4
Republic of the Philippines private respondents and which was mortgaged to the GSIS. This
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-40824 February 23, 1989
GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,
vs.
COURT OF APPEALS and MR. & MRS. ISABELO R.
RACHO, respondents.
The Government Corporate Counsel for petitioner.
Lorenzo A. Sales for private respondents.
REGALADO , J.:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the
spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage, dated
November 13, 1957, in favor of petitioner Government Service Insurance
System (hereinafter referred to as GSIS) and subsequently, another deed of
mortgage, dated April 14, 1958, in connection with two loans granted by the
1
latter in the sums of P 11,500.00 and P 3,000.00, respectively. A parcel of
land covered by Transfer Certificate of Title No. 38989 of the Register of
Deed of Quezon City, co-owned by said mortgagor spouses, was given as
2 that:
security under the aforesaid two deeds. They also executed a 'promissory
note" which states in part:
... for value received, we the undersigned ... JOINTLY,
SEVERALLY and SOLIDARILY, promise to pay the
GOVERNMENT SERVICE INSURANCE SYSTEM the sum
of . . . (P 11,500.00) Philippine Currency, with interest at the
rate of six (6%) per centum compounded monthly payable in
3 the loan.
. . . (120)equal monthly installments of . . . (P 127.65) each.
On July 11, 1961, the Lagasca spouses executed an instrument
denominated "Assumption of Mortgage" under which they obligated
themselves to assume the aforesaid obligation to the GSIS and to secure the
release of the mortgage covering that portion of the land belonging to herein
5
undertaking was not fulfilled.
Upon failure of the mortgagors to comply with the conditions of the mortgage,
particularly the payment of the amortizations due, GSIS extrajudicially
foreclosed the mortgage and caused the mortgaged property to be sold at
6
public auction on December 3, 1962.
More than two years thereafter, or on August 23, 1965, herein private
respondents filed a complaint against the petitioner and the Lagasca
spouses in the former Court of
7
First Instance of Quezon City, praying that the extrajudicial foreclosure
"made on, their property and all other documents executed in relation thereto
in favor of the Government Service Insurance System" be declared null and
void. It was further prayed that they be allowed to recover said property,
and/or the GSIS be ordered to pay them the value thereof, and/or they be
allowed to repurchase the land. Additionally, they asked for actual and moral
damages and attorney's fees.
In their aforesaid complaint, private respondents alleged that they signed the
mortgage contracts not as sureties or guarantors for the Lagasca spouses
but they merely gave their common property to the said co-owners who were
solely benefited by the loans from the GSIS.
The trial court rendered judgment on February 25, 1968 dismissing the
complaint for failure to establish a cause of action.
8
9
Said decision was reversed by the respondent Court of Appeals which held
... although formally they are co-mortgagors, they are so only
for accomodation (sic) in that the GSIS required their
consent to the mortgage of the entire parcel of land which
was covered with only one certificate of title, with full
knowledge that the loans secured thereby were solely for the
benefit of the appellant (sic) spouses who alone applied for
xxxx
'It is, therefore, clear that as against the GSIS, appellants
have a valid cause for having foreclosed the mortgage
without having given sufficient notice to them as required
either as to their delinquency in the payment of amortization
 or as to the subsequent foreclosure of the mortgage by
reason of any default in such payment. The notice published
in the newspaper, 'Daily Record (Exh. 12) and posted
pursuant to Sec 3 of Act 3135 is not the notice to which the
mortgagor is entitled upon the application being made for an
10
extrajudicial foreclosure. ...
On the foregoing findings, the respondent court consequently decreed that-
In view of all the foregoing, the judgment appealed from is
hereby reversed, and another one entered (1) declaring the
foreclosure of the mortgage void insofar as it affects the
share of the appellants; (2) directing the GSIS to reconvey to
appellants their share of the mortgaged property, or the
value thereof if already sold to third party, in the sum of P
35,000.00, and (3) ordering the appellees Flaviano Lagasca
and Esther Lagasca to pay the appellants the sum of P
10,00.00 as moral damages, P 5,000.00 as attorney's fees,
11
and costs.
The case is now before us in this petition for review.
In submitting their case to this Court, both parties relied on the provisions of
Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments
Law, which provide that an accommodation party is one who has signed an
instrument as maker, drawer, acceptor of indorser without receiving value
therefor, but is held liable on the instrument to a holder for value although the
latter knew him to be only an accommodation party.
This approach of both parties appears to be misdirected and their reliance
misplaced. The promissory note hereinbefore quoted, as well as the
mortgage deeds subject of this case, are clearly not negotiable instruments.
These documents do not comply with the fourth requisite to be considered as
such under Section 1 of Act No. 2031 because they are neither payable to
order nor to bearer. The note is payable to a specified party, the GSIS.
Absent the aforesaid requisite, the provisions of Act No. 2031 would not
apply; governance shall be afforded, instead, by the provisions of the Civil
Code and special laws on mortgages.
As earlier indicated, the factual findings of respondent court are that private
respondents signed the documents "only to give their consent to the
mortgage as required by GSIS", with the latter having full knowledge that the
loans secured thereby were solely for the benefit of the Lagasca
12
spouses. This appears to be duly supported by sufficient evidence on
record. Indeed, it would be unusual for the GSIS to arrange for and deduct
the monthly amortizations on the loans from the salary as an army officer of
Flaviano Lagasca without likewise affecting deductions from the salary of
Isabelo Racho who was also an army sergeant. Then there is also the
undisputed fact, as already stated, that the Lagasca spouses executed a so-
called "Assumption of Mortgage" promising to exclude private respondents
and their share of the mortgaged property from liability to the mortgagee.
There is no intimation that the former executed such instrument for a
consideration, thus confirming that they did so pursuant to their original
agreement.
13
The parol evidence rule cannot be used by petitioner as a shield in this
case for it is clear that there was no objection in the court below regarding
the admissibility of the testimony and documents that were presented to
prove that the private respondents signed the mortgage papers just to
accommodate their co-owners, the Lagasca spouses. Besides, the
introduction of such evidence falls under the exception to said rule, there
being allegations in the complaint of private respondents in the court below
regarding the failure of the mortgage contracts to express the true agreement
14
of the parties.
However, contrary to the holding of the respondent court, it cannot be said
that private respondents are without liability under the aforesaid mortgage
contracts. The factual context of this case is precisely what is contemplated
in the last paragraph of Article 2085 of the Civil Code to the effect that third
persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property
So long as valid consent was given, the fact that the loans were solely for the
benefit of the Lagasca spouses would not invalidate the mortgage with
respect to private respondents' share in the property. In consenting thereto,
even assuming that private respondents may not be assuming personal
liability for the debt, their share in the property shall nevertheless secure and
respond for the performance of the principal obligation. The parties to the
mortgage could not have intended that the same would apply only to the
aliquot portion of the Lagasca spouses in the property, otherwise the consent
of the private respondents would not have been required.
The supposed requirement of prior demand on the private respondents
would not be in point here since the mortgage contracts created obligations
with specific terms for the compliance thereof. The facts further show that the
private respondents expressly bound themselves as solidary debtors in the
promissory note hereinbefore quoted.
Coming now to the extrajudicial foreclosure effected by GSIS, We cannot
agree with the ruling of respondent court that lack of notice to the private
respondents of the extrajudicial foreclosure sale impairs the validity thereof.
15
In Bonnevie, et al. vs. Court of appeals, et al., the Court ruled that Act No.
3135, as amended, does not require personal notice on the mortgagor,
quoting the requirement on notice in such cases as follows:
Section 3. Notice shall be given by posting notices of sale for
not less than twenty days in at least three public places of
the municipality where the property is situated, and if such
property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in
the municipality or city.
There is no showing that the foregoing requirement on notice was not
complied with in the foreclosure sale complained of .
The respondent court, therefore, erred in annulling the mortgage insofar as it
affected the share of private respondents or in directing reconveyance of
their property or the payment of the value thereof Indubitably, whether or not
private respondents herein benefited from the loan, the mortgage and the
extrajudicial foreclosure proceedings were valid.
WHEREFORE, judgment is hereby rendered REVERSING the decision of
the respondent Court of Appeals and REINSTATING the decision of the
court a quo in Civil Case No. Q-9418 thereof.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 76788 January 22, 1990
JUANITA SALAS, petitioner,
vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING
CORPORATION, respondents.
Arsenio C. Villalon, Jr. for petitioner.
Labaguis, Loyola, Angara & Associates for private respondent.
FERNAN, C.J.:
Assailed in this petition for review on certiorari is the decision of the Court of
Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance & Leasing
Corporation v. Salas", which modified the decision of the Regional Trial Court
of San Fernando, Pampanga in Civil Case No. 5915, a collection suit
between the same parties.
Records disclose that on February 6, 1980, Juanita Salas (hereinafter
referred to as petitioner) bought a motor vehicle from the Violago Motor
Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a
promissory note. This note was subsequently endorsed to Filinvest Finance
& Leasing Corporation (hereinafter referred to as private respondent) which
financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due
to a discrepancy in the engine and chassis numbers of the vehicle delivered
to her and those indicated in the sales invoice, certificate of registration and
deed of chattel mortgage, which fact she discovered when the vehicle figured
in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No.
5915 for a sum of money against petitioner before the Regional Trial Court of
San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:
WHEREFORE, and in view of all the foregoing, judgment is hereby
rendered ordering the defendant to pay the plaintiff the sum of
P28,414.40 with interest thereon at the rate of 14% from October 2,
1980 until the said sum is fully paid; and the further amount of
P1,000.00 as attorney's fees.
The counterclaim of defendant is dismissed.
1
With costs against defendant.
Both petitioner and private respondent appealed the aforesaid decision to the
Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having
delivered a different vehicle to petitioner, the latter prayed for a reversal of
the trial court's decision so that she may be absolved from the obligation
under the contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision,
the pertinent portion of which is quoted hereunder:
The allegations, statements, or admissions contained in a pleading
are conclusive as against the pleader. A party cannot subsequently
take a position contradictory of, or inconsistent with his pleadings
(Cunanan vs. Amparo, 80 Phil. 227). Admissions made by the parties
in the pleadings, or in the course of the trial or other proceedings, do
not require proof and cannot be contradicted unless previously
shown to have been made through palpable mistake (Sec. 2, Rule
129, Revised Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31,
1968, 24 SCRA 1018).
When an action or defense is founded upon a written instrument,
copied in or attached to the corresponding pleading as provided in
the preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party,
under oath, specifically denied them, and sets forth what he claims to
be the facts (Sec. 8, Rule 8, Revised Rules of Court; Hibbered vs.
Rohde and McMillian, 32 Phil. 476).
A perusal of the evidence shows that the amount of P58,138.20
stated in the promissory note is the amount assumed by the plaintiff
in financing the purchase of defendant's motor vehicle from the
Violago Motor Sales Corp., the monthly amortization of winch is
Pl,614.95 for 36 months. Considering that the defendant was able to
pay twice (as admitted by the plaintiff, defendant's account became
delinquent only beginning May, 1980) or in the total sum of
P3,229.90, she is therefore liable to pay the remaining balance of
P54,908.30 at l4% per annum from October 2, 1980 until full
payment.
WHEREFORE, considering the foregoing, the appealed decision is
hereby modified ordering the defendant to pay the plaintiff the sum of
P54,908.30 at 14% per annum from October 2, 1980 until full
payment. The decision is AFFIRMED in all other respects. With costs
2
to defendant.
Petitioner's motion for reconsideration was denied; hence, the present
recourse.
In the petition before us, petitioner assigns twelve (12) errors which focus on
the alleged fraud, bad faith and misrepresentation of Violago Motor Sales
Corporation in the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability to private
3
respondent who should instead proceed against VMS.
Petitioner argues that in the light of the provision of the law on sales by
4
description which she alleges is applicable here, no contract ever existed
between her and VMS and therefore none had been assigned in favor of
private respondent.
She contends that it is not necessary, as opined by the appellate court, to
implead VMS as a party to the case before it can be made to answer for
damages because VMS was earlier sued by her for "breach of contract with
damages" before the Regional Trial Court of Olongapo City, Branch LXXII,
docketed as Civil Case No. 2916-0. She cites as authority the decision
therein where the court originally ordered petitioner to pay the remaining
balance of the motor vehicle installments in the amount of P31,644.30
representing the difference between the agreed consideration of P49,000.00
as shown in the sales invoice and petitioner's initial downpayment of
P17,855.70 allegedly evidenced by a receipt. Said decision was however
reversed later on, with the same court ordering defendant VMS instead to
return to petitioner the sum of P17,855.70. Parenthetically, said decision is
still pending consideration by the First Civil Case Division of the Court of
5
Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922.
Private respondent in its comment, prays for the dismissal of the petition and
counters that the issues raised and the allegations adduced therein are a
mere rehash of those presented and already passed upon in the court below,
and that the judgment in the "breach of contract" suit cannot be invoked as
an authority as the same is still pending determination in the appellate court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in question is a
negotiable instrument which will bar completely all the available defenses of
the petitioner against private respondent.
Petitioner's liability on the promissory note, the due execution and
genuineness of which she never denied under oath is, under the foregoing
factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of
credit as petitioner would have it appear, where the assignee merely steps
into the shoes of, is open to all defenses available against and can enforce forth, to wit: P1,614.95 monthly for "36" months due and payable on
payment only to the same extent as, the assignor-vendor. the 21st day of each month starting March 21, 1980 thru and
inclusive of February 21, 1983. P_________ monthly for ______
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing months due and payable on the ______ day of each month starting
6 _____198__ thru and inclusive of _____, 198________ provided that
and Acceptance Corp., this Court had the occasion to clearly distinguish
between a negotiable and a non-negotiable instrument. interest at 14% per annum shall be added on each unpaid
installment from maturity hereof until fully paid.
Among others, the instrument in order to be considered negotiable must
contain the so-called "words of negotiability i.e., must be payable to xxx xxx xxx
"order" or "bearer"". Under Section 8 of the Negotiable Instruments Law,
there are only two ways by which an instrument may be made payable to Maker; Co-Maker:
order. There must always be a specified person named in the instrument and
the bill or note is to be paid to the person designated in the instrument or to (SIGNED) JUANITA SALAS _________________
any person to whom he has indorsed and delivered the same. Without the
words "or order or "to the order of", the instrument is payable only to the
Address:
person designated therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument, but will merely "step into the shoes" of the person ____________________ ____________________
designated in the instrument and will thus be open to all defenses available
against the latter. Such being the situation in the above-cited case, it was WITNESSES
held that therein private respondent is not a holder in due course but a mere
assignee against whom all defenses available to the assignor may be SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE
7
raised. TAN # TAN #

In the case at bar, however, the situation is different. Indubitably, the basis of
private respondent's claim against petitioner is a promissory note which
bears all the earmarks of negotiability.
The pertinent portion of the note reads:
PROMISSORY NOTE
(MONTHLY)
P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
For value received, I/We jointly and severally, promise to pay Violago
Motor Sales Corporation or order, at its office in San
Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE
HUNDRED THIRTY EIGHT & 201/100 ONLY
(P58,138.20) Philippine currency, which amount includes interest at
14% per annum based on the diminishing balance, the said principal
sum, to be payable, without need of notice or demand, in
installments of the amounts following and at the dates hereinafter set
PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION
VIOLAGO MOTOR SALES CORPORATION
BY: (SIGNED) GENEVEVA V. BALTAZAR
8
Cash Manager
A careful study of the questioned promissory note shows that it is a
negotiable instrument, having complied with the requisites under the law as
follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it
contains an unconditional promise to pay the amount of P58,138.20; [c] it is
payable at a fixed or determinable future time which is "P1,614.95 monthly
for 36 months due and payable on the 21 st day of each month starting
March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to
Violago Motor Sales Corporation, or order and as such, [e] the drawee is
9
named or indicated with certainty.
It was negotiated by indorsement in writing on the instrument itself payable to
10
the Order of Filinvest Finance and Leasing Corporation and it is an
11
indorsement of the entire instrument.
Under the circumstances, there appears to be no question that Filinvest is a
holder in due course, having taken the instrument under the following
conditions: [a] it is complete and regular upon its face; [b] it became the
holder thereof before it was overdue, and without notice that it had previously
been dishonored; [c] it took the same in good faith and for value; and [d]
when it was negotiated to Filinvest, the latter had no notice of any infirmity in
12
the instrument or defect in the title of VMS Corporation.
Accordingly, respondent corporation holds the instrument free from any
defect of title of prior parties, and free from defenses available to prior parties
among themselves, and may enforce payment of the instrument for the full
13
amount thereof. This being so, petitioner cannot set up against respondent
the defense of nullity of the contract of sale between her and VMS.
Even assuming for the sake of argument that there is an iota of truth in
petitioner's allegation that there was in fact deception made upon her in that
the vehicle she purchased was different from that actually delivered to her,
this matter cannot be passed upon in the case before us, where the VMS
was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved
in the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court when it held:
We can only extend our sympathies to the defendant (herein
petitioner) in this unfortunate incident. Indeed, there is nothing We
can do as far as the Violago Motor Sales Corporation is concerned
since it is not a party in this case. To even discuss the issue as to
whether or not the Violago Motor Sales Corporation is liable in the
transaction in question would amount, to denial of due process,
hence, improper and unconstitutional. She should have impleaded
14
Violago Motor Sales.
IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED.
With costs against petitioner.
SO ORDERED.
FIRST DIVISION
G.R. No. 184458, January 14, 2015
RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR CHUA AND S.
VIOLETA CHUA, Respondents.
[G.R. NO. 184472]
SPS. SALVADOR CHUA AND VIOLETA S.
CHUA, Petitioners, v. RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under Rule 45
1
of the Rules of Court assailing the Decision of the Court of Appeals in CA-
G.R. SP No. 90609 which affirmed with modification the separate rulings of
the Manila City trial courts, the Regional Trial Court, Branch 17 in Civil Case
2
No. 02-105256 and the Metropolitan Trial Court (MeTC), Branch 30, in Civil
3
Case No. 163661, a case for collection of a sum of money due a promissory
note. While all three (3) lower courts upheld the validity and authenticity of
the promissory note as duly signed by the obligor, Rodrigo Rivera (Rivera),
petitioner in G.R. No. 184458, the appellate court modified the trial courts
consistent awards: (1) the stipulated interest rate of sixty percent (60%)
reduced to twelve percent (12%) per annum computed from the date of
judicial or extrajudicial demand, and (2) reinstatement of the award of
attorneys fees also in a reduced amount of P50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no valid
promissory note and questions the entire ruling of the lower courts. On the
other hand, petitioners in G.R. No. 184472, Spouses Salvador and Violeta
Chua (Spouses Chua), take exception to the appellate courts reduction of
the stipulated interest rate of sixty percent (60%) to twelve percent (12%) per
annum.
We proceed to the facts.
The parties were friends of long standing having known each other since
1973: Rivera and Salvador are kumpadres, the former is the godfather of the
Spouses Chuas son.
On 24 February 1995, Rivera obtained a loan from the Spouses
Chua:chanroblesvirtuallawlibrary
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses
SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred
Twenty Thousand Philippine Currency (P120,000.00) on December 31,
1995.
It is agreed and understood that failure on my part to pay the amount of
(P120,000.00) One Hundred Twenty Thousand Pesos on December 31,
1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is fully paid
for.
Should this note be referred to a lawyer for collection, I agree to pay the
further sum equivalent to twenty percent (20%) of the total amount due and
payable as and for attorneys fees which in no case shall be less than
P5,000.00 and to pay in addition the cost of suit and other incidental litigation
expense.
Any action which may arise in connection with this note shall be brought in
the proper Court of the City of Manila.
Manila, February 24, 1995[.]
4
(SGD.) RODRIGO RIVERA
In October 1998, almost three years from the date of payment stipulated in
the promissory note, Rivera, as partial payment for the loan, issued and
delivered to the Spouses Chua, as payee, a check numbered 012467, dated
30 December 1998, drawn against Riveras current account with the
Philippine Commercial International Bank (PCIB) in the amount of
P25,000.00.
On 21 December 1998, the Spouses Chua received another check
presumably issued by Rivera, likewise drawn against Riveras PCIB current
account, numbered 013224, duly signed and dated, but blank as to payee
and amount. Ostensibly, as per understanding by the parties, PCIB Check
No. 013224 was issued in the amount of P133,454.00 with cash as payee.
Purportedly, both checks were simply partial payment for Riveras loan in the
principal amount of P120,000.00.
Upon presentment for payment, the two checks were dishonored for the
reason account closed.
As of 31 May 1999, the amount due the Spouses Chua was pegged at
P366,000.00 covering the principal of P120,000.00 plus five percent (5%)
interest per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment
from Rivera to no avail. Because of Riveras unjustified refusal to pay, the
Spouses Chua were constrained to file a suit on 11 June 1999. The case
was raffled before the MeTC, Branch 30, Manila and docketed as Civil Case
No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he
never executed the subject Promissory Note; (2) in all instances when he
obtained a loan from the Spouses Chua, the loans were always covered by a
security; (3) at the time of the filing of the complaint, he still had an existing
indebtedness to the Spouses Chua, secured by a real estate mortgage, but
not yet in default; (4) PCIB Check No. 132224 signed by him which he
delivered to the Spouses Chua on 21 December 1998, should have been
issued in the amount of only P1,300.00, representing the amount he received
from the Spouses Chuas saleslady; (5) contrary to the supposed agreement,
the Spouses Chua presented the check for payment in the amount of
P133,454.00; and (6) there was no demand for payment of the amount of
P120,000.00 prior to the encashment of PCIB Check No.
5
0132224. chanRoblesvirtualLawlibrary
In the main, Rivera claimed forgery of the subject Promissory Note and
denied his indebtedness thereunder.
The MeTC summarized the testimonies of both parties respective
witnesses:chanroblesvirtuallawlibrary
[The spouses Chuas] evidence include[s] documentary evidence and oral
evidence (consisting of the testimonies of [the spouses] Chua and NBI
Senior Documents Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI
(1987); NBI document examiner (1989); NBI Senior Document Examiner
(1994 to the date he testified); registered criminologist; graduate of 18th
Basic Training Course [i]n Questioned Document Examination conducted by
the NBI; twice attended a seminar on US Dollar Counterfeit Detection
conducted by the US Embassy in Manila; attended a seminar on Effective
Methodology in Teaching and Instructional design conducted by the NBI
Academy; seminar lecturer on Questioned Documents, Signature Verification
and/or Detection; had examined more than a hundred thousand questioned
documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature
of [Rivera] appearing in the Promissory Note and compared the signature
thereon with the specimen signatures of [Rivera] appearing on several
documents. After a thorough study, examination, and comparison of the
signature on the questioned document (Promissory Note) and the specimen
signatures on the documents submitted to him, he concluded that the
questioned signature appearing in the Promissory Note and the specimen
signatures of [Rivera] appearing on the other documents submitted were
written by one and the same person. In connection with his findings,
Magbojos prepared Questioned Documents Report No. 712-1000 dated 8
January 2001, with the following conclusion: The questioned and the
standard specimen signatures RODGRIGO RIVERA were written by one and
the same person.
[Rivera] testified as follows: he and [respondent] Salvador are kumpadres;
in May 1998, he obtained a loan from [respondent] Salvador and executed a
real estate mortgage over a parcel of land in favor of [respondent Salvador]
as collateral; aside from this loan, in October, 1998 he borrowed P25,000.00
from Salvador and issued PCIB Check No. 126407 dated 30 December
1998; he expressly denied execution of the Promissory Note dated 24
February 1995 and alleged that the signature appearing thereon was not his
signature; [respondent Salvadors] claim that PCIB Check No. 0132224 was
partial payment for the Promissory Note was not true, the truth being that he
delivered the check to [respondent Salvador] with the space for amount left
blank as he and [respondent] Salvador had agreed that the latter was to fill it
in with the amount of ?1,300.00 which amount he owed [the spouses Chua];
however, on 29 December 1998 [respondent] Salvador called him and told
him that he had written P133,454.00 instead of P1,300.00; x x x. To rebut the
testimony of NBI Senior Document Examiner Magbojos, [Rivera] reiterated
his averment that the signature appearing on the Promissory Note was not
6
his signature and that he did not execute the Promissory Note.
After trial, the MeTC ruled in favor of the Spouses
Chua:chanroblesvirtuallawlibrary
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: P120,000.00
plus stipulated interest at the rate of 5% per month from 1 January 1996, and
legal interest at the rate of 12% percent per annum from 11 June 1999, as
actual and compensatory damages; 20% of the whole amount due as
7
attorneys fees.
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision
of the MeTC, but deleted the award of attorneys fees to the Spouses
Chua:chanroblesvirtuallawlibrary
WHEREFORE, except as to the amount of attorneys fees which is hereby
deleted, the rest of the Decision dated October 21, 2002 is
8 11
hereby AFFIRMED.
Both trial courts found the Promissory Note as authentic and validly bore the
signature of Rivera.
Undaunted, Rivera appealed to the Court of Appeals which affirmed Riveras
liability under the Promissory Note, reduced the imposition of interest on the
loan from 60% to 12% per annum, and reinstated the award of attorneys
fees in favor of the Spouses Chua:chanroblesvirtuallawlibrary
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to
the MODIFICATION that the interest rate of 60% per annum is hereby
reduced to 12% per annum and the award of attorneys fees is reinstated at
9
the reduced amount of P50,000.00 Costs against [Rivera].
Hence, these consolidated petitions for review on certiorari of Rivera in G.R.
No. 184458 and the Spouses Chua in G.R. No. 184472, respectively raising
the following issues:chanroblesvirtuallawlibrary
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED
IN UPHOLDING THE RULING OF THE RTC AND M[e]TC THAT THERE
WAS A VALID PROMISSORY NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT DEMAND IS NO LONGER NECESSARY AND IN
APPLYING THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS
LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED
IN AWARDING ATTORNEYS FEES DESPITE THE FACT THAT THE
SAME HAS NO BASIS IN FACT AND IN LAW AND DESPITE THE FACT
THAT [THE SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION
OF THE RTC DELETING THE AWARD OF ATTORNEYS
10
FEES. chanRoblesvirtualLawlibrary
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS
COMMITTED GROSS LEGAL ERROR WHEN IT MODIFIED THE
APPEALED JUDGMENT BY REDUCING THE INTEREST RATE FROM
60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE FACT THAT
RIVERA NEVER RAISED IN HIS ANSWER THE DEFENSE THAT THE
SAID STIPULATED RATE OF INTEREST IS EXORBITANT,
UNCONSCIONABLE, UNREASONABLE, INEQUITABLE, ILLEGAL,
IMMORAL OR VOID.

As early as 15 December 2008, we already disposed of G.R. No. 184472
and denied the petition, via a Minute Resolution, for failure to sufficiently
show any reversible error in the ruling of the appellate court specifically
concerning the correct rate of interest on Riveras indebtedness under the
12
Promissory Note. chanRoblesvirtualLawlibrary
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of
Rivera questioning the entire ruling of the Court of Appeals in CA-G.R. SP
No. 90609.
Rivera continues to deny that he executed the Promissory Note; he claims
that given his friendship with the Spouses Chua who were money lenders, he
has been able to maintain a loan account with them. However, each of these
loan transactions was respectively secured by checks or sufficient
collateral.
Rivera points out that the Spouses Chua never demanded payment for the
loan nor interest thereof (sic) from [Rivera] for almost four (4) years from the
time of the alleged default in payment [i.e., after December 31,
13
1995]. chanRoblesvirtualLawlibrary
On the issue of the supposed forgery of the promissory note, we are not
inclined to depart from the lower courts uniform rulings that Rivera indeed
signed it.
Rivera offers no evidence for his asseveration that his signature on the
promissory note was forged, only that the signature is not his and varies from
his usual signature. He likewise makes a confusing defense of having
previously obtained loans from the Spouses Chua who were money lenders
and who had allowed him a period of almost four (4) years before
demanding payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the
testimony of the National Bureau of Investigation (NBI) handwriting expert on
the integrity of the promissory note.
On that score, the appellate court aptly disabled Riveras
contention:chanroblesvirtuallawlibrary
[Rivera] failed to adduce clear and convincing evidence that the signature on
the promissory note is a forgery. The fact of forgery cannot be presumed but
must be proved by clear, positive and convincing evidence. Mere variance of
signatures cannot be considered as conclusive proof that the same was
forged. Save for the denial of Rivera that the signature on the note was not
his, there is nothing in the records to support his claim of forgery. And while it
is true that resort to experts is not mandatory or indispensable to the
examination of alleged forged documents, the opinions of handwriting
experts are nevertheless helpful in the courts determination of a documents
authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the
promissory note and the testimony of the NBI witness. In fact, even a
perfunctory comparison of the signatures offered in evidence would lead to
the conclusion that the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must
establish his case by preponderance of evidence, which simply means
evidence which is of greater weight, or more convincing than that which is
offered in opposition to it.
Evaluating the evidence on record, we are convinced that [the Spouses
Chua] have established a prima facie case in their favor, hence, the burden
of evidence has shifted to [Rivera] to prove his allegation of forgery.
14
Unfortunately for [Rivera], he failed to substantiate his defense.
Well-entrenched in jurisprudence is the rule that factual findings of the trial
court, especially when affirmed by the appellate court, are accorded the
highest degree of respect and are considered conclusive between the
15
parties. A review of such findings by this Court is not warranted except
upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises or
conjectures; (2) when a lower court's inference from its factual findings is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the appellate
court go beyond the issues of the case, or fail to notice certain relevant facts
which, if properly considered, will justify a different conclusion; (5) when there
is a misappreciation of facts; (6) when the findings of fact are conclusions
without mention of the specific evidence on which they are based, are
premised on the absence of evidence, or are contradicted by evidence on
16
record. None of these exceptions obtains in this instance. There is no
reason to depart from the separate factual findings of the three (3) lower
courts on the validity of Riveras signature reflected in the Promissory Note.
Indeed, Rivera had the burden of proving the material allegations which he
sets up in his Answer to the plaintiffs claim or cause of action, upon which
issue is joined, whether they relate to the whole case or only to certain issues
17
in the case. chanRoblesvirtualLawlibrary
In this case, Riveras bare assertion is unsubstantiated and directly disputed
by the testimony of a handwriting expert from the NBI. While it is true that
resort to experts is not mandatory or indispensable to the examination or the
comparison of handwriting, the trial courts in this case, on its own, using the
handwriting expert testimony only as an aid, found the disputed document
18
valid. chanRoblesvirtualLawlibrary
Hence, the MeTC ruled that:chanroblesvirtuallawlibrary
[Rivera] executed the Promissory Note after consideration of the following:
categorical statement of [respondent] Salvador that [Rivera] signed the
Promissory Note before him, in his ([Riveras]) house; the conclusion of NBI
Senior Documents Examiner that the questioned signature (appearing on the
Promissory Note) and standard specimen signatures Rodrigo Rivera were
written by one and the same person; actual view at the hearing of the
enlarged photographs of the questioned signature and the standard
19
specimen signatures.
Specifically, Rivera insists that: [i]f that promissory note indeed exists, it is
beyond logic for a money lender to extend another loan on May 4, 1998
secured by a real estate mortgage, when he was already in default and has
not been paying any interest for a loan incurred in February
20
1995. chanRoblesvirtualLawlibrary
We disagree.
It is likewise likely that precisely because of the long standing friendship of
the parties as kumpadres, Rivera was allowed another loan, albeit this time
secured by a real estate mortgage, which will cover Riveras loan should
Rivera fail to pay. There is nothing inconsistent with the Spouses Chuas two
(2) and successive loan accommodations to Rivera: one, secured by a real
estate mortgage and the other, secured by only a Promissory Note.
Also completely plausible is that given the relationship between the parties,
Rivera was allowed a substantial amount of time before the Spouses Chua
demanded payment of the obligation due under the Promissory Note.
In all, Riveras evidence or lack thereof consisted only of a barefaced claim of
forgery and a discordant defense to assail the authenticity and validity of the
Promissory Note. Although the burden of proof rested on the Spouses Chua
having instituted the civil case and after they established a prima facie case
against Rivera, the burden of evidence shifted to the latter to establish his
21
defense. Consequently, Rivera failed to discharge the burden of evidence,
refute the existence of the Promissory Note duly signed by him and
subsequently, that he did not fail to pay his obligation thereunder. On the
whole, there was no question left on where the respective evidence of the
parties preponderatedin favor of plaintiffs, the Spouses Chua.
Rivera next argues that even assuming the validity of the Promissory Note,
demand was still necessary in order to charge him liable thereunder. Rivera
argues that it was grave error on the part of the appellate court to apply
Section 70 of the Negotiable Instruments Law
22
(NIL). chanRoblesvirtualLawlibrary
We agree that the subject promissory note is not a negotiable instrument and
the provisions of the NIL do not apply to this case. Section 1 of the NIL
requires the concurrence of the following elements to be a negotiable
instrument:chanroblesvirtuallawlibrary
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable
promissory note is:chanroblesvirtuallawlibrary
SECTION 184. Promissory Note, Defined. A negotiable promissory note
within the meaning of this Act is an unconditional promise in writing made by
one person to another, signed by the maker, engaging to pay on demand, or
at a fixed or determinable future time, a sum certain in money to order or to
bearer. Where a note is drawn to the makers own order, it is not complete
until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein
respondents, the Spouses Chua, and not to order or to bearer, or to the order
of the Spouses Chua as payees.
However, even if Riveras Promissory Note is not a negotiable instrument
and therefore outside the coverage of Section 70 of the NIL which provides
that presentment for payment is not necessary to charge the person liable on
the instrument, Rivera is still liable under the terms of the Promissory Note
that he issued.
The Promissory Note is unequivocal about the date when the obligation falls
due and becomes demandable31 December 1995. As of 1 January 1996,
Rivera had already incurred in delay when he failed to pay the amount of
P120,000.00 due to the Spouses Chua on 31 December 1995 under the
Promissory Note.

Article 1169 of the Civil Code explicitly provides:chanroblesvirtuallawlibrary
Art. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment
of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the
debtor in default: (1) when there is an express stipulation to that effect; (2)
where the law so provides; (3) when the period is the controlling motive or
the principal inducement for the creation of the obligation; and (4) where
demand would be useless. In the first two paragraphs, it is not sufficient that
the law or obligation fixes a date for performance; it must further state
expressly that after the period lapses, default will commence.
We refer to the clause in the Promissory Note containing the stipulation of
interest:chanroblesvirtuallawlibrary
It is agreed and understood that failure on my part to pay the amount of
(P120,000.00) One Hundred Twenty Thousand Pesos on December 31,
1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is fully paid
23
for.
which expressly requires the debtor (Rivera) to pay a 5% monthly interest
from the date of default until the entire obligation is fully paid for. The
parties evidently agreed that the maturity of the obligation at a date certain,
31 December 1995, will give rise to the obligation to pay interest. The
Promissory Note expressly provided that after 31 December 1995, default
commences and the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day
following 31 December 1995, the due date of the obligation. On that date,
Rivera became liable for the stipulated interest which the Promissory Note
says is equivalent to 5% a month. In sum, until 31 December 1995, demand
was not necessary before Rivera could be held liable for the principal amount
of P120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became
liable to pay the Spouses Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty
of delay, in the performance of their obligations is laid down on Article
24
1170 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of
interest as an indemnity for damages when the obligor incurs in
delay:chanroblesvirtuallawlibrary
Art. 2209. If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six
percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation
is for a sum of money; (2) the debtor, Rivera, incurred in delay when he failed
to pay on or before 31 December 1995; and (3) the Promissory Note
provides for an indemnity for damages upon default of Rivera which is the
payment of a 5% monthly interest from the date of default.
We do not consider the stipulation on payment of interest in this case as a
penal clause although Rivera, as obligor, assumed to pay additional 5%
monthly interest on the principal amount of P120,000.00 upon default.
Article 1226 of the Civil Code provides:chanroblesvirtuallawlibrary
Art. 1226. In obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with
the provisions of this Code.
The penal clause is generally undertaken to insure performance and works
as either, or both, punishment and reparation. It is an exception to the
general rules on recovery of losses and damages. As an exception to the
general rule, a penal clause must be specifically set forth in the
 25
obligation. chanRoblesvirtualLawlibrary
In high relief, the stipulation in the Promissory Note is designated as payment
of interest, not as a penal clause, and is simply an indemnity for damages
incurred by the Spouses Chua because Rivera defaulted in the payment of
the amount of P120,000.00. The measure of damages for the Riveras delay
is limited to the interest stipulated in the Promissory Note. In apt instances, in
default of stipulation, the interest is that provided by
26
law. chanRoblesvirtualLawlibrary
In this instance, the parties stipulated that in case of default, Rivera will pay
interest at the rate of 5% a month or 60% per annum. On this score, the
appellate court ruled:chanroblesvirtuallawlibrary
It bears emphasizing that the undertaking based on the note clearly states
the date of payment to be 31 December 1995. Given this circumstance,
demand by the creditor is no longer necessary in order that delay may exist
since the contract itself already expressly so declares. The mere failure of
[Spouses Chua] to immediately demand or collect payment of the value of
the note does not exonerate [Rivera] from his liability therefrom. Verily, the
trial court committed no reversible error when it imposed interest from 1
January 1996 on the ratiocination that [Spouses Chua] were relieved from
making demand under Article 1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60% per
annum in addition to legal interests and attorneys fees is, indeed, highly
iniquitous and unreasonable. Stipulated interest rates are illegal if they are
unconscionable and the Court is allowed to temper interest rates when
necessary. Since the interest rate agreed upon is void, the parties are
considered to have no stipulation regarding the interest rate, thus, the rate of
interest should be 12% per annum computed from the date of judicial or
[27
extrajudicial demand. chanRoblesvirtualLawlibrary
The appellate court found the 5% a month or 60% per annum interest rate,
on top of the legal interest and attorneys fees, steep, tantamount to it being
illegal, iniquitous and unconscionable.
Significantly, the issue on payment of interest has been squarely disposed of
in G.R. No. 184472 denying the petition of the Spouses Chua for failure to
sufficiently show any reversible error in the ruling of the appellate court,
specifically the reduction of the interest rate imposed on Riveras
indebtedness under the Promissory Note. Ultimately, the denial of the
petition in G.R. No. 184472 is res judicata in its concept of bar by prior
judgment on whether the Court of Appeals correctly reduced the interest
rate stipulated in the Promissory Note.
Res judicata applies in the concept of bar by prior judgment if the following
requisites concur: (1) the former judgment or order must be final; (2) the
judgment or order must be on the merits; (3) the decision must have been
rendered by a court having jurisdiction over the subject matter and the
parties; and (4) there must be, between the first and the second action,
identity of parties, of subject matter and of causes of
28
action. chanRoblesvirtualLawlibrary
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity
of parties and subject matter raising specifically errors in the Decision of the
Court of Appeals. Where the Court of Appeals disposition on the propriety of
the reduction of the interest rate was raised by the Spouses Chua in G.R.
No. 184472, our ruling thereon affirming the Court of Appeals is a bar by
prior judgment.
At the time interest accrued from 1 January 1996, the date of default under
the Promissory Note, the then prevailing rate of legal interest was 12% per
annum under Central Bank (CB) Circular No. 416 in cases involving the loan
29
or forbearance of money. Thus, the legal interest accruing from the
Promissory Note is 12% per annum from the date of default on 1 January
1996.
However, the 12% per annum rate of legal interest is only applicable until 30
June 2013, before the advent and effectivity of Bangko Sentral ng
Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate of legal
interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery
30
Frames, BSP Circular No. 799 is prospectively applied from 1 July 2013. In
short, the applicable rate of legal interest from 1 January 1996, the date
when Rivera defaulted, to date when this Decision becomes final and
executor is divided into two periods reflecting two rates of legal interest: (1)
12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per
annum FROM 1 July 2013 to date when this Decision becomes final and
executory.
As for the legal interest accruing from 11 June 1999, when judicial demand
was made, to the date when this Decision becomes final and executory, such
is likewise divided into two periods: (1) 12% per annumfrom 11 June 1999,
the date of judicial demand to 30 June 2013; and (2) 6% per annum from 1
31
July 2013 to date when this Decision becomes final and executor. We base
this imposition of interest on interest due earning legal interest on Article
2212 of the Civil Code which provides that interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may
be silent on this point.
From the time of judicial demand, 11 June 1999, the actual amount owed by deemed to be by then an equivalent to a forbearance of credit.
Rivera to the Spouses Chua could already be determined with reasonable
certainty given the wording of the Promissory And, in addition to the above, judgments that have become final and
32
Note. chanRoblesvirtualLawlibrary executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein.
We cite our recent ruling in Nacar v. Gallery (Emphasis supplied)
33
Frames: chanRoblesvirtualLawlibrary

I. When an obligation, regardless of its source, i.e., law, contracts, quasi- On the reinstatement of the award of attorneys fees based on the stipulation
contracts, delicts or quasi-delicts is breached, the contravenor can be held in the Promissory Note, we agree with the reduction thereof but not the
liable for damages. The provisions under Title XVIII on Damages of the ratiocination of the appellate court that the attorneys fees are in the nature of
Civil Code govern in determining the measure of recoverable damages. liquidated damages or penalty. The interest imposed in the Promissory Note
already answers as liquidated damages for Riveras default in paying his
II. With regard particularly to an award of interest in the concept of actual and obligation. We award attorneys fees, albeit in a reduced amount, in
compensatory damages, the rate of interest, as well as the accrual thereof, is recognition that the Spouses Chua were compelled to litigate and incurred
imposed, as follows:ChanRoblesVirtualawlibrary 34
expenses to protect their interests. Thus, the award of P50,000.00 as
attorneys fees is proper.
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the For clarity and to obviate confusion, we chart the breakdown of the total
interest due should be that which may have been stipulated in amount owed by Rivera to the Spouses Chua:chanroblesvirtuallawlibrary
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence Face value Stipulated Interest Interest due Attorneys Total
of stipulation, the rate of interest shall be 6% per annum to be of the A&B earning legal fees Amount
computed from default, i.e., from judicial or extrajudicial Promissory interest A & B
demand under and subject to the provisions of Article 1169 of Note
the Civil Code.
February 24, A. January 1, 1996 A. June 11, 1999 Wholesale
2. When an obligation, not constituting a loan or forbearance of money, 1995 to to June 30, 2013 (date of judicial amount
is breached, an interest on the amount of damages awarded may be December demand) to June
imposed at the discretion of the court at the rate of 6% per annum. 31, 1995 B. July 1 2013 to 30, 2013
No interest, however, shall be adjudged on unliquidated claims or date when this B. July 1, 2013 to
damages, except when or until the demand can be established with Decision becomes date when this
reasonable certainty. Accordingly, where the demand is established final and executory Decision becomes
with reasonable certainty, the interest shall begin to run from the time final and executory
the claim is made judicially or extrajudicially (Art. 1169, Civil Code), P120,000.00 A. 12 % per A. 12% per P50,000.00 Total
but when such certainty cannot be so reasonably established at the annum on the annum on the total amount
time the demand is made, the interest shall begin to run only from principal amount of amount of column of
the date the judgment of the court is made (at which time the P120,000.00 2 Columns
quantification of damages may be deemed to have been reasonably B. 6% per B. 6% per 1-4
ascertained). The actual base for the computation of legal interest annum on the annum on the total
shall, in any case, be on the amount finally adjudged. principal amount of amount of column
35
P120,000.00 2
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls The total amount owing to the Spouses Chua set forth in this Decision shall
under paragraph 1 or paragraph 2, above, shall be 6% per annum further earn legal interest at the rate of 6% per annum computed from its
from such finality until its satisfaction, this interim period being finality until full payment thereof, the interim period being deemed to be a
forbearance of credit.chanrobleslaw REYES, JJ.

WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of ERLANDO T. RODRIGUEZ Promulgated:
the Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner and NORMA RODRIGUEZ,
Rodrigo Rivera is ordered to pay respondents Spouse Salvador and Violeta Respondents. September 26, 2008
Chua the following:chanroblesvirtuallawlibrary x--------------------------------------------------x

(1) the principal amount of P120,000.00; DECISION

(2) legal interest of 12% per annum of the principal amount of P120,000.00
reckoned from 1 January 1996 until 30 June 2013;
REYES, R.T., J.:
(3) legal interest of 6% per annum of the principal amount of P120,000.00
form 1 July 2013 to date when this Decision becomes final and
executory;
WHEN the payee of the check is not intended to be the true recipient of its
(4) 12% per annum applied to the total of paragraphs 2 and 3 from 11 June
1999, date of judicial demand, to 30 June 2013, as interest due earning proceeds, is it payable to order or bearer? What is the fictitious-payee rule
legal interest;
and who is liable under it?Is there any exception?
(5) 6% per annum applied to the total amount of paragraphs 2 and 3 from 1
July 2013 to date when this Decision becomes final and executor, as
interest due earning legal interest;
These questions seek answers in this petition for review
(6) Attorneys fees in the amount of P50,000.00; and [1]
(7) 6% per annum interest on the total of the monetary awards from the on certiorari of the Amended Decision of the Court of Appeals (CA) which
finality of this Decision until full payment thereof. [2]
affirmed with modification that of the Regional Trial Court (RTC).
Costs against petitioner Rodrigo Rivera.

SO ORDERED.cralawlawlibrary

The Facts
Republic of the Philippines
Supreme Court
Manila The facts as borne by the records are as follows:
THIRD DIVISION
Respondents-Spouses Erlando and Norma Rodriguez were clients of
PHILIPPINE NATIONAL BANK, G.R. No. 170325 petitioner Philippine National Bank (PNB), Amelia Avenue
Petitioner,
Branch, Cebu City. They maintained savings and demand/checking
Present:
YNARES-SANTIAGO, J., accounts, namely, PNBig Demand Deposits (Checking/Current Account No.
Ch
airperson, 810624-6 under the account name Erlando and/or Norma Rodriguez), and
- versus - AUSTRIA-MARTINEZ, PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the
CHICO-NAZARIO,
NACHURA, and account name Erlando T. Rodriguez).

The spouses were engaged in the informal lending business. In line
[3]
with their business, they had a discounting arrangement with the
Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. Naturally, PEMSLA was likewise a client
of PNB Amelia Avenue Branch. The association maintained current and
savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez
would rediscount the postdated checks issued to members whenever the
association was short of funds. As was customary, the spouses would
replace the postdated checks with their own checks issued in the name of
the members.
It was PEMSLAs policy not to approve applications for loans of
members with outstanding debts. To subvert this policy, some PEMSLA
officers devised a scheme to obtain additional loans despite their outstanding
loan accounts. They took out loans in the names of unknowing members,
without the knowledge or consent of the latter. The PEMSLA checks issued
for these loans were then given to the spouses for rediscounting. The officers
carried this out by forging the indorsement of the named payees in the
checks.
In return, the spouses issued their personal checks (Rodriguez
checks) in the name of the members and delivered the checks to an officer of
PEMSLA. The PEMSLA checks, on the other hand, were deposited by the
spouses to their account.
Meanwhile, the Rodriguez checks were deposited directly by
PEMSLA to its savings account without any indorsement from the named
payees. This was an irregular procedure made possible through the
facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in
the PNB Branch. It appears that this became the usual practice for the
parties.
For the period November 1998 to February 1999, the spouses issued
sixty nine (69) checks, in the total amount of P2,345,804.00. These were
payable to forty seven (47) individual payees who were all members of
[4]
PEMSLA.
Petitioner PNB eventually found out about these fraudulent acts. To
put a stop to this scheme, PNB closed the current account of PEMSLA. As a
result, the PEMSLA checks deposited by the spouses were returned or
dishonored for the reason Account Closed. The corresponding Rodriguez
checks, however, were deposited as usual to the PEMSLA savings
account. The amounts were duly debited from the Rodriguez account. Thus,
because the PEMSLA checks given as payment were returned, spouses
Rodriguez incurred losses from the rediscounting transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez
filed a civil complaint for damages against PEMSLA, the Multi-Purpose
Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to
recover the value of their checks that were deposited to the PEMSLA savings
account amounting to P2,345,804.00. The spouses contended that
because PNB credited the checks to the PEMSLA account even without
indorsements, PNB violated its contractual obligation to them as
depositors. PNBpaid the wrong payees, hence, it should bear the loss.
 Erlando T. Rodriguez, and the amount
PNB moved to dismiss the complaint on the ground of lack of cause of of P1,570,467.00 in the PNBig Demand Deposit,
action. PNB argued that the claim for damages should come from the payees Checking/Current Account No. 810624-6 of Erlando
T. Rodriguez and/or Norma Rodriguez, plus legal
of the checks, and not from spouses Rodriguez. Since there was no demand rate of interest thereon to be computed from the
from the said payees, the obligation should be considered as discharged. filing of this complaint until fully paid;

2. The defendant PNB is hereby ordered to pay the plaintiffs

In an Order dated January 12, 2000, the RTC denied PNBs motion to the following reasonable amount of damages
suffered by them taking into consideration the
dismiss. standing of the plaintiffs being sugarcane planters,
realtors, residential subdivision owners, and other
businesses:
[5]
In its Answer, PNB claimed it is not liable for the checks which it
(a) Consequential damages, unearned
paid to the PEMSLA account without any indorsement from the payees. The income in the amount
bank contended that spouses Rodriguez, the makers, actually did not of P4,000,000.00, as a result of their
having incurred great dificulty (sic)
intend for the named payees to receive the proceeds of the especially in the residential subdivision
checks. Consequently, the payees were considered as fictitious payees as business, which was not pushed
through and the contractor even
defined under the Negotiable Instruments Law (NIL). Being checks made to threatened to file a case against the
plaintiffs;
fictitious payees which are bearer instruments, the checks were negotiable
by mere delivery. PNBs Answer included its cross-claim against its co- (b) Moral damages in the amount
of P1,000,000.00;
defendants PEMSLA and the MCP, praying that in the event that judgment is
rendered against the bank, the cross-defendants should be ordered to (c) Exemplary damages in the amount
of P500,000.00;
reimburse PNB the amount it shall pay.
(d) Attorneys fees in the amount
of P150,000.00 considering that this
After trial, the RTC rendered judgment in favor of spouses Rodriguez case does not involve very complicated
issues; and for the
(plaintiffs). It ruled that PNB (defendant) is liable to return the value of the
checks. All counterclaims and cross-claims were dismissed. The dispositive (e) Costs of suit.
portion of the RTC decision reads: 3. Other claims and counterclaims are hereby dismissed.
[6]

WHEREFORE, in view of the foregoing, the Court

hereby renders judgment, as follows:
CA Disposition
1. Defendant is hereby ordered to pay the plaintiffs the total
amount of P2,345,804.00 or reinstate or restore the
amount of P775,337.00 in the PNBig Demand
Deposit Checking/Current Account No. 810480-4 of

PNB appealed the decision of the trial court to the CA on the
principal ground that the disputed checks should be considered as payable to
bearer and not to order.
[7]
In a Decision dated July 22, 2004, the CA reversed and set aside
the RTC disposition. The CA concluded that the checks were obviously
meant by the spouses to be really paid to PEMSLA. The court a
checks, while the officers of PEMSLA and other members
would be able to claim their loans, despite the fact that they
were disqualified for one reason or another. They were able
to achieve this conspiracy by using other members who had
loaned lesser amounts of money or had not applied at all. x x
[8]
x. (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not

quo declared: require indorsement for negotiation; and that spouses Rodriguez and
PEMSLA conspired with each other to accomplish this money-making
We are not swayed by the contention of the scheme. The payees in the checks were fictitious payees because they were
plaintiffs-appellees (Spouses Rodriguez) that their cause of
action arose from the alleged breach of contract by the not the intended payees at all.
defendant-appellant (PNB) when it paid the value of the
checks to PEMSLA despite the checks being payable to
order. Rather, we are more convinced by the strong and The spouses Rodriguez moved for reconsideration. They
credible evidence for the defendant-appellant with regard to
the plaintiffs-appellees and PEMSLAs business arrangement argued, inter alia, that the checks on their faces were unquestionably
that the value of the rediscounted checks of the plaintiffs- payable to order; and that PNB committed a breach of contract when it paid
appellees would be deposited in PEMSLAs account for
payment of the loans it has approved in exchange for the value of the checks to PEMSLA without indorsement from the
PEMSLAs checks with the full value of the said loans. This is payees. They also argued that their cause of action is not only against
the only obvious explanation as to why all the disputed sixty-
nine (69) checks were in the possession of PEMSLAs errand PEMSLA but also against PNB to recover the value of the checks.
boy for presentment to the defendant-appellant that led to
this present controversy. It also appears that the teller who
accepted the said checks was PEMSLAs officer, and that On October 11, 2005, the CA reversed itself via an Amended
such was a regular practice by the parties until the
Decision, the last paragraph and fallo of which read:
defendant-appellant discovered the scam. The logical
conclusion, therefore, is that the checks were never meant to
be paid to order, but instead, to PEMSLA. We thus find no In sum, we rule that the defendant-appellant PNB is
breach of contract on the part of the defendant-appellant. liable to the plaintiffs-appellees Sps. Rodriguez for the
following:
According to plaintiff-appellee Erlando Rodriguez
testimony, PEMSLA allegedly issued post-dated checks to 1. Actual damages in the amount
its qualified members who had applied for loans. However, of P2,345,804 with interest at 6% per
because of PEMSLAs insufficiency of funds, PEMSLA annum from 14 May 1999 until fully
approached the plaintiffs-appellees for the latter to issue paid;
rediscounted checks in favor of said applicant
members. Based on the investigation of the defendant- 2. Moral damages in the amount
appellant, meanwhile, this arrangement allowed the of P200,000;
plaintiffs-appellees to make a profit by issuing rediscounted
 3. Attorneys fees in the amount
by mere delivery. Further, testimonial and documentary evidence presented
of P100,000; and
during trial amply proved that spouses Rodriguez and the officers of
4. Costs of suit.
PEMSLA conspired with each other to defraud the bank.
WHEREFORE, in view of the foregoing premises,
judgment is hereby rendered by Us AFFIRMING WITH
MODIFICATION the assailed decision rendered in Civil Case Our Ruling
No. 99-10892, as set forth in the immediately next preceding
paragraph hereof, and SETTING ASIDE Our original
decision promulgated in this case on 22 July 2004. Prefatorily, amendment of decisions is more acceptable than an
[9] erroneous judgment attaining finality to the prejudice of innocent parties. A
SO ORDERED.
court discovering an erroneous judgment before it becomes final may, motu
proprio or upon motion of the parties, correct its judgment with the singular
The CA ruled that the checks were payable to order. According to the
[10]
objective of achieving justice for the litigants.
appellate court, PNB failed to present sufficient proof to defeat the claim of
the spouses Rodriguez that they really intended the checks to be received by
However, a word of caution to lower courts, the CA in Cebu in this
the specified payees. Thus, PNB is liable for the value of the checks which it
particular case, is in order. The Court does not sanction careless disposition
paid to PEMSLA without indorsements from the named payees. The award
of cases by courts of justice.The highest degree of diligence must go into the
for damages was deemed appropriate in view of the failure of PNB to treat
study of every controversy submitted for decision by litigants. Every issue
the Rodriguez account with the highest degree of care considering the
and factual detail must be closely scrutinized and analyzed, and all the
fiduciary nature of their relationship, which constrained respondents to
applicable laws judiciously studied, before the promulgation of every
seek legal action.
judgment by the court. Only in this manner will errors in judgments be
avoided.
Hence, the present recourse under Rule 45.

Now to the core of the petition.

Issues

As a rule, when the payee is fictitious or not intended to be the

The issues may be compressed to whether the subject checks are
true recipient of the proceeds, the check is considered as a bearer
payable to order or to bearer and who bears the loss?
instrument. A check is a bill of exchange drawn on a bank payable on
[11]
demand. It is either an order or a bearer instrument. Sections 8 and 9 of
PNB argues anew that when the spouses Rodriguez issued the
the NIL states:
disputed checks, they did not intend for the named payees to receive the
proceeds. Thus, they are bearer instruments that could be validly negotiated
 SEC. 8. When payable to order. The instrument is transferee the holder thereof. If payable to bearer, it is
payable to order where it is drawn payable to the order of a negotiated by delivery; if payable to order, it is negotiated by
specified person or to him or his order. It may be drawn the indorsement of the holder completed by delivery.
payable to the order of

(a) A payee who is not maker, drawer, or drawee; A check that is payable to a specified payee is an order
or
(b) The drawer or maker; or instrument. However, under Section 9(c) of the NIL, a check payable to a
(c) The drawee; or specified payee may nevertheless be considered as a bearer instrument if it
(d) Two or more payees jointly; or
(e) One or some of several payees; or is payable to the order of a fictitious or non-existing person, and such fact is
(f) The holder of an office for the time being. known to the person making it so payable. Thus, checks issued to Prinsipe
Where the instrument is payable to order, the payee Abante or Si Malakas at si Maganda, who are well-known characters in
must be named or otherwise indicated therein with
Philippine mythology, are bearer instruments because the named payees are
reasonable certainty.
fictitious and non-existent.
SEC. 9. When payable to bearer. The instrument is
payable to bearer
We have yet to discuss a broader meaning of the term fictitious as
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein used in the NIL. It is for this reason that We look elsewhere for
or bearer; or guidance. Court rulings in the United States are a logical starting point since
(c) When it is payable to the order of a fictitious or
non-existing person, and such fact is known to our law on negotiable instruments was directly lifted from the Uniform
the person making it so payable; or [13]
Negotiable Instruments Law of the United States.
(d) When the name of the payee does not purport
to be the name of any person; or
(e) Where the only or last indorsement is an
indorsement in
[12]
blank. (Underscoring A review of US jurisprudence yields that an actual, existing, and
supplied) living payee may also be fictitious if the maker of the check did not intend for
the payee to in fact receive the proceeds of the check. This usually occurs
The distinction between bearer and order instruments lies in their when the maker places a name of an existing payee on the check for
manner of negotiation. Under Section 30 of the NIL, an order instrument [14]
convenience or to cover up an illegal activity. Thus, a check made
requires an indorsement from the payee or holder before it may be validly expressly payable to a non-fictitious and existing person is not necessarily an
negotiated. A bearer instrument, on the other hand, does not require an order instrument. If the payee is not the intended recipient of the
indorsement to be validly negotiated. It is negotiable by mere delivery. The proceeds of the check, the payee is considered a fictitious payee and
provision reads: the check is a bearer instrument.

SEC. 30. What constitutes negotiation. An

instrument is negotiated when it is transferred from one In a fictitious-payee situation, the drawee bank is absolved from
person to another in such manner as to constitute the liability and the drawer bears the loss. When faced with a check payable to
a fictitious payee, it is treated as a bearer instrument that can be negotiated
by delivery. The underlying theory is that one cannot expect a fictitious payee
to negotiate the check by placing his indorsement thereon. And since the
maker knew this limitation, he must have intended for the instrument to be
negotiated by mere delivery. Thus, in case of controversy, the drawer of the
check will bear the loss. This rule is justified for otherwise, it will be most
convenient for the maker who desires to escape payment of the check to
always deny the validity of the indorsement. This despite the fact that the
fictitious payee was purposely named without any intention that the payee
[15]
should receive the proceeds of the check.
The fictitious-payee rule is best illustrated in Mueller & Martin v.
[16]
Liberty Insurance Bank. In the said case, the corporation Mueller & Martin
was defrauded by George L. Martin, one of its authorized signatories. Martin
drew seven checks payable to the German Savings Fund Company Building
Association (GSFCBA) amounting to $2,972.50 against the account of the
corporation without authority from the latter. Martin was also an officer of the
GSFCBA but did not have signing authority. At the back of the checks, Martin
placed the rubber stamp of the GSFCBA and signed his own name as
indorsement. He then successfully drew the funds from Liberty Insurance
Bank for his own personal profit. When the corporation filed an action against
the bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making
the check so payable did not intend for the specified payee to have any part
in the transactions, the payee is considered as a fictitious payee. The check
is then considered as a bearer instrument to be validly negotiated by mere
delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as
drawee, was authorized to make payment to the bearer of the check,
[17]
regardless of whether prior indorsements were genuine or not.
The more recent Getty Petroleum Corp. v. American Express Travel
[18]
Related Services Company, Inc. upheld the fictitious-payee rule. The rule
protects the depositary bank and assigns the loss to the drawer of the check
who was in a better position to prevent the loss in the first place. Due care is
not even required from the drawee or depositary bank in accepting and
paying the checks. The effect is that a showing of negligence on the part of
the depositary bank will not defeat the protection that is derived from this
rule.
However, there is a commercial bad faith exception to the
fictitious-payee rule. A showing of commercial bad faith on the part of
the drawee bank, or any transfereeof the check for that matter, will work
to strip it of this defense. The exception will cause it to bear the
loss. Commercial bad faith is present if the transferee of the check acts
dishonestly, and is a party to the fraudulent scheme. Said the US Supreme
Court in Getty:
Consequently, a transferees lapse of wary vigilance,
disregard of suspicious circumstances which might have well
induced a prudent banker to investigate and other
permutations of negligence are not relevant considerations
under Section 3-405 x x x. Rather, there is a commercial bad
faith exception to UCC 3-405, applicable when the transferee
acts dishonestly where it has actual knowledge of facts and
circumstances that amount to bad faith, thus itself becoming
a participant in a fraudulent scheme. x x x Such a test finds
support in the text of the Code, which omits a standard of
care requirement from UCC 3-405 but imposes on all parties
[19]
an obligation to act with honesty in fact. x x x (Emphasis
added)
Getty also laid the principle that the fictitious-payee rule extends protection
even to non-bank transferees of the checks.

In the case under review, the Rodriguez checks were payable to
specified payees. It is unrefuted that the 69 checks were payable to specific
persons. Likewise, it is uncontroverted that the payees were actual, existing,
and living persons who were members of PEMSLA that had a rediscounting
arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing
persons, were fictitious in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must
show that the makers did not intend for the named payees to be part of the
transaction involving the checks. At most, the banks thesis shows that the
payees did not have knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not tantamount to a
lack of intention on the part of respondents-spouses that the payees
would not receive the checks proceeds. Considering that respondents-
spouses were transacting with PEMSLA and not the individual payees, it is
understandable that they relied on the information given by the officers of
PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is
because, as found by both lower courts, PNB failed to present sufficient
evidence to defeat the claim of respondents-spouses that the named payees
were the intended recipients of the checks proceeds. The bank failed to
satisfy a requisite condition of a fictitious-payee situation that the maker of
the check intended for the payee to have no interest in the transaction.
Because of a failure to show that the payees were fictitious in its
broader sense, the fictitious-payee rule does not apply. Thus, the checks are
to be deemed payable to order. Consequently, the drawee bank bears the
[20]
loss.
PNB was remiss in its duty as the drawee bank. It does not
dispute the fact that its teller or tellers accepted the 69 checks for deposit to
the PEMSLA account even without any indorsement from the named
payees. It bears stressing that order instruments can only be negotiated with
a valid indorsement.
A bank that regularly processes checks that are neither payable to
the customer nor duly indorsed by the payee is apparently grossly negligent
[21]
in its operations. This Court has recognized the unique public interest
possessed by the banking industry and the need for the people to have full
[22]
trust and confidence in their banks. For this reason, banks are minded to
[23]
treat their customers accounts with utmost care, confidence, and honesty.
In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in
accordance with the drawers instructions, i.e., to the named payee in the
check. It should charge to the drawers accounts only the payables authorized
by the latter. Otherwise, the drawee will be violating the instructions of the
drawer and it shall be liable for the amount charged to the drawers
[24]
account.
In the case at bar, respondents-spouses were the banks depositors.
The checks were drawn against respondents-spouses accounts. PNB, as the
drawee bank, had the responsibility to ascertain the regularity of the
indorsements, and the genuineness of the signatures on the checks before
accepting them for deposit. Lastly, PNB was obligated to pay the checks in
strict accordance with the instructions of the drawers. Petitioner miserably
failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of
PEMSLA absent any type of indorsement, forged or otherwise. The facts
clearly show that the bank did not pay the checks in strict accordance with
the instructions of the drawers, respondents-spouses. Instead, it paid the
values of the checks not to the named payees or their order, but to PEMSLA,
a third party to the transaction between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its
employees. The trustworthiness of bank employees is indispensable to
maintain the stability of the banking industry. Thus, banks are enjoined to be
extra vigilant in the management and supervision of their employees. In Bank
[25]
of the Philippine Islands v. Court of Appeals, this Court cautioned thus:
Banks handle daily transactions involving millions of
pesos. By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their
employees and officials is far greater
than those of ordinary clerks and employees. For obvious
reasons, the banks are expected to exercise the highest
degree of diligence in the selection and supervision of their
[26]
employees.
PNBs tellers and officers, in violation of banking rules of procedure,
permitted the invalid deposits of checks to the PEMSLA account. Indeed,
when it is the gross negligence of the bank employees that caused the loss,
[27]
the bank should be held liable.
PNBs argument that there is no loss to compensate since no
demand for payment has been made by the payees must also fail. Damage
was caused to respondents-spouses when the PEMSLA checks they
deposited were returned for the reason Account Closed. These PEMSLA
checks were the corresponding payments to the Rodriguez checks. Since
they could not encash the PEMSLA checks, respondents-spouses were
unable to collect payments for the amounts they had advanced.
A bank that has been remiss in its duty must suffer the
consequences of its negligence. Being issued to named payees, PNB was
duty-bound by law and by banking rules and procedure to require that the
checks be properly indorsed before accepting them for deposit and
payment. In fine, PNB should be held liable for the amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-
claim against its co-defendants PEMSLA and MPC. The records are bereft of
any pleading filed by these two defendants in answer to the complaint of
respondents-spouses and cross-claim of PNB. The Rules expressly provide
that failure to file an answer is a ground for a declaration that defendant
[28]
is in default. Yet, the RTC failed to sanction the failure of both PEMSLA
and MPC to file responsive pleadings. Verily, the RTC dismissal of PNBs
cross-claim has no basis. Thus, this judgment shall be without prejudice to
whatever action the bank might take against its co-defendants in the trial
court.
To PNBs credit, it became involved in the controversial transaction not of its
own volition but due to the actions of some of its employees. Considering
that moral damages must be understood to be in concept of grants, not
 Gilbert R. Wagas appeals his conviction for estafa under the decision
punitive or corrective in nature, We resolve to reduce the award of moral rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu
[29]
damages to P50,000.00. City (RTC), meting on him the indeterminate penalty of 12 years of prision
mayor, as minimum, to 30 years of reclusion perpetua, as maximum.

WHEREFORE, the appealed Amended Decision is AFFIRMED with Antecedents

the MODIFICATION that the award for moral damages is reduced
Wagas was charged with estafa under the information that reads:
to P50,000.00, and that this is without prejudice to whatever civil, criminal, or
administrative action PNB might take against PEMSLA, MPC, and the That on or about the 30th day of April, 1997, and for sometime prior and
subsequent thereto, in the City of Cebu, Philippines, and within the
employees involved. jurisdiction of this Honorable Court, the said accused, with deliberate intent,
with intent to gain and by means of false pretenses or fraudulent acts
SO ORDERED. executed prior to or simultaneously with the commission of the fraud, to wit:
knowing that he did not have sufficient funds deposited with the Bank of
Philippine Islands, and without informing Alberto Ligaray of that
Republic of the Philippines circumstance, with intent to defraud the latter, did then and there issue Bank
SUPREME COURT of the Philippine Islands Check No. 0011003, dated May 08, 1997 in the
Manila amount of 200,000.00, which check was issued in payment of an obligation,
but which check when presented for encashment with the bank, was
FIRST DIVISION dishonored for the reason "drawn against insufficient funds" and inspite of
notice and several demands made upon said accused to make good said
G.R. No. 157943 September 4, 2013 check or replace the same with cash, he had failed and refused and up to the
present time still fails and refuses to do so, to the damage and prejudice of
PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE, Alberto Ligaray in the amount aforestated.
vs.
1
GILBERT REYES WAGAS, ACCUSED-APPELLANT. CONTRARY TO LAW.

DECISION
BERSAMIN, J.:
The Bill of Rights guarantees the right of an accused to be presumed
innocent until the contrary is proved. In order to overcome the presumption of
innocence, the Prosecution is required to adduce against him nothing less
than proof beyond reasonable doubt. Such proof is not only in relation to the
elements of the offense, but also in relation to the identity of the offender. If
the Prosecution fails to discharge its heavy burden, then it is not only the
right of the accused to be freed, it becomes the Courts constitutional duty to
acquit him.
The Case
2
After Wagas entered a plea of not guilty, the pre-trial was held, during which
the Defense admitted that the check alleged in the information had been
3
dishonored due to insufficient funds. On its part, the Prosecution made no
4
admission.
At the trial, the Prosecution presented complainant Alberto Ligaray as its lone
witness. Ligaray testified that on April 30, 1997, Wagas placed an order for
200 bags of rice over the telephone; that he and his wife would not agree at
first to the proposed payment of the order by postdated check, but because
of Wagas assurance that he would not disappoint them and that he had the
means to pay them because he had a lending business and money in the
bank, they relented and accepted the order; that he released the goods to
Wagas on April 30, 1997 and at the same time received Bank of the
Philippine Islands (BPI) Check No. 0011003 for 200,000.00 payable to cash
and postdated May 8, 1997; that he later deposited the check with Solid
Bank, his depository bank, but the check was dishonored due to insufficiency
5
of funds; that he called Wagas about the matter, and the latter told him that
he would pay upon his return to Cebu; and that despite repeated demands,
6
Wagas did not pay him.
On cross-examination, Ligaray admitted that he did not personally meet
Wagas because they transacted through telephone only; that he released the
200 bags of rice directly to Robert Caada, the brother-in-law of Wagas, who
7
signed the delivery receipt upon receiving the rice.
After Ligaray testified, the Prosecution formally offered the following: (a) BPI
Check No. 0011003 in the amount of 200,000.00 payable to "cash;" (b) the
return slip dated May 13, 1997 issued by Solid Bank; (c) Ligarays affidavit;
and (d) the delivery receipt signed by Caada. After the RTC admitted the
8
exhibits, the Prosecution then rested its case.
In his defense, Wagas himself testified. He admitted having issued BPI
Check No. 0011003 to Caada, his brother-in-law, not to Ligaray. He denied
having any telephone conversation or any dealings with Ligaray. He
explained that the check was intended as payment for a portion of Caadas
property that he wanted to buy, but when the sale did not push through, he
9 accommodate the pleas of his sister and Caada, and to avoid jeopardizing
did not anymore fund the check.
On cross-examination, the Prosecution confronted Wagas with a letter dated
July 3, 1997 apparently signed by him and addressed to Ligarays counsel,
wherein he admitted owing Ligaray 200,000.00 for goods received, to wit:
This is to acknowledge receipt of your letter dated June 23, 1997 which is
self-explanatory. It is worthy also to discuss with you the environmental facts
of the case for your consideration, to wit:
It is true that I obtained goods from your client worth 200,000.00 and I
promised to settle the same last May 10, 1997, but to no avail. On this point,
let me inform you that I sold my real property to a buyer in Manila, and
promised to pay the consideration on the same date as I promised with your
client. Unfortunately, said buyer likewise failed to make good with such
obligation. Hence, I failed to fulfill my promise resultant thereof. (sic)
Again, I made another promise to settle said obligation on or before June 15,
1997, but still to no avail attributable to the same reason as aforementioned.
(sic)
To arrest this problem, we decided to source some funds using the subject
property as collateral. This other means is resorted to for the purpose of
settling the herein obligation. And as to its status, said funds will be
rele[a]sed within thirty (30) days from today.
In view of the foregoing, it is my sincere request and promise to settle said
obligation on or before August 15, 1997.
Lastly, I would like to manifest that it is not my intention to shy away from any
financial obligation.
xxxx
Respectfully yours,
(SGD.)
GILBERT R. WAGAS
10
Wagas admitted the letter, but insisted that it was Caada who had
transacted with Ligaray, and that he had signed the letter only because his
sister and her husband (Caada) had begged him to assume the
11
responsibility. On redirect examination, Wagas declared that Caada, a
seafarer, was then out of the country; that he signed the letter only to
12
Caadas application for overseas employment. The Prosecution
13
subsequently offered and the RTC admitted the letter as rebuttal evidence.
Decision of the RTC
As stated, the RTC convicted Wagas of estafa on July 11, 2002, viz:
WHEREFORE, premises considered, the Court finds the accused GUILTY
beyond reasonable doubt as charged and he is hereby sentenced as follows:
To suffer an indeterminate penalty of from twelve (12) years of pris[i]on
mayor, as minimum, to thirty (30) years of reclusion perpetua as maximum;
To indemnify the complainant, Albert[o] Ligaray in the sum of 200,000.00;
To pay said complainant the sum of 30,000.00 by way of attorneys fees;
and the costs of suit.
14
SO ORDERED.
The RTC held that the Prosecution had proved beyond reasonable doubt all
the elements constituting the crime of estafa, namely: (a) that Wagas issued
the postdated check as payment for an obligation contracted at the time the
check was issued; (b) that he failed to deposit an amount sufficient to cover
the check despite having been informed that the check had been dishonored;
and (c) that Ligaray released the goods upon receipt of the postdated check
and upon Wagas assurance that the check would be funded on its date.
15
Wagas filed a motion for new trial and/or reconsideration, arguing that the
Prosecution did not establish that it was he who had transacted with Ligaray
and who had negotiated the check to the latter; that the records showed that
Ligaray did not meet him at any time; and that Ligarays testimony on their
alleged telephone conversation was not reliable because it was not shown
that Ligaray had been familiar with his voice. Wagas also sought the
reopening of the case based on newly discovered evidence, specifically: (a)
the testimony of Caada who could not testify during the trial because he
was then out of the country, and (b) Ligarays testimony given against Wagas
in another criminal case for violation of Batas Pambansa Blg. 22.
On October 21, 2002, the RTC denied the motion for new trial and/or
reconsideration, opining that the evidence Wagas desired to present at a
new trial did not qualify as newly discovered, and that there was no
16
compelling ground to reverse its decision.
17
Wagas appealed directly to this Court by notice of appeal.
Prior to the elevation of the records to the Court, Wagas filed a petition for
admission to bail pending appeal. The RTC granted the petition and fixed
18
Wagas bond at 40,000.00. Wagas then posted bail for his provisional
19
liberty pending appeal.
The resolution of this appeal was delayed by incidents bearing on the grant
of Wagas application for bail. On November 17, 2003, the Court required the
20
RTC Judge to explain why Wagas was out on bail. On January 15, 2004,
the RTC Judge submitted to the Court a so-called manifestation and
compliance which the Court referred to the Office of the Court Administrator
21
(OCA) for evaluation, report, and recommendation. On July 5, 2005, the
Court, upon the OCAs recommendation, directed the filing of an
administrative complaint for simple ignorance of the law against the RTC
22
Judge. On September 12, 2006, the Court directed the OCA to comply with
its July 5, 2005 directive, and to cause the filing of the administrative
complaint against the RTC Judge. The Court also directed Wagas to explain
why his bail should not be cancelled for having been erroneously
23
granted. Finally, in its memorandum dated September 27, 2006, the OCA
manifested to the Court that it had meanwhile filed the administrative
24
complaint against the RTC Judge.
Issues
In this appeal, Wagas insists that he and Ligaray were neither friends nor
personally known to one other; that it was highly incredible that Ligaray, a
businessman, would have entered into a transaction with him involving a
huge amount of money only over the telephone; that on the contrary, the
evidence pointed to Caada as the person with whom Ligaray had
transacted, considering that the delivery receipt, which had been signed by
Caada, indicated that the goods had been "Ordered by ROBERT
CAADA," that the goods had been received by Caada in good order and
condition, and that there was no showing that Caada had been acting on
behalf of Wagas; that he had issued the check to Caada upon a different
transaction; that Caada had negotiated the check to Ligaray; and that the
element of deceit had not been established because it had not been proved
with certainty that it was him who had transacted with Ligaray over the
telephone.
The circumstances beg the question: did the Prosecution establish beyond
reasonable doubt the existence of all the elements of the crime of estafa as
charged, as well as the identity of the perpetrator of the crime?
Ruling
The appeal is meritorious.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended,
provides:
Article 315. Swindling (estafa). Any person who shall defraud another by
any of the means mentioned hereinbelow shall be punished by:
xxxx
2. By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneously with the commission of the fraud:
xxxx
(d) By postdating a check, or issuing a check in payment of an obligation
when the offender had no funds in the bank, or his funds deposited therein
were not sufficient to cover the amount of the check. The failure of the
drawer of the check to deposit the amount necessary to cover his check
within three (3) days from receipt of notice from the bank and/or the payee or
holder that said check has been dishonored for lack or insufficiency of funds
shall be prima facie evidence of deceit constituting false pretense or
fraudulent act.
In order to constitute estafa under this statutory provision, the act of
postdating or issuing a check in payment of an obligation must be the
efficient cause of the defraudation. This means that the offender must be
able to obtain money or property from the offended party by reason of the
issuance of the check, whether dated or postdated. In other words, the
Prosecution must show that the person to whom the check was delivered
would not have parted with his money or property were it not for the issuance
25
of the check by the offender.
A:
He talked with me over the phone and told me that he would like to purchase
29
two hundred bags of rice and he will just issue a check.
Even after the dishonor of the check, Ligaray did not personally see and
meet whoever he had dealt with and to whom he had made the demand for
payment, and that he had talked with him only over the telephone, to wit:

The essential elements of the crime charged are that: (a) a check is
Q:
postdated or issued in payment of an obligation contracted at the time the
check is issued; (b) lack or insufficiency of funds to cover the check; and (c)
26
damage to the payee thereof. It is the criminal fraud or deceit in the After the check was (sic) bounced, what did you do next?
issuance of a check that is punishable, not the non-payment of a
27
debt. Prima facie evidence of deceit exists by law upon proof that the A:
drawer of the check failed to deposit the amount necessary to cover his
check within three days from receipt of the notice of dishonor. I made a demand on them.

The Prosecution established that Ligaray had released the goods to Caada Q:
because of the postdated check the latter had given to him; and that the
check was dishonored when presented for payment because of the How did you make a demand?
insufficiency of funds.
A:
In every criminal prosecution, however, the identity of the offender, like the
28
crime itself, must be established by proof beyond reasonable doubt. In that
I called him over the phone.
regard, the Prosecution did not establish beyond reasonable doubt that it
was Wagas who had defrauded Ligaray by issuing the check.
Q:
Firstly, Ligaray expressly admitted that he did not personally meet the person
with whom he was transacting over the telephone, thus: Who is that "him" that you are referring to?

Q: A:

30
On April 30, 1997, do you remember having a transaction with the accused in Gilbert Wagas.
this case?
Secondly, the check delivered to Ligaray was made payable to cash. Under
A: the Negotiable Instruments Law, this type of check was payable to the bearer
and could be negotiated by mere delivery without the need of an
31
indorsement. This rendered it highly probable that Wagas had issued the
Yes, sir. He purchased two hundred bags of rice from me.
check not to Ligaray, but to somebody else like Caada, his brother-in-law,
who then negotiated it to Ligaray.1wphi1 Relevantly, Ligaray confirmed that
Q: he did not himself see or meet Wagas at the time of the transaction and
thereafter, and expressly stated that the person who signed for and received
How did this purchase of rice transaction started? (sic) the stocks of rice was Caada.
It bears stressing that the accused, to be guilty of estafa as charged, must evidence somewhere in the development of the case. The mere statement of
have used the check in order to defraud the complainant. What the law his identity by the party calling is not in itself sufficient proof of such identity,
punishes is the fraud or deceit, not the mere issuance of the worthless check. in the absence of corroborating circumstances so as to render the
Wagas could not be held guilty of estafa simply because he had issued the conversation admissible. However, circumstances preceding or following the
check used to defraud Ligaray. The proof of guilt must still clearly show that it conversation may serve to sufficiently identify the caller. The completeness
had been Wagas as the drawer who had defrauded Ligaray by means of the of the identification goes to the weight of the evidence rather than its
check. admissibility, and the responsibility lies in the first instance with the district
court to determine within its sound discretion whether the threshold of
35
Thirdly, Ligaray admitted that it was Caada who received the rice from him admissibility has been met. (Bold emphasis supplied)
and who delivered the check to him. Considering that the records are bereft
of any showing that Caada was then acting on behalf of Wagas, the RTC Yet, the Prosecution did not tender any plausible explanation or offer any
had no factual and legal bases to conclude and find that Caada had been proof to definitely establish that it had been Wagas whom Ligaray had
acting for Wagas. This lack of factual and legal bases for the RTC to infer so conversed with on the telephone. The Prosecution did not show through
obtained despite Wagas being Caadas brother-in-law. Ligaray during the trial as to how he had determined that his caller was
Wagas. All that the Prosecution sought to elicit from him was whether he had
Finally, Ligarays declaration that it was Wagas who had transacted with him known and why he had known Wagas, and he answered as follows:
over the telephone was not reliable because he did not explain how he
determined that the person with whom he had the telephone conversation Q:
was really Wagas whom he had not yet met or known before then. We deem
it essential for purposes of reliability and trustworthiness that a telephone Do you know the accused in this case?
conversation like that one Ligaray supposedly had with the buyer of rice to be
first authenticated before it could be received in evidence. Among others, the
A:
person with whom the witness conversed by telephone should be first
32
satisfactorily identified by voice recognition or any other means. Without the
authentication, incriminating another person just by adverting to the Yes, sir.
telephone conversation with him would be all too easy. In this respect, an
identification based on familiarity with the voice of the caller, or because of Q:
33
clearly recognizable peculiarities of the caller would have sufficed. The
identity of the caller could also be established by the callers self- If he is present inside the courtroom []
identification, coupled with additional evidence, like the context and timing of
the telephone call, the contents of the statement challenged, internal A:
patterns, and other distinctive characteristics, and disclosure of knowledge of
34
facts known peculiarly to the caller.
No, sir. He is not around.
Verily, it is only fair that the caller be reliably identified first before a
Q:
telephone communication is accorded probative weight. The identity of the
caller may be established by direct or circumstantial evidence. According to
one ruling of the Kansas Supreme Court: Why do you know him?

Communications by telephone are admissible in evidence where they are A:

relevant to the fact or facts in issue, and admissibility is governed by the
same rules of evidence concerning face-to-face conversations except the I know him as a resident of Compostela because he is an ex-mayor of
36
party against whom the conversations are sought to be used must ordinarily Compostela.
be identified. It is not necessary that the witness be able, at the time of the
conversation, to identify the person with whom the conversation was had,
provided subsequent identification is proved by direct or circumstantial
During cross-examination, Ligaray was allowed another opportunity to show There was no instant (sic) that the accused went to see you personally
how he had determined that his caller was Wagas, but he still failed to regarding the 200 bags rice transaction?
provide a satisfactory showing, to wit:
A:
Q:
No. It was through telephone only.
Mr. Witness, you mentioned that you and the accused entered into [a]
transaction of rice selling, particularly with these 200 sacks of rice subject of Q:
this case, through telephone conversation?
In fact[,] you did not cause the delivery of these 200 bags of rice through the
A: accused himself?

Yes, sir. A:

Q: Yes. It was through Robert.

But you cannot really ascertain that it was the accused whom you are talking Q:
with?
So, after that phone call[,] you deliver[ed] th[ose] 200 sacks of rice through
A: somebody other than the accused?

I know it was him because I know him. A:

Q: 37
Yes, sir.

Am I right to say [that] that was the first time that you had a transaction with Ligarays statement that he could tell that it was Wagas who had ordered the
the accused through telephone conversation, and as a consequence of that rice because he "know[s]" him was still vague and unreliable for not assuring
alleged conversation with the accused through telephone he issued a check the certainty of the identification, and should not support a finding of
in your favor? Ligarays familiarity with Wagas as the caller by his voice. It was evident from
Ligarays answers that Wagas was not even an acquaintance of Ligarays
A: prior to the transaction. Thus, the RTCs conclusion that Ligaray had
transacted with Wagas had no factual basis. Without that factual basis, the
No. Before that call I had a talk[ ] with the accused. RTC was speculating on a matter as decisive as the identification of the
buyer to be Wagas.
Q:
The letter of Wagas did not competently establish that he was the person
But still through the telephone? who had conversed with Ligaray by telephone to place the order for the rice.
The letter was admitted exclusively as the States rebuttal evidence to
controvert or impeach the denial of Wagas of entering into any transaction
A: with Ligaray on the rice; hence, it could be considered and appreciated only
for that purpose. Under the law of evidence, the court shall consider
38
Yes, sir. evidence solely for the purpose for which it is offered, not for any other
39
purpose. Fairness to the adverse party demands such exclusivity.
Q: Moreover, the high plausibility of the explanation of Wagas that he had
signed the letter only because his sister and her husband had pleaded with
him to do so could not be taken for granted.
It is a fundamental rule in criminal procedure that the State carries the onus
probandi in establishing the guilt of the accused beyond a reasonable doubt,
as a consequence of the tenet ei incumbit probation, qui dicit, non qui negat,
40
which means that he who asserts, not he who denies, must prove, and as a
means of respecting the presumption of innocence in favor of the man or
woman on the dock for a crime. Accordingly, the State has the burden of
proof to show: (1) the correct identification of the author of a crime, and (2)
the actuality of the commission of the offense with the participation of the
accused. All these facts must be proved by the State beyond reasonable
doubt on the strength of its evidence and without solace from the weakness
of the defense. That the defense the accused puts up may be weak is
inconsequential if, in the first place, the State has failed to discharge the
onus of his identity and culpability. The presumption of innocence dictates
that it is for the Prosecution to demonstrate the guilt and not for the accused
41
to establish innocence. Indeed, the accused, being presumed innocent,
carries no burden of proof on his or her shoulders. For this reason, the first
duty of the Prosecution is not to prove the crime but to prove the identity of
the criminal. For even if the commission of the crime can be established,
without competent proof of the identity of the accused beyond reasonable
42
doubt, there can be no conviction.
There is no question that an identification that does not preclude a
reasonable possibility of mistake cannot be accorded any evidentiary
43
force. Thus, considering that the circumstances of the identification of
Wagas as the person who transacted on the rice did not preclude a
reasonable possibility of mistake, the proof of guilt did not measure up to the
standard of proof beyond reasonable doubt demanded in criminal cases.
Perforce, the accuseds constitutional right of presumption of innocence until
the contrary is proved is not overcome, and he is entitled to an
44 45
acquittal, even though his innocence may be doubted.
Nevertheless, an accused, though acquitted of estafa, may still be held civilly
liable where the preponderance of the established facts so
46
warrants. Wagas as the admitted drawer of the check was legally liable to
47
pay the amount of it to Ligaray, a holder in due course. Consequently, we
pronounce and hold him fully liable to pay the amount of the dishonored
check, plus legal interest of 6% per annum from the finality of this decision.
WHEREFORE, the Court REVERSES and SETS ASIDE the decision
rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu
City; and ACQUITS Gilbert R. Wagas of the crime of estafa on the ground of
reasonable doubt, but ORDERS him to pay Alberto Ligaray the amount of
200,000.00 as actual damages, plus interest of 6% per annum from the
finality of this decision.
No pronouncement on costs of suit.
SO ORDERED.
THIRD DIVISION
[G.R. No. 75908. October 22, 1999]
FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO
O. BORROMEO, INC, petitioners vs. AMANCIO SUN and the
COURT OF APPEALS,respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for review on Certiorari under Rule 45 of the Revised
Rules of Court seeking to set aside the Resolution of the then Intermediate
[1]
Appellate Court , dated March 13, 1986, in AC-G.R. CV NO. 67988, which
reversed its earlier Decision dated February 12, 1985, setting aside the
Decision of the former Court of the First Instance of Rizal, Branch X, in Civil
Case No. 19466.
The antecedent facts are as follows:
Private respondent Amancio Sun brought before the then Court of the
First Instance of Rizal, Branch X, an action against Lourdes O. Borromeo (in
her capacity as corporate secretary), Federico O. Borromeo and Federico O.
Borromeo (F.O.B.), Inc., to compel the transfer to his name in the books of
F.O.B., Inc., 23,223 shares of stock registered in the name of Federico O.
Borromeo, as evidenced by a Deed of Assignment dated January 16, 1974.
[2]
Private respondent averred that all the shares of stock of F.O.B. Inc.
registered in the name of Federico O. Borromeo belong to him, as the said
shares were placed in the name of Federico O. Borromeo only to give the
[3]
latter personality and importance in the business world. According to the
private respondent, on January 16, 1974 Federico O. Borromeo executed in
his favor a Deed of Assignment with respect to the said 23,223 shares of
stock.
 On the other hand, petitioner Federico O. Borromeo disclaimed any
participation in the execution of the Deed of Assignment, theorizing that his
supposed signature thereon was forged.
After trial, the lower court of origin came out with a decision declaring
the questioned signature on subject Deed of Assignment, dated January 16,
1974, as the genuine signature of Federico O. Borromeo; ratiocinating thus:
After considering the testimonies of the two expert witnesses for the parties
and after a careful and judicious study and analysis of the questioned
signature as compared to the standard signatures, the Court is not in a
position to declare that the questioned signature in Exh. A is a forgery. On
the other hand, the Court is of the opinion that the questioned signature is
the real signature of Federico O. Borromeo between the years 1954 to 1957
but definitely is not his signature in 1974 for by then he has changed his
signature. Consequently, to the mind of the Court Exhibit A was signed by
defendant Federico O. Borromeo between the years 1954 to 1957 although
[4]
the words in the blank were filled at a much later date.
On appeal by petitioners, the Court of Appeals adjudged as forgery the
controverted signature of Federico O. Borromeo; disposing as follows:
WHEREFORE, the judgment of the Court a quo as to the second cause of
action dated March 12, 1980 is hereby reversed and set aside and a new
judgment is hereby rendered:
1. Ordering the dismissal of the complaint as to defendant-appellants;
2. Ordering plaintiff-appellee on appellants counterclaim to pay the latter:
a) P 20,000.00 as moral damages;
b) P 10,000.00 as exemplary damages;
c) P 10,000.00 as attorneys fees.
[5]
3. Ordering plaintiff-appellee to pay the costs.
On March 29, 1985, Amancio Sun interposed a motion for
reconsideration of the said decision, contending that Segundo Tabayoyong,
petitioners expert witness, is not a credible witness as found and concluded
[6]
in the following disposition by this Court in Cesar vs. Sandigan Bayan :
The testimony of Mr. Segundo Tabayoyong on March 5, 1980, part of which
is cited on pages 19-23 of the petition, shows admissions which are
summarized by the petitioner as follows:
He never finished any degree in Criminology. Neither did he obtain any
degree in physics or chemistry. He was a mere trainee in the NBI
laboratory. He said he had gone abroad only once-to Argentina which,
according to him is the only one country in the world that gives this degree
(?) People go there where they obtain this sort of degree (?) where they are
authorized to practice (sic) examination of questioned documents.
His civil service eligibility was second grade (general clerical). His present
position had to be re-classified confidential in order to qualify him to it. He
never passed any Board Examination.
He has never authored any book on the subject on which he claimed to be
an expert. Well, he did write a so-called pamphlet pretentiously called
Fundamentals of Questioned Documents Examination and Forgery
Detection. In that pamphlet, he mentioned some references (some) are
Americans and one I think is a British, sir, like in the case of Dr. Wilson
Harrison, a British (he repeated with emphasis). Many of the theories
contained in his pamphlet were lifted body and soul from those references,
one of them being Albert Osborn. His pamphlet has neither quotations nor
footnotes, although he was too aware of the crime committed by many an
author called plagiarism. But that did not deter him, nor bother him in the
least. He has never been a member of any professional organization of
experts in his supposed field of expertise, because he said there is none
[7]
locally. Neither is he on an international level.
Acting on the aforesaid motion for reconsideration, the Court of Appeals
reconsidered its decision of February 12, 1985 aforementioned. Thereafter,
the parties agreed to have subject Deed of Assignment examined by the
Philippine Constabulary (PC) Crime Laboratory, which submitted a Report on
January 9, 1986, the pertinent portion of which, stated:
1. Comparative examination and analysis of the questioned and the
standard signature reveal significant similarities in the freedom
of movement, good quality of lines, skills and individual
handwriting characteristics.
2. By process of interpolation the questioned signature fits in and
can be bracketed in time with the standard signatures written in
the years between 1956 to 1959. Microscopic examination of
the ink used in the questioned signature and the standard
signature in document dated 30 July 1959 marked Exh. E
indicate gallotanic ink.
 xxx
1. The questioned signature FEDERICO O. BORROMEO marked
Q appearing in the original Deed of Assignment dated 16
January 1974 and the submitted standard signatures of
Federico O. Borromeo marked S-1 to S-49 inclusive were
written BY ONE AND THE SAME PERSON.
2. The questioned signature FEDERICO O. BORROMEO marked
Q COULD HAVE BEEN SIGNED IN THE YEARS BETWEEN
[8]
1950-1957.
After hearing the arguments the lawyers of record advanced on the said
Report of the PC Crime Laboratory, the Court of Appeals resolved:
"xxx
1) to ADMIT the Report dated Jan. 9, 1986 of the PC Crime
Laboratory on the Deed of Assignment in evidence, without
prejudice to the parties assailing the credibility of said Report;
2) to GIVE both parties a non-extendible period of FIVE (5) DAYS
from February 27, 1986, within which to file simultaneous
[9]
memoranda.
On March 13, 1986, the Court of Appeals reversed its decision of
February 12, 1985, which affirmed in toto the decision of the trial court of
origin; resolving thus:
WHEREFORE, finding the Motion for Reconsideration meritorious, We
hereby set aside our Decision, dated February 12, 1985 and in its stead a
new judgment is hereby rendered affirming in toto the decision of the trial
Court, dated March 12, 1980, without pronouncement as to costs.
SO ORDERED.
[10]
Therefrom, petitioners found their way to this court via the present Petition;
theorizing that:
I.
THE RESPONDENT COURT ERRED IN HOLDING THAT WHEN
PETITIONER AGREED TO THE SUGGESTION OF RESPONDENT COURT
TO HAVE THE QUESTIONED DOCUMENT EXAMINED BY THE PC CRIME
LABORATORY THEY COULD NO LONGER QUESTION THE
COMPETENCY OF THE DOCUMENT.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
QUESTIONED DOCUMENT WAS SIGNED IN 1954 BUT WAS DATED IN
1974.
III
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SIGNATURE
OF FEDERICO O. BORROMEO IN THE DEED OF ASSIGNMENT (EXHIBIT
A ) IS A GENUINE SIGNATURE CIRCA 1954-1957.
The Petition is barren of merit.
Well-settled is the rule that factual finding of the Court of Appeals are
conclusive on the parties and not reviewable by the Supreme Court and they
carry even more weight when the Court of Appeals affirms the factual
[11]
findings of the trial court.
In the present case, the trial court found that the signature in question is
the genuine signature of Federico O. Borromeo between the years 1954 to
1957 although the words in the blank space of the document in question
were written on a much later date. The same conclusion was arrived at by
the Court of Appeals on the basis of the Report of the PC crime Laboratory
corroborating the findings of Col. Jose Fernandez that the signature under
controversy is genuine.
It is significant to note that Mr. Tabayoyong, petitioners expert witness,
limited his comparison of the questioned signature with the 1974 standard
signature of Federico O. Borromeo. No comparison of the subject signature
with the 1950 - 1957 standard signature was ever made by Mr. Tabayoyong
despite his awareness that the expert witness of private respondent, Col.
Jose Fernandez, made a comparison of said signatures and notwithstanding
his (Tabayoyongs) access to such signatures as they were all submitted to
[12]
the lower Court. As correctly ratiocinated by the Court of origin, the only
conceivable reason why Mr. Tabayoyong avoided making such a comparison
must have been, that even to the naked eye, the questioned signature affixed
to the Deed of Assignment, dated January 16, 1974, is strikingly similar to
the 1950 to 1954 standard signature of Federico O. Borromeo, such that if a
comparison thereof was made by Mr. Tabayoyong, he would have found the
questioned signature genuine.
That the Deed of Assignment is dated January 16, 1974 while the
questioned signature was found to be circa 1954-1957, and not that of 1974,
is of no moment. It does not necessarily mean, that the deed is a
forgery. Pertinent records reveal that the subject Deed of Assignment is
embodied in a blank form for the assignment of shares with authority to
transfer such shares in the books of the corporation. It was clearly intended
to be signed in blank to facilitate the assignment of shares from one person
to another at any future time. This is similar to Section 14 of the Negotiable SO ORDERED.
Instruments Law where the blanks may be filled up by the holder, the signing
in blank being with the assumed authority to do so. Indeed, as the shares Republic of the Philippines
were registered in the name of Federico O. Borromeo just to give him SUPREME COURT
personality and standing in the business community, private respondent had Manila
to have a counter evidence of ownership of the shares involve. Thus the
execution of the deed of assignment in blank, to be filled up whenever
SECOND DIVISION
needed. The same explains the discrepancy between the date of the deed of
assignment and the date when the signature was affixed thereto.
While it is true that the 1974 standard signature of Federico O.
Borromeo is to the naked eye dissimilar to his questioned signature circa G.R. No. 85419 March 9, 1993
1954-1957, which could have been caused by sheer lapse of time, Col. Jose
Fernandez, respondents expert witness, found the said signatures similar to
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
each other after subjecting the same to stereomicroscopic examination and
vs.
analysis because the intrinsic and natural characteristic of Federico O.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG,
Borromeos handwriting were present in all the exemplar signatures used by
ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK
both Segundo Tabayoyong and Col. Jose Fernandez.
OF THE PHILIPPINES, defendants-respondents.
It is therefore beyond cavil that the findings of the Court of origin
affirmed by the Court of Appeals on the basis of the corroborative findings of Yngson & Associates for petitioner.
the Philippine Constabulary Crime Laboratory confirmed the genuineness of
the signature of Federico O. Borromeo in the Deed of Assignment dated Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic
January 16, 1974. Corporation.
Petitioners, however, question the Report of the document examiner on
the ground that they were not given an opportunity to cross-examine the Eduardo G. Castelo for Sima Wei.
Philippine Constabulary document examiner; arguing that they never waived
their right to question the competency of the examiner concerned. While the Monsod, Tamargo & Associates for Producers Bank.
Court finds merit in the contention of petitioners, that they did not actually
waived their right to cross-examine on any aspect of subject Report of the Rafael S. Santayana for Mary Cheng Uy.
Philippine Constabulary Crime Laboratory, the Court discerns no proper
basis for deviating from the findings of the Court of Appeals on the matter. It
is worthy to stress that courts may place whatever weight due on the
[13]
testimony of an expert witness. Conformably, in giving credence and
probative value to the said Report of the Philippine Constabulary Crime CAMPOS, JR., J.:
Laboratory, corroborating the findings of the trial Court, the Court of Appeals
merely exercised its discretion. There being no grave abuse in the exercise On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity)
of such judicial discretion, the findings by the Court of Appeals should not be filed a complaint for a sum of money against respondents Sima Wei and/or
disturbed on appeal. Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic
Corporation (Plastic Corporation for short) and the Producers Bank of the
Premises studiedly considered, the Court is of the irresistible Philippines, on two causes of action:
conclusion, and so holds, that the respondent court erred not in affirming the
decision of the Regional Trial Court a quo in Civil Case No. 19466.
(1) To enforce payment of the balance of P1,032,450.02 on
WHEREFORE, the Petition is DISMISSED for lack of merit and the a promissory note executed by respondent Sima Wei on
assailed Resolution, dated March 13, 1986, AFFIRMED. No pronouncement June 9, 1983; and
as to costs.
 (2) To enforce payment of two checks executed by Sima
Wei, payable to petitioner, and drawn against the China
Banking Corporation, to pay the balance due on the
promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss
alleging a common ground that the complaint states no cause of action. The
trial court granted the defendants' Motions to Dismiss. The Court of Appeals
affirmed this decision, * to which the petitioner Bank, represented by its Legal
Liquidator, filed this Petition for Review by Certiorari, assigning the following
1 2
as the alleged errors of the Court of Appeals:
(1) THE COURT OF APPEALS ERRED IN HOLDING THAT
THE PLAINTIFF-PETITIONER HAS NO CAUSE OF
ACTION AGAINST DEFENDANTS-RESPONDENTS
HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING THAT
SECTION 13, RULE 3 OF THE REVISED RULES OF
COURT ON ALTERNATIVE DEFENDANTS IS NOT
APPLICABLE TO HEREIN DEFENDANTS-
RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima
Wei, the latter executed and delivered to the former a promissory note,
engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on
or before June 24, 1983 with interest at 32% per annum. Sima Wei made
partial payments on the note, leaving a balance of P1,032,450.02. On
November 18, 1983, Sima Wei issued two crossed checks payable to
petitioner Bank drawn against China Banking Corporation, bearing
respectively the serial numbers 384934, for the amount of P550,000.00 and
384935, for the amount of P500,000.00. The said checks were allegedly
issued in full settlement of the drawer's account evidenced by the promissory
note. These two checks were not delivered to the petitioner-payee or to any
of its authorized representatives. For reasons not shown, these checks came
into the possession of respondent Lee Kian Huat, who deposited the checks
without the petitioner-payee's indorsement (forged or otherwise) to the
account of respondent Plastic Corporation, at the Balintawak branch,
Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the
Balintawak branch of Producers Bank, relying on the assurance of
respondent Samson Tung, President of Plastic Corporation, that the
transaction was legal and regular, instructed the cashier of Producers Bank
to accept the checks for deposit and to credit them to the account of said
Plastic Corporation, inspite of the fact that the checks were crossed and
payable to petitioner Bank and bore no indorsement of the latter. Hence,
petitioner filed the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of action
against any or all of the defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of
the legal right or rights of another. The essential elements are: (1) legal right
of the plaintiff; (2) correlative obligation of the defendant; and (3) an act or
omission of the defendant in violation of said legal right.
The normal parties to a check are the drawer, the payee and the drawee
bank. Courts have long recognized the business custom of using printed
checks where blanks are provided for the date of issuance, the name of the
payee, the amount payable and the drawer's signature. All the drawer has to
do when he wishes to issue a check is to properly fill up the blanks and sign
it. However, the mere fact that he has done these does not give rise to any
liability on his part, until and unless the check is delivered to the payee or his
representative. A negotiable instrument, of which a check is, is not only a
written evidence of a contract right but is also a species of property. Just as a
deed to a piece of land must be delivered in order to convey title to the
grantee, so must a negotiable instrument be delivered to the payee in order
to evidence its existence as a binding contract. Section 16 of the Negotiable
Instruments Law, which governs checks, provides in part:
Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect
3
thereto until its delivery to him. Delivery of an instrument means transfer of
4
possession, actual or constructive, from one person to another. Without the
initial delivery of the instrument from the drawer to the payee, there can be
no liability on the instrument. Moreover, such delivery must be intended to
give effect to the instrument.
The allegations of the petitioner in the original complaint show that the two
(2) China Bank checks, numbered 384934 and 384935, were not delivered to
the payee, the petitioner herein. Without the delivery of said checks to
petitioner-payee, the former did not acquire any right or interest therein and
cannot therefore assert any cause of action, founded on said checks,
whether against the drawer Sima Wei or against the Producers Bank or any
of the other respondents.
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima
Wei on the promissory note, and the alternative defendants, including Sima
Wei, on the two checks. On appeal from the orders of dismissal of the
Regional Trial Court, petitioner Bank alleged that its cause of action was not
based on collecting the sum of money evidenced by the negotiable
instruments stated but on quasi-delict a claim for damages on the ground
of fraudulent acts and evident bad faith of the alternative respondents. This
was clearly an attempt by the petitioner Bank to change not only the theory of
its case but the basis of his cause of action. It is well-settled that a party
cannot change his theory on appeal, as this would in effect deprive the other
5 Republic of the Philippines
party of his day in court.
Notwithstanding the above, it does not necessarily follow that the drawer
Sima Wei is freed from liability to petitioner Bank under the loan evidenced
by the promissory note agreed to by her. Her allegation that she has paid the
balance of her loan with the two checks payable to petitioner Bank has no
merit for, as We have earlier explained, these checks were never delivered to
petitioner Bank. And even granting, without admitting, that there was delivery
to petitioner Bank, the delivery of checks in payment of an obligation does
not constitute payment unless they are cashed or their value is impaired
6
through the fault of the creditor. None of these exceptions were alleged by
respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been relieved
from liability on the promissory note by some other cause, petitioner Bank
has a right of action against her for the balance due thereon.
However, insofar as the other respondents are concerned, petitioner Bank
has no privity with them. Since petitioner Bank never received the checks on
which it based its action against said respondents, it never owned them (the
checks) nor did it acquire any interest therein. Thus, anything which the
respondents may have done with respect to said checks could not have
prejudiced petitioner Bank. It had no right or interest in the checks which
could have been violated by said respondents. Petitioner Bank has therefore
no cause of action against said respondents, in the alternative or otherwise.
If at all, it is Sima Wei, the drawer, who would have a cause of action against
her
co-respondents, if the allegations in the complaint are found to be true.
With respect to the second assignment of error raised by petitioner Bank
regarding the applicability of Section 13, Rule 3 of the Rules of Court, We
find it unnecessary to discuss the same in view of Our finding that the
petitioner Bank did not acquire any right or interest in the checks due to lack
of delivery. It therefore has no cause of action against the respondents, in the
alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals dismissing
the petitioner's complaint is AFFIRMED insofar as the second cause of action
is concerned. On the first cause of action, the case is REMANDED to the trial
court for a trial on the merits, consistent with this decision, in order to
determine whether respondent Sima Wei is liable to the Development Bank
of Rizal for any amount under the promissory note allegedly signed by her.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 111190 June 27, 1995
LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his
personal capacity as garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and
RAUL H. SESBREO, respondents.
BELLOSILLO, J.:
RAUL H. SESBREO filed a complaint for damages against Assistant City
Fiscals Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., before the
Regional Trial Court of Cebu City. After trial judgment was rendered ordering
the defendants to pay P11,000.00 to the plaintiff, private respondent herein.
The decision having become final and executory, on motion of the latter, the
trial court ordered its execution. This order was questioned by the defendants
before the Court of Appeals. However, on 15 January 1992 a writ of
execution was issued.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto
D. de la Victoria as City Fiscal of Mandaue City where defendant Mabanto,
Jr., was then detailed. The notice directed petitioner not to disburse, transfer,
release or convey to any other person except to the deputy sheriff concerned
the salary checks or other checks, monies, or cash due or belonging to
 1
Mabanto, Jr., under penalty of law. On 10 March 1992 private respondent
filed a motion before the trial court for examination of the garnishees.
On 25 May 1992 the petition pending before the Court of Appeals was
dismissed. Thus the trial court, finding no more legal obstacle to act on the
motion for examination of the garnishees, directed petitioner on 4 November
1992 to submit his report showing the amount of the garnished salaries of
2
Mabanto, Jr., within fifteen (15) days from receipt taking into consideration
the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to require petitioner
to explain why he should not be cited in contempt of court for failing to
comply with the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice
of garnishment claiming that he was not in possession of any money, funds,
credit, property or anything of value belonging to Mabanto, Jr., except his
salary and RATA checks, but that said checks were not yet properties of
Mabanto, Jr., until delivered to him. He further claimed that, as such, they
were still public funds which could not be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered petitioner
3
to immediately comply with its order of 4 November 1992. It opined that the
checks of Mabanto, Jr., had already been released through petitioner by the
Department of Justice duly signed by the officer concerned. Upon service of
the writ of garnishment, petitioner as custodian of the checks was under
obligation to hold them for the judgment creditor. Petitioner became a virtual
party to, or a forced intervenor in, the case and the trial court thereby
acquired jurisdiction to bind him to its orders and processes with a view to
the complete satisfaction of the judgment. Additionally, there was no
sufficient reason for petitioner to hold the checks because they were no
longer government funds and presumably delivered to the payee,
conformably with the last sentence of Sec. 16 of the Negotiable Instruments
Law.
With regard to the contempt charge, the trial court was not morally convinced
of petitioner's guilt. For, while his explanation suffered from procedural
infirmities nevertheless he took pains in enlightening the court by sending a
written explanation dated 22 July 1992 requesting for the lifting of the notice
of garnishment on the ground that the notice should have been sent to the
Finance Officer of the Department of Justice. Petitioner insists that he had no
authority to segregate a portion of the salary of Mabanto, Jr. The explanation
however was not submitted to the trial court for action since the stenographic
4
reporter failed to attach it to the record.
On 20 April 1993 the motion for reconsideration was denied. The trial court
explained that it was not the duty of the garnishee to inquire or judge for
himself whether the issuance of the order of execution, writ of execution and
notice of garnishment was justified. His only duty was to turn over the
5
garnished checks to the trial court which issued the order of execution.
Petitioner raises the following relevant issues: (1) whether a check still in the
hands of the maker or its duly authorized representative is owned by the
payee before physical delivery to the latter: and, (2) whether the salary check
of a government official or employee funded with public funds can be subject
to garnishment.
Petitioner reiterates his position that the salary checks were not owned by
Mabanto, Jr., because they were not yet delivered to him, and that petitioner
as garnishee has no legal obligation to hold and deliver them to the trial court
to be applied to Mabanto, Jr.'s judgment debt. The thesis of petitioner is that
the salary checks still formed part of public funds and therefore beyond the
reach of garnishment proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits
belonging to the judgment debtor owing to him from a stranger to the
6
litigation. Emphasis is laid on the phrase "belonging to the judgment debtor"
since it is the focal point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public
funds. He receives his compensation in the form of checks from the
Department of Justice through petitioner as City Fiscal of Mandaue City and
head of office. Under Sec. 16 of the Negotiable Instruments Law, every
contract on a negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving effect thereto. As
ordinarily understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title to the payee
7
and recognize him as the holder thereof.
According to the trial court, the checks of Mabanto, Jr., were already
released by the Department of Justice duly signed by the officer concerned
through petitioner and upon service of the writ of garnishment by the sheriff
petitioner was under obligation to hold them for the judgment creditor. It
recognized the role of petitioner as custodian of the checks. At the same time
however it considered the checks as no longer government funds and
presumed delivered to the payee based on the last sentence of Sec. 16 of
the Negotiable Instruments Law which states: "And where the instrument is
no longer in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed." Yet, the presumption is WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and
not conclusive because the last portion of the provision says "until the 20 April 1993 of the Regional Trial Court of Cebu City, Br. 17, subject of the
contrary is proved." However this phrase was deleted by the trial court for no petition are SET ASIDE. The notice of garnishment served on petitioner
apparent reason. Proof to the contrary is its own finding that the checks were dated 3 February 1992 is ordered DISCHARGED.
in the custody of petitioner. Inasmuch as said checks had not yet been
delivered to Mabanto, Jr., they did not belong to him and still had the SO ORDERED.
8
character of public funds. In Tiro v. Hontanosas we ruled that
Quiason and Kapunan, JJ., concur.
The salary check of a government officer or employee such
as a teacher does not belong to him before it is physically
delivered to him. Until that time the check belongs to the
government. Accordingly, before there is actual delivery of
the check, the payee has no power over it; he cannot assign
it without the consent of the Government.

As a necessary consequence of being public fund, the checks may not be

9
garnished to satisfy the judgment. The rationale behind this doctrine is Separate Opinions
obvious consideration of public policy. The Court succinctly stated
10
in Commissioner of Public Highways v. San Diego that

The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the
diversion of public funds from their legitimate and specific
objects, as appropriated by law.
In denying petitioner's motion for reconsideration, the trial court expressed
the additional ratiocination that it was not the duty of the garnishee to inquire
or judge for himself whether the issuance of the order of execution, the writ of
execution, and the notice of garnishment was justified, citing our ruling
11
in Philippine Commercial Industrial Bank v. Court of Appeals. Our precise
ruling in that case was that "[I]t is not incumbent upon the garnishee to
inquire or to judge for itself whether or not the order for the advance
execution of a judgment is valid." But that is invoking only the general rule.
We have also established therein the compelling reasons, as exceptions
thereto, which were not taken into account by the trial court, e.g., a defect on
the face of the writ or actual knowledge by the garnishee of lack of
entitlement on the part of the garnisher. It is worth to note that the ruling
referred to the validity of advance execution of judgments, but a careful
scrutiny of that case and similar cases reveals that it was applicable to a
notice of garnishment as well. In the case at bench, it was incumbent upon
petitioner to inquire into the validity of the notice of garnishment as he had
actual knowledge of the non-entitlement of private respondent to the checks
in question. Consequently, we find no difficulty concluding that the trial court
exceeded its jurisdiction in issuing the notice of garnishment concerning the
salary checks of Mabanto, Jr., in the possession of petitioner.
DAVIDE, JR., J., concurring and dissenting:
This Court may take judicial notice of the fact that checks for salaries of
employees of various Departments all over the country are prepared in
Manila not at the end of the payroll period, but days before it to ensure that
they reach the employees concerned not later than the end of the payroll
period. As to the employees in the provinces or cities, the checks are sent
through the heads of the corresponding offices of the Departments. Thus, in
the case of Prosecutors and Assistant Prosecutors of the Department of
Justice, the checks are sent through the Provincial Prosecutors or City
Prosecutors, as the case may be, who shall then deliver the checks to the
payees.
Involved in the instant case are the salary and RATA checks of then
Assistant City Fiscal Bienvenido Mabanto, Jr., who was detailed in the Office
of the City Fiscal (now Prosecutor) of Mandaue City. Conformably with the
aforesaid practice, these checks were sent to Mabanto thru the petitioner
who was then the City Fiscal of Mandaue City.
The ponencia failed to indicate the payroll period covered by the salary check
and the month to which the RATA check corresponds.
I respectfully submit that if these salary and RATA checks corresponded,
respectively, to a payroll period and to a month which had already lapsed at
the time the notice of garnishment was served, the garnishment would be
valid, as the checks would then cease to be property of the Government and
would become property of Mabanto. Upon the expiration of such period and
month, the sums indicated therein were deemed automatically segregated
from the budgetary allocations for the Department of Justice under the
General Appropriations Act.
It must be recalled that the public policy against execution, attachment, or
garnishment is directed to public funds.
Thus, in the case of Director of the Bureau of Commerce and Industry
1 therein were public funds, to wit: (a) the pump irrigation trust fund deposited
vs. Concepcion where the core issue was whether or not the salary due
from the Government to a public officer or employee can, by garnishment, be
seized before being paid to him and appropriated to the payment of his
judgment debts, this Court held:
A rule, which has never been seriously questioned, is that
money in the hands of public officers, although it may be due
government employees, is not liable to the creditors of these
employees in the process of garnishment. One reason is,
that the State, by virtue of its sovereignty, may not be sued
in its own courts except by express authorization by the
Legislature, and to subject its officers to garnishment would
be to permit indirectly what is prohibited directly. Another
reason is that moneys sought to be garnished, as long as
they remain in the hands of the disbursing officer of the
Government, belong to the latter, although the defendant in
garnishment may be entitled to a specific portion thereof.
And still another reason which covers both of the foregoing is
that every consideration of public policy forbids it.
The United States Supreme Court, in the leading case of
Buchanan vs. Alexander ([1846], 4 How., 19), in speaking of
the right of creditors of seamen, by process of attachment, to
divert the public money from its legitimate and appropriate
object, said:
To state such a principle is to refute it. No
government can sanction it. At all times it
would be found embarrassing, and under
some circumstances it might be fatal to the
public service. . . . So long as money
remains in the hands of a disbursing officer,
it is as much the money of the United
States, as if it had not been drawn from the
treasury. Until paid over by the agent of the
government to the person entitled to it, the
fund cannot, in any legal sense, be
considered a part of his effects." (See,
further, 12 R.C.L., p. 841; Keene vs. Smith
[1904], 44 Ore., 525; Wild vs. Ferguson
[1871], 23 La. Ann., 752; Bank of
Tennessee vs. Dibrell [1855], 3 Sneed
[Tenn.], 379). (emphasis supplied)
The authorities cited in the ponencia are inapplicable. Garnished or levied on
with the Philippine National Bank (PNB) in the account of the Irrigation
2
Service Unit in Republic vs. Palacio; (b) the deposits of the National Media
Production Center in Traders Royal Bank vs. Intermediate Appellate
3
Court; and (c) the deposits of the Bureau of Public Highways with the PNB
under a current account, which may be expended only for their legitimate
object as authorized by the corresponding legislative appropriation
4
in Commissioner of Public Highways vs. Diego.
5
Neither is Tiro vs. Hontanosas squarely in point. The said case involved the
validity of Circular No. 21, series of 1969, issued by the Director of Public
Schools which directed that "henceforth no cashier or disbursing officer shall
pay to attorneys-in-fact or other persons who may be authorized under a
power of attorney or other forms of authority to collect the salary of an
employee, except when the persons so designated and authorized is an
immediate member of the family of the employee concerned, and in all other
cases except upon proper authorization of the Assistant Executive Secretary
for Legal and Administrative Matters, with the recommendation of the
Financial Assistant." Private respondent Zafra Financing Enterprise, which
had extended loans to public school teachers in Cebu City and obtained from
the latter promissory notes and special powers of attorney authorizing it to
take and collect their salary checks from the Division Office in Cebu City of
the Bureau of Public Schools, sought, inter alia, to nullify the Circular. It is
clear that the teachers had in fact assigned to or waived in favor of Zafra
their future salaries which were still public funds. That assignment or waiver
was contrary to public policy.
I would therefore vote to grant the petition only if the salary and RATA
checks garnished corresponds to an unexpired payroll period and RATA
month, respectively.
Padilla, J., concurs.
Separate Opinions
DAVIDE, JR., J., concurring and dissenting:
This Court may take judicial notice of the fact that checks for salaries of
employees of various Departments all over the country are prepared in
Manila not at the end of the payroll period, but days before it to ensure that
they reach the employees concerned not later than the end of the payroll
period. As to the employees in the provinces or cities, the checks are sent
through the heads of the corresponding offices of the Departments. Thus, in
the case of Prosecutors and Assistant Prosecutors of the Department of
Justice, the checks are sent through the Provincial Prosecutors or City
Prosecutors, as the case may be, who shall then deliver the checks to the
payees.
Involved in the instant case are the salary and RATA checks of then
Assistant City Fiscal Bienvenido Mabanto, Jr., who was detailed in the Office
of the City Fiscal (now Prosecutor) of Mandaue City. Conformably with the
aforesaid practice, these checks were sent to Mabanto thru the petitioner
who was then the City Fiscal of Mandaue City.
The ponencia failed to indicate the payroll period covered by the salary check
and the month to which the RATA check corresponds.
I respectfully submit that if these salary and RATA checks corresponded,
respectively, to a payroll period and to a month which had already lapsed at
the time the notice of garnishment was served, the garnishment would be
valid, as the checks would then cease to be property of the Government and
would become property of Mabanto. Upon the expiration of such period and
month, the sums indicated therein were deemed automatically segregated
from the budgetary allocations for the Department of Justice under the
General Appropriations Act.
It must be recalled that the public policy against execution, attachment, or
garnishment is directed to public funds.
Thus, in the case of Director of the Bureau of Commerce and Industry
1
vs. Concepcion where the core issue was whether or not the salary due
from the Government to a public officer or employee can, by garnishment, be
seized before being paid to him and appropriated to the payment of his
judgment debts, this Court held:
A rule, which has never been seriously questioned, is that
money in the hands of public officers, although it may be due
government employees, is not liable to the creditors of these
employees in the process of garnishment. One reason is,
that the State, by virtue of its sovereignty, may not be sued
in its own courts except by express authorization by the
Legislature, and to subject its officers to garnishment would
be to permit indirectly what is prohibited directly. Another
reason is that moneys sought to be garnished, as long as
they remain in the hands of the disbursing officer of the
Government, belong to the latter, although the defendant in
garnishment may be entitled to a specific portion thereof.
And still another reason which covers both of the foregoing is
that every consideration of public policy forbids it.
The United States Supreme Court, in the leading case of
Buchanan vs. Alexander ([1846], 4 How., 19), in speaking of
the right of creditors of seamen, by process of attachment, to
divert the public money from its legitimate and appropriate
object, said:
To state such a principle is to refute it. No
government can sanction it. At all times it
would be found embarrassing, and under
some circumstances it might be fatal to the
public service. . . . So long as money
remains in the hands of a disbursing officer,
it is as much the money of the United
States, as if it had not been drawn from the
treasury. Until paid over by the agent of the
government to the person entitled to it, the
fund cannot, in any legal sense, be
considered a part of his effects." (See,
further, 12 R.C.L., p. 841; Keene vs. Smith
[1904], 44 Ore., 525; Wild vs. Ferguson
[1871], 23 La. Ann., 752; Bank of
Tennessee vs. Dibrell [1855], 3 Sneed
[Tenn.], 379). (emphasis supplied)
The authorities cited in the ponencia are inapplicable. Garnished or levied on
therein were public funds, to wit: (a) the pump irrigation trust fund deposited
with the Philippine National Bank (PNB) in the account of the Irrigation
2
Service Unit in Republic vs. Palacio; (b) the deposits of the National Media
Production Center in Traders Royal Bank vs. Intermediate Appellate
3
Court; and (c) the deposits of the Bureau of Public Highways with the PNB
under a current account, which may be expended only for their legitimate
object as authorized by the corresponding legislative appropriation
4
in Commissioner of Public Highways vs. Diego.
 5
Neither is Tiro vs. Hontanosas squarely in point. The said case involved the
validity of Circular No. 21, series of 1969, issued by the Director of Public
Schools which directed that "henceforth no cashier or disbursing officer shall
pay to attorneys-in-fact or other persons who may be authorized under a
power of attorney or other forms of authority to collect the salary of an
employee, except when the persons so designated and authorized is an
immediate member of the family of the employee concerned, and in all other
cases except upon proper authorization of the Assistant Executive Secretary
for Legal and Administrative Matters, with the recommendation of the
Financial Assistant." Private respondent Zafra Financing Enterprise, which
had extended loans to public school teachers in Cebu City and obtained from
the latter promissory notes and special powers of attorney authorizing it to
take and collect their salary checks from the Division Office in Cebu City of
the Bureau of Public Schools, sought, inter alia, to nullify the Circular. It is
clear that the teachers had in fact assigned to or waived in favor of Zafra
their future salaries which were still public funds. That assignment or waiver
was contrary to public policy.
I would therefore vote to grant the petition only if the salary and RATA
checks garnished corresponds to an unexpired payroll period and RATA
month, respectively.
Padilla, J., concurs.
FIRST DIVISION
[G.R. No. 102784. February 28, 1996]
ROSA LIM, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS ARE
OBLIGATORY IN WHATEVER FORM ENTERED; PLACE OF
SIGNATURE IMMATERIAL; PARTY BOUND THEREON THE
MOMENT SHE AFFIXED HER SIGNATURE. - Rosa Lims signature
indeed appears on the upper portion of the receipt immediately below
the description of the items taken. We find that this fact does not have
the effect of altering the terms of the transaction from a contract of
agency to sell on commission basis to a contract of sale. Neither does it
indicate absence or vitiation of consent thereto on the part of Rosa Lim
which would make the contract void or voidable. The moment she
affixed her signature thereon, petitioner became bound by all the terms
stipulated in the receipt. She, thus, opened herself to all the legal
obligations that may arise from their breach. This is clear from Article
1356 of the New Civil Code which provides: Contracts shall be
obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present. In the case
before us, the parties did not execute a notarial will but a simple contract
of agency to sell on commission basis, thus making the position of
petitioners signature thereto immaterial.
2. ID.; ID.; CONTRACT OF AGENCY; NO FORMALITIES REQUIRED. -
There are some provisions of the law which require certain formalities
for particular contracts. The first is when the form is required for the
validity of the contract; the second is when it is required to make the
contract effective as against the third parties such as those mentioned in
Articles 1357 and 1358; and the third is when the form is required for the
purppose of proving the existence of the contract, such as those
provided in the Statute of Frauds in Article 1403. A contract of agency to
sell on commission basis does not belong to any of these three
categories, hence, it is valid and enforceable in whatever form it may be
entered into.
3. REMEDIAL LAW; EVIDENCE; WEIGHT THEREOF NOT DETERMINED
BY SUPERIORITY IN NUMBERS OF WITNESSES. - Weight of
evidence is not determined mathematically by the numerical superiority
of the witnesses testifying to a given fact. It depends upon its practical
effect in inducing belief on the part of the judge trying the case.
4. ID.; ID.; CREDIBILITY; FINDINGS OF THE TRIAL AND APPELLATE
COURTS GENERALLY NOT INTERFERED WITH ON APPEAL. - In
the case at bench, both the trial court and the Court of Appeals gave
weight to the testimony of Vicky Suarez that she did not authorize Rosa
Lim to return the pieces of jewelry to Nadera. We shall not disturb this
finding of the respondent court. It is well settled that we should not
interfere with the judgment of the trial court in determining the credibility
of witnesses, unless there appears in the record some fact or
circumstances of weight and influence which has been overlooked or
the significance of which has been misinterpreted. The reason is that
the trial court is in a better position to determine questions involving
credibility having heard the witnesses and having observed their
deportment and manner of testifying during the trial.
5. CRIMINAL LAW; ESTAFA WITH ABUSE OF CONFIDENCE;
ELEMENTS. - The elements of estafa with abuse of confidence under
this subdivision are as follows: (1) That money, goods, or other personal
property be 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; (2) That there be misappropriation or
conversion of such money or property by the offender or denial on his
part of such receipt; (3) That such misappropriation or conversion or
denial is to the prejudice of another; and (4) That there is a demand
made by the offended party to the offender (Note: The 4th element is
not necessary when there is evidence of misappropriation of the goods
by the defendant).
6. ID.; ID.; ID.; PRESENT IN CASE AT BAR. All the elements of estafa
under Article 315, Paragraph 1(b) of the Revised Penal Code, are
present in the case at bench. First, the receipt marked as Exhibit A
proves that petitioner Rosa Lim received the pieces of jewelry in trust
from Vicky Suarez to be sold on commission basis. Second, petitioner
misappropriated or converted the jewelry to her own use; and, third,
such misappropriation obviously caused damaged and prejudice to the
private respondent.
APPEARANCES OF COUNSEL
Zosa & Quijano Law Offices for petitioner.
The Solicitor General for respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-
G.R. CR No. 10290, entitled People v. Rosa Lim, promulgated on August 30,
1991.
On January 26, 1989, an Information for Estafa was filed against
petitioner Rosa Lim before Branch 92 of the Regional Trial Court of Quezon
[1]
City. The Information reads:
That on or about the 8th day of October 1987, in Quezon City, Philippines
and within the jurisdiction of this Honorable Court, the said accused with
intent to gain, with unfaithfulness and/or abuse of confidence, did, then and
there, wilfully, unlawfully and feloniously defraud one VICTORIA SUAREZ, in
the following manner, to wit: on the date and place aforementioned said
accused got and received in trust from said complainant one (1) ring 3.35
solo worth P169,000.00, Philippine Currency, with the obligation to sell the
same on commission basis and to turn over the proceeds of the sale to said
complainant or to return said jewelry if unsold, but the said accused once in
possession thereof and far from complying with her obligation despite
repeated demands therefor, misapplied, misappropriated and converted the
same to her own personal use and benefit, to the damage and prejudice of
the said offended party in the amount aforementioned and in such other
amount as may be awarded under the provisions of the Civil Code.
[2]
CONTRARY TO LAW.
After arraignment and trial on the merits, the trial court rendered
judgment, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the
offense of estafa as defined and penalized under Article 315, paragraph 1(b)
of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS
and TWO (2) MONTHS of prision correccional as minimum, to TEN (10)
YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring
or its value in the amount of P169,000 without subsidiary imprisonment in
case of insolvency; and
[3]
4. To pay costs.
On appeal, the Court of Appeals affirmed the Judgment of conviction
with the modification that the penalty imposed shall be six (6) years, eight (8)
months and twenty- one (21) days to twenty (20) years in accordance with
[4]
Article 315, paragraph 1 of the Revised Penal Code.
Petitioner filed a motion for reconsideration before the appellate court on
September 20, 1991, but the motion was denied in a Resolution dated
November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for
review alleging the following grounds:
I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE
RULES OF COURT AND THE DECISION OF THIS HONORABLE COURT
IN NOT PASSING UPON THE FIRST AND THIRD ASSIGNED ERRORS IN
PETITIONERS BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT
THE PAROL EVIDENCE RULE WAS WAIVED WHEN THE PRIVATE
PROSECUTOR CROSS-EXAMINED THE PETITIONER AND AURELIA
NADERA AND WHEN COMPLAINANT WAS CROSS-EXAMINED BY THE
COUNSEL FOR THE PETITIONER AS TO THE TRUE NATURE OF THE
AGREEMENT BETWEEN THE PARTIES WHEREIN IT WAS DISCLOSED
THAT THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF
JEWELRIES AND NOT WHAT WAS EMBODIED IN THE RECEIPT
MARKED AS EXHIBIT A WHICH WAS RELIED UPON BY THE
RESPONDENT COURT IN AFFIRMING THE JUDGMENT OF CONVICTION
AGAINST HEREIN PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE
PRINCIPLE ENUNCIATED BY THIS HONORABLE COURT TO THE
EFFECT THAT ACCUSATION IS NOT, ACCORDING TO THE
FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE PROSECUTION
MUST OVERTHROW THE PRESUMPTION OF INNOCENCE WITH PROOF
OF GUILT BEYOND REASONABLE DOUBT. TO MEET THIS STANDARD,
THERE IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE
TESTIMONY OF THE STATE, BOTH ORAL AND DOCUMENTARY,
INDEPENDENTLY OF WHATEVER DEFENSE IS OFFERED BY THE
ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE
TRIBUNAL COULD ARRIVE AT A CONCLUSION THAT THE CRIME HAD
BEEN COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER
SUCH AN EXACTING TEST SHOULD SENTENCE THUS REQUIRED
THAT EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE
PROOF AGAINST HIM MUST SURVIVE THE TEST OF REASON, THE
STRONGEST SUSPICION MUST NOT BE PERMITTED TO SWAY
[5]
JUDGMENT. (People v. Austria, 195 SCRA 700)
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from
Cebu received from private respondent Victoria Suarez the following two
pieces of jewelry: one (1) 3.35 carat diamond ring worth P169,000.00 and
one (1) bracelet worth P170,000.00, to be sold on commission basis. The
[6]
agreement was reflected in a receipt marked as Exhibit A for the
prosecution. The transaction took place at the Sir Williams Apartelle in Timog
Avenue, Quezon City, where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky
Suarez, but failed to return the diamond ring or to turn over the proceeds
thereof if sold. As a result, private complainant, aside from making verbal
[7]
demands, wrote a demand letter to petitioner asking for the return of said
ring or the proceeds of the sale thereof. In response, petitioner, thru counsel,
[8]
wrote a letter to private respondents counsel alleging that Rosa Lim had
returned both ring and bracelet to Vicky Suarez sometime in September,
1987, for which reason, petitioner had no longer any liability to Mrs. Suarez
insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez filed a
complaint for estafa under Article 315, par. 1(b) of the Revised Penal Code
for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu
sometime in October 1987, together with one Aurelia Nadera, who
introduced petitioner to private respondent, and that they were lodged at the
Williams Apartelle in Timog, Quezon City. Petitioner denied that the
transaction was for her to sell the two pieces of jewelry on commission
basis. She told Mrs. Suarez that she would consider buying the pieces of
jewelry for her own use and that she would inform the private complainant of
such decision before she goes back to Cebu. Thereafter, the petitioner took
the pieces of jewelry and told Mrs. Suarez to prepare the necessary paper for
[9]
me to sign because I was not yet prepare(d) to buy it. After the document
was prepared, petitioner signed it. To prove that she did not agree to the
terms of the receipt regarding the sale on commission basis, petitioner insists
that she signed the aforesaid document on the upper portion thereof and not
at the bottom where a space is provided for the signature of the person(s)
[10]
receiving the jewelry.
On October 12, 1987 before departing for Cebu, petitioner called up
Mrs. Suarez by telephone in order to inform her that she was no longer
interested in the ring and bracelet. Mrs. Suarez replied that she was busy at
the time and so, she instructed the petitioner to give the pieces of jewelry to
Aurelia Nadera who would in turn give them back to the private
complainant. The petitioner did as she was told and gave the two pieces of
jewelry to Nadera as evidenced by a handwritten receipt, dated October 12,
[11]
1987.
Two issues need to be resolved: First, what was the real transaction
between Rosa Lim and Vicky Suarez - a contract of agency to sell on
commission basis as set out in the receipt or a sale on credit; and, second,
was the subject diamond ring returned to Mrs. Suarez through Aurelia
Nadera?
Petitioner maintains that she cannot be liable for estafa since she never
received the jewelries in trust or on commission basis from Vicky
Suarez. The real agreement between her and the private respondent was a
sale on credit with Mrs. Suarez as the owner-seller and petitioner as the
buyer, as indicated by the fact that petitioner did not sign on the blank space
provided for the signature of the person receiving the jewelry but at the upper
[12]
portion thereof immediately below the description of the items taken.
The contention is far from meritorious.
 The receipt marked as Exhibit A which establishes a contract of agency
to sell on commission basis between Vicky Suarez and Rosa Lim is herein
reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN
KO na aking tinanggap kay _______________ the following jewelries:
ang mga alahas na sumusunod:
Description Price
Mga Uri Halaga
1 ring 3.35 dolo P 169,000.00
1 bracelet 170.000.00
total Kabuuan P 339.000.00
in good condition, to be sold in CASH ONLY within . . .days from date of
signing this receipt na nasa mabuting kalagayan upang ipagbili ng
KALIWAAN (ALCONTADO) lamang sa loob ng. . . araw mula ng ating
pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned
above; if I would be able to sell, I shall immediately deliver and account the
whole proceeds of sale thereof to the owner of the jewelries at his/her
residence; my compensation or commission shall be the over-price on the
value of each jewelry quoted above. I am prohibited to sell any jewelry on
credit or by installment; deposit, give for safekeeping; lend, pledge or give as
security or guaranty under any circumstance or manner, any jewelry to other
person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning
na panahong nakatala sa itaas; kung maipagbili ko naman ay dagli kong
isusulit at ibibigay ang buong pinagbilhan sa may-ari ng mga alahas sa
kanyang bahay tahanan; ang aking gantimpala ay ang mapapahigit na
halaga sa nakatakdang halaga sa itaas ng bawat alahas HIND I ko
ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang alin mang alahas,
ilalagak, ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit sa anong
paraan ang alin mang alahas sa ibang mga tao o tao.
I sign my name this . . . day of. . . 19 . . . at Manila, NILALAGDAAN ko ang
kasunduang ito ngayong ika____ ng dito sa Maynila.
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . .
Rosa Lims signature indeed appears on the upper portion of the receipt
immediately below the description of the items taken. We find that this fact
does not have the effect of altering the terms of the transaction from a
contract of agency to sell on commission basis to a contract of sale. Neither
does it indicate absence or vitiation of consent thereto on the part of Rosa
Lim which would make the contract void or voidable. The moment she affixed
her signature thereon, petitioner became bound by all the terms stipulated in
the receipt. She, thus, opened herself to all the legal obligations that may
arise from their breach. This is clear from Article 1356 of the New Civil Code
which provides:
Contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present. x x x.
However, there are some provisions of the law which require certain
formalities for particular contracts. The first is when the form is required for
the validity of the contract; the second is when it is required to make the
contract effective as against third parties such as those mentioned in Articles
1357 and 1358; and the third is when the form is required for the purpose of
proving the existence of the contract, such as those provided in the Statute of
[13]
Frauds in Article 1403. A contract of agency to sell on commission basis
does not belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the law
strictly prescribes the location of the signature of the parties thereto. This is
in the case of notarial wills found in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at
the end thereof by the testator himself x x x.
The testator or the person requested by him to write his name and the
instrumental witnesses of the will, shall also sign, as aforesaid, each and
every page thereof, except the last, on the left margin x x x.
In the case before us, the parties did not execute a notarial will but a
simple contract of agency to sell on commission basis, thus making the
position of petitioners signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to
Vicky Suarez through Aurelia Nadera, thus relieving her of any liability. Rosa
Lim testified to this effect on direct examination by her counsel:
 Q: And when she left the jewelries with you, what did you do
thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky
through telephone and informed her that I am no longer
interested in the bracelet and ring and that 1 will just return it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since she
was very busy. So, she asked me if Aurelia was there and
when I informed her that Aurelia was there, she instructed me
to give the pieces of jewelry to Aurelia who in turn will give it
back to Vicky.
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
[14]
A: Yes, Your Honor.
This was supported by Aurelia Nadera in her direct examination by
petitioners counsel:
Q: Do you know if Rosa Lim in fact returned the jewelries ?
A: She gave the jewelries to me.
Q: Why did Rosa Lim give the jewelries to you?
A: Rosa Lim called up Vicky Suarez the following morning and told
Vicky Suarez that she was going home to Cebu and asked if
she could give the jewelries to me.
Q: And when did Rosa Lim give to you the jewelries?
[15]
A: Before she left for Cebu.
On rebuttal, these testimonies were belied by Vicky Suarez herself:
Q: It has been testified to here also by both Aurelia Nadera and
Rosa Lim that you gave authorization to Rosa Lim to turn over
the two (2) pieces of jewelries mentioned in Exhibit A to
Aurelia Nadera, what can you say about that?
A:. That is not true sir, because at that time Aurelia Nadera is highly
indebted to me in the amount of P 140,000.00, so if I gave it to
[16]
Nadera, I will be exposing myself to a high risk.
The issue as to the return of the ring boils down to one of credibility.
Weight of evidence is not determined mathematically by the numerical
superiority of the witnesses testifying to a given fact. It depends upon its
[17]
practical effect in inducing belief on the part of the judge trying the case. In
the case at bench, both the trial court and the Court of Appeals gave weight
to the testimony of Vicky Suarez that she did not authorize Rosa Lim to
return the pieces of jewelry to Nadera. The respondent court, in affirming the
trial court, said:
x x x This claim (that the ring had been returned to Suarez thru Nadera) is
disconcerting. It contravenes the very terms of Exhibit A. The instruction by
the complaining witness to appellant to deliver the ring to Aurelia Nadera is
vehemently denied by the complaining witness, who declared that she did
not authorize and/or instruct appellant to do so. And thus, by delivering the
ring to Aurelia without the express authority and consent of the complaining
witness, appellant assumed the right to dispose of the jewelry as if it were
hers, thereby committing conversion, a clear breach of trust, punishable
under Article 315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well settled
that we should not interfere with the judgment of the trial court in determining
the credibility of witnesses, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked or the
significance of which has been misinterpreted. The reason is that the trial
court is in a better position to determine questions involving credibility having
heard the witnesses and having observed their deportment and manner of
testifying during the trial.
[18]
Article 315, par. 1(b) 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:
xxx xxx xxx
(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.
xxx xxx xxx
The elements of estafa with abuse of confidence under this subdivision
are as follows: (1) That money, goods, or other personal property be
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; (2) That there be misappropriation or conversion of such money or
property by the offender or denial on his part of such receipt; (3) That such
misappropriation or conversion or denial is to the prejudice of another; and
(4) That there is a demand made by the offended party to the offender (Note:
The 4th element is not necessary when there is evidence of misappropriation Before the Court is a Rule 45 Petition for Review on Certiorari filed
[19]
of the goods by the defendant).
by petitioner Rizal Commercial Banking Corporation (RCBC) against
All the elements of estafa under Article 315, Paragraph 1(b) of the
Revised Penal Code, are present in the case at bench. First, the receipt respondents Hi-Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa
marked as Exhibit A proves that petitioner Rosa Lim received the pieces of
jewelry in trust from Vicky Suarez to be sold on commission basis. Second, (Bakunawa). Petitioner seeks to appeal from the 26 November 2009
petitioner misappropriated or converted the jewelry to her own use; and, [1]
Decision and 27 May 2010 Resolution of the Court of Appeals (CA), which
third, such misappropriation obviously caused damage and prejudice to the
private respondent. reversed and set aside the 19 May 2008 Decision and 3 November 2008
WHEREFORE, the petition is DENIED and the Decision of the Court of
Order of the Makati City Regional Trial Court (RTC) in Civil Case No. 06-
Appeals is hereby AFFIRMED.
[2]
Costs against petitioner. 244. The case before the RTC involved the Complaint for Escheat filed by

SO ORDERED. the Republic of the Philippines (Republic) pursuant to Act No. 3936, as
Republic of the Philippines amended by Presidential Decree No. 679 (P.D. 679), against certain
Supreme Court
Manila deposits, credits, and unclaimed balances held by the branches of various

SECOND DIVISION banks in the Philippines. The trial court declared the amounts, subject of the

special proceedings, escheated to the Republic and ordered them deposited

RIZAL COMMERCIAL BANKING G.R. No. 192413
with the Treasurer of the Philippines (Treasurer) and credited in favor of the
CORPORATION,
Petitioner, Present: Republic.
[3]
The assailed RTC judgments included an unclaimed balance in
CARPIO, J., Chairperson, the amount of 1,019,514.29, maintained by RCBC in its Ermita Business
versus BRION,
PEREZ, Center branch.
SERENO, and
HI-TRI DEVELOPMENT REYES, JJ.
CORPORATION and LUZ R. BAKUNAWA, [4]
Respondents. Promulgated: We quote the narration of facts of the CA as follows:

June 13, 2012

x x x Luz [R.] Bakunawa and her husband Manuel,
now deceased (Spouses Bakunawa) are registered owners
of six (6) parcels of land covered by TCT Nos. 324985 and
x--------------------------------------------------x 324986 of the Quezon City Register of Deeds, and TCT Nos.
103724, 98827, 98828 and 98829 of the Marikina Register of
Deeds. These lots were sequestered by the Presidential
DECISION Commission on Good Government [(PCGG)].

SERENO, J.:
 Sometime in 1990, a certain Teresita Millan (Millan),
through her representative, Jerry Montemayor, offered to buy
said lots for 6,724,085.71, with the promise that she will
take care of clearing whatever preliminary obstacles there
may[]be to effect a completion of the sale. The Spouses
Bakunawa gave to Millan the Owners Copies of said TCTs
and in turn, Millan made a down[]payment of 1,019,514.29
for the intended purchase. However, for one reason or
another, Millan was not able to clear said obstacles. As a
result, the Spouses Bakunawa rescinded the sale and
offered to return to Millan her down[]payment of
1,019,514.29. However, Millan refused to accept back the
1,019,514.29 down[]payment. Consequently, the Spouses
Bakunawa, through their company, the Hi-Tri Development
Corporation (Hi-Tri) took out on October 28, 1991, a
Managers Check from RCBC-Ermita in the amount of
1,019,514.29, payable to Millans company Rosmil Realty
and Development Corporation (Rosmil) c/o Teresita Millan
and used this as one of their basis for a complaint against
Millan and Montemayor which they filed with the Regional
Trial Court of Quezon City, Branch 99, docketed as Civil
Case No. Q-91-10719 [in 1991], praying that:
1. That the defendants Teresita Mil[l]an
and Jerry Montemayor may be ordered
to return to plaintiffs spouses the
Owners Copies of Transfer Certificates
of Title Nos. 324985, 324986, 103724,
98827, 98828 and 98829;
2. That the defendant Teresita Mil[l]an be
correspondingly ordered to receive the
amount of One Million Nineteen
Thousand Five Hundred Fourteen
Pesos and Twenty Nine Centavos
(1,019,514.29);
3. That the defendants be ordered to pay
to plaintiffs spouses moral damages in
the amount of 2,000,000.00; and
4. That the defendants be ordered to pay
plaintiffs attorneys fees in the amount of
50,000.00.
Being part and parcel of said complaint, and
consistent with their prayer in Civil Case No. Q-91-10719
that Teresita Mil[l]an be correspondingly ordered to receive
the amount of One Million Nineteen Thousand Five Hundred
Fourteen Pesos and Twenty Nine [Centavos]
(1,019,514.29)[], the Spouses Bakunawa, upon advice of
their counsel, retained custody of RCBC Managers Check
No. ER 034469 and refrained from canceling or negotiating
it.
All throughout the proceedings in Civil Case No. Q-
91-10719, especially during negotiations for a possible
settlement of the case, Millan was informed that the
Managers Check was available for her withdrawal, she being
the payee.
On January 31, 2003, during the pendency of the
abovementioned case and without the knowledge of [Hi-Tri
and Spouses Bakunawa], x x x RCBC reported the
1,019,514.29-credit existing in favor of Rosmil to the
Bureau of Treasury as among its unclaimed balances as of
January 31, 2003. Allegedly, a copy of the Sworn Statement
executed by Florentino N. Mendoza, Manager and Head of
RCBCs Asset Management, Disbursement & Sundry
Department (AMDSD) was posted within the premises of
RCBC-Ermita.
On December 14, 2006, x x x Republic, through the
[Office of the Solicitor General (OSG)], filed with the RTC the
action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled
amicably their dispute with Rosmil and Millan. Instead of only
the amount of 1,019,514.29, [Spouses Bakunawa] agreed
to pay Rosmil and Millan the amount of 3,000,000.00,
[which is] inclusive [of] the amount of []1,019,514.29. But
during negotiations and evidently prior to said settlement,
[Manuel Bakunawa, through Hi-Tri] inquired from RCBC-
Ermita the availability of the 1,019,514.29 under RCBC
Managers Check No. ER 034469. [Hi-Tri and Spouses
Bakunawa] were however dismayed when they were
informed that the amount was already subject of the escheat
proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-
Tri] wrote x x x RCBC, viz:
 We understand that the deposit
corresponding to the amount of Php
1,019,514.29 stated in the Managers Check
is currently the subject of escheat
proceedings pending before Branch 150 of
the Makati Regional Trial Court.
Please note that it was our impression that
the deposit would be taken from [Hi-Tris]
RCBC bank account once an order to debit
is issued upon the payees presentation of
the Managers Check. Since the payee
rejected the negotiated Managers Check,
presentation of the Managers Check was
never made.
Consequently, the deposit that was
supposed to be allocated for the payment of
the Managers Check was supposed to
remain part of the Corporation[s] RCBC
bank account, which, thereafter, continued
to be actively maintained and operated. For
this reason, We hereby demand your
confirmation that the amount of Php
1,019,514.29 continues to form part of the
funds in the Corporations RCBC bank
account, since pay-out of said amount was
never ordered. We wish to point out that if
there was any attempt on the part of RCBC
to consider the amount indicated in the
Managers Check separate from the
Corporations bank account, RCBC would
have issued a statement to that effect, and
repeatedly reminded the Corporation that
the deposit would be considered dormant
absent any fund movement. Since the
Corporation never received any statements
of account from RCBC to that effect, and
more importantly, never received any single
letter from RCBC noting the absence of fund
movement and advising the Corporation that
the deposit would be treated as dormant.
On April 28, 2008, [Manuel Bakunawa] sent another
letter to x x x RCBC reiterating their position as above-
quoted.
In a letter dated May 19, 2008, x x x RCBC replied
and informed [Hi-Tri and Spouses Bakunawa] that:
The Banks Ermita BC informed Hi-Tri and/or
its principals regarding the inclusion of
Managers Check No. ER034469 in the
escheat proceedings docketed as Civil Case
No. 06-244, as well as the status thereof,
between 28 January 2008 and 1 February
2008.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds
covered by the Managers Check No.
ER034469 does not form part of the Banks
own account. By simple operation of law, the
funds covered by the managers check in
issue became a deposit/credit susceptible
for inclusion in the escheat case initiated by
the OSG and/or Bureau of Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-
bound to make good the check, the Banks
obligation to do so prescribed as early as
October 2001.
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May
2008, the trial court rendered its assailed Decision declaring the deposits,
credits, and unclaimed balances subject of Civil Case No. 06-244 escheated
to the Republic. Among those included in the order of forfeiture was the
amount of 1,019,514.29 held by RCBC as allocated funds intended for the
payment of the Managers Check issued in favor of Rosmil. The trial court presented, as required by Rule 37 of the Rules of Court. Finally, it ruled that

ordered the deposit of the escheated balances with the Treasurer and the alternative prayer to intervene was filed out of time.

credited in favor of the Republic. Respondents claim that they were not able

to participate in the trial, as they were not informed of the ongoing escheat
The CA Ruling
proceedings.

On 26 November 2009, the CA issued its assailed Decision reversing

Consequently, respondents filed an Omnibus Motion dated 11 June
the 19 May 2008 Decision and 3 November 2008 Order of the
2008, seeking the partial reconsideration of the RTC Decision insofar as it [6]
RTC. According to the appellate court, RCBC failed to prove that the latter
escheated the fund allocated for the payment of the Managers Check. They
had communicated with the purchaser of the Managers Check (Hi-Tri and/or
asked that they be included as party-defendants or, in the alternative,
Spouses Bakunawa) or the designated payee (Rosmil) immediately before
allowed to intervene in the case and their motion considered as an answer-
the bank filed its Sworn Statement on the dormant accounts held therein.
in-intervention. Respondents argued that they had meritorious grounds to
The CA ruled that the banks failure to notify respondents deprived them of an
ask reconsideration of the Decision or, alternatively, to seek intervention in
opportunity to intervene in the escheat proceedings and to present evidence
the case. They alleged that the deposit was subject of an ongoing dispute
to substantiate their claim, in violation of their right to due process.
(Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that
Furthermore, the CA pronounced that the Makati City RTC Clerk of Court
[5]
they were interested parties to that case.
failed to issue individual notices directed to all persons claiming interest in

the unclaimed balances, as well as to require them to appear after

On 3 November 2008, the RTC issued an Order denying the motion publication and show cause why the unclaimed balances should not be

of respondents. The trial court explained that the Republic had proven deposited with the Treasurer of the Philippines. It explained that the

compliance with the requirements of publication and notice, which served as jurisdictional requirement of individual notice by personal service was distinct

notice to all those who may be affected and prejudiced by the Complaint for from the requirement of notice by publication. Consequently, the CA held that

Escheat. The RTC also found that the motion failed to point out the findings the Decision and Order of the RTC were void for want of jurisdiction.

and conclusions that were not supported by the law or the evidence

Issue
 After a perusal of the arguments presented by the parties, we cull the We quote the pertinent provision of Act No. 3936, as amended, on

main issues as follows: the rule on service of processes, to wit:

Sec. 3. Whenever the Solicitor General shall be informed of

I. Whether the Decision and Order of the RTC were void such unclaimed balances, he shall commence an action or
actions in the name of the People of the Republic of the
for failure to send separate notices to respondents by Philippinesin the Court of First Instance of the province or
city where the bank, building and loan association or trust
personal service
corporation is located, in which shall be joined as parties
the bank, building and loan association or trust
II. Whether petitioner had the obligation to notify corporation and all such creditors or depositors. All or any
of such creditors or depositors or banks, building and loan
respondents immediately before it filed its Sworn Statement association or trust corporations may be included in one
action. Service of process in such action or actions shall
with the Treasurer be made by delivery of a copy of the complaint and
summons to the president, cashier, or managing officer
of each defendant bank, building and loan association or
III. Whether or not the allocated funds may be escheated in trust corporation and by publication of a copy of such
summons in a newspaper of general circulation, either in
favor of the Republic English, in Filipino, or in a local dialect, published in the
locality where the bank, building and loan association or trust
corporation is situated, if there be any, and in case there is
none, in the City of Manila, at such time as the court may
Discussion order. Upon the trial, the court must hear all parties who
have appeared therein, and if it be determined that such
unclaimed balances in any defendant bank, building and
loan association or trust corporation are unclaimed as
[7] hereinbefore stated, then the court shall render
Petitioner bank assails the CA judgments insofar as they ruled that judgment in favor of the Government of the Republic of
notice by personal service upon respondents is a jurisdictional requirement in the Philippines, declaring that said unclaimed balances
have escheated to the Government of the Republic of the
escheat proceedings. Petitioner contends that respondents were not the Philippines and commanding said bank, building and loan
association or trust corporation to forthwith deposit the same
owners of the unclaimed balances and were thus not entitled to notice from with the Treasurer of the Philippines to credit of the
Government of the Republic of the Philippines to be used as
the RTC Clerk of Court. It hinges its claim on the theory that the funds the National Assembly may direct.
represented by the Managers Check were deemed transferred to the credit
At the time of issuing summons in the action above
of the payee or holder upon its issuance. provided for, the clerk of court shall also issue a
notice signed by him, giving the title and number of said
action, and referring to the complaint therein, and directed
to all persons, other than those named as defendants
therein, claiming any interest in any unclaimed balance
 mentioned in said complaint, and requiring them to
appear within sixty days after the publication or first
publication, if there are several, of such summons, and
show cause, if they have any, why the unclaimed
balances involved in said action should not be
deposited with the Treasurer of the Philippines as in this
Act provided and notifying them that if they do not appear
and show cause, the Government of the Republic of the
Philippines will apply to the court for the relief
demanded in the complaint. A copy of said notice shall be
attached to, and published with the copy of, said summons
required to be published as above, and at the end of the
copy of such notice so published, there shall be a statement
of the date of publication, or first publication, if there are
several, of said summons and notice. Any person
interested may appear in said action and become a party
thereto. Upon the publication or the completion of the
publication, if there are several, of the summons and
notice, and the service of the summons on the defendant
banks, building and loan associations or trust
corporations, the court shall have full and complete
jurisdiction in the Republic of the Philippines over the
said unclaimed balances and over the persons having or
claiming any interest in the said unclaimed balances, or
any of them, and shall have full and complete
jurisdiction to hear and determine the issues herein, and
render the appropriate judgment thereon. (Emphasis
supplied.)
Hence, insofar as banks are concerned, service of processes is
made by delivery of a copy of the complaint and summons upon the
[8]
president, cashier, or managing officer of the defendant bank.
hand, as to depositors or other claimants of the unclaimed balances,
service is made by publication of a copy of the summons in a newspaper of
general circulation in the locality where the institution is situated.
about the forthcoming escheat proceedings must also be issued and
published, directing and requiring all persons who may claim any interest in
the unclaimed balances to appear before the court and show cause why the
dormant accounts should not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the
issuance of individual notices upon respondents was a jurisdictional
requirement, and that failure to effect personal service on them rendered the
Decision and the Order of the RTC void for want of jurisdiction. Escheat
proceedings are actions in rem,
[10]
whereby an action is brought against the
thing itself instead of the person.
[11]
Thus, an action may be instituted and
carried to judgment without personal service upon the depositors or other
[12]
claimants. Jurisdiction is secured by the power of the court over
[13]
the res. Consequently, a judgment of escheat is conclusive upon persons
notified by advertisement, as publication is considered a general and
constructive notice to all persons interested.
[14]
Nevertheless, we find sufficient grounds to affirm the CA on the
exclusion of the funds allocated for the payment of the Managers Check in
the escheat proceedings.
On the other
Escheat proceedings refer to the judicial process in which the state,
by virtue of its sovereignty, steps in and claims abandoned, left vacant, or
[9]
A notice
unclaimed property, without there being an interested person having a legal
[15]
claim thereto. In the case of dormant accounts, the state inquires into the
status, custody, and ownership of the unclaimed balance to determine

whether the inactivity was brought about by the fact of death or absence of or
[16]
abandonment by the depositor. If after the proceedings the property
remains without a lawful owner interested to claim it, the property shall be
reverted to the state to forestall an open invitation to self-service by the first
[17]
comers. However, if interested parties have come forward and lain claim to
the property, the courts shall determine whether the credit or deposit should
[18]
pass to the claimants or be forfeited in favor of the state. We emphasize
that escheat is not a proceeding to penalize depositors for failing to deposit
to or withdraw from their accounts. It is a proceeding whereby the state
compels the surrender to it of unclaimed deposit balances when there is
substantial ground for a belief that they have been abandoned, forgotten, or
[19]
without an owner.
Act No. 3936, as amended, outlines the proper procedure to be
followed by banks and other similar institutions in filing a sworn statement
with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and
within the month of January of every odd year, all banks,
building and loan associations, and trust corporations shall
forward to the Treasurer of the Philippines a statement,
under oath, of their respective managing officers, of all
credits and deposits held by them in favor of
persons known to be dead, or who have not made further
deposits or withdrawals during the preceding ten years
or more, arranged in alphabetical order according to the
names of creditors and depositors, and showing:
(a) The names and last known place of residence or post
office addresses of the persons in whose favor such
unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed
balance and whether the same is in money or in
security, and if the latter, the nature of the same;
(c) The date when the person in whose favor the
unclaimed balance stands died, if known, or the date
when he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any,
and the amount thereof.
A copy of the above sworn statement shall be posted in
a conspicuous place in the premises of the bank,
building and loan association, or trust corporation concerned
for at least sixty days from the date of filing
thereof: Provided, That immediately before filing the
above sworn statement, the bank, building and loan
association, and trust corporation shall communicate with
the person in whose favor the unclaimed balance stands
at his last known place of residence or post office
address.
It shall be the duty of the Treasurer of the Philippines to
inform the Solicitor General from time to time the existence
of unclaimed balances held by banks, building and loan
associations, and trust corporations. (Emphasis supplied.)
 [22]
As seen in the afore-quoted provision, the law sets a detailed system Petitioner asserts that the CA committed a reversible error when it

for notifying depositors of unclaimed balances. This notification is meant to required RCBC to send prior notices to respondents about the forthcoming

inform them that their deposit could be escheated if left unclaimed. escheat proceedings involving the funds allocated for the payment of the

Accordingly, before filing a sworn statement, banks and other similar Managers Check. It explains that, pursuant to the law, only those whose

institutions are under obligation to communicate with owners of dormant favor such unclaimed balances stand are entitled to receive notices.

accounts. The purpose of this initial notice is for a bank to determine whether Petitioner argues that, since the funds represented by the Managers Check

an inactive account has indeed been unclaimed, abandoned, forgotten, or left were deemed transferred to the credit of the payee upon issuance of the

without an owner. If the depositor simply does not wish to touch the funds in check, the proper party entitled to the notices was the payee Rosmil and not

the meantime, but still asserts ownership and dominion over the dormant respondents. Petitioner then contends that, in any event, it is not liable for

account, then the bank is no longer obligated to include the account in its failing to send a separate notice to the payee, because it did not have the
[20]
sworn statement. It is not the intent of the law to force depositors into address of Rosmil. Petitioner avers that it was not under any obligation to

unnecessary litigation and defense of their rights, as the state is only record the address of the payee of a Managers Check.

interested in escheating balances that have been abandoned and left without

an owner. [23]
In contrast, respondents Hi-Tri and Bakunawa allege that they

have a legal interest in the fund allocated for the payment of the Managers
In case the bank complies with the provisions of the law and
Check. They reason that, since the funds were part of the Compromise
the unclaimed balances are eventually escheated to the Republic, the bank
Agreement between respondents and Rosmil in a separate civil case, the
shall not thereafter be liable to any person for the same and any action which
approval and eventual execution of the agreement effectively reverted the
may be brought by any person against in any bank xxx for unclaimed
fund to the credit of respondents. Respondents further posit that their
balances so deposited xxx shall be defended by the Solicitor General without
[21]
ownership of the funds was evidenced by their continued custody of the
cost to such bank. Otherwise, should it fail to comply with the legally
Managers Check.
outlined procedure to the prejudice of the depositor, the bank may not raise

the defense provided under Section 5 of Act No. 3936, as amended.

An ordinary check refers to a bill of exchange drawn by a depositor

[24]
(drawer) on a bank (drawee), requesting the latter to pay a person named
therein (payee) or to the order of the payee or to the bearer, a named sum of
[25]
money. The issuance of the check does not of itself operate as an
assignment of any part of the funds in the bank to the credit of the
[26]
drawer. Here, the bank becomes liable only after it accepts or certifies the
[27]
check. After the check is accepted for payment, the bank would then debit
the amount to be paid to the holder of the check from the account of the
depositor-drawer.
There are checks of a special type called managers or cashiers
checks. These are bills of exchange drawn by the banks manager or cashier,
[28]
in the name of the bank, against the bank itself. Typically, a managers or a
cashiers check is procured from the bank by allocating a particular amount of
funds to be debited from the depositors account or by directly paying or
depositing to the bank the value of the check to be drawn. Since the bank
issues the check in its name, with itself as the drawee, the check is deemed
[29]
accepted in advance. Ordinarily, the check becomes the primary obligation
of the issuing bank and constitutes its written promise to pay upon
[30]
demand.
Nevertheless, 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
case the procurer of the managers or cashiers check retains custody of the
instrument, does not tender it to the intended payee, or fails to make an
effective delivery, we find the following provision on undelivered
[31]
instruments under the Negotiable Instruments Law applicable:
Sec. 16. Delivery; when effectual; when
presumed. Every contract on a negotiable instrument
is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote party
other than a holder in due course, the delivery, in order to
be effectual, must be made either by or under the
authority of the party making, drawing, accepting, or
indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a
special purpose only, and not for the purpose of transferring
the property in the instrument. But where the instrument is in
the hands of a holder in due course, a valid delivery thereof
by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no
longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed
until the contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Managers Check was procured by
respondents, and that the amount to be paid for the check would be sourced
[32]
from the deposit account of Hi-Tri. When Rosmil did not accept the
Managers Check offered by respondents, the latter retained custody of the
instrument instead of cancelling it. As the Managers Check neither went to
the hands of Rosmil nor was it further negotiated to other persons, the
instrument remained undelivered. Petitioner does not dispute the fact that
respondents retained custody of the instrument.
[33]
 Since there was no delivery, presentment of the check to the bank failure to appeal as an indication of disinterest in pursuing the escheat

for payment did not occur. An order to debit the account of respondents was proceedings in favor of the Republic.

never made. In fact, petitioner confirms that the Managers Check was never

negotiated or presented for payment to its Ermita Branch, and that the
WHEREFORE the Petition is DENIED. The 26 November 2009
[34]
allocated fund is still held by the bank. As a result, the assigned fund is
Decision and 27 May 2010 Resolution of the Court of Appeals in CA-G.R. SP
deemed to remain part of the account of Hi-Tri, which procured the Managers
No. 107261 are hereby AFFIRMED.
Check. 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. Hence, respondents SO ORDERED.

should have been informed that the deposit had been left inactive for more Republic of the Philippines
SUPREME COURT
than 10 years, and that it may be subjected to escheat proceedings if left Manila
unclaimed.
G.R. Nos. L-25836-37 January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.
After a careful review of the RTC records, we find that it is no longer
JOSE M. ARUEGO, defendant-appellant.
necessary to remand the case for hearing to determine whether the claim of

respondents was valid. There was no contention that they were the procurers
FERNANDEZ, J.:
of the Managers Check. It is undisputed that there was no effective delivery

of the check, rendering the instrument incomplete. In addition, we have
already settled that respondents retained ownership of the funds. As it is
obvious from their foregoing actions that they have not abandoned their claim
over the fund, we rule that the allocated deposit, subject of the Managers
Check, should be excluded from the escheat proceedings. We reiterate our
pronouncement that the objective of escheat proceedings is state forfeiture of
unclaimed balances. We further note that there is nothing in the records that
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the
order of the Court of First Instance of Manila, Branch XIII, in Civil Case No.
42066 denying his motion to set aside the order declaring him in
1
default, and from the order of said court in the same case denying his
motion to set aside the judgment rendered after he was declared in
2
default. These two appeals of the defendant were docketed as CA-G.R.
NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
3
Upon motion of the defendant on July 25, 1960, he was allowed by the
Court of Appeals to file one consolidated record on appeal of CA-G.R. NO.
4
27734-R and CA-G.R. NO. 27940-R.

would show that the OSG appealed the assailed CA judgments. We take this
In a resolution promulgated on March 1, 1966, the Court of Appeals, First
Division, certified the consolidated appeal to the Supreme Court on the
5
ground that only questions of law are involved.
On December 1, 1959, the Philippine Bank of Commerce instituted against
Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of
about P35,000.00 with daily interest thereon from November 17, 1959 until
fully paid and commission equivalent to 3/8% for every thirty (30) days or
fraction thereof plus attorney's fees equivalent to 10% of the total amount
6
due and costs. The complaint filed by the Philippine Bank of Commerce
contains twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different dates
7 15
covering the period from August 28, 1950 to March 14, 1951. The sum
sought to be recovered represents the cost of the printing of "World Current
Events," a periodical published by the defendant. To facilitate the payment of
the printing the defendant obtained a credit accommodation from the plaintiff.
Thus, for every printing of the "World Current Events," the printer, Encal
Press and Photo Engraving, collected the cost of printing by drawing a draft
against the plaintiff, said draft being sent later to the defendant for
acceptance. As an added security for the payment of the amounts advanced
to Encal Press and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank wherein
said defendant undertook to hold in trust for plaintiff the periodicals and to
sell the same with the promise to turn over to the plaintiff the proceeds of the
sale of said publication to answer for the payment of all obligations arising
8
from the draft.
Aruego received a copy of the complaint together with the summons on
9
December 2, 1959. On December 14, 1959 defendant filed an urgent
motion for extension of time to plead, and set the hearing on December 16,
10
1959. At the hearing, the court denied defendant's motion for extension.
Whereupon, the defendant filed a motion to dismiss the complaint on
December 17, 1959 on the ground that the complaint states no cause of
action because:
a) When the various bills of exchange were presented to the defendant as
drawee for acceptance, the amounts thereof had already been paid by the
plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge
or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the
defendant drawee is an accommodating party only for the drawer (Encal
Press and Photo-Engraving) and win be liable in the event that the
11
accommodating party (drawer) fails to pay its obligation to the plaintiff.
The complaint was dismissed in an order dated December 22, 1959, copy of
12
which was received by the defendant on December 24, 1959.
13
On January 13, 1960, the plaintiff filed a motion for reconsideration. On
March 7, 1960, acting upon the motion for reconsideration filed by the
plaintiff, the trial court set aside its order dismissing the complaint and set the
14
case for hearing on March 15, 1960 at 8:00 in the morning. A copy of the
order setting aside the order of dismissal was received by the defendant on
March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of
the deputy sheriff of Manila, Mamerto de la Cruz. On the following day,
March 12, 1960, the defendant filed a motion to postpone the trial of the case
on the ground that there having been no answer as yet, the issues had not
yet been joined. On the same date, the defendant filed his answer to the
complaint interposing the following defenses: That he signed the document
upon which the plaintiff sues in his capacity as President of the Philippine
Education Foundation; that his liability is only secondary; and that he
16
believed that he was signing only as an accommodation party.
On March 15, 1960, the plaintiff filed an ex parte motion to declare the
defendant in default on the ground that the defendant should have filed his
answer on March 11, 1960. He contends that by filing his answer on March
17
12, 1960, defendant was one day late. On March 19, 1960 the trial court
18
declared the defendant in default. The defendant learned of the order
declaring him in default on March 21, 1960. On March 22, 1960 the
defendant filed a motion to set aside the order of default alleging that
although the order of the court dated March 7, 1960 was received on March
11, 1960 at 5:00 in the afternoon, it could not have been reasonably
expected of the defendant to file his answer on the last day of the
reglementary period, March 11, 1960, within office hours, especially because
the order of the court dated March 7, 1960 was brought to the attention of
counsel only in the early hours of March 12, 1960. The defendant also
alleged that he has a good and substantial defense. Attached to the motion
are the affidavits of deputy sheriff Mamerto de la Cruz that he served the
order of the court dated March 7, 1960 on March 11, 1960, at 5:00 o'clock in
the afternoon and the affidavit of the defendant Aruego that he has a good
19
and substantial defense. The trial court denied the defendant's motion on
20
March 25, 1960. On May 6, 1960, the trial court rendered judgment
sentencing the defendant to pay to the plaintiff the sum of P35,444.35
representing the total amount of his obligation to the said plaintiff under the
twenty-two (22) causes of action alleged in the complaint as of November 15,
21
1957 and the sum of P10,000.00 as attorney's fees.
On May 9, 1960 the defendant filed a notice of appeal from the order dated
March 25, 1961 denying his motion to set aside the order declaring him in
default, an appeal bond in the amount of P60.00, and his record on appeal.
The plaintiff filed his opposition to the approval of defendant's record on
appeal on May 13, 1960. The following day, May 14, 1960, the lower court
dismissed defendant's appeal from the order dated March 25, 1960 denying
22
his motion to set aside the order of default. On May 19, 1960, the
defendant filed a motion for reconsideration of the trial court's order
23
dismissing his appeal. The plaintiff, on May 20, 1960, opposed the
24
defendant's motion for reconsideration of the order dismissing appeal. On
May 21, 1960, the trial court reconsidered its previous order dismissing the
25
appeal and approved the defendant's record on appeal. On May 30, 1960,
the defendant received a copy of a notice from the Clerk of Court dated May
26, 1960, informing the defendant that the record on appeal filed ed by the
26
defendant was forwarded to the Clerk of Court of Appeals.
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered
after he was declared in default reiterating the same ground previously
27
advanced by him in his motion for relief from the order of default. Upon
28
opposition of the plaintiff filed on June 3, 1960, the trial court denied the
defendant's motion to set aside the judgment by default in an order of June
29
11, 1960. On June 20, 1960, the defendant filed his notice of appeal from
the order of the court denying his motion to set aside the judgment by
default, his appeal bond, and his record on appeal. The defendant's record
30
on appeal was approved by the trial court on June 25, 1960. Thus, the
defendant had two appeals with the Court of Appeals: (1) Appeal from the
order of the lower court denying his motion to set aside the order of default
docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his
motion to set aside the judgment by default docketed as CA-G.R. NO.
27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
THE LOWER COURT ERRED IN HOLDING THAT THE
DEFENDANT WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE
MOTION TO DECLARE DEFENDANT IN DEFAULT
ALTHOUGH AT THE TIME THERE WAS ALREADY ON
FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING
OF SAID ANSWER IN AN APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S
PETITION FOR RELIEF OF ORDER OF DEFAULT AND
FROM JUDGMENT BY DEFAULT AGAINST
31
DEFENDANT.
It has been held that to entitle a party to relief from a judgment taken against
him through his mistake, inadvertence, surprise or excusable neglect, he
32
must show to the court that he has a meritorious defense. In other words,
in order to set aside the order of default, the defendant must not only show
that his failure to answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together
with the summons on December 2, 1960; that on December 17, 1960, the
last day for filing his answer, Aruego filed a motion to dismiss; that on
December 22, 1960 the lower court dismissed the complaint; that on January
23, 1960, the plaintiff filed a motion for reconsideration and on March 7,
1960, acting upon the motion for reconsideration, the trial court issued an
order setting aside the order of dismissal; that a copy of the order was
received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon
as shown in the affidavit of the deputy sheriff; and that on the following day,
March 12, 1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for
pleading is excusable. The order setting aside the dismissal of the complaint
was received at 5:00 o'clock in the afternoon. It was therefore impossible for
him to have filed his answer on that same day because the courts then held
office only up to 5:00 o'clock in the afternoon. Moreover, the defendant
immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer
was due to excusable negligence, he has failed to show that he has a
meritorious defense. The defendant does not have a good and substantial
defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's
complaint in a representative capacity, as the then President of the Philippine
Education Foundation Company, publisher of "World Current Events and
Decision Law Journal," printed by Encal Press and Photo-Engraving, drawer
of the said bills of exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but
as accommodation or additional party obligor, to add to the security of said
plaintiff bank. The reason for this statement is that unlike real bills of
exchange, where payment of the face value is advanced to the drawer only
upon acceptance of the same by the drawee, in the case in question,
payment for the supposed bills of exchange were made before acceptance;
so that in effect, although these documents are labelled bills of exchange,
legally they are not bills of exchange but mere instruments evidencing
indebtedness of the drawee who received the face value thereof, with the
33
defendant as only additional security of the same.
The first defense of the defendant is that he signed the supposed bills of
exchange as an agent of the Philippine Education Foundation Company
where he is president. Section 20 of the Negotiable Instruments Law
provides that "Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent or as
filing a representative character, without disclosing his principal, does not
exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere
has he disclosed that he was signing as a representative of the Philippine
34
Education Foundation Company. He merely signed as follows: "JOSE
ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an
accommodation party and as such, should be made liable only after a
showing that the drawer is incapable of paying. This contention is also
without merit.
The defendant also contends that the drafts signed by him were not really
bills of exchange but mere pieces of evidence of indebtedness because
payments were made before acceptance. This is also without merit. Under
the Negotiable Instruments Law, a bill of exchange is an unconditional order
in writting 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
36
bearer. As long as a commercial paper conforms with the definition of a bill
of exchange, that paper is considered a bill of exchange. The nature of
acceptance is important only in the determination of the kind of liabilities of
the parties involved, but not in the determination of whether a commercial
paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the
defendant's prayer will result in a new trial which will serve no purpose and
will just waste the time of the courts as well as of the parties because the
37
defense is nil or ineffective.
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court
of First Instance of Manila denying the petition for relief from the judgment
rendered in said case is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

An accommodation party is one who has signed the instrument as maker, G.R. No. 107382/G.R. No. 107612 January 31, 1996
drawer, indorser, without receiving value therefor and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of ASSOCIATED BANK, petitioner,
the taking of the instrument knew him to be only an accommodation vs.
35
party. In lending his name to the accommodated party, the accommodation HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE
party is in effect a surety for the latter. He lends his name to enable the NATIONAL BANK, respondents.
accommodated party to obtain credit or to raise money. He receives no part
of the consideration for the instrument but assumes liability to the other xxxxxxxxxxxxxxxxxxxxx
parties thereto because he wants to accommodate another. In the instant
case, the defendant signed as a drawee/acceptor. Under the Negotiable G.R. No. 107612 January 31, 1996
Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a
lawyer, he should not have signed as an acceptor/drawee. In doing so, he PHILIPPINE NATIONAL BANK, petitioner,
became primarily and personally liable for the drafts. vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and
ASSOCIATED BANK, respondents.
DECISION
ROMERO, J.:
Where thirty checks bearing forged endorsements are paid, who bears the
loss, the drawer, the drawee bank or the collecting bank?
This is the main issue in these consolidated petitions for review assailing the
decision of the Court of Appeals in "Province of Tarlac v. Philippine National
Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No.
1
17962).
The facts of the case are as follows:
The Province of Tarlac maintains a current account with the Philippine
National Bank (PNB) Tarlac Branch where the provincial funds are
deposited. Checks issued by the Province are signed by the Provincial
Treasurer and countersigned by the Provincial Auditor or the Secretary of the
Sangguniang Bayan.
A portion of the funds of the province is allocated to the Concepcion
2
Emergency Hospital. The allotment checks for said government hospital are
drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac"
or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." The
checks are released by the Office of the Provincial Treasurer and received
for the hospital by its administrative officer and cashier.
In January 1981, the books of account of the Provincial Treasurer were post-
audited by the Provincial Auditor. It was then discovered that the hospital did
not receive several allotment checks drawn by the Province.
On February 19, 1981, the Provincial Treasurer requested the manager of
the PNB to return all of its cleared checks which were issued from 1977 to
1980 in order to verify the regularity of their encashment. After the checks
were examined, the Provincial Treasurer learned that 30 checks amounting
to P203,300.00 were encashed by one Fausto Pangilinan, with the
Associated Bank acting as collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and
cashier of payee hospital until his retirement on February 28, 1978, collected
the questioned checks from the office of the Provincial Treasurer. He claimed
to be assisting or helping the hospital follow up the release of the checks and
3 4
had official receipts. Pangilinan sought to encash the first check with
Associated Bank. However, the manager of Associated Bank refused and
suggested that Pangilinan deposit the check in his personal savings account
with the same bank. Pangilinan was able to withdraw the money when the
check was cleared and paid by the drawee bank, PNB.
After forging the signature of Dr. Adena Canlas who was chief of the payee
hospital, Pangilinan followed the same procedure for the second check, in
5
the amount of P5,000.00 and dated April 20, 1978, as well as for twenty-
eight other checks of various amounts and on various dates. The last check
negotiated by Pangilinan was for f8,000.00 and dated February 10,
6
1981. All the checks bore the stamp of Associated Bank which reads "All
prior endorsements guaranteed ASSOCIATED BANK."
Jesus David, the manager of Associated Bank testified that Pangilinan made
it appear that the checks were paid to him for certain projects with the
7
hospital. He did not find as irregular the fact that the checks were not
payable to Pangilinan but to the Concepcion Emergency Hospital. While he
admitted that his wife and Pangilinan's wife are first cousins, the manager
8
denied having given Pangilinan preferential treatment on this account.
On February 26, 1981, the Provincial Treasurer wrote the manager of the
PNB seeking the restoration of the various amounts debited from the current
9
account of the Province.
In turn, the PNB manager demanded reimbursement from the Associated
Bank on May 15, 1981.
10
As both banks resisted payment, the Province of Tarlac brought suit against
PNB which, in turn, impleaded Associated Bank as third-party defendant.
The latter then filed a fourth-party complaint against Adena Canlas and
Fausto Pangilinan.
11
After trial on the merits, the lower court rendered its decision on March 21,
1988, disposing as follows:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered:
1. On the basic complaint, in favor of plaintiff Province of Tarlac and
against defendant Philippine National Bank (PNB), ordering the latter
to pay to the former, the sum of Two Hundred Three Thousand
Three Hundred (P203,300.00) Pesos with legal interest thereon from
March 20, 1981 until fully paid;
 2. On the third-party complaint, in favor of defendant/third-party
plaintiff Philippine National Bank (PNB) and against third-party
defendant/fourth-party plaintiff Associated Bank ordering the latter to
reimburse to the former the amount of Two Hundred Three
Thousand Three Hundred (P203,300.00) Pesos with legal interests
thereon from March 20, 1981 until fully paid;.
3. On the fourth-party complaint, the same is hereby ordered
dismissed for lack of cause of action as against fourth-party
defendant Adena Canlas and lack of jurisdiction over the person of
fourth-party defendant Fausto Pangilinan as against the latter.
4. On the counterclaims on the complaint, third-party complaint and
fourth-party complaint, the same are hereby ordered dismissed for
lack of merit.
12
SO ORDERED.
13
PNB and Associated Bank appealed to the Court of Appeals. Respondent
court affirmed the trial court's decision in toto on September 30, 1992.
Hence these consolidated petitions which seek a reversal of respondent
appellate court's decision.
PNB assigned two errors. First, the bank contends that respondent court
erred in exempting the Province of Tarlac from liability when, in fact, the latter
was negligent because it delivered and released the questioned checks to
Fausto Pangilinan who was then already retired as the hospital's cashier and
administrative officer. PNB also maintains its innocence and alleges that as
between two innocent persons, the one whose act was the cause of the loss,
in this case the Province of Tarlac, bears the loss.
Next, PNB asserts that it was error for the court to order it to pay the province
and then seek reimbursement from Associated Bank. According to petitioner
bank, respondent appellate Court should have directed Associated Bank to
14
pay the adjudged liability directly to the Province of Tarlac to avoid circuity.
Associated Bank, on the other hand, argues that the order of liability should
be totally reversed, with the drawee bank (PNB) solely and ultimately bearing
the loss.
Respondent court allegedly erred in applying Section 23 of the Philippine
Clearing House Rules instead of Central Bank Circular No. 580, which, being
an administrative regulation issued pursuant to law, has the force and effect
15
of law. The PCHC Rules are merely contractual stipulations among and
between member-banks. As such, they cannot prevail over the aforesaid CB
Circular.
It likewise contends that PNB, the drawee bank, is estopped from asserting
the defense of guarantee of prior indorsements against Associated Bank, the
collecting bank. In stamping the guarantee (for all prior indorsements), it
merely followed a mandatory requirement for clearing and had no choice but
to place the stamp of guarantee; otherwise, there would be no clearing. The
bank will be in a "no-win" situation and will always bear the loss as against
16
the drawee bank.
Associated Bank also claims that since PNB already cleared and paid the
value of the forged checks in question, it is now estopped from asserting the
defense that Associated Bank guaranteed prior indorsements. The drawee
bank allegedly has the primary duty to verify the genuineness of payee's
17
indorsement before paying the check.
While both banks are innocent of the forgery, Associated Bank claims that
PNB was at fault and should solely bear the loss because it cleared and paid
the forged checks.
xxx xxx xxx
The case at bench concerns checks payable to the order of Concepcion
Emergency Hospital or its Chief. They were properly issued and bear the
genuine signatures of the drawer, the Province of Tarlac. The infirmity in the
questioned checks lies in the payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of their indorsement, the
checks were order instruments.
Checks having forged indorsements should be differentiated from forged
checks or checks bearing the forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature
is forged or made without authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under
such signature unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of
authority.
A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it. A person
whose signature to an instrument was forged was never a party and never
consented to the contract which allegedly gave rise to such
18
instrument. Section 23 does not avoid the instrument but only the forged
19
signature. Thus, a forged indorsement does not operate as the payee's
indorsement.
The exception to the general rule in Section 23 is where "a party against
whom it is sought to enforce a right is precluded from setting up the forgery
or want of authority." Parties who warrant or admit the genuineness of the
signature in question and those who, by their acts, silence or negligence are
estopped from setting up the defense of forgery, are precluded from using
this defense. Indorsers, persons negotiating by delivery and acceptors are
20
warrantors of the genuineness of the signatures on the instrument.
In bearer instruments, the signature of the payee or holder is unnecessary to
pass title to the instrument. Hence, when the indorsement is a forgery, only
the person whose signature is forged can raise the defense of forgery
21
against a holder in due course.
The checks involved in this case are order instruments, hence, the following
discussion is made with reference to the effects of a forged indorsement on
an instrument payable to order.
Where the instrument is payable to order at the time of the forgery, such as
the checks in this case, the signature of its rightful holder (here, the payee
hospital) is essential to transfer title to the same instrument. When the
holder's indorsement is forged, all parties prior to the forgery may raise the
22
real defense of forgery against all parties subsequent thereto.
An indorser of an order instrument warrants "that the instrument is genuine
and in all respects what it purports to be; that he has a good title to it; that all
prior parties had capacity to contract; and that the instrument is at the time of
23
his indorsement valid and subsisting." He cannot interpose the defense
that signatures prior to him are forged.
A collecting bank where a check is deposited and which indorses the check
upon presentment with the drawee bank, is such an indorser. So even if the
indorsement on the check deposited by the banks's client is forged, the
collecting bank is bound by his warranties as an indorser and cannot set up
the defense of forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under
strict liability to pay the check to the order of the payee. The drawer's
instructions are reflected on the face and by the terms of the check. Payment
under a forged indorsement is not to the drawer's order. When the drawee
bank pays a person other than the payee, it does not comply with the terms
of the check and violates its duty to charge its customer's (the drawer)
account only for properly payable items. Since the drawee bank did not pay a
holder or other person entitled to receive payment, it has no right to
24
reimbursement from the drawer. The general rule then is that the drawee
bank may not debit the drawer's account and is not entitled to indemnification
25
from the drawer. The risk of loss must perforce fall on the drawee bank.
However, if the drawee bank can prove a failure by the customer/drawer to
exercise ordinary care that substantially contributed to the making of the
forged signature, the drawer is precluded from asserting the forgery.
If at the same time the drawee bank was also negligent to the point of
substantially contributing to the loss, then such loss from the forgery can be
26
apportioned between the negligent drawer and the negligent bank.
In cases involving a forged check, where the drawer's signature is forged, the
drawer can recover from the drawee bank. No drawee bank has a right to
pay a forged check. If it does, it shall have to recredit the amount of the
check to the account of the drawer. The liability chain ends with the drawee
bank whose responsibility it is to know the drawer's signature since the latter
27
is its customer.
In cases involving checks with forged indorsements, such as the present
petition, the chain of liability does not end with the drawee bank. The drawee
bank may not debit the account of the drawer but may generally pass liability
back through the collection chain to the party who took from the forger and,
28
of course, to the forger himself, if available. In other words, the drawee
bank canseek reimbursement or a return of the amount it paid from the
29
presentor bank or person. Theoretically, the latter can demand
reimbursement from the person who indorsed the check to it and so on. The
loss falls on the party who took the check from the forger, or on the forger
himself.
In this case, the checks were indorsed by the collecting bank (Associated
Bank) to the drawee bank (PNB). The former will necessarily be liable to the
latter for the checks bearing forged indorsements. If the forgery is that of the
payee's or holder's indorsement, the collecting bank is held liable, without
prejudice to the latter proceeding against the forger.
Since a forged indorsement is inoperative, the collecting bank had no right to
be paid by the drawee bank. The former must necessarily return the money
30
paid by the latter because it was paid wrongfully.
More importantly, by reason of the statutory warranty of a general indorser in
section 66 of the Negotiable Instruments Law, a collecting bank which
indorses a check bearing a forged indorsement and presents it to the drawee
bank guarantees all prior indorsements, including the forged indorsement. It
warrants that the instrument is genuine, and that it is valid and subsisting at
the time of his indorsement. Because the indorsement is a forgery, the
collecting bank commits a breach of this warranty and will be accountable to
the drawee bank. This liability scheme operates without regard to fault on the
part of the collecting/presenting bank. Even if the latter bank was not
negligent, it would still be liable to the drawee bank because of its
indorsement.
The Court has consistently ruled that "the 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
31
endorsements."
The drawee bank is not similarly situated as the collecting bank because the
32
former makes no warranty as to the genuineness. of any indorsement. The
drawee bank's duty is but to verify the genuineness of the drawer's signature
and not of the indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the
depositor who negotiated the check. The bank knows him, his address and
history because he is a client. It has taken a risk on his deposit. The bank is
also in a better position to detect forgery, fraud or irregularity in the
indorsement.
Hence, the drawee bank can recover the amount paid on the check bearing a
forged indorsement from the collecting bank. However, a drawee bank has
the duty to promptly inform the presentor of the forgery upon discovery. If the
drawee bank delays in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from the forger, the former is
33
deemed negligent and can no longer recover from the presentor.
Applying these rules to the case at bench, PNB, the drawee bank, cannot
debit the current account of the Province of Tarlac because it paid checks
which bore forged indorsements. However, if the Province of Tarlac as
drawer was negligent to the point of substantially contributing to the loss,
then the drawee bank PNB can charge its account. If both drawee bank-PNB
and drawer-Province of Tarlac were negligent, the loss should be properly
apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting
bank-Associated Bank which presented and indorsed the checks to it.
Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of the forgery, thus
depriving the latter of the opportunity to recover from the forger, it forfeits its
right to reimbursement and will be made to bear the loss.
After careful examination of the records, the Court finds that the Province of
Tarlac was equally negligent and should, therefore, share the burden of loss
from the checks bearing a forged indorsement.
The Province of Tarlac permitted Fausto Pangilinan to collect the checks
when the latter, having already retired from government service, was no
longer connected with the hospital. With the exception of the first check
(dated January 17, 1978), all the checks were issued and released after
Pangilinan's retirement on February 28, 1978. After nearly three years, the
Treasurer's office was still releasing the checks to the retired cashier. In
addition, some of the aid allotment checks were released to Pangilinan and
the others to Elizabeth Juco, the new cashier. The fact that there were now
two persons collecting the checks for the hospital is an unmistakable sign of
an irregularity which should have alerted employees in the Treasurer's office
of the fraud being committed. There is also evidence indicating that the
provincial employees were aware of Pangilinan's retirement and consequent
dissociation from the hospital. Jose Meru, the Provincial Treasurer, testified:.
ATTY. MORGA:
Q Now, is it true that for a given month there were two releases of
checks, one went to Mr. Pangilinan and one went to Miss Juco?
JOSE MERU:
A Yes, sir.
Q Will you please tell us how at the time (sic) when the authorized
representative of Concepcion Emergency Hospital is and was
supposed to be Miss Juco?
A Well, as far as my investigation show (sic) the assistant cashier
told me that Pangilinan represented himself as also authorized to
help in the release of these checks and we were apparently misled
because they accepted the representation of Pangilinan that he was
helping them in the release of the checks and besides according to
them they were, Pangilinan, like the rest, was able to present an
 official receipt to acknowledge these receipts and according to them
since this is a government check and believed that it will eventually
go to the hospital following the standard procedure of negotiating
government checks, they released the checks to Pangilinan aside
34
from Miss Juco.
The failure of the Province of Tarlac to exercise due care contributed to a
significant degree to the loss tantamount to negligence. Hence, the Province
of Tarlac should be liable for part of the total amount paid on the questioned
checks.
The drawee bank PNB also breached its duty to pay only according to the
terms of the check. Hence, it cannot escape liability and should also bear
part of the loss.
As earlier stated, PNB can recover from the collecting bank.
35
In the case of Associated Bank v. CA, six crossed checks with forged
indorsements were deposited in the forger's account with the collecting bank
and were later paid by four different drawee banks. The Court found the
collecting bank (Associated) to be negligent and held:
The Bank should have first verified his right to endorse the crossed
checks, of which he was not the payee, and to deposit the proceeds
of the checks to his own account. The Bank was by reason of the
nature of the checks put upon notice that they were issued for
deposit only to the private respondent's account. . . .
The situation in the case at bench is analogous to the above case, for it was
not the payee who deposited the checks with the collecting bank. Here, the
checks were all payable to Concepcion Emergency Hospital but it was
Fausto Pangilinan who deposited the checks in his personal savings
account.
Although Associated Bank claims that the guarantee stamped on the checks
(All prior and/or lack of endorsements guaranteed) is merely a requirement
forced upon it by clearing house rules, it cannot but remain liable. The stamp
guaranteeing prior indorsements is not an empty rubric which a bank must
fulfill for the sake of convenience. A bank is not required to accept all the
checks negotiated to it. It is within the bank's discretion to receive a check for
no banking institution would consciously or deliberately accept a check
bearing a forged indorsement. When a check is deposited with the collecting
bank, it takes a risk on its depositor. It is only logical that this bank be held
accountable for checks deposited by its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery,
which deprives it of the opportunity to go after the forger, signifies negligence
on the part of the drawee bank (PNB) and will preclude it from claiming
reimbursement.
It is here that Associated Bank's assignment of error concerning C.B. Circular
No. 580 and Section 23 of the Philippine Clearing House Corporation Rules
comes to fore. Under Section 4(c) of CB Circular No. 580, items bearing a
forged endorsement shall be returned within twenty-Sour (24) hours after
discovery of the forgery but in no event beyond the period fixed or provided
by law for filing of a legal action by the returning bank. Section 23 of the
PCHC Rules deleted the requirement that items bearing a forged
endorsement should be returned within twenty-four hours. Associated Bank
now argues that the aforementioned Central Bank Circular is applicable.
Since PNB did not return the questioned checks within twenty-four hours, but
several days later, Associated Bank alleges that PNB should be considered
negligent and not entitled to reimbursement of the amount it paid on the
checks.
The Court deems it unnecessary to discuss Associated Bank's assertions
that CB Circular No. 580 is an administrative regulation issued pursuant to
law and as such, must prevail over the PCHC rule. The Central Bank circular
was in force for all banks until June 1980 when the Philippine Clearing House
Corporation (PCHC) was set up and commenced operations. Banks in Metro
Manila were covered by the PCHC while banks located elsewhere still had to
go through Central Bank Clearing. In any event, the twenty-four-hour return
rule was adopted by the PCHC until it was changed in 1982. The contending
banks herein, which are both branches in Tarlac province, are therefore not
covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB
circular was applicable when the forgery of the checks was discovered in
1981.
The rule mandates that the checks be returned within twenty-four hours after
discovery of the forgery but in no event beyond the period fixed by law for
filing a legal action. The rationale of the rule is to give the collecting bank
(which indorsed the check) adequate opportunity to proceed against the
forger. If prompt notice is not given, the collecting bank maybe prejudiced
and lose the opportunity to go after its depositor.
The Court finds that even if PNB did not return the questioned checks to
Associated Bank within twenty-four hours, as mandated by the rule, PNB did
not commit negligent delay. Under the circumstances, PNB gave prompt
notice to Associated Bank and the latter bank was not prejudiced in going
after Fausto Pangilinan. After the Province of Tarlac informed PNB of the
forgeries, PNB necessarily had to inspect the checks and conduct its own
investigation. Thereafter, it requested the Provincial Treasurer's office on

March 31, 1981 to return the checks for verification. The Province of Tarlac
returned the checks only on April 22, 1981. Two days later, Associated Bank
36
received the checks from PNB.
Associated Bank was also furnished a copy of the Province's letter of
demand to PNB dated March 20, 1981, thus giving it notice of the forgeries.
At this time, however, Pangilinan's account with Associated had only P24.63
37
in it. Had Associated Bank decided to debit Pangilinan's account, it could
not have recovered the amounts paid on the questioned checks. In addition,
while Associated Bank filed a fourth-party complaint against Fausto
Pangilinan, it did not present evidence against Pangilinan and even
38
presented him as its rebuttal witness. Hence, Associated Bank was not
prejudiced by PNB's failure to comply with the twenty-four-hour return rule.
Next, Associated Bank contends that PNB is estopped from requiring
reimbursement because the latter paid and cleared the checks. The Court
finds this contention unmeritorious. Even if PNB cleared and paid the checks,
it can still recover from Associated Bank. This is true even if the payee's
Chief Officer who was supposed to have indorsed the checks is also a
39
customer of the drawee bank. PNB's duty was to verify the genuineness of
the drawer's signature and not the genuineness of payee's indorsement.
Associated Bank, as the collecting bank, is the entity with the duty to verify
the genuineness of the payee's indorsement.
PNB also avers that respondent court erred in adjudging circuitous liability by
directing PNB to return to the Province of Tarlac the amount of the checks
and then directing Associated Bank to reimburse PNB. The Court finds
nothing wrong with the mode of the award. The drawer, Province of Tarlac, is
a clientor customer of the PNB, not of Associated Bank. There is no privity of
contract between the drawer and the collecting bank.
The trial court made PNB and Associated Bank liable with legal interest from
March 20, 1981, the date of extrajudicial demand made by the Province of
Tarlac on PNB. The payments to be made in this case stem from the
deposits of the Province of Tarlac in its current account with the PNB. Bank
40
deposits are considered under the law as loans. Central Bank Circular No.
416 prescribes a twelve percent (12%) interest per annum for loans,
forebearance of money, goods or credits in the absence of express
stipulation. Normally, current accounts are likewise interest-bearing, by
express contract, thus excluding them from the coverage of CB Circular No.
416. In this case, however, the actual interest rate, if any, for the current
account opened by the Province of Tarlac with PNB was not given in
evidence. Hence, the Court deems it wise to affirm the trial court's use of the
legal interest rate, or six percent (6%) per annum. The interest rate shall be
computed from the date of default, or the date of judicial or extrajudicial
41
demand. The trial court did not err in granting legal interest from March 20,
1981, the date of extrajudicial demand.
The Court finds as reasonable, the proportionate sharing of fifty percent - fifty
percent (50%-50%). Due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Fausto Pangilinan), in
allowing the retired hospital cashier to receive the checks for the payee
hospital for a period close to three years and in not properly ascertaining why
the retired hospital cashier was collecting checks for the payee hospital in
addition to the hospital's real cashier, respondent Province contributed to the
loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%)
percent thereof. In effect, the Province of Tarlac can only recover fifty percent
(50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%)
percent of P203,300.00. It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payee's indorsement.
IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine
National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The
petition for review filed by the Associated Bank (G.R. No. 107382) is hereby
DENIED. The decision of the trial court is MODIFIED. The Philippine National
Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac,
with legal interest from March 20, 1981 until the payment thereof. Associated
Bank shall pay fifty percent (50%) of P203,300.00 to the Philippine National
Bank, likewise, with legal interest from March 20, 1981 until payment is
made.
SO ORDERED.
THIRD DIVISION
[G. R. No. 116320. November 29, 1999]
ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS , HERBY
COMMERCIAL & CONSTRUCTION CORPORATION AND JAIME
C. ONG, respondents.
 DECISION
_ discovered that Diaz and Francisco had executed and signed seven
GONZAGA REYES, J.:
[1]
Assailed in this petition for review on certiorari is the decision of the
[2]
Court of Appeals affirming the decision rendered by Branch 168 of the
Regional Trial Court of Pasig in Civil Case No. 35231 in favor of private
respondents.
The controversy before this Court finds its origins in a Land
Development and Construction Contract which was entered into on June 23,
1977 by A. Francisco Realty & Development Corporation (AFRDC), of which
petitioner Adalia Francisco (Francisco) is the president, and private
respondent Herby Commercial & Construction Corporation (HCCC),
represented by its President and General Manager private respondent Jaime
C. Ong (Ong), pursuant to a housing project of AFRDC at San Jose del
Monte, Bulacan, financed by the Government Service Insurance System
(GSIS). Under the contract, HCCC agreed to undertake the construction of
35 housing units and the development of 35 hectares of land. The payment
of HCCC for its services was on a turn-key basis, that is, HCCC was to be
paid on the basis of the completed houses and developed lands delivered to
and accepted by AFRDC and the GSIS. To facilitate payment, AFRDC
executed a Deed of Assignment in favor of HCCC to enable the latter to
collect payments directly from the GSIS. Furthermore, the GSIS and AFRDC
put up an Executive Committee Account with the Insular Bank of Asia &
America (IBAA) in the amount of P4,000,000.00 from which checks would be
issued and co-signed by petitioner Francisco and the GSIS Vice-President
Armando Diaz (Diaz).
[3]
On February 10, 1978, HCCC filed a complaint with the Regional Trial
Court of Quezon City against Francisco, AFRDC and the GSIS for the
collection of the unpaid balance under the Land Development and
Construction Contract in the amount of P515,493.89 for completed and
delivered housing units and land development. However, the parties
eventually arrived at an amicable settlement of their differences, which was
embodied in a Memorandum Agreement executed by HCCC and AFRDC on
July 21, 1978. Under the agreement, the parties stipulated that HCCC had
turned over 83 housing units which have been accepted and paid for by the
GSIS. The GSIS acknowledged that it still owed HCCC P520,177.50
representing incomplete construction of housing units, incomplete land
development and 5% retention, which amount will be discharged when the
defects and deficiencies are finally completed by HCCC. It was also provided
that HCCC was indebted to AFRDC in the amount of P180,234.91 which the
former agreed would be paid out of the proceeds from the 40 housing units
still to be turned over by HCCC or from any amount due to HCCC from the
GSIS. Consequently, the trial court dismissed the case upon the filing by the
parties of a joint motion to dismiss.
Sometime in 1979, after an examination of the records of the GSIS, Ong
[4]
checks , of various dates and amounts, drawn against the IBAA and
payable to HCCC for completed and delivered work under the contract. Ong,
however, claims that these checks were never delivered to HCCC. Upon
inquiry with Diaz, Ong learned that the GSIS gave Francisco custody of the
checks since she promised that she would deliver the same to
HCCC. Instead, Francisco forged the signature of Ong, without his
knowledge or consent, at the dorsal portion of the said checks to make it
appear that HCCC had indorsed the checks; Francisco then indorsed the
checks for a second time by signing her name at the back of the checks and
deposited the checks in her IBAA savings account. IBAA credited Franciscos
account with the amount of the checks and the latter withdrew the amount so
credited.
On June 7, 1979, Ong filed complaints with the office of the city fiscal of
Quezon City, charging Francisco with estafa thru falsification of commercial
documents. Francisco denied having forged Ongs signature on the checks,
claiming that Ong himself indorsed the seven checks in behalf of HCCC and
delivered the same to Francisco in payment of the loans extended by
Francisco to HCCC. According to Francisco, she agreed to grant HCCC the
loans in the total amount of P585,000.00 and covered by eighteen
promissory notes in order to obviate the risk of the non-completion of the
project. As a means of repayment, Ong allegedly issued a Certification
authorizing Francisco to collect HCCCs receivables from the GSIS. Assistant
City Fiscal Ramon M. Gerona gave credence to Franciscos claims and
accordingly, dismissed the complaints, which dismissal was affirmed by the
Minister of Justice in a resolution issued on June 5, 1981.
The present case was brought by private respondents on November 19,
1979 against Francisco and IBAA for the recovery of P370,475.00,
representing the total value of the seven checks, and for damages, attorneys
fees, expenses of litigation and costs. After trial on the merits, the trial court
rendered its decision in favor of private respondents, the dispositive portion
of which provides -
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiffs and against the defendants INSULAR BANK OF ASIA &
AMERICA and ATTY. ADALIA FRANCISCO, to jointly and severally pay the
plaintiffs the amount of P370.475.00 plus interest thereon at the rate of 12%
per annum from the date of the filing of the complaint until the full amount is
paid; moral damages to plaintiff Jaime Ong in the sum of P50,000.00;
exemplary damages of P50,000.00; litigation expenses of P5,000.00; and
attorneys fees of P50,000.00.
With respect to the cross-claim of the defendant IBAA against its co-
defendant Atty. Adalia Francisco, the latter is ordered to reimburse the
former for the sums that the Bank shall pay to the plaintiff on the forged
checks including the interests paid thereon.
Further, the defendants are ordered to pay the costs.
Based upon the findings of handwriting experts from the National
Bureau of Investigation (NBI), the trial court held that Francisco had indeed
forged the signature of Ong to make it appear that he had indorsed the
checks. Also, the court ruled that there were no loans extended, reasoning
that it was unbelievable that HCCC was experiencing financial difficulties so
as to compel it to obtain the loans from AFRDC in view of the fact that the
GSIS had issued checks in favor of HCCC at about the same time that the
alleged advances were made. The trial court stated that it was plausible that
Francisco concealed the fact of issuance of the checks from private
respondents in order to make it appear as if she were accommodating
private respondents, when in truth she was lending HCCC its own money.
With regards to the Memorandum Agreement entered into between
AFRDC and HCCC in Civil Case No. Q-24628, the trial court held that the
same did not make any mention of the forged checks since private
respondents were as of yet unaware of their existence, that fact having been
effectively concealed by Francisco, until private respondents acquired
knowledge of Franciscos misdeeds in 1979.
IBAA was held liable to private respondents for having honored the
checks despite such obvious irregularities as the lack of initials to validate the
alterations made on the check, the absence of the signature of a co-signatory
in the corporate checks of HCCC and the deposit of the checks on a second
indorsement in the savings account of Francisco. However, the trial court
allowed IBAA recourse against Francisco, who was ordered to reimburse the
[5]
IBAA for any sums it shall have to pay to private respondents.
Both Francisco and IBAA appealed the trial courts decision, but the
Court of Appeals dismissed IBAAs appeal for its failure to file its brief within
the 45-day extension granted by the appellate court. IBAAs motion for
reconsideration and petition for review on certiorari filed with this Court were
also similarly denied. On November 21, 1989, IBAA and HCCC entered into
a Compromise Agreement which was approved by the trial court, wherein
HCCC acknowledged receipt of the amount of P370,475.00 in full satisfaction
of its claims against IBAA, without prejudice to the right of the latter to pursue
its claims against Francisco.
On June 29, 1992, the Court of Appeals affirmed the trial courts ruling,
hence this petition for review on certiorari filed by petitioner, assigning the
following errors to the appealed decision
1. The respondent Court of Appeals erred in concluding that private
respondents did not owe Petitioner the sum covered by the Promissory
Notes Exh.2-2-A-2-P (FRANCISCO). Such conclusion was based mainly on
conjectures, surmises and speculation contrary to the unrebutted pleadings
and evidence presented by petitioner.
2. The respondent Court of Appeals erred in holding that Petitioner falsified
the signature of private respondent ONG on the checks in question without
any authority therefor which is patently contradictory to the unrebutted
pleading and evidence that petitioner was expressly authorized by
respondent HERBY thru ONG to collect all receivables of HERBY from GSIS
to pay the loans extended to them. (Exhibit 3).
3. That respondent Court of Appeals erred in holding that the seven checks
in question were not taken up in the liquidation and reconciliation of all
outstanding account between AFRDC and HERBY as acknowledged by the
parties in Memorandum Agreement (Exh. 5) is a pure conjecture, surmise
and speculation contrary to the unrebutted evidence presented by
petitioners. It is an inference made which is manifestly mistaken.
4. The respondent Court of Appeals erred in affirming the decision of the
[6]
lower court and dismissing the appeal.
The pivotal issue in this case is whether or not Francisco forged the
signature of Ong on the seven checks. In this connection, we uphold the
lower courts finding that the subject matter of the present case, specifically
the seven checks, drawn by GSIS and AFRDC, dated between October to
November 1977, in the total amount of P370,475.00 and payable to HCCC,
was not included in the Memorandum Agreement executed by HCCC and
AFRDC in Civil Case No. Q-24628. As observed by the trial court, aside from
there being absolutely no mention of the checks in the said agreement, the
amounts represented by said checks could not have been included in the
Memorandum Agreement executed in 1978 because private respondents
only discovered Franciscos acts of forgery in 1979. The lower courts found
that Francisco was able to easily conceal from private respondents even the
[7]
fact of the issuance of the checks since she was a co-signatory thereof. We
also note that Francisco had custody of the checks, as proven by the check
[8]
vouchers bearing her uncontested signature, by which she, in effect,
acknowledged having received the checks intended for HCCC. This
contradicts Franciscos claims that the checks were issued to Ong who
[9]
delivered them to Francisco already indorsed.
As regards the forgery, we concur with the lower courts finding that
Francisco forged the signature of Ong on the checks to make it appear as if
Ong had indorsed said checks and that, after indorsing the checks for a
second time by signing her name at the back of the checks, Francisco
deposited said checks in her savings account with IBAA. The forgery was
satisfactorily established in the trial court upon the strength of the findings of
[10]
the NBI handwriting expert. Other than petitioners self-serving denials,
there is nothing in the records to rebut the NBIs findings. Well-entrenched is
the rule that findings of trial courts which are factual in nature, especially
when affirmed by the Court of Appeals, deserve to be respected and affirmed
by the Supreme Court, provided it is supported by substantial evidence on
[11]
record, as it is in the case at bench.
Petitioner claims that she was, in any event, authorized to sign Ongs
name on the checks by virtue of the Certification executed by Ong in her
favor giving her the authority to collect all the receivables of HCCC from the
[12]
GSIS, including the questioned checks. Petitioners alternative defense
must similarly fail. The Negotiable Instruments Law provides that where any
person is under obligation to indorse in a representative capacity, he may
[13]
indorse in such terms as to negative personal liability. An agent, when so
signing, should indicate that he is merely signing in behalf of the principal
and must disclose the name of his principal; otherwise he shall be held
[14]
personally liable. Even assuming that Francisco was authorized by HCCC
to sign Ongs name, still, Francisco did not indorse the instrument in
accordance with law. Instead of signing Ongs name, Francisco should have
signed her own name and expressly indicated that she was signing as an
agent of HCCC. Thus, the Certification cannot be used by Francisco to
validate her act of forgery.
Every person who, contrary to law, wilfully or negligently causes
[15]
damage to another, shall indemnify the latter for the same. Due to her
forgery of Ongs signature which enabled her to deposit the checks in her
own account, Francisco deprived HCCC of the money due it from the GSIS
pursuant to the Land Development and Construction Contract. Thus, we
affirm respondent courts award of compensatory damages in the amount of
P370,475.00, but with a modification as to the interest rate which shall be six
percent (6%) per annum, to be computed from the date of the filing of the
complaint since the amount of damages was alleged in the
[16]
complaint; however, the rate of interest shall be twelve percent (12%) per
annum from the time the judgment in this case becomes final and executory
until its satisfaction and the basis for the computation of this twelve percent
(12%) rate of interest shall be the amount of P370,475.00. This is in
accordance with the doctrine enunciated in Eastern Shipping Lines, Inc. vs.
[17]
Court of Appeals, et al., which was reiterated in Philippine National Bank
[18] [19]
vs. Court of Appeals, Philippine Airlines, Inc. vs. Court of Appeals and
[20]
in Keng Hua Paper Products Co., Inc. vs. Court of Appeals, which provides
that -
1. When an obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due should
be that which may have been stipulated in writing.Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of six percent (6%) per
annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be deemed
to have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be twelve percent (12%) per
annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
We also sustain the award of exemplary damages in the amount of
P50,000.00. Under Article 2229 of the Civil Code, exemplary damages are
imposed by way of example or correction for the public good, in addition to
the moral, temperate, liquidated or compensatory damages. Considering
petitioners fraudulent act, we hold that an award of P50,000.00 would be
adequate, fair and reasonable. The grant of exemplary damages justifies the
award of attorneys fees in the amount of P50,000.00, and the award of
[21]
P5,000.00 for litigation expenses.
The appellate courts award of P50,000.00 in moral damages is
warranted. Under Article 2217 of the Civil Code, moral damages may be
granted upon proof of physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
[22]
humiliation and similar injury. Ong testitified that he suffered sleepless
nights, embarrassment, humiliation and anxiety upon discovering that the
checks due his company were forged by petitioner and that petitioner had
filed baseless criminal complaints against him before the fiscals office of
Quezon City which disrupted HCCCs business operations.
[23]
WHEREFORE, we AFFIRM the respondent courts decision promulgated
on June 29, 1992, upholding the February 16, 1988 decision of the trial court
in favor of private respondents, with the modification that the interest upon
the actual damages awarded shall be at six percent (6%) per annum, which
interest rate shall be computed from the time of the filing of the complaint on
November 19, 1979. However, the interest rate shall be twelve percent (12%)
per annum from the time the judgment in this case becomes final and
executory and until such amount is fully paid. The basis for computation of
the six percent and twelve percent rates of interest shall be the amount of
P370,475.00. No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 92244 February 9, 1993
NATIVIDAD GEMPESAW, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
L.B. Camins for petitioner.
Angara, Abello, Concepcion, Regals & Cruz for private respondent
CAMPOS, JR., J.:
From the adverse decision * of the Court of Appeals (CA-G.R. CV No.
16447), petitioner, Natividad Gempesaw, appealed to this Court in a Petition
for Review, on the issue of the right of the drawer to recover from the drawee
bank who pays a check with a forged indorsement of the payee, debiting the
same against the drawer's account.
The records show that on January 23, 1985, petitioner filed a Complaint
against the private respondent Philippine Bank of Communications
(respondent drawee Bank) for recovery of the money value of eighty-two (82)
checks charged against the petitioner's account with the respondent drawee
Bank on the ground that the payees' indorsements were forgeries. The
Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case,
rendered a decision on November 17, 1987 dismissing the complaint as well
as the respondent drawee Bank's counterclaim. On appeal, the Court of
Appeals in a decision rendered on February 22, 1990, affirmed the decision
of the RTC on two grounds, namely (1) that the plaintiff's (petitioner herein)
gross negligence in issuing the checks was the proximate cause of the loss
and (2) assuming that the bank was also negligent, the loss must
nevertheless be borne by the party whose negligence was the proximate
cause of the loss. On March 5, 1990, the petitioner filed this petition under
Rule 45 of the Rules of Court setting forth the following as the alleged errors
1
of the respondent Court:
I
THE RESPONDENT COURT OF APPEALS ERRED IN
RULING THAT THE NEGLIGENCE OF THE DRAWER IS
THE PROXIMATE CAUSE OF THE RESULTING INJURY
TO THE DRAWEE BANK, AND THE DRAWER IS
PRECLUDED FROM SETTING UP THE FORGERY OR
WANT OF AUTHORITY.
II
THE RESPONDENT COURT OF APPEALS ALSO ERRED
IN NOT FINDING AND RULING THAT IT IS THE GROSS
AND INEXCUSABLE NEGLIGENCE AND FRAUDULENT
ACTS OF THE OFFICIALS AND EMPLOYEES OF THE
RESPONDENT BANK IN FORGING THE SIGNATURE OF
THE PAYEES AND THE WRONG AND/OR ILLEGAL
PAYMENTS MADE TO PERSONS, OTHER THAN TO THE
INTENDED PAYEES SPECIFIED IN THE CHECKS, IS THE
DIRECT AND PROXIMATE CAUSE OF THE DAMAGE TO
PETITIONER WHOSE SAVING (SIC) ACCOUNT WAS
DEBITED.
III
THE RESPONDENT COURT OF APPEALS ALSO ERRED
IN NOT ORDERING THE RESPONDENT BANK TO
RESTORE OR RE-CREDIT THE CHECKING ACCOUNT
OF THE PETITIONER IN THE CALOOCAN CITY BRANCH
BY THE VALUE OF THE EIGHTY-TWO (82) CHECKS
WHICH IS IN THE AMOUNT OF P1,208,606.89 WITH
LEGAL INTEREST.
From the records, the relevant facts are as follows:
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four
grocery stores located at Rizal Avenue Extension and at Second Avenue,
Caloocan City. Among these groceries are D.G. Shopper's Mart and D.G.
Whole Sale Mart. Petitioner maintains a checking account numbered 13-
00038-1 with the Caloocan City Branch of the respondent drawee Bank. To
facilitate payment of debts to her suppliers, petitioner draws checks against
her checking account with the respondent bank as drawee. Her customary
practice of issuing checks in payment of her suppliers was as follows: the
checks were prepared and filled up as to all material particulars by her
trusted bookkeeper, Alicia Galang, an employee for more than eight (8)
years. After the bookkeeper prepared the checks, the completed checks
were submitted to the petitioner for her signature, together with the
corresponding invoice receipts which indicate the correct obligations due and
payable to her suppliers. Petitioner signed each and every check without
bothering to verify the accuracy of the checks against the corresponding
invoices because she reposed full and implicit trust and confidence on her
bookkeeper. The issuance and delivery of the checks to the payees named
therein were left to the bookkeeper. Petitioner admitted that she did not make
any verification as to whether or not the checks were delivered to their
respective payees. Although the respondent drawee Bank notified her of all
checks presented to and paid by the bank, petitioner did not verify he
correctness of the returned checks, much less check if the payees actually
received the checks in payment for the supplies she received. In the course
of her business operations covering a period of two years, petitioner issued,
following her usual practice stated above, a total of eighty-two (82) checks in
favor of several suppliers. These checks were all presented by the indorsees
as holders thereof to, and honored by, the respondent drawee Bank.
Respondent drawee Bank correspondingly debited the amounts thereof
against petitioner's checking account numbered 30-00038-1. Most of the
aforementioned checks were for amounts in excess of her actual obligations
to the various payees as shown in their corresponding invoices. To mention a
few:
. . . 1) in Check No. 621127, dated June 27, 1984 in the
amount of P11,895.23 in favor of Kawsek Inc. (Exh. A-60),
appellant's actual obligation to said payee was only P895.33
(Exh. A-83); (2) in Check No. 652282 issued on September
18, 1984 in favor of Senson Enterprises in the amount of
P11,041.20 (Exh. A-67) appellant's actual obligation to said
payee was only P1,041.20 (Exh. 7); (3) in Check No. 589092
dated April 7, 1984 for the amount of P11,672.47 in favor of
Marchem (Exh. A-61) appellant's obligation was only
P1,672.47 (Exh. B); (4) in Check No. 620450 dated May 10,
1984 in favor of Knotberry for P11,677.10 (Exh. A-31) her
actual obligation was only P677.10 (Exhs. C and C-1); (5) in
Check No. 651862 dated August 9, 1984 in favor of Malinta
Exchange Mart for P11,107.16 (Exh. A-62), her obligation
was only P1,107.16 (Exh. D-2); (6) in Check No. 651863
dated August 11, 1984 in favor of Grocer's International
Food Corp. in the amount of P11,335.60 (Exh. A-66), her
obligation was only P1,335.60 (Exh. E and E-1); (7) in Check
No. 589019 dated March 17, 1984 in favor of Sophy
Products in the amount of P11,648.00 (Exh. A-78), her
obligation was only P648.00 (Exh. G); (8) in Check No.
589028 dated March 10, 1984 for the amount of P11,520.00
in favor of the Yakult Philippines (Exh. A-73), the latter's
invoice was only P520.00 (Exh. H-2); (9) in Check No. 62033
dated May 23, 1984 in the amount of P11,504.00 in favor of
Monde Denmark Biscuit (Exh. A-34), her obligation was only
2
P504.00 (Exhs. I-1 and I-2).
Practically, all the checks issued and honored by the respondent drawee
3
bank were crossed checks. Aside from the daily notice given to the
petitioner by the respondent drawee Bank, the latter also furnished her with a
monthly statement of her transactions, attaching thereto all the cancelled
checks she had issued and which were debited against her current account.
It was only after the lapse of more two (2) years that petitioner found out
about the fraudulent manipulations of her bookkeeper.
All the eighty-two (82) checks with forged signatures of the payees were
brought to Ernest L. Boon, Chief Accountant of respondent drawee Bank at
the Buendia branch, who, without authority therefor, accepted them all for
deposit at the Buendia branch to the credit and/or in the accounts of Alfredo
Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of
Alfredo Y. Romero. Sixty-three (63) out of the eighty-two (82) checks were
deposited in Savings Account No. 00844-5 of Alfredo Y. Romero at the
respondent drawee Bank's Buendia branch, and four (4) checks in his
Savings Account No. 32-81-9 at its Ongpin branch. The rest of the checks
were deposited in Account No. 0443-4, under the name of Benito Lam at the
Elcao branch of the respondent drawee Bank.
About thirty (30) of the payees whose names were specifically written on the
checks testified that they did not receive nor even see the subject checks
and that the indorsements appearing at the back of the checks were not
theirs.
The team of auditors from the main office of the respondent drawee Bank
which conducted periodic inspection of the branches' operations failed to
discover, check or stop the unauthorized acts of Ernest L. Boon. Under the
rules of the respondent drawee Bank, only a Branch Manager and no other
official of the respondent drawee bank, may accept a second indorsement on
a check for deposit. In the case at bar, all the deposit slips of the eighty-two
(82) checks in question were initialed and/or approved for deposit by Ernest
L. Boon. The Branch Managers of the Ongpin and Elcao branches accepted
the deposits made in the Buendia branch and credited the accounts of
Alfredo Y. Romero and Benito Lam in their respective branches.
On November 7, 1984, petitioner made a written demand on respondent
drawee Bank to credit her account with the money value of the eighty-two
(82) checks totalling P1,208.606.89 for having been wrongfully charged
against her account. Respondent drawee Bank refused to grant petitioner's
demand. On January 23, 1985, petitioner filed the complaint with the
Regional Trial Court.
This is not a suit by the party whose signature was forged on a check drawn
against the drawee bank. The payees are not parties to the case. Rather, it is
the drawer, whose signature is genuine, who instituted this action to recover
from the drawee bank the money value of eighty-two (82) checks paid out by
the drawee bank to holders of those checks where the indorsements of the
payees were forged. How and by whom the forgeries were committed are not
established on the record, but the respective payees admitted that they did
not receive those checks and therefore never indorsed the same. The
4 forgeries of his own name, a depositor is under a duty to set up an
applicable law is the Negotiable Instruments Law (heretofore referred to as
the NIL). Section 23 of the NIL provides:
When a signature is forged or made without the authority of
the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against
any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or
want of authority.
Under the aforecited provision, forgery is a real or absolute defense
by the party whose signature is forged. A party whose signature to
an instrument was forged was never a party and never gave his
consent to the contract which gave rise to the instrument. Since his
signature does not appear in the instrument, he cannot be held liable
thereon by anyone, not even by a holder in due course. Thus, if a
person's signature is forged as a maker of a promissory note, he
cannot be made to pay because he never made the promise to pay.
Or where a person's signature as a drawer of a check is forged, the
drawee bank cannot charge the amount thereof against the drawer's
account because he never gave the bank the order to pay. And said
section does not refer only to the forged signature of the maker of a
promissory note and of the drawer of a check. It covers also a forged
indorsement, i.e., the forged signature of the payee or indorsee of a
note or check. Since under said provision a forged signature is
"wholly inoperative", no one can gain title to the instrument through
such forged indorsement. Such an indorsement prevents any
subsequent party from acquiring any right as against any party
whose name appears prior to the forgery. Although rights may exist
between and among parties subsequent to the forged indorsement,
not one of them can acquire rights against parties prior to the forgery.
Such forged indorsement cuts off the rights of all subsequent parties
as against parties prior to the forgery. However, the law makes an
exception to these rules where a party is precluded from setting up
forgery as a defense.
As a matter of practical significance, problems arising from forged
indorsements of checks may generally be broken into two types of cases: (1)
where forgery was accomplished by a person not associated with the drawer
for example a mail robbery; and (2) where the indorsement was forged by
an agent of the drawer. This difference in situations would determine the
effect of the drawer's negligence with respect to forged indorsements. While
there is no duty resting on the depositor to look for forged indorsements on
his cancelled checks in contrast to a duty imposed upon him to look for
accounting system and a business procedure as are reasonably calculated to
prevent or render difficult the forgery of indorsements, particularly by the
depositor's own employees. And if the drawer (depositor) learns that a check
drawn by him has been paid under a forged indorsement, the drawer is under
5
duty promptly to report such fact to the drawee bank. For his negligence or
failure either to discover or to report promptly the fact of such forgery to the
drawee, the drawer loses his right against the drawee who has debited his
6
account under a forged indorsement. In other words, he is precluded from
using forgery as a basis for his claim for re-crediting of his account.
In the case at bar, petitioner admitted that the checks were filled up and
completed by her trusted employee, Alicia Galang, and were given to her for
her signature. Her signing the checks made the negotiable instrument
complete. Prior to signing the checks, there was no valid contract yet.
Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument to the payee for the purpose of giving effect
7
thereto. The first delivery of the instrument, complete in form, to the payee
8
who takes it as a holder, is called issuance of the instrument. Without the
initial delivery of the instrument from the drawer of the check to the payee,
there can be no valid and binding contract and no liability on the instrument.
Petitioner completed the checks by signing them as drawer and thereafter
authorized her employee Alicia Galang to deliver the eighty-two (82) checks
to their respective payees. Instead of issuing the checks to the payees as
named in the checks, Alicia Galang delivered them to the Chief Accountant
of the Buendia branch of the respondent drawee Bank, a certain Ernest L.
Boon. It was established that the signatures of the payees as first indorsers
were forged. The record fails to show the identity of the party who made the
forged signatures. The checks were then indorsed for the second time with
the names of Alfredo Y. Romero and Benito Lam, and were deposited in the
latter's accounts as earlier noted. The second indorsements were all genuine
signatures of the alleged holders. All the eighty-two (82) checks bearing the
forged indorsements of the payees and the genuine second indorsements of
Alfredo Y. Romero and Benito Lam were accepted for deposit at the Buendia
branch of respondent drawee Bank to the credit of their respective savings
accounts in the Buendia, Ongpin and Elcao branches of the same bank.
The total amount of P1,208,606.89, represented by eighty-two (82) checks,
were credited and paid out by respondent drawee Bank to Alfredo Y. Romero
and Benito Lam, and debited against petitioner's checking account No. 13-
00038-1, Caloocan branch.
As a rule, a drawee bank who has paid a check on which an indorsement
has been forged cannot charge the drawer's account for the amount of said
check. An exception to this rule is where the drawer is guilty of such
negligence which causes the bank to honor such a check or checks. If a
check is stolen from the payee, it is quite obvious that the drawer cannot
possibly discover the forged indorsement by mere examination of his
cancelled check. This accounts for the rule that although a depositor owes a
duty to his drawee bank to examine his cancelled checks for forgery of his
own signature, he has no similar duty as to forged indorsements. A different
situation arises where the indorsement was forged by an employee or agent
of the drawer, or done with the active participation of the latter. Most of the
cases involving forgery by an agent or employee deal with the payee's
indorsement. The drawer and the payee often time shave business relations
of long standing. The continued occurrence of business transactions of the
same nature provides the opportunity for the agent/employee to commit the
fraud after having developed familiarity with the signatures of the parties.
However, sooner or later, some leak will show on the drawer's books. It will
then be just a question of time until the fraud is discovered. This is specially
true when the agent perpetrates a series of forgeries as in the case at bar.
The negligence of a depositor which will prevent recovery of an unauthorized
payment is based on failure of the depositor to act as a prudent businessman
would under the circumstances. In the case at bar, the petitioner relied
implicitly upon the honesty and loyalty of her bookkeeper, and did not even
verify the accuracy of amounts of the checks she signed against the invoices
attached thereto. Furthermore, although she regularly received her bank
statements, she apparently did not carefully examine the same nor the check
stubs and the returned checks, and did not compare them with the same
invoices. Otherwise, she could have easily discovered the discrepancies
between the checks and the documents serving as bases for the checks.
With such discovery, the subsequent forgeries would not have been
accomplished. It was not until two years after the bookkeeper commenced
her fraudulent scheme that petitioner discovered that eighty-two (82) checks
were wrongfully charged to her account, at which she notified the respondent
drawee bank.
It is highly improbable that in a period of two years, not one of Petitioner's
suppliers complained of non-payment. Assuming that even one single
complaint had been made, petitioner would have been duty-bound, as far as
the respondent drawee Bank was concerned, to make an adequate
investigation on the matter. Had this been done, the discrepancies would
have been discovered, sooner or later. Petitioner's failure to make such
adequate inquiry constituted negligence which resulted in the bank's
honoring of the subsequent checks with forged indorsements. On the other
hand, since the record mentions nothing about such a complaint, the
possibility exists that the checks in question covered inexistent sales. But
even in such a case, considering the length of a period of two (2) years, it is
hard to believe that petitioner did not know or realize that she was paying
more than she should for the supplies she was actually getting. A depositor
may not sit idly by, after knowledge has come to her that her funds seem to
be disappearing or that there may be a leak in her business, and refrain from
taking the steps that a careful and prudent businessman would take in such
circumstances and if taken, would result in stopping the continuance of the
fraudulent scheme. If she fails to take steps, the facts may establish her
negligence, and in that event, she would be estopped from recovering from
9
the bank.
One thing is clear from the records that the petitioner failed to examine her
records with reasonable diligence whether before she signed the checks or
after receiving her bank statements. Had the petitioner examined her records
more carefully, particularly the invoice receipts, cancelled checks, check
book stubs, and had she compared the sums written as amounts payable in
the eighty-two (82) checks with the pertinent sales invoices, she would have
easily discovered that in some checks, the amounts did not tally with those
appearing in the sales invoices. Had she noticed these discrepancies, she
should not have signed those checks, and should have conducted an inquiry
as to the reason for the irregular entries. Likewise had petitioner been more
vigilant in going over her current account by taking careful note of the daily
reports made by respondent drawee Bank in her issued checks, or at least
made random scrutiny of cancelled checks returned by respondent drawee
Bank at the close of each month, she could have easily discovered the fraud
being perpetrated by Alicia Galang, and could have reported the matter to
the respondent drawee Bank. The respondent drawee Bank then could have
taken immediate steps to prevent further commission of such fraud. Thus,
petitioner's negligence was the proximate cause of her loss. And since it was
her negligence which caused the respondent drawee Bank to honor the
forged checks or prevented it from recovering the amount it had already paid
on the checks, petitioner cannot now complain should the bank refuse to
10
recredit her account with the amount of such checks. Under Section 23 of
the NIL, she is now precluded from using the forgery to prevent the bank's
debiting of her account.
The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong &
11
Shanghai Bank is not applicable to the case at bar because in said case,
the check was fraudulently taken and the signature of the payee was forged
not by an agent or employee of the drawer. The drawer was not found to be
negligent in the handling of its business affairs and the theft of the check by a
total stranger was not attributable to negligence of the drawer; neither was
the forging of the payee's indorsement due to the drawer's negligence. Since
the drawer was not negligent, the drawee was duty-bound to restore to the
drawer's account the amount theretofore paid under the check with a forged
payee's indorsement because the drawee did not pay as ordered by the
drawer.
Petitioner argues that respondent drawee Bank should not have honored the
checks because they were crossed checks. Issuing a crossed check imposes
no legal obligation on the drawee not to honor such a check. It is more of a
warning to the holder that the check cannot be presented to the drawee bank
for payment in cash. Instead, the check can only be deposited with the
payee's bank which in turn must present it for payment against the drawee
bank in the course of normal banking transactions between banks. The
crossed check cannot be presented for payment but it can only be deposited
and the drawee bank may only pay to another bank in the payee's or
indorser's account.
Petitioner likewise contends that banking rules prohibit the drawee bank from
having checks with more than one indorsement. The banking rule banning
acceptance of checks for deposit or cash payment with more than one
indorsement unless cleared by some bank officials does not invalidate the
instrument; neither does it invalidate the negotiation or transfer of the said
check. In effect, this rule destroys the negotiability of bills/checks by limiting
their negotiation by indorsement of only the payee. Under the NIL, the only
kind of indorsement which stops the further negotiation of an instrument is a
restrictive indorsement which prohibits the further negotiation thereof.
Sec. 36. When indorsement restrictive. An indorsement is
restrictive which either
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx
In this kind of restrictive indorsement, the prohibition to transfer or negotiate
must be written in express words at the back of the instrument, so that any
subsequent party may be forewarned that ceases to be negotiable. However,
the restrictive indorsee acquires the right to receive payment and bring any
action thereon as any indorser, but he can no longer transfer his rights as
such indorsee where the form of the indorsement does not authorize him to
12
do so.
Although the holder of a check cannot compel a drawee bank to honor it
because there is no privity between them, as far as the drawer-depositor is
concerned, such bank may not legally refuse to honor a negotiable bill of
exchange or a check drawn against it with more than one indorsement if
there is nothing irregular with the bill or check and the drawer has sufficient
funds. The drawee cannot be compelled to accept or pay the check by the
drawer or any holder because as a drawee, he incurs no liability on the check
unless he accepts it. But the drawee will make itself liable to a suit for
damages at the instance of the drawer for wrongful dishonor of the bill or
check.
Thus, it is clear that under the NIL, petitioner is precluded from raising the
defense of forgery by reason of her gross negligence. But under Section 196
of the NIL, any case not provided for in the Act shall be governed by the
provisions of existing legislation. Under the laws of quasi-delict, she cannot
point to the negligence of the respondent drawee Bank in the selection and
supervision of its employees as being the cause of the loss because
negligence is the proximate cause thereof and under Article 2179 of the Civil
Code, she may not be awarded damages. However, under Article 1170 of
the same Code the respondent drawee Bank may be held liable for
damages. The article provides
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.
There is no question that there is a contractual relation between petitioner as
depositor (obligee) and the respondent drawee bank as the obligor. In the
performance of its obligation, the drawee bank is bound by its internal
banking rules and regulations which form part of any contract it enters into
with any of its depositors. When it violated its internal rules that second
endorsements are not to be accepted without the approval of its branch
managers and it did accept the same upon the mere approval of Boon, a
chief accountant, it contravened the tenor of its obligation at the very least, if
it were not actually guilty of fraud or negligence.
Furthermore, the fact that the respondent drawee Bank did not discover the
irregularity with respect to the acceptance of checks with second
indorsement for deposit even without the approval of the branch manager
despite periodic inspection conducted by a team of auditors from the main
office constitutes negligence on the part of the bank in carrying out its
obligations to its depositors. Article 1173 provides
The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstance of the
persons, of the time and of the place. . . .
We hold that banking business is so impressed with public interest where the
trust and confidence of the public in general is of paramount importance such
that the appropriate standard of diligence must be a high degree of diligence,
if not the utmost diligence. Surely, respondent drawee Bank cannot claim it
exercised such a degree of diligence that is required of it. There is no way
We can allow it now to escape liability for such negligence. Its liability as
obligor is not merely vicarious but primary wherein the defense of exercise of
due diligence in the selection and supervision of its employees is of no
moment.
Premises considered, respondent drawee Bank is adjudged liable to share
the loss with the petitioner on a fifty-fifty ratio in accordance with Article 172
which provides:
Responsibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability
may be regulated by the courts according to the
circumstances.
With the foregoing provisions of the Civil Code being relied upon, it is being
made clear that the decision to hold the drawee bank liable is based on law
and substantial justice and not on mere equity. And although the case was
brought before the court not on breach of contractual obligations, the courts
are not precluded from applying to the circumstances of the case the laws
pertinent thereto. Thus, the fact that petitioner's negligence was found to be
the proximate cause of her loss does not preclude her from recovering
damages. The reason why the decision dealt on a discussion on proximate
cause is due to the error pointed out by petitioner as allegedly committed by
the respondent court. And in breaches of contract under Article 1173, due
diligence on the part of the defendant is not a defense.
PREMISES CONSIDERED, the case is hereby ordered REMANDED to the
trial court for the reception of evidence to determine the exact amount of loss
suffered by the petitioner, considering that she partly benefited from the
issuance of the questioned checks since the obligation for which she issued
them were apparently extinguished, such that only the excess amount over
and above the total of these actual obligations must be considered as loss of
which one half must be paid by respondent drawee bank to herein petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-56169 June 26, 1992
TRAVEL-ON, INC., petitioner,
vs.
COURT OF APPEALS and ARTURO S. MIRANDA, respondents.
RESOLUTION
FELICIANO, J.:
Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline
tickets on commission basis for and in behalf of different airline companies.
Private respondent Arturo S. Miranda had a revolving credit line with
petitioner. He procured tickets from petitioner on behalf of airline passengers
and derived commissions therefrom.
On 14 June 1972, Travel-On filed suit before the Court of First Instance
("CFI") of Manila to collect on six (6) checks issued by private respondent
with a total face amount of P115,000.00. The complaint, with a prayer for the
issuance of a writ of preliminary attachment and attorney's fees, averred that
from 5 August 1969 to 16 January 1970, petitioner sold and delivered various
airline tickets to respondent at a total price of P278,201.57; that to settle said
account, private respondent paid various amounts in cash and in kind, and
thereafter issued six (6) postdated checks amounting to P115,000.00 which
were all dishonored by the drawee banks. Travel-On further alleged that in
March 1972, private respondent made another payment of P10,000.00
reducing his indebtedness to P105,000.00. The writ of attachment was
granted by the court a quo.
In his answer, private respondent admitted having had transactions with
Travel-On during the period stipulated in the complaint. Private respondent,
however, claimed that he had already fully paid and even overpaid his
obligations and that refunds were in fact due to him. He argued that he had
issued the postdated checks for purposes of accommodation, as he had in
the past accorded similar favors to petitioner. During the proceedings, private
respondent contested several tickets alleged to have been erroneously
debited to his account. He claimed reimbursement of his alleged over
payments, plus litigation expenses, and exemplary and moral damages by
reason of the allegedly improper attachment of his properties.
In support of his theory that the checks were issued for accommodation,
private respondent testified that he bad issued the checks in the name of
Travel-On in order that its General Manager, Elita Montilla, could show to
Travel-On's Board of Directors that the accounts receivable of the company
were still good. He further stated that Elita Montilla tried to encash the same,
but that these were dishonored and were subsequently returned to him after
the accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the
"accommodation" extended to Travel-On by private respondent related to
situations where one or more of its passengers needed money in Hongkong,
and upon request of Travel-On respondent would contact his friends in
Hongkong to advance Hongkong money to the passenger. The passenger
then paid Travel-On upon his return to Manila and which payment would be
credited by Travel-On to respondent's running account with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to
pay private respondent the amount of P8,894.91 representing net
overpayments by private respondent, moral damages of P10,000.00 for the
wrongful issuance of the writ of attachment and for the filing of this case,
P5,000.00 for attorney's fees and the costs of the suit.
The trial court ruled that private respondent's indebtedness to petitioner was
not satisfactorily established and that the postdated checks were issued not
for the purpose of encashment to pay his indebtedness but to accommodate
the General Manager of Travel-On to enable her to show to the Board of
Directors that Travel-On was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the
trial court, which in fact then increased the award of moral damages to
P50,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial court, but
reduced the award of moral damages to P20,000.00, with interest at the legal
rate from the date of the filing of the Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeal's' decision,
without success.
In the instant Petition for Review, it is urged that the postdated checks
are per se evidence of liability on the part of private respondent. Petitioner
further argues that even assuming that the checks were for accommodation,
private respondent is still liable thereunder considering that petitioner is a
holder for value.
Both the trial and appellate courts had rejected the checks as evidence of
indebtedness on the ground that the various statements of account prepared
by petitioner did not show that Private respondent had an outstanding
balance of P115,000.00 which is the total amount of the checks he issued. It
was pointed out that while the various exhibits of petitioner showed various
accountabilities of private respondent, they did not satisfactorily establish the
amount of the outstanding indebtedness of private respondent. The appellate
court made much of the fact that the figures representing private
respondent's unpaid accounts found in the "Schedule of Outstanding
Account" dated 31 January 1970 did not tally with the figures found in the
statement which showed private respondent's transactions with petitioner for
the years 1969 and 1970; that there was no satisfactory explanation as to
why the total outstanding amount of P278,432.74 was still used as basis in
the accounting of 7 April 1972 considering that according to the table of
transactions for the year 1969 and 1970, the total unpaid account of private
respondent amounted to P239,794.57.
We have, however, examined the record and it shows that the 7 April 1972
Statement of Account had simply not been updated; that if we use as basis
the figure as of 31 January 1970 which is P278,432.74 and from it deduct
P38,638.17 which represents some of the payments subsequently made by
private respondent, the figure P239,794.57 will be obtained.
Also, the fact alone that the various statements of account had variances in
figures, simply did not mean that private respondent had no more financial
obligations to petitioner. It must be stressed that private respondent's
account with petitioner was a running or open one, which explains the
varying figures in each of the statements rendered as of a given date.
The appellate court erred in considering only the statements of account in
determining whether private respondent was indebted to petitioner under the
checks. By doing so, it failed to give due importance to the most telling piece
of evidence of private respondent's indebtedness the checks themselves
which he had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the
checks are the all important evidence of petitioner's case; that these checks
clearly established private respondent's indebtedness to petitioner; that
private respondent was liable thereunder.
It is important to stress that a check which is regular on its face is
deemed prima facie to have been issued for a valuable consideration and
every person whose signature appears thereon is deemed to have become a
1 must repay to the accommodating party, unless of course the
party thereto for value. Thus, the mere introduction of the instrument sued
on in evidence prima facie entitles the plaintiff to recovery. Further, the rule is
quite settled that a negotiable instrument is presumed to have been given or
indorsed for a sufficient consideration unless otherwise contradicted and
overcome by other competent evidence.
2 is not the accommodated party. Having issued or indorsed the check,
In the case at bar, the Court of Appeals, contrary to these established rules,
placed the burden of proving the existence of valuable consideration upon
petitioner. This cannot be countenanced; it was up to private respondent to
show that he had indeed issued the checks without sufficient consideration.
The Court considers that Private respondent was unable to rebut
satisfactorily this legal presumption. It must also be noted that those checks
were issued immediately after a letter demanding payment had been sent to
private respondent by petitioner Travel-On.
The fact that all the checks issued by private respondent to petitioner were
presented for payment by the latter would lead to no other conclusion than
that these checks were intended for encashment. There is nothing in the
checks themselves (or in any other document for that matter) that states
otherwise.
We are unable to accept the Court of Appeals' conclusion that the checks
here involved were issued for "accommodation" and that accordingly private
respondent maker of those checks was not liable thereon to petitioner payee
of those checks.
In the first place, while the Negotiable Instruments Law does refer to
accommodation transactions, no such transaction was here shown. Section
29 of the Negotiable Instruments Law provides as follows:
Sec. 29. Liability of accommodation party. An
accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument
to a holder for value, notwithstanding such holder, at the time
of taking the instrument, knew him to be only an
accommodation party.
In accommodation transactions recognized by the Negotiable
Instruments Law, an accommodating party lends his credit to the
accommodated party, by issuing or indorsing a check which is held
by a payee or indorsee as a holder in due course, who gave full
value therefor to the accommodated party. The latter, in other words,
receives or realizes full value which the accommodated party then
accommodating party intended to make a donation to the
accommodated party. But the accommodating party is bound on the
check to the holder in due course who is necessarily a third party and
the accommodating party has warranted to the holder in due course
3
that he will pay the same according to its tenor.
In the case at bar, Travel-On was payee of all six (6) checks, it presented
these checks for payment at the drawee bank but the checks
bounced. Travel-On obviously was not an accommodated party; it realized
no value on the checks which bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was
4
a holder in due course, that the checks were supported by valuable
5
consideration. Private respondent maker of the checks did not successfully
rebut these presumptions. The only evidence aliunde that private respondent
offered was his own self-serving uncorroborated testimony. He claimed that
he had issued the checks to Travel-On as payee to "accommodate" its
General Manager who allegedly wished to show those checks to the Board of
Directors of Travel-On to "prove" that Travel-On's account receivables were
somehow "still good." It will be seen that this claim was in fact a claim that
the checks were merely simulated, that private respondent did not intend to
bind himself thereon. Only evidence of the clearest and most convincing kind
6
will suffice for that purpose; no such evidence was submitted by private
respondent. The latter's explanation was denied by Travel-On's General
Manager; that explanation, in any case, appears merely contrived and quite
hollow to us. Upon the other hand, the "accommodation" or assistance
extended to Travel-On's passengers abroad as testified by petitioner's
General Manager involved, not the accommodation transactions recognized
by the NIL, but rather the circumvention of then existing foreign exchange
regulations by passengers booked by Travel-On, which incidentally involved
receipt of full consideration by private respondent.
Thus, we believe and so hold that private respondent must be held liable on
the six (6) checks here involved. Those checks in themselves constituted
evidence of indebtedness of private respondent, evidence not successfully
overturned or rebutted by private respondent.
Since the checks constitute the best evidence of private respondent's liability
to petitioner Travel-On, the amount of such liability is the face amount of the
checks, reduced only by the P10,000.00 which Travel-On admitted in its
complaint to have been paid by private respondent sometime in March 1992.
The award of moral damages to Private respondent must be set aside, for
the reason that Petitioner's application for the writ of attachment rested on
sufficient basis and no bad faith was shown on the part of Travel-On. If
anyone was in bad faith, it was private respondent who issued bad checks
and then pretended to have "accommodated" petitioner's General Manager
by assisting her in a supposed scheme to deceive petitioner's Board of
Directors and to misrepresent Travel-On's financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition
for Review on Certiorari and to REVERSE and SET ASIDE the Decision
dated 22 October 1980 and the Resolution of 23 January 1981 of the Court
of Appeals, as well as the Decision dated 31 January 1975 of the trial court,
and to enter a new decision requiring private respondent Arturo S. Miranda to
pay to petitioner Travel-On the amount of P105,000.00 with legal interest
thereon from 14 June 1972, plus ten percent (10%) of the total amount due
as attorney's fees. Costs against Private respondent.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31831 April 28, 1983
JESUS PINEDA, petitioner,
vs.
JOSE V. DELA RAMA and COURT OF APPEALS, respondents.
Rosauro Alvarez for petitioner.
Arturo Zialcita for respondents.
GUTIERREZ, JR., J.:
This is a petition to review on certiorari a decision of the Court of Appeals
which declared petitioner Jesus Pineda liable on his promissory note for
P9,300.00 and directed him to pay attorney's fees of P400.00 to private
respondent, Jose V. dela Rama.
Dela Rama is a practising lawyer whose services were retained by Pineda for
the purpose of making representations with the chairman and general
manager of the National Rice and Corn Administration (NARIC) to stop or
delay the institution of criminal charges against Pineda who allegedly
misappropriated 11,000 cavans of palay deposited at his ricemill in
Concepcion, Tarlac. The NARIC general manager was allegedly an intimate
friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a
big hacienda in Mindoro and, therefore, borrowed the P9,300.00 subject of
his complaint for collection. In addition to filling the suit to collect the loan
evidenced by the matured promissory note, Dela Rama also sued to collect
P5,000.00 attorney's fees for legal services rendered as Pineda's counsel in
the case being investigated by NARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor
of petitioner Pineda. The court believed the evidence of Pineda that he
signed the promissory note for P9,300.00 only because Dela Rama had told
him that this amount had already been advanced to grease the palms of the
'Chairman and General Manager of NARIC in order to save Pineda from
criminal prosecution.
The court stated:
xxx xxx xxx
... The Court, after hearing the testimonies of the witness
and examining the exhibits in question, finds that Exhibit A
proves that the defendant himself did not receive the amount
stated therein, because according to said exhibit that amount
was advanced by the plaintiff in connection with the
defendant's case, entirely contradicting the testimony of the
plaintiff himself, who stated in open Court that he gave the
amount in cash in two installments to the defendant. The
 Court is more inclined to believe the contents of Exhibit A,
than the testimony of the plaintiff. On this particular matter,
the defendant has established that the plaintiff made him
believe that he was giving money to the authorities of the
NARIC to grease their palms to suspend the prosecution of
the defendant, but the defendant, upon inquiry, found out
that none of the authorities has received that amount, and
there was no case that was ever contemplated to be filed
against him. It clearly follows, therefore, that the amount
involved in this Exhibit A was imaginary. It was given to the
defendant, not to somebody else. The purpose for which the
amount was intended was illegal.
However, the Court believes that plaintiff was able to get
from the defendant the amount of P3,000.00 on October 7,
as shown by the check issued by the defendant, Exhibit 2,
and the letter, Exhibit 7, was antedated October 6, as per
plaintiff's wishes to show that defendant was indebted for
P3,000.00 when, as a matter of fact, such amount was
produced in order to grease the palms of the NARIC officials
for withholding an imaginary criminal case. Such amount
was never given to such officials nor was there any
contemplated case against the defendant. The purpose for
which such amount was intended was indeed illegal.
The trial court rendered judgment as follows:
WHEREFORE, the Court finds by a preponderance of
evidence that the amount of P9,300.00 evidenced by Exhibit
A was not received by the defendant, nor given to any party
for the defendant's benefit.Consequently, the plaintiff has no
right to recover said amount. The amount of P3,000.00 was
given by the defendant to grease the palms of the NARIC
officials. The purpose was illegal, null and void. Besides, it
was not given at all, nor was it true that there was a
contemplated case against the defendant. Such amount
should be returned to the defendant. The services rendered
by the plaintiff to the defendant is worth only P400.00, taking
into consideration that the plaintiff received an air-conditioner
and six sacks of rice. The court orders that the plaintiff
should return to the defendant the amount of P3,000.00,
minus P400.00 plus costs.
The Court of Appeals reversed the decision of the trial court on a finding that
Pineda, being a person of more than average intelligence, astute in business,
and wise in the ways of men would not "sign any document or paper with his
name unless he was fully aware of the contents and important thereof,
knowing as he must have known that the language and practices of business
and of trade and commerce call to account every careless or thoughtless
word or deed."
The appellate court stated:
No rule is more fundamental and by men of honor and
goodwill more dearly cherished, than that which declares
that obligations arising from contracts have the force of law
between the contracting parties and should be complied with
in good faith. Corollary to and in furtherance of this principle,
Section 24 of the Negotiable instruments Law (Act No. 2031)
explicitly provides that every negotiable instrument is
deemed prima facie to have been issued for a valuable
consideration, and every person whose signature appears
thereon to have become a party thereto for value.
We find this petition meritorious.
The Court of Appeals relied on the efficacy of the promissory note for its
decision, citing Section 24 of the Negotiable Instruments Law which reads:
SECTION 24. Presumption of consideration.Every
negotiable instrument is deemed prima facie to have been
issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto
for value.
The Court of Appeals' reliance on the above provision is misplaced. The
presumption that a negotiable instrument is issued for a valuable
consideration is only puma facie. It can be rebutted by proof to the contrary.
(Bank of the Philippine Islands v. Laguna Coconut Oil Co. et al., 48 Phil. 5).
According to Dela Rama, he loaned the P9,300.00 to Pineda in two
installments on two occasions five days apart - first loan for P5,000.00 and
second loan for P4,300.00, both given in cash. He also alleged that
previously he loaned P3,000.00 but Pineda paid this other loan two days
afterward.
These allegations of Dela Rama are belied by the promissory note itself. The
second sentence of the note reads - "This represents the cash advances
made by him in connection with my case for which he is my attorney-in- law."
The terms of the note sustain the version of Pineda that he signed the
P9,300.00 promissory note because he believed Dela Rama's story that
these amounts had already been advanced by Dela Rama and given as gifts
for NARIC officials.
Dela Rama himself admits that Pineda engaged his services to delay by one
month the filing of the NARIC case against Pineda while the latter was trying
to work out an amicable settlement. There is no question that Dela Rama
was indeed a close friend of then NARIC Administrator Jose Rodriquez
having worked with him in the Philippine consulate at Hongkong and that
Dela Rama made what he calls "proper representations" with Rodriguez and
with other NARIC officials in connection with the investigation of the criminal
charges against Pineda.
We agree with the trial court which believed Pineda. It is indeed unusual for a
lawyer to lend money to his client whom he had known for only three months,
with no security for the loan and on interest. Dela Rama testified that he did
not even know what Pineda was going to do with the money he borrowed
from him. The petitioner had just purchased a hacienda in Mindoro for
P210,000.00, owned sugar and rice lands in Tarlac of around 800 hectares,
and had P60,000.00 deposits in three banks when he executed the note. It is
more logical to believe that Pineda would not borrow P5,000.00 and
P4,300.00 five days apart from a man whom he calls a "fixer" and whom he
had known for only three months.
There is no dispute that an air-conditioning unit valued at P1,250.00 was
purchased by Pineda's son and given to Dela Rama although the latter
claims he paid P1,250.00 for the unit when he received it. Pineda, however,
alleged that he gave the air-conditioning unit because Dela Rama told him
that Dr. Rodriguez was asking for one air-conditioning machine of 1.5
horsepower for the latter's NARIC office. Pineda further testified that six
cavans of first class rice also intended for the NARIC Chairman and General
Manager, together with the airconditioning unit, never reached Dr. Rodriguez
but were kept by the lawyer.
xxx xxx xxx
Art. 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following
rules shall be observed:
(1) When the fault is on the part of both contracting parties,
neither may recover what he has given by virtue of the
contract, or demand the performance of the other's
undertaking.
xxx xxx xxx
Whether or not the supposed cash advances reached their destination is of
no moment. The consideration for the promissory note - to influence public
officers in the performance of their duties - is contrary to law and public
policy. The promissory note is void ab initio and no cause of action for the
collection cases can arise from it.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The
complaint and the counterclaim in Civil Case No. 45762 are both
DISMISSED.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ.,
concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

Considering the foregoing, we agree with the trial court that the promissory
note was executed for an illegal consideration. Articles 1409 and 1412 of the
Civil Code in part, provide:
G.R. No. 97753 August 10, 1992
Art. 1409. The following contracts are inexistent and void
CALTEX (PHILIPPINES), INC., petitioner,
from the beginning:
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST
(1) Those whose cause, object or purpose is contrary to law, COMPANY, respondents.
morals, good customs, public order and public policy;
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the
decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV
1 4. On March 18, 1982, Angel dela Cruz executed and
No. 23615 affirming with modifications, the earlier decision of the Regional
2 delivered to defendant bank the required Affidavit of Loss
Trial Court of Manila, Branch XLII, which dismissed the complaint filed
therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and
adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial banking
institution, through its Sucat Branch issued 280 certificates of
time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount of
P1,120,000.00, as follows: (Joint Partial Stipulation of Facts
and Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
its decision to pre-terminate the same.
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time
(CTDs) to herein plaintiff in connection with his purchased of
fuel products from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr.
Timoteo Tiangco, the Sucat Branch Manger, that he lost all
the certificates of time deposit in dispute. Mr. Tiangco
advised said depositor to execute and submit a notarized
Affidavit of Loss, as required by defendant bank's procedure,
if he desired replacement of said lost CTDs (TSN, February
9, 1987, pp. 48-50).
(Defendant's Exhibit 281). On the basis of said affidavit of
loss, 280 replacement CTDs were issued in favor of said
depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and
obtained a loan from defendant bank in the amount of Eight
Hundred Seventy Five Thousand Pesos (P875,000.00). On
the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated,
among others, that he (de la Cruz) surrenders to defendant
bank "full control of the indicated time deposits from and
after date" of the assignment and further authorizes said
bank to pre-terminate, set-off and "apply the said time
deposits to the payment of whatever amount or amounts
may be due" on the loan upon its maturity (TSN, February 9,
1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit
Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for verification
the CTDs declared lost by Angel dela Cruz alleging that the
same were delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter
(Defendant's Exhibit 563) from herein plaintiff formally
informing it of its possession of the CTDs in question and of
8. On December 8, 1982, plaintiff was requested by herein
defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela
Cruz" as well as "the details of Mr. Angel dela Cruz"
 obligation against which plaintiff proposed to apply the time
deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein
defendant.
10. Accordingly, defendant bank rejected the plaintiff's
demand and claim for payment of the value of the CTDs in a
letter dated February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the
defendant bank matured and fell due and on August 5, 1983,
the latter set-off and applied the time deposits in question to
the payment of the matured loan (TSN, February 9, 1987,
pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant
complaint, praying that defendant bank be ordered to pay it
the aggregate value of the certificates of time deposit of
P1,120,000.00 plus accrued interest and compounded
interest therein at 16% per annum, moral and exemplary
damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing
3
the instant complaint.
On appeal, as earlier stated, respondent court affirmed the lower court's
dismissal of the complaint, hence this petition wherein petitioner faults
respondent court in ruling (1) that the subject certificates of deposit are non-
negotiable despite being clearly negotiable instruments; (2) that petitioner did
not become a holder in due course of the said certificates of deposit; and (3)
in disregarding the pertinent provisions of the Code of Commerce relating to
4
lost instruments payable to bearer.
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to
provide a better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982,
19____
This is to Certify that B E A R E R has
deposited in this Bank the sum of PESOS:
FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00
CTS Pesos, Philippine Currency, repayable
to said depositor 731 days. after date, upon
presentation and surrender of this certificate,
with interest at the rate of 16% per cent per
annum.
(Sgd. Illegible) (Sgd. Illegible)
5
AUTHORIZED SIGNATURES
Respondent court ruled that the CTDs in question are non-negotiable
instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears
rather boldly in the CTDs issued, it is important to note that
after the word "BEARER" stamped on the space provided
supposedly for the name of the depositor, the words "has
deposited" a certain amount follows. The document further
provides that the amount deposited shall be "repayable to
said depositor" on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they
are payable, not to whoever purports to be the "bearer" but
only to the specified person indicated therein, the depositor.
In effect, the appellee bank acknowledges its depositor
Angel dela Cruz as the person who made the deposit and
further engages itself to pay said depositor the amount
6
indicated thereon at the stipulated date.
We disagree with these findings and conclusions, and hereby hold that the
CTDs in question are negotiable instruments. Section 1 Act No. 2031,
otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
 (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 CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite (d) set
forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch
Manager way back in 1982, testified in open court that the depositor reffered
to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying
that per books of the bank, the depositor
referred (sic) in these certificates states that
it was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record
to show that Angel dela Cruz was the one
who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company,
Mr. Witness?
witness:
a None, your Honor.
7 bank is concerned," but obviously other parties not privy to the transaction
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor
identified in all of these certificates of time
deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of
an instrument is determined from the writing, that is, from the face of the
9
instrument itself. In the construction of a bill or note, the intention of the
10
parties is to control, if it can be legally ascertained. While the writing may
be read in the light of surrounding circumstances in order to more perfectly
understand the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in its stead. The
duty of the court in such case is to ascertain, not what the parties may have
secretly intended as contradistinguished from what their words express, but
what is the meaning of the words they have used. What the parties meant
11
must be determined by what they said.
Contrary to what respondent court held, the CTDs are negotiable
instruments. The documents provide that the amounts deposited shall be
repayable to the depositor. And who, according to the document, is the
depositor? It is the "bearer." The documents do not say that the depositor is
Angel de la Cruz and that the amounts deposited are repayable specifically
to him. Rather, the amounts are to be repayable to the bearer of the
documents or, for that matter, whosoever may be the bearer at the time of
presentment.
If it was really the intention of respondent bank to pay the amount to Angel
de la Cruz only, it could have with facility so expressed that fact in clear and
categorical terms in the documents, instead of having the word "BEARER"
stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid
witness merely declared that Angel de la Cruz is the depositor "insofar as the
between them would not be in a position to know that the depositor is not the
bearer stated in the CTDs. Hence, the situation would require any party
dealing with the CTDs to go behind the plain import of what is written thereon
to unravel the agreement of the parties thereto through facts aliunde. This
need for resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the elementary
rule that the interpretation of obscure words or stipulations in a contract shall
12
not favor the party who caused the obscurity.
prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully
19
suppressed would be adverse if produced.
Under the foregoing circumstances, this disquisition in Intergrated Realty
20
Corporation, et al. vs. Philippine National Bank, et al. is apropos:

The next query is whether petitioner can rightfully recover on the CTDs. This . . . Adverting again to the Court's pronouncements in Lopez,
time, the answer is in the negative. The records reveal that Angel de la Cruz, supra, we quote therefrom:
whom petitioner chose not to implead in this suit for reasons of its own,
delivered the CTDs amounting to P1,120,000.00 to petitioner without
The character of the transaction between
informing respondent bank thereof at any time. Unfortunately for petitioner, the parties is to be determined by their
although the CTDs are bearer instruments, a valid negotiation thereof for the intention, regardless of what language was
true purpose and agreement between it and De la Cruz, as ultimately
used or what the form of the transfer was. If
ascertained, requires both delivery and indorsement. For, although petitioner
it was intended to secure the payment of
seeks to deflect this fact, the CTDs were in reality delivered to it as a security
money, it must be construed as a pledge;
for De la Cruz' purchases of its fuel products. Any doubt as to whether the
but if there was some other intention, it is
CTDs were delivered as payment for the fuel products or as a security has not a pledge. However, even though a
been dissipated and resolved in favor of the latter by petitioner's own transfer, if regarded by itself, appears to
authorized and responsible representative himself.
have been absolute, its object and character
might still be qualified and explained by
In a letter dated November 26, 1982 addressed to respondent Security Bank, contemporaneous writing declaring it to
J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of have been a deposit of the property as
deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his collateral security. It has been said that a
13
purchases of fuel products" (Emphasis ours.) This admission is conclusive transfer of property by the debtor to a
upon petitioner, its protestations notwithstanding. Under the doctrine of creditor, even if sufficient on its face to make
estoppel, an admission or representation is rendered conclusive upon the an absolute conveyance, should be treated
person making it, and cannot be denied or disproved as against the person as a pledge if the debt continues in
14
relying thereon. A party may not go back on his own acts and inexistence and is not discharged by the
15
representations to the prejudice of the other party who relied upon them. In transfer, and that accordingly the use of the
the law of evidence, whenever a party has, by his own declaration, act, or terms ordinarily importing conveyance of
omission, intentionally and deliberately led another to believe a particular absolute ownership will not be given that
thing true, and to act upon such belief, he cannot, in any litigation arising out effect in such a transaction if they are also
16
of such declaration, act, or omission, be permitted to falsify it. commonly used in pledges and mortgages
and therefore do not unqualifiedly indicate a
If it were true that the CTDs were delivered as payment and not as security, transfer of absolute ownership, in the
petitioner's credit manager could have easily said so, instead of using the absence of clear and unambiguous
words "to guarantee" in the letter aforequoted. Besides, when respondent language or other circumstances excluding
bank, as defendant in the court below, moved for a bill of particularity an intent to pledge.
17
therein praying, among others, that petitioner, as plaintiff, be required to
aver with sufficient definiteness or particularity (a) the due date or dates Petitioner's insistence that the CTDs were negotiated to it begs the question.
of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and Under the Negotiable Instruments Law, an instrument is negotiated when it is
(b) whether or not it issued a receipt showing that the CTDs were delivered transferred from one person to another in such a manner as to constitute the
to it by De la Cruz as payment of the latter's alleged indebtedness to it, 21
transferee the holder thereof, and a holder may be the payee or indorsee
18 22
plaintiff corporation opposed the motion. Had it produced the receipt of a bill or note, who is in possession of it, or the bearer thereof. In the
present case, however, there was no negotiation in the sense of a transfer of
the legal title to the CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz (and
we even disregard the fact that the amount involved was not disclosed) could
at the most constitute petitioner only as a holder for value by reason of his
lien. Accordingly, a negotiation for such purpose cannot be effected by mere
delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the
principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the
instrument arising from contract, he is deemed a holder for value to the
23
extent of his lien. As such holder of collateral security, he would be a
pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the
24
Civil Code provisions on pledge of incorporeal rights, which inceptively
provide:
Art. 2095. Incorporeal rights, evidenced by negotiable
instruments, . . . may also be pledged. The instrument
proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons
if a description of the thing pledged and the date of the
pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the
factual findings of respondent court quoted at the start of this opinion show
that petitioner failed to produce any document evidencing any contract of
pledge or guarantee agreement between it and Angel de la
25
Cruz. Consequently, the mere delivery of the CTDs did not legally vest in
petitioner any right effective against and binding upon respondent bank. The
requirement under Article 2096 aforementioned is not a mere rule of
adjective law prescribing the mode whereby proof may be made of the date
of a pledge contract, but a rule of substantive law prescribing a condition
without which the execution of a pledge contract cannot affect third persons
adversely.
26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in
favor of respondent bank was embodied in a public instrument. With
27
regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall
produce no effect as against third persons, unless it appears
in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real
property.
Respondent bank duly complied with this statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither
proved the amount of its credit or the extent of its lien nor the execution of
any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter
has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the
question of whether or not private respondent observed the requirements of
the law in the case of lost negotiable instruments and the issuance of
replacement certificates therefor, on the ground that petitioner failed to raised
28
that issue in the lower court.
On this matter, we uphold respondent court's finding that the aspect of
alleged negligence of private respondent was not included in the stipulation
of the parties and in the statement of issues submitted by them to the trial
29
court. The issues agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable
instruments.
2. Whether or not defendant could legally apply the amount
covered by the CTDs against the depositor's loan by virtue of
the assignment (Annex "C").
3. Whether or not there was legal compensation or set off
involving the amount covered by the CTDs and the
depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to
preterminate the CTDs before the maturity date provided
therein.
5. Whether or not plaintiff is entitled to the proceeds of the
CTDs.
6. Whether or not the parties can recover damages,
attorney's fees and litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some
doctrinal authorities, the foregoing enumeration does not include the issue of
negligence on the part of respondent bank. An issue raised for the first time
on appeal and not raised timely in the proceedings in the lower court is
30
barred by estoppel. Questions raised on appeal must be within the issues
framed by the parties and, consequently, issues not raised in the trial court
31
cannot be raised for the first time on appeal.
Pre-trial is primarily intended to make certain that all issues necessary to the
disposition of a case are properly raised. Thus, to obviate the element of
surprise, parties are expected to disclose at a pre-trial conference all issues
of law and fact which they intend to raise at the trial, except such as may
involve privileged or impeaching matters. The determination of issues at a
32
pre-trial conference bars the consideration of other questions on appeal.
To accept petitioner's suggestion that respondent bank's supposed
negligence may be considered encompassed by the issues on its right to
preterminate and receive the proceeds of the CTDs would be tantamount to
saying that petitioner could raise on appeal any issue. We agree with private
respondent that the broad ultimate issue of petitioner's entitlement to the
proceeds of the questioned certificates can be premised on a multitude of
other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if
accepted, would render a pre-trial delimitation of issues a useless
33
exercise.
judge or court of competent jurisdiction for the issuance of a duplicate of the
lost instrument. Where the provision reads "may," this word shows that it is
34
not mandatory but discretional. The word "may" is usually permissive, not
35
mandatory. It is an auxiliary verb indicating liberty, opportunity, permission
36
and possibility.
37
Moreover, as correctly analyzed by private respondent, Articles 548 to 558
of the Code of Commerce, on which petitioner seeks to anchor respondent
bank's supposed negligence, merely established, on the one hand, a right of
recourse in favor of a dispossessed owner or holder of a bearer instrument
so that he may obtain a duplicate of the same, and, on the other, an option in
favor of the party liable thereon who, for some valid ground, may elect to
refuse to issue a replacement of the instrument. Significantly, none of the
provisions cited by petitioner categorically restricts or prohibits the issuance a
duplicate or replacement instrument sans compliance with the procedure
outlined therein, and none establishes a mandatory precedent requirement
therefor.
WHEREFORE, on the modified premises above set forth, the petition is
DENIED and the appealed decision is hereby AFFIRMED.
SO ORDERED.

Still, even assuming arguendo that said issue of negligence was raised in the
court below, petitioner still cannot have the odds in its favor. A close scrutiny
of the provisions of the Code of Commerce laying down the rules to be
followed in case of lost instruments payable to bearer, which it invokes, will
reveal that said provisions, even assuming their applicability to the CTDs in
the case at bar, are merely permissive and not mandatory. The very first
article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause

it may be, may apply to the judge or court of competent
jurisdiction, asking that the principal, interest or dividends
due or about to become due, be not paid a third person, as
well as in order to prevent the ownership of the instrument
that a duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory
but discretionary on the part of the "dispossessed owner" to apply to the