CESAR V. AREZA v. EXPRESS SAVINGS BANK, GR No.

176697, 2014-09-10

Facts:

Petition for Review on Certiorari under Rule 45

Petitioners Cesar V. Areza and Lolita B. Areza maintained two bank deposits with respondent
Express Savings Bank's Biñan branch

They were engaged in the business of "buy and sell" of brand new and second-hand motor
vehicles. On 2 May 2000, they received an order from a certain Gerry Mambuay (Mambuay) for
the purchase of a second-hand Mitsubishi Pajero and a brand-new Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO)
checks payable to different payees and drawn against the Philippine Veterans Bank (drawee), each
valued at Two Hundred Thousand Pesos (P200,000.00) for a total of One Million Eight

Hundred Thousand Pesos (P1,800,000.00).

About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch
manager of respondent Express Savings Bank (the Bank) was present during the transaction and
immediately offered the services of the Bank for the processing and eventual crediting of the...
said checks to petitioners' account.

petitioners deposited the said checks in their savings account with the Bank. The Bank, in turn,
deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan, Laguna. Equitable-
PCI Bank presented the checks to the drawee, the Philippine

Veterans Bank, which honored the checks.

Potenciano informed petitioners that the checks they deposited with the Bank were honored. He
allegedly warned petitioners that the clearing of the checks pertained only to the availability of
funds and did not mean that the checks were not infirmed.

Sometime in July 2000, the subject checks were returned by PVAO to the drawee on the ground
that the amount on the face of the checks was altered from the original amount of P4,000.00 to
P200,000.00.

the Bank was informed by Equitable-PCI Bank that the drawee dishonored the checks on the
ground of material alterations.

The Bank insisted that they informed petitioners of said development in August 2000 by
furnishing them copies of the documents given by its depositary bank.[7] On the other hand,
petitioners maintained that the Bank never informed them of these... developments.
On 9 March 2001, petitioners issued a check in the amount of P500,000.00. Said check was
dishonored by the Bank for the reason "Deposit Under Hold.

According to petitioners, the Bank unilaterally and unlawfully put their account with the Bank on
hold

Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and
unilateral withdrawal from their savings account, petitioners filed a Complaint for Sum of Money
with Damages against the Bank and Potenciano

Invoking Article 1977 of the Civil Code, the trial court stated that the depositary cannot make use
of the thing deposited without the express permission of the depositor. The trial... court also held
that respondents should have observed the 24-hour clearing house rule that checks should be
returned within 24-hours after discovery of the forgery but in no event beyond the period fixed by
law for filing a legal action. In this case, petitioners deposited... the checks in May 2000, and
respondents notified them of the problems on the check three months later or in August 2000. In
sum, the trial court characterized said acts of respondents as attended with bad faith when they
debited the amount of P1,800,000.00 from the account... of petitioners.

Respondents filed a motion for reconsideration while petitioners filed a motion for execution from
the Decision of the RTC on the ground that respondents' motion for reconsideration did not
conform with Section 5, Rule 16 of the Rules of Court; hence, it was a mere scrap of... paper that
did not toll the running of the period to appeal.

RTC, through Pairing Judge Romeo C. De Leon granted the motion for reconsideration, set aside
the Pozas Decision, and dismissed the complaint. The trial court awarded respondents their
counterclaim of moral and exemplary damages of P100,000.00... each.

The trial court first applied the principle of liberality when it disregarded the alleged absence of a
notice of hearing in respondents' motion for reconsideration.

On the merits, the trial court considered the relationship of the Bank and petitioners with respect
to their... savings account deposits as a contract of loan with the bank as the debtor and petitioners
as creditors.

On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of
damages.

Petitioners filed the present petition for review on certiorari raising both procedural and
substantive issues

Issues:
Whether or not the Honorable Court of Appeals committed a reversible error of law and grave
abuse of discretion in upholding the legality and/or propriety of the Motion for Reconsideration
filed in violation of Section 5, Rule 15 of the Rules on Civil Procedure

Ruling:

Sections 5, Rule 15 of the Rules of Court states:

Section 5. Notice of hearing. The notice of hearing shall be addressed to all parties concerned, and
shall specify the time and date of the hearing which must not be later than ten (10) days after the
filing of the motion.

Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the
adverse party as the rules require. Petitioners add that the hearing on the motion for
reconsideration was scheduled beyond 10 days from the date of filing.

As held in Maturan v. Araula,[11] the rule requiring that the notice be addressed to the adverse
party has been substantially complied with when a copy of the motion for reconsideration was
furnished to the counsel of the adverse party, coupled with... the fact that the trial court acted on
said notice of hearing and, as prayed for, issued an order[12] setting the hearing of the motion on
26 March 2004.

We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of
the said motion for reconsideration was furnished to the counsel of the adverse party.

To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the
check prior to alteration. Since Philippine Veterans Bank paid the altered amount of the check, it
may pass the liability back as it did, to Equitable-PCI Bank, the... collecting bank. The collecting
banks, Equitable-PCI Bank and the Bank, are ultimately liable for the amount of the materially
altered check. It cannot further pass the liability back to the petitioners absent any showing in the
negligence on the part of the... petitioners which substantially contributed to the loss from
alteration.

Based on the foregoing, we affirm the Pozas decision only insofar as it ordered respondents to
jointly and severally pay petitioners P1,800,000.00, representing the amount withdrawn from the
latter's account. We do not conform with said ruling regarding the finding... of bad faith on the
part of respondents, as well as its failure to observe the 24-hour clearing rule.

WHEREFORE, the petition is GRANTED.The decision of the Regional Trial Court as affirmed
by the Court of Appeals is hereby REVERSED. Cost against private respondent.
SO ORDERED.

R No. 96160, Jun 17, 1992 ]

STELCO MARKETING CORPORATION v. CA +

DECISION

G.R. No. 96160

NARVASA, C.J.:

Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural
steel bars.[1] On seven (7) different occasions in September and October, 1980, it sold to RYL
Construction, Inc. quantities of steel bars of various sizes and rolls of G.I. wire. These bars and
wire were delivered at different places at the indication of RYL Construction, Inc. The aggregate
price for the purchases was P126,859.61.

Although the corresponding invoices issued by STELCO stipulated that RYL would pay "COD"
(cash on delivery), the latter made no payments for the construction materials thus ordered and
delivered despite insistent demands for payment by the former.

On April 4, 1981, RYL gave to Armstrong Industries -- described by STELCO as its "sister
corporation" and "manufacturing arm"[2] -- a check drawn against Metrobank in the amount of
P126,129.86, numbered 765380 and dated April 4, 1981. That check was a company check of
another corporation, Steelweld Corporation of the Philippines, signed by its President, Peter
Rafael Limson, and its Vice-President, Artemio Torres.

The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL.
Romeo Lim had asked Limson for financial assistance, and the latter had agreed to give Lim a
check only by way of accommodation, "only as guaranty but not to pay for anything."[3] Why the
check was made out in the amount of P126,129.86 is not explained. Anyway, the check was
actually issued in said amount of P126,129.86, and as already stated, was given by R.Y. Lim to
Armstrong Industries,[4] in payment of an obligation. When the latter deposited the check at its
bank, it was dishonored because "drawn against insufficient funds."[5] When so deposited, the
check bore two (2) indorsements, that of "RYL Construction," followed by that of "Armstrong
Industries."[6]

On account of the dishonor of Metrobank Check No. 765380, and on complaint of Armstrong
Industries (through a Mr. Young), Rafael Limson and Artemio Torres were charged in the Regional
Trial Court of Manila with a violation of Batas Pambansa Bilang 22.[7] They were acquitted in a
decision rendered on June 28, 1984 "on the ground that the check in question was not issued by
the drawer 'to apply on account for value,' it being merely for accommodation purposes."[8] That
judgment however conditioned the acquittal with the following pronouncement:

"This is not however to release Steelweld Corporation from its liability under Sec. 29 of the
Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim."
Eleven months or so later -- and some four (4) years after issuance of the check in question -- in
May, 1985, STELCO filed with the Regional Trial Court at Caloocan City a civil complaint[9]
against both RYL and STEELWELD for the recovery of the value of the steel bars and wire sold
to and delivered to RYL (as already narrated) in the amount of P126,129.86, "plus 18% interest
from August 20, 1980 ** (and) 25% of the total amount sought to be recovered as and by way of
attorney's fees**."[10] Among the allegations of its complaint was that Metrobank Check No.
765380 above mentioned had been given to it in payment of RYL's indebtedness, duly indorsed by
R.Y. Lim.[11] A preliminary attachment was issued by the trial court on the basis of the averments
of the complaint but was shortly dissolved upon the filing of a counter-bond by STEELWELD.

RYL could no longer be located and could not be served with summons.[12] It never appeared.
Only STEELWELD filed an answer, under date of July 16, 1985.[13] In said pleading, it
specifically denied the facts alleged in the complaint, the truth, according to Steelweld, being
basically that-

1) STELCO "is a complete stranger to it;" it had "not entered into any transaction or
business dealing of any kind" with STELCO, the transactions described in the complaint having
been solely and exclusively between the plaintiff and RYL Construction;

2) the check in question was "only given to a certain R. Lim to be used as collateral for
another obligation ** (but) in breach of his agreement (Lim) utilized and negotiated the check for
another purpose **;"

3) nevertheless, the check "is wholly inoperative since ** Steelweld ** did not issue it for
any valuable consideration either to R. Lim or to the plaintiff not to mention also the fact that the
said plaintiff failed to comply with the requirements of the law to hold the said defendant
(STEELWELD) liable **."

Trial ensued upon these issues, after which judgment was rendered on June 26, 1986.[14] The
judgment sentenced "the defendant Steelweld Corporation to pay to ** (Stelco Marketing
Corporation) the amount of P126,129.86 with legal rate of interest from May 9, 1985, when this
case was instituted until fully paid, plus another sum equivalent to 25% of the total amount due as
and for attorney's fees**"[15] That disposition was justified in the judgment as follows;[16]

"There is no question, then, that as far as any commercial transaction is concerned between
plaintiff and defendant Steelwed no such transaction ever occurred. Ordinarily, under civil law
rules, there having been no transaction between them involving the purchase of certain
merchandise there would be no privity of contract between them, and plaintiff will have no right to
sue the defendant for payment of said merchandise for the simple reason that the defendant did not
order them, much less receive them.
But we have here a case where the defendant Steelweld thru its President Peter Rafael Limson
admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the
President of RYL Construction by way of accommodation. Under the Negotiable Instruments Law
an accommodation party is liable.
'SEC. 29. Liability of an 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.'"

From this adverse judgment STEELWELD appealed to the Court of Appeals[17] and there
succeeded in reversing the judgment. By Decision promulgated on May 29, 1990,[18] the Court of
Appeals[19] ordered "the complaint against appellant (STEELWELD) DISMISSED; (and the
appellee, STELCO) to pay appellant the sum of P15,000.00 as attorney's fees and cost of
litigation, the suit ** (being) a baseless one that dragged appellant in court and caused it to incur
attorney's fees and expense of litigation."

STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated
November 13, 1990.[20] The Court stressed that -

" ** as far as Steelweld is concerned, there was no commercial transaction between said appellant
and appellee. Moreover, there is no evidence that appellee Stelco Marketing became a holder for
value. Nowhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or
depositor thereof. Finally, appellee's complaint is for the collection of the unpaid accounts for
delivery of steel bars and construction materials. It having been established that appellee had no
commercial transaction with appellant Stelco, appellee had no cause of action against said
appellant."
STELCO appealed to this Court in accordance with Rule 45 of the Rules of Court. In this Court it
seeks to make the following points in connection with its plea for the overthrow of the Appellate
Tribunal's aforesaid decision, viz.:

1) said decision is "not in accord with law and jurisprudence;"

2) "STELCO is a 'holder' within the meaning of the Negotiable Instruments Law;"
3) "STELCO is a holder in due course of Metrobank Check No. 765380** (and hence) holds the
same free from personal or equitable defense;" and
4) "Negotiation in breach of faith is a personal defense ** (and hence) not effective as against a
holder in due course."
The points are not well taken.
The crucial question is whether or not STELCO ever became a holder in due course of Check No.
765380, a bearer instrument, within the contemplation of the Negotiable Instruments Law. It never
did.

STELCO evidently places much reliance on the pronouncement of the Regional Trial Court in
Criminal Case No. 66571,[21] that the acquittal of the two (2) accused (Limson and Torres) did
not operate "to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable
Instruments Law for having issued** (the check) for the accommodation of Romeo Lim." The
cited provision reads as follows:

"SECTION 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 hoder for value, notwithstanding such holder, at the time of taking the instrument,
knew him to be only an accommodation party."
It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did
not specify to whom STEELWELD, as accommodation party, is supposed to be liable; and certain
it is that neither said pronouncement nor any other part of the judgment of acquittal declared it
liable to STELCO.

"A holder in due course," says the law,[22] "is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the persons negotiating it."
To be sure, as regards an accommodation party (such as STEELWELD), the fourth condition, i.e.,
lack of notice of any infirmity in the instrument or defect in title of the persons negotiating it, has
no application. This is because Section 29 of the law above quoted preserves the right of recourse
of a "holder for value" against the accommodation party notwithstanding that "such holder, at the
time of taking the instrument, knew him to be only an accommodation party."[23]

Now, STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check
No. 765380 because the record shows it to have been in "actual possession" thereof; otherwise, it
"could not have presented, marked and introduced (said check) in evidence ** before the court a
quo." "Besides," it adds, the check in question was presented by STELCO to the drawee bank for
payment through Armstrong Industries, the manufacturing arm of STELCO and its sister
company."[24]

The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380
ever dated back to any time before the instrument's presentment and dishonor. There is no
evidence whatsoever that the check was ever given to it, or indorsed to it in any manner or form in
payment of an obligation or as security for an obligation, or for any other purpose before it was
presented for payment. On the contrary, the factual finding of the Court of Appeals, which by
traditional precept is normally conclusive on this Court, is that STELCO never became a holder
for value and that "(n)owhere in the check itself does the name of Stelco Marketing appear as
payee, indorsee or depositor thereof."[25]

What the record shows is that: (1) the STEELWELD company check in question was given by its
president to R. Y. Lim; (2) it was given only by way of accommodation, to be "used as collateral
for another obligation;" (3) in breach of the agreement, however, R.Y. Lim indorsed the check to
Armstrong in payment of an obligation; (4) Armstrong deposited the check to its account, after
indorsing it; (5) the check was dishonored. The record does not show any intervention or
participation by STELCO in any manner or form whatsoever in these transactions, or any
communication of any sort between STEELWELD and STELCO, or between either of them and
Armstrong Industries, at any time before the dishonor of the check.

The record does show that after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor of the check, to give it
in evidence at the trial of the civil case it had instituted against the drawers of the check (Limson
and Torres) and RLY. But, as already pointed out, possession of a negotiable instrument after
presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a
holder for value within the meaning of the law; it gives rise to no liability on the part of the maker
or drawer and indorsers.

It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check
for value. It does not meet two of the essential requisites prescribed by the statute. It did not
become "the holder of it before it was overdue, and without notice that it had been previously
dishonored," and it did not take the check "in good faith and for value."[26]

Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated
the check, accepted the instrument and attempted to encash it in behalf, and as agent of STELCO.
On the contrary, the indications are that Armstrong was really the intended payee of the check and
was the party actually injured by its dishonor; it was after all its representative (a Mr. Young) who
instituted the criminal prosecution of the drawers, Limson and Torres, albeit unsuccessfully.

The petitioner has failed to show any sufficient cause for modification or reversal of the
challenged judgment of the Court of Appeals which, on the contrary, appears to be entirely in
accord with the facts and the applicable law.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV
No. 13418 is AFFIRMED in toto. Costs against petitioner.
SO ORDERED

G.R. No. 115548. March 5, 1996]

STATE INVESTMENT HOUSE INC., petitioner, vs. COURT OF APPEALS, ET AL.,

respondents.
DECISION
FRANCISCO, J.:
The factual background of the case, aptly summarized in the decision of the Office of the
President and cited by respondent Court of Appeals[1] in its assailed decision, and which we have
verified to be supported by the record is herein reproduced as follows:
The uncontroverted facts of the case as recited in the decision of the Office of the President are as
follows:
Records show that, on October 15, 1969, Contract to Sell No. 36 was executed by the Spouses
Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc. (SOLID), involving a parcel of land
identified as Block No. 8, Lot No. 1, Phase I of the Capitol Park Homes Subdivision, Quezon City,
containing 511 square meters for a consideration of P39,347.00. Upon signing of the contract, the
spouses Oreta made payment amounting to P7,869.40, with the agreement that the balance shall
be payable in monthly installments of P45 1.70, at 12% interest per annum.
On November 4, 1976, SOLID executed several real estate mortgage contracts in favor of State
Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of land, one of which is the
subject lot covered by Transfer Certificate of Title No. 209642.
For Failure of SOLID to comply with its mortgage obligations contract, STATE extra-judicially
foreclosed the mortgaged properties including the subject lot on April 6, 1983, with the
corresponding certificate of sale issued therefor to STATE annotated at the back of the titles
covering the said properties on October 13, 1983.
On June 23, 1984, SOLID thru a Memorandum of Agreement negotiated for the deferment of
consolidation of ownership over the foreclosed properties by committing to redeem the properties
from STATE.
On August 15, 1988, the spouses filed a complaint before the Housing and Land Use Regulatory
Board, HLRB, against the developer SOLID and STATE for failure on the part of SOLID to
execute the necessary absolute deed of sale as well as to deliver title to said property x x x in
violation of the contract to sell x x x, despite full payment of the purchase price as of January 7,
1981. In its Answer, SOLID, by way of alternative defense, alleged that the obligations under the
Contract to Sell has become so difficult x x x the herein respondents be partially released from
said obligation by substituting subject lot with another suitable residential lot from another
subdivision which respondents own/operates. Upon the other hand, STATE, to which the subject
lot was mortgaged, averred that unless SOLID pays the redemption price of P125,1955.00, (sic) it
has a right to hold on and not release the foreclosed properties.
On May 23, 1989, the Office of Appeals, Adjudication and Legal Affairs (OAALA) rendered a
decision the decretal portion of which reads:
1. Ordering respondent, State Investment House, Inc. to execute a Deed of Conveyance of Lot 1,
B lock 8, in Capital Park Homes Subdivision in favor of complainants and to deliver to the latter
the corresponding certificate of title;
2. Ordering respondent, Solid Homes, Inc. to pay State Investment House, Inc. that portion of its
loan which corresponds to the value of the lot as collateral;
3. Ordering respondent, Solid Homes, Inc. to pay to this Board the amount of Six Thousand Pesos
(P6,000.00) as administrative fine in accordance with Section 25 in relation to Section 38 of P.D.
957.
Both the STATE and SOLID appealed to the Board of Commissioners, HLRB, which affirmed on
June 5, 1990 the OAALAs decision (Annex C of the Petition; ibid., p. 34). Again, both STATE
and SOLID appealed the decision of the Board of Commissioners, HLRB, to the Office of the
President which dismissed the twin appeals on February 26, 1993.
Petitioner filed with the Supreme Court this petition for review of decision of the Office of the
President where it was docketed as G.R. No. 109364. However, in a resolution dated May 13,
1993, the Supreme Court referred this case to this Court for proper disposition. On the other hand,
SOLID does not appear to have joined herein petitioner in this petition for review.[2]
[Italics added.]
In a decision dated May 19, 1994, respondent court sustained the judgment of the Office of the
President. Hence, this petition substantially anchored on these two alleged errors, namely: (1)
error in ruling that private respondent spouses Oretas unregistered rights over the subject property
are superior to the registered mortgage rights of petitioner State Investment House, Inc. (STATE);
and (2) error in not applying the settled rule that that persons dealing with property covered by
torrens certificate of title are not required to go beyond what appears on the face of the title.
At the outset, we note that herein petitioner argues more extensively on the second assigned issue,
than on the first. In fact, petitioner admits the superior rights of respondents-spouses Oreta over
the subject property as it did not pray for the nullification of the contract between respondents-
spouses and SOLID, but instead asked for the payment of the release value of the property in
question, plus interest, attorneys fees and costs of suit against SOLID or, in case of the latters
inability to pay, against respondents-spouses before it can be required to release the title of the
subject property in favor of the respondent spouses.[3] And even if we were to pass upon the first
assigned error, we find respondent courts ruling on the matter to be well-founded. STATEs
registered mortgage right over the property is inferior to that of respondents-spouses unregistered
right. The unrecorded sale between respondents-spouses and SOLID is preferred for the reason
that if the original owner (SOLID, in this case) had parted with his ownership of the thing sold
then he no longer had ownership and free disposal of that thing so as to be able to mortgage it
again.[4] Registration of the mortgage is of no moment since it is understood to be without
prejudice to the better right of third parties.[5]
Anent the second issue, petitioner asserts that a purchaser or mortgagee of land/s covered under
the Torrens System is not required to do more than rely upon the certificate of title [for] it is
enough that the [purchaser or mortgagee] examines the pertinent certificate of title [without] need
[of] look[ing] beyond such title.[6]
As a general rule, where there is nothing in the certificate of title to indicate any cloud or vice in
the ownership of the property, or any encumbrance thereon, the purchaser is not required to
explore further than what the Torrens Title upon its face indicates in quest for any hidden defect or
inchoate right that may subsequently defeat his right thereto. This rule, however, admits of an
exception as where the purchaser or mortgagee, has knowledge of a defect or lack of title in his
vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to inquire into
the status of the title of the property in litigation.[7] In this case, petitioner was well aware that it
was dealing with SOLID, a business entity engaged in the business of selling subdivision lots. In
fact, the OAALA found that at the time the lot was mortgaged, respondent State Investment
House, Inc., [now petitioner] had been aware of the lots location and that said lot formed part of
Capital Park/Homes Subdivision.[8] In Sunshine Finance and investment Corp. v. Intermediate
Appellate Court,[9] the Court, noting petitioner therein to be a financing corporation, deviated
from the general rule that a purchaser or mortgagee of a land is not required to look further than
what appears on the face of the Torrens Title. Thus:
Nevertheless, we have to deviate from the general rule because of the failure of the petitioner in
this case to take the necessary precautions to ascertain if there was any flaw in the title of the
Nolascos and to examine the condition of the property they sought to mortgage. The petitioner is
an investment and financing corporation. We presume it is experienced in its business.
Ascertainment of the status and condition of properties offered to it as security for the loans it
extends must be a standard and indispensable part of its operations. Surely, it cannot simply rely
on an examination of a Torrens certificate to determine what the subject property looks like as its
condition is not apparent in the document. The land might be in a depressed area. There might be
squatters on it. It might be easily inundated. It might be an interior lot, without convenient access.
These and other similar factors determine the value of the property and so should be of practical
concern to the petitioner.
xxx xxx xxx
Our conclusion might have been different if the mortgagee were an ordinary individual or
company without the expertise of the petitioner in the mortgage and sale of registered land or if
the land mortgaged were some distance from the mortgagee and could not be conveniently
inspected. But there were no such impediments in this case. The facilities of the petitioner were
not so limited as to prevent it from making a more careful examination of the land to assure itself
that there were no unauthorized persons in possession.[10]
[Emphasis supplied.]
The above-enunciated rule should apply in this case as petitioner admits of being a financing
institution.[11] We take judicial notice of the uniform practice of financing institutions to
investigate, examine and assess the real property offered as security for any loan application
especially where, as in this case, the subject property is a subdivision lot located at Quezon City,
M.M. It is a settled rule that a purchaser or mortgagee cannot close its eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted in good faith under the belief
that there was no defect in the title of the vendor or mortgagor.[12] Petitioners constructive
knowledge of the defect in the title of the subject property, or lack of such knowledge due to its
negligence, takes the place of registration of the rights of respondents-spouses. Respondent court
thus correctly ruled that petitioner was not a purchaser or mortgagee in good faith; hence
petitioner can not solely rely on what merely appears on the face of the Torrens Title.
ACCORDINGLY, finding no reversible error in the assailed judgment, the same is hereby
AFFIRMED
SO ORDERED.

R. No. 105188. January 23, 1998]

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, vs. A. U.
VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA
SANTOS, and DELFIN JAO, respondents.
DECISION
KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C.
Papa seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals
which affirmed with modification the decision of the trial court; and, 2) the Resolution dated 22
April 1992 of the same court, which denied petitioners motion for reconsideration of the above
decision.

The antecedent facts of this case are as follows:

Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter
referred to as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent
Pearroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific
performance against herein petitioner Myron C. Papa, in his capacity as administrator of the
Testate Estate of one Angela M. Butte.

The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact
of Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land,
consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon
City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon
City; that prior to the alleged sale, the said property, together with several other parcels of land
likewise owned by Angela M. Butte, had been mortgaged by her to the Associated Banking
Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title to the
subject property had been released, Angela M. Butte passed away; that despite representations
made by herein respondents to the bank to release the title to the property sold to respondent
Pearroyo, the bank refused to release it unless and until all the mortgaged properties of the late
Angela M. Butte were also redeemed; that in order to protect his rights and interests over the
property, respondent Pearroyo caused the annotation on the title of an adverse claim as evidenced
by Entry No. P.E. - 6118/T-28993, inscribed on 18 January 1977.

The complaint further alleged that it was only upon the release of the title to the property,
sometime in April 1977, that respondents Valencia and Pearroyo discovered that the mortgage
rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as special
administrator of the Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein petitioner
had been collecting monthly rentals in the amount of P800.00 from the tenants of the property,
knowing that said property had already been sold to private respondents on 15 June 1973; that
despite repeated demands from said respondents, petitioner refused and failed to deliver the title to
the property. Thereupon, respondents Valencia and Pearroyo filed a complaint for specific
performance, praying that petitioner be ordered to deliver to respondent Pearroyo the title to the
subject property (TCT 28993); to turn over to the latter the sum of P72,000.00 as accrued rentals
as of April 1982, and the monthly rental of P800.00 until the property is delivered to respondent
Pearroyo; to pay respondents the sum of P20,000.00 as attorneys fees; and to pay the costs of the
suit.

In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking
Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not
state a cause of action; that the real property in interest was the Testate Estate of Angela M. Butte,
which should have been joined as a party defendant; that the case amounted to a claim against the
Estate of Angela M. Butte and should have been filed in Special Proceedings No. A-17910 before
the Probate Court in Quezon City; and that, if as alleged in the complaint, the property had been
assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said
estate should be impleaded. Petitioner, likewise, claimed that he could not recall in detail the
transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in his
possession; that he could not be held personally liable as he signed the deed merely as attorney-in-
fact of said Angela M. Butte. Finally, petitioner asseverated that as a result of the filing of the case,
he was compelled to hire the services of counsel for a fee of P20,000.00, for which respondents
should be held liable.

Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case.
Making common cause with respondents Valencia and Pearroyo, respondent Jao alleged that the
subject lot which had been sold to respondent Pearroyo through respondent Valencia was in turn
sold to him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the
amount of P5,000.00. He, therefore, prayed that judgment be rendered in favor of respondents
Valencia and Pearroyo; and, that after the delivery of the title to said respondents, the latter in turn
be ordered to execute in his favor the appropriate deed of conveyance covering the property in
question and to turn over to him the rentals which aforesaid respondents sought to collect from
petitioner Myron C. Papa.

Respondent Jao, likewise, averred that as a result of petitioners refusal to deliver the title to the
property to respondents Valencia and Pearroyo, who in turn failed to deliver the said title to him,
he suffered mental anguish and serious anxiety for which he sought payment of moral damages;
and, additionally, the payment of attorneys fees and costs.

For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-
party complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos
(respondent Reyes spouses, for short). He averred, among others, that the late Angela M. Butte
was the owner of the subject property; that due to non-payment of real estate tax said property was
sold at public auction by the City Treasurer of Quezon City to the respondent Reyes spouses on 21
January 1980 for the sum of P14,000.00; that the one-year period of redemption had expired; that
respondents Valencia and Pearroyo had sued petitioner Papa as administrator of the estate of
Angela M. Butte, for the delivery of the title to the property; that the same aforenamed
respondents had acknowledged that the price paid by them was insufficient, and that they were
willing to add a reasonable amount or a minimum of P55,000.00 to the price upon delivery of the
property, considering that the same was estimated to be worth P143,000.00; that petitioner was
willing to reimburse respondent Reyes spouses whatever amount they might have paid for taxes
and other charges, since the subject property was still registered in the name of the late Angela M.
Butte; that it was inequitable to allow respondent Reyes spouses to acquire property estimated to
be worth P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment be
rendered cancelling the tax sale to respondent Reyes spouses; restoring the subject property to him
upon payment by him to said respondent Reyes spouses of the amount of P14,000.00, plus legal
interest; and, ordering respondents Valencia and Pearroyo to pay him at least P55,000.00 plus
everything they might have to pay the Reyes spouses in recovering the property.

Respondent Reyes spouses in their Answer raised the defense of prescription of petitioners right to
redeem the property.

At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary
proof.
On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:

WHEREUPON, judgment is hereby rendered as follows:

1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the
former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest of
12% thereon from January 21, 1980;

2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Pearroyo
covering the property in question and to deliver peaceful possession and enjoyment of the said
property to the said plaintiff, free from any liens and encumbrances;

Should this not be possible, for any reason not attributable to defendant, said defendant is ordered
to pay to plaintiff Felix Pearroyo the sum of P45,000.00 plus legal interest of 12% from June 15,
1973;

3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of absolute sale
over the same property, upon the latters payment to the former of the balance of the purchase price
of P71,500.00;

Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the sum of
P5,000.00 plus legal interest of 12% from August 23, 1973; and

4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorneys fees and
litigation expenses.

SO ORDERED.[1]

Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging
among others that the sale was never consummated as he did not encash the check (in the amount
of P40,000.00) given by respondents Valencia and Pearroyo in payment of the full purchase price
of the subject lot. He maintained that what said respondents had actually paid was only the amount
of P5,000.00 (in cash) as earnest money.

Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was
dismissed because of failure to file their appellants brief.

On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the
trial courts decision, thus:

WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is
MODIFIED, by ordering the defendant-appellant to deliver to plaintiff-appellees the owners
duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of the
lot in question or, if the owners duplicate certificate cannot be produced, to authorize the Register
of Deeds to cancel it and issue a certificate of title in the name of Felix Pearroyo. In all other
respects, the decision appealed from is AFFIRMED. Costs against defendant-appellant Myron C.
Papa.

SO ORDERED.[2]

In affirming the trial courts decision, respondent court held that contrary to petitioners claim that
he did not encash the aforesaid check, and therefore, the sale was not consummated, there was no
evidence at all that petitioner did not, in fact, encash said check. On the other hand, respondent
Pearroyo testified in court that petitioner Papa had received the amount of P45,000.00 and issued
receipts therefor. According to respondent court, the presumption is that the check was encashed,
especially since the payment by check was not denied by defendant-appellant (herein petitioner)
who, in his Answer, merely alleged that he can no longer recall the transaction which is supposed
to have happened 10 years ago.[3]

On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-in-
fact of the owner, Angela M. Butte, respondent court held that such contention is without merit.
This action was not brought against him in his personal capacity, but in his capacity as the
administrator of the Testate Estate of Angela M. Butte.[4]

On petitioners contention that the estate of Angela M. Butte should have been joined in the action
as the real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of
Court, the estate of Angela M. Butte does not have to be joined in the action. Likewise, the estate
of Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the same Rules. For
the fact is that Ramon Papa, Jr., or his estate, was not a party to the Deed of Absolute Sale, and it
is basic law that contracts bind only those who are parties thereto.[5]

Respondent court observed that the conditions under which the mortgage rights of the bank were
assigned are not clear. In any case, any obligation which the estate of Angela M. Butte might have
to the estate of Ramon Papa, Jr. is strictly between them. Respondents Valencia and Pearroyo are
not bound by any such obligation.

Petitioner filed a motion for reconsideration of the above decision, which motion was denied by
respondent Court of Appeals.

Hence, this petition wherein petitioner raises the following issues:

I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN

QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE,
AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE.

II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT,
ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF
THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON PAPA, JR. WHICH IS
NOT A PARTY IN THIS CASE.

III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA
M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN
THIS CASE.[6]

Petitioner argues that respondent Court of Appeals erred in concluding that the alleged sale of the
subject property had been consummated. He contends that such a conclusion is based on the
erroneous presumption that the check (in the amount of P40,000.00) had been cashed, citing Art.
1249 of the Civil Code, which provides, in part, that payment by checks shall produce the effect of
payment only when they have been cashed or when through the fault of the creditor they have
been impaired.[7] Petitioner insists that he never cashed said check; and, such being the case, its
delivery never produced the effect of payment. Petitioner, while admitting that he had issued
receipts for the payments, asserts that said receipts, particularly the receipt of PCIB Check No.
761025 in the amount of P40,000.00, do not prove payment. He avers that there must be a
showing that said check had been encashed. If, according to petitioner, the check had been
encashed, respondent Pearroyo should have presented PCIB Check No. 761025 duly stamped
received by the payee, or at least its microfilm copy.

Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of
respondents Valencia and Pearroyo, as evidenced by a letter addressed to him in which said
respondents wrote, in part:

x x x. Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs. Angela
M. Butte to pay you the aforementioned amount of P75,000.00 for the release and cancellation of
subject propertys mortgage. The money is with me and if it is alright with you, I would like to
tender the payment as soon as possible. x x x.[8]

We find no merit in petitioners arguments.

It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C.
Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty
Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of the
subject lot. Petitioner himself admits having received said amounts,[9] and having issued receipts
therefor.[10] Petitioners assertion that he never encashed the aforesaid check is not subtantiated
and is at odds with his statement in his answer that he can no longer recall the transaction which is
supposed to have happened 10 years ago. After more than ten (10) years from the payment in part
by cash and in part by check, the presumption is that the check had been encashed. As already
stated, he even waived the presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the
creditors unreasonable delay in presentment. The acceptance of a check implies an undertaking of
due diligence in presenting it for payment, and if he from whom it is received sustains loss by
want of such diligence, it will be held to operate as actual payment of the debt or obligation for
which it was given.[11] It has, likewise, been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury[12] unless presentment is otherwise excused.
This is in harmony with Article 1249 of the Civil Code under which payment by way of check or
other negotiable instrument is conditioned on its being cashed, except when through the fault of
the creditor, the instrument is impaired. The payee of a check would be a creditor under this
provision and if its non-payment is caused by his negligence, payment will be deemed effected
and the obligation for which the check was given as conditional payment will be discharged.[13]

Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale
by delivering the payment of the purchase price, said respondents, therefore, had the right to
compel petitioner to deliver to them the owners duplicate of TCT No. 28993 of Angela M. Butte
and the peaceful possession and enjoyment of the lot in question.

With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found
that the conditions under which said mortgage rights of the bank were assigned are not clear.
Indeed, a perusal of the original records of the case would show that there is nothing there that
could shed light on the transactions leading to the said assignment of rights; nor is there any
evidence on record of the conditions under which said mortgage rights were assigned. What is
certain is that despite the said assignment of mortgage rights, the title to the subject property has
remained in the name of the late Angela M. Butte.[14] This much is admitted by petitioner himself
in his answer to respondents complaint as well as in the third-party complaint that petitioner filed
against respondent-spouses Arsenio B. Reyes and Amanda Santos.[15] Assuming arquendo that
the mortgage rights of the Associated Citizens Bank had been assigned to the estate of Ramon
Papa, Jr., and granting that the assigned mortgage rights validly exist and constitute a lien on the
property, the estate may file the appropriate action to enforce such lien. The cause of action for
specific performance which respondents Valencia and Pearroyo have against petitioner is different
from the cause of action which the estate of Ramon Papa, Jr. may have to enforce whatever rights
or liens it has on the property by reason of its being an alleged assignee of the banks rights of
mortgage.

Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of
the Rules of Court, an executor or administrator may sue or be sued without joining the party for
whose benefit the action is presented or defended, thus:

Sec. 3. Representative parties. - A trustee of an express trust, a guardian, executor or administrator,

or a party authorized by statute, may sue or be sued without joining the party for whose benefit the
action is presented or defended; but the court may, at any stage of the proceedings, order such
beneficiary to be made a party. An agent acting in his own name and for the benefit of an
undisclosed principal may sue or be sued without joining the principal except when the contract
involves things belonging to the principal.[16]

Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final
determination of the action can be had. Whatever prior and subsisting mortgage rights the estate of
Ramon Papa, Jr. has over the property may still be enforced regardless of the change in ownership
thereof.

WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of
Appeals, dated 27 January 1992 is AFFIRMED.SO ORDERED.

SINCERE Z. VILLANUEVA, G.R. No. 148211

Petitioner,
Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

MARLYN P. NITE,*
Respondent. Promulgated:
July 25, 2006

x------------------------------------------x

DECISION
CORONA, J.:

In this petition for review on certiorari under Rule 45, petitioner submits that the Court of Appeals
(CA) erred in annulling and setting aside the Regional Trial Court (RTC) decision on the ground
of extrinsic fraud.

The facts follow.[1]

Respondent allegedly took out a loan of P409,000 from petitioner. To secure the loan, respondent
issued petitioner an Asian Bank Corporation (ABC) check (Check No. AYA 020195) in the
amount of P325,500 dated February 8, 1994. The date was later changed to June 8, 1994 with the
consent and concurrence of petitioner.

The check was, however, dishonored due to a material alteration when petitioner deposited the
check on due date. On August 24, 1994, respondent, through her representative Emily P. Abojada,
remitted P235,000 to petitioner as partial payment of the loan. The balance of P174, 000 was due
on or before December 8, 1994.

On August 24, 1994, however, petitioner filed an action for a sum of money and damages (Civil
Case No. Q-94-21495) against ABC for the full amount of the dishonored check. And in a decision
dated May 23, 1997, the RTC of Quezon City, Branch 101 ruled in his favor.[2] When respondent
went to ABC Salcedo Village Branch on June 30, 1997 to withdraw money from her account, she
was unable to do so because the trial court had ordered ABC to pay petitioner the value of
respondents ABC check.

On August 25, 1997, ABC remitted to the sheriff a managers check amounting to P325,500 drawn
on respondents account. The check was duly received by petitioner on the same date.

Respondent then filed a petition in the CA seeking to annul and set aside the trial courts decision
ordering ABC to pay petitioner the value of the ABC check.[3] The CA ruled:

WHEREFORE, premises considered, the petition is GRANTED and the Decision dated May 23,
1997 of the public respondent is hereby ANNULLED and SET ASIDE for extrinsic fraud.

[Petitioner] Villanueva is hereby ordered to pay [Nite]

1) the sum of [P146,500] as actual damages plus interest at 12% per annum from August
25, 1997 until full payment;
2) the sum of [P75,000] as moral damages;
3) the sum of [P50,000] as exemplary damages; and
4) the sum of [P50,000] as attorneys fees and cost of suit.

SO ORDERED.[4]

Thus, this petition. We find for respondent.

Annulment of judgment is a remedy in law independent of the case where the judgment sought to
be annulled is promulgated. It can be filed by one who was not a party to the case in which the
assailed judgment was rendered. Section 1 of Rule 47 provides:

Section 1. Coverage. This Rule shall govern the annulment by the Court of Appeals of judgments
or final orders and resolutions in civil actions of Regional Trial Courts for which the ordinary
remedies of new trial, appeal, petition for relief or other appropriate remedies are no longer
available through no fault of the petitioner.

Respondent may avail of the remedy of annulment of judgment under Rule 47. The ordinary
remedies of new trial, appeal and petition for relief were not available to her for the simple reason
that she was not made a party to the suit against ABC. Thus, she was neither able to participate in
the original proceedings nor resort to the other remedies because the case was filed when she was
abroad.
Annulment of judgment may be based only on extrinsic fraud and lack of jurisdiction.[5] Extrinsic
or collateral fraud pertains to such fraud which prevents the aggrieved party from having a trial or
presenting his case to the court, or is used to procure the judgment without fair submission of the
controversy.[6] This refers to acts intended to keep the unsuccessful party away from the courts as
when there is a false promise of compromise or when one is kept in ignorance of the suit.[7]
We uphold the appellate courts finding of extrinsic fraud:

Barely 6 days after receipt of the partial payment of P235,000.00 and agreeing that the balance of
P174,000.00 shall be paid on or before December 8, 1994, [Sincere] filed his complaint against
[ABC] for the full amount of the dishonored check in the sum of P320,500.00 without impleading
petitioner. The apparent haste by which [Sincere] filed his complaint and his failure to implead
[Marlyn] clearly shows his intent to prevent [Marlyn] from opposing his action.

[A]t the time news about [Marlyn] having left the country was widespread, appearing even in print
media as early as May 1994, [Marlyn] paid [Sincere] the amount of P235,000.00 as partial
payment on [August 18, 1994], through a representative.
Notwithstanding the foregoing, SIX (6) days later or on [August 24, 1994, Sincere] instituted an
action for collection with damages for the whole amount of the issued check.
[Sincere] does not deny knowledge of such payment neither of the fact that he concurred in
settling the balance of P174,000.00 on December 8, 1994.

[His] actuation and pronouncement shows not only bad faith on his part but also of his fraudulent
intention to completely exclude [Marlyn] from the proceedings in the court a quo. By doing what
he did he prevented the [trial court] from fully appreciating the particulars of the case.[8]

In any event, the RTC decision may be annulled for lack of jurisdiction over the person of
respondent. The pertinent provisions of the Negotiable Instruments Law are enlightening:

SEC. 185. Check, defined. A check is a bill of exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange
payable on demand apply to a check.[9] (emphasis ours)

SEC. 189. When check operates as an assignment. A check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not
liable to the holder, unless and until it accepts or certifies the check. (emphasis ours)

If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder
cannot, in view of the cited sections, sue the bank. The payee should instead sue the drawer who
might in turn sue the bank. Section 189 is sound law based on logic and established legal
principles: no privity of contract exists between the drawee-bank and the payee. Indeed, in this
case, there was no such privity of contract between ABC and petitioner.
Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns
and heirs, except in cases where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law.[10] None of the foregoing
exceptions to the relativity of contracts applies in this case.
The contract of loan was between petitioner and respondent. No collection suit could prosper
without respondent who was an indispensable party. Rule 3, Sec. 7 of the Rules of Court states:

Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants. (emphasis
ours)

An indispensable party is one whose interest in the controversy is such that a final decree will
necessarily affect his rights. The court cannot proceed without his presence.[11] If an
indispensable party is not impleaded, any judgment is ineffective.[12] On this, Aracelona v. Court
of Appeals[13] declared:

Rule 3, Section 7 of the Rules of Court defines indispensable parties as parties-in-interest without
whom there can be no final determination of an action. As such, they must be joined either as
plaintiffs or as defendants. The general rule with reference to the making of parties in a civil
action requires, of course, the joinder of all necessary parties where possible, and the joinder of all
indispensable parties under any and all conditions, their presence being sine qua non for the
exercise of judicial power. It is precisely when an indispensable party is not before the court (that)
the action should be dismissed. The absence of an indispensable party renders all subsequent
actions of the court null and void for want of authority to act, not only as to the absent parties but
even as to those present.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R.
SP No. 44971 is AFFIRMED in toto.Costs against petitioner.SO ORDERED.

Equitable PCI Bank v. Ong (2006)

G.R. No. 156207 September 15, 2006

Lessons Applicable: Promissory Notes and Checks (Negotiable Instruments Law)

FACTS:
Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank a
PCI Bank TCBT Check of P225K.

December 5 1991: Upon inquiry by Serande at PCI Bank on whether the TCBT Check had been
cleared, she received an affirmative answer.
Relying on this assurance, she issued 2 checks drawn against the proceeds of TCBT Check.

PCI Bank Check No. 073661 dated 5 December 1991 for P132K which Sarande issued to
respondent Rowena Ong owing to a business transaction.

On the same day, Ong presented to PCI Bank requesting PCI Bank to convert the proceeds into a
manager's check, which the PCI Bank obliged.

December 6 1991: Ong deposited PCI Bank Manager's Check in her account with Equitable
Banking Corporation

December 9 1991: she received a check return-slip informing her that PCI Bank had stopped the
payment of the check on the ground of irregular issuance.

Despite several demands made, it was refused

Ong was constrained to file a Complaint for sum of money, damages and attorney's fees against
PCI Bank

CA affirmed RTC: favored Ong

ISSUE: W/N Ong can hold PCI liable

HELD: YES. Petition is DENIED. CA affirmed.

By admitting it committed an error, clearing the check of Sarande and issuing in favor of Ong not
just any check but a manager's check for that matter, PCI Bank's liability is fixed

certification = acceptance,

Equitable PCI as drawee bank is bound on the instrument upon certification and it is immaterial to
such liability in favor of Ong who is a holder in due course whether the drawer (Warliza Sarande)
had funds or not with the Equitable PCI Bank

No unjust enrichment

SECTION 52. What constitutes a holder in due course. – A holder in due course is a holder who
has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
The same law provides further:
Sec. 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.
Sec. 26. What constitutes holder for value. – Where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to all parties who become such prior
to that time.
Sec. 28. Effect of want of consideration. – Absence or failure of consideration is a matter of
defense as against any person not a holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.
manager's check

an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity
and honor behind its issuance

regarded substantially to be as good as the money it represents

same footing as a certified check

The object of certifying a check, as regards both parties, is to enable the holder to use it as money.

check operates as an assignment of a part of the funds to the creditors

Sec. 187. Certification of check; effect of. – Where a check is certified by the bank on which it is
drawn, the certification is equivalent to an acceptance

Section 63 of the Central Bank Act to the effect "that a check which has been cleared and credited
to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount
equal to the amount credited to his account

Sec. 62. Liability of acceptor. – The acceptor by accepting the instruments engages that he will
pay it according to the tenor of his acceptance; and admits –
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to
draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.

SECOND DIVISION

SECURITY BANK AND TRUST COMPANY,

Petitioner,

- versus -
RIZAL COMMERCIAL BANKING CORPORATION,
Respondent.
G.R. No. 170984

Present:

QUISUMBING, Acting C.J.,

Chairperson,
CORONA,*
CARPIO MORALES,
TINGA, and
LEONARDO-DE CASTRO,** JJ.
x-------------------------x

RIZAL COMMERCIAL BANKING CORPORATION,

Petitioner,

- versus -

SECURITY BANK AND TRUST COMPANY,

Respondent.

G.R. No. 170987

Promulgated:

January 30, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, Acting C.J.:
Before us are opposing parties petitions for review of the Decision[1] dated March 29, 2005 and
Resolution[2] dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387. The
two petitions are herein consolidated as they stem from the same set of factual circumstances.
The facts, as found by the trial and appellate courts, are as follows:
On January 9, 1981, Security Bank and Trust Company (SBTC) issued a managers check for P8
million, payable to CASH, as proceeds of the loan granted to Guidon Construction and
Development Corporation (GCDC). On the same day, the P8-million check, along with other
checks, was deposited by Continental Manufacturing Corporation (CMC) in its Current Account
No. 0109-022888 with Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC
honored the P8-million check and allowed CMC to withdraw the same.[3]
On the next banking day, January 12, 1981, GCDC issued a Stop Payment Order to SBTC,
claiming that the P8-million check was released to a third party by mistake. Consequently, SBTC
dishonored and returned the managers check to RCBC. Thereafter, the check was returned back
and forth between the two banks, resulting in automatic debits and credits in each banks clearing
balance.[4]
On February 13, 1981, RCBC filed a complaint[5] for damages against SBTC with the then Court
of First Instance of Rizal, Branch XXII. Said case was docketed as Civil Case No. 1081 and later
transferred to the Regional Trial Court (RTC) of Makati City, Branch 143.
Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC stopped
returning the checks to each other. By way of a temporary arrangement pending resolution of the
case, the P8-million check was equally divided between, and credited to, RCBC and SBTC.[6]
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision[7] in favor of RCBC.
The dispositive portion of the decision reads:
PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff [RCBC] and finds
defendant SBTC justly liable to [RCBC] and sentences [SBTC] to pay [RCBC] the amount of:
1. PhP4,000,000.00 as and for actual damages;
2. PhP100,000.00 as and for attorneys fees; and,
3. the costs.
SO ORDERED.[8]
On appeal, the Court of Appeals affirmed with modification the above Decision, to wit:
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant Security
Bank and Trust Co. shall pay appellee Rizal Commercial Banking Corporation not only the
principal amount of P4,000,000.00 but also interest thereon at (6%) per annum covering appellees
unearned income on interest computed from the time of filing of the complaint on February 13,
1981 to the date of finality of this Decision. For lack of factual and legal basis, the award of
attorneys fees is DELETED.
SO ORDERED.[9]
Now for our resolution are the opposing parties petitions for review on certiorari of the abovecited
decision. On its part, SBTC alleges the following to support its petition:
I.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO APPLY
THE LAW BECAUSE, IN ITS OPINION, TO DO SO WOULD RESULT IN AN INJUSTICE.
II.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT TO
DETERMINE WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE, ONLY THE
NEGOTIABLE INSTRUMENTS LAW NEED BE APPLIED TO THE EXCLUSION OF
CENTRAL BANK RULES AND REGULATIONS.
III.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO NOTE THAT
THE MANAGERS CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT BY THE RCBC
AND WAS NOT ENCASHED BY THE PAYEE.
IV.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER
THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH PhP53 MILLION, RCBC WAS
HOLDING 43 CHECKS TOTALING P49,017,669.66 DRAWN BY CONTINENTAL
MANUFACTURING CORPORATION AGAINST ITS CURRENT ACCOUNT WHEN THE
BALANCE OF THAT ACCOUNT WAS A MERE P573.62.
V.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER
THAT THE CHECKS DEPOSITED WITH RCBC THE PROCEEDS OF WHICH WERE
IMMEDIATELY WITHDRAWN TO HONOR THE 43 CHECKS TOTALING P49,017,669.66
DRAWN BY CONTINENTAL MANUFACTURING CORPORATION ON ITS CURRENT
ACCOUNT WERE NOT ALL MANAGERS CHECK[S] BUT INCLUDED ORDINARY
CHECKS IN THE TOTAL AMOUNT OF PhP15,436,140.81.
VI.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER
THAT EACH OF THE 43 CHECKS DRAWN BY THE CONTINENTAL MANUFACTURING
CORPORATION WERE ALL HONORED BY RCBC ON THE BASIS OF A MIXTURE OF
ALL THE MANAGERS AND ORDINARY CHECKS DEPOSITED ON THAT DAY OF 9
JANUARY 1981.
VII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE
RCBC IS A HOLDER IN DUE COURSE.
VIII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTC
WAITED FOR THREE (3) DAYS TO NOTIFY THE RCBC OF THE STOP PAYMENT ORDER.
IX.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTC
SHOULD HAVE FIRST ACQUIRED PERSONAL KNOWLEDGE OF THE FACTS WHICH
GAVE RISE TO THE REQUEST FOR THE STOP PAYMENT ORDER BEFORE HONORING
SUCH REQUEST.
X.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN REFUSING TO HOLD
SBTC LIABLE FOR DAMAGE CLAIMS BASED SOLELY ON SPECULATION,
CONJECTURE AND GUESSWORK.
XI.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING THAT RCBC
IS NOT ENTITLED TO EXEMPLARY DAMAGES.

XII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING SBTC LIABLE
FOR THE ATTORNEYS FEES OF RCBC [SIC].[10]
On RCBCs part, the following issues are submitted for resolution:
I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS CHECK IT ISSUED.
II.
WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGES EQUIVALENT
TO THE INTEREST INCOME LOST AS A RESULT OF THE ILLEGAL REFUSAL OF SBTC
TO HONOR ITS OWN MANAGERS CHECK, AS WELL AS FOR EXEMPLARY DAMAGES
AND ATTORNEYS FEES.[11]
Simply stated, we find that in these consolidated petitions, the legal issues for our resolution are:
(1) Is SBTC liable to RCBC for the remaining P4 million? and (2) Is SBTC liable to pay for lost
interest income on the remaining P4 million, exemplary damages and attorneys fees?
RCBC avers that the managers check issued by SBTC is substantially as good as the money it
represents because by its peculiar character, its issuance has the effect of an advance acceptance.
RCBC claims that it is a holder in due course when it credited the P8-million managers check to
CMCs account. Accordingly, RCBC asserts that SBTCs refusal to honor its obligation justifies
RCBC claim for lost interest income, exemplary damages and attorneys fees.
On the other hand, SBTC contends that RCBC violated Monetary Board Resolution No. 2202 of
the Central Bank of the Philippines mandating all banks to verify the genuineness and validity of
all checks before allowing drawings of the same. SBTC insists that RCBC should bear the
consequences of allowing CMC to withdraw the amount of the check before it was cleared.[12]
We shall rule on the issues seriatim.
At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary
check but a managers check. A managers check is one drawn by a banks manager upon the bank
itself. It stands on the same footing as a certified check,[13] which is deemed to have been
accepted by the bank that certified it.[14] As the banks own check, a managers check becomes the
primary obligation of the bank and is accepted in advance by the act of its issuance.[15]
In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on
the integrity and honor of the check as it is regarded in commercial transactions. Where the
questioned check, which was payable to Cash, appeared regular on its face, and the bank found
nothing unusual in the transaction, as the drawer usually issued checks in big amounts made
payable to cash, RCBC cannot be faulted in paying the value of the questioned check.[16]
In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No.
2202 dated December 21, 1979, prohibiting drawings against uncollected deposits. For we must
point out that the Central Bank at that time issued a Memorandum dated July 9, 1980, which
interpreted said Monetary Board Resolution No. 2202. In its pertinent portion, said Memorandum
reads:
MEMORANDUM TO ALL BANKS
July 9, 1980

For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31,
1979 prohibiting, as a matter of policy, drawing against uncollected deposit effective July 1, 1980,
uncollected deposits representing managers cashiers/ treasurers checks, treasury warrants, postal
money orders and duly funded on us checks which may be permitted at the discretion of each
bank, covers drawings against demand deposits as well as withdrawals from savings deposits.[17]
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow
immediate drawings on uncollected deposits of managers checks, among others. Consequently,
RCBC, in allowing the immediate withdrawal against the subject managers check, only exercised
a prerogative expressly granted to it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters
the extraordinary nature of the managers check and the relative rights of the parties thereto.
SBTCs liability as drawer remains the same − by drawing the instrument, it admits the existence
of the payee and his then capacity to indorse; and engages that on due presentment, the instrument
will be accepted, or paid, or both, according to its tenor.[18]
Concerning RCBCs claim for lost interest income on the remaining P4 million, this is already
covered by the amount of damages in the form of legal interest of 6%, based on Article 2200[19]
and 2209[20] of the Civil Code of the Philippines, as awarded by the Court of Appeals in its
decision.
In addition to the above-mentioned award of compensatory damages, we also find merit in the
need to award exemplary damages in order to set an example for the public good. The banking
system has become an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized society. Whether as mere passive entities for the safe-keeping and
saving of money or as active instruments of business and commerce, banks have attained an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, above all, trust and confidence. In this connection, it is important that banks should
guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized,
since the banking business is impressed with public interest, the trust and confidence of the public
in it is of paramount importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it. SBTC having failed in this respect,
the award of exemplary damages to RCBC in the amount of P50,000.00 is warranted.[21]
Pursuant to current jurisprudence, with the finding of liability for exemplary damages, attorneys
fees in the amount of P25,000.00[22] must also be awarded against SBTC and in favor of RCBC.
WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution dated December 12,
2005 of the Court of Appeals in CA-G.R. CV No. 67387 is hereby AFFIRMED with
MODIFICATION. Security Bank and Trust Company is ordered to pay Rizal Commercial
Banking Corporation: (1) the remaining P4,000,000.00, with legal interest thereon at six percent
(6%) per annum from the time of filing of the complaint on February 13, 1981 to the date of
finality of this Decision; (2) exemplary damages of P50,000.00; and (3) attorneys fees of
P25,000.00.
No pronouncement as to costs.
SO ORDERED

CESAR V. AREZA v. EXPRESS SAVINGS BANK, GR No. 176697, 2014-09-10

Facts:

Petition for Review on Certiorari under Rule 45

Petitioners Cesar V. Areza and Lolita B. Areza maintained two bank deposits with respondent
Express Savings Bank's Biñan branch
They were engaged in the business of "buy and sell" of brand new and second-hand motor
vehicles. On 2 May 2000, they received an order from a certain Gerry Mambuay (Mambuay) for
the purchase of a second-hand Mitsubishi Pajero and a brand-new Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO)
checks payable to different payees and drawn against the Philippine Veterans Bank (drawee), each
valued at Two Hundred Thousand Pesos (P200,000.00) for a total of One Million Eight

Hundred Thousand Pesos (P1,800,000.00).

About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch
manager of respondent Express Savings Bank (the Bank) was present during the transaction and
immediately offered the services of the Bank for the processing and eventual crediting of the...
said checks to petitioners' account.

petitioners deposited the said checks in their savings account with the Bank. The Bank, in turn,
deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan, Laguna. Equitable-
PCI Bank presented the checks to the drawee, the Philippine

Veterans Bank, which honored the checks.

Potenciano informed petitioners that the checks they deposited with the Bank were honored. He
allegedly warned petitioners that the clearing of the checks pertained only to the availability of
funds and did not mean that the checks were not infirmed.

Sometime in July 2000, the subject checks were returned by PVAO to the drawee on the ground
that the amount on the face of the checks was altered from the original amount of P4,000.00 to
P200,000.00.

the Bank was informed by Equitable-PCI Bank that the drawee dishonored the checks on the
ground of material alterations.

The Bank insisted that they informed petitioners of said development in August 2000 by
furnishing them copies of the documents given by its depositary bank.[7] On the other hand,
petitioners maintained that the Bank never informed them of these... developments.

On 9 March 2001, petitioners issued a check in the amount of P500,000.00. Said check was
dishonored by the Bank for the reason "Deposit Under Hold.

According to petitioners, the Bank unilaterally and unlawfully put their account with the Bank on
hold

Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and
unilateral withdrawal from their savings account, petitioners filed a Complaint for Sum of Money
with Damages against the Bank and Potenciano

Invoking Article 1977 of the Civil Code, the trial court stated that the depositary cannot make use
of the thing deposited without the express permission of the depositor. The trial... court also held
that respondents should have observed the 24-hour clearing house rule that checks should be
returned within 24-hours after discovery of the forgery but in no event beyond the period fixed by
law for filing a legal action. In this case, petitioners deposited... the checks in May 2000, and
respondents notified them of the problems on the check three months later or in August 2000. In
sum, the trial court characterized said acts of respondents as attended with bad faith when they
debited the amount of P1,800,000.00 from the account... of petitioners.

Respondents filed a motion for reconsideration while petitioners filed a motion for execution from
the Decision of the RTC on the ground that respondents' motion for reconsideration did not
conform with Section 5, Rule 16 of the Rules of Court; hence, it was a mere scrap of... paper that
did not toll the running of the period to appeal.

RTC, through Pairing Judge Romeo C. De Leon granted the motion for reconsideration, set aside
the Pozas Decision, and dismissed the complaint. The trial court awarded respondents their
counterclaim of moral and exemplary damages of P100,000.00... each.

The trial court first applied the principle of liberality when it disregarded the alleged absence of a
notice of hearing in respondents' motion for reconsideration.

On the merits, the trial court considered the relationship of the Bank and petitioners with respect
to their... savings account deposits as a contract of loan with the bank as the debtor and petitioners
as creditors.

On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of
damages.

Petitioners filed the present petition for review on certiorari raising both procedural and
substantive issues

Issues:

Whether or not the Honorable Court of Appeals committed a reversible error of law and grave
abuse of discretion in upholding the legality and/or propriety of the Motion for Reconsideration
filed in violation of Section 5, Rule 15 of the Rules on Civil Procedure

Ruling:

Sections 5, Rule 15 of the Rules of Court states:

Section 5. Notice of hearing. The notice of hearing shall be addressed to all parties concerned, and
shall specify the time and date of the hearing which must not be later than ten (10) days after the
filing of the motion.

Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the
adverse party as the rules require. Petitioners add that the hearing on the motion for
reconsideration was scheduled beyond 10 days from the date of filing.

As held in Maturan v. Araula,[11] the rule requiring that the notice be addressed to the adverse
party has been substantially complied with when a copy of the motion for reconsideration was
furnished to the counsel of the adverse party, coupled with... the fact that the trial court acted on
said notice of hearing and, as prayed for, issued an order[12] setting the hearing of the motion on
26 March 2004.

We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of
the said motion for reconsideration was furnished to the counsel of the adverse party.

To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the
check prior to alteration. Since Philippine Veterans Bank paid the altered amount of the check, it
may pass the liability back as it did, to Equitable-PCI Bank, the... collecting bank. The collecting
banks, Equitable-PCI Bank and the Bank, are ultimately liable for the amount of the materially
altered check. It cannot further pass the liability back to the petitioners absent any showing in the
negligence on the part of the... petitioners which substantially contributed to the loss from
alteration.

Based on the foregoing, we affirm the Pozas decision only insofar as it ordered respondents to
jointly and severally pay petitioners P1,800,000.00, representing the amount withdrawn from the
latter's account. We do not conform with said ruling regarding the finding... of bad faith on the
part of respondents, as well as its failure to observe the 24-hour clearing rule.

WHEREFORE, the petition is GRANTED.

WESLEYAN UNIVERSITY PHILIPPINES v.NOWELLA REYES G.R. No. 208321, July 30,
2014, Velasco, Jr., J.
An employer cannot be compelled to retain an employee who is guilty of acts inimical to the
interests of the employer. Facts: Wesleyan University dismissed its University Treasurer Nowella
Reyes since it allegedly lost trust and confidence owing to an interplay of the events such as: (1)
encashing a check payable to the University Treasurer in the amount 300K; (2) encashing crossed
checks payable to the University Treasurer, when the intention of management in this regard was
to merely transfer funds from one of petitioner’s accounts to another in the same bank; and (3)
spurious duplicate checks bearing her signature were encashed causing damage to petitioner.
Respondent post-haste filed a complaint for illegal dismissal. Labor Arbiter ruled in her favor.
However, this was reversed by NLRC. On appeal, CA reinstated the Decision of the Labor Arbiter.
Hence, this Petition. Issue: Whether there was a valid dismissal on the ground of loss of trust and
confidence Ruling: Yes. Petitioner adequately proved respondent’s dismissal was for a just cause,
based on a willful breach of trust and founded on clearly established facts as required by
jurisprudence. The question of whether she was a managerial or rank-and file employee does not
matter in this case because not only is there basis for believing that she breached the trust of her
employer, her involvement in the irregularities attending to petitioner’s finances has also been
proved.A company has the right to dismiss its employees if only as a measure of self-protection.
This is truer in the case of supervisors or personnel occupying positions of responsibility.
Respondent was not an ordinary rank-and-file employee as she was the Treasurer who was in
charge of the coffers of the University. It would be oppressive to require petitioner to retain in
their management an officer who has admitted to knowingly and intentionally committing acts
which jeopardized its finances and who was untrustworthy in the handling and custody of
University funds. Authorized causes RUBEN L. ANDRADA, BERNALDO V. DELOS SANTOS,
JOVEN M. PABUSTAN, FILAMER ALFONSO, VICENTE A. MANTALA, JR., HARVEY D.
CAYETANO, and JOVENCIO L. POBLETE v. NATIONAL LABOR RELATIONS
COMMISSION, SUBIC LEGEND RESORTS AND CASINO, INC., and/or MR. HWA PUAY,
MS. FLORDELIZA MARIA REYES RAYEL, and its CORPORATE OFFICERS G.R. No.
173231, December 28, 2007, Velasco, Jr., J. Employment is not merely a lifestyle choice to stave
off boredom. Employment to the common man is his very life and blood, which must be protected
against concocted causes to legitimize an otherwise irregular.

Equitable Banking Corporation, Inc vs Special Steel Products

G.R. No. 175350 June 13, 2012

Facts: Augusto L. Pardo (Pardo) is SSPI’s President and majority stockholder. International Copra
Export Corporation (Interco) is its regular customer. Jose Isidoro Uy, alias Jolly Uy (Uy), is an
Interco employee, in charge of the purchasing department, and the son-in-law of its majority
stockholder. Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic
corporation engaged in banking and is the depository bank of Interco and of Uy. In 1991, SSPI
sold welding electrodes to Interco, as evidenced by the following sales invoices: Sales Invoice No.
65042 dated February 14, 1991 for P 325,976.34 Sales Invoice No. 65842 dated April 11, 1991 for
P 345,412.80 Sales Invoice No. 65843 dated April 11, 1991 for P 313,845.84 The due dates for
these invoices were March 16, 1991 (for the first sales invoice) and May 11, 1991 (for the others).
The invoices provided that Interco would pay interest at the rate of 36% per annum in case of
delay. and July 29, 1991. In payment for the above welding electrodes, Interco issued three checks
payable to the order of SSPI on July 10, 1991, July 16, 1991, Each check was crossed with the
notation “account payee only” and was drawn against Equitable. The records do not identify the
signatory for these three checks, or explain how Uy, Interco’s purchasing officer, came into
possession of these checks. The records only disclose that Uy presented each crossed check to
Equitable on the day of its issuance and claimed that he had good title thereto. He demanded the
deposit of the checks in his personal accounts in Equitable, Account No. 188412 and Account No.
03474-0.
Issue: Whether or not the payment made by Equitable is proper.

Held: No. The checks that Interco issued in favor of SSPI were all crossed, made payable to
SSPI’s order, and contained the notation “account payee only.” This creates a reasonable
expectation that the payee alone would receive the proceeds of the checks and that diversion of the
checks would be averted. This expectation arises from the accepted banking practice that crossed
checks are intended for deposit in the named payee’s account only and no other. At the very least,
the nature of crossed checks should place a bank on notice that it should exercise more caution or
expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized
the holder to deposit the same in a different account. It is well to remember that “[t]he banking
system has become an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized society. Whether as mere passive entities for the safe-keeping and
saving of money or as active instruments of business and commerce, banks have attained an [sic]
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, above all, trust and confidence. In this connection, it is important that banks should
guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized,
since the banking business is impressed with public interest, the trust and confidence of the public
in it is of paramount importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it.”

Equitable did not observe the required degree of diligence expected of a banking institution under
the existing factual circumstances.

Equitable’s pretension that there is nothing under the circumstances that rendered Uy’s title to the
checks questionable is outrageous. These are crossed checks, whose manner of discharge, in
banking practice, is restrictive and specific. Uy’s name does not appear anywhere on the crossed
checks. Equitable, not knowing the named payee on the check, had no way of verifying for itself
the alleged genuineness of the indorsement to Uy. The checks bear nothing on their face that
supports the belief that the drawer gave the checks to Uy. Uy’s relationship to Interco’s majority
stockholder will not justify disregarding what is clearly ordered on the checks.