI on this issue, held that BPI, as a mere collecting bank of the
payee with a void title to the checks, had no valid claim as to the amounts of
such checks. The RTC explained:
Firstly: BPI, being a collecting bank in relation to the 3 checks, was merely
performing collection services as an agent of Nuguid, the payee. If, as found
hereinbefore, Nuguid could not have legal title to the 3 checks, it follows
that BPI could not stake any claim for title better than Nuguid's own void
title. Consequently, BPI has no right to claim the amounts of the 3 checks
from the drawee-banks.
Secondly: The purpose of the delivery of the 3 checks to BPI which was not
even accompanied by Nuguid's endorsement was solely for deposit in the
account of payee Nuguid. Assuming, for the sake of argument, that BPI as
the collecting bank paid the value of the checks of which fact there has been
no proof whatsoever BPI was nonetheless, at best, a mere transferee whose
title was no better than the void title of the transferor, payee Nuguid. Under
such circumstance, BPI has no legal basis to demand payment of the
amounts of the 3 checks from the drawee-banks.
Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee

without indorsement, was not considered a holder of the instrument since
it was neither a payee nor an indorsee. It would become so only when and if
the indorsement is actually made, and only as of then, but not before, is
the issue whether BPI was a holder in due course or not is determined.
Consequently, any alleged payment by BPI as the collecting bank, through

the supposed though unproved withdrawal of the amounts of the 3 checks
by Nuguid upon the deposit of the checks on July 5, 1995, is not the
payment which discharges liability under the 3 checks because BPI is
neither the party primarily liable nor the drawee.
Such a payment, if true, is akin to, if it is not, drawing against uncollected

deposits (DAUD). In such a case, BPI was in duty bound to send the 3
checks to the PCHC for clearing pursuant to Section 1603.c.1 of the BSP
Manual of Regulations and Sec. 60, R.A. No. 7653. It serves well to note
herein that Global Bank and Metro Bank returned the checks through the
PCHC on July 6, 1995, well within the 24-hour clearing period, in
compliance with the TRO of July 6, 1995.
Finally: As earlier noted and discussed, there is no evidence of any prior

valid payment by the collecting bank to support its claim of the amounts of
the 3 checks against the defendant banks.[17] (Citation omitted.)
The RTC held Global Bank and Metrobank liable for attorney's fees
equivalent to 5% of the total amount due them, while the spouses Nuguid
were held solidarily liable for said fees.
Defendants Global Bank, Metrobank, and the spouses Nuguid, and

intervenor BPI filed separate notices of appeal, which were approved in the
Order[18] dated April 3, 2003. Chiok filed a Motion to Dismiss against the
appeal of Global Bank, on the ground that the latter had ceased to operate
as a banking institution.
On May 26, 2004, the Court of Appeals dismissed the appeal of the spouses
Nuguid pursuant to Section 1(e), Rule 50 of the Rules of Court, on account
of their failure to file their appellant's brief. In the same Resolution, the
Court of Appeals denied Chiok's Motion to Dismiss.
On May 5, 2006, the Court of Appeals rendered the assailed Decision

affirming the RTC Decision with modifications. The fallo of the Decision
reads:
WHEREFORE, premises considered, the Decision dated August 29, 2000

of the RTC, Branch 96, Quezon City is AFFIRMEDwith the
following MODIFICATIONS:
The contract to buy foreign currency in the amount of

$1,022,288.50 between plaintiff-appellee Wilfred N. Chiok and
1.) defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily,
Manager's Check Nos. 025935 and 025939 and Cashier's Check No.
003380 are ordered cancelled.
Global Business Holdings, Inc. is ordered to credit Savings Account
2.)
No. 2-007-03-00201-3 with:
The amount of P25,500,000.00, plus interest at 4% from
a)
September 29, 1999 until withdrawn by plaintiff-appellee;
b) The amount of P215,390.00, plus interest at 4% from July 7,
1995 until withdrawn by plaintiff-appellee.
Metropolitan Bank & Trust Company is ordered to credit Savings
Account No. 154-42504955 the amount of P7,613,000.00, with
3.)
interest at 6% [per annum] from July 12, 1995 until the same is
withdrawn;
The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are
ordered to pay attorney's fees equivalent to 5% of the total amount
4.)
due to plaintiff-appellee from both depository banks, as well as the
costs of suit.[19]
According to the Court of Appeals, Article 1191 of the Civil Code provides a
legal basis of the right of purchasers of MCs and CCs to make a stop
payment order on the ground of the failure of the payee to perform his
obligation to the purchaser. The appellate court ruled that such claim was
impliedly incorporated in Chiok's complaint. The Court of Appeals held:
By depositing the subject checks to the account of Nuguid, Chiok had

already performed his obligation under the contract, and the subsequent
failure of Nuguid to comply with what was incumbent upon him gave rise to
an action for rescission pursuant to Article 1191 of the Civil Code, which
states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
xxxx
Although the complaint a quo was entitled "DAMAGES, W/ EX PARTE
RESTRAINING ORDER/INJUNCTION" when the action was really one for
rescission and damages, it is an elementary rule of procedure that what
controls or determines the nature of the action is not the caption of the
complaint but the allegations contained therein. And even without the
prayer for a specific remedy, proper relief may nevertheless be granted by
the court if the facts alleged in the complaint and the evidence introduced
so warrant.
That Chiok had intended rescission is evident from his prayer to be

declared the legal owner of the proceeds of the subject checks and to be
allowed to withdraw the same. Therefore, the argument of BPI that the
obligation on the part of Nuguid to deliver the dollars still subsists is
untenable. Article 1385 of the same Code provides that rescission creates
the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest. The object of the
contract herein to buy foreign currency is the peso-value of the dollars
bought but in the form of negotiable instruments Manager's
Check/Cashier's Check. Hence, respecting the negotiation thereof, and in
order to afford complete relief to Chiok, there arose the necessity for the
issuance of the injunction restraining the payment of the subject checks
with the end in view of the eventual return of the proceeds to give effect to
Article 1385. In other words, the injunctive relief was necessary in order not
to render ineffectual the judgment in the instant case. We quote with
approval the following disquisition of the trial court, to wit:
xxxx
There is no question about the nature of manager's and cashier's checks

being as good as cash, being primary obligationsof the issuing bank
and accepted in advance by their mere issuance. But even as such nature
of unconditional commitmentto pay on the part of the issuing bank may be
conceded, the Court opines that the injunctive relief cannot be denied to a
party who purchased the manager's or cashier's check to stop its payment
to the payee in a suit against the payee and the issuing banks upon a claim
that the payee himself had not performed his reciprocal obligation for
which the issuance and delivery of the self-
same manager's or cashier's check were, in the first place, made x x x.
It bears stressing that the subject checks would not have been issued were it
not for the contract between Chiok and Nuguid. Therefore, they cannot be
disassociated from the contract and given a distinct and exclusive
signification, as the purchase thereof is part and parcel of the series of
transactions necessary to consummate the contract. Taken in this light, it
cannot be argued that the issuing banks are bound to honor only their
unconditional undertakings on the subject checks vis--vis the payee
thereof regardless of the failed transaction between the purchaser of the
checks and the payee on the ground that the banks were not privy to the
said transaction.
Lest it be forgotten, the purchase of the checks was funded by the account
of Chiok with the banks. As such, the banks were equally obligated to treat
the account of their depositor with meticulous care bearing in mind the
fiduciary nature of their relationship with the depositor. Surely, the banks
would not allow their depositor to sit idly by and watch the dissipation of
his livelihood considering that the business of foreign currency exchange is
a highly volatile undertaking where the probability of losing or gaining is
counted by the ticking of the clock. With the millions of money involved in
this transaction, Chiok could not afford to be complacent and his vigilance
for his rights could not have been more opportune under the
circumstances.[20](Citations omitted.)
The Court of Appeals proceeded to sustain the dismissal of BPI's complaint-

in-intervention, which sought to recover from Global Bank the amounts
allegedly paid to Nuguid. The Court of Appeals pointed out that BPI failed
to prove the alleged withdrawal by Nuguid of the proceeds of the two
manager's checks, as BPI's representative, Jessy A. Degaos, failed to
answer the question on the form of the alleged withdrawal. Furthermore,
BPI failed to prove that it was a holder in due course of the subject
manager's checks, for two reasons: (1) the checks were not indorsed to it by
Nuguid; and (2) BPI never presented its alleged bills purchase agreement
with Nuguid.[21]
The Court of Appeals likewise modified the order by the RTC for Global
Bank and Metrobank to pay Chiok. The Court of Appeals held that Chiok's
cause of action against Global Bank is limited to the proceeds of the two
manager's checks. Hence, Global Bank was ordered to credit Chiok's
Savings Account No. 2-007-03-00201-3 with the amount of
P25,500,000.00, the aggregate value of the two managers' checks, instead
of the entire P34,691,876.71 recovered from SBTC from the September 15,
1997 PCHC Decision. The interest was also reduced from 12% per annum to
that imposed upon savings deposits, which was established during the trial
as 4% per annum.[22]
As regards Metrobank, the appellate court noted that there was no evidence
as to the interest rate imposed upon savings deposits at Metrobank.
Metrobank was ordered to credit the amount of P7,613,000.00 to Chiok's
Savings Account No. 154-42504955, with interest at 6% per annum.[23]
Global Bank and BPI filed separate Motions for Reconsideration of the May
5, 2006 Court of Appeals' Decision. On November 6, 2006, the Court of
Appeals denied the Motions for Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank
(G.R. No. 175394) filed with this Court separate Petitions for Review
on Certiorari. In Resolutions dated February 21, 2007[24] and March 12,
2007,[25] this Court resolved to consolidate the three petitions.
Metrobank submitted the following issues for the consideration of this

Court:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS

ERRED IN RULING THAT "IT IS LEGALLY POSSIBLE FOR A
PURCHASER OF A MANAGER'S CHECK OR CASHIER'S CHECK TO
(A) STOP PAYMENT THEREON THROUGH A COURT ORDER ON THE
GROUND OF THE PAYEE'S ALLEGED BREACH OF CONTRACTUAL
OBLIGATION AMOUNTING TO AN ABSENCE OF CONSIDERATION
THEREFOR."
GRANTING ARGUENDO THAT A MANAGER'S CHECK OR
CASHIER'S CHECK, "IN VIEW OF THE PECULIAR
CIRCUMSTANCES OF THIS CASE" MAY BE SUBJECT TO A STOP
PAYMENT ORDER BY THE PURCHASER THEREOF THROUGH A
COURT ORDER, WHETHER OR NOT THE HONORABLE COURT OF
(B)
APPEALS ERRED IN CONCLUDING THAT PETITIONER HEREIN
"HAD KNOWLEDGE OF CIRCUMSTANCES THAT WOULD DEFEAT
THE TITLE OF THE PAYEE TO THE CHECKS" WITHOUT,
HOWEVER, CITING ANY SPECIFIC EVIDENCE WHICH WOULD
PROVE THE EXISTENCE OF SUCH KNOWLEDGE.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN SUSTAINING THE TRIAL COURT'S ORDER FOR
PETITIONER HEREIN "TO PAY (TO CHIOK) THE VALUE OF
(C)
CASHIER'S CHECK NO. 003380 IN THE AMOUNT OF
P7,613,000.00, WHICH WAS DEBITED AGAINST CHIOK'S SAVINGS
ACCOUNT # 154-42504955 ON THE OBSERVATION THAT THE
PAYMENT TO FEBTC BY METROBANK OF CC NO. 003380 ON JULY
12, 1995 WAS AN OPEN DEFIANCE OF THE TRO OF JULY 6,
1995."[26]
BPI, on the other hand, presented the following issues:
I.
Whether or not the Court of Appeals detracted from well-settled concepts

and principles in commercial law regarding the nature, causes, and effects
of a manager's check and cashier's check in ruling that [the] power of the
court can be invoked by the purchaser [Chiok] in a proper action, which the
Court su[b]stantially construed as a rescissory action or the power to
rescind obligations under Article 1191 of the Civil Code.
II.
Whether or not the Honorable Court of Appeals erred in ruling that where a
purchaser invokes rescission due to an alleged breach of the payee's
contractual obligation, it is deemed as "peculiar circumstance" which
justifies a stop payment order issued by the purchaser or a temporary
restraining order/injunction from a Court to prevent payment of a
Manager's Check or a Cashier's Check.
III.
Whether or not the Honorable Court of Appeals erred in ruling that judicial
admissions in the pleadings of Nuguid, BPI, Asian Bank, Metrobank and
even Chiok himself that Nuguid had withdrawn the proceeds of the checks
will not defeat Chiok's "substantial right" to restrain the drawee bank from
paying BPI, the collecting bank or presenting bank in this case who paid the
value of the Cashier's/Manager's Checks to the payee.[27]
Finally, Global Bank rely upon the following grounds in its petition with
this Court:
A.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT

PETITIONER GLOBAL BANK HAD NO JUSTIFICATION FOR ITS RIGHT
OF RECOURSE AGAINST RESPONDENT CHIOK NOTWITHSTANDING
THE CLEAR AND UNMISTAKABLE PROVISIONS OF THE BILLS
PURCHASE AGREEMENT.
B.
THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER

GLOBAL BANK LIABLE FOR INTEREST OF 4% PER ANNUM DESPITE
THE FACT THAT:
1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS

COMPLAINT;
2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST;
AND
3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR ANY
INTEREST.[28]
Before delving into the merits of these cases, we shall first dispose of a
procedural development during their pendency with the Court.
Joint Manifestation and Motion allegedly

filed by Metrobank, Global Bank and
respondent Chiok
On May 28, 2013, this Court received a Joint Manifestation and Motion
allegedly filed by petitioners Metrobank, Global Bank, and respondent
Chiok, which reads:
PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL

BUSINESS BANK, INC., and RESPONDENT WILFRED N. CHIOK, by their
respective counsels, unto this Honorable Court, respectfully state that after
a thorough consideration, the parties herein have decided to forego their
respective claims against each other, including, past, present and/or
contingent, in relation to the above-referenced cases.
PRAYER
WHEREFORE, it is respectfully prayed that no further action be taken by

this Honorable Court on the foregoing petitions, that the instant
proceedings be declared CLOSED and TERMINATED, and that an Order be
rendered dismissing the above-referenced cases with prejudice.
In the above Joint Manifestation and Motion, respondent Chiok was not
represented by his counsel of record, Cruz Durian Alday and Cruz-Matters,
but was assisted by Espiritu Vitales Espiritu Law Office, with Atty. Cesar D.
Vitales as signatory, by way of special appearance and assistance.
On June 19, 2013, this Court issued a Resolution requiring petitioner BPI to
comment on the Joint Manifestation and Motion filed by its co-petitioners
Metrobank, Global Bank, and respondent Chiok. The Resolution reads:
Considering the joint manifestation and motion of petitioners Metropolitan

Bank and Trust Company and Global Business Bank, Inc., and respondent,
that after a thorough consideration, they have decided to forego their
respective claims against each other, including past, present and/or
contingent, in these cases and praying that the instant proceedings in G.R.
Nos. 172652 and 175394 be declared closed and terminated, the Court
resolves to require petitioner Bank of the Philippine Islands
to COMMENTthereon within ten (10) days from notice thereof x x x.
On September 12, 2013, respondent Chiok, this time assisted by his counsel
of record, Cruz Durian Alday & Cruz-Matters, filed a Motion for
Reconsideration of our Resolution dated June 19, 2013. The signatory to
the Motion for Reconsideration, Atty. Angel Cruz, grossly misread our
Resolution requiring BPI to comment on the Joint Manifestation and
Motion, and apparently contemplated that we are already granting said
Motion. Atty. Cruz objected to the Joint Manifestation and Motion, labeling
the same as tainted with fraud. According to Atty. Cruz, Espiritu Vitales and
Espiritu's failure to give prior notice to him is in violation of Canon 8 of the
Code of Professional Responsibility. Atty. Cruz prays that Metrobank and
Global Bank be ordered to submit a document of their settlement showing
the amounts paid to Chiok, and for the June 19, 2013 Resolution of this
Court be reconsidered and set aside.
On October 9, 2013, BPI filed its comment to the Joint Manifestation and
Motion, opposing the same for being an implied procedural shortcut to a
Compromise Agreement. It averred that while the courts encourage parties
to amicably settle cases, such settlements are strictly scrutinized by the
courts for approval. BPI also pointed out that the Joint Manifestation and
Motion was not supported by any required appropriate Board Resolution of
Metrobank and Global Bank granting the supposed signatories the
authority to enter into a compromise. BPI prayed that the Joint
Manifestation and Motion of Metrobank, Global Bank, and Chiok be
denied, and to render a full Decision on the merits reversing the Decision of
the Court of Appeals.
On January 20, 2014, Global Bank filed a Comment to Atty. Cruz's Motion
for Reconsideration on behalf of Chiok, praying that said Motion be
expunged from the records for failure of Atty. Cruz to indicate the number
and date of issue of his MCLE Certificate of Compliance or Certificate of
Exemption for the immediately preceding compliance period.
As far as this Court is concerned, the counsel of record of respondent Chiok

is still Cruz Durian Alday & Cruz-Matters. The requisites of a proper
substitution of counsel of record are stated and settled in jurisprudence:
No substitution of counsel of record is allowed unless the following

essential requisites of a valid substitution of counsel concur: (1) there must
be a written request for substitution; (2) it must be filed with the written
consent of the client; (3) it must be with the written consent of the attorney
to be substituted; and (4) in case the consent of the attorney to be
substituted cannot be obtained, there must be at least a proof of notice that
the motion for substitution was served on him in the manner prescribed by
the Rules of Court.[29] (Citation omitted.)
Therefore, while we should indeed require Atty. Cruz to indicate the

number and date of issue of his MCLE Certificate of Compliance or
Certificate of Exemption for the immediately preceding compliance period,
he is justified in pointing out the violation of Canon 8[30] of the Code of
Professional Responsibility, Rule 8.02 of which provides:
Rule 8.02. A lawyer shall not, directly or indirectly, encroach upon the
professional employment of another lawyer; however, it is the right of any
lawyer, without fear or favor, to give proper advice and assistance to those
seeking relief against unfaithful or neglectful counsel.
We should also give weight to the opposition of BPI to the supposed

compromise agreement. As stated above, the consolidated petitions filed by
Metrobank, BPI, and Global Bank all assail the Decision of the Court of
Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution
on the same case dated November 6, 2006. BPI itself has a claim against
Global Bank, which appear to be intimately related to issues brought forth
in the other consolidated petitions.
Furthermore, the failure of the parties to the Joint Manifestation and

Motion to declare with particularity the terms of their agreement prevents
us from approving the same so as to allow it to attain the effect of res
judicata. A judicial compromise is not a mere contract between the parties.
Thus, we have held that:
A compromise agreement intended to resolve a matter already under

litigation is a judicial compromise. Having judicial mandate and entered as
its determination of the controversy, such judicial compromise has the
force and effect of a judgment. It transcends its identity as a mere contract
between the parties, as it becomes a judgment that is subject to execution in
accordance with the Rules of Court. Thus, a compromise agreement that
has been made and duly approved by the court attains the effect and
authority of res judicata, although no execution may be issued unless the
agreement receives the approval of the court where the litigation is pending
and compliance with the terms of the agreement is decreed.[31] (Citation
omitted.)
We are therefore constrained to deny the Joint Manifestation and Motion

filed with this Court on May 28, 2013 and to hereby decide the consolidated
petitions on their merits.
The Court's ruling on the merits

of these consolidated petitions
Whether or not payment of manager's

and cashier's checks are subject to the
condition that the payee thereof should
comply with his obligations to the
purchaser of the checks
The legal effects of a manager's check and a cashier's check are the same. A
manager's check, like a cashier's check, is an order of the bank to pay,
drawn upon itself, committing in effect its total resources, integrity, and
honor behind its issuance. By its peculiar character and general use in
commerce, a manager's check or a cashier's check is regarded substantially
to be as good as the money it represents.[32] Thus, the succeeding
discussions and jurisprudence on manager's checks, unless stated
otherwise, are applicable to cashier's checks, and vice versa.
The RTC effectively ruled that payment of manager's and cashier's checks
are subject to the condition that the payee thereof complies with his
obligations to the purchaser of the checks:
The dedication of such

checks pursuant to specific reciprocal undertakings between their
purchasers and payeesauthorizes rescission by the former to prevent
substantial and material damage to themselves, which authority includes
stopping the payment of the checks.
Moreover, it seems to be fallacious to hold that the unconditional

payment of manager's and cashier's checks is the rule. To begin
with, both manager's and cashier's checks are still subject to regular
clearing under the regulations of the Bangko Sentral ng Pilipinas, a fact
borne out by the BSP manual for banks and intermediaries, which provides,
among others, in its Section 1603.1, c, as follows:
xxxx
c. Items for clearing. All checks and documents payable on demand and
drawn against a bank/branch, institution or entity allowed to clear may be
exchanged through the Clearing Office in Manila and the Regional Clearing
Units in regional clearing centers designated by the Central Bank x x x.[33]
The RTC added that since manager's and cashier's checks are the subject of
regular clearing, they may consequently be refused for cause by the drawee,
which refusal is in fact provided for in Section 20 of the Rule Book of the
PCHC:
Sec. 20 REGULAR RETURN ITEM PROCEDURE
20.1 Any check/item sent for clearing through the PCHC on which payment
should be refused by the Drawee Bank in accordance with long standing
and accepted banking practices, such as but not limited to the fact that:
(a) it bears the forged or unauthorized signature of the drawer(s); or
(b) it is drawn against a closed account; or
(c) it is drawn against insufficient funds; or
(d) payment thereof has been stopped; or
(e) it is post-dated or stale-dated; and
(f) it is a cashier's/manager's/treasurer's check of the drawee which has

been materially altered;
shall be returned through the PCHC not later than the next regular clearing
for local exchanges and the acceptance of said return by the Sending Bank
shall be mandatory.
It goes without saying that under the aforecited clearing rule[,] the
enumeration of causes to return checks is not exclusive but may include
other causes which are consistent with long standing and accepted banking
practices. The reason of plaintiffs can well constitute such a justifiable
cause to enjoin payment.[34]
The RTC made an error at this point. While indeed, it cannot be said that
manager's and cashier's checks are pre-cleared, clearingshould not be
confused with acceptance. Manager's and cashier's checks are still the
subject of clearing to ensure that the same have not been materially altered
or otherwise completely counterfeited. However, manager's and cashier's
checks are pre-accepted by the mere issuance thereof by the bank, which is
both its drawer and drawee. Thus, while manager's and cashier's checks are
still subject to clearing, they cannot be countermanded for being drawn
against a closed account, for being drawn against insufficient funds, or for
similar reasons such as a condition not appearing on the face of the
check. Long standing and accepted banking practices do not countenance
the countermanding of manager's and cashier's checks on the basis of a
mere allegation of failure of the payee to comply with its obligations
towards the purchaser. On the contrary, the accepted banking practice is
that such checks are as good as cash. Thus, in New Pacific Timber & Supply
Company, Inc. v. Hon. Seneris,[35] we held:
It is a well-known and accepted practice in the business sector that a

Cashier's Check is deemed as cash. Moreover, since the said check
had been certified by the drawee bank, by the certification, the funds
represented by the check are transferred from the credit of the maker to
that of the payee or holder, and for all intents and purposes, the latter
becomes the depositor of the drawee bank, with rights and duties of one in
such situation. Where a check is certified by the bank on which it is drawn,
the certification is equivalent to acceptance. Said certification "implies that
the check is drawn upon sufficient funds in the hands of the drawee, that
they have been set apart for its satisfaction, and that they shall be so
applied whenever the check is presented for payment. It is an
understanding that the check is good then, and shall continue
good, and this agreement is as binding on the bank as its notes in
circulation, a certificate of deposit payable to the order of the
depositor, or any other obligation it can assume. The object of
certifying a check, as regards both parties, is to enable the
holder to use it as money." When the holder procures the check to be
certified, "the check operates as an assignment of a part of the funds to the
creditors." Hence, the exception to the rule enunciated under Section 63 of
the Central Bank Act to the effect "that a check which has been cleared and
credited to the account of the creditor shall be equivalent to a delivery to
the creditor in cash in an amount equal to the amount credited to his
account" shall apply in this case. x x x. (Emphases supplied, citations
omitted.)
Even more telling is the Court's pronouncement in Tan v. Court of

Appeals,[36] which unequivocally settled the unconditional nature of the
credit created by the issuance of manager's or cashier's checks:
A cashier's check is a primary obligation of the issuing bank and accepted
in advance by its mere issuance. By its very nature, a cashier's check is the
bank's order to pay drawn upon itself, committing in effect its total
resources, integrity and honor behind the check. A cashier's check by its
peculiar character and general use in the commercial world is regarded
substantially to be as good as the money which it represents. In this case,
therefore, PCIB by issuing the check created an unconditional credit in
favor of any collecting bank. (Emphases supplied, citations omitted.)
Furthermore, under the principle of ejusdem generis, where a statute

describes things of a particular class or kind accompanied by words of a
generic character, the generic word will usually be limited to things of a
similar nature with those particularly enumerated, unless there be
something in the context of the statute which would repel such
inference.[37] Thus, any long standing and accepted banking practice which
can be considered as a valid cause to return manager's or cashier's checks
should be of a similar nature to the enumerated cause applicable to
manager's or cashier's checks: material alteration. As stated above, an
example of a similar cause is the presentation of a counterfeit check.
Whether or not the purchaser of

manager's and cashier's checks has
the right to have the checks cancelled
by filing an action for rescission of its
contract with the payee
The Court of Appeals affirmed the order of the RTC for Global Bank and
Metrobank to pay Chiok for the amounts of the subject manager's and
cashier's checks. However, since it is clear to the appellate court that the
payment of manager's and cashier's checks cannot be considered to be
subject to the condition the payee thereof complies with his obligations to
the purchaser of the checks, the Court of Appeals provided another legal
basis for such liability rescission under Article 1191 of the Civil Code:
WHEREFORE, premises considered, the Decision dated August 29, 2000

of the RTC, Branch 96, Quezon City is AFFIRMED with the following
MODIFICATIONS:
The contract to buy foreign currency in the amount of $1,022,288.50

between plaintiff-appellee Wilfred N. Chiok and defendant Gonzalo B.
1.)
Nuguid is hereby rescinded. Corollarily, Manager's Check Nos. 025935
and 025939 and Cashier's Check No. 003380 are ordered cancelled.[38]
According to the Court of Appeals, while such rescission was not mentioned
in Chiok's Amended Complaint, the same was evident from his prayer to be
declared the legal owner of the proceeds of the subject checks and to be
allowed to withdraw the same. Since rescission creates the obligation to
return the things which are the object of the contract, together with the
fruits, the price and the interest,[39] injunctive relief was necessary to
restrain the payment of the subject checks with the end in view of the
return of the proceeds to Chiok.[40]
Thus, as it was construed by the Court of Appeals, the Amended Complaint

of Chiok was in reality an action for rescission of the contract to buy foreign
currency between Chiok and Nuguid. The Court of Appeals then proceeded
to cancel the manager's and cashier's checks as a consequence of the
granting of the action for rescission, explaining that "the subject checks
would not have been issued were it not for the contract between Chiok and
Nuguid. Therefore, they cannot be disassociated from the contract and
given a distinct and exclusive signification, as the purchase thereof is part
and parcel of the series of transactions necessary to consummate the
contract."[41]
We disagree with the above ruling.
The right to rescind invoked by the Court of Appeals is provided by Article

1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons

who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
The cause of action supplied by the above article, however, is clearly

predicated upon the reciprocity of the obligations of the injured party and
the guilty party. Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of the other.
They are to be performed simultaneously such that the performance of one
is conditioned upon the simultaneous fulfillment of the other.[42] When
Nuguid failed to deliver the agreed amount to Chiok, the latter had a cause
of action against Nuguid to ask for the rescission of their contract. On the
other hand, Chiok did not have a cause of action against Metrobank and
Global Bank that would allow him to rescind the contracts of sale of the
manager's or cashier's checks, which would have resulted in the crediting of
the amounts thereof back to his accounts.
Otherwise stated, the right of rescission[43] under Article 1191 of the Civil
Code can only be exercised in accordance with the principle of relativity of
contracts under Article 1131 of the same code, which provides:
Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. x x x.
In several cases, this Court has ruled that under the civil law principle of
relativity of contracts under Article 1131, contracts can only bind the parties
who entered into it, and it cannot favor or prejudice a third person, even if
he is aware of such contract and has acted with knowledge
thereof.[44] Metrobank and Global Bank are not parties to the contract to
buy foreign currency between Chiok and Nuguid. Therefore, they are not
bound by such contract and cannot be prejudiced by the failure of Nuguid
to comply with the terms thereof.
Neither could Chiok be validly granted a writ of injunction against

Metrobank and Global Bank to enjoin said banks from honoring the subject
manager's and cashier's checks. It is elementary that "(a)n injunction
should never issue when an action for damages would adequately
compensate the injuries caused. The very foundation of the jurisdiction to
issue the writ of injunction rests in the fact that the damages caused are
irreparable and that damages would not adequately compensate."[45] Chiok
could have and should have proceeded directly against Nuguid to claim
damages for breach of contract and to have the very account where he
deposited the subject checks garnished under Section 7(d)[46] and Section
8,[47] Rule 57 of the Rules of Court. Instead, Chiok filed an action to enjoin
Metrobank and Global Bank from complying with their primary obligation
under checks in which they are liable as both drawer and drawee.
It is undisputed that Chiok personally deposited the subject manager's and

cashier's checks to Nuguid's account. If the intention of Chiok was for
Nuguid to be allowed to withdraw the proceeds of the checks after clearing,
he could have easily deposited personal checks, instead of going through
the trouble of purchasing manager's and cashier's checks. Chiok therefore
knew, and actually intended, that Nuguid will be allowed to immediately
withdraw the proceeds of the subject checks. The deposit of the checks
which were practically as good as cash was willingly and voluntarily made
by Chiok, without any assurance that Nuguid will comply with his end of
the bargain on the same day. The explanation for such apparently reckless
action was admitted by Chiok in the Amended Complaint itself:
That plaintiff [Chiok] due to the number of years (five to seven years) of
business transactions with defendant [Nuguid] has reposed utmost
trust and confidence on the latter that their transactions as of June
1995 reaches millions of pesos. x x x.[48] (Emphases supplied.)
As between two innocent persons, one of whom must suffer the

consequences of a breach of trust, the one who made it possible by his act of
confidence must bear the loss.[49] Evidently, it was the utmost trust and
confidence reposed by Chiok to Nuguid that caused this entire debacle,
dragging three banks into the controversy, and having their resources
threatened because of an alleged default in a contract they were not privy
to.
Whether or not the peculiar

circumstances of this case justify
the deviation from the general
principles on causes and effects of
manager's and cashier's checks
The Court of Appeals, while admitting that the general principles on the
causes and effects of manager's and cashier's checks do not allow the
countermanding of such checks on the basis of an alleged failure of
consideration of the payee to the purchaser, nevertheless held that the
peculiar circumstances of this case justify a deviation from said general
principles, applying the aforementioned case of Mesina. The Court of
Appeals held:
At the core of the appeal interposed by the intervenor BPI, as well as the
depository banks, Global Bank and Metrobank, is the issue of whether or
not it is legally possible for a purchaser of a Manager's Check or Cashier's
Check to stop payment thereon through a court order on the ground of the
payee's alleged breach of contractual obligation amounting to an absence of
consideration therefor.
In view of the peculiar circumstances of this case, and in the

interest of substantial justice, We are constrained to rule in the
affirmative.
xxxx
In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its

appeal brief, the Supreme Court had the occasion to rule that general
principles on causes and effects of a cashier's check, i.e., that it cannot be
countermanded in the hands of a holder in due course and that it is a bill of
exchange drawn by the bank against itself, cannot be applied without
considering that the bank was aware of facts (in this case, the cashier's
check was stolen) that would not entitle the payee thereof to collect on the
check and, consequently, the bank has the right to refuse payment when the
check is presented by the payee.
While the factual milieu of the Mesina case is different from the case at
bench, the inference drawn therein by the High Court is nevertheless
applicable. The refusal of Nuguid to deliver the dollar equivalent of the
three checks in the amount of $1,022,288.50 in the afternoon of July 5,
1995 amounted to a failure of consideration that would not entitle Nuguid
to collect on the subject checks.
xxxx
Let it be emphasized that in resolving the matter before Us, We do not

detract from well-settled concepts and principles in commercial law
regarding the nature, causes and effects of a manager's check and cashier's
check. Such checks are primary obligations of the issuing bank and
accepted in advance by the mere issuance thereof. They are a bank's order
to pay drawn upon itself, committing in effect its total resources, integrity,
and honor. By their peculiar character and general use in the commercial
world, they are regarded substantially as good as the money they
represent. However, in view of the peculiar circumstances of the
case at bench, We are constrained to set aside the foregoing
concepts and principles in favor of the exercise of the right to
rescind a contract upon the failure of consideration
thereof.[50] (Emphases ours, citations omitted.)
In deviating from general banking principles and disposing the case on the
basis of equity, the courts a quo should have at least ensured that their
dispositions were indeed equitable. This Court observes that equity was not
served in the dispositions below wherein Nuguid, the very person found to
have violated his contract by not delivering his dollar obligation, was
absolved from his liability, leaving the banks who are not parties to the
contract to suffer the losses of millions of pesos.
The Court of Appeals' reliance in the 1986 case of Mesina was likewise
inappropriate. In Mesina, respondent Jose Go purchased from Associated
Bank a cashier's check for P800,000.00, payable to bearer.[51] Jose Go
inadvertently left the check on the top desk of the bank manager when he
left the bank. The bank manager entrusted the check for safekeeping to a
certain bank official named Albert Uy, who then had a certain Alexander
Lim as visitor. Uy left his desk to answer a phone call and to go to the men's
room. When Uy returned to his desk, Lim was gone. Jose Go inquired for
his check from Uy, but the check was nowhere to be found. At the advice of
Uy, Jose Go accomplished a Stop Payment Order and executed an affidavit
of loss. Uy reported the loss to the police. Petitioner Marcelo Mesina tried
to encash the check with Prudential Bank, but the check was dishonored by
Associated Bank by sending it back to Prudential Bank with the words
"Payment Stopped" stamped on it. When the police asked Mesina how he
came to possess the check, he said it was paid to him by Alexander Lim in a
"certain transaction" but refused to elucidate further. Associated Bank filed
an action for Interpleader against Jose Go and Mesina to determine which
of them is entitled to the proceeds of the check. It was in the appeal on said
interpleader case that this Court allowed the deviation from the general
principles on cashier's checks on account of the bank's awareness of certain
facts that would prevent the payee to collect on the check.
There is no arguing that the peculiar circumstances in Mesina indeed called

for such deviation on account of the drawee bank's awareness of certain
relevant facts. There is, however, no comparable peculiar circumstance in
the case at bar that would justify applying the Mesina disposition. In
Mesina, the cashier's check was stolen while it was in the possession of the
drawee bank. In the case at bar, the manager's and cashier's checks were
personally deposited by Chiok in the account of Nuguid. The only
knowledge that can be attributed to the drawee banks is whatever was
relayed by Chiok himself when he asked for a Stop Payment Order. Chiok
testified on this matter, to wit:
Now, Mr. witness, since according to you the defendant failed to

Q: deliver [this] amount of P1,023,288.23 what action have you
undertaken to protect your interest Mr. witness?
I immediately call my lawyer, Atty. Espiritu to seek his legal advise
A:
in this matter.
Prior to that matter that you sought the advise of your lawyer, Atty.
Q: Espiritu insofar as the issuing bank is concerned, namely, Asian
Bank, what did you do in order to protect your interest?
I immediately call the bank asking them if what is the procedure for
stop payment and the bank told me that you have to secure a court
A:
order as soon as possible before the clearing of these
checks.[52] (Emphasis supplied.)
Asian Bank, which is now Global Bank, obeyed the TRO and denied the
clearing of the manager's checks. As such, Global Bank may not be held
liable on account of the knowledge of whatever else Chiok told them when
he asked for the procedure to secure a Stop Payment Order. On the other
hand, there was no mention that Metrobank was ever notified of the alleged
failure of consideration. Only Asian Bank was notified of such fact.
Furthermore, the mere allegation of breach on the part of the payee of his
personal contract with the purchaser should not be considered a sufficient
cause to immediately nullify such checks, thereby eroding their integrity
and honor as being as good as cash.
In view of all the foregoing, we resolve that Chiok's complaint should be

denied insofar as it prayed for the withdrawal of the proceeds of the subject
manager's and cashier's checks. Accordingly, the writ of preliminary
prohibitory injunction enjoining Metrobank and Global Bank from
honoring the subject manager's and cashier's checks should be lifted.
Since we have ruled that Chiok cannot claim the amounts of the checks
from Metrobank and Global Bank, the issue concerning the setting off of
Global Bank's judgment debt to Chiok with the outstanding obligations of
Chiok is hereby mooted. We furthermore note that Global Bank had not
presented[53] such issue as a counterclaim in the case at bar, preventing us
from ruling on the same.
BPI's right to the proceeds of the

manager's checks from Global Bank
While our ruling in Mesina is inapplicable to the case at bar, a much more
relevant case as regards the effect of a Stop Payment Order upon a
manager's check would be Security Bank and Trust Company v. Rizal
Commercial Banking Corporation,[54] which was decided by this Court in
2009. In said case, SBTC issued a manager's check for P8 million, payable
to "CASH," as proceeds of the loan granted to Guidon Construction and
Development Corporation (GCDC). On the same day, the manager's check
was deposited by Continental Manufacturing Corporation (CMC) in its
current account with Rizal Commercial Banking Corporation (RCBC).
RCBC immediately honored the manager's check and allowed CMC to
withdraw the same. GCDC issued a Stop Payment Order to SBTC on the
next day, claiming that the check was released to a third party by mistake.
SBTC dishonored and returned the manager's check to RCBC. The check
was returned back and forth between the two banks, resulting in automatic
debits and credits in each bank's clearing balance. RCBC filed a complaint
for damages against SBTC. When the case reached this Court, we held:
At the outset, it must be noted that the questioned check issued by SBTC is
not just an ordinary check but a manager's check. A manager's check is one
drawn by a bank's manager upon the bank itself. It stands on the same
footing as a certified check, which is deemed to have been accepted by the
bank that certified it. As the bank's own check, a manager's check
becomes the primary obligation of the bank and is accepted in
advance by the act of its issuance.
In this case, RCBC, in immediately crediting the amount of P8

million to CMC's account, relied on the integrity and honor of the
check as it is regarded in commercial transactions. Where the
questioned check, which was payable to "Cash," appeared regular on its
face, and the bank found nothing unusual in the transaction, as the drawer
usually issued checks in big amounts made payable to cash, RCBC cannot
be faulted in paying the value of the questioned check.
In our considered view, SBTC cannot escape liability by invoking Monetary

Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings
against uncollected deposits. For we must point out that the Central Bank
at that time issued a Memorandum dated July 9, 1980, which interpreted
said Monetary Board Resolution No. 2202. In its pertinent portion, said
Memorandum reads:
MEMORANDUM TO ALL BANKS

July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202
dated December 31, 1979 prohibiting, as a matter of policy, drawing against
uncollected deposit effective July 1, 1980, uncollected deposits
representing manager's/cashier's/treasurer's checks, treasury warrants,
postal money orders and duly funded "on us" checks which may be
permitted at the discretion of each bank, covers drawings against demand
deposits as well as withdrawals from savings deposits.
Thus, it is clear from the July 9, 1980 Memorandum that banks were given
the discretion to allow immediate drawings on uncollected deposits of
manager's checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject manager's check, only exercised
a prerogative expressly granted to it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9,
1980 Memorandum alters the extraordinary nature of the manager's check
and the relative rights of the parties thereto. SBTC's liability as drawer
remains the same by drawing the instrument, it admits the
existence of the payee and his then capacity to indorse; and engages that
on due presentment, the instrument will be accepted, or paid, or
both, according to its tenor.[55] (Emphases supplied, citations omitted.)
As in SBTC, BPI in the case at bar relied on the integrity and honor of the
manager's and cashier's checks as they are regarded in commercial
transactions when it immediately credited their amounts to Nuguid's
account.
The Court of Appeals, however, sustained the dismissal of BPI's complaint-

in-intervention to recover the amounts of the manager's checks from Global
Bank on account of BPI's failure to prove the supposed withdrawal by
Nuguid of the value of the checks:
BPI's cause of action against Asian Bank (now Global Bank) is derived from
the supposed withdrawal by Nuguid of the proceeds of the two Manager's
Checks it issued and the refusal of Asian Bank to make good the
same. That the admissions in the pleadings to the effect that
Nuguid had withdrawn the said proceeds failed to satisfy the
trial court is understandable. Such withdrawal is an essential fact that,
if properly substantiated, would have defeated Chiok's right to an
injunction. BPI could so easily have presented withdrawal slips or, with
Nuguid's consent, statements of account or the passbook itself, which
would indubitably show that money actually changed hands at the crucial
period before the issuance of the TRO. But it did not.[56]
We disagree with this ruling. As provided for in Section 4, Rule 129 of the
Rules of Court, admissions in pleadings are judicial admissions and do not
require proof:
Section 4. Judicial admissions. An admission, verbal or written, made by a
party in the course of the proceedings in the same case, does not require
proof. The admission may be contradicted only by showing that it was
made through palpable mistake or that no such admission was made.
Nuguid has admitted that FEBTC (now BPI) has paid him the value of the
subject checks.[57] This statement by Nuguid is certainly against his own
interest as he can be held liable for said amounts. Unfortunately, Nuguid
allowed his appeal with the Court of Appeals to lapse, without taking steps
to have it reinstated. This course of action, which is highly unlikely if
Nuguid had not withdrawn the value of the manager's and cashier's checks
deposited into his account, likewise prevents us from ordering Nuguid to
deliver the amounts of the checks to Chiok. Parties who did not appeal will
not be affected by the decision of an appellate court rendered to appealing
parties.[58]
Another reason given by the Court of Appeals for sustaining the dismissal
of BPI's complaint-in-intervention was that BPI failed to prove that it was a
holder in due course with respect to the manager's checks. [59]
We agree with the finding of the Court of Appeals that BPI is not a holder in
due course with respect to manager's checks. Said checks were never
indorsed by Nuguid to FEBTC, the predecessor-in-interest of BPI, for the
reason that they were deposited by Chiok directly to Nuguid's account with
FEBTC. However, in view of our ruling that Nuguid has withdrawn the
value of the checks from his account, BPI has the rights of an equitable
assignee for value under Section 49 of the Negotiable Instruments Law,
which provides:
Section 49. Transfer without indorsement; effect of. Where the holder of
an instrument payable to his order transfers it for value without indorsing
it, the transfer vests in the transferee such title as the transferor had
therein, and the transferee acquires in addition, the right to have the
indorsement of the transferor. But for the purpose of determining whether
the transferee is a holder in due course, the negotiation takes effect as of the
time when the indorsement is actually made.
As an equitable assignee, BPI acquires the instrument subject to defenses

and equities available among prior parties[60] and, in addition, the right to
have the indorsement of Nuguid. Since the checks in question are
manager's checks, the drawer and the drawee thereof are both Global Bank.
Respondent Chiok cannot be considered a prior party as he is not the
check's drawer, drawee, indorser, payee or indorsee. Global Bank is
consequently primarily liable upon the instrument, and cannot hide behind
respondent Chiok's defenses. As discussed above, manager's checks are pre-
accepted. By issuing the manager's check, therefore, Global Bank
committed in effect its total resources, integrity and honor towards its
payment.[61]
Resultantly, Global Bank should pay BPI the amount of P18,455,350.00,

representing the aggregate face value of MC No. 025935 and MC No.
025939. Since Global Bank was merely following the TRO and preliminary
injunction issued by the RTC, it cannot be held liable for legal interest
during the time said amounts are in its possession. Instead, we are
adopting the formulation of the Court of Appeals that the amounts be
treated as savings deposits in Global Bank. The interest rate, however,
should not be fixed at 4% as determined by the Court of Appeals, since said
rates have fluctuated since July 7, 1995, the date Global Bank refused to
honor the subject manager's checks. Thus, Global Bank should pay BPI
interest based on the rates it actually paid its depositors from July 7, 1995
until the finality of this Decision, in accordance with the same
compounding rules it applies to its depositors. The legal rate of 6% per
annum shall apply after the finality of this Decision.[62]
We have to stress that respondent Chiok is not left without recourse.

Respondent Chiok's cause of action to recover the value of the checks is
against Nuguid. Unfortunately, Nuguid allowed his appeal with the Court of
Appeals to lapse, without taking steps to have it reinstated. As stated
above, parties who did not appeal will not be affected by the decision of the
appellate court rendered to appealing parties.[63] Moreover, since Nuguid
was not impleaded as a party to the present consolidated cases, he cannot
be bound by our judgment herein. Respondent Chiok should therefore
pursue his remedy against Nuguid in a separate action to recover the
amounts of the checks.
Despite the reversal of the Court of Appeals Decision, the liability of Nuguid
therein to respondent Chiok for attorney's fees equivalent to 5% of the total
amount due remains valid, computed from the amounts stated in said
Decision. This is a consequence of the finality of the Decision of the Court
of Appeals with respect to him.
WHEREFORE, the Court resolves to DENY the Joint Manifestation and

Motion filed with this Court on May 28, 2013.
The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED. The
Decision of the Court of Appeals in CA-G.R. CV No. 77508 dated May 5,
2006, and the Resolution on the same case dated November 6, 2006 are
hereby REVERSED AND SET ASIDE, and a new one is issued ordering
the DENIAL of the Amended Complaint in Civil Case No. Q-95-24299 in
Branch 96 of the Regional Trial Court of Quezon City for lack of merit. The
Writ of Preliminary Prohibitory Injunction enjoining Asian Banking
Corporation (now Global Business Bank, Inc.) from honoring MC No.
025935 and MC No. 025939, and Metropolitan Bank & Trust Company
from honoring CC No. 003380, is hereby LIFTED and SET ASIDE.
Global Business Bank, Inc. is ORDERED TO PAY the Bank of the

Philippine Islands, as successor-in-interest of Far East Bank & Trust
Company, the amount of P18,455,350.00, representing the aggregate face
value of MC No. 025935 and MC No. 025939, with interest based on the
rates it actually paid its depositors from July 7, 1995 until the finality of this
Decision, in accordance with the same compounding rules it applies to its
depositors.
The petition in G.R. No. 175394 is hereby rendered MOOT.
The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid

under the Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 77508 remain VALID and SUBSISTING, computed from the
amounts adjudged by the Court of Appeals, without prejudice to any further
action that may be filed by Wilfred N. Chiok.
SO ORDERED.
Sereno, C.J., (Chairperson), Carpio,* Perez, and Jardeleza,** JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 176697 September 10, 2014
CESAR V. AREZA and LOLITA B. AREZA, Petitioners,

vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondnets.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules of Court, which
seeks to reverse the Decision1 and Resolution2 dated 29 June 2006 and 12 February 2007 of the
Court of Appeals in CAG.R. CV No. 83192. The Court of Appeals affirmed with modification the 22
April 2004 Resolution3 of the Regional Trial Court (RTC) of Calamba, Laguna, Branch 92, in Civil
Case No. B-5886.
The factual antecedents follow.
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent
Express Savings Banks Bian branch: 1) Savings Account No. 004-01-000185-5 and 2) Special
Savings Account No. 004-02-000092-3.
They were engaged in the business of "buy and sell" of brand new and second-hand motor vehicles.
On 2 May 2000, they received an order from a certain Gerry Mambuay (Mambuay) for the purchase
of a second-hand Mitsubishi Pajero and a brand-new Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks
payable to different payees and drawn against the Philippine Veterans Bank (drawee), each valued
at Two Hundred Thousand Pesos (200,000.00) for a total of One Million Eight Hundred Thousand
Pesos (1,800,000.00).
About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch manager
of respondent Express Savings Bank (the Bank) was present during the transaction and immediately
offered the services of the Bank for the processing and eventual crediting of the said checks to
petitioners account.4 On the other hand,Potenciano countered that he was prevailed upon to accept
the checks by way of accommodation of petitioners who were valued clients of the Bank.5
On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank. The
Bank, inturn, deposited the checks with its depositary bank, Equitable-PCI Bank, in Bian,Laguna.
Equitable-PCI Bank presented the checks to the drawee, the Philippine Veterans Bank, which
honored the checks.
On 6 May 2000, Potenciano informedpetitioners that the checks they deposited with the Bank
werehonored. He allegedly warned petitioners that the clearing of the checks pertained only to the
availability of funds and did not mean that the checks were not infirmed.6 Thus, the entire amount of
1,800,000.00 was credited to petitioners savings account. Based on this information, petitioners
released the two cars to the buyer.
Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the ground that
the amount on the face of the checks was altered from the original amount of 4,000.00 to
200,000.00. The drawee returned the checks to Equitable-PCI Bank by way of Special Clearing
Receipts. In August 2000, the Bank was informed by Equitable-PCI Bank that the drawee
dishonored the checks onthe ground of material alterations. Equitable-PCI Bank initially filed a
protest with the Philippine Clearing House. In February 2001, the latter ruled in favor of the drawee
Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of the Bank in
the amount of 1,800,000.00.
The Bank insisted that they informed petitioners of said development in August 2000 by furnishing
them copies of the documents given by its depositary bank.7 On the other hand, petitioners
maintained that the Bank never informed them of these developments.
On 9 March 2001, petitioners issued a check in the amount of 500,000.00. Said check was
dishonored by the Bank for the reason "Deposit Under Hold." According topetitioners, the Bank
unilaterally and unlawfully put their account with the Bank on hold. On 22 March 2001, petitioners
counsel sent a demand letter asking the Bank to honor their check. The Bank refused to heed their
request and instead, closed the Special Savings Account of the petitioners with a balance of
1,179,659.69 and transferred said amount to their savings account. The Bank then withdrew the
amount of 1,800,000.00representing the returned checks from petitioners savings account.
Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and
unilateral withdrawal from their savings account, petitioners filed a Complaint for Sum of Money with
Damages against the Bank and Potenciano with the RTC of Calamba.
On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of petitioners. The
dispositive portion of the Decision reads:
WHEREFORE, the foregoing considered, the Court orders that judgment be rendered in favor of
plaintiffs and against the defendants jointly and severally to pay plaintiffs as follows, to wit:
1. 1,800,000.00 representing the amount unlawfully withdrawn by the defendants from the
account of plaintiffs;
2. 500,000.00 as moral damages; and
3. 300,000.00 as attorneys fees.8
The trial court reduced the issue to whether or not the rights of petitioners were violated by
respondents when the deposits of the former were debited by respondents without any court order
and without their knowledge and consent. According to the trial court, it is the depositary bank which
should safeguard the right ofthe depositors over their money. Invoking Article 1977 of the Civil Code,
the trial court stated that the depositary cannot make use of the thing deposited without the express
permission of the depositor. The trial court also held that respondents should have observed the 24-
hour clearing house rule that checks should be returned within 24-hours after discovery of the
forgery but in no event beyond the period fixed by law for filing a legal action. In this case, petitioners
deposited the checks in May 2000, and respondents notified them of the problems on the check
three months later or in August 2000. In sum, the trial court characterized said acts of respondents
as attended with bad faith when they debited the amount of 1,800,000.00 from the account of
petitioners.
Respondents filed a motion for reconsideration while petitioners filed a motion for execution from the
Decision of the RTC on the ground that respondents motion for reconsideration did not conform with
Section 5, Rule 16 of the Rules of Court; hence, it was a mere scrap of paper that did not toll the
running of the period to appeal.
On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the motion for
reconsideration, set aside the Pozas Decision, and dismissed the complaint. The trial court awarded
respondents their counterclaim of moral and exemplary damages of 100,000.00 each. The trial
court first applied the principle of liberality when it disregarded the alleged absence of a notice of
hearing in respondents motion for reconsideration. On the merits, the trial court considered the
relationship of the Bank and petitioners with respect to their savings account deposits as a contract
of loan with the bank as the debtor and petitioners as creditors. As such, Article 1977 of the Civil
Code prohibiting the depository from making use of the thing deposited without the express
permission of the depositor is not applicable. Instead, the trial court applied Article 1980 which
provides that fixed, savings and current deposits ofmoney in banks and similar institutions shall be
governed by the provisions governing simple loan. The trial court then opined thatthe Bank had all
the right to set-off against petitioners savings deposits the value of their nine checks that were
returned.
On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of
damages. The appellate court made the following ratiocination:
Any argument as to the notice of hearing has been resolved when the pairing judge issued the order
on February 24, 2004 setting the hearing on March 26, 2004. A perusal of the notice of hearing
shows that request was addressed to the Clerk of Court and plaintiffs counsel for hearing to be set
on March 26, 2004.
The core issues in this case revolve on whether the appellee bank had the right to debit the amount
of 1,800,000.00 from the appellants accounts and whether the banks act of debiting was done
"without the plaintiffs knowledge."
We find that the elements of legal compensation are all present in the case at bar. Hence, applying
the case of the Bank of the Philippine Islands v. Court of Appeals, the obligors bound principally are
at the same time creditors of each other. Appellee bank stands as a debtor of appellant, a depositor.
At the same time, said bank is the creditor of the appellant with respect to the dishonored treasury
warrant checks which amount were already credited to the account of appellants. When the
appellants had withdrawn the amount of the checks they deposited and later on said checks were
returned, they became indebted to the appellee bank for the corresponding amount.
It should be noted that [G]erry Mambuay was the appellants walkin buyer. As sellers, appellants
oughtto have exercised due diligence in assessing his credit or personal background. The 24-hour
clearing house rule is not the one that governs in this case since the nine checks were discovered by
the drawee bank to contain material alterations.
Appellants merely allege that they were not informed of any development on the checks returned.
However, this Court believes that the bank and appellants had opportunities to communicate about
the checks considering that several transactions occurred from the time of alleged return of the
checks to the date of the debit.
However, this Court agrees withappellants that they should not pay moral and exemplary damages
to each of the appellees for lack of basis. The appellants were not shown to have acted in bad faith.9
Petitioners filed the present petition for review on certiorariraising both procedural and substantive
issues, to wit:
1. Whether or not the Honorable Court of Appeals committed a reversible error of law and
grave abuse of discretion in upholding the legality and/or propriety of the Motion for
Reconsideration filed in violation of Section 5, Rule 15 ofthe Rules on Civil Procedure;
2. Whether or not the Honorable Court of Appeals committed a grave abuse of discretion in
declaring that the private respondents "had the right to debit the amount of 1,800,000.00
from the appellants accounts" and the banks act of debiting was done with the plaintiffs
knowledge.10
Before proceeding to the substantive issue, we first resolve the procedural issue raised by
petitioners.
Sections 5, Rule 15 of the Rules of Court states:
Section 5. Notice of hearing. The notice of hearing shall be addressed to all parties concerned,
and shall specify the time and date of the hearing which must not be later than ten (10) days after
the filing of the motion.
Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the
adverse party as the rules require. Petitioners add that the hearing on the motion for reconsideration
was scheduled beyond 10 days from the date of filing.
As held in Maturan v. Araula,11 the rule requiring that the notice be addressed to the adverse party
has beensubstantially complied with when a copy of the motion for reconsideration was furnished to
the counsel of the adverse party, coupled with the fact that the trial court acted on said notice of
hearing and, as prayed for, issued an order12 setting the hearing of the motion on 26 March 2004.
We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of the
said motion for reconsideration was furnished to the counsel of the adverse party.13
Now to the substantive issues to which procedural imperfection must, in this case, give way.
The central issue is whether the Bank had the right to debit 1,800,000.00 from petitioners
accounts.
On 6 May 2000, the Bank informed petitioners that the subject checks had been honored. Thus, the
amountof 1,800,000.00 was accordingly credited to petitioners accounts, prompting them to
release the purchased cars to the buyer.
Unknown to petitioners, the Bank deposited the checks in its depositary bank, Equitable-PCI Bank.
Three months had passed when the Bank was informed by its depositary bank that the drawee had
dishonored the checks on the ground of material alterations.
The return of the checks created a chain of debiting of accounts, the last loss eventually falling upon
the savings account of petitioners with respondent bank. The trial court inits reconsidered decision
and the appellate court were one in declaring that petitioners should bear the loss.
We reverse.
The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is
undisputed. In this case, before the alteration was discovered, the checks were already cleared by
the drawee bank, the Philippine Veterans Bank. Three months had lapsed before the drawee
dishonored the checks and returned them to Equitable-PCI Bank, the respondents depositary bank.
And itwas not until 10 months later when petitioners accounts were debited. A question thus arises:
What are the liabilities of the drawee, the intermediary banks, and the petitioners for the altered
checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his acceptance. The
acceptor is a drawee who accepts the bill. In Philippine National Bank v. Court of Appeals,14 the
payment of the amount of a check implies not only acceptance but also compliance with the
drawees obligation.
In case the negotiable instrument isaltered before acceptance, is the drawee liable for the original or
the altered tenor of acceptance? There are two divergent intepretations proffered by legal
analysts.15 The first view is supported by the leading case of National City Bank ofChicago v. Bank of
the Republic.16 In said case, a certain Andrew Manning stole a draft and substituted his name for that
of the original payee. He offered it as payment to a jeweler in exchange for certain jewelry. The
jeweler deposited the draft to the defendant bank which collectedthe equivalent amount from the
drawee. Upon learning of the alteration, the drawee sought to recover from the defendant bank the
amount of the draft, as money paid by mistake. The court denied recovery on the ground that the
drawee by accepting admitted the existence of the payee and his capacity to endorse.17 Still, in Wells
Fargo Bank & Union Trust Co. v. Bank of Italy,18 the court echoed the courts interpretation in
National City Bank of Chicago, in this wise:
We think the construction placed upon the section by the Illinois court is correct and that it was not
the legislative intent that the obligation of the acceptor should be limited to the tenorof the instrument
as drawn by the maker, as was the rule at common law,but that it should be enforceable in favor of a
holder in due course against the acceptor according to its tenor at the time of its acceptance or
certification.
The foregoing opinion and the Illinois decision which it follows give effect to the literal words of the
Negotiable Instruments Law. As stated in the Illinois case: "The court must take the act as it is
written and should give to the words their natural and common meaning . . . ifthe language of the act
conflicts with statutes or decisions in force before its enactment the courts should not give the act a
strained construction in order to make it harmonize with earlier statutes or decisions." The wording of
the act suggests that a change in the common law was intended. A careful reading thereof,
independent of any common-law influence, requires that the words "according to the tenor of his
acceptance" be construed as referring to the instrument as it was at the time it came into the hands
of the acceptor for acceptance, for he accepts no other instrument than the one presented to him
the altered form and it alone he engages to pay. This conclusion is in harmony with the law of
England and the continental countries. It makes for the usefulness and currency of negotiable paper
without seriously endangering accepted banking practices, for banking institutions can readily
protect themselves against liability on altered instruments either by qualifying their acceptance or
certification or by relying on forgery insurance and specialpaper which will make alterations obvious.
All of the arguments advanced against the conclusion herein announced seem highly technical in the
face of the practical facts that the drawee bank has authenticated an instrument in a certain form,
and that commercial policy favors the protection of anyone who, in due course, changes his position
on the faith of that authentication.19
The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the
extent of the bill prior to alteration.20 This view appears to be in consonance with Section 124 of the
Negotiable Instruments Law which statesthat a material alteration avoids an instrument except as
against an assenting party and subsequent indorsers, but a holder in due course may enforce
payment according to its original tenor. Thus, when the drawee bank pays a materially altered
check, it violates the terms of the check, as well as its duty tocharge its clients account only for bona
fide disbursements he had made. If the drawee did not pay according to the original tenor of the
instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer,
much less, the right to deduct the erroneous payment it made from the drawers account which it
was expected to treat with utmost fidelity.21 The drawee, however, still has recourse to recover its
loss. It may pass the liability back to the collecting bank which is what the drawee bank exactly did in
this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.
LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK
A depositary bank is the first bank to take an item even though it is also the payor bank, unless the
item is presented for immediate payment over the counter.22 It is also the bank to which a check is
transferred for deposit in an account at such bank, evenif the check is physically received and
indorsed first by another bank.23 A collecting bank is defined as any bank handling an item for
collection except the bank on which the check is drawn.24
When petitioners deposited the check with the Bank, they were designating the latter as the
collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check,
whether a manager's check or ordinary check, is not legal tender. As such, after receiving the
deposit, under its own rules, the Bank shall credit the amount in petitioners account or infuse value
thereon only after the drawee bank shall have paid the amount of the check or the check has been
cleared for deposit.25
The Bank and Equitable-PCI Bank are both depositary and collecting banks.
A depositary/collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments
Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be;
that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at
the time of his endorsement valid and subsisting." It has been repeatedly held that in check
transactions, the depositary/collecting bank or last endorser generally suffers the loss because it has
the duty to ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements.26 If any of the
warranties made by the depositary/collecting bank turns out to be false, then the drawee bank may
recover from it up to the amount of the check.27
The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for
the purpose of determining their genuineness and regularity. The collecting bank being primarily
engaged in banking holds itself out to the public as the expert and the law holds it to a high standard
of conduct.28
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the
materially altered checks. Since Equitable-PCI Bank is not a party to this case and the Bank allowed
its account with EquitablePCI Bank to be debited, it has the option toseek recourse against the latter
in another forum.
24-HOUR CLEARING RULE
Petitioners faulted the drawee bank for not following the 24-hour clearing period because it was only
in August 2000 that the drawee bank notified Equitable-PCI that there were material alterations in
the checks.
We do not subscribe to the position taken by petitioners that the drawee bank was at fault because it
did not follow the 24-hour clearing period which provides that when a drawee bank fails to return a
forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank
is absolved from liability.
Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special
Return Items Beyond The Reglementary Clearing Period.- Items which have been the subject of
material alteration or items bearing forged endorsement when such endorsement is necessary for
negotiation shall be returned by direct presentation or demand to the Presenting Bank and not
through the regular clearing house facilities within the period prescribed by law for the filing of a legal
action by the returning bank/branch, institution or entity sending the same.
Antonio Viray, in his book Handbook on Bank Deposits, elucidated:
It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong & Shanghai
vs. Peoples Bank reiterated in Metropolitan Bank and Trust Co. vs. FNCB, the Supreme Court
strictly enforced the 24-hour rule under which the drawee bank forever loses the right to claim
against presenting/collecting bank if the check is not returned at the next clearing day orwithin 24
hours. Apparently, the commercial banks felt strict enforcement of the 24-hour rule is too harsh and
therefore made representations and obtained modification of the rule, which modification is now
incorporated in the Manual of Regulations. Since the same commercial banks controlled the
Philippine Clearing House Corporation, incorporating the amended rule in the PCHC Rules naturally
followed.
As the rule now stands, the 24-hour rule is still in force, that is, any check which should be refused
by the drawee bank in accordance with long standing and accepted banking practices shall be
returned through the PCHC/local clearing office, as the case may be, not later than the next regular
clearing (24-hour). The modification, however, is that items which have been the subject of material
alteration or bearing forged endorsement may be returned even beyond 24 hours so long that the
same is returned within the prescriptive period fixed by law. The consensus among lawyers is that
the prescriptiveperiod is ten (10)years because a check or the endorsement thereon is a written
contract. Moreover, the item need not be returned through the clearing house but by direct
presentation to the presenting bank.29
In short, the 24-hour clearing ruledoes not apply to altered checks.
LIABILITY OF PETITIONERS
The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co.30 is in point. A
foreigner purchased several pieces of jewelry from Gold Palace Jewellery using a United Overseas
Bank (Malaysia) issued draft addressed to the Land Bank of the Philippines (LBP). Gold Palace
Jewellery deposited the draft in the companys account with Far East Bank. Far East Bank
presented the draft for clearing to LBP. The latter cleared the same and Gold Palace Jewellerys
account was credited with the amount stated in the draft. Consequently, Gold Palace Jewellery
released the pieces of jewelries to the foreigner. Three weeks later, LBP informed Far East Bank
that the amount in the foreign draft had been materially altered from 300,000.00 to 380,000.00.
LBP returnedthe check to Far East Bank. Far East Bank refunded LBP the 380,000.00 paid by
LBP. Far East Bank initially debited 168,053.36 from Gold Palace Jewellerys account and
demanded the payment of the difference between the amount in the altered draft and the amount
debited from Gold Palace Jewellery.
However, for the reasons already discussed above, our pronouncement in the Far East Bank and
Trust Companycase that "the drawee is liable on its payment of the check according to the tenor of
the check at the time of payment, which was the raised amount"31 is inapplicable to the factual milieu
obtaining herein.
We only adopt said decision in so far as it adjudged liability on the part of the collecting bank, thus:
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting
agent, Far East, should not have debited the money paid by the drawee bank from respondent
company's account. When Gold Palace deposited the check with Far East, the latter, under the
terms of the deposit and the provisions of the NIL, became an agent of the former for the collection
of the amount in the draft. The subsequent payment by the drawee bank and the collection of the
amount by the collecting bank closed the transaction insofar as the drawee and the holder of the
check or his agent are concerned, converted the check into a mere voucher, and, as already
discussed, foreclosed the recovery by the drawee of the amount paid. This closure of the transaction
is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will
arise if a bank at some future time will call on the payee for the return of the money paid to him on
the check.
As the transaction in this case had been closed and the principalagent relationship between the
payee and the collecting bank had already ceased, the latter in returning the amount to the drawee
bank was already acting on its own and should now be responsible for its own actions. x x x
Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument
for collection to shift the burden it brought upon itself. This is precisely because the said indorsement
is only for purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement. It
did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the
draft, it merely presented it for payment. Considering that the warranties of a general indorser as
provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders
in due course, these warranties did not attach to the indorsement for deposit and collection made by
Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not
debit respondent's account for the amount it refunded to the drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could
not debit the account of Gold Palace, and for doing so, it must return what it had erroneously taken.32
Applying the foregoing ratiocination, the Bank cannot debit the savings account of petitioners. A
depositary/collecting bank may resist or defend against a claim for breach of warranty if the drawer,
the payee, or either the drawee bank or depositary bank was negligent and such negligence
substantially contributed tothe loss from alteration. In the instant case, no negligence can be
attributed to petitioners. We lend credence to their claim that at the time of the sales transaction, the
Banks branch manager was present and even offered the Banks services for the processing and
eventual crediting of the checks. True to the branch managers words, the checks were cleared three
days later when deposited by petitioners and the entire amount ofthe checks was credited to their
savings account.
ON LEGAL COMPENSATION
Petitioners insist that the Bank cannotbe considered a creditor of the petitioners because it should
have made a claim of the amount of 1,800,000.00 from Equitable-PCI Bank, its own depositary
bank and the collecting bank in this case and not from them.
The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners savings account.
Under Art. 1278 of the New Civil Code, compensation shall take place when two persons, in their
own right, are creditors and debtors of each other. And the requisites for legal compensation are:
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.
It is well-settled that the relationship of the depositors and the Bank or similar institution is that of
creditor-debtor. Article 1980 of the New Civil Code provides that fixed, savings and current deposits
of money in banks and similar institutions shall be governed by the provisions concerning simple
loans. The bank is the debtorand the depositor is the creditor. The depositor lends the bank money
and the bank agrees to pay the depositor on demand. The savings deposit agreement between the
bank and the depositor is the contract that determines the rights and obligations of the parties.33
But as previously discussed, petitioners are not liable for the deposit of the altered checks. The
Bank, asthe depositary and collecting bank ultimately bears the loss. Thus, there being no
indebtedness to the Bank on the part of petitioners, legal compensation cannot take place.
DAMAGES
The Bank incurred a delay in informing petitioners of the checks dishonor. The Bank was informed
of the dishonor by Equitable-PCI Bank as early as August 2000 but it was only on 7 March 2001
when the Bank informed petitioners that it will debit from their account the altered amount. This delay
is tantamount to negligence on the part of the collecting bank which would entitle petitioners to an
award for damages under Article 1170 of the New Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.
The damages in the form of actual or compensatory damages represent the amount debited by the
Bank from petitioners account.
We delete the award of moral damages. Contrary to the lower courts finding, there was no showing
that the Bank acted fraudulently or in bad faith. It may have been remiss in its duty to diligently
protect the account of its depositors but its honest but mistaken belief that petitioners account
should be debited is not tantamount to bad faith. We also delete the award of attorneys fees for it is
not a sound public policy to place a premium on the right to litigate. No damages can becharged to
those who exercise such precious right in good faith, even if done erroneously.34
To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the
check prior to alteration. Since Philippine Veterans Bank paid the altered amount of the check, it
1wphi 1
may pass the liability back as it did, to Equitable-PCI Bank,the collecting bank. The collecting banks,
Equitable-PCI Bank and the Bank, are ultimately liable for the amount of the materially altered
check. It cannot further pass the liability back to the petitioners absent any showing in the negligence
on the part of the petitioners which substantially contributed to the loss from alteration.
Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered respondents to jointly
and severally pay petitioners 1,800,000.00, representing the amount withdrawn from the latters
account. We do not conform with said ruling regarding the finding of bad faith on the part of
respondents, as well as its failure toobserve the 24-hour clearing rule.
WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006 and 12
February 2007 respectively of the Court of Appeals in CA-G.R. CV No. 83192 are REVERSED and
SET ASIDE. The 15 January 2004 Decision of the Regional Trial Court of Calamba City, Branch 92
in Civil Case No. B-5886 rendered by Judge Antonio S. Pozas is REINSTATEDonly insofar as it
ordered respondents to jointly and severally pay petitioners 1,800,000.00 representing the amount
withdrawn from the latters account. The award of moral damages and attorneys fees are
DELETED.
SO ORDERED.
Alvin Patrimonio v. Napoleon Guttierez & OCTAVIO MARASIGAN III
FACTS:
Herein petitioner and respondent Guttierez entered into a business venture under the
name Slam Dunk Corporation. To start it up, petitioner pre-signed several check for the
expenses of the business. Although signed, however, there was no payees name, date
or amount indicated in the said checks. The blank checks were entrusted to Guttierez
with the instruction that he cannot fill them out without petitioners approval.
In 1993, without petitioners knowledge and consent, Guttierez borrowed money from
co-respondent Marasigan in the amount of 200,000php. The latter aceded to Guttierez
request and gave him the amount. Simultaneously, Guttierez deliverd to Marasigan one
of the blank checks pre-signed by petitioner. However, the same was dishonored by the
bank on the reason of closed account.
Marasigan sought recovery from Guttierez, but to no avail. Hence, he sent several
demand letters to petitioner, but to no avail as well. Thus, he filed a criminal case under
BP 22 against petitioner. On the other hand, Petitioner filed with the Regional Trial
Court (RTC) a Complaint for Declaration of Nullity of Loan and Recovery of Damages
against Respondents, invoking that he never authorized the loan.
The trial court ruled in favor of Marasigan and found petitioner, in issuing the pre-signed
blank checks, had the intention of issuing the check even without his approval. On
appeal to the Court of Appeals (CA), the appellate court affirmed the decision of the
RTC. Hence, this present case.
ISSUE:
Whether or not petitioner is liable to the loan contracted by Guttierez to Marasigan?
RULING:
The court held no.
That under Article 1878, paragraph 7 of the Civil Code, a written authority is required
when the loan is contracted through an agent.
In the present case, the petitioner is not bound by the contract of loan since the records
reveal that Guttierez did not have any authority to borrow money in behalf of petitioner.
Records do not show that the petitioner executed any special power of attorney in favor
of Guttierez to borrow in his behalf, hence, the act of Guttierez is in violation of the said
provision, and thus, he should be the only one liable for the loan he was not able to
settle.
In the present case, the petitioner is not bound by the contract of loan since the records
reveal that Guttierez did not have any authority to borrow money in behalf of petitioner.
Records do not show that the petitioner executed any special power of attorney in favor
of Guttierez to borrow in his behalf, hence, the act of Guttierez is in violation of the said
provision, and thus, he should be the only one liable for the loan he was not able to
settle.
G.R. No. 187769, June 04, 2014 - ALVIN PATRIMONIO, Petitioner, v. NAPOLEON GUTIERREZ AND OCTAVIO
MARASIGAN III, Respondents.
SECOND DIVISION
G.R. No. 187769, June 04, 2014
ALVIN PATRIMONIO, Petitioner, v. NAPOLEON GUTIERREZ AND OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the
decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-
G.R. CV No. 82301. The appellate court affirmed the decision of the Regional Trial Court (RTC) of Quezon City,
Branch 77, dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin Patrimonio and
ordering him to pay respondent Octavio 1arasigan III (Marasigan) the sum of P200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the
name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and shows related
to basketball. Petitioner was already then a decorated professional basketball player while Gutierrez was a well-
known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payees name, date or amount. The blank checks were entrusted to
Gutierrez with the specific instruction not to fill them out without previous notification to and approval by the
petitioner. According to petitioner, the arrangement was made so that he could verify the validity of the payment
and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioners knowledge and consent, Gutierrez went to Marasigan (the
petitioners former teammate), to secure a loan in the amount of P200,000.00 on the excuse that the petitioner
needed the money for the construction of his house. In addition to the payment of the principal, Gutierrez
assured Marasigan that he would be paid an interest of 5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the petitioner and Gutierrez, Marasigan
acceded to Gutierrez request and gave him P200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch,
Check No. 21001764 with the blank portions filled out with the words Cash Two Hundred Thousand Pesos
Only, and the amount of P200,000.00. The upper right portion of the check corresponding to the date was
also filled out with the words May 23, 1994but the petitioner contended that the same was not written by
Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason ACCOUNT CLOSED. It
was later revealed that petitioners account with the bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the
petitioner asking for the payment of P200,000.00, but his demands likewise went unheeded. Consequently, he
filed a criminal case for violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for Declaration of
Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan. He completely denied
authorizing the loan or the checks negotiation, and asserted that he was not privy to the parties loan
agreement.
Only Marasigan filed his answer to the complaint. In the RTCs order dated December 22, 1997, Gutierrez was
declared in default.
The Ruling of the RTC
The RTC ruled on February 3, 2003 in favor of Marasigan.4 It found that the petitioner, in issuing the pre-signed
blank checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez
not to negotiate or issue the check without his approval. While under Section 14 of the Negotiable Instruments
Law Gutierrez had the prima facie authority to complete the checks by filling up the blanks therein, the RTC
ruled that he deliberately violated petitioners specific instructions and took advantage of the trust reposed in
him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the petitioners
complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the face value of the
check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due
course. He contended that when Marasigan received the check, he knew that the same was without a date, and
hence, incomplete. He also alleged that the loan was actually between Marasigan and Gutierrez with his check
being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings. After
careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as he did not
receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the petitioners
authority. It held that the loan may not be nullified since it is grounded on an obligation arising from law and
ruled that the petitioner is still liable to pay Marasigan the sum of P200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the present
petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the
borrowing of money nor the checks negotiation to the latter; (2) under Article 1878 of the Civil Code, a special
power of attorney is necessary for an individual to make a loan or borrow money in behalf of another; (3) the
loan transaction was between Gutierrez and Marasigan, with his check being used only as a security; (4) the
check had not been completely and strictly filled out in accordance with his authority since the condition that the
subject check can only be used provided there is prior approval from him, was not complied with; (5) even if the
check was strictly filled up as instructed by the petitioner, Marasigan is still not entitled to claim the checks
value as he was not a holder in due course; and (6) by reason of the bad faith in the dealings between the
respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues: ChanRobles Vi rtua lawlib rary
1. Whether the contract of loan in the amount of P200,000.00 granted by respondent Marasigan to
petitioner, through respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of the P200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the authority
given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Courts Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The main point of
inquiry of whether the contract of loan may be nullified, hinges on the very existence of the contract of loan a
question that, as presented, is essentially, one of fact. Whether the petitioner authorized the borrowing; whether
Gutierrez completely filled out the subject check strictly under the petitioners authority; and whether Marasigan
is a holder in due course are also questions of fact, that, as a general rule, are beyond the scope of a Rule 45
petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review
under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no exceptions. One
notable exception is when the findings of fact of both the trial court and the CA are conflicting, making their
review necessary.5 In the present case, the tribunals below arrived at two conflicting factual findings, albeit with
the same conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will examine the
parties evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of
money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written authority
when the loan is contracted through an agent. The petitioner contends that absent such authority in writing, he
should not be held liable for the face value of the check because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless

The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to
render some service or to do something in representation or on behalf of another, with the consent or authority
of the latter." Agency may be express, or implied from the acts of the principal, from his silence or lack of action,
or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written when the law requires a
specific form, for example, in a sale of a piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent can
loan or borrow money in behalf of the principal, to wit: ChanRobles Vi rtualaw lib rary
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the
things which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such authority
may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al.,7that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization and not to its form. Be that as it
may, the authority must be duly established by competent and convincing evidence other than the self serving
assertion of the party claiming that such authority was verbally given, thus: ChanRoblesVirt ualawli bra ry
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its
form. The requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such
a mandate may be either oral or written, the one vital thing being that it shall be express. And more
recently, We stated that, if the special authority is not written, then it must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while
the same does not state that the special authority be in writing the Court has every reason to expect that, if not
in writing, the same be duly established by evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him. (Home Insurance Company vs. United States lines
Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf

of the Petitioner Should be Nullified for Being Void;
Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner. Records do not show that the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioners testimony confirmed that he never authorized Gutierrez (or anyone for that
matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware of any such
transaction:ChanRoblesVi rtua lawlib rary
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney
in writing authorizing him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioners acts of pre-signing the blank checks and releasing them to
Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract the loan in
his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the petitioner.
As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real estate mortgages
in the name of East Cordillera Mining Corporation, in the absence of an SPA conferring authority on de Villa,
there is no basis to hold the corporation liable, to wit: Cha nRobles Vi rtua lawlib rary
The power to borrow money is one of those cases where corporate officers as agents of the corporation need a
special power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa
was ever presented. x x x There was no showing that respondent corporation ever authorized de Villa to
obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the
corporation liable since there was no authority, express, implied or apparent, given to de Villa to
borrow money from petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death).
(citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held: ChanRoble sVirtualawli bra ry
Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to
obtain a loan from him.
xxxx
Petitioners testimony failed to categorically state, however, whether the loan was made on behalf of respondent
or of his wife. While petitioner claims that Lilian was authorized by respondent, the statement of account marked
as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting
for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of
respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x x
(emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf of the
petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner is not
bound by the parties loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient
because the authority to enter into a loan can never be presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it has the
burden of proof to show, not only the fact of agency, but also its nature and extent.11 As we held in People v.
Yabut:12cralawred
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City
cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as
holder, i.e., as "payee" or "indorsee." And there appears to be no contract of agency between Yambao and
Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before
the investigating fiscal that Yambao is but her "messenger" or "part-time employee." There was no special
fiduciary relationship that permeated their dealings. For a contract of agency to exist, the consent of
both parties is essential, the principal consents that the other party, the agent, shall act on his
behalf, and the agent consents so to act. It must exist as a fact. The law makes no presumption
thereof. The person alleging it has the burden of proof to show, not only the fact of its existence, but
also its nature and extent. This is more imperative when it is considered that the transaction dealt
with involves checks, which are not legal tender, and the creditor may validly refuse the same as
payment of obligation. (at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the SPA in
favor of the latter and without verifying from the petitioner whether he had authorized the borrowing of money
or release of the check. He was thus bound by the risk accompanying his trust on the mere assurances of
Gutierrez.
No Contract of Loan Was Perfected Between

Marasigan And Petitioner, as The Latters
Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any other
contract, is subject to the rules governing the requisites and validity of contracts in general.13Article 1318 of the
Civil Code14 enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential element of
consent. We agree with the petitioner. As we explained above, Gutierrez did not have the petitioners
written/verbal authority to enter into a contract of loan. While there may be a meeting of the minds between
Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent was not obtained and who
was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute sufficient authority to borrow money in his behalf and neither
should it be construed as petitioners grant of consent to the parties loan agreement. Without any evidence to
prove Gutierrez authority, the petitioners signature in the check cannot be taken, even remotely, as sufficient
authorization, much less, consent to the contract of loan. Without the consent given by one party in a purported
contract, such contract could not have been perfected; there simply was no contract to speak of.15 cralawred
With the loan issue out of the way, we now proceed to determine whether the petitioner can be made liable
under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in
Section 14 of the Negotiable Instruments Law (NIL) which states: ChanRoblesVi rtua lawlib rary
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on
a blank paper delivered by the person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however,
that any such instrument when completed may be enforced against any person who became a party thereto
prior to its completion, it must be filled up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is
valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer delivers
a pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, that
person is deemed to have prima facie authority to fill it up. It merely requires that the instrument be in the
possession of a person other than the drawer or maker and from such possession, together with the fact that the
instrument is wanting in a material particular, the law presumes agency to fill up the blanks.16 cralawred
In order however that one who is not a holder in due course can enforce the instrument against a party prior to
the instruments completion, two requisites must exist: (1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up within a reasonable time. If it was proven that the
instrument had not been filled up strictly in accordance with the authority given and within a reasonable time,
the maker can set this up as a personal defense and avoid liability. However, if the holder is a holder in due
course, there is a conclusive presumption that authority to fill it up had been given and that the same was not in
excess of authority.17cralawred
In the present case, the petitioner contends that there is no legal basis to hold him liable both under the contract
and loan and under the check because: first, the subject check was not completely filled out strictly under the
authority he has given and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus: ChanRoblesVi rtua lawlib rary
Sec. 52 A holder in due course is a holder who has taken the instrument under the following conditions:
(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it. (emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument in good faith and for
value. It also provides in Section 52(d) that in order that one may be a holder in due course, it is necessary
that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title
of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which could be set up
against a prior holder of the instrument.18 It means that he does not have any knowledge of fact which would
render it dishonest for him to take a negotiable paper. The absence of the defense, when the instrument was
taken, is the essential element of good faith.19 cralawred
As held in De Ocampo v. Gatchalian:20 cralawre d
In order to show that the defendant had knowledge of such facts that his action in taking the instrument
amounted to bad faith, it is not necessary to prove that the defendant knew the exact fraud that was
practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong about his assignor's acquisition of title,
although he did not have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with
fraud. It is not necessary that he should know the particulars or even the nature of the fraud, since all
that is required is knowledge of such facts that his action in taking the note amounted bad faith.
The term bad faith does not necessarily involve furtive motives, but means bad faith in a commercial sense.
The manner in which the defendants conducted their Liberty Loan department provided an easy way for thieves
to dispose of their plunder. It was a case of no questions asked. Although gross negligence does not of itself
constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances thrust the duty upon
the defendants to make further inquiries and they had no right to shut their eyes deliberately to obvious facts.
(emphasis supplied).
In the present case, Marasigans knowledge that the petitioner is not a party or a privy to the contract of loan,
and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. The
following exchange is significant on this point: ChanRoblesVi rtua lawlib rary
WITNESS: AMBET NABUS

Q: Now, I refer to the second call after your birthday. Tell us what you
talked about?
A: Since I celebrated my birthday in that place where Nap and I live
together with the other crew, there were several visitors that
included Danny Espiritu. So a week after my birthday, Bong
Marasigan called me up again and he was fuming mad. Nagmumura
na siya. Hinahanap niya si hinahanap niya si Nap, dahil
pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya
yung utang ni Nap, dahil
xxxx
WITNESS:Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa
kung saan ang tsekeng tumalbog (He told me that we have to fix it
up before it) mauwi pa kung saan
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo? (Whose
check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvins check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who
borrowed money from you or what you want to appear
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si
Alvin ang maiipit dito. (T.S.N., Ambet Nabus, July 27, 2000;
pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his inaction and
failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be construed as gross
negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred
from recovery. The NIL does not provide that a holder who is not a holder in due course may not in any case
recover on the instrument.22 The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable.23 Among such defenses is the filling up blank not
within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the authority
he gave. He points to his instruction not to use the check without his prior approval and argues that the check
was filled up in violation of said instruction.
Check Was Not Completed Strictly Under

The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks and
use the check. To repeat, petitioner gave Gutierrez pre-signed checks to be used in their business provided that
he could only use them upon his approval. His instruction could not be any clearer as Gutierrez authority was
limited to the use of the checks for the operation of their business, and on the condition that the
petitioners prior approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facieauthority
does not extend to its use (i.e., subsequent transfer or negotiation) once the check is completed. In other words,
only the authority to complete the check is presumed. Further, the law used the term "prima facie" to
underscore the fact that the authority which the law accords to a holder is a presumption juris tantum only;
hence, subject to subject to contrary proof. Thus, evidence that there was no authority or that the authority
granted has been exceeded may be presented by the maker in order to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner to fill
up the blank or to use the check. In his testimony, petitioner asserted that he never authorized nor approved the
filling up of the blank checks, thus:
ChanRoblesVi rtua lawlib rary
ATTY. DE Did you authorize anyone including Nap Gutierrez to write the
VERA: date, May 23, 1994? WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the
word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the
figure P200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to
write the words P200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority
when he used the check to pay the loan he supposedly contracted for the construction of petitioner's house. This
is a clear violation of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot
therefore be validly concluded that the check was completed strictly in accordance with the authority given by
the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal defense
that the blanks were not filled up in accordance with the authority he gave. Consequently, Marasigan has no
right to enforce payment against the petitioner and the latter cannot be obliged to pay the face value of the
check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin
Patrimonio's petition for review on certiorari. The appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET ASIDE. Costs
against the respondents.
SO ORDERED.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 166018 June 4, 2014
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE

BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent;
x-----------------------x
G.R. No. 167728

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE
BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
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 19,572,992.10 and 32,904,437.30, respectively, broken down as follows:
A. September to December 1997
September 1997 P 6,981,447.90

October 1997 6,209,316.60
November 1997 3,978,510.30
December 1997 2,403,717.30
Total 19,572,992.10
B. January to December 1998
January 1998 P 3,328,305.60

February 1998 4,566,924.90
March 1998 5,371,797.30
April 1998 4,197,235.50
May 1998 2,519,587.20
June 1998 2,301,333.00
July 1998 1,586,404.50
August 1998 1,787,359.50
September 1998 1,231,828.20
October 1998 1,303,184.40
November 1998 2,026,379.70
December 1998 2,684,097.50
Total 32,904,437.30
On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then Commissioner, Beethoven
Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or advises from abroad on the
management of funds located in the Philippines which do not involve transfer of funds from abroad
are not subject to DST. BIR Ruling No. 132-99 reads:
Date: August 23, 1999
FERRY TOLEDO VICTORINO GONZAGA

& ASSOCIATES
G/F AFC Building, Alfaro St.
Salcedo Village, Makati
Metro Manila
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:
An overseas client sends instruction to its bank in the Philippines to either:
(i) debit its local or foreign currency account and to pay a named recipient in the
Philippines; or
(ii) receive funds from another bank in the Philippines for deposit into its account and
to pay a named recipient in the Philippines."
The foregoing transactions are carried out under instruction from abroad and [do] not involve actual
fund transfer since the funds are already in the Philippine accounts. The instructions are in the form
of electronic messages (i.e., SWIFT MT100 or MT 202 and/or MT 521). In both cases, the payment
is against the delivery of investments purchased. The purchase of investments and the payment
comprise one single transaction. DST has already been paid under Section 176 for the investment
purchase.
B. Other transactions:
An overseas client sends an instruction to its bank in the Philippines to either:
(i) debit its local or foreign currency account and to pay a named recipient, who may
be another bank, a corporate entity or an individual in the Philippines; or
(ii) receive funds from another bank in the Philippines for deposit to its account and
to pay a named recipient, who may be another bank, a corporate entity or an
individual in the Philippines."
The above instruction is in the form of an electronic message (i.e., SWIFT MT 100 or MT 202) or
tested cable, and may not refer to any particular transaction.
The opening and maintenance by a non-resident of local or foreign currency accounts with a bank in
the Philippines is permitted by the Bangko Sentral ng Pilipinas, subject to certain conditions.
In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code, which provides that
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of
Thirty centavos (P0.30) on each Two hundred pesos (200), 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 19,572,992.10 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 32,904,437.30 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 30,360,570.75 in
CTA Case No. 6009 and 16,436,395.83 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 30,360,570.75 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 16,436,395.83
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:
Thirty centavos (P0.30) on each Two hundred pesos (200), 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 200 or
fractional part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939,21 which provided:
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.
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
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.
The pertinent provision of the present Tax Code has therefore remained substantially the same for
the past one hundred years. The identical text and common history of Section 230 of the 1977 Tax
1w phi1
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.32Presentment 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 acceptor, then it could not have made any payment of a
bill of exchange or order for the payment of money drawn abroad but payable here in the
Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of the
1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as it is not "a person making,
signing, issuing, accepting, or, transferring" the taxable instruments under the said provision. Thus,
HSBC erroneously paid DST on the said electronic messages for which it is entitled to a tax refund.
WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA
Case No. 6009 and dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax Appeals
are REINSTATED.
SO ORDERED.

SUPREME COURT
Baguio City
EN BANC
G.R. No. 180016 April 29, 2014
LITO CORPUZ, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
PERALTA, J.:
This is to resolve the Petition for Review on Certiorari, under Rule 45 of the Rules of Court, dated
November 5, 2007, of petitioner Lito Corpuz (petitioner), seeking to reverse and set aside the
Decision1 dated March 22, 2007 and Resolution2 dated September 5, 2007 of the Court of Appeals
(CA), which affirmed with modification the Decision3 dated July 30, 2004 of the Regional Trial Court
(RTC), Branch 46, San Fernando City, finding the petitioner guilty beyond reasonable doubt of the
crime of Estafa under Article 315, paragraph (1), sub-paragraph (b) of the Revised Penal Code.
The antecedent facts follow.
Private complainant Danilo Tangcoy and petitioner met at the Admiral Royale Casino in Olongapo
City sometime in 1990. Private complainant was then engaged in the business of lending money to
casino players and, upon hearing that the former had some pieces of jewelry for sale, petitioner
approached him on May 2, 1991 at the same casino and offered to sell the said pieces of jewelry on
commission basis. Private complainant agreed, and as a consequence, he turned over to petitioner
the following items: an 18k diamond ring for men; a woman's bracelet; one (1) men's necklace and
another men's bracelet, with an aggregate value of 98,000.00, as evidenced by a receipt of even
date. They both agreed that petitioner shall remit the proceeds of the sale, and/or, if unsold, to return
the same items, within a period of 60 days. The period expired without petitioner remitting the
proceeds of the sale or returning the pieces of jewelry. When private complainant was able to meet
petitioner, the latter promised the former that he will pay the value of the said items entrusted to him,
but to no avail.
Thus, an Information was filed against petitioner for the crime of estafa, which reads as follows:
That on or about the fifth (5th) day of July 1991, in the City of Olongapo, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused, after having received from one
Danilo Tangcoy, one (1) men's diamond ring, 18k, worth 45,000.00; one (1) three-baht men's
bracelet, 22k, worth 25,000.00; one (1) two-baht ladies' bracelet, 22k, worth 12,000.00, or in the
total amount of Ninety-Eight Thousand Pesos (98,000.00), Philippine currency, under expressed
obligation on the part of said accused to remit the proceeds of the sale of the said items or to return
the same, if not sold, said accused, once in possession of the said items, with intent to defraud, and
with unfaithfulness and abuse of confidence, and far from complying with his aforestated obligation,
did then and there wilfully, unlawfully and feloniously misappropriate, misapply and convert to his
own personal use and benefit the aforesaid jewelries (sic) or the proceeds of the sale thereof, and
despite repeated demands, the accused failed and refused to return the said items or to remit the
amount of Ninety- Eight Thousand Pesos (98,000.00), Philippine currency, to the damage and
prejudice of said Danilo Tangcoy in the aforementioned amount.
CONTRARY TO LAW.
On January 28, 1992, petitioner, with the assistance of his counsel, entered a plea of not guilty.
Thereafter, trial on the merits ensued.
The prosecution, to prove the above-stated facts, presented the lone testimony of Danilo Tangcoy.
On the other hand, the defense presented the lone testimony of petitioner, which can be
summarized, as follows:
Petitioner and private complainant were collecting agents of Antonio Balajadia, who is engaged in
the financing business of extending loans to Base employees. For every collection made, they earn
a commission. Petitioner denied having transacted any business with private complainant.
However, he admitted obtaining a loan from Balajadia sometime in 1989 for which he was made to
sign a blank receipt. He claimed that the same receipt was then dated May 2, 1991 and used as
evidence against him for the supposed agreement to sell the subject pieces of jewelry, which he did
not even see.
After trial, the RTC found petitioner guilty beyond reasonable doubt of the crime charged in the
Information. The dispositive portion of the decision states:
WHEREFORE, finding accused LITO CORPUZ GUILTY beyond reasonable doubt of the felony of
Estafa under Article 315, paragraph one (1), subparagraph (b) of the Revised Penal Code;
there being no offsetting generic aggravating nor ordinary mitigating circumstance/s to vary the
penalty imposable;
accordingly, the accused is hereby sentenced to suffer the penalty of deprivation of liberty consisting
of an imprisonment under the Indeterminate Sentence Law of FOUR (4) YEARS AND TWO (2)
MONTHS of Prision Correccional in its medium period AS MINIMUM, to FOURTEEN (14) YEARS
AND EIGHT (8) MONTHS of Reclusion Temporal in its minimum period AS MAXIMUM; to indemnify
private complainant Danilo Tangcoy the amount of 98,000.00 as actual damages, and to pay the
costs of suit.
SO ORDERED.
The case was elevated to the CA, however, the latter denied the appeal of petitioner and affirmed
the decision of the RTC, thus:
WHEREFORE, the instant appeal is DENIED. The assailed Judgment dated July 30, 2004 of the
RTC of San Fernando City (P), Branch 46, is hereby AFFIRMED with MODIFICATION on the
imposable prison term, such that accused-appellant shall suffer the indeterminate penalty of 4 years
and 2 months of prision correccional, as minimum, to 8 years of prision mayor, as maximum, plus 1
year for each additional 10,000.00, or a total of 7 years. The rest of the decision stands.
SO ORDERED.
Petitioner, after the CA denied his motion for reconsideration, filed with this Court the present
petition stating the following grounds:
A. THE HONORABLE COURT OF APPEALS ERRED IN CONFIRMING THE ADMISSION AND

APPRECIATION BY THE LOWER COURT OF PROSECUTION EVIDENCE, INCLUDING ITS
EXHIBITS, WHICH ARE MERE MACHINE COPIES, AS THIS VIOLATES THE BEST EVIDENCE
RULE;
B. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT'S

FINDING THAT THE CRIMINAL INFORMATION FOR ESTAFA WAS NOT FATALLY DEFECTIVE
ALTHOUGH THE SAME DID NOT CHARGE THE OFFENSE UNDER ARTICLE 315 (1) (B) OF THE
REVISED PENAL CODE IN THAT -
1. THE INFORMATION DID NOT FIX A PERIOD WITHIN WHICH THE SUBJECT
[PIECES OF] JEWELRY SHOULD BE RETURNED, IF UNSOLD, OR THE MONEY
TO BE REMITTED, IF SOLD;
2. THE DATE OF THE OCCURRENCE OF THE CRIME ALLEGED IN THE

INFORMATION AS OF 05 JULY 1991 WAS MATERIALLY DIFFERENT FROM THE
ONE TESTIFIED TO BY THE PRIVATE COMPLAINANT WHICH WAS 02 MAY
1991;
C. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT'S

FINDING THAT DEMAND TO RETURN THE SUBJECT [PIECES OF] JEWELRY, IF UNSOLD, OR
REMIT THE PROCEEDS, IF SOLD AN ELEMENT OF THE OFFENSE WAS PROVED;
D. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT'S

FINDING THAT THE PROSECUTION'S CASE WAS PROVEN BEYOND REASONABLE DOUBT
ALTHOUGH -
1. THE PRIVATE COMPLAINANT TESTIFIED ON TWO (2) VERSIONS OF THE

INCIDENT;
2. THE VERSION OF THE PETITIONER ACCUSED IS MORE
STRAIGHTFORWARD AND LOGICAL, CONSISTENT WITH HUMAN
EXPERIENCE;
3. THE EQUIPOISE RULE WAS NOT APPRECIATED IN AND APPLIED TO THIS

CASE;
4. PENAL STATUTES ARE STRICTLY CONSTRUED AGAINST THE STATE.
In its Comment dated May 5, 2008, the Office of the Solicitor General (OSG) stated the following
counter-arguments:
The exhibits were properly admitted inasmuch as petitioner failed to object to their admissibility.
The information was not defective inasmuch as it sufficiently established the designation of the
offense and the acts complained of.
The prosecution sufficiently established all the elements of the crime charged.
This Court finds the present petition devoid of any merit.
The factual findings of the appellate court generally are conclusive, and carry even more weight
when said court affirms the findings of the trial court, absent any showing that the findings are totally
devoid of support in the records, or that they are so glaringly erroneous as to constitute grave abuse
of discretion.4 Petitioner is of the opinion that the CA erred in affirming the factual findings of the trial
court. He now comes to this Court raising both procedural and substantive issues.
According to petitioner, the CA erred in affirming the ruling of the trial court, admitting in evidence a
receipt dated May 2, 1991 marked as Exhibit "A" and its submarkings, although the same was
merely a photocopy, thus, violating the best evidence rule. However, the records show that petitioner
never objected to the admissibility of the said evidence at the time it was identified, marked and
testified upon in court by private complainant. The CA also correctly pointed out that petitioner also
failed to raise an objection in his Comment to the prosecution's formal offer of evidence and even
admitted having signed the said receipt. The established doctrine is that when a party failed to
interpose a timely objection to evidence at the time they were offered in evidence, such objection
shall be considered as waived.5
Another procedural issue raised is, as claimed by petitioner, the formally defective Information filed
against him. He contends that the Information does not contain the period when the pieces of jewelry
were supposed to be returned and that the date when the crime occurred was different from the one
testified to by private complainant. This argument is untenable. The CA did not err in finding that the
Information was substantially complete and in reiterating that objections as to the matters of form
and substance in the Information cannot be made for the first time on appeal. It is true that the
gravamen of the crime of estafa under Article 315, paragraph 1, subparagraph (b) of the RPC is the
appropriation or conversion of money or property received to the prejudice of the owner6 and that the
time of occurrence is not a material ingredient of the crime, hence, the exclusion of the period and
the wrong date of the occurrence of the crime, as reflected in the Information, do not make the latter
fatally defective. The CA ruled:
x x x An information is legally viable as long as it distinctly states the statutory designation of the
offense and the acts or omissions constitutive thereof. Then Section 6, Rule 110 of the Rules of
Court provides that a complaint or information is sufficient if it states the name of the accused;
the designation of the offense by the statute; the acts or omissions complained of as constituting the
offense; the name of the offended party; the approximate time of the commission of the offense, and
the place wherein the offense was committed. In the case at bar, a reading of the subject Information
shows compliance with the foregoing rule. That the time of the commission of the offense was stated
as " on or about the fifth (5th) day of July, 1991" is not likewise fatal to the prosecution's cause
considering that Section 11 of the same Rule requires a statement of the precise time only when the
same is a material ingredient of the offense. The gravamen of the crime of estafa under Article 315,
paragraph 1 (b) of the Revised Penal Code (RPC) is the appropriation or conversion of money or
property received to the prejudice of the offender. Thus, aside from the fact that the date of the
commission thereof is not an essential element of the crime herein charged, the failure of the
prosecution to specify the exact date does not render the Information ipso facto defective. Moreover,
the said date is also near the due date within which accused-appellant should have delivered the
proceeds or returned the said [pieces of jewelry] as testified upon by Tangkoy, hence, there was
sufficient compliance with the rules. Accused-appellant, therefore, cannot now be allowed to claim
that he was not properly apprised of the charges proferred against him.7
It must be remembered that petitioner was convicted of the crime of Estafa under Article 315,
paragraph 1 (b) of the RPC, which reads:
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow.
1. With unfaithfulness or abuse of confidence, namely:
xxxx
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of or to return the same, even though such
obligation be totally or partially guaranteed by a bond; or by denying having received such money,
goods, or other property; x x x
The elements of estafa with abuse of confidence are as follows: (a) that money, goods or other
personal property is received by the offender in trust, or on commission, or for administration, or
under any other obligation involving the duty to make delivery of, or to return the same; (b) that there
be misappropriation or conversion of such money or property by the offender or denial on his part of
such receipt; (c) that such misappropriation or conversion or denial is to the prejudice of another;
and (d) that there is a demand made by the offended party on the offender.8
Petitioner argues that the last element, which is, that there is a demand by the offended party on the
offender, was not proved. This Court disagrees. In his testimony, private complainant narrated how
he was able to locate petitioner after almost two (2) months from the time he gave the pieces of
jewelry and asked petitioner about the same items with the latter promising to pay them. Thus:
PROS. MARTINEZ
q Now, Mr. Witness, this was executed on 2 May 1991, and this transaction could have been
finished on 5 July 1991, the question is what happens (sic) when the deadline came?
a I went looking for him, sir.
q For whom?
a Lito Corpuz, sir.
q Were you able to look (sic) for him?
a I looked for him for a week, sir.
q Did you know his residence?
a Yes, sir.
q Did you go there?
a Yes, sir.
q Did you find him?
a No, sir.
q Were you able to talk to him since 5 July 1991?
a I talked to him, sir.
q How many times?
a Two times, sir.
q What did you talk (sic) to him?
a About the items I gave to (sic) him, sir.
q Referring to Exhibit A-2?
a Yes, sir, and according to him he will take his obligation and I asked him where the items are and
he promised me that he will pay these amount, sir.
q Up to this time that you were here, were you able to collect from him partially or full?
a No, sir.9
No specific type of proof is required to show that there was demand.10 Demand need not even be
formal; it may be verbal.11 The specific word "demand" need not even be used to show that it has
indeed been made upon the person charged, since even a mere query as to the whereabouts of the
money [in this case, property], would be tantamount to a demand.12 As expounded in Asejo v.
People:13
With regard to the necessity of demand, we agree with the CA that demand under this kind of estafa
need not be formal or written. The appellate court observed that the law is silent with regard to the
form of demand in estafa under Art. 315 1(b), thus:
When the law does not qualify, We should not qualify. Should a written demand be necessary, the
law would have stated so. Otherwise, the word "demand" should be interpreted in its general
meaning as to include both written and oral demand. Thus, the failure of the prosecution to present a
written demand as evidence is not fatal.
In Tubb v. People, where the complainant merely verbally inquired about the money entrusted to the
accused, we held that the query was tantamount to a demand, thus:
x x x [T]he law does not require a demand as a condition precedent to the existence of the crime of
embezzlement. It so happens only that failure to account, upon demand for funds or property held in
trust, is circumstantial evidence of misappropriation. The same way, however, be established by
other proof, such as that introduced in the case at bar.14
In view of the foregoing and based on the records, the prosecution was able to prove the existence
of all the elements of the crime. Private complainant gave petitioner the pieces of jewelry in trust, or
on commission basis, as shown in the receipt dated May 2, 1991 with an obligation to sell or return
the same within sixty (60) days, if unsold. There was misappropriation when petitioner failed to remit
the proceeds of those pieces of jewelry sold, or if no sale took place, failed to return the same pieces
of jewelry within or after the agreed period despite demand from the private complainant, to the
prejudice of the latter.
Anent the credibility of the prosecution's sole witness, which is questioned by petitioner, the same is
unmeritorious. Settled is the rule that in assessing the credibility of witnesses, this Court gives great
respect to the evaluation of the trial court for it had the unique opportunity to observe the demeanor
of witnesses and their deportment on the witness stand, an opportunity denied the appellate courts,
which merely rely on the records of the case.15 The assessment by the trial court is even conclusive
and binding if not tainted with arbitrariness or oversight of some fact or circumstance of weight and
influence, especially when such finding is affirmed by the CA.16 Truth is established not by the
number of witnesses, but by the quality of their testimonies, for in determining the value and
credibility of evidence, the witnesses are to be weighed not numbered.17
As regards the penalty, while this Court's Third Division was deliberating on this case, the question
of the continued validity of imposing on persons convicted of crimes involving property came up. The
legislature apparently pegged these penalties to the value of the money and property in 1930 when it
enacted the Revised Penal Code. Since the members of the division reached no unanimity on this
question and since the issues are of first impression, they decided to refer the case to the Court en
banc for consideration and resolution. Thus, several amici curiae were invited at the behest of the
Court to give their academic opinions on the matter. Among those that graciously complied were
Dean Jose Manuel Diokno, Dean Sedfrey M. Candelaria, Professor Alfredo F. Tadiar, the Senate
President, and the Speaker of the House of Representatives. The parties were later heard on oral
arguments before the Court en banc, with Atty. Mario L. Bautista appearing as counsel de oficio of
the petitioner.
After a thorough consideration of the arguments presented on the matter, this Court finds the
following:
There seems to be a perceived injustice brought about by the range of penalties that the courts
continue to impose on crimes against property committed today, based on the amount of damage
measured by the value of money eighty years ago in 1932. However, this Court cannot modify the
said range of penalties because that would constitute judicial legislation. What the legislature's
perceived failure in amending the penalties provided for in the said crimes cannot be remedied
through this Court's decisions, as that would be encroaching upon the power of another branch of
the government. This, however, does not render the whole situation without any remedy. It can be
appropriately presumed that the framers of the Revised Penal Code (RPC) had anticipated this
matter by including Article 5, which reads:
ART. 5. Duty of the court in connection with acts which should be repressed but which are not
covered by the law, and in cases of excessive penalties. - Whenever a court has knowledge of any
act which it may deem proper to repress and which is not punishable by law, it shall render the
proper decision, and shall report to the Chief Executive, through the Department of Justice, the
reasons which induce the court to believe that said act should be made the subject of penal
legislation.
In the same way, the court shall submit to the Chief Executive, through the Department of Justice,
such statement as may be deemed proper, without suspending the execution of the sentence, when
a strict enforcement of the provisions of this Code would result in the imposition of a clearly
excessive penalty, taking into consideration the degree of malice and the injury caused by the
offense.18
The first paragraph of the above provision clearly states that for acts bourne out of a case which is
not punishable by law and the court finds it proper to repress, the remedy is to render the proper
decision and thereafter, report to the Chief Executive, through the Department of Justice, the
reasons why the same act should be the subject of penal legislation. The premise here is that a
deplorable act is present but is not the subject of any penal legislation, thus, the court is tasked to
inform the Chief Executive of the need to make that act punishable by law through legislation. The
second paragraph is similar to the first except for the situation wherein the act is already punishable
by law but the corresponding penalty is deemed by the court as excessive. The remedy therefore, as
in the first paragraph is not to suspend the execution of the sentence but to submit to the Chief
Executive the reasons why the court considers the said penalty to be non-commensurate with the
act committed. Again, the court is tasked to inform the Chief Executive, this time, of the need for a
legislation to provide the proper penalty.
In his book, Commentaries on the Revised Penal Code,19 Guillermo B. Guevara opined that in Article
5, the duty of the court is merely to report to the Chief Executive, with a recommendation for an
amendment or modification of the legal provisions which it believes to be harsh. Thus:
This provision is based under the legal maxim "nullum crimen, nulla poena sige lege," that is, that
there can exist no punishable act except those previously and specifically provided for by penal
statute.
No matter how reprehensible an act is, if the law-making body does not deem it necessary to prohibit
its perpetration with penal sanction, the Court of justice will be entirely powerless to punish such act.
Under the provisions of this article the Court cannot suspend the execution of a sentence on the
ground that the strict enforcement of the provisions of this Code would cause excessive or harsh
penalty. All that the Court could do in such eventuality is to report the matter to the Chief Executive
with a recommendation for an amendment or modification of the legal provisions which it believes to
be harsh.20
Anent the non-suspension of the execution of the sentence, retired Chief Justice Ramon C. Aquino
and retired Associate Justice Carolina C. Grio-Aquino, in their book, The Revised Penal
Code,21 echoed the above-cited commentary, thus:
The second paragraph of Art. 5 is an application of the humanitarian principle that justice must be
tempered with mercy. Generally, the courts have nothing to do with the wisdom or justness of the
penalties fixed by law. "Whether or not the penalties prescribed by law upon conviction of violations
of particular statutes are too severe or are not severe enough, are questions as to which
commentators on the law may fairly differ; but it is the duty of the courts to enforce the will of the
legislator in all cases unless it clearly appears that a given penalty falls within the prohibited class of
excessive fines or cruel and unusual punishment." A petition for clemency should be addressed to
the Chief Executive.22
There is an opinion that the penalties provided for in crimes against property be based on the current
inflation rate or at the ratio of 1.00 is equal to 100.00 . However, it would be dangerous as this
would result in uncertainties, as opposed to the definite imposition of the penalties. It must be
remembered that the economy fluctuates and if the proposed imposition of the penalties in crimes
against property be adopted, the penalties will not cease to change, thus, making the RPC, a self-
amending law. Had the framers of the RPC intended that to be so, it should have provided the same,
instead, it included the earlier cited Article 5 as a remedy. It is also improper to presume why the
present legislature has not made any moves to amend the subject penalties in order to conform with
the present times. For all we know, the legislature intends to retain the same penalties in order to
deter the further commission of those punishable acts which have increased tremendously through
the years. In fact, in recent moves of the legislature, it is apparent that it aims to broaden the
coverage of those who violate penal laws. In the crime of Plunder, from its original minimum amount
of 100,000,000.00 plundered, the legislature lowered it to 50,000,000.00. In the same way, the
legislature lowered the threshold amount upon which the Anti-Money Laundering Act may apply,
from 1,000,000.00 to 500,000.00.
It is also worth noting that in the crimes of Theft and Estafa, the present penalties do not seem to be
excessive compared to the proposed imposition of their corresponding penalties. In Theft, the
provisions state that:
Art. 309. Penalties. Any person guilty of theft shall be punished by:
1. The penalty of prision mayor in its minimum and medium periods, if the value of the thing
stolen is more than 12,000 pesos but does not exceed 22,000 pesos, but if the value of the
thing stolen exceeds the latter amount the penalty shall be the maximum period of the one
prescribed in this paragraph, and one year for each additional ten thousand pesos, but the
total of the penalty which may be imposed shall not exceed twenty years. In such cases, and
in connection with the accessory penalties which may be imposed and for the purpose of the
other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be.
2. The penalty of prision correccional in its medium and maximum periods, if the value of the
thing stolen is more than 6,000 pesos but does not exceed 12,000 pesos.
3. The penalty of prision correccional in its minimum and medium periods, if the value of the
property stolen is more than 200 pesos but does not exceed 6,000 pesos.
4. Arresto mayor in its medium period to prision correccional in its minimum period, if the
value of the property stolen is over 50 pesos but does not exceed 200 pesos.
5. Arresto mayor to its full extent, if such value is over 5 pesos but does not exceed 50
pesos.
6. Arresto mayor in its minimum and medium periods, if such value does not exceed 5
pesos.
7. Arresto menor or a fine not exceeding 200 pesos, if the theft is committed under the
circumstances enumerated in paragraph 3 of the next preceding article and the value of the
thing stolen does not exceed 5 pesos. If such value exceeds said amount, the provision of
any of the five preceding subdivisions shall be made applicable.
8. Arresto menor in its minimum period or a fine not exceeding 50 pesos, when the value of
the thing stolen is not over 5 pesos, and the offender shall have acted under the impulse of
hunger, poverty, or the difficulty of earning a livelihood for the support of himself or his family.
In a case wherein the value of the thing stolen is 6,000.00, the above-provision states that the
penalty is prision correccional in its minimum and medium periods (6 months and 1 day to 4 years
and 2 months). Applying the proposal, if the value of the thing stolen is 6,000.00, the penalty is
imprisonment of arresto mayor in its medium period to prision correccional minimum period (2
months and 1 day to 2 years and 4 months). It would seem that under the present law, the penalty
imposed is almost the same as the penalty proposed. In fact, after the application of the
Indeterminate Sentence Law under the existing law, the minimum penalty is still lowered by one
degree; hence, the minimum penalty is arresto mayor in its medium period to maximum period (2
months and 1 day to 6 months), making the offender qualified for pardon or parole after serving the
said minimum period and may even apply for probation. Moreover, under the proposal, the minimum
penalty after applying the Indeterminate Sentence Law is arresto menor in its maximum period to
arresto mayor in its minimum period (21 days to 2 months) is not too far from the minimum period
under the existing law. Thus, it would seem that the present penalty imposed under the law is not at
all excessive. The same is also true in the crime of Estafa.23
Moreover, if we apply the ratio of 1:100, as suggested to the value of the thing stolen in the crime of
Theft and the damage caused in the crime of Estafa, the gap between the minimum and the
maximum amounts, which is the basis of determining the proper penalty to be imposed, would be
too wide and the penalty imposable would no longer be commensurate to the act committed and the
value of the thing stolen or the damage caused:
I. Article 309, or the penalties for the crime of Theft, the value would be modified but the penalties
are not changed:
1. 12,000.00 to 22,000.00 will become 1,200,000.00 to 2,200,000.00, punished by

prision mayor minimum to prision mayor medium (6 years and 1 day to 10 years).
2. 6,000.00 to 12,000.00 will become 600,000.00 to 1,200,000.00, punished by prision

correccional medium and to prision correccional maximum (2 years, 4 months and 1 day to 6
years).24
3. 200.00 to 6,000.00 will become 20,000.00 to 600,000.00, punishable by prision

correccional minimum to prision correccional medium (6 months and 1 day to 4 years and 2
months).
4. 50.00 to 200.00 will become 5,000.00 to 20,000.00, punishable by arresto mayor

medium to prision correccional minimum (2 months and 1 day to 2 years and 4 months).
5. 5.00 to 50.00 will become 500.00 to 5,000.00, punishable by arresto mayor (1 month
and 1 day to 6 months).
6. 5.00 will become 500.00, punishable by arresto mayor minimum to arresto mayor
medium.
x x x x.
II. Article 315, or the penalties for the crime of Estafa, the value would also be modified but the
penalties are not changed, as follows:
1st. 12,000.00 to 22,000.00, will become 1,200,000.00 to 2,200,000.00, punishable by

prision correccional maximum to prision mayor minimum (4 years, 2 months and 1 day to 8
years).25
2nd. 6,000.00 to 12,000.00 will become 600,000.00 to 1,200,000.00, punishable by

prision correccional minimum to prision correccional medium (6 months and 1 day to 4 years
and 2 months).26
3rd. 200.00 to 6,000.00 will become 20,000.00 to 600,000.00, punishable by arresto

mayor maximum to prision correccional minimum (4 months and 1 day to 2 years and 4
months).
4th. 200.00 will become 20,000.00, punishable by arresto mayor maximum (4 months and
1 day to 6 months).
An argument raised by Dean Jose Manuel I. Diokno, one of our esteemed amici curiae, is that the
incremental penalty provided under Article 315 of the RPC violates the Equal Protection Clause.
The equal protection clause requires equality among equals, which is determined according to a
valid classification. The test developed by jurisprudence here and yonder is that of
reasonableness,27 which has four requisites:
(1) The classification rests on substantial distinctions;
(2) It is germane to the purposes of the law;
(3) It is not limited to existing conditions only; and
(4) It applies equally to all members of the same class.28
According to Dean Diokno, the Incremental Penalty Rule (IPR) does not rest on substantial
distinctions as 10,000.00 may have been substantial in the past, but it is not so today, which
violates the first requisite; the IPR was devised so that those who commit estafa involving higher
amounts would receive heavier penalties; however, this is no longer achieved, because a person
who steals 142,000.00 would receive the same penalty as someone who steals hundreds of
millions, which violates the second requisite; and, the IPR violates requisite no. 3, considering that
the IPR is limited to existing conditions at the time the law was promulgated, conditions that no
longer exist today.
Assuming that the Court submits to the argument of Dean Diokno and declares the incremental
penalty in Article 315 unconstitutional for violating the equal protection clause, what then is the
penalty that should be applied in case the amount of the thing subject matter of the crime exceeds
22,000.00? It seems that the proposition poses more questions than answers, which leads us even
more to conclude that the appropriate remedy is to refer these matters to Congress for them to
exercise their inherent power to legislate laws.
Even Dean Diokno was of the opinion that if the Court declares the IPR unconstitutional, the remedy
is to go to Congress. Thus:
xxxx
JUSTICE PERALTA:
Now, your position is to declare that the incremental penalty should be struck down as
unconstitutional because it is absurd.
DEAN DIOKNO:
Absurd, it violates equal protection, Your Honor, and cruel and unusual punishment.
JUSTICE PERALTA:
Then what will be the penalty that we are going to impose if the amount is more than Twenty-Two
Thousand (22,000.00) Pesos.
DEAN DIOKNO:
Well, that would be for Congress to ... if this Court will declare the incremental penalty rule
unconstitutional, then that would ... the void should be filled by Congress.
JUSTICE PERALTA:
But in your presentation, you were fixing the amount at One Hundred Thousand (100,000.00)
Pesos ...
DEAN DIOKNO:
Well, my presen ... (interrupted)
JUSTICE PERALTA:
For every One Hundred Thousand (100,000.00) Pesos in excess of Twenty-Two Thousand
(22,000.00) Pesos you were suggesting an additional penalty of one (1) year, did I get you right?
DEAN DIOKNO:
Yes, Your Honor, that is, if the court will take the route of statutory interpretation.
JUSTICE PERALTA:
Ah ...
DEAN DIOKNO:
If the Court will say that they can go beyond the literal wording of the law...
JUSTICE PERALTA:
But if we de ... (interrupted)
DEAN DIOKNO:
....then....
JUSTICE PERALTA:
Ah, yeah. But if we declare the incremental penalty as unsconstitutional, the court cannot fix the
amount ...
DEAN DIOKNO:
No, Your Honor.
JUSTICE PERALTA:
... as the equivalent of one, as an incremental penalty in excess of Twenty-Two Thousand

(22,000.00) Pesos.
DEAN DIOKNO:
No, Your Honor.
JUSTICE PERALTA:
The Court cannot do that.
DEAN DIOKNO:
Could not be.
JUSTICE PERALTA:
The only remedy is to go to Congress...
DEAN DIOKNO:
Yes, Your Honor.
JUSTICE PERALTA:
... and determine the value or the amount.
DEAN DIOKNO:
Yes, Your Honor.
JUSTICE PERALTA:
That will be equivalent to the incremental penalty of one (1) year in excess of Twenty-Two Thousand
(22,000.00) Pesos.
DEAN DIOKNO:
Yes, Your Honor.
JUSTICE PERALTA:
The amount in excess of Twenty-Two Thousand (22,000.00) Pesos.
Thank you, Dean.
DEAN DIOKNO:
Thank you.
x x x x29
Dean Diokno also contends that Article 315 of the Revised Penal Code constitutes cruel and
unusual punishment. Citing Solem v. Helm,30 Dean Diokno avers that the United States Federal
Supreme Court has expanded the application of a similar Constitutional provision prohibiting cruel
and unusual punishment, to the duration of the penalty, and not just its form. The court therein ruled
that three things must be done to decide whether a sentence is proportional to a specific crime, viz.;
(1) Compare the nature and gravity of the offense, and the harshness of the penalty; (2) Compare
the sentences imposed on other criminals in the same jurisdiction, i.e., whether more serious crimes
are subject to the same penalty or to less serious penalties; and (3) Compare the sentences
imposed for commission of the same crime in other jurisdictions.
However, the case of Solem v. Helm cannot be applied in the present case, because in Solem what
respondent therein deemed cruel was the penalty imposed by the state court of South Dakota after it
took into account the latters recidivist statute and not the original penalty for uttering a "no account"
check. Normally, the maximum punishment for the crime would have been five years imprisonment
and a $5,000.00 fine. Nonetheless, respondent was sentenced to life imprisonment without the
possibility of parole under South Dakotas recidivist statute because of his six prior felony
convictions. Surely, the factual antecedents of Solem are different from the present controversy.
With respect to the crime of Qualified Theft, however, it is true that the imposable penalty for the
offense is high. Nevertheless, the rationale for the imposition of a higher penalty against a domestic
servant is the fact that in the commission of the crime, the helper will essentially gravely abuse the
trust and confidence reposed upon her by her employer. After accepting and allowing the helper to
be a member of the household, thus entrusting upon such person the protection and safekeeping of
the employers loved ones and properties, a subsequent betrayal of that trust is so repulsive as to
warrant the necessity of imposing a higher penalty to deter the commission of such wrongful acts.
There are other crimes where the penalty of fine and/or imprisonment are dependent on the subject
matter of the crime and which, by adopting the proposal, may create serious implications. For
example, in the crime of Malversation, the penalty imposed depends on the amount of the money
malversed by the public official, thus:
Art. 217. Malversation of public funds or property; Presumption of malversation. Any public officer
who, by reason of the duties of his office, is accountable for public funds or property, shall
appropriate the same or shall take or misappropriate or shall consent, through abandonment or
negligence, shall permit any other person to take such public funds, or property, wholly or partially,
or shall otherwise be guilty of the misappropriation or malversation of such funds or property, shall
suffer:
1. The penalty of prision correccional in its medium and maximum periods, if the amount
involved in the misappropriation or malversation does not exceed two hundred pesos.
2. The penalty of prision mayor in its minimum and medium periods, if the amount involved is
more than two hundred pesos but does not exceed six thousand pesos.
3. The penalty of prision mayor in its maximum period to reclusion temporal in its minimum
period, if the amount involved is more than six thousand pesos but is less than twelve
thousand pesos.
4. The penalty of reclusion temporal, in its medium and maximum periods, if the amount
involved is more than twelve thousand pesos but is less than twenty-two thousand pesos. If
the amount exceeds the latter, the penalty shall be reclusion temporal in its maximum period
to reclusion perpetua.
In all cases, persons guilty of malversation shall also suffer the penalty of perpetual special
disqualification and a fine equal to the amount of the funds malversed or equal to the total value of
the property embezzled.
The failure of a public officer to have duly forthcoming any public funds or property with which he is
chargeable, upon demand by any duly authorized officer, shall be prima facie evidence that he has
put such missing funds or property to personal use.
The above-provisions contemplate a situation wherein the Government loses money due to the
unlawful acts of the offender. Thus, following the proposal, if the amount malversed is 200.00
(under the existing law), the amount now becomes 20,000.00 and the penalty is prision
correccional in its medium and maximum periods (2 years 4 months and 1 day to 6 years). The
penalty may not be commensurate to the act of embezzlement of 20,000.00 compared to the acts
committed by public officials punishable by a special law, i.e., Republic Act No. 3019 or the Anti-
Graft and Corrupt Practices Act, specifically Section 3,31 wherein the injury caused to the government
is not generally defined by any monetary amount, the penalty (6 years and 1 month to 15
years)32 under the Anti-Graft Law will now become higher. This should not be the case, because in
the crime of malversation, the public official takes advantage of his public position to embezzle the
fund or property of the government entrusted to him.
The said inequity is also apparent in the crime of Robbery with force upon things (inhabited or
uninhabited) where the value of the thing unlawfully taken and the act of unlawful entry are the
bases of the penalty imposable, and also, in Malicious Mischief, where the penalty of imprisonment
or fine is dependent on the cost of the damage caused.
In Robbery with force upon things (inhabited or uninhabited), if we increase the value of the thing
unlawfully taken, as proposed in the ponencia, the sole basis of the penalty will now be the value of
the thing unlawfully taken and no longer the element of force employed in entering the premises. It
may likewise cause an inequity between the crime of Qualified Trespass to Dwelling under Article
280, and this kind of robbery because the former is punishable by prision correccional in its medium
and maximum periods (2 years, 4 months and 1 day to 6 years) and a fine not exceeding 1,000.00
(100,000.00 now if the ratio is 1:100) where entrance to the premises is with violence or
intimidation, which is the main justification of the penalty. Whereas in the crime of Robbery with force
upon things, it is punished with a penalty of prision mayor (6 years and 1 day to 12 years) if the
intruder is unarmed without the penalty of Fine despite the fact that it is not merely the illegal entry
that is the basis of the penalty but likewise the unlawful taking.
Furthermore, in the crime of Other Mischiefs under Article 329, the highest penalty that can be
imposed is arresto mayor in its medium and maximum periods (2 months and 1 day to 6 months) if
the value of the damage caused exceeds 1,000.00, but under the proposal, the value of the
damage will now become 100,000.00 (1:100), and still punishable by arresto mayor (1 month and 1
day to 6 months). And, if the value of the damaged property does not exceed 200.00, the penalty is
arresto menor or a fine of not less than the value of the damage caused and not more than 200.00,
if the amount involved does not exceed 200.00 or cannot be estimated. Under the proposal,
200.00 will now become 20,000.00, which simply means that the fine of 200.00 under the
existing law will now become 20,000.00. The amount of Fine under this situation will now become
excessive and afflictive in nature despite the fact that the offense is categorized as a light felony
penalized with a light penalty under Article 26 of the RPC.33 Unless we also amend Article 26 of the
RPC, there will be grave implications on the penalty of Fine, but changing the same through Court
decision, either expressly or impliedly, may not be legally and constitutionally feasible.
There are other crimes against property and swindling in the RPC that may also be affected by the
proposal, such as those that impose imprisonment and/or Fine as a penalty based on the value of
the damage caused, to wit: Article 311 (Theft of the property of the National Library and National
Museum), Article 312 (Occupation of real property or usurpation of real rights in property), Article
313 (Altering boundaries or landmarks), Article 316 (Other forms of swindling), Article 317 (Swindling
a minor), Article 318 (Other deceits), Article 328 (Special cases of malicious mischief) and Article
331 (Destroying or damaging statues, public monuments or paintings). Other crimes that impose
Fine as a penalty will also be affected, such as: Article 213 (Frauds against the public treasury and
similar offenses), Article 215 (Prohibited Transactions),
Article 216 (Possession of prohibited interest by a public officer), Article 218 (Failure of accountable
officer to render accounts), Article 219 (Failure of a responsible public officer to render accounts
before leaving the country).
In addition, the proposal will not only affect crimes under the RPC. It will also affect crimes which are
punishable by special penal laws, such as Illegal Logging or Violation of Section 68 of Presidential
Decree No. 705, as amended.34 The law treats cutting, gathering, collecting and possessing timber or
other forest products without license as an offense as grave as and equivalent to the felony of
qualified theft.35 Under the law, the offender shall be punished with the penalties imposed under
Articles 309 and 31036 of the Revised Penal Code, which means that the penalty imposable for the
offense is, again, based on the value of the timber or forest products involved in the offense. Now, if
we accept the said proposal in the crime of Theft, will this particular crime of Illegal Logging be
amended also in so far as the penalty is concerned because the penalty is dependent on Articles
309 and 310 of the RPC? The answer is in the negative because the soundness of this particular law
is not in question.
With the numerous crimes defined and penalized under the Revised Penal Code and Special Laws,
and other related provisions of these laws affected by the proposal, a thorough study is needed to
determine its effectivity and necessity. There may be some provisions of the law that should be
amended; nevertheless, this Court is in no position to conclude as to the intentions of the framers of
the Revised Penal Code by merely making a study of the applicability of the penalties imposable in
the present times. Such is not within the competence of the Court but of the Legislature which is
empowered to conduct public hearings on the matter, consult legal luminaries and who, after due
proceedings, can decide whether or not to amend or to revise the questioned law or other laws, or
even create a new legislation which will adopt to the times.
Admittedly, Congress is aware that there is an urgent need to amend the Revised Penal Code.
During the oral arguments, counsel for the Senate informed the Court that at present, fifty-six (56)
bills are now pending in the Senate seeking to amend the Revised Penal Code,37 each one
proposing much needed change and updates to archaic laws that were promulgated decades ago
when the political, socio-economic, and cultural settings were far different from todays conditions.
Verily, the primordial duty of the Court is merely to apply the law in such a way that it shall not usurp
legislative powers by judicial legislation and that in the course of such application or construction, it
should not make or supervise legislation, or under the guise of interpretation, modify, revise, amend,
distort, remodel, or rewrite the law, or give the law a construction which is repugnant to its
terms.38 The Court should apply the law in a manner that would give effect to their letter and spirit,
especially when the law is clear as to its intent and purpose. Succinctly put, the Court should shy
away from encroaching upon the primary function of a co-equal branch of the Government;
otherwise, this would lead to an inexcusable breach of the doctrine of separation of powers by
means of judicial legislation.
Moreover, it is to be noted that civil indemnity is, technically, not a penalty or a Fine; hence, it can be
increased by the Court when appropriate. Article 2206 of the Civil Code provides:
Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three
thousand pesos, even though there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be
assessed and awarded by the court, unless the deceased on account of permanent physical
disability not caused by the defendant, had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of Article 291, the
recipient who is not an heir called to the decedent's inheritance by the law of testate or
intestate succession, may demand support from the person causing the death, for a period
not exceeding five years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased
may demand moral damages for mental anguish by reason of the death of the deceased.
In our jurisdiction, civil indemnity is awarded to the offended party as a kind of monetary restitution or
compensation to the victim for the damage or infraction that was done to the latter by the accused,
which in a sense only covers the civil aspect. Precisely, it is civil indemnity. Thus, in a crime where a
person dies, in addition to the penalty of imprisonment imposed to the offender, the accused is also
ordered to pay the victim a sum of money as restitution. Clearly, this award of civil indemnity due to
the death of the victim could not be contemplated as akin to the value of a thing that is unlawfully
taken which is the basis in the imposition of the proper penalty in certain crimes. Thus, the reasoning
in increasing the value of civil indemnity awarded in some offense cannot be the same reasoning
that would sustain the adoption of the suggested ratio. Also, it is apparent from Article 2206 that the
law only imposes a minimum amount for awards of civil indemnity, which is 3,000.00. The law did
not provide for a ceiling. Thus, although the minimum amount for the award cannot be changed,
increasing the amount awarded as civil indemnity can be validly modified and increased when the
present circumstance warrants it. Corollarily, moral damages under Article 222039 of the Civil Code
also does not fix the amount of damages that can be awarded. It is discretionary upon the court,
depending on the mental anguish or the suffering of the private offended party. The amount of moral
damages can, in relation to civil indemnity, be adjusted so long as it does not exceed the award of
civil indemnity.
In addition, some may view the penalty provided by law for the offense committed as tantamount to
cruel punishment. However, all penalties are generally harsh, being punitive in nature. Whether or
not they are excessive or amount to cruel punishment is a matter that should be left to lawmakers. It
is the prerogative of the courts to apply the law, especially when they are clear and not subject to
any other interpretation than that which is plainly written.
Similar to the argument of Dean Diokno, one of Justice Antonio Carpios opinions is that the
incremental penalty provision should be declared unconstitutional and that the courts should only
impose the penalty corresponding to the amount of 22,000.00, regardless if the actual amount
involved exceeds 22,000.00. As suggested, however, from now until the law is properly amended
by Congress, all crimes of Estafa will no longer be punished by the appropriate penalty. A
conundrum in the regular course of criminal justice would occur when every accused convicted of
the crime of estafa will be meted penalties different from the proper penalty that should be imposed.
Such drastic twist in the application of the law has no legal basis and directly runs counter to what
the law provides.
It should be noted that the death penalty was reintroduced in the dispensation of criminal justice by
the Ramos Administration by virtue of Republic Act No. 765940 in December 1993. The said law has
been questioned before this Court. There is, arguably, no punishment more cruel than that of death.
Yet still, from the time the death penalty was re-imposed until its lifting in June 2006 by Republic Act
No. 9346,41 the Court did not impede the imposition of the death penalty on the ground that it is a
"cruel punishment" within the purview of Section 19 (1),42Article III of the Constitution. Ultimately, it
was through an act of Congress suspending the imposition of the death penalty that led to its non-
imposition and not via the intervention of the Court.
Even if the imposable penalty amounts to cruel punishment, the Court cannot declare the provision
of the law from which the proper penalty emanates unconstitutional in the present action. Not only is
it violative of due process, considering that the State and the concerned parties were not given the
opportunity to comment on the subject matter, it is settled that the constitutionality of a statute
cannot be attacked collaterally because constitutionality issues must be pleaded directly and not
collaterally,43 more so in the present controversy wherein the issues never touched upon the
constitutionality of any of the provisions of the Revised Penal Code.
Besides, it has long been held that the prohibition of cruel and unusual punishments is generally
aimed at the form or character of the punishment rather than its severity in respect of duration or
amount, and applies to punishments which public sentiment has regarded as cruel or obsolete, for
instance, those inflicted at the whipping post, or in the pillory, burning at the stake, breaking on the
wheel, disemboweling, and the like. Fine and imprisonment would not thus be within the prohibition.44
It takes more than merely being harsh, excessive, out of proportion, or severe for a penalty to be
obnoxious to the Constitution. The fact that the punishment authorized by the statute is severe does
not make it cruel and unusual. Expressed in other terms, it has been held that to come under the
ban, the punishment must be "flagrantly and plainly oppressive," "wholly disproportionate to the
nature of the offense as to shock the moral sense of the community."45
Cruel as it may be, as discussed above, it is for the Congress to amend the law and adapt it to our
modern time.
The solution to the present controversy could not be solved by merely adjusting the questioned
monetary values to the present value of money based only on the current inflation rate. There are
other factors and variables that need to be taken into consideration, researched, and deliberated
upon before the said values could be accurately and properly adjusted. The effects on the society,
the injured party, the accused, its socio-economic impact, and the likes must be painstakingly
evaluated and weighed upon in order to arrive at a wholistic change that all of us believe should be
made to our existing law. Dejectedly, the Court is ill-equipped, has no resources, and lacks sufficient
personnel to conduct public hearings and sponsor studies and surveys to validly effect these
changes in our Revised Penal Code. This function clearly and appropriately belongs to Congress.
Even Professor Tadiar concedes to this conclusion, to wit:
xxxx
JUSTICE PERALTA:
Yeah, Just one question. You are suggesting that in order to determine the value of Peso you have
to take into consideration several factors.
PROFESSOR TADIAR:
Yes.
JUSTICE PERALTA:
Per capita income.
PROFESSOR TADIAR:
Per capita income.
JUSTICE PERALTA:
Consumer price index.
PROFESSOR TADIAR:
Yeah.
JUSTICE PERALTA:
Inflation ...
PROFESSOR TADIAR:
Yes.
JUSTICE PERALTA:
... and so on. Is the Supreme Court equipped to determine those factors?
PROFESSOR TADIAR:
There are many ways by which the value of the Philippine Peso can be determined utilizing all of
those economic terms.
JUSTICE PERALTA:
Yeah, but ...
PROFESSOR TADIAR:
And I dont think it is within the power of the Supreme Court to pass upon and peg the value to One
Hundred (100.00) Pesos to ...
JUSTICE PERALTA:
Yeah.
PROFESSOR TADIAR:
... One (1.00.00) Peso in 1930.
JUSTICE PERALTA:
That is legislative in nature.
PROFESSOR TADIAR:
That is my position that the Supreme Court ...
JUSTICE PERALTA:
Yeah, okay.
PROFESSOR TADIAR:
... has no power to utilize the power of judicial review to in order to adjust, to make the adjustment
that is a power that belongs to the legislature.
JUSTICE PERALTA:
Thank you, Professor.

PROFESSOR TADIAR:
Thank you.46
Finally, the opinion advanced by Chief Justice Maria Lourdes P. A. Sereno echoes the view that the
role of the Court is not merely to dispense justice, but also the active duty to prevent injustice. Thus,
in order to prevent injustice in the present controversy, the Court should not impose an obsolete
penalty pegged eighty three years ago, but consider the proposed ratio of 1:100 as simply
compensating for inflation. Furthermore, the Court has in the past taken into consideration "changed
conditions" or "significant changes in circumstances" in its decisions.
Similarly, the Chief Justice is of the view that the Court is not delving into the validity of the
substance of a statute. The issue is no different from the Courts adjustment of indemnity in crimes
against persons, which the Court had previously adjusted in light of current times, like in the case of
People v. Pantoja.47 Besides, Article 10 of the Civil Code mandates a presumption that the
lawmaking body intended right and justice to prevail.
With due respect to the opinions and proposals advanced by the Chief Justice and my Colleagues,
all the proposals ultimately lead to prohibited judicial legislation. Short of being repetitious and as
extensively discussed above, it is truly beyond the powers of the Court to legislate laws, such
immense power belongs to Congress and the Court should refrain from crossing this clear-cut
divide. With regard to civil indemnity, as elucidated before, this refers to civil liability which is
awarded to the offended party as a kind of monetary restitution. It is truly based on the value of
money. The same cannot be said on penalties because, as earlier stated, penalties are not only
based on the value of money, but on several other factors. Further, since the law is silent as to the
maximum amount that can be awarded and only pegged the minimum sum, increasing the amount
granted as civil indemnity is not proscribed. Thus, it can be adjusted in light of current conditions.
Now, with regard to the penalty imposed in the present case, the CA modified the ruling of the RTC.
The RTC imposed the indeterminate penalty of four (4) years and two (2) months of prision
correccional in its medium period, as minimum, to fourteen (14) years and eight (8) months of
reclusion temporal in its minimum period, as maximum. However, the CA imposed the indeterminate
penalty of four (4) years and two (2) months of prision correccional, as minimum, to eight (8) years of
prision mayor, as maximum, plus one (1) year for each additional 10,000.00, or a total of seven (7)
years.
In computing the penalty for this type of estafa, this Court's ruling in Cosme, Jr. v. People48 is highly
instructive, thus:
With respect to the imposable penalty, Article 315 of the Revised Penal Code provides:
ART. 315 Swindling (estafa). - Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period,
if the amount of the fraud is over 12,000 but does not exceed 22,000 pesos, and if such amount
exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum
period, adding one year for each additional 10,000 pesos; but the total penalty which may be
imposed shall not exceed twenty years. In such case, and in connection with the accessory penalties
which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be
termed prision mayor or reclusion temporal, as the case may be.
The penalty prescribed by Article 315 is composed of only two, not three, periods, in which case,
Article 65 of the same Code requires the division of the time included in the penalty into three equal
portions of time included in the penalty prescribed, forming one period of each of the three portions.
Applying the latter provisions, the maximum, medium and minimum periods of the penalty prescribed
are:
Maximum - 6 years, 8 months, 21 days to 8 years
Medium - 5 years, 5 months, 11 days to 6 years, 8 months, 20 days
Minimum - 4 years, 2 months, 1 day to 5 years, 5 months, 10 days49
To compute the maximum period of the prescribed penalty, prisin correccional maximum to prisin
mayor minimum should be divided into three equal portions of time each of which portion shall be
deemed to form one period in accordance with Article 6550 of the RPC.51 In the present case, the
amount involved is 98,000.00, which exceeds 22,000.00, thus, the maximum penalty imposable
should be within the maximum period of 6 years, 8 months and 21 days to 8 years of prision mayor.
Article 315 also states that a period of one year shall be added to the penalty for every additional
10,000.00 defrauded in excess of 22,000.00, but in no case shall the total penalty which may be
imposed exceed 20 years.
Considering that the amount of 98,000.00 is 76,000.00 more than the 22,000.00 ceiling set by
law, then, adding one year for each additional 10,000.00, the maximum period of 6 years, 8 months
and 21 days to 8 years of prision mayor minimum would be increased by 7 years. Taking the
maximum of the prescribed penalty, which is 8 years, plus an additional 7 years, the maximum of the
indeterminate penalty is 15 years.
Applying the Indeterminate Sentence Law, since the penalty prescribed by law for the estafa charge
against petitioner is prision correccional maximum to prision mayor minimum, the penalty next lower
would then be prision correccional in its minimum and medium periods.
Thus, the minimum term of the indeterminate sentence should be anywhere from 6 months and 1
day to 4 years and 2 months.
One final note, the Court should give Congress a chance to perform its primordial duty of lawmaking.
The Court should not pre-empt Congress and usurp its inherent powers of making and enacting
laws. While it may be the most expeditious approach, a short cut by judicial fiat is a dangerous
proposition, lest the Court dare trespass on prohibited judicial legislation.
WHEREFORE, the Petition for Review on Certiorari dated November 5, 2007 of petitioner Lito
Corpuz is hereby DENIED. Consequently, the Decision dated March 22, 2007 and Resolution dated
September 5, 2007 of the Court of Appeals, which affirmed with modification the Decision dated July
30, 2004 of the Regional Trial Court, Branch 46, San Fernando City, finding petitioner guilty beyond
reasonable doubt of the crime of Estafa under Article 315, paragraph (1), sub-paragraph (b) of the
Revised Penal Code, are hereby AFFIRMED with MODIFICATION that the penalty imposed is the
indeterminate penalty of imprisonment ranging from THREE (3) YEARS, TWO (2) MONTHS and
ELEVEN DAYS of prision correccional, as minimum, to FIFTEEN (15) YEARS of reclusion temporal
as maximum.
Pursuant to Article 5 of the Revised Penal Code, let a Copy of this Decision be furnished the
President of the Republic of the Philippines, through the Department of Justice.
Also, let a copy of this Decision be furnished the President of the Senate and the Speaker of the
House of Representatives.
SO ORDERED.

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Noel Odrada sold a second-hand Mitsubishi Montero to Toedoro for 1.

In Supercars Management & Development Corporation v. Flores, we held that a

Petitioners allegations hold no water. Theories and examples advanced by petitioner

(a) That it is complete and regular upon its face;

(c) That he took it in good faith and for value;

WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26

RCBC SAVINGS BANK v. NOEL M. ODRADA, GR No. 219037, 2016-10-19

G.R. No. 219037, October 19, 2016

RCBC SAVINGS BANK, Petitioner, v. NOEL M. ODRADA, Respondent.

April 15, 2002

Mr. Noel M. Odrada

Thru: Shan Mendez;.

Dear Mr. Odrada,

Cc: Dario E. Santiago, RCBC loan

The dispositive portion of the Decision reads:

RCBC and Lim appealed from the trial court's decision.

The Court of Appeals' Ruling

The dispositive portion of the Decision reads:

RCBC presented the following, issues in this petition:

The Ruling of this Court

We grant the petition.

RCBC May Refuse to Pay Manager's Checks

(a) That it is complete and regular upon its face;

(c) That he took it in good faith and for value;

LEONARDO-DE CASTRO, J.:

Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading

On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased"

Drawee Bank/Check No. Amount (P) Source of fund

On the same day, July 6, 1995, the RTC issued a temporary

Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to

In the meantime, FEBTC, as the collecting bank, filed a complaint against

WHEREFORE, upon filing by the plaintiff of a sufficient bond in the

The application for preliminary mandatory injunction is hereby denied

On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case

In the Complaint-in-Intervention, FEBTC claimed that it allowed the

WHEREFORE, judgment is rendered:

1. Declaring as permanent the writ of preliminary injunction issued under

2. Ordering Global Business Bank, Inc. to pay the plaintiff [Chiok]:

a.) The amount of P34,691,876.71 (less the attorney's fees of P255,000.00

b.) The amount of P215,000.00, representing the excess amount debited

c.) Attorney's fees equivalent of 5% of the total amount due; and

a. The amount of his deposit of P7,613,000.00, plus interest of 12%/p.a.

b. Attorney's fees of 5% of the total amount due;

5. Dismissing the complaint-in-intervention of BPI for lack of merit;

6. Ordering the defendants and the intervenor to pay, jointly and

Defendant Nuguid's argument that the injunction could

The dedication of such checks pursuant to

Section 60. Legal Character. Checks representing demand deposits do not

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

1. That Metro Bank paid the amount of CC No. 003280;

Jessy A. Degaos adopted by Metro Bank as its own witness in injunction

The RTC likewise denied BPI's complaint-in-intervention to recover the

Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee

Consequently, any alleged payment by BPI as the collecting bank, through

Such a payment, if true, is akin to, if it is not, drawing against uncollected

Finally: As earlier noted and discussed, there is no evidence of any prior

Defendants Global Bank, Metrobank, and the spouses Nuguid, and

On May 5, 2006, the Court of Appeals rendered the assailed Decision

WHEREFORE, premises considered, the Decision dated August 29, 2000

The contract to buy foreign currency in the amount of

By depositing the subject checks to the account of Nuguid, Chiok had

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in