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1. Metropolitan Bank and Trust Co. v. Junnel’s Marketing 4. Check No.

3010049150 - issued on 27 November 1998 in the


Corporation, Purificacion Delizo, and Bank of Commerce, G.R. No. amount of P136,220.00
235511, 20 June 2018 (negligence) Examination of the dorsal portion of the subject checks revealed that all had
been deposited with Bankcom, Dau branch, under Account No. 0015-32987-
7.6 Upon inquiring with Jardine and Premiere, however, JMC was able to
At bench are two appeals1 assailing the Decision2 dated 22 March 2017 and
confirm that neither of the said suppliers owns Bankcom Account No. 0015-
Resolution3 dated 19 October 2017 of the Court of Appeals (CA) in CA-G.R.
32987-7.
CV No. 102462. The first appeal was filed by the Metropolitan Bank and
Trust Company (Metrobank), while the second by the Bank of Commerce
Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a
(Bankcom).
former accountant of JMC, executed a handwritten letter 7 addressed to one
Nelvia Yusi, President of JMC. In the said letter, Delizo confessed that,
The facts are as follows:
during her time as an accountant for JMC, she stole several company checks
drawn against JMC's current account. She professed that the said checks
Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation
were never given to the named payees but were forwarded by her to one
engaged in the business of selling wines and liquors. It has a current
Lita Bituin (Bituin). Delizo further admitted that she, Bituin and an unknown
account with Metrobank4 from which it draws checks to pay its different
bank manager colluded to cause the deposit and encashing of the stolen
suppliers. Among JMC's suppliers are Jardine Wines and Spirits (Jardine)
checks and shared in the proceeds thereof.
and Premiere Wines (Premiere).
JMC surmised that the subject checks are among the checks purportedly
In 2000, during an audit of its financial records, 5 JMC discovered an anomaly
stolen by Delizo.
involving eleven (11) checks (subject checks) it had issued to the orders of
Jardine and Premiere on various dates between October 1998 to May 1999.
On 28 January 2002, JMC filed before the Regional Trial Court (RTC) of
As it was, the subject checks had already been charged against JMC's
Pasay City a complaint for sum of money8 against Delizo, Bankcom and
current account but were, for some reason, not covered by any official
Metrobank. The complaint was raffled to Branch 115 and was docketed as
receipt from Jardine or Premiere. The subject checks, which are
Civil Case No. 02-0193.
all crossed checks and amounting to P1,481,292.00 in total, are as
follows:
In its complaint, JMC alleged that the wrongful conversion of the subject
checks was caused by a combination of the "tortious and felonious" scheme
Checks Payable to the Order of Jardine:
of Delizo and the "negligent and unlawful acts" of Bankcom and
1. Check No. 3010048953 - issued on 11 October 1998 in the amount
Metrobank, to wit:9
of P181,440.00
2. Check No. 3010048955 - issued on 24 October 1998 in the amount
1. Delizo, by her own admission, stole the company checks of JMC.
of P195,840.00
Among these checks, as confirmed by JMC's audit, are the subject
3. Check No. 3010069098 - issued on 18 May 1999 in the amount of
checks.
P58,164.56
2. After stealing the subject checks, Delizo and her accomplices, Bituin
4. Check No. 3010069099 - issued on 18 May 1999 in the amount of
and an unknown bank manager, caused the subject checks to be
P44,651.52
deposited in Bankcom, Dau branch, under Account No. 0015-32987-
5. Check No. 3010049551 - issued on 25 May 1999 in the amount of
7. Bankcom, on the other hand, negligently accepted the subject
P103,680.00
checks for deposit under the said account despite the fact that they
6. Check No. 3010049550 - issued on 30 May 1999 in the amount of
are crossed checks payable to the orders of Jardine and Premiere
P103,680.00
and neither of them owns the concerned account.
7. Check No. 3010048954 - issued on 29 December 1998 in the
3. Thereafter, Bankcom presented the subject checks for payment to
amount of P195,840.00
Metrobank which, also in negligence, decided to honor the said
Checks Payable to the Order of Premiere:
checks even though Bankcom Account No. 0015-32987-7 belongs to
1. Check No. 3010049149 - issued on 9 December 1998 in the amount
neither Jardine nor Premiere.
of P136,220.00
On the basis of the foregoing averments, JMC prayed that Delizo, Bankcom
2. Check No. 3010049148 - issued on 16 December 1998 in the
and Metrobank be held solidarily liable in its favor for the amount of the
amount of P136,220.00
subject checks.
3. Check No. 3010049410 - issued on 18 April 1999 in the amount of
P189,336.00.
Delizo, Bankcom and Metrobank filed their individual answers denying
liability.10 Incorporated in Metrobank's answer, moreover, is a cross-claim payees named in the subject checks. In this regard,
against Bankcom and Delizo wherein Metrobank asks for the right to be Bankcom was clearly negligent.
reimbursed in the event it is ordered liable in favor of JMC. 11 b. Metrobank, on the other hand, is also negligent for its failure
to scrutinize the subject checks before clearing and honoring
On 28 May 2013, the RTC rendered a decision12 holding both Bankcom and them. Had Metrobank done so, it would have noticed that
Metrobank liable to JMC-on a 2/3 to 1/3 ratio, respectively-for the amount Bankcom's ID band stamped at the back of the subject
of subject checks plus interest as well as attorney's fees, but absolving checks did not contain any initials and are, therefore,
Delizo from any liability.13 The trial court, in the same decision, also defective. In this regard, Metrobank was remiss in its duty
dismissed Metrobank's cross-claim against Bankcom. The dispositive portion to ensure that the subject checks are paid only to the named
of the decision reads:14 payees.

WHEREFORE, judgment is rendered against defendants [Bankcom] In view of the comparative negligence of Bankcom and Metrobank,
and [Metrobank] for the total value of the 11 checks. [Bankcom] and they should be held liable to JMC, on a 2/3 to 1/3 ratio, respectively, for the
Metrobank are adjudged solidarily liable to pay [JMC] at the ratios of 2/3 amount of subject checks plus interest.
and 1/3, respectively: Bankcom and Metrobank filed their respective appeals with the CA.

1. The actual loss of P 1,481,292 including 6% legal interest from the filing On 22 March 2017, the CA rendered its decision16 affirming, albeit with
of the complaint; modification, the decision of the RTC. The disposition of the decision reads: 17
2. Plus 12% interest on the principal of P 1,481,292 including 6% interest
on the principal, from the date this Decision becomes final and executory; WHEREFORE, the Decision dated 28 May 2013 of the [RTC] in Civil
3. The attorney's fees of 15% of the total of number one and two above; Case NO. 02-0193 is AFFIRMED with MODIFICATION in that: (a) the
4. Costs against [Bankcom] and Metrobank. award of attorney's fees is DELETED; and (b) [Bankcom] and [Metrobank]
are ordered to pay interest at the rate of 12% per annum on the principal of
Metrobank's cross-claim against [Bankcom] is DISMISSED, both P 1,481,292 including 6% interest on the principal, from the date of the
being negligent. Decision (28 May 2013) until June 2013 and 6% per annum from 1 July
2013 until full satisfaction. The Decision is affirmed in all other respects.
SO ORDERED.
SO ORDERED.
The RTC's decision was hinged on the following findings: 15
1. The subject checks were complete and not forged. They were, The CA agreed with the RTC that Bankcom and Metrobank should be held
however, stolen by unknown malefactors and were wrongfully liable to JMC, on a 2/3 to 1/3 ratio, respectively, for the amount of subject
encashed due to the negligence of Bankcom and Metrobank. checks. The appellate court, however, differed with the trial court with
2. Delizo's complicity in the acquisition and negotiation of the subject respect to the basis of Metrobank's liability. According to the CA,
checks was not proven. No direct evidence linking Delizo to the Metrobank's negligence consisted, not in its inability to notice that
deeds was presented. Moreover, Delizo's supposed handwritten Bankcom's ID band does not contain any initials, but in its failure to
confession must be discredited for being made under duress, ascertain that only four (4) out of the 11 subject checks were stamped by
intimidation and threat. It was established during trial that Delizo Bankcom with the express guarantees "ALL PRIOR ENDORSEMENTS AND/OR
was only forced by Yusi to confess about the missing checks and to LACK OF ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE" as
execute the handwritten confession. Hence, Delizo must be absolved required by Section 17 of the PCHC Rules and Regulations. 18
from any liability.
3. The involvement of Bankcom and Metrobank on the wrongful The CA also sustained the ruling of the RTC anent the absolution of Delizo
encashment of the subject checks, however, were clearly and the dismissal of Metrobank's cross-claim.
established:
a. Bankcom accepted the subject checks for deposit under Finally, the CA modified the rate of interest due on the amount of the
Account No. 0015-32987-7, endorsed them and sent them subject checks that was fixed by the RTC and also deleted the RTC's award
for clearance with the Philippine Clearing House Corporation of attorney's fees in favor of JMC.19
(PCHC). Bankcom did all these despite the fact that the
subject checks were ll crossed checks and that Account No. Bankcom and Metrobank filed their motions for reconsideration, but the CA
0015-32987-7 neither belongs to Jardine nor Premiere-the remained steadfast. Hence the present consolidated appeals.
Both Metrobank and Bankcom pray for absolution but they differ in the The Rule on Sequence of Recovery in Cases of Unauthorized
arguments they raise in support of their prayer: 20 Payment of Checks; The Case of Bank of America

1. Metrobank posits that it should be absolved because it had exercised The instant case involves the unauthorized payment of valid checks, i.e., the
absolute diligence in verifying the genuineness of the subject payment of checks to persons other than the payee named therein or his
checks. Metrobank argues that the RTC erred in holding it negligent order. The subject checks herein are considered valid because they are
on its failure to ascertain that only four (4) out of the 11 subject complete and bear genuine signatures.
checks were stamped with Bankcom's express guarantees.
Metrobank claims that while Section 17 of the PCHC Rules and Bank of America is the leading jurisprudence that illustrates the respective
Regulations does require all checks cleared through the PCHC to liabilities of a collecting bank and a drawee bank in cases of unauthorized
contain the collecting bank's express guarantees, the same provision payment of valid checks. Notably, the facts of Bank Americaare parallel to
precludes it, as a drawee bank, to return any checks presented to it the facts of the present case. Both Bank of America and the present case
for payment just because the same does not contain such express involved crossed checks payable to the order of a specified payee that
guarantees "for as long as there is evidence appearing on the were deposited in a collecting bank under an account not belonging
cheque itself that the same had been deposited with the [collecting] to the payee or his indorsee but which, upon presentment, were
[b]ank e.g., PCHC machine sprayed tracer/ID band." In this regard, subsequently honored by the drawee bank, thus:
Metrobank points out that all the subject checks had been stamped
in their dorsal portion with PCHC's tracer ID for Bankcom. 1. Bank of America involved four (4) crossed checks drawn against the
Bank of America (the drawee bank) and made payable to the order
Metrobank submits that, under the circumstances, it should be of a Miller Offset Press, Inc. (the designated payee). These checks
Bankcom-as the last indorser of the subject checks-that should bear were then deposited to the Associated Citizens Bank (the collecting
the loss and be held solely liable to JMC. bank) under a joint bank account of one Ching Uy Seng and a
2. Bankcom, on the other hand, argues that it should be absolved certain Uy Chung Guan Seng (an account that does not belong to
because it was never a party to the wrongful encashment of the the payee or its indorsee). The checks were then presented to the
subject checks. It claims that Account No. 0015-32987-7 does not Bank of America, which honored it, resulting to loss on the part of
exist in its system and, therefore, denies that the subject checks BA Finance Corporation (the drawer.)
were ever deposited with it. 2. The instant case involves eleven (11) crossed checks that were
drawn against Metrobank (the drawee bank) and made payable to
Bankcom proffers the view that it is JMC that should bear the loss of the orders of Jardine and Premiere (the designated payees). These
the subject checks. Bankcom argues that it was JMC's faulty checks were deposited with Bankcom (the collecting bank) under
accounting procedures which led to the subject checks being stolen Account No. 0015-32987-7 (an account that does not belong to
and misappropriated. either payee or their indorsees). The checks were then presented to
Metrobank, which honored it, resulting to loss on the part of JMC
Our Ruling (the drawer.)

The consolidated appeals must be denied as neither Metrobank nor Bankcom Bank of America held that, in cases involving the unauthorized payment of
are entitled to absolution. valid checks, the drawee bank becomes liable to the drawer for the
amount of the checks but the drawee bank, in turn, can seek
Be that as it may, there is a need to modify the decision of the CA and the reimbursement from the collecting bank. The rationale of this rule on
RTC with respect to the manner by which Metrobank and Bankcom are held sequence of recovery lies in the very basis and nature of the liability of a
liable under the circumstances. Instead of holding both Metrobank and drawee bank and a collecting bank in said cases. As the recent case of BDO
Bankcom liable to JMC in accordance with a fixed ratio, we find that the two Unibank v. Lao22 explains:
banks should have been ordered sequentially liable for the entire amount of
the subject checks pursuant to the seminal case of Bank of America v. The liability of the drawee bank is based on its contract with the drawer and
Associated Citizens Bank.21 its duty to charge to the latter's accounts only those payables authorized by
him. A drawee bank is under strict liability to pay the check only to the
Accordingly, we rule: (1) Metrobank liable to return to JMC the entire payee or to the payee's order. When the drawee bank pays a person other
amount of the subject checks plus interest and (2) Bankcom liable to than the payee named in the check, it does not comply with the terms of the
reimburse Metrobank the same amount plus interest. check and violates its duty to charge the drawer's account only for properly
payable items.
liable to return to JMC the amount of the subject checks.
On the other hand, the liability of the collecting bank is anchored on its
guarantees as the last endorser of the check. Under Section 66 of the Metrobank's insistence that it should be absolved for it merely complied with
Negotiable Instruments Law, an endorser warrants "that the instrument is Section 17 of the PCHC Rules and Regulations and thereby only relied upon
genuine and in all respects what it purports to be; that he has good title to the concomitant guarantees of Bankcom when it paid the subject checks,
it; that all prior parties had capacity to contract; and that the instrument is cannot stand insofar as JMC is concerned. In Bank of America, we rejected a
at the time of his endorsement valid and subsisting." similar argument interposed by a drawee bank (Bank of America) precisely
on the ground of the latter's strict liability to its drawer (BA-Finance) viz:30
It has been repeatedly held that in check transactions, the collecting bank
generally suffers the loss because it has the duty to ascertain the Bank of America denies liability for paying the amount of the four checks
genuineness of all prior endorsements considering that the act of presenting issued by BA-Finance to Miller, alleging that it (Bank of America) relied
the check for payment to the drawee is an assertion that the party making on the stamps made by Associated Bank stating that all prior
the presentment has done its duty to ascertain the genuineness of the endorsement and/or lack of endorsement guaranteed, through
endorsements. If any of the warranties made by the collecting bank turns which Associated Bank assumed the liability of a general endorser under
out to be false, then the drawee bank may recover from it up to the amount Section 66 of the Negotiable Instruments Law. Moreover, Bank of America
of the check. (Citations omitted). contends that the proximate cause of BA-Finances injury, if any, is
This rule should have been applied to the case at bench. the gross negligence of Associated Bank which allowed Ching Uy Seng
(Robert Ching) to deposit the four checks issued to Miller in the personal
Metrobank is Liable to JMC joint bank account of Ching Uy Seng and Uy Chung Guan Seng.
We are not convinced.
Metrobank, as drawee bank, is liable to return to JMC the amount of the
subject checks. The bank on which a check is drawn, known as the drawee bank, is
under strict liability, based on the contract between the bank and its
A drawee bank is contractually obligated to follow the explicit instructions of customer (drawer), to pay the check only to the payee or the
its drawer-clients when paying checks issued by them. 23 The drawer's payee's order. x x x.
instructions-including the designation of the payee or to whom the check
should be paid-are reflected on the face and by the terms thereof. 24 When a In this case, the four checks were drawn by BA-Finance and made payable
drawee bank pays a person other than the payee named on the check, it to the Order of Miller Offset Press, Inc. The checks were also crossed and
essentially commits a breach of its obligation and renders the payment it issued For Payee's Account Only. Clearly, the drawer intended the check for
made unauthorized.25 In such cases and under normal circumstances, the deposit only by Miller Offset Press, Inc. in the latter's bank account. Thus,
drawee bank may be held liable to the drawer for the amount charged when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert
against the latter's account.26 Ching, presented and deposited the checks in his own personal
account (Ching Uy Sengs joint account with Uy Chung Guan Seng),
The liability of the drawee bank to the drawer in cases of unauthorized and the drawee bank, Bank of America, paid the value of the checks
payment of checks has been regarded in jurispn1dence to be strict by and charged BA-Finances account therefor, the drawee Bank of
nature.27 This means that once an unauthorized payment on a check has America is deemed to have violated the instructions of the drawer,
been made, the resulting liability of the drawee bank to the drawer for such and therefore, is liable for the amount charged to the drawer's
payment attaches even if the former had acted merely upon the guarantees account (Citations omitted. Emphasis supplied).
of a collecting bank.28 Indeed, it is only when the unauthorized payment of a Accordingly, we find Metrobank liable to return to JMC the amount of the
check had been caused or was attended by the fault or negligence of the subject checks.
drawer himself can the drawee bank be excused, whether wholly or
partially, from being held liable to the drawer for the said payment. 29 Bankcom is Liable to Metrobank
While Metrobank's reliance upon the guarantees of Bankcom does not
In the present case, it is apparent that Metrobank had breached JMC's excuse it from being liable to JMC, such reliance does enable Metrobank to
instructions when it paid the value of the subject checks to Bankcom for the seek reimbursement from Bankcom-the collecting bank.
benefit of a certain Account No. 0015-32987-7. The payment to Account No.
0015-32987-7 was unauthorized as it was established that the said account A collecting or presenting bank-i.e., the bank that receives a check for
does not belong to Jardine or Premiere, the payees of the subject checks, or deposit and that presents the same to the drawee bank for payment-is an
to their indorsees. In addition, causal or concurring negligence on the part indorser of such check.31 When a collecting bank presents a check to the
of JMC had not been proven. Under such circumstances, Metrobank is clearly drawee bank for payment, the former thereby assumes the same warranties
assumed by an indorser of a negotiable instrument pursuant to Section 66 prior endorsements considering that the act of presenting the check
of the Negotiable Instruments Law. These warranties are: (1) that the for payment to the drawee is an assertion that the party making the
instrument is genuine and in all respects what it purports to be; (2) that the presentment has done its duty to ascertain the genuineness of the
indorser has good title to it; (3) that all prior parties had capacity to endorsements. This is laid down in the case of PNB v. National City Bank.
contract; and (4) that the instrument is, at the time of the indorsement, (Citations omitted. Emphasis supplied).
valid and subsisting.32 If any of the foregoing warranties turns out to be More than such pronouncement, however, Section 17 of the PCHC Rules and
false, a collecting hank becomes liable to the drawee bank for payments Regulations expressly provides that checks "cleared through the PCHC" that
made under such false warranty. do not bear the mentioned guarantees shall nonetheless "be deemed
guaranteed by the [collecting bank] as to all prior endorsements and/or lack
Here, it is clear that Bankcom had assumed the warranties of an indorser of endorsement" such that "no drawee bank shall return any [check]
when it forwarded the subject checks to PCHC for presentment to received by it through clearing by reason only of the absence or lack of such
Metrobank. By such presentment, Bankcom effectively guaranteed to guarantee ... as long as there is evidence appearing on the [check] itself
Metrobank that the subject checks had been deposited with it to an account that the same had been deposited with the [collecting bank] x x x." The full
that has good title to the same. This guaranty, however, is a complete provision reads:
falsity because the subject checks were, in truth, deposited to an account Sec. 17. Bank Guarantee. All checks cleared through the PCHC shall bear
that neither belongs to the payees of the subject checks nor to their the guarantee affixed thereto by the Presenting Bank/Branch which shall
indorsees. Hence, as the subject checks were paid under Bankcom's false read as follows:
guaranty, the latter-as collecting bank-stands liable to return the value of
such checks to Metrobank. Cleared thru the Philippine Clearing House Corporation all prior
endorsements and/or lack of endorsement guaranteed NAME OF
Bankcom's assertion that it should be absolved as the subject checks were BANK/BRANCH BRSTN (Date of Clearing). Checks to which said
allegedly never deposited with it must fail. Such allegation is readily guarantee has not been affixed shall, nevertheless, be deemed
disproved by the fact that the subject checks all contained, at their dorsal guaranteed by the Presenting Bank as to all prior endorsement
side, a stamp bearing Bankcom's tracer/ID band.33 Under the PCHC Rules and/or lack of endorsement.
and Regulations, the stamped tracer/ID band of Bankcom signifies that the
checks had been deposited with it and that Bankcom indorsed the said No drawee bank shall return any cheque received by it through
checks and sent them to PCHC.34 As observed by the RTC:35 clearing by reason only of the absence or lack of such guarantee
Record shows that the pieces of evidence presented by [JMC], particularly stamped at the back of said cheque, for as long as there is evidence
the 11 subject checks were endorsed and were allowed to be encashed by appearing on the cheque itself that the same had been deposited
[Bankcom], as indicated in the dorsal portion of the checks where [PCHC] with the Presenting Bank, e.g. PCHC machine sprayed tracer/ID
machine's tracer, or the ID band of [Bankcom] was stamped. And this band. (Emphasis supplied)
stamped tracer ID band of [Bankcom] signifies that [Bankcom] certified that In the present case, all the subject checks have been transmitted by
the checks were deposited to [Bankcom] and [Bankcom] endorsed these Bankcom to the PCHC for clearing and presentment to Metrobank. As earlier
checks and sent them to PCHC. adverted to, all of the said checks also bear the PCHC machine sprayed
Neither do we find the liability of Bankcom to be affected by the fact that tracer/ID band of Bankcom. Such circumstances, pursuant to prevailing
only four (4) out of the eleven (11) subject checks were actually stamped banking practices as laid out under the PCHC Rules and Regulations, are
with the guarantees "ALL PRIOR ENDORSEMENTS AND/OR LACK OF enough to fix the liability of Bankcom as an indorser of the subject checks
ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE" as required under even sans the stamp "ALL PRIOR ENDORSEMENTS AND/OR LACK OF
Section 17 of the PCHC Rules and Regulations. The stamping of such ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE." As the stamping of
guarantees is not necessary to fix the liability of Bankcom as an indorser for such guarantees are not required before the warranties of an indorser could
all the subject checks. attach against Bankcom, we find the latter liable to reimburse Metrobank
the value of all the subject checks.
To begin with, jurisprudence has it that a collecting bank's mere act of
presenting a check for payment to the drawee bank is itself an assertion, on Recourse of Bankcom
the part of the former, that it had done its duty to ascertain the validity of
prior indorsements. Hence, in Banco De Oro v. Equitable Banking The sequence of recovery in cases of unauthorized payment of checks,
Corporation,36 we stated: however, does not ordinarily stop with the collecting bank. In the event that
Apropos the matter of forgery in endorsements, this Court has presently it is made to reimburse the drawee bank, the collecting bank can seek
succinctly emphasized that the collecting bank or last endorser generally similar reimbursement from the very persons who caused the checks to be
suffers the loss because it has the duty to ascertain the genuineness of all deposited and received the unauthorized payments. 37 Such persons are the
ones ultimately liable for the unauthorized payments and their liability rests with the Metrobank under the account of a certain Filipinas Cement
on their absolute lack of valid title to the checks that they were able to Corporation. The checks were eventually encashed.
encash.
It was later established, however, that Lim never requested the pre-
Verily, Bankcom ought to have a right of recourse against the persons that termination of his money market placement and that his indorsement in the
caused the anomalous deposit of the subject checks and received payments check was forged.
therefor. Unfortunately-as none of such persons were impleaded in the case
before us-no pronouncement as to this matter can be made in favor of A glaring peculiarity in the cases of Bank of the Philippine
Bankcom. Islands and Allied Banking Corporation is that the drawee bank-which is
essentially also the drawer in the scenario-is not only guilty of
At this juncture, we express our concurrence to the absolution of Delizo. The wrongfully paying a check but also of negligence in issuing such
RTC and the CA were uniform in their finding that the participation of Delizo- check. Indeed, this is the very reason why the drawee bank in the two
as the supposed thief of the subject checks-had not been established in this cases were adjudged co-liable with the collecting bank under a fixed ratio
case. We reviewed the evidence on hand and saw no cogent reason to and the former was not allowed to claim reimbursement from the
deviate from this factual finding. latter.41 The drawee bank cannot claim that its participation in the wrongful
payment of a check was merely limited to its reliance on the guarantees of
Doctrine of Comparative Negligence Does Not Apply to the Instant the collecting bank. In other words, the drawee bank was held liable in its
Case own right because it was the one that negligently issued the checks in the
first place.
Instead of applying the rule on the sequence of recovery to the case at
bench, the RTC and the CA held both Metrobank and Bankcom liable to JMC That, however, is clearly not the situation in the case at bench. Here, no
in accordance with a fixed ratio. In so doing, the RTC and the CA seemingly negligence similar to that committed by the drawee banks in Bank of the
relied on the doctrine of comparative negligence 38 as applied in the cases Philippine Islands and Allied Banking Corporation-whether in type or in
of Bank of the Philippine Islands v. Court of Appeals 39 and Allied Banking magnitude-can be attributed to Metrobank. Metrobank, though guilty of the
Corporation v. Lio Sim Wan.40 In both cases, the Court held the drawee bank unauthorized check payments, only acted upon the guarantees deemed
and collecting bank liable for the wrongful encashment of checks under a made by Bankcom under prevailing banking practices. While Metrobank's
60% and 40% ratio. reliance upon the guarantees of Bankcom did not excuse it from being
answerable to JMC, such reliance does enable Metrobank to seek
It must be emphasized, however, that the factual contexts of Bank of the reimbursement from Bankcom on the ground of the breach in the latter's
Philippine Islands and Allied Banking Corporation are starkly different from warranties as a collecting bank. Under such circumstances, we cannot deny
the instant case: Metrobank's right to seek reimbursement from Bankcom.
1. Bank of the Philippine Islands involved two (2) cashier's checks issued
by the Bank of the Philippine Islands (BPI) in favor of a certain Eligia Hence, given the differences in the factual milieu between this case on one
Fernando (Eligia). The checks are supposed to represent the proceeds of a hand arid the cases of Bank of the Philippine Islands and Allied Banking
pre-terminated money market placement of Eligia with BPI. BPI issued the Corporation on the other, we find that the doctrine of comparative
checks upon the mere phone request of a person who introduced herself as negligence cannot be applied so as to apportion the respective liabilities of
Eligia. The checks were subsequently deposited with the China Banking Metrobank and Bankcom. The liabilities of Metrobank and Bankcom, as
Corporation (CBC) under an account that was opened by a person who already discussed in length, must be governed by the rule on sequential
identified herself as Eligia. This person thereafter encashed the checks. recovery pursuant to Bank of America.

It was later established, however, that Eligia never requested the pre-
termination of her money market placement nor opened an account with the Interests
CBC. It was an impostor who did so.
As a final matter, we also saw it fit to impose legal interest upon the
2. Allied Banking Corporation, on the other hand, involved a manager's respective principal liabilities of Metrobank and Bankcom.
check issued by the Allied Banking Corporation (ABC) in favor of a certain
Lim Sio Wan (Lim). The check is supposed to represent the proceeds of a In Nacar v. Gallery Frames,42 wlaid out the following guidelines for the
pre-terminated money market placement of Lim with ABC. ABC issued the imposition and computation of legal interests:
checks upon the mere phone request of a person who introduced herself as To recapitulate and for future guidance, the guidelines laid down in the case
Lim. The checks, now bearing an indorsement of Lim, were then deposited of Eastern Shipping Lines are accordingly modified to embody BSP
MB Circular No. 799, as follows: bank deposits, are considered under the law as loans. 43Normally,
current accounts are interest-bearing by express contract. However,
I. When an obligation, regardless of its source, i.e., law, contracts, quasi- the actual interest rate, if any, for the current account opened by
contracts, delicts or quasi-delicts is breached, the contravener can be held JMC with Metrobank was not given in evidence. 44
liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages. Under these circumstances, we find it proper to subject Metrobank's
principal liability to JMC to a legal interest of 6% per annum from 28
II. With regard particularly to an award of interest in the concept of actual January 2002 until full satisfaction.45 The date 28 January 2002 is
and compensatory damages, the rate of interest, as well as the accrual the date when JMC filed its complaint with the RTC.
thereof, is imposed, as follows: 2. The liability of Bankcom to Metrobank, on the other hand, consists in
returning the amount it was paid by Metrobank. This stems from a
1. When the obligation is breached, and it consists in the breach by Bankcom of its warranties as a collecting bank.
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been Accordingly, we find it proper to subject Bankcom's principal liability
stipulated in writing. Furthermore, the interest due shall to Metrobank to a legal interest of 6% per annum from 5 March
itself earn legal interest from the time it is judicially 2003 until full satisfaction.46 The date 5 March 2003 is the date
demanded.In the absence of stipulation, the rate of interest shall when Metrobank filed its answer with cross-claim against Bankcom.
be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article WHEREFORE, the consolidated appeals are DENIED. The Decision dated
1169 of the Civil Code. 22 March 2017 and Resolution dated 19 October 2017 of the Court of
2. When an obligation, not constituting a loan or forbearance of Appeals (CA) in CA-G.R. CV No. 102462 are herein MODIFIEDwith respect
money, is breached, an interest on the amount of damages to the individual liabilities of the Metropolitan Bank and Trust Company and
awarded may be imposed at the discretion of the court at the the Bank of Commerce, as follows:
rate of 6% per annum. No interest, however, shall be adjudged 1. The Metropolitan Bank and Trust Company is adjudged liable to pay
on unliquidated claims or damages, except when or until the respondent Junnel's Marketing Corporation the following:
demand can be established with reasonable certainty. Accordingly, a. The principal amount of P 1,481,292.00, and
where the demand is established with reasonable certainty, b. Interest on the said principal at the rate of 6% per annum
the interest shall begin to run from the time the claim is from 28 January 2002 until full satisfaction.
made judicially or extrajudicially (Art. 1169, Civil Code), but 2. The Bank of Commerce is adjudged liable to pay the Metropolitan
when such certainty cannot be so reasonably established at the time Bank and Trust Company the following:
the demand is made, the interest shall begin to run only from the a. The principal amount of P 1,481,292.00, and
date the judgment of the court is made (at which time the b. Interest on the said principal at the rate of 6% per annum
quantification of damages may be deemed to have been reasonably from 5 March 2003 until full satisfaction.
ascertained). The actual base for the computation of legal interest Other findings and pronouncements of the Court of Appeals in its Decision
shall, in any case, be on the amount finally adjudged. dated 22 March 2017 and Resolution dated 19 October 2017 in CA-G.R. CV
3. When the judgment of the court awarding a sum of money No. 102462 that are not contrary to this Decision are AFFIRMED.
becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, Costs against the Metropolitan Bank and Trust Company and the Bank of
above, shall be 6% per annum from such finality until its Commerce.
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit. SO ORDERED.

And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed
therein. (Citations omitted. Emphasis supplied).
Applying the foregoing guidelines to the case at bench, we fix the legal
interests due against Metrobank and Bankcom thusly: 2. Citystate Savings Bank v. Tobias, G.R. No. 227990, 7 March 2018
1. The liability of Metrobank to JMC consists in returning the amount it (negligence - banking)
charged against JMC's current account. Current accounts, like all
This is a petition for review on certiorari1 under Rule 45 of the Rules
of Court seeking to annul and set aside the Decision 2 dated May 31, On January 8, 2007, respondents filed a Complaint for sum of money and
2016 and Resolution3 dated October 10, 2016 issued by the Court of damages. against Robles and the petitioner.10 In their Complaint,
Appeals (CA) in CA-G.R. CV No. 102545. respondents alleged that Robles committed fraud in the performance of his
duties as branch manager when he lured Tobias in signing several pieces of
The Antecedent Facts blank documents, under the assurance as bank manager of petitioner,
everything was in order.11
Rolando Robles (hereinafter referred to as Robles), a certified public
accountant, has been employed with Citystate Savings Bank (hereinafter After due proceedings, the Regional Trial Court (RTC), on February 12,
referred to as the petitioner) since July 1998 then as Accountant-trainee for 2014, rendered its Decision,12viz.:
its Chino Roces Branch. On September 6, 2000, Robies was promoted as WHEREFORE, in light of the foregoing, judgment is hereby rendered
acting manager for petitioner's Baliuag, Bulacan branch, and eventually as ordering defendant Robles to pay plaintiff the following:
manager.4 1. the amount of Php1,800,000.00 as actual damages plus legal rate of
interest from the filing of the complaint until fully paid;
Sometime in 2002, respondent Teresita Tobias (hereinafter referred to as 2. the amount of Php100,000.00 as moral damages; and
Tobias), a meat vendor at the Baliuag Public Market, was introduced by her 3. the amount of Php50,000.00 as exemplary damages.
youngest son to Robies, branch manager of petitioner's Baliuag, Bulacan The plaintiffs claim for attorney's fees and litigation expenses are DENIED
branch.5 for lack of merit.

Robies persuaded Tobias to open an account with the petitioner, and Further, defendant bank is absolved of any liability. Likewise, all
thereafter to place her money in some high interest rate mechanism, to counterclaims and cross-claims are DENIED for lack of merit.
which the latter yielded.6
SO ORDERED.13
Thereafter, Robies would frequent Tobias' stall at the public market to
deliver the interest earned by her deposit accounts in the amount of Php Ruling of the CA
2,000.00. In turn, Tobias would hand over her passbook to Robies for
updating. The passbook would be returned the following day with The matter was elevated to the CA. The CA in its Decision 14 dated May 31,
typewritten entries but without the corresponding counter signatures. 7 2016, found the appeal meritorious and accordingly, reversed and set aside
the RTC's decision, in this wise:
Tobias was later offered by Robies to sign-up in petitioner's back-to-back WHEREFORE, the Appeal is hereby GRANTED. The Decision Dated 12
scheme which is supposedly offered only to petitioner's most valued clients. February 2014 of the [RTC], Third Judicial Region, Malolos City, Bulacan,
Under the scheme, the depositors authorize the bank to use their bank Branch 83, in Civil Case No. 11-M-07, is MODIFIED in that [petitioner] and
deposits and invest the same in different business ventures that yield high [Robles] are JOINTLY and SOLIDARILY to pay [respondents] the amounts
interest. Robies allegedly promised that the interest previously earned by set forth in the assailed Decisions as well as attorney's fees in the amount
Tobias would be doubled and assured her that he will do all the paper work. of ONE HUNDRED THOUSAND PESOS (P 100,000.00).
Lured by the attractive offer, Tobias signed the pertinent documents without
reading its contents and invested a total of Php 1,800,000.00 to petitioner SO ORDERED.15
through Robies. Later, Tobias became sickly, thus she included her daughter Petitioner sought a reconsideration of the decision, but it was denied by the
and herein respondent Shellidie Valdez (hereinafter referred to as Valdez), CA in its Resolution16 dated October 10, 2016.
as co-depositor in her accounts with the petitioner. 8
In the instant petition, respondents put forward the following
In 2005, Robies failed to remit to respondents the interest as scheduled. arguments to support their position:
Respondents tried to reach Robies but he can no longer be found; their calls V
were also left unanswered. In a meeting with Robies' siblings, it was
disclosed to the respondents that Robies withdrew the money and
ARGUMENTS
appropriated it for personal use. Robies later talked to the respondents,
promised that he would return the money by installments and pleaded that
IN RENDERING THE ASSAILED DECISION AND RESOLUTION, THE CA
they do not report the incident to the petitioner. Robies however reneged on
DECIDED QUESTIONS OF SUBSTANCE WHICH ARE NOT IN ACCORD WITH
his promise. Petitioner also refused to make arrangements for the return of
APPLICABLE LAWS AND JURISPRUDENCE.
respondents' money despite several demands.9
[A]THE CA SERIOUSLY ERRED IN RULING THAT THE DOCTRINE OF Inc. (Ford) to recover the value of several checks it issued payable to the
APPARENT AUTHORITY IS APPLICABLE IN THIS CASE. Commissioner of Internal Revenue (CIR) which were allegedly embezzled by
an organized syndicate.
[B]THE CA SERIOUSLY ERRED IN RULING THAT RESPONDENT TOBIAS IS
NOT GUILTY OF CONTRIBUTORY NEGLIGENCE. The first two of the three consolidated cases mentioned above involve twin
petitions for review assailing the decision and resolution of the CA ordering
[C]THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY AND the collecting bank, Philippine Commercial International Bank (PCIB) to pay
SOLIDARILY LIABLE WITH ROBLES TO PAY FOR THE DAMAGE SUPPOSEDLY the amount of a crossed Citibank N.A. (Citibank) check (No. SN-04867)
SUFFERED BY RESPONDENTS. drawn by Ford in favor of CIR as payment for its taxes.

[D]THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY The said check was deposited with PCIB and subsequently cleared by the
AND SOLIDARILY LIABLE FOR ATTORNEY'S FEES.17 Central Bank. Upon presentment with Citibank, the proceeds of the check
were released to PCIB as the collecting/depository bank.
In this petition for review on certiorari, petitioner alleged that it should
not be held liable considering that it has exercised a high degree of diligence However, it was later discovered that the check was not paid to the CIR.
in the selection and supervision of its employees, including Robles, and that Ford was-then forced to make another payment to the CIR.
it took proper measures in hiring the latter. Further, it posits that it has
complied with standard bank operating procedures in the conduct of its Investigation revealed that the check was recalled by the General Ledger
operations. Accountant of Ford on the pretext that there has been an error in the
computation of tax, he then directed PCIB to issue two manager's checks in
Petitioner also argues that Robles acted in his personal capacity in dealing replacement thereof.
with Tobias, who agreed with full knowledge and consent to the back-to-
back loans and that it was not privy to the transactions between them. Both Citibank and PCIB deny liability, the former arguing that payment was
Therefore, petitioner submits that the CA erred in applying the doctrine of in due course as it merely relied on the latter's guarantee as to "all prior
apparent authority. indorsements and/or lack of indorsements." Thus, Citibank submits that the
proximate cause of the injury is the gross negligence of PCIB in indorsing
Ruling of the Court the check in question. The CA agreed and adjudged PCIB solely liable for the
amount of the check.
The petition is denied.
On the other hand, the last of the three consolidated cases, assails the
The business of banking is one imbued with public interest. As such, banking decision and resolution of the CA which held Citibank, the drawee bank,
institutions are obliged to exercise the highest degree of diligence as well as solely liable for the amount of crossed check nos. SN-10597 and 16508 as
high standards of integrity and performance in all its transactions. 18 actual damages, the proceeds of which have been misappropriated by a
syndicate involving the employees of the drawer Ford, and the collecting
The law expressly imposes upon the banks a fiduciary duty towards its bank PCIB.
clients19 and to treat in this regard the accounts of its depositors with
meticulous care.20 This Court in resolving the issue of liability in PCIB v. CA, considered the
degree of negligence of the parties.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan or mutuum, with the bank as While recognizing that the doctrine of imputed negligence makes a principal
the debtor and the depositor as the creditor. 21 liable for the wrongful acts of its agents, this Court noted that the liability of
the principal would nonetheless depend on whether the act of its agent is
In light of these, banking institutions may be held liable for damages for the proximate cause of the injury to the third person.
failure to exercise the diligence required of it resulting to contractual breach
or where the act or omission complained of constitutes an actionable tort. 22 In the case of Ford, this Court ruled that its negligence, if any, cannot be
considered as the proximate cause, emphasizing in this regard the absence
The nature of a bank's liability is illustrated in the consolidated cases of confirmation on the part of Ford to the request of its General Ledger
of Philippine Commercial International Bank v. CA, et al., Ford Accountant for replacement of the checks issued as payment to the CIR. In
Philippines, Inc. v. CA, et al. and Ford Philippines, Inc. v. Citibank, absolving Ford from liability, this Court clarified that the mere fact that the
N.A., et al.23 The original actions a quo were instituted by Ford Philippines, forgery was committed by the drawer/principal's employee or agent, who
by virtue of his position had unusual facilities for perpetrating the fraud and carrying out the bank's duty to its depositors. The point is that as a business
imposing the forged paper upon the bank, does not automatically shift the affected with public interest and because of the nature of its functions, the
loss to such drawer-principal, in the absence of some circumstance raising bank is under obligation to treat the accounts of its depositors with
estoppel against the latter. meticulous care, always having in mind the fiduciary nature of their
relationship.25
In contrast, this Court found PCIB liable for failing to exercise the necessary Then, applying the doctrine of comparative negligence, this Court adjudged
care and prudence required under the circumstances. This Court noted that PCIB and Citibank equally liable for the proceeds of Citibank Check Nos. SN
the action of Ford's General Ledger Accountant in asking for the replacement 10597 and 16508.
of the crossed Citibank check No. SN-04867, was not in the ordinary
course of business and thus should have prompted PCIB to validate the It is without question that when the action against the bank is premised on
same. Likewise, considering that the questioned crossed check was breach of contractual obligations, a bank's liability as debtor is not merely
deposited with PCIB in its capacity as collecting agent for the Bureau of vicarious but primary, in that the defense of exercise of due diligence in the
Internal Revenue, it has the responsibility to ensure that the check is selection and supervision of its employees is not available. 26 Liability of
deposited in the payee's account only; and is bound to consult BIR, as its banks is also primary and sole when the loss or damage to its depositors is
principal, of unwarranted instructions given by the pay or or its agent, directly attributable to its acts, finding that the proximate cause of the loss
especially so as neither of the latter is its client. Having established PCIB's was due to the bank's negligence or breach.27
negligence, this Court then held the latter solely liable for the proceeds of
Citibank check (No. SN-04867). The bank, in its capacity as principal, may also be adjudged liable under the
doctrine of apparent authority. The principal's liability in this case however,
Insofar as Citibank check Nos. SN-10597 and 16508, this Court affirmed the is solidary with that of his employee.28
findings of the CA and the trial court that PCIB cannot be faulted for the
embezzlement as it did not actually receive nor held the subject checks. The doctrine of apparent authority or what is sometimes referred to as the
Adopting the conclusion of the trial court, this Court advanced that the act "holding out" theory, or the doctrine of ostensible agency, imposes
of misappropriation was in fact "the clandestine or hidden actuations liability, not "as the result of the reality of a contractual relationship,
performed by the members of the syndicate in their own personal, covert but rather because of the actions of a principal or an employer in somehow
and private capacity and done without the knowledge of the defendant misleading the public into believing that the relationship or the authority
PCIB."24 exists."29 It is defined as:

While this Court admitted that there was no evidence confirming the [T]he power to affect the legal relations of another person by transactions
conscious participation of PCIB in the embezzlement, it nonetheless found with third persons arising from the other's manifestations to such third
the latter liable pursuant to the doctrine of imputed negligence, as it was person such that the liability of the principal for the acts and contracts of his
established that its employees performed the acts causing the loss in their agent extends to those which are within the apparent scope of the authority
official capacity or authority albeit for their personal and private gain or conferred on him, although no actual authority to do such acts or to make
benefit. such contracts has been conferred.30 (Citations omitted)
Succinctly stating the foregoing principles, the liability of a bank to third
Yet, finding that the drawee, Citibank was remiss of its contractual duty to persons for acts done by its agents or employees is limited to the
pay the proceeds of the crossed checks only to its designated payee, this consequences of the latter's acts which it has ratified, or those that resulted
Court ruled that Citibank should also bear liability for the loss incurred by in performance of acts within the scope of actual or apparent authority it
Ford. It ratiocinated: has vested.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and
16508 before paying the amount of the proceeds thereof to the collecting In PCIB v. CA,31 however, it is evident and striking that for purposes of
bank of the BIR. One thing is clear from the record: the clearing stamps at holding the principal/banks liable, no distinction has been made whether the
the back of Citibank Check Nos. SN 10597 and 16508 do not bear any act resulting to injury to third persons was performed by the
initials. Citibank failed to notice and verify the absence of the clearing agent/employee was pursuant to, or outside the scope of an apparent or
stamps. Had this been duly examined, the switching of the worthless checks actual official authority. It must be noted nonetheless that this is because of
to Citibank Check Nos. 10597 and 16508 would have been discovered in the peculiar circumstance attendant in that case, that is, the direct
time. For this reason, Citibank had indeed failed to perform what was perpetrators of the offense therein are fugitives from justice. Thus, this
incumbent upon it, which is to ensure that the amount of the checks should Court is left to determine who of the parties must bear the burden for the
be paid only to its designated payee. The fact that the drawee bank did not loss incurred by Ford.
discover the irregularity seasonably, in our view, constitutes negligence in
In the case at bar, petitioner does not deny the validity of respondents'
accounts, in fact it suggests that transactions with it have all been Art. 1911. Even when the agent has exceeded his authority, the principal is
accounted for as it is based on official documents containing authentic solidarity liable with the agent if the former allowed the latter to act as
signatures of Tobias. The point is well-taken. In fine, respondents' claim for though he had full powers.
damages is not predicated on breach of their contractual relationship with
petitioner, but rather on Robles' act of misappropriation. The case of Prudential Bank v. CA36 lends support to this conclusion.
There, this Court first laid down the doctrine of apparent authority, with
At any rate, it cannot be said that the petitioner is guilty of breach of specific reference to banks, viz.:
contract so as to warrant the imposition of liability solely upon it.32
Conformably, we have declared in countless decisions that the principal is
Records show that respondents entered into two types of transactions with liable for obligations contracted by the agent. The agent's apparent
the petitioner, the first involving savings accounts, and the other loan representation yields to the principal's true representation and the contract
agreements. Both of these transactions were entered into outside the is considered as entered into between the principal and the third person,
petitioner bank's premises, through Robles.
A bank is liable for wrongful acts of its officers done in the interests of the
In the first, the respondents, as the depositors, acts as the creditor, and the bank or in the course of dealings of the officers in their representative
petitioner, as the debtor.33In these agreements, the petitioner, by receiving capacity but not for acts outside the scope of their authority. A bank holding
the deposit impliedly agrees to pay upon demand and only upon the out its officers and agent as worthy of confidence will not be permitted to
depositor's order.34 Failure by the bank to comply with these obligations profit by the frauds they may thus be enabled to perpetuate in the apparent
would be considered as breach of contract. scope of their employment; nor will it be permitted to shirk its responsibility
for such frauds, even though no benefit may accrue to the bank therefrom.
The second transaction which involves three loan agreements, are the Accordingly, a banking corporation is liable to innocent third persons
subject of contention. These loans were obtained by respondents, secured where the representation is made in the course of its business by an
by their deposits with the petitioner, and executed with corresponding agent acting within the general scope of his authority even though,
authorization letters allowing the latter to debit from their account in case of in the particular case, the agent is secretly abusing his authority and
default. Respondents do not contest the genuineness of their signature in attempting to perpetrate a fraud upon his principal or some other
the relevant documents; rather they submit that they were merely lured by person, for his own ultimate benefit.
Robles into signing the same without knowing their import. The loans were
approved and released by the petitioner, but instead of reinvesting the Application of these principles in especially necessary because banks have a
same, the proceeds were misappropriated by Robles, as a result, fiduciary relationship with the public and their stability depends on the
respondents' accounts were debited and applied as payment for the loan. confidence of the people in their honesty and efficiency. Such faith will be
eroded where banks do not exercise strict care in the selection and
Under the premises, the petitioner had the authority to debit from the supervision of its employees, resulting in prejudice to their
respondents' accounts having been appointed as their attorney-in-fact in a depositors.37 (Citations omitted, and emphasis and underscoring Ours)
duly signed authentic document.35 Furthermore, there is nothing irregular or Petitioner, in support of its position, cites Banate v. Philippine
striking that transpired which should have impelled petitioner into further Countryside Rural Bank (Liloan, Cebu), Inc.,38 this Court finds however
inquiry as to the authenticity of the attendant transactions. Suffice it is to that the case presents a different factual milieu and is not applicable in the
state that the questioned withdrawal was not the first time in which Robles case at bar.
has acted as the authorized representative of the petitioner or as
intermediary between the petitioner and the respondents, who is also not In Banate, this Court ruled that the doctrine of apparent authority does not
merely an employee but petitioner's branch manager. apply and absolved the bank from liability resulting from the alteration by its
branch manager of the terms of a mortgage contract which secures a loan
Moreover, that the respondents have been lured by Robles into signing the obtained from the bank. In so ruling, this Court found "[n]o proof of the
said documents without knowing the implications thereof does not prove course of business, usages and practices of the bank about, or knowledge
complicity or knowledge on the part of the petitioner of Robles' that the board had or is presumed to have of its responsible officers' acts
inappropriate acts. regarding the branch manager's apparent authority" 39 to cause such
alteration. Further, "[n]either was there any allegation, much less
Nonetheless, while it is clear that the proximate cause of respondents' loss proof"40 that the bank ratified its manager's acts or is estopped to
is the misappropriation of Robles, petitioner is still liable under Article 1911 make a contrary claim.
of the Civil Code, to wit:
In contrast, in this controversy, the evidence on record sufficiently the employer of Robles, petitioner is solidarity liable to the respondents for
established that Robles as branch manager was 'clothed' or 'held out' as damages caused by the acts of the former, pursuant to Article 1911 of the
having the power to enter into the subject agreements with the Civil Code.50
respondents.
The ruling in PCIB v. CA51 insofar as it imposes liability directly and solely
The existence of apparent or implied authority is measured by previous acts upon the employer does not apply considering that Robles, while not a
that have been ratified or approved or where the accruing benefits have petitioner in this case, has been validly been served with summons by
been accepted by the principal. It may also be established by proof of the publication52 and joined as party in the case before the trial court53 and the
course of business, usages and practices of the bank; or knowledge that the CA.54Jurisdiction having been acquired over his person, this Court
bank or its officials have, or is presumed to have of its responsible officers' consequently has the authority to rule upon his liability. 55
acts regarding bank branch affairs.41
On a final note, it must be pointed out that the irregularity has only been
As aptly pointed by the CA, petitioner's evidence bolsters the case against it, discovered by the petitioner on March 30, 2006 when Valdez went to
as they support the finding that Robles as branch manager, has been vested petitioner's Mabini branch to have her account with Tobias updated. 56 It
with the apparent or implied authority to act for the petitioner in offering bears to stress that petitioner had the opportunity to discover such
and facilitating banking transactions. irregularity at the time the loan application was submitted for its approval or
at the latest, when the respondents defaulted with the payment of their
The testimonies of the witnesses presented by petitioner establish that there obligation. With the extreme repercussions of the transactions entered into
was nothing irregular in the manner in which Robles transacted with the by the respondents, instead of just relying on the supposed authority of
respondents.42 In fact, petitioner's witnesses admitted that while the bank's Robles and examining the documents submitted, petitioner should have at
general policy requires that transactions be completed inside the bank least communicated with the respondents in order to verify with them the
premises, exceptions are made in favor of valued clients, such as the genuineness of their signatures therein and whether they understood the
respondents. In which case, banking transactions are allowed to be done in implications of affixing the same. Nothing short is expected of petitioner
the residence or place of business of the depositor, since the same are considering that the nature of the banking business is imbued with public
verified subsequently by the bank cashier.43 interest, and as such the highest degree of diligence is demanded. 57

Moreover, petitioner admitted that for valued clients, the branch manager WHEREFORE, in view of the foregoing disquisitions, the petition for review
has the authority to transact outside of the bank premises. 44 In fact, Robles on certiorari is hereby DENIED. The Decision dated May 31, 2016 and
previously transacted business on behalf of the petitioner as when it sought Resolution dated October 10, 2016 issued by the Court of Appeals in CA-
and facilitated the opening of respondents' accounts. Petitioner G.R. CV No. 102545 are AFFIRMED.
acknowledged Robles' authority and it honored the accounts so opened
outside the bank premises. SO ORDERED.

To recall, prior to the alleged back-to-back scheme entered into by the


respondents, Robles has consistently held himself out as representative of
the petitioner in seeking and signing respondents as depositors to various
accounts.45 It bears to stress that in the course of the said investment, the
practice has been for Tobias to surrender the passbook to Robles' for
updating.46 All of which accounts have been in order until after the
respondents was lured into entering the back-to-back scheme.

In this light, respondents cannot be blamed for believing that Robles has the
authority to transact for and on behalf of the petitioner 47 and for relying
upon the representations made by him. After all, Robles as branch manager
is recognized "within his field and as to third persons as the general
agent and is in general charge of the corporation, with apparent
authority commensurate with the ordinary business entrusted him 3. Equitable PCI Bank v. Tan, G.R. No. 165339, 23 August 2010
and the usual course and conduct thereof."48 Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to set aside the Decision [1] and the Resolution[2] of
Consequently, petitioner is estopped from denying Robles' authority. 49 As the Court of Appeals (CA) in CA-G.R. CV No. 41928.
sawmills was not due to the dishonor of the checks, but for other reasons
The antecedents are as follows: not attributable to the bank.
Respondent Arcelito B.Tan maintained a current and savings account with After trial, the RTC, in its Decision[5] dated June 21, 1993, ruled in favor of
Philippine Commercial International Bank (PCIB), now petitioner Equitable petitioner and dismissed the complaint.
PCI Bank.[3] On May 13, 1992, respondent issued PCIB Check No. 275100
postdated May 30, 1992[4] in the amount of P34,588.72 in favor of Sulpicio Aggrieved by the Decision, respondent filed a Notice of Appeal. [6] In its
Lines, Inc. As of May 14, 1992, respondent's balance with petitioner Decision dated May 31, 2004, the Court of Appeals reversed the decision of
was P35,147.59. On May 14, 1992, Sulpicio Lines, Inc. deposited the the trial court and directed petitioner to pay respondent the sum
aforesaid check to its account with Solid Bank, Carbon Branch, Cebu City. of P1,864,500.00 as actual damages, P50,000.00 by way of moral
After clearing, the amount of the check was immediately debited by damages, P50,000.00 as exemplary damages and attorney's fees in the
petitioner from respondent's account thereby leaving him with a balance of amount of P30,000.00. Petitioner filed a motion for reconsideration, which
only P558.87. the CA denied in a Resolution dated August 24, 2004.

Meanwhile, respondent issued three checks from May 9 to May 16, 1992, Hence, the instant petition assigning the following errors:
specifically, PCIB Check No. 275080 dated May 9, 1992, payable to Agusan I. THE FOURTH DIVISION OF THE COURT OF APPEALS DEFIED
del Sur Electric Cooperative Inc. (ASELCO) for the amount of P6,427.68; OFFICE ORDER NO. 82-04-CG BY HOLDING ON TO THIS CASE AND
PCIB Check No. 275097 dated May 10, 1992 payable to Agusan del Norte DECIDING IT INSTEAD OF UNLOADING IT AND HAVING IT RE-
Electric Cooperative Inc., (ANECO) for the amount of P6,472.01; and PCIB RAFFLED AMONG THE DIVISIONS IN CEBU CITY.
Check No. 314104 dated May 16, 1992 payable in cash for the amount II. THE COURT OF APPEALS ERRED IN REVERSING THE FINDING OF
of P10,000.00. When presented for payment, PCIB Check Nos. 275080, THE REGIONAL TRIAL COURT THAT CHECK NO. 275100 WAS DATED
275097 and 314014 were dishonored for being drawn against insufficient MAY 3, 1992.
funds. III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT'S WAY OF WRITING THE DATE ON CHECK NO. 275100
As a result of the dishonor of Check Nos. 275080 and 275097 which were WAS THE PROXIMATE CAUSE OF THE DISHONOR OF HIS THREE
payable to ASELCO and ANECO, respectively, the electric power supply for OTHER CHECKS.
the two mini-sawmills owned and operated by respondent, located in IV. THE COURT OF APPEALS ERRED IN AWARDING ACTUAL
Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off DAMAGES, MORAL DAMAGES, EXEMPLARY DAMAGES AND
on June 1, 1992 and May 28, 1992, respectively, and it was restored only on ATTORNEY'S FEES.
July 20 and August 24, 1992, respectively.
Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of Anent the first issue, petitioner submits that the CA defied Office Order
Cebu City a complaint against petitioner, praying for payment of losses No. 82-04-CG dated April 5, 2004 issued by then CA Presiding Justice
consisting of unrealized income in the amount of P1,864,500.00. He also Cancio C. Garcia when it failed to unload CA-G.R. CV No. 41928 so that it
prayed for payment of moral damages, exemplary damages, attorney's fees may be re-raffled among the Divisions in Cebu City.
and litigation expenses.
Office Order No. 82-04-CG[7] provides:
Respondent claimed that Check No. 275100 was a postdated check in xxxx
payment of Bills of Lading Nos. 15, 16 and 17, and that his account with In view of the reorganization of the different Divisions due to the
petitioner would have had sufficient funds to cover payment of the three appointment of eighteen (18) new Justices to the additional divisions
other checks were it not for the negligence of petitioner in immediately in the cities of Cebu and Cagayan de Oro, the raffle of civil, criminal
debiting from his account Check No. 275100, in the amount of P34,588.72, and special cases submitted for decision and falling within the
even as the said check was postdated to May 30, 1992. As a consequence of jurisdiction of the additional divisions shall commence on April 6,
petitioner's error, which brought about the dishonor of the two checks paid 2004.
to ASELCO and ANECO, the electric supply to his two mini-sawmills was cut
off, the business operations thereof were stopped, and purchase orders The raffle of newly-filed cases and those for completion likewise
were not duly served causing tremendous losses to him. falling within the jurisdiction of the additional divisions, shall start on
April 12, 2004.
In its defense, petitioner denied that the questioned check was postdated xxxx
May 30, 1992 and claimed that it was a current check dated May 3, 1992. It Petitioner alleged that since the aforementioned Office Order directed the
alleged further that the disconnection of the electric supply to respondent's raffle of civil, criminal and special cases submitted for decision and falling
within the jurisdiction of the additional divisions on April 6, 2004, CA-G.R.
CV No. 41928 should have been unloaded by the CA's Fourth Division and Thus, Office Order No. 82-04-CG cannot defeat the provisions of R.A.
[11]

re-raffled to the CA's Division in Cebu City instead of deciding the case on 8246.
May 31, 2004.
As to the second issue, petitioner maintains that the CA erred in reversing
Respondent argued that the CA's Fourth Division correctly acted in taking the finding of the RTC that Check No. 275100 was dated May 3, 1992.
cognizance of the case. The CA defended its jurisdiction by ruling that cases Petitioner argued that in arriving at the conclusion that Check No. 275100
already submitted for decision as of the effectivity of Republic Act (R.A.) was postdated May 30, 1992, the CA just made a visual examination of the
8246[8] on February 1, 1997 were no longer included for re-raffle to the check, unlike the RTC which verified the truth of respondent's testimony
newly-created Visayas and Mindanao Divisions of the CA, conformable to relative to the issuance of Check No. 275100. Respondent argued that the
Section 5 of the said statute. check was carefully examined by the CA which correctly found that Check
Petitioner's argument is misplaced. Under Section 3 of R.A. 8246, it is No. 275100 was postdated to May 30, 1992 and not May 3, 1992.
provided that: The principle is well established that this Court is not a trier of facts.
Section 3. Section 10 of Batas Pambansa Blg. 129, as Therefore, in an appeal by certiorari under Rule 45 of the Rules of Court,
amended, is hereby further amended to read as follows: only questions of law may be raised. The resolution of factual issues is the
function of the lower courts whose findings on these matters are received
Sec. 10. Place of Holding Sessions. The Court of Appeals shall with respect and are, as a rule, binding on this Court.However, this rule is
have its permanent stations as follows: The first seventeen (17) subject to certain exceptions. One of these is when the findings of the
divisions shall be stationed in the City of Manila for cases coming appellate court are contrary to those of the trial court.[12] Due to the
from the First to the Fifth Judicial Regions; the Eighteenth, divergence of the findings of the CA and the RTC, We shall re-examine the
Nineteenth, and Twentieth Divisions shall be in Cebu City for cases facts and evidence presented before the lower courts.
coming from the Sixth, Seventh and Eighth Judicial Regions; the
Twenty-first, Twenty-second and Twenty-third Divisions shall be in The RTC ruled that:
Cagayan de Oro City for cases coming from the Ninth, Tenth, The issue to be resolved in this case is whether or not the date of PCIB
Eleventh, and Twelfth Judicial Regions. Whenever demanded by Check No. 275100 is May 3, 1992 as contended by the defendant, or May
public interest, or whenever justified by an increase in case load, the 30, 1992 as claimed by the plaintiff. The date of the check is written as
Supreme Court, upon its own initiative or upon recommendation of follows 5/3/0/92. From the manner by which the date of the check is
the Presiding Justice of the Court of Appeals, may authorize any written, the Court cannot really make a pronouncement as to whether the
division of the Court to hold sessions periodically, or for such periods true date of the check is May 3 or May 30, 1992, without inquiring into the
and at such places as the Supreme Court may determine, for the background facts leading to the issuance of said check.
purpose of hearing and deciding cases. Trials or hearings in the
Court of Appeals must be continuous and must be completed within According to the plaintiff, the check was issued to Sulpicio Lines in
three (3) months unless extended by the Chief Justice of the payment of bill of lading nos. 15, 16 and 17. An examination of bill
Supreme Court. of lading no. 15, however, shows that the same was issued, not in
favor of plaintiff but in favor of Coca Cola Bottlers Philippines, Inc.
Further, Section 5 of the same Act provides: Bill of Lading No. 16 is issued in favor of Suson Lumber and not to
Upon the effectivity of this Act, all pending cases, except those which plaintiff. Likewise, Bill of Lading No. 17 shows that it was issued to
have been submitted for resolution, shall be referred to the proper Jazz Cola and not to plaintiff. Furthermore, the receipt for the
division of the Court of Appeals.[9] payment of the freight for the shipments reflected in these three
bills of lading shows that the freight was paid by Coca Cola Bottlers
Although CA-G.R. CV No. 41928 originated from Cebu City and is thus Philippines, Inc. and not by plaintiff.
referable to the CA's Divisions in Cebu City, the said case was already Moreover, the said receipt shows that it was paid in cash and not by
submitted for decision as of July 25, 1994. [10] Hence, CA-G.R. CV No. 41928, check. From the foregoing, the evidence on record does not support
which was already submitted for decision as of the effectivity of R.A. the claim of the plaintiff that Check No. 275100 was issued in
8246, i.e., February 1, 1997, can no longer be referred to the CA's Division payment of bills of lading nos. 15, 16 and 17. Hence, the conclusion
in Cebu City. Thus, the CA's Former Fourth Division correctly ruled that CA- of the Court is that the date of the check was May 3, 1992 and not
G.R. CV No. 41928 pending in its division was not among those cases that May 30, 1992.[13]
had to be re-raffled to the newly-created CA Divisions in the Visayas Region. xxxx
In fine, the RTC concluded that the check was dated May 3, 1992 and not
Further, administrative issuances must not override, supplant or modify the May 30, 1992, because the same check was not issued to pay for Bills of
law, but must remain consistent with the law they intend to carry out. Lading Nos. 15, 16 and 17, as respondent claims. The trial court's
conclusion is preposterous and illogical. The purpose for the issuance of the fiduciary nature of banking that requires high standards of
check has no logical connection with the date of the check. Besides, the trial integrity and performance. In furtherance thereof, the State
court need not look into the purpose for which the check was issued. A shall promote and maintain a stable and efficient banking
reading of Check No. 275100[14] would readily show that it was dated May and financial system that is globally competitive, dynamic
30, 1992. As correctly observed by the CA: and responsive to the demands of a developing economy.
Although R.A. 8791 took effect only in the year 2000, the Court had
On the first issue, we agree with appellant that appellee Bank already imposed on banks the same high standard of diligence required
apparently erred in misappreciating the date of Check No. under R.A. 8791 at the time of the untimely debiting of respondent's
275100. We have carefully examined the check in question (Exh. account by petitioner in May 1992. In Simex International (Manila), Inc. v.
DDDD) and we are convinced that it was indeed postdated to May Court of Appeals,[16] which was decided in 1990, the Court held that as a
30, 1992 and not May 3, 1992 as urged by appellee. The date business affected with public interest and because of the nature of its
written on the check clearly appears as 5/30/1992 (Exh. DDDD-4). functions, the bank is under obligation to treat the accounts of its depositors
The first bar (/) which separates the numbers 5 and 30 and the with meticulous care, always having in mind the fiduciary nature of their
second bar (/) which further separates the number 30 from the year relationship.
1992 appear to have been done in heavy, well-defined and bold
strokes, clearly indicating the date of the check as 5/30/1992 which The diligence required of banks, therefore, is more than that of a good
obviously means May 30, 1992. On the other hand, the alleged bar father of a family.[17] In every case, the depositor expects the bank to treat
(/) which appellee points out as allegedly separating the numbers 3 his account with the utmost fidelity, whether such account consists only of a
and 0, thereby leading it to read the date as May 3, 1992, is not few hundred pesos or of millions. The bank must record every single
actually a bar or a slant but appears to be more of an unintentional transaction accurately, down to the last centavo, and as promptly as
marking or line done with a very light stroke. The presence of the possible. This has to be done if the account is to reflect at any given time
figure 0 after the number 3 is quite significant. In fact, a close the amount of money the depositor can dispose of as he sees fit, confident
examination thereof would unerringly show that the said number that the bank will deliver it as and to whomever he directs. [18] From the
zero or 0 is connected to the preceeding number 3. In other words, foregoing, it is clear that petitioner bank did not exercise the degree
the drawer of the check wrote the figures 30 in one continuous of diligence that it ought to have exercised in dealing with its client.
stroke, thereby contradicting appellees theory that the number 3 is With respect to the third issue, petitioner submits that respondent's way of
separated from the figure 0 by a bar. Besides, appellees theory that writing the date on Check No. 275100 was the proximate cause of the
the date of the check is May 3, 1992 is clearly untenable considering dishonor of his three other checks. Contrary to petitioners view, the Court
the presence of the figure 0 after 3 and another bar before the year finds that its negligence is the proximate cause of respondents loss.
1992. And if we were to accept appellees theory that what we find to
be an unintentional mark or line between the figures 3 and 0 is a bar Proximate cause is that cause which, in a natural and continuous sequence,
separating the two numbers, the date of the check would then unbroken by any efficient intervening cause, produces the injury, and
appear as 5/3/0/1992, which is simply absurd. Hence, we cannot go without which the result would not have occurred. [19] The proximate cause of
along with appellees theory which will lead us to an absurd result. It the loss is not respondent's manner of writing the date of the check, as it
is therefore our conclusion that the check was postdated to May 30, was very clear that he intended Check No. 275100 to be dated May 30,
1992 and appellee Bank or its personnel erred in debiting the 1992 and not May 3, 1992. The proximate cause is petitioners own
amount of the check from appellants account even before the checks negligence in debiting the account of the respondent prior to the date as
due date. Undoubtedly, had not appellee bank prematurely debited appearing in the check, which resulted in the subsequent dishonor of several
the amount of the check from appellants account before its due checks issued by the respondent and the disconnection by ASELCO and
date, the two other checks (Exhs. LLLL and GGGG) successively ANECO of his electric supply.
dated May 9, 1992 and May 16, 1992 which were paid by appellant
to ASELCO and ANECO, respectively, would not have been The bank on which the check is drawn, known as the drawee bank, is under
dishonored and the said payees would not have disconnected their strict liability to pay to the order of the payee in accordance with the
supply of electric power to appellants sawmills, and the latter would drawers instructions as reflected on the face and by the terms of the check.
not have suffered losses. [20]
Thus, payment made before the date specified by the drawer is clearly
The law imposes on banks high standards in view of the fiduciary nature of against the drawee bank's duty to its client.
banking. Section 2 of R.A. 8791[15] decrees:
Declaration of Policy. The State recognizes the vital role of In its memorandum[21] filed before the RTC, petitioner submits that
banks in providing an environment conducive to the respondent caused confusion on the true date of the check by writing the
sustained development of the national economy and the date of the check as 5/3/0/92. If, indeed, petitioner was confused on
whether the check was dated May 3 or May 30 because of the / which but it was dishonored as a result of an earlier negotiation to PCIB-
allegedly separated the number 3 from the 0, petitioner should have Mandaue Branch through a deposit made on May 14, 1992 with
required respondent drawer to countersign the said / in order to ascertain SOLIDBANK xxx xxx xxx of a postdated check which xxx xxx passed
the true intent of the drawer before honoring the check. As a matter of undetected. He further admitted that Mr. Arcelito B. Tan was in no
practice, bank tellers would not receive nor honor such checks which they way responsible for the dishonor of said PCIB Check No. 275097.
believe to be unclear, without the counter-signature of its drawer. Petitioner Needless to state, since appellee's Manager has cleared appellant of
should have exercised the highest degree of diligence required of it by any fault in the dishonor of the ANECO check, it [necessarily]
ascertaining from the respondent the accuracy of the entries therein, in follows that responsibility therefor or fault for the dishonor of the
order to settle the confusion, instead of proceeding to honor and receive the check should fall on appellee bank. Appellee's attempt to extricate
check. itself from its inadvertence must therefore fail in the face of its
Manager's explicit acknowledgment of responsibility for the
Further, petitioner's branch manager, Pedro D. Tradio, in a inadvertent dishonor of the ANECO check. [23]
letter[22] addressed to ANECO, explained the circumstances surrounding the
dishonor of PCIB Check No. 275097. Thus: Evidently, the bank's negligence was the result of lack of due care required
June 11, 1992 of its managers and employees in handling the accounts of its
ANECO clients. Petitioner was negligent in the selection and supervision of its
Agusan del Norte employees. In Citibank, N.A. v. Cabamongan,[24] the Court ruled:
Gentlemen: xxx
This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the Banks handle daily transactions involving millions of pesos. By the
amount of P6,472.01 payable to your goodselves issued by Mr. very nature of their works the degree of responsibility, care
Arcelito B. Tan (MANWOOD Industries) which was returned by PCIB and trustworthiness expected of their employees andofficials is far
Mandaue Branch for insufficiency of funds. greater than those of ordinary clerks and employees. Banks
are expected to exercise the highest degree of diligence in the
Please be advised that the return of the aforesaid check was a result selection and supervision of their employees.
of an earlier negotiation to PCIB-Mandaue Branch through a deposit
made on May 14, 1992 with SOLIDBANK Carbon Branch, or through We now resolve the question on the award of actual, moral and exemplary
Central Bank clearing via Philippine Clearing House Corporation damages, as well as attorney's fees by the CA to the respondent.
facilities, of a postdated check which ironically and without bad faith The CA based the award of actual damages in the amount of P1,864,500.00
passed undetected through several eyes from the payee of the check on the purchase orders[25] submitted by respondent. The CA ruled that:
down to the depository bank and finally the drawee bank (PCIB) the xxx
aforesaid Check No. 275097 issued to you would have been honored In the case at bar, appellant [respondent herein] presented
because it would have been sufficiently funded at the time it was adequate evidence to prove losses consisting of unrealized income
negotiated. It should be emphasized, however, that Mr. Arcelito B. that he sustained as a result of the appellee Bank's gross
Tan was in no way responsible for the dishonor of said PCIB Check negligence. Appellant identified certain Purchase Orders from various
No. 275097. customers which were not met by reason of the disruption of the
We hope that the foregoing will sufficiently explain the operation of his sawmills when ANECO and ASELCO disconnected
circumstances of the dishonor of PCIB Check No. 275097 and would their supply of electricity thereto. x x x
clear the name and credit of Mr. Arcelito Tan from any Actual or compensatory damages are those awarded in order to compensate
misimpressions which may have resulted from the dishonor of said a party for an injury or loss he suffered. They arise out of a sense of natural
check. Thank you. justice and are aimed at repairing the wrong done. Except as provided by
xxxx law or by stipulation, a party is entitled to an adequate compensation only
Although petitioner failed to specify in the letter the other details of this for such pecuniary loss as he has duly proven. [26] To recover actual
postdated check, which passed undetected from the eyes of the payee down damages, not only must the amount of loss be capable of proof; it must also
to the petitioner drawee bank, the Court finds that petitioner was evidently be actually proven with a reasonable degree of certainty, premised upon
referring to no other than Check No. 275100 which was deposited to competent proof or the best evidence obtainable. [27]
Solidbank, and was postdated May 30, 1992. As correctly found by the
CA: Respondent's claim for damages was based on purchase orders from various
In the aforequoted letter of its Manager, appellee Bank expressly customers which were allegedly not met due to the disruption of the
acknowledged that Check No. 275097 (Exh. GGGG) which appellant operation of his sawmills. However, aside from the purchase orders and his
paid to ANECO was sufficiently funded at the time it was negotiated, testimony, respondent failed to present competent proof on the specific
amount of actual damages he suffered during the entire period his power serious anxiety, embarrassment and humiliation. In said case, We ruled that
was cut off. No other evidence was provided by respondent to show that the respondent therein was entitled to recover reasonable moral damages.
foregoing purchase orders were not met or were canceled by his various
customers. The Court cannot simply rely on speculation, conjecture or In this case, the unexpected cutting off of respondent's electricity, which
guesswork in determining the amount of damages.[28] resulted in the stoppage of his business operations, had caused him to
suffer humiliation, mental anguish and serious anxiety. The award
Moreover, an examination of the purchase orders and job orders reveal that of P50,000.00 is reasonable, considering the reputation and social standing
the orders were due for delivery prior to the period when the power supply of respondent. As found by the CA, as an accredited supplier, respondent
of respondent's two sawmills was cut off on June 1, 1992 to July 20, 1992 had been reposed with a certain degree of trust by various reputable and
and May 28, 1992 to August 24, 1992, respectively. Purchase Order No. well- established corporations.
9906[29] delivery date is May 4, 1992; Purchase Order No. 9269 [30] delivery
date is March 19, 1992; Purchase Order No. 147796[31] is due for delivery on On the award of exemplary damages, Article 2229 of the Civil Code
January 31, 1992; Purchase Order No. 76000[32] delivery date is February states:Art. 2229. Exemplary or corrective damages are imposed, by
and March 1992; and Job Order No. 1824,[33] dated March 18, 1992, has a way of example or correction for the public good, in addition to
15 days duration of work. Clearly, the disconnection of his electricity during the moral, temperate, liquidated or compensatory damages.
the period May 28, 1992 to August 24, 1992 could not possibly affect his
sawmill operations and prior orders therefrom. The law allows the grant of exemplary damages to set an example for the
public good. The banking system has become an indispensable institution in
Given the dearth of respondent's evidence on the matter, the Court resolves the modern world and plays a vital role in the economic life of every civilized
to delete the award of actual damages rendered by the CA in favor of society. Whether as mere passive entities for the safekeeping and saving of
respondent for his unrealized income.Nonetheless, in the absence of money or as active instruments of business and commerce, banks have
competent proof on the actual damages suffered, respondent is entitled to attained an ubiquitous presence among the people, who have come to
temperate damages. Under Article 2224 of the Civil Code of the Philippines, regard them with respect and even gratitude and most of all, confidence.
temperate or moderate damages, which are more than nominal but less For this reason, banks should guard against injury attributable to negligence
than compensatory damages, may be recovered when the court finds that or bad faith on its part. Without a doubt, it has been repeatedly emphasized
some pecuniary loss has been suffered but its amount cannot, from the that since the banking business is impressed with public interest, of
nature of the case, be proved with certainty.[34] The allowance of temperate paramount importance thereto is the trust and confidence of the public in
damages when actual damages were not adequately proven is ultimately a general. Consequently, the highest degree of diligence is expected, and
rule drawn from equity, the principle affording relief to those definitely high standards of integrity and performance are even required of it. [39]
injured who are unable to prove how definite the injury. [35] Petitioner, having failed in this respect, the award of exemplary damages in
It is apparent that respondent suffered pecuniary loss. The negligence of the amount ofP50,000.00 is in order.
petitioner triggered the disconnection of his electrical supply, which
temporarily halted his business operations and the consequent loss of As to the award of attorney's fees, Article 2208[40] of the Civil Code provides,
business opportunity. However, due to the insufficiency of evidence before among others, that attorney's fees may be recovered when
Us, We cannot place its amount with certainty. Article 2216[36]of exemplary damages are awarded or when the defendant's act or omission
the Civil Code instructs that assessment of damages is left to the discretion has compelled the plaintiff to litigate with third persons or to incur expenses
of the court according to the circumstances of each case. Under the to protect his interest.[41] Respondent has been forced to undergo
circumstances, the sum ofP50,000.00 as temperate damages is reasonable. unnecessary trouble and expense to protect his interest. The Court affirms
the appellate courts award of attorneys fees in the amount of P30,000.00.
Anent the award of moral damages, it is settled that moral damages are
meant to compensate the claimant for any physical suffering, mental WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and
anguish, fright, serious anxiety, besmirched reputation, wounded Resolution of the Court of Appeals in CA-G.R. CV No. 41928, dated May 31,
feelings, moral shock, social humiliation and similar injuries unjustly caused. 2004 and August 24, 2004, respectively, are AFFIRMED with the
[37]
In Philippine National Bank v. Court of Appeals,[38] the Court held that a following MODIFICATIONS:
bank is under obligation to treat the accounts of its depositors with 1. The award of One Million Eight Hundred Sixty-Four Thousand and Five
meticulous care whether such account consists only of a few hundred pesos Hundred Pesos (P1,864,500.00) as actual damages, in favor of respondent
or of millions of pesos. Responsibility arising from negligence in the Arcelito B. Tan, is DELETED; and 2. Petitioner Equitable PCI Bank is instead
performance of every kind of obligation is demandable. While petitioner's directed to pay respondent the amount of Fifty Thousand Pesos
negligence in that case may not have been attended with malice and bad (P50,000.00) as temperate damages.
faith, the banks' negligence caused respondent to suffer mental anguish,
4. San Miguel Corporation v. Puzon, G.R. No. 167567, 22 September to be encashed. It thus concluded that SMC did not acquire ownership of the
2010 (delivery of instrument) checks as it was duty bound to return the same checks to Puzon after the
transactions covering them were settled. The CA agreed with the prosecutor
This petition for review assails the December 21, 2004 Decision[1]and March 28, that there was no theft, considering that a person cannot be charged with
2005 Resolution[2]of the Court of Appeals (CA) in CA-G.R. SP No. 83905, which theft for taking personal property that belongs to himself. It disposed of the
dismissed the petition before it and denied reconsideration, respectively. appeal as follows:WHEREFORE, finding no grave abuse of discretion
committed by public respondent, the instant petition is
Factual Antecedents hereby DISMISSED. The assailed Resolutions of public respondent, dated 04
June 2003 and 23 April 2004, are AFFIRMED. No costs at this instance. SO
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk
Enterprises, was a dealer of beer products of petitioner San Miguel ORDERED.[7]
Corporation (SMC) for Paraaque City. Puzon purchased SMC products on
credit. To ensure payment and as a business practice, SMC required him to The motion for reconsideration of SMC was denied. Hence, the present petition.
issue postdated checks equivalent to the value of the products purchased on
credit before the same were released to him. Said checks were returned to Issues
Puzon when the transactions covered by these checks were paid or settled
in full. Petitioner now raises the following issues:

On December 31, 2000, Puzon purchased products on credit amounting I


to P11,820,327 for which he issued, and gave to SMC, Bank of the Philippine WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG
Islands (BPI) Check Nos. 27904 (forP309,500.00) and 27903 (for P11,510,827.00) OTHERS BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF
to cover the said transaction. PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED
On January 23, 2001, Puzon, together with his accountant, visited the SMC TWENTY SEVEN (Php11,510,827.00)
Sales Office in Paraaque City to reconcile his account with SMC. During that
visit Puzon allegedly requested to see BPI Check No. 17657. However, when II
he got hold of BPI Check No. 27903 which was attached to a bond paper WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI
together with BPI Check No. 17657 he allegedly immediately left the office CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN
with his accountant, bringing the checks with them. MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN
SMC sent a letter to Puzon on March 6, 2001 demanding the return of the (Php11,510,827.00), WERE ISSUED IN PAYMENT OF HIS BEER PURCHASES OR
said checks. Puzon ignored the demand hence SMC filed a complaint against WERE USED MERELY AS SECURITY TO ENSURE PAYMENT OF PUZONS
him for theft with the City Prosecutors Office of Paraaque City. OBLIGATION.

Rulings of the Prosecutor and the Secretary of Department of Justice III


WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS
The investigating prosecutor, Elizabeth Yu Guray found that the relationship ISSUED IN PAYMENT OF BEER PRODUCTS PURCHASED ON CREDIT SHOULD THE
between [SMC] and [Puzon] appears to be one of credit or creditor-debtor TRANSACTIONS COVERED BY THESE CHECKS [BE] SETTLED ON [THE] MATURITY
relationship. The problem lies in the reconciliation of accounts and the non- DATES THEREOF COULD BE LIKENED TO A CONTRACT OF PLEDGE.
payment of beer empties which cannot give rise to a criminal prosecution for
theft.[3] Thus, in her July 31, 2001 Resolution,[4] she recommended the IV
dismissal of the case for lack of evidence. SMC appealed. WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE
INDICTMENT OF PUZON FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF
On June 4, 2003, the DOJ issued its resolution [5]affirming the prosecutors THE REVISED PENAL CODE.[8]
Resolution dismissing the case. Its motion for reconsideration having been
denied in the April 23, 2004 DOJ Resolution,[6]SMC filed a petition Petitioner's Arguments
for certiorari with the CA.
SMC contends that Puzon was positively identified by its employees to have taken
Ruling of the Court of Appeals the subject postdated checks. It also contends that ownership of the checks was
transferred to it because these were issued, not merely as security but were, in
The CA found that the postdated checks were issued by Puzon merely as a payment of Puzons purchases. SMC points out that it has established more than
security for the payment of his purchases and that these were not intended sufficient probable cause to justify the indictment of Puzon for the crime of Theft.
probable cause for the filing of information in court is an executive function,
Respondents Arguments one that properly pertains at the first instance to the public prosecutor and,
ultimately, to the Secretary of Justice, who may direct the filing of the
On the other hand, Puzon contends that SMC raises questions of fact that are corresponding information or move for the dismissal of the case. Ultimately,
beyond the province of an appeal on certiorari. He also insists that there is no whether or not a complaint will be dismissed is dependent on the sound
probable cause to charge him with theft because the subject checks were issued discretion of the Secretary of Justice. And unless made with grave abuse of
only as security and he therefore retained ownership of the same. discretion, findings of the Secretary of Justice are not subject to review.

Our Ruling For this reason, the Court considers it sound judicial policy to refrain from
interfering in the conduct of preliminary investigations and to leave the
The petition has no merit. Department of Justice ample latitude of discretion in the determination of
what constitutes sufficient evidence to establish probable cause for the
Preliminary Matters prosecution of supposed offenders. Consistent with this policy, courts do not
reverse the Secretary of Justice's findings and conclusions on the matter of
At the outset we find that as pointed out by Puzon, SMC raises questions of probable cause except in clear cases of grave abuse of discretion.
fact. The resolution of the first issue raised by SMC of whether respondent
stole the subject check, which calls for the Court to determine whether In the present case, we are also not sufficiently convinced to deviate from
respondent is guilty of a felony, first requires that the facts be duly the general rule of non-interference. Indeed the CA did not err in dismissing
established in the proper forum and in accord with the proper the petition for certiorari before it, absent grave abuse of discretion on the
procedure. This issue cannot be resolved based on mere allegations of facts part of the DOJ Secretary in not finding probable cause against Puzon for
and affidavits. The same is true with the second issue raised by petitioner, theft.
to wit: whether the checks issued by Puzon were payments for his
purchases or were intended merely as security to ensure payment. These The Revised Penal Code provides:
issues cannot be properly resolved in the present petition for review
on certiorari which is rooted merely on the resolution of the prosecutor Art. 308. Who are liable for theft. - Theft is committed by any person who,
finding no probable cause for the filing of an information for theft. with intent to gain but without violence against, or intimidation of persons nor force
upon things, shall take personal property of another without the latters consent.
The third issue raised by petitioner, on the other hand, would entail xxxx
venturing into constitutional matters for a complete resolution. This route is
unnecessary in the present case considering that the main matter for ]he essential elements of the crime of theft are the following: (1) that there be a
resolution here only concerns grave abuse of discretion and the existence of taking of personal property; (2) that said property belongs to another; (3) that the
probable cause for theft, which at this point is more properly resolved taking be done with intent to gain; (4) that the taking be done without the consent
through another more clear cut route. of the owner; and (5) that the taking be accomplished without the use of violence
or intimidation against persons or force upon things.[11]
Probable Cause for Theft
Considering that the second element is that the thing taken belongs to
Probable cause is defined as such facts and circumstances that will another, it is relevant to determine whether ownership of the subject check
engender a well-founded belief that a crime has been committed and that was transferred to petitioner. On this point the Negotiable Instruments Law
the respondent is probably guilty thereof and should be held for trial. [9] On provides:
the fine points of the determination of probable cause, Reyes v. Pearlbank
Securities, Inc.[10] comprehensively elaborated that: Sec. 12. Antedated and postdated The instrument is not invalid for the
reason only that it is antedated or postdated, provided this is not done for
The determination of [the existence or absence of probable cause] lies an illegal or fraudulent purpose. The person to whom an instrument so
within the discretion of the prosecuting officers after conducting a dated is delivered acquires the title thereto as of the date of delivery.
preliminary investigation upon complaint of an offended party. Thus, the (Underscoring supplied.)
decision whether to dismiss a complaint or not is dependent upon the sound
discretion of the prosecuting fiscal. He may dismiss the complaint forthwith, Note however that delivery as the term is used in the aforementioned
if he finds the charge insufficient in form or substance or without any provision means that the party delivering did so for the purpose of giving
ground. Or he may proceed with the investigation if the complaint in his effect thereto.[12] Otherwise, it cannot be said that there has been delivery of
view is sufficient and in proper form. To emphasize, the determination of the negotiable instrument. Once there is delivery, the person to whom the
instrument is delivered gets the title to the instrument completely and WHEREFORE, the petition is DENIED. The December 21, 2004 Decision
irrevocably. and March 28, 2005 Resolution of the Court of Appeals in CA-G.R. SP. No.
83905 are AFFIRMED.
If the subject check was given by Puzon to SMC in payment of the
obligation, the purpose of giving effect to the instrument is evident thus title SO ORDERED.
to or ownership of the check was transferred upon delivery. However, if the
check was not given as payment, there being no intent to give effect to the
instrument, then ownership of the check was not transferred to SMC.

The evidence of SMC failed to establish that the check was given in payment
of the obligation of Puzon. There was no provisional receipt or official receipt
issued for the amount of the check.What was issued was a receipt for
the document, a POSTDATED CHECK SLIP.[13]

Furthermore, the petitioner's demand letter sent to respondent states As per


company policies on receivables, all issuances are to be covered by post-
dated checks. However, you have deviated from this policy by forcibly taking
away the check you have issued to us to cover the December issuance.
[14]
Notably, the term payment was not used instead the terms covered and
cover were used.

Although the petitioner's witness, Gregorio L. Joven III, states in paragraph


6 of his affidavit that the check was given in payment of the obligation of
Puzon, the same is contradicted by his statements in paragraph 4, where he
states that As a standard company operating procedure, all beer purchases
by dealers on credit shall be covered by postdated checks equivalent to the
value of the beer products purchased; in paragraph 9 where he states that
the transaction covered by the said check had not yet been paid for, and
in paragraph 8 which clearly shows that partial payment is expected to be
made by the return of beer empties, and not by the deposit or encashment
of the check. Clearly the term cover was not meant to be used
interchangeably with payment.

When taken in conjunction with the counter-affidavit of Puzon where he


states that As the [liquid beer] contents are paid for, SMC return[s] to me
the corresponding PDCs or request[s] me to replace them with whatever
was the unpaid balance.[15] it becomes clear that both parties did not intend
for the check to pay for the beer products. The evidence proves that the
check was accepted, not as payment, but in accordance with the long-
standing policy of SMC to require its dealers to issue postdated checks to
cover its receivables. The check was only meant to coverthe transaction and
in the meantime Puzon was to pay for the transaction by some other means
other than the check. This being so, title to the check did not transfer to
SMC; it remained with Puzon. The second element of the felony of theft was
therefore not established. Petitioner was not able to show that Puzon took a
check that belonged to another. Hence, the prosecutor and the DOJ were
correct in finding no probable cause for theft.

Consequently, the CA did not err in finding no grave abuse of discretion


committed by the DOJ in sustaining the dismissal of the case for theft for
lack of probable cause.
5.Anamer Salazar v. JY Brothers Marketing Corporation, G.R. No. Docketed as G.R. 151931, in its Decision dated September 23,
171998, 20 October 2010 (discharge of instrument) 2003, the High Court ruled:
Before us is a petition for review seeking to annul and set aside the
Decision[1] dated September 29, 2005 and the Resolution[2] dated March 2, IN LIGHT OF ALL THE FOREGOING, the Petition is
2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104. GRANTED. The Orders dated November 19, 2001 and
The facts, as found by the Court of Appeals, are not disputed, thus: January 14, 2002 are SET ASIDE and NULLIFIED. The
Regional Trial Court of Legaspi City, Branch 5, is hereby
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation DIRECTED to set Criminal Case No. 7474 for the
engaged in the business of selling sugar, rice and other continuation of trial for the reception of the evidence-in-chief
commodities. On October 15, 1996, Anamer Salazar, a freelance of the petitioner on the civil aspect of the case and for the
sales agent, was approached by Isagani Calleja and Jess Kallos, if rebuttal evidence of the private complainant and the sur-
she knew a supplier of rice. Answering in the positive, Salazar rebuttal evidence of the parties if they opt to adduce any.
accompanied the two to J.Y. Bros. As a consequence, Salazar with SO ORDERED.[3]
Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice
worth P214,000.00. As payment, Salazar negotiated and indorsed to The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded
J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, with the trial on the civil aspect of the criminal case.
1996 issued by Nena Jaucian Timario in the amount of P214,000.00 On April 1, 2004, the RTC rendered its Decision,[4] the dispositive portion of
with the assurance that the check is good as cash. On that which reads:
assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar.
However, upon presentment, the check was dishonored due to WHEREFORE, Premises Considered, judgment is rendered
closed account. DISMISSING as against Anamer D. Salazar the civil aspect of the
above-entitled case. No pronouncement as to costs.
Informed of the dishonor of the check, Calleja, Kallos and Salazar
delivered to J.Y. Bros. a replacement cross Solid Bank Check No. Place into the files (archive) the record of the above-entitled case as
PA365704 dated October 29, 1996 again issued by Nena Jaucian against the other accused Nena Jaucian Timario. Let an alias
Timario in the amount of P214,000.00 but which, just the same, (bench) warrant of arrest without expiry dated issue for her
bounced due to insufficient funds. When despite the demand letter apprehension, and fix the amount of the bail bond for her
dated February 27, 1997, Salazar failed to settle the amount due provisional liberty at 59,000.00 pesos. SO ORDERED. [5]
J.Y. Bros., the latter charged Salazar and Timario with the crime of
estafa before the Regional Trial Court of Legaspi City, docketed as The RTC found that the Prudential Bank check drawn by Timario for the
Criminal Case No. 7474. amount of P214,000.00 was payable to the order of respondent, and such
check was a negotiable order instrument; that petitioner was not the payee
After the prosecution rested its case and with prior leave of court, appearing in the check, but respondent who had not endorsed the check,
Salazar submitted a demurrer to evidence. On November 19, 2001, much less delivered it to petitioner. It then found that petitioners liability
the court a quo rendered an Order, the dispositive portion of which should be limited to the allegation in the amended information that she
reads: endorsed and negotiated said check, and since she had never been the
holder of the check, petitioner's signing of her name on the face of the
WHEREFORE, premises considered, the accused Anamer D. dorsal side of the check did not produce the technical effect of an
Salazar is hereby ACQUITTED of the crime charged but is indorsement arising from negotiation. The RTC ruled that after the
hereby held liable for the value of the 300 bags of rice. Prudential Bank check was dishonored, it was replaced by a Solid Bank
Accused Anamer D. Salazar is therefore ordered to pay J.Y. check which, however, was also subsequently dishonored; that since the
Brothers Marketing Corporation the sum of P214,000.00. Solid Bank check was a crossed check, which meant that such check was
Costs against the accused. only for deposit in payees account, a condition that rendered such check
SO ORDERED. non-negotiable, the substitution of a non-negotiable Solid Bank check for a
negotiable Prudential Bank check was an essential change which had the
Aggrieved, accused attempted a reconsideration on the civil aspect effect of discharging from the obligation whoever may be the endorser of
of the order and to allow her to present evidence thereon. The the negotiable check. The RTC concluded that the absence of negotiability
motion was denied. Accused went up to the Supreme Court on a rendered nugatory the obligation arising from the technical act of indorsing
petition for review on certiorari under Rule 45 of the Rules of Court. a check and, thus, had the effect of novation; and that the ultimate effect of
such substitution was to extinguish the obligation arising from the issuance WHEN IT DENIED THE MOTION FOR RECONSIDERATION OF THE
of the Prudential Bank check. PETITIONER ON THE GROUND THAT THE ISSUE RAISED THEREIN
HAD ALREADY BEEN PASSED UPON AND CONSIDERED IN THE
Respondent filed an appeal with the CA on the sole DECISION SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND IN
assignment of error that: FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.[11]
IN BRIEF, THE LOWER COURT ERRED IN RULING
THAT ACCUSED ANAMER SALAZAR BY INDORSING THE Petitioner contends that the issuance of the Solid Bank check and the
CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) acceptance thereof by the respondent, in replacement of the dishonored
DID NOT PRODUCE THE TECHNICAL EFFECT OF AN Prudential Bank check, amounted to novation that discharged the latter
INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID check; that respondent's acceptance of the Solid Bank check,
NOT INCUR CIVIL LIABILITY.[6] notwithstanding its eventual dishonor by the drawee bank, had the effect of
erasing whatever criminal responsibility, under Article 315 of the Revised
After petitioner filed her appellees' brief, the case was submitted for Penal Code, the drawer or indorser of the Prudential Bank check would have
decision. On September 29, 2005, the CA rendered its assailed Decision, the incurred in the issuance thereof in the amount of P214,000.00; and that a
decretal portion of which reads: check is a contract which is susceptible to a novation just like any other
contract.
IN VIEW OF ALL THE FOREGOING, the instant appeal Respondent filed its Comment, echoing the findings of the CA. Petitioner
is GRANTED, the challenged Decision is REVERSED and SET filed her Reply thereto.
ASIDE, and a new one entered ordering the appellee to pay We find no merit in this petition.
the appellant the amount of P214,000.00, plus interest at
the legal rate from the written demand until full Section 119 of the Negotiable Instrument Law provides, thus:
payment. Costs against the appellee.[7] SECTION 119. Instrument; how discharged. A negotiable
instrument is discharged:
In so ruling, the CA found that petitioner indorsed the Prudential Bank (a) By payment in due course by or on behalf of the
check, which was later replaced by a Solid Bank check issued by Timario, principal debtor;
also indorsed by petitioner as payment for the 300 cavans of rice bought (b) By payment in due course by the party accommodated,
from respondent. The CA, applying Sections 63, [8] 66[9] and 29[10] of the where the instrument is made or accepted for his
Negotiable Instruments Law, found that petitioner was considered an accommodation;
indorser of the checks paid to respondent and considered her as an (c) By the intentional cancellation thereof by the holder;
accommodation indorser, who was liable on the instrument to a holder for (d) By any other act which will discharge a simple
value, notwithstanding that such holder at the time of the taking of the contract for the payment of money;
instrument knew her only to be an accommodation party. (e) When the principal debtor becomes the holder of the
Respondent filed a motion for reconsideration, which the CA denied in a instrument at or after maturity in his own right. (Emphasis
Resolution dated March 2, 2006. ours)
And, under Article 1231 of the Civil Code, obligations are
Hence this petition, wherein petitioner raises the following assignment of extinguished:
errors: (6) By novation.
1.THE COURT OF APPEALS ERRED IN IGNORING THE Petitioner's claim that respondent's acceptance of the Solid Bank check
RAMIFICATIONS OF THE ISSUANCE OF THE SOLIDBANK CHECK IN which replaced the dishonored Prudential bank check resulted to novation
REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH WOULD which discharged the latter check is unmeritorious.
HAVE RESULTED TO THE NOVATION OF THE OBLIGATION ARISING
FROM THE ISSUANCE OF THE LATTER CHECK. In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and
2.THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF Stronghold Insurance Co., Inc.,[12] we stated the concept of novation, thus:
THE REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5, x x x Novation is done by the substitution or change of the
DISMISSING AS AGAINST THE PETITIONER THE CIVIL ASPECT OF obligation by a subsequent one which extinguishes the first, either
THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF by changing the object or principal conditions, or by substituting the
OBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL person of the debtor, or by subrogating a third person in the rights
BANK CHECK. of the creditor. Novation may:[E]ither be extinctive or modificatory,
3.THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF much being dependent on the nature of the change and the
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION intention of the parties. Extinctive novation is never presumed;
there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent In this case, respondents acceptance of the Solid Bank check, which
to dissolve the old obligation as the moving consideration for the replaced the dishonored Prudential Bank check, did not result to novation as
emergence of the new one. Implied novation necessitates that the there was no express agreement to establish that petitioner was already
incompatibility between the old and new obligation be total on every discharged from his liability to pay respondent the amount of P214,000.00
point such that the old obligation is completely superceded by the as payment for the 300 bags of rice. As we said, novation is never
new one. The test of incompatibility is whether they can stand presumed, there must be an express intention to novate. In fact, when the
together, each one having an independent existence; if they cannot Solid Bank check was delivered to respondent, the same was also indorsed
and are irreconcilable, the subsequent obligation would also by petitioner which shows petitioners recognition of the existing obligation
extinguish the first. to respondent to pay P214,000.00 subject of the replaced Prudential Bank
check.
An extinctive novation would thus have the twin effects Moreover, respondents acceptance of the Solid Bank check did not
of, first, extinguishing an existing obligation and, second, creating result to any incompatibility, since the two checks − Prudential and Solid
a new one in its stead. This kind of novation presupposes a Bank checks − were precisely for the purpose of paying the amount
confluence of four essential requisites: (1) a previous valid of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags
obligation, (2) an agreement of all parties concerned to a new of rice from respondent. Indeed, there was no substantial change in the
contract, (3) the extinguishment of the old obligation, and (4) the object or principal condition of the obligation of petitioner as the indorser of
birth of a valid new obligation. Novation is merely modificatory the check to pay the amount of P214,000.00. It would appear that
where the change brought about by any subsequent agreement is respondent accepted the Solid Bank check to give petitioner the chance to
merely incidental to the main obligation (e.g., a change in interest pay her obligation.
rates or an extension of time to pay; in this instance, the new Petitioner also contends that the acceptance of the Solid Bank check, a non-
agreement will not have the effect of extinguishing the first but negotiable check being a crossed check, which replaced the dishonored
would merely supplement it or supplant some but not all of its Prudential Bank check, a negotiable check, is a new obligation in lieu of the
provisions.) old obligation arising from the issuance of the Prudential Bank check, since
there was an essential change in the circumstance of each check.
The obligation to pay a sum of money is not novated by an Such argument deserves scant consideration.
instrument that expressly recognizes the old, changes only the Among the different types of checks issued by a drawer is
terms of payment, adds other obligations not incompatible with the the crossed check.[17] The Negotiable Instruments Law is silent with respect
old ones or the new contract merely supplements the old one. [13] to crossed checks,[18] although the Code of Commerce makes reference to
such instruments.[19] We have taken judicial cognizance of the practice that a
In Nyco Sales Corporation v. BA Finance Corporation,[14] we found check with two parallel lines in the upper left hand corner means that it
untenable petitioner Nyco's claim that novation took place when the could only be deposited and could not be converted into cash. [20] Thus, the
dishonored BPI check it endorsed to BA Finance Corporation was effect of crossing a check relates to the mode of payment, meaning that the
subsequently replaced by a Security Bank check, [15] and said: drawer had intended the check for deposit only by the rightful person, i.e.,
the payee named therein.[21] The change in the mode of paying the
There are only two ways which indicate the presence of novation obligation was not a change in any of the objects or principal condition of
and thereby produce the effect of extinguishing an obligation by the contract for novation to take place.[22]
another which substitutes the same. First, novation must be Considering that when the Solid Bank check, which replaced the
explicitly stated and declared in unequivocal terms as novation is Prudential Bank check, was presented for payment, the same was again
never presumed. Secondly, the old and the new obligations must be dishonored; thus, the obligation which was secured by the Prudential Bank
incompatible on every point. The test of incompatibility is whether or check was not extinguished and the Prudential Bank check was not
not the two obligations can stand together, each one having its discharged. Thus, we found no reversible error committed by the CA in
independent existence. If they cannot, they are incompatible and holding petitioner liable as an accommodation indorser for the payment of
the latter obligation novates the first. In the instant case, there was the dishonored Prudential Bank check.
no express agreement that BA Finance's acceptance of the SBTC WHEREFORE, the petition is DENIED. The Decision dated September 29,
check will discharge Nyco from liability. Neither is there 2005 and the Resolution dated March 2, 2006, of the Court of Appeals in
incompatibility because both checks were given precisely to CA-G.R. CV No. 83104, are AFFIRMED.
terminate a single obligation arising from Nyco's sale of credit to BA SO ORDERED.
Finance. As novation speaks of two distinct obligations, such is 6.Gonzales v. PCIB, G.R. No. 180257, 23 February 2011
inapplicable to this case.[16] (accommodation party)
The Case payment by Unson of said check, it was dishonored by PCIB due to the
termination by PCIB of the credit line under COHLA on October 7, 1998 for
This is an appeal via a Petition for Review on Certiorari under Rule the unpaid periodic interest dues from the loans of Gonzales and the
45 from the Decision[1] dated October 22, 2007 of the Court of Appeals (CA) spouses Panlilio. PCIB likewise froze the FCD account of Gonzales.
in CA-G.R. CV No. 74466, which denied petitioners appeal from the
December 10, 2001 Decision[2] in Civil Case No. 99-1324 of the Regional Consequently, Gonzales had a falling out with Unson due to the
Trial Court (RTC), Branch 138 in Makati City. The RTC found justification for dishonor of the check. They had a heated argument in the premises of the
respondents dishonor of petitioners check and found petitioner solidarily Philippine Columbian Association (PCA) where they are both members,
liable with the spouses Jose and Jocelyn Panlilio (spouses Panlilio) for which caused great embarrassment and humiliation to Gonzales. Thereafter,
the three promissory notes they executed in favor of respondent Philippine on November 5, 1998, Unson sent a demand letter [5] to Gonzales for the PhP
Commercial and International Bank (PCIB). 250,000. And on December 3, 1998, the counsel of Unson sent a second
demand letter[6] to Gonzales with the threat of legal action. With his FCD
The Facts account that PCIB froze, Gonzales was forced to source out and pay the PhP
250,000 he owed to Unson in cash.
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a
good 15 years before he filed the instant case. His account with PCIB was On January 28, 1999, Gonzales, through counsel, wrote PCIB
handled by respondent Edna Ocampo (Ocampo) until she was replaced by insisting that the check he issued had been fully funded, and demanded the
respondent Roberto Noceda (Noceda). return of the proceeds of his FCD as well as damages for the unjust dishonor
of the check.[7] PCIB replied on March 22, 1999 and stood its ground in
In October 1992, PCIB granted a credit line to Gonzales through the freezing Gonzales accounts due to the outstanding dues of the loans. [8] On
execution of a Credit-On-Hand Loan Agreement[3] (COHLA), in which the May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew
aggregate amount of the accounts of Gonzales with PCIB served as well that the actual borrowers were the spouses Panlilio and he never
collateral for and his availment limit under the credit line. Gonzales drew benefited from the proceeds of the loans, which were serviced by the PCIB
from said credit line through the issuance of check. At the institution of the account of the spouses Panlilio.[9]
instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD
8,715.72 with PCIB. PCIBs refusal to heed his demands compelled Gonzales to file the
instant case for damages with the RTC, on account of the alleged unjust
On October 30, 1995, Gonzales and his wife obtained a loan for PhP dishonor of the check issued in favor of Unson.
500,000. Subsequently, on December 26, 1995 and January 3, 1999, the
spouses Panlilio and Gonzales obtained two additional loans from PCIB in the The Ruling of the RTC
amounts of PhP 1,000,000 and PhP 300,000, respectively. These three loans
amounting to PhP 1,800,000 were covered by three promissory notes. [4] To After due trial, on December 10, 2001, the RTC rendered a Decision
secure the loans, a real estate mortgage (REM) over a parcel of land in favor of PCIB. The decretal portion reads:
covered by Transfer Certificate of Title (TCT) No. 38012 was executed by
Gonzales and the spouses Panlilio. Notably, the promissory notes specified, WHEREFORE, judgment is rendered as follows
among others, the solidary liability of Gonzales and the spouses Panlilio for
the payment of the loans. However, it was the spouses Panlilio who received (a) on the first issue, plaintiff is liable to pay
the loan proceeds of PhP 1,800,000. defendant Bank as principal under the promissory notes,
Exhibits A, B and C;
The monthly interest dues of the loans were paid by the spouses
Panlilio through the automatic debiting of their account with PCIB. But the (b) on the second issue, the Court finds that there is
spouses Panlilio, from the month of July 1998, defaulted in the payment of justification on part of the defendant Bank to dishonor the
the periodic interest dues from their PCIB account which apparently was not check, Exhibit H;
maintained with enough deposits. PCIB allegedly called the attention of
Gonzales regarding the July 1998 defaults and the subsequent accumulating (c) on the third issue, plaintiff and defendants are
periodic interest dues which were left still left unpaid. not entitled to damages from each other.

In the meantime, Gonzales issued a check dated September 30, No pronouncement as to costs.
1998 in favor of Rene Unson (Unson) for PhP 250,000 drawn against the SO ORDERED.[10]
credit line (COHLA). However, on October 13, 1998, upon presentment for
DISHONORING PETITIONERS CHECK DATED 30 SEPTEMBER
The RTC found Gonzales solidarily liable with the spouses Panlilio on 1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON
the three promissory notes relative to the outstanding REM loan. The trial ACCOUNT CLOSED, INSTEAD OF MERELY REFER TO
court found no fault in the termination by PCIB of the COHLA with Gonzales DRAWER GIVEN THE FACT THAT EVEN AFTER DISHONOR,
and in freezing the latters accounts to answer for the past due PhP RESPONDENT SIGNED A CERTIFICATION DATED 7
1,800,000 loan. The trial court ruled that the dishonor of the check issued DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN
by Gonzales in favor of Unson was proper considering that the credit line AGREEMENT WAS STILL VALID WITH A COLLATERAL OF
under the COHLA had already been terminated or revoked before the FOREIGN CURRENCY DEPOSIT (FCD) OF [USD] 48,715.72.
presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA. III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS
The Ruling of the CA DESPITE PRESENTATION OF CLEAR PROOF TO SUPPORT
ACTION FOR DAMAGES.[12]
On September 26, 2007, the appellate court rendered its Decision
dismissing Gonzales appeal and affirming in toto the RTC Decision.
The fallo reads: The Courts Ruling

WHEREFORE, in view of the foregoing, the decision, The core issues can be summarized, as follows: first, whether
dated December 10, 2001, in Civil Case No. 99-1324 is Gonzales is liable for the three promissory notes covering the PhP 1,800,000
hereby AFFIRMED in toto. loan he made with the spouses Panlilio where a REM over a parcel of land
covered by TCT No. 38012 was constituted as security; and second, whether
SO ORDERED.[11] PCIB properly dishonored the check of Gonzales drawn against the COHLA
he had with the bank.

In dismissing Gonzales appeal, the CA, first, confirmed the RTCs The petition is partly meritorious.
findings that Gonzales was indeed solidarily liable with the spouses Panlilio
for the three promissory notes executed for the REM loan; second, it First Issue: Solidarily Liability on Promissory Notes
likewise found neither fault nor negligence on the part of PCIB in
dishonoring the check issued by Gonzales in favor of Unson, ratiocinating A close perusal of the records shows that the courts a quo correctly
that PCIB was merely exercising its rights under the contractual stipulations found Gonzales solidarily liable with the spouses Panlilio for the three
in the COHLA brought about by the outstanding past dues of the REM loan promissory notes.
and interests for which Gonzales was solidarily liable with the spouses
Panlilio to pay under the promissory notes. The promissory notes covering the PhP 1,800,000 loan show the
following:
Thus, we have this petition.
(1) Promissory Note BD-090-1766-95,[13] dated October 30, 1995,
The Issues for PhP 500,000 was signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,[14] dated December 26, 1995,
Gonzales, as before the CA, raises again the following assignment of for PhP 1,000,000 was signed by Gonzales and the spouses Panlilio;
errors: and

I - IN NOT CONSIDERING THAT THE LIABILITY ARISING (3) Promissory Note BD-090-011-96,[15] dated January 3, 1996, for
FROM PROMISSORY NOTES (EXHIBITS A, B AND C, PhP 300,000 was signed by Gonzales and the spouses Panlilio.
PETITIONER; EXHIBITS 1, 2 AND 3, RESPONDENT)
PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT Clearly, Gonzales is liable for the loans covered by the above
TO APPELLANT AS RECOGNIZED AND ACKNOWLEDGE[D] BY promissory notes. First, Gonzales admitted that he is an accommodation
RESPONDENT PHILIPPINE COMMERCIAL & INDUSTRIAL party which PCIB did not dispute. In his testimony, Gonzales admitted that
BANK (RESPONDENT BANK). he merely accommodated the spouses Panlilio at the suggestion of Ocampo,
who was then handling his accounts, in order to facilitate the fast release of
II - IN FINDING THAT THE RESPONDENTS WERE NOT AT the loan. Gonzales testified:
FAULT NOR GUILTY OF GROSS NEGLIGENCE IN
ATTY. DE JESUS: Gonzales signed, as borrower, the promissory notes covering the PhP
Now in this case you filed against the bank you mentioned 1,800,000 loan despite not receiving any of the proceeds.
there was a loan also applied for by the Panlilios in the sum
of P1.8 Million Pesos. Will you please tell this Court how this Second, the records of PCIB indeed bear out, and was admitted by
came about? Noceda, that the PhP 1,800,000 loan proceeds went to the spouses Panlilio,
thus:
GONZALES:
Mr. Panlilio requested his account officer . . . . at that time it ATTY. DE JESUS: [on Cross-Examination]
is a P42.0 Million loan and if he secures another P1.8 Million Is it not a fact that as far as the records of the bank [are]
loan the release will be longer because it has to pass to XO. concerned the proceeds of the 1.8 million loan was received
by Mr. Panlilio?
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of NOCEDA:
mine and we co-owned the property I agreed initially Yes sir.[18]
to use my name so that the loan can be utilized
immediately by Mr. Panlilio.
The fact that the loans were undertaken by Gonzales when he
Q: Who is actually the borrower of this P1.8 Million Pesos? signed as borrower or co-borrower for the benefit of the spouses Panlilioas
A: Well, in paper me and Mr. Panlilio. shown by the fact that the proceeds went to the spouses Panlilio who were
servicing or paying the monthly duesis beside the point. For signing as
Q: Who received the proceeds of said loan? borrower and co-borrower on the promissory notes with the proceeds of the
A: Mr. Panlilio. loans going to the spouses Panlilio, Gonzales has extended an
accommodation to said spouses.
Q: Do you have any proof that it was Mr. Panlilio who
actually received the proceeds of this P1.8 Million Third, as an accommodation party, Gonzales is solidarily liable with
Pesos loan? the spouses Panlilio for the loans. In Ang v. Associated Bank,[19] quoting the
A: A check was deposited in the account of Mr. Panlilio. [16] definition of an accommodation party under Section 29 of the Negotiable
Instruments Law, the Court cited that an accommodation party is a person
xxxx who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to
Q: By the way upon whose suggestion was the loan of Mr. some other person.[20] The Court further explained:
Panlilio also placed under your name initially?
A: Well it was actually suggested by the account officer at [A]n accommodation party is one who meets all the
that time Edna Ocampo. three requisites, viz: (1) he must be a party to the
Q: How about this Mr. Rodolfo Noceda? instrument, signing as maker, drawer, acceptor, or indorser;
A: As you look at the authorization aspect of the loan Mr. (2) he must not receive value therefor; and (3) he must sign
Noceda is the boss of Edna so he has been familiar for the purpose of lending his name or credit to some other
with my account ever since its inception. person. An accommodation party lends his name to enable
the accommodated party to obtain credit or to raise money;
Q: So these two officers Ocampo and Noceda knew that this he receives no part of the consideration for the instrument
was actually the account of Mr. Panlilio and not your but assumes liability to the other party/ies thereto. The
account? accommodation party is liable on the instrument to a holder
A: Yes, sir. In fact even if there is a change of account for value even though the holder, at the time of taking the
officer they are always informing me that the instrument, knew him or her to be merely an
account will be debited to Mr. Panlilios account. [17] accommodation party, as if the contract was not for
accommodation.
Moreover, the first note for PhP 500,000 was signed by Gonzales
and his wife as borrowers, while the two subsequent notes showed the As petitioner acknowledged it to be, the relation
spouses Panlilio sign as borrowers with Gonzales. It is, thus, evident that between an accommodation party and the accommodated
party is one of principal and suretythe accommodation party
being the surety. As such, he is deemed an original promisor The courts a quo found and held that there was a proper dishonor of
and debtor from the beginning; he is considered in law as the PhP 250,000 check issued by Gonzales against the credit line, because
the same party as the debtor in relation to whatever is the credit line was already closed prior to the presentment of the check by
adjudged touching the obligation of the latter since their Unson; and the closing of the credit line was likewise proper pursuant to the
liabilities are interwoven as to be inseparable. Although a stipulations in the promissory notes on the banks right to set off or apply all
contract of suretyship is in essence accessory or collateral to moneys of the debtor in PCIBs hand and the stipulations in the COHLA on
a valid principal obligation, the suretys liability to the the PCIBs right to terminate the credit line on grounds of default by
creditor is immediate, primary and absolute; he Gonzales.
is directly and equally bound with the principal. As an
equivalent of a regular party to the undertaking, a surety Gonzales argues otherwise, pointing out that he was not informed
becomes liable to the debt and duty of the principal obligor about the default of the spouses Panlilio and that the September 21, 1998
even without possessing a direct or personal interest in the account statement of the credit line shows a balance of PhP 270,000 which
obligations nor does he receive any benefit therefrom. [21] was likewise borne out by the December 7, 1998 PCIBs certification that he
has USD 8,715.72 in his FCD account which is more than sufficient collateral
to guarantee the PhP 250,000 check, dated September 30, 1998, he issued
Thus, the knowledge, acquiescence, or even demand by Ocampo for against the credit line.
an accommodation by Gonzales in order to extend the credit or loan of PhP
1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability A careful scrutiny of the records shows that the courts a
on the three promissory notes. quo committed reversible error in not finding negligence by PCIB in the
dishonor of the PhP 250,000 check.
Fourth, the solidary liability of Gonzales is clearly stipulated in the
promissory notes which uniformly begin, For value received, the First. There was no proper notice to Gonzales of the default and
undersigned (the BORROWER) jointly and severally promise to pay x x delinquency of the PhP 1,800,000 loan. It must be borne in mind that while
x. Solidary liability cannot be presumed but must be established by law or solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered
contract.[22] Article 1207 of the Civil Code pertinently states that there is by the three promissory notes, Gonzales is only an accommodation party
solidary liability only when the obligation expressly so states, or when the and as such only lent his name and credit to the spouses Panlilio. While not
obligation requires solidarity. This is true in the instant case where exonerating his solidary liability, Gonzales has a right to be properly
Gonzales, as accommodation party, is immediately, equally, and absolutely apprised of the default or delinquency of the loan precisely because he is a
bound with the spouses Panlilio on the promissory notes which indubitably co-signatory of the promissory notes and of his solidary liability.
stipulated solidary liability for all the borrowers. Moreover, the three
promissory notes serve as the contract between the parties. Contracts have We note that it is indeed understandable for Gonzales to push the
the force of law between the parties and must be complied with in good spouses Panlilio to pay the outstanding dues of the PhP 1,800,000 loan,
faith.[23] since he was only an accommodation party and was not personally
interested in the loan. Thus, a meeting was set by Gonzales with the
Second Issue: Improper Dishonor of Check spouses Panlilio and the PCIB officers, Noceda and Ocampo, in the spouses
Panlilios jewelry shop in SM Megamall on October 5, 1998. Unfortunately,
Having ruled that Gonzales is solidarily liable for the three the meeting did not push through due to the heavy traffic Noceda and
promissory notes, We shall now touch upon the question of whether it was Ocampo encountered.
proper for PCIB to dishonor the check issued by Gonzales against the credit
line under the COHLA. Such knowledge of the default by Gonzales was, however, not
enough to properly apprise Gonzales about the default and the outstanding
We answer in the negative. dues. Verily, it is not enough to be merely informed to pay over a hundred
thousand without being formally apprised of the exact aggregate amount
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court and the corresponding dues pertaining to specific loans and the dates they
is limited to review of errors of law.[24] The factual findings of the trial court, became due.
especially when affirmed by the appellate court, are generally binding on us
unless there was a misapprehension of facts or when the inference drawn Gonzales testified that he was not duly notified about the
from the facts was manifestly mistaken.[25]The instant case falls within the outstanding interest dues of the loan:
exception.
ATTY. DE JESUS:
Now when Mr. Panlilios was encountering problems with the informed the spouses Panlilio of the interest dues. The spouses Panlilio,
bank did the defendant bank [advise] you of any problem through their account[28] with PCIB, were paying the periodic interest dues
with the same account? and were the ones periodically informed by the bank of the debiting of the
amounts for the periodic interest payments. Gonzales never paid any of the
GONZALES: periodic interest dues. PCIBs Noceda admitted as much in his cross-
They never [advised] me in writing. examination:

Q: How did you come to know that there was a problem? ATTY. DE JESUS: [on Cross-Examination]
A: When my check bounced sir. [26] And there was no instance that Mr. Gonzales ever made
even interest for this loan, is it not, its always Mr. Panlilio
who was paying the interest for this loan?
On the other hand, the PCIB contends otherwise, as Corazon
Nepomuceno testified: NOCEDA:
Yes sir.[29]
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr.
Gonzales when you spoke to him at the celphone? Indeed, no evidence was presented tending to show that Gonzales
was periodically sent notices or notified of the various periodic interest dues
NEPOMUCENO: covering the three promissory notes. Neither do the records show that
I just told him to update the interest so that we would not Gonzales was aware of amounts for the periodic interests and the payment
have to cancel the COH Line and he could withdraw the for them. Such were serviced by the spouses Panlilio.
money that was in the deposit because technically, if an
account is past due we are not allowed to let the client Thus, PCIB ought to have notified Gonzales about the status of the
withdraw funds because they are allowed to offset funds so, default or delinquency of the interest dues that were not paid starting July
just to help him get his money, just to update the interest 1998. And such notification must be formal or in written form considering
so that we could allow him to withdraw. that the outstanding periodic interests became due at various dates, i.e., on
Q: Withdraw what? July 8, 17, and 28, 1998, and the various amounts have to be certain so
A: His money on the COH, whatever deposit he has with us. that Gonzales is not only properly apprised but is given the opportunity to
pay them being solidarily liable for the loans covered by the promissory
Q: Did you inform him that if he did not update the interest notes.
he would not be able to withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he It is the bank which computes these periodic interests and such
has with us so thats why we suggested just to dues must be put into writing and formally served to Gonzales if he were
update the interest because at the end of asked to pay them, more so when the payments by the spouses Panlilio
everything, he would be able to withdraw more were charged through the account of the spouses Panlilio where the interest
funds than the interest that the money he would be dues were simply debited. Such arrangement did not cover Gonzales bank
needed to update the interest.[27] account with PCIB, since he is only an accommodation party who has no
personal interest in the PhP 1,800,000 loan. Without a clear and
determinate demand through a formal written notice for the exact periodic
From the foregoing testimonies, between the denial of Gonzales and interest dues for the loans, Gonzales cannot be expected to pay for them.
the assertion by PCIB that Gonzales was properly apprised, we find for
Gonzales. We find the testimonies of the former PCIB employees to be self- In business, more so for banks, the amounts demanded from the
serving and tenuous at best, for there was no proper written notice given by debtor or borrower have to be definite, clear, and without ambiguity. It is
the bank. The record is bereft of any document showing that, indeed, not sufficient simply to be informed that one must pay over a hundred
Gonzales was formally informed by PCIB about the past due periodic thousand aggregate outstanding interest dues without clear and certain
interests. figures. Thus, We find PCIB negligent in not properly informing Gonzales,
who is an accommodation party, about the default and the exact
PCIB is well aware and did not dispute the fact that Gonzales is an outstanding periodic interest dues. Without being properly apprised,
accommodation party. It also acted in accordance with such fact by Gonzales was not given the opportunity to properly act on them.
releasing the proceeds of the loan to the spouses Panlilio and likewise only
It was only through a letter[30] sent by PCIB dated October 2, 1998 No sir but verbally it was relayed to him.
but incongruously showing the delinquencies of the PhP 1,800,000 loan at a
much later date, i.e., as of October 31, 1998, when Gonzales was formally Q: But you have no proof that Mr. Gonzales came to know
apprised by PCIB. In it, the interest due was PhP 106,1616.71 and penalties about this Exhibit 8?
for the unpaid interest due of PhP 64,766.66, or a total aggregate due of A: It was relayed to him verbally.
PhP 171,383.37. But it is not certain and the records do not show when the
letter was sent and when Gonzales received it. What is clear is that such Q: But there is no written proof?
letter was belatedly sent by PCIB and received by Gonzales after the fact A: No sir.
that the latters FCD was already frozen, his credit line under the COHLA was
terminated or suspended, and his PhP 250,000 check in favor of Unson was Q: And it is only now that you claim that it was verbally
dishonored. relayed to him, its only now when you testified in
Court?
And way much later, or on May 4, 1999, was a demand letter from A: Before . . .
the counsel of PCIB sent to Gonzales demanding payment of the PhP
1,800,000 loan. Obviously, these formal written notices sent to Gonzales Q: To whom did you relay this information?
were too late in the day for Gonzales to act properly on the delinquency and A: It was during the time that we were going to Megamall, it
he already suffered the humiliation and embarrassment from the dishonor of was relayed by Liza that he has to pay his
his check drawn against the credit line. obligations or else it will adversely affect the status
of the account.[33]
To reiterate, a written notice on the default and deficiency of the
PhP 1,800,000 loan covered by the three promissory notes was required to On the other hand, the testimony of Corazon Nepomuceno shows:
apprise Gonzales, an accommodation party. PCIB is obliged to formally
inform and apprise Gonzales of the defaults and the outstanding obligations, ATTY. DE JESUS: [on Cross-Examination]
more so when PCIB was invoking the solidary liability of Gonzales. This PCIB Now we go to the other credit facility which is the credit on
failed to do. hand extended solely of course to Mr. Eusebio Gonzales who
is the plaintiff here, Mr. Panlilio is not included in this credit
Second. PCIB was grossly negligent in not giving prior notice to on hand facility. Did I gather from you as per your Exhibit 7
Gonzales about its course of action to suspend, terminate, or revoke the as of October 2, 1998 you were the one who recommended
credit line, thereby violating the clear stipulation in the COHLA. the cancellation of this credit on hand facility?

The COHLA, in its effectivity clause, clearly provides:


4. EFFECTIVITY The COH shall be effective for a NEPOMUCENO:
period of one (1) year commencing from the receipt by the It was recommended by the account officer and I supported
CLIENT of the COH checkbook issued by the BANK, subject it.
to automatic renewals for same periods unless terminated
by the BANK upon prior notice served on CLIENT. Q: And you approved it?
[31]
(Emphasis ours.) A: Yes sir.

Q: Did you inform Mr. Gonzales that you have already cancelled his
It is undisputed that the bank unilaterally revoked, suspended, and credit on hand facility?
terminated the COHLA without giving Gonzales prior notice as required by A: As far as I know, it is the account officer who will inform
the above stipulation in the COHLA. Noceda testified on cross-examination him.
on the Offering Ticket[32] recommending the termination of the credit line,
thus: Q: But you have no record that he was informed?
A: I dont recall and we have to look at the folder to
ATTY. DE JESUS: [on Cross-Examination] determine if they were informed.
This Exhibit 8, you have not furnished at anytime a copy to
the plaintiff Mr. Gonzales is it not? Q: If you will notice, this letter . . . what do you call this
letter of yours?
NOCEDA:
A: That is our letter advising them or reminding them of client, Gonzales. It may not wantonly exercise its rights without respecting
their unpaid interest and that if he is able to update and honoring the rights of its clients.
his interest he can extend the promissory note or
restructure the outstanding. Art. 19 of the New Civil Code clearly provides that [e]very person
must, in the exercise of his rights and in the performance of his duties, act
Q: Now, I call your attention madam witness, there is with justice, give everyone his due, and observe honesty and good faith.
nothing in this letter to the clients advising them or This is the basis of the principle of abuse of right which, in turn, is based
Mr. Gonzales that his credit on hand facility was upon the maxim suum jus summa injuria (the abuse of right is the greatest
already cancelled? possible wrong).[36]
A: I dont know if there are other letters aside from this.
In order for Art. 19 to be actionable, the following elements must be
Q: So in this letter there is nothing to inform or to make Mr. present: (1) the existence of a legal right or duty, (2) which is exercised in
Eusebio aware that his credit on hand facility was bad faith, and (3) for the sole intent of prejudicing or injuring another.
already cancelled? [37]
We find that such elements are present in the instant case. The
A: No actually he can understand it from the last effectivity clause of the COHLA is crystal clear that termination of the COH
sentence. If you will be able to update your should be done only upon prior notice served on the CLIENT. This is the
outstanding interest, we can apply the extention of legal duty of PCIBto inform Gonzales of the termination. However, as shown
your promissory note so in other words we are by the above testimonies, PCIB failed to give prior notice to Gonzales.
saying that if you dont, you cannot extend the
promissory note.
Malice or bad faith is at the core of Art. 19. Malice or bad faith
Q: You will notice that the subject matter of this October 2, implies a conscious and intentional design to do a wrongful act for a
1998 letter is only the loan of 1.8 million is it not, as dishonest purpose or moral obliquity.[38] In the instant case, PCIB was able
you can see from the letter? Okay? to send a letter advising Gonzales of the unpaid interest on the loans [39] but
A: Ah . . . failed to mention anything about the termination of the COHLA. More
significantly, no letter was ever sent to him about the termination of the
Q: Okay. There is nothing there that will show that that also COHLA. The failure to give prior notice on the part of PCIB is already prima
refers to the credit on hand facility which was being facie evidence of bad faith.[40] Therefore, it is abundantly clear that this case
utilized by Mr. Gonzales is it not? falls squarely within the purview of the principle of abuse of rights as
A: But I dont know if there are other letters that are not embodied in Art. 19.
presented to me now.[34]
Third. There is no dispute on the right of PCIB to suspend,
terminate, or revoke the COHLA under the cross default provisions of both
The foregoing testimonies of PCIB officers clearly show that not only the promissory notes and the COHLA. However, these cross default
did PCIB fail to give prior notice to Gonzales about the Offering Ticket for provisions do not confer absolute unilateral right to PCIB, as they are
the process of termination, suspension, or revocation of the credit line under qualified by the other stipulations in the contracts or specific circumstances,
the COHLA, but PCIB likewise failed to inform Gonzales of the fact that his like in the instant case of an accommodation party.
credit line has been terminated. Thus, we find PCIB grossly negligent in the
termination, revocation, or suspension of the credit line under the The promissory notes uniformly provide:
COHLA. While PCIB invokes its right on the so-called cross default
provisions, it may not with impunity ignore the rights of Gonzales under the The lender is hereby authorized, at its option
COHLA. and without notice, to set off or apply to the payment
of this Note any and all moneys which may be in its
Indeed, the business of banking is impressed with public interest hands on deposit or otherwise belonging to the
and great reliance is made on the banks sworn profession of diligence and Borrower. The Borrower irrevocably appoint/s the Lender,
meticulousness in giving irreproachable service. Like a common carrier effective upon the nonpayment of this Note on demand/at
whose business is imbued with public interest, a bank should exercise maturity or upon the happening of any of the events of
extraordinary diligence to negate its liability to the depositors. [35] In this default, but without any obligation on the Lenders part
instance, PCIB is sorely remiss in the diligence required in treating with its should it choose not to perform this mandate, as the
attorney-in-fact of the Borrower, to sell and dispose of any
property of the Borrower, which may be in the Lenders borrower. For another, Ocampo cannot feign ignorance on the arrangement
possession by public or private sale, and to apply the of the payments by the spouses Panlilio through the debiting of their bank
proceeds thereof to the payment of this Note; the Borrower, account. It is incredulous that the payment arrangement is merely at the
however, shall remain liable for any deficiency. [41] (Emphasis behest of Gonzales and at a mere verbal directive to do so. The fact that the
ours.) spouses Panlilio not only received the proceeds of the loan but were
servicing the periodic interest dues reinforces the fact that Gonzales was
only an accommodation party.

The above provisos are indeed qualified with the specific Thus, due to PCIBs negligence in not giving Gonzalesan
circumstance of an accommodation party who, as such, has not been accommodation partyproper notice relative to the delinquencies in the PhP
servicing the payment of the dues of the loans, and must first be properly 1,800,000 loan covered by the three promissory notes, the unjust
apprised in writing of the outstanding dues in order to answer for his termination, revocation, or suspension of the credit line under the COHLA
solidary obligation. from PCIBs gross negligence in not honoring its obligation to give prior
notice to Gonzales about such termination and in not informing Gonzales of
The same is true for the COHLA, which in its default clause provides: the fact of such termination, treating Gonzales account as closed and
dishonoring his PhP 250,000 check, was certainly a reckless act by
16. DEFAULT The CLIENT shall be considered in default PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose
under the COH if any of the following events shall occur: FCD account was frozen and had to look elsewhere for money to pay Unson.

1. x x x With banks, the degree of diligence required is more than that of a


2. Violation of the terms and conditions of this Agreement or good father of the family considering that the business of banking is imbued
any contract of the CLIENT with the BANK or any with public interest due to the nature of their function. The law imposes on
bank, persons, corporations or entities for the banks a high degree of obligation to treat the accounts of its depositors with
payment of borrowed money, or any other event of meticulous care, always having in mind the fiduciary nature of banking.
default in such contracts. [42] [44]
Had Gonzales been properly notified of the delinquencies of the PhP
1,800,000 loan and the process of terminating his credit line under the
COHLA, he could have acted accordingly and the dishonor of the check
The above pertinent default clause must be read in conjunction with would have been avoided.
the effectivity clause (No. 4 of the COHLA, quoted above), which expressly
provides for the right of client to prior notice. The rationale is simple: in Third Issue: Award of Damages
cases where the bank has the right to terminate, revoke, or suspend the
credit line, the client must be notified of such intent in order for the latter to The banking system has become an indispensable institution in the
act accordinglywhether to correct any ground giving rise to the right of the modern world and plays a vital role in the economic life of every civilized
bank to terminate the credit line and to dishonor any check issued or to act societybanks have attained a ubiquitous presence among the people, who
in accord with such termination, i.e., not to issue any check drawn from the have come to regard them with respect and even gratitude and most of all,
credit line or to replace any checks that had been issued. This, the bankwith confidence, and it is for this reason, banks should guard against injury
gross negligencefailed to accord Gonzales, a valued client for more than 15 attributable to negligence or bad faith on its part. [45]
years.
In the instant case, Gonzales suffered from the negligence and bad
Fourth. We find the testimony[43] of Ocampo incredible on the point faith of PCIB. From the testimonies of Gonzales witnesses, particularly those
that the principal borrower of the PhP 1,800,000 loan covered by the three of Dominador Santos[46]and Freddy Gomez,[47] the embarrassment and
promissory notes is Gonzales for which the bank officers had special humiliation Gonzales has to endure not only before his former close friend
instructions to grant and that it was through the instructions of Gonzales Unson but more from the members and families of his friends and associates
that the payment of the periodic interest dues were debited from the in the PCA, which he continues to experience considering the confrontation
account of the spouses Panlilio. he had with Unson and the consequent loss of standing and credibility
among them from the fact of the apparent bouncing check he issued. Credit
For one, while the first promissory note dated October 30, 1995 is very important to businessmen and its loss or impairment needs to be
indeed shows Gonzales as the principal borrower, the other promissory recognized and compensated.[48]
notes dated December 26, 1995 and January 3, 1996 evidently show that it
was Jose Panlilio who was the principal borrower with Gonzales as co-
The termination of the COHLA by PCIB without prior notice and the if they are the proximate result of the defendants wrongful act or
subsequent dishonor of the check issued by Gonzales constitute acts omission. The factual antecedents bolstered by undisputed testimonies
of contra bonus mores. Art. 21 of the Civil Code refers to such acts when it likewise show the mental anguish and anxiety Gonzales had to endure with
says, Any person who willfully causes loss or injury to another in a manner the threat of Unson to file a suit. Gonzales had to pay Unson PhP 250,000,
that is contrary to morals, good customs or public policy shall compensate while his FCD account in PCIB was frozen, prompting Gonzales to demand
the latter for damage. from PCIB and to file the instant suit.

Accordingly, this Court finds that such acts warrant the payment of The award of moral damages is aimed at a restoration within the
indemnity in the form of nominal damages. Nominal damages are limits of the possible, of the spiritual status quo anteit must always
recoverable where a legal right is technically violated and must be reasonably approximate the extent of injury and be proportional to the
vindicated against an invasion that has produced no actual present loss of wrong committed.[55] Thus, an award of PhP 50,000 is reasonable moral
any kind x x x.[49] We further explained the nature of nominal damages damages for the unjust dishonor of the PhP 250,000 which was the
in Almeda v. Cario: proximate cause of the consequent humiliation, embarrassment, anxiety,
and mental anguish suffered by Gonzales from his loss of credibility among
x x x Its award is thus not for the purpose of his friends, colleagues and peers.
indemnification for a loss but for the recognition and
vindication of a right. Indeed, nominal damages are Furthermore, the initial carelessness of the banks omission in not
damages in name only and not in fact. When granted by the properly informing Gonzales of the outstanding interest duesaggravated by
courts, they are not treated as an equivalent of a wrong its gross neglect in omitting to give prior notice as stipulated under the
inflicted but simply a recognition of the existence of a COHLA and in not giving actual notice of the termination of the credit
technical injury. A violation of the plaintiffs right, even if linejustifies the grant of exemplary damages of PhP 10,000. Such an award
only technical, is sufficient to support an award of nominal is imposed by way of example or correction for the public good.
damages. Conversely, so long as there is a showing of
a violation of the right of the plaintiff, an award of Finally, an award for attorneys fees is likewise called for from PCIBs
nominal damages is proper.[50] (Emphasis Ours.) negligence which compelled Gonzales to litigate to protect his interest. In
accordance with Art. 2208(1) of the Code, attorneys fees may be recovered
In the present case, Gonzales had the right to be informed of the when exemplary damages are awarded. We find that the amount of PhP
accrued interest and most especially, for the suspension of his COHLA. For 50,000 as attorneys fees is reasonable.
failure to do so, the bank is liable to pay nominal damages. The amount of
such damages is addressed to the sound discretion of the court, taking into WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the
account the relevant circumstances.[51] In this case, the Court finds that the CA Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is
grant of PhP 50,000 as nominal damages is proper. hereby REVERSED and SET ASIDE. The Philippine Commercial and
International Bank (now Banco De Oro) is ORDERED to pay Eusebio
Moreover, as We held in MERALCO v. CA,[52] failure to give prior Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages,
notice when required, such as in the instant case, constitutes a breach of PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees.
contract and is a clear violation of Art. 21 of the Code. In cases such as this,
Art. 2219 of the Code provides that moral damages may be recovered in No pronouncement as to costs.
acts referred to in its Art. 21. Further, Art. 2220 of the Code provides that
[w]illful injury to property may be a legal ground for awarding moral SO ORDERED.
damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith. Similarly, every
person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same. [53] Evidently, Gonzales is
entitled to recover moral damages.

Even in the absence of malice or bad faith, a depositor still has the
right to recover reasonable moral damages, if the depositor suffered mental
anguish, serious anxiety, embarrassment, and humiliation. [54] Although
incapable of pecuniary estimation, moral damages are certainly recoverable
7.Prudential Bank v. CIR, G.R. No. 180390, 27 July 2011 (certificate
of deposit) WHEREFORE, the instant petition is hereby PARTIALLY GRANTED. The
A certificate of deposit need not be in a specific form; thus, a passbook of subject Decision of the Commissioner of Internal Revenue dated December
an interest-earning deposit account issued by a bank is a certificate of deposit 28, 2001 assessing petitioner of deficiency documentary stamp taxes is
drawing interest.[1] hereby AFFIRMED insofar as the Savings Account Plus is concerned. The
deficiency assessment on petitioner's repurchase agreements and treasury
This Petition for Review on Certiorari[2] under Rule 45 of the Rules bills are hereby CANCELLED and SET ASIDE.
of Court assails the Decision[3] dated March 30, 2007 and the Resolution[4] dated
October 30, 2007 of the Court of Tax Appeals (CTA) in CTA EB No. 185. Accordingly, petitioner is hereby ORDERED TO PAY respondent the
reduced amount of P6,355,340.63 plus 20% delinquency interest from
Factual Antecedents August 23, 1999 up to the time such amount is fully paid pursuant to
Section 249 (c) of the [old] NIRC, as amended, covered by Assessment
Petitioner Prudential Bank[5] is a banking corporation organized and Notice No. ST-DST-95-0042-99 as deficiency documentary stamp tax for
existing under Philippine law.[6] On July 23, 1999, petitioner received from the the taxable year 1995, recomputed as follows:
respondent Commissioner of Internal Revenue (CIR) a Final Assessment Notice No.
ST-DST-95-0042-99 and a Demand Letter for deficiency Documentary Stamp Tax Savings Account Plus P5,084,272.50
(DST) for the taxable year 1995 on its Repurchase Agreement with the Bangko Add: 25% Surcharge 1,271,068.13
Sentral ng Pilipinas [BSP], Purchase of Treasury Bills from the BSP, and on its
Savings Account Plus [SAP] product, in the amount of P18,982,734.38, broken TOTAL P6,355,340.63
down as follows: SO ORDERED.[12]

a. Repurchase Agreement BSP Seller Petitioner moved for partial reconsideration but the same was denied by
Basic 1,656,000,000.00 x .30 P2,484,000.00 the First Division of the CTA in its Resolution dated May 22, 2006.[13]
200
Add: 25% Surcharge 621,000.00 Thus, petitioner appealed to the CTA En Banc.
Compromise Penalty 25,000.00 P3,130,000.00
b. Purchase of [Treasury] Bills from BSP Ruling of the Court of Tax Appeals En Banc
Basic 5,038,610,000.00 x .30 P7,557,915.00
200 On March 30, 2007, the CTA En Banc denied the appeal for lack of
Add: 25% Surcharge 1,889,478.75 merit. It affirmed the ruling of its First Division that petitioners SAP is a certificate of
Compromise Penalty 25,000.00 P9,472,393.75 deposit bearing interest subject to DST under Section 180 of the old National
c. Savings Account Plus (page 1307 of the docket) Internal Revenue Code (NIRC), as amended by Republic Act (RA) No. 7660.[14]
Basic 3,389,515,000.00 x .30 P5,084,272.50
200 Petitioner sought reconsideration but later moved to withdraw the same in
Add: 25% Surcharge 1,271,068.13 view of its availment of the Improved Voluntary Assessment Program (IVAP)
Compromise Penalty 25,000.00 P6,380,340.63 pursuant to Revenue Regulation (RR) No. 18-2006[15] in relation to RR No. 15-
GRAND TOTAL P18,982,734.38[7] 2006[16] and Revenue Memorandum Order (RMO) No. 23-2006.[17]

Petitioner protested the assessment on the ground that the documents On October 30, 2007, the CTA En Banc rendered a Resolution[18] denying
subject matter of the assessment are not subject to DST.[8] However, respondent petitioners motion to withdraw for non-compliance with the requirements for
denied[9] the protest on December 28, 2001. abatement. It found that the amount paid for purposes of the abatement program
Thus, petitioner filed a Petition for Review before the CTA which was raffled was not in accordance with Revenue Memorandum Circular (RMC) No. 66-2006,
to its First Division and docketed as CTA Case No. 6396.[10]
[19]
which provides that the amount to be paid should be based on the original
assessment or the courts decision, whichever is higher.[20] It also noted that
Ruling of the First Division of the Court of Tax Appeals petitioner failed to comply with RMO No. 23-2006, specifically with the requirement
to submit the letter of termination and authority to cancel assessment signed by
On February 10, 2006, the First Division of the CTA affirmed the the respondent.[21] In the same Resolution, the CTA En Banc denied petitioners
assessment for deficiency DST insofar as the SAP is concerned, but cancelled and motion for reconsideration for lack of merit.[22]
set aside the assessment on petitioners repurchase agreement and purchase of Issues
treasury bills[11] with the BSP. Thus, it disposed of the case as follows: Hence, the present recourse by petitioner raising the following issues:
DST is imposed on certificates of deposit bearing interest pursuant to
I. Section 180 of the old NIRC, as amended, to wit:
WHETHER X X X PETITIONERS [SAP] WITH A HIGHER INTEREST
IS SUBJECT TO DOCUMENTARY STAMP TAX. Sec. 180. Stamp tax on all loan agreements, promissory
notes, bills of exchange, drafts, instruments and securities issued
II. by the government or any of its instrumentalities, certificates of
WHETHER X X X THE CTA EN BANC ERRED IN NOT ALLOWING deposit bearing interest and others not payable on sight or
THE WITHDRAWAL OF THE PETITION AND/OR CANCELLATION demand. On all loan agreements signed abroad wherein the
OF THE DST ASSESSMENT ON PETITIONERS [SAP] ON THE object of the contract is located or used in the Philippines; bills of
GROUND THAT PETITIONER HAD ALREADY PAID AND exchange (between points within the Philippines), drafts,
SUBSTANTIALLY COMPLIED WITH RR NO. 15-2006 AND RMO NO. instruments and securities issued by the Government or any of its
23-2006.[23] instrumentalities or certificates of deposits drawing
interest, or orders for the payment of any sum of money
Petitioners Arguments otherwise than at the sight or on demand, or on all promissory
notes, whether negotiable or non-negotiable, except bank notes
Petitioner contends that its SAP is not subject to DST because it is not issued for circulation, and on each renewal of any such note, there
included in the list of documents under Section 180 of the old NIRC, as amended. shall be collected a documentary stamp tax of Thirty centavos
[24]
Petitioner insists that unlike a time deposit, its SAP is evidenced by a passbook (P0.30) on each Two hundred pesos, or fractional part thereof, of
and not by a deposit certificate.[25] In addition, its SAP is payable on demand and the face value of any such agreement, bill of exchange, draft,
not on a fixed determinable future.[26] To support its position, petitioner relies on certificate of deposit, or note: Provided, That only one
the legislative intent of the law prior to Republic Act (RA) No. 9243[27] and the documentary stamp tax shall be imposed on either loan
historical background of the taxability of certificates of deposit.[28] agreement, or promissory note issued to secure such loan,
whichever will yield a higher tax: provided, however, that loan
Petitioner further contends that even assuming that its SAP is subject to agreements or promissory notes the aggregate of which does not
DST, the CTA En Banc nonetheless erred in denying petitioners withdrawal of its exceed Two hundred fifty thousand pesos (P250,000.00)
petition considering that it has paid under the IVAP the amount of P5,084,272.50, executed by an individual for his purchase on installment for his
which it claims is 100% of the basic tax of the original assessment of the Bureau of personal use or that of his family and not for business, resale,
Internal Revenue (BIR).[29] Petitioner insists that the payment it made should be barter or hire of a house, lot, motor vehicle, appliance or furniture
deemed substantial compliance considering the refusal of the respondent to issue shall be exempt from the payment of the documentary stamp tax
the letter of termination and authority to cancel assessment.[30] provided under this section. (Emphasis supplied.)

Respondents Arguments
A certificate of deposit is defined as a written acknowledgment by a bank
Respondent maintains that petitioners SAP is subject to DST conformably or banker of the receipt of a sum of money on deposit which the bank or banker
with the ruling in International Exchange Bank v. Commissioner of Internal promises to pay to the depositor, to the order of the depositor, or to some other
Revenue.[31] It also contends that the CTA En Banc correctly denied the motion to person or his order, whereby the relation of debtor and creditor between the bank
withdraw since petitioner failed to comply with the requirements of the IVAP. and the depositor is created.[34]
[32]
Mere payment of the deficiency DST cannot be deemed substantial compliance
as tax amnesty, like tax exemption, must be construed strictly against the In this case, petitioner claims that its SAP is not a certificate of deposit
taxpayer.[33] bearing interest because unlike a time deposit, its SAP is payable on demand and is
evidenced by a passbook and not by a certificate of deposit.
Our Ruling We do not agree.

The petition lacks merit. In China Banking Corporation v. Commissioner of Internal


Revenue,[35] we held that the Savings Plus Deposit Account, which has the
Petitioners Savings Account following features:
Plus is subject to 1. Amount deposited is withdrawable anytime;
Documentary Stamp Tax. 2. The same is evidenced by a passbook;
3. The rate of interest offered is the prevailing market rate,
provided the depositor would maintain his minimum balance
in thirty (30) days at the minimum, and should he withdraw WHEREFORE, the petition is hereby DENIED. The assailed Decision
before the period, his deposit would earn the regular savings dated March 30, 2007 and the Resolution dated October 30, 2007 of the Court of
deposit rate; Tax Appeals in CTA EB No. 185 are
hereby AFFIRMED with MODIFICATION that petitioner Prudential Banks
payment be considered as partial payment of its tax liability.
is subject to DST as it is essentially the same as the Special/Super Savings Deposit
Account in Philippine Banking Corporation v. Commissioner of Internal Revenue, SO ORDERED.
[36]
and the Savings Account-Fixed Savings Deposit in International Exchange Bank
v. Commissioner of Internal Revenue,[37] which are considered certificates of
deposit drawing interests.[38]

Similarly, in this case, although the money deposited in a SAP is payable


anytime, the withdrawal of the money before the expiration of 30 days results in
the reduction of the interest rate.[39] In the same way, a time deposit withdrawn
before its maturity results to a lower interest rate and payment of bank charges or
penalties.[40]

The fact that the SAP is evidenced by a passbook likewise cannot remove
its coverage from Section 180 of the old NIRC, as amended. A document to be
considered a certificate of deposit need not be in a specific form.[41] Thus, a
passbook issued by a bank qualifies as a certificate of deposit drawing interest
because it is considered a written acknowledgement by a bank that it has accepted
a deposit of a sum of money from a depositor.[42]

In view of the foregoing, we find that the CTA En Banc correctly affirmed
the ruling of its First Division that petitioners SAP is a certificate of deposit bearing
interest and that the same is subject to DST.

The CTA En Bancs denial of


petitioners motion to
withdraw is proper.

The CTA En Banc denied petitioners motion to withdraw because it failed


to show that it was able to comply with the requirements of IVAP.

To avail of the IVAP, a taxpayer must pay the 100% basic tax of the
original assessment of the BIR or the CTA Decision, whichever is higher[43] and
submit the letter of termination and authority to cancel assessment signed by the
respondent.[44] In this case, petitioner failed to submit the letter of termination and
authority to cancel assessment as respondent found the payment of P5,084,272.50
not in accordance with RMC No. 66-2006. Hence, we find no error on the part of
the CTA En Banc in denying petitioners motion to withdraw.

Petitioners payment of P5,084,272.50, without the supporting documents,


cannot be deemed substantial compliance as tax amnesty must be construed
strictly against the taxpayer and liberally in favor of the taxing authority.
[45]
Nevertheless, the amount of P5,084,272.50 paid by petitioner to the BIR must
be considered as partial payment of petitioners tax liability.
8. PNB v. FF Cruz and Company, G.R. No. 173259, 25 July 2011 due course. In fact, it was no less than Caparas, the accountant of
(negligence; liability of bank, depositor) [FFCCI], who confirmed the regularity of the transaction. The delay of
As between a bank and its depositor, where the banks negligence is the [FFCCI] in picking up and going over the bank statements was the
proximate cause of the loss and the depositor is guilty of contributory negligence, proximate cause of its self-proclaimed injury. Had [FFCCI] been
the greater proportion of the loss shall be borne by the bank. This Petition for conscientious in this regard, the alleged chicanery would have been
Review on Certiorari seeks to reverse and set aside the Court of detected early on and Caparas effectively prevented from absconding with
Appeals January 31, 2006 Decision[1] in CA-G.R. CV No. 81349, which modified the its millions. It prayed for the dismissal of the complaint.[4]
January 30, 2004 Decision[2] of the Regional Trial Court of Manila City, Branch 46 in
Civil Case No. 97-84010, and the June 26, 2006 Resolution[3] denying petitioners Regional Trial Courts Ruling
motion for reconsideration. The trial court ruled that F.F. Cruz and Company, Inc. ( FFCCI) was guilty
of negligence in clothing Aurea Caparas (Caparas) with authority to make decisions
Factual Antecedents on and dispositions of its account which paved the way for the fraudulent
transactions perpetrated by Caparas; that, in practice, FFCCI waived the two-
The antecedents are aptly summarized by the appellate court: signature requirement in transactions involving the subject combo account so much
In its complaint, it is alleged that [respondent F.F. Cruz & so that Philippine National Bank (PNB) could not be faulted for honoring the
Co., Inc.] (hereinafter FFCCI) opened savings/current or so-called applications for managers check even if only the signature of Felipe Cruz appeared
combo account No. 0219-830-146 and dollar savings account No. thereon; and that FFCCI was negligent in not immediately informing PNB of the
0219-0502-458-6 with [petitioner Philippine National Bank] fraud.
(hereinafter PNB) at its Timog Avenue Branch. Its President Felipe
Cruz (or Felipe) and Secretary-Treasurer Angelita A. Cruz (or On the other hand, the trial court found that PNB was, likewise, negligent
Angelita) were the named signatories for the said accounts. in not calling or personally verifying from the authorized signatories the legitimacy
of the subject withdrawals considering that they were in huge amounts. For this
The said signatories on separate but coeval dates left for reason, PNB had the last clear chance to prevent the unauthorized debits from
and returned from the Unites States of America, Felipe on March FFCCIs combo account. Thus, PNB should bear the whole loss
18, 1995 until June 10, 1995 while Angelita followed him on
March 29, 1995 and returned ahead on May 9, 1995. WHEREFORE, judgment is hereby rendered ordering
defendant [PNB] to pay plaintiff [FFCCI] P13,210,500.31
While they were thus out of the country, applications for representing the amounts debited against plaintiffs account, with
cashiers and managers [checks] bearing Felipes [signature] were interest at the legal rate computed from the filing of the complaint
presented to and both approved by the PNB. The first was on plus costs of suit.
March 27, 1995 for P9,950,000.00 payable to a certain Gene B. IT IS SO ORDERED.[5]
Sangalang and the other one was on April 24, 1995
for P3,260,500.31 payable to one Paul Bautista. The amounts of Court of Appeals Ruling
these checks were then debited by the PNB against the combo On January 31, 2006, the CA rendered the assailed Decision affirming with
account of [FFCCI]. modification the Decision of the trial court, viz:
WHEREFORE, the appealed Decision is AFFIRMED with
When Angelita returned to the country, she had occasion the MODIFICATION that [PNB] shall pay [FFCCI] only 60% of the actual
to examine the PNB statements of account of [FFCCI] for the damages awarded by the trial court while the remaining 40% shall be borne by
months of February to August 1995 and she noticed the [FFCCI].
deductions of P9,950,000.00 and P3,260,500.31. Claiming that SO ORDERED.[6]
these were unauthorized and fraudulently made, [FFCCI]
requested PNB to credit back and restore to its account the value The appellate court ruled that PNB was negligent in not properly verifying the
of the checks. PNB refused, and thus constrained [FFCCI] filed the genuineness of the signatures appearing on the two applications for managers
instant suit for damages against the PNB and its own accountant check as evidenced by the lack of the signature of the bank verifier thereon. Had
Aurea Caparas (or Caparas). this procedure been followed, the forgery would have been detected.

In its traverse, PNB averred lack of cause of action. It alleged that it Nonetheless, the appellate court found FFCCI guilty of contributory negligence
exercised due diligence in handling the account of [FFCCI]. The because it clothed its accountant/bookkeeper Caparas with apparent authority to
applications for managers check have passed through the standard bank transact business with PNB. In addition, FFCCI failed to timely examine its monthly
procedures and it was only after finding no infirmity that these were given statement of account and report the discrepancy to PNB within a reasonable period
of time to prevent or recover the loss. FFCCIs contributory negligence, thus, signature but argues that the same was the result of inadvertence. It posits that
mitigated the banks liability. Pursuant to the rulings in Philippine Bank of the testimonies of Geronimo Gallego (Gallego), then the branch manager of PNB
Commerce v. Court of Appeals[7] and The Consolidated Bank & Trust Corporation v. Timog Branch, and Stella San Diego (San Diego), then branch cashier, suffice to
Court of Appeals,[8] the appellate court allocated the damages on a 60-40 ratio with establish that the signature verification process was duly followed.
the bigger share to be borne by PNB.
We are not persuaded.
From this decision, both FFCCI and PNB sought review before this Court.
First, oral testimony is not as reliable as documentary evidence.[17] Second,
On August 17, 2006, FFCCI filed its petition for review on certiorari which was PNBs own witness, San Diego, testified that in the verification process, the principal
docketed as G.R. No. 173278.[9] On March 7, 2007, the Court issued a duty to determine the genuineness of the signature devolved upon the account
Resolution[10] denying said petition. On June 13, 2007, the Court issued another analyst.[18] However, PNB did not present the account analyst to explain his or her
Resolution[11] denying FFCCIs motion for reconsideration. In denying the aforesaid failure to sign the box for signature and balance verification of the subject
petition, the Court ruled that FFCCI essentially raises questions of fact which are, as applications for managers check, thus, casting doubt as to whether he or she did
a rule, not reviewable under a Rule 45 petition; that FFCCI failed to show that its indeed verify the signatures thereon. Third, we cannot fault the appellate court for
case fell within the established exceptions to this rule; and that FFCCI was guilty of not giving weight to the testimonies of Gallego and San Diego considering that the
contributory negligence. Thus, the appellate court correctly mitigated PNBs liability. latter are naturally interested in exculpating themselves from any liability arising
from the failure to detect the forgeries in the subject transactions. Fourth, Gallego
On July 13, 2006, PNB filed its petition for review on certiorari which is the admitted that PNBs employees received training on detecting forgeries from the
subject matter of this case. National Bureau of Investigation.[19] However, Emmanuel Guzman, then NBI senior
document examiner, testified, as an expert witness, that the forged signatures in
Issue Whether the Court of Appeals seriously erred when it found PNB guilty of the subject applications for managers check contained noticeable and significant
negligence.[12] differences from the genuine signatures of FFCCIs authorized signatories and that
the forgeries should have been detected or observed by a trained signature verifier
Our Ruling of any bank.[20]

We affirm the ruling of the CA. Given the foregoing, we find no reversible error in the findings of the
appellate court that PNB was negligent in the handling of FFCCIs combo account,
PNB is guilty of specifically, with respect to PNBs failure to detect the forgeries in the subject
negligence. applications for managers check which could have prevented the loss. As we have
Preliminarily, in G.R. No. 173278, we resolved with finality[13] that FFCCI is often ruled, the banking business is impressed with public trust.[21] A higher degree
guilty of contributory negligence, thus, making it partly liable for the loss (i.e., as to of diligence is imposed on banks relative to the handling of their affairs than that of
40% thereof) arising from the unauthorized withdrawal of P13,210,500.31 from its an ordinary business enterprise.[22] Thus, the degree of responsibility, care and
combo account. The case before us is, thus, limited to PNBs alleged negligence in trustworthiness expected of their officials and employees is far greater than those
the subject transactions which the appellate court found to be the proximate cause of ordinary officers and employees in other enterprises.[23] In the case at bar, PNB
of the loss, thus, making it liable for the greater part of the loss (i.e., as to 60% failed to meet the high standard of diligence required by the circumstances to
thereof) pursuant to our rulings in Philippine Bank of Commerce v. Court of prevent the fraud. In Philippine Bank of Commerce v. Court of Appeals[24] and The
Appeals[14] and The Consolidated Bank & Trust Corporation v. Court of Appeals.[15] Consolidated Bank & Trust Corporation v. Court of Appeals,[25] where the banks
negligence is the proximate cause of the loss and the depositor is guilty of
PNB contends that it was not negligent in verifying the genuineness of the contributory negligence, we allocated the damages between the bank and the
signatures appearing on the subject applications for managers check. It claims that depositor on a 60-40 ratio. We apply the same ruling in this case considering that,
it followed the standard operating procedure in the verification process and that as shown above, PNBs negligence is the proximate cause of the loss while the issue
four bank officers examined the signatures and found the same to be similar with as to FFCCIs contributory negligence has been settled with finality in G.R. No.
those found in the signature cards of FFCCIs authorized signatories on file with the 173278. Thus, the appellate court properly adjudged PNB to bear the greater part
bank. of the loss consistent with these rulings.

PNB raises factual issues which are generally not proper for review under a WHEREFORE, the petition is DENIED. The January 31, 2006 Decision
Rule 45 petition. While there are exceptions to this rule, we find none applicable to and June 26, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 81349
the present case. As correctly found by the appellate court, PNB failed to make the are AFFIRMED.Costs against petitioner. SO ORDERED.
proper verification because the applications for the managers check do not bear the 9.PCIB v. Balmaceda, G.R. No. 158143, 21 September 2011 (liability
signature of the bank verifier. PNB concedes the absence[16] of the subject of drawee bank; crossed check)
the amount of ten (10%) percent of the total
Before us is a petition for review on certiorari,[1] filed by the misappropriated amounts sought to be recovered.
Philippine Commercial International Bank[2] (Bank or PCIB), to reverse and 4. Plus costs of suit.
set aside the decision[3] dated April 29, 2003 of the Court of Appeals (CA) in SO ORDERED.[4]
CA-G.R. CV No. 69955. The CA overturned the September 22, 2000 decision
of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case From the evidence presented, the RTC found that Balmaceda, by
No. 93-3181, which held respondent Rolando Ramos liable to PCIB for the taking undue advantage of his position and authority as branch manager of
amount of P895,000.00. the Sta. Cruz, Manila branch of PCIB, successfully obtained and
misappropriated the banks funds by falsifying several commercial
FACTUAL ANTECEDENTS documents. He accomplished this by claiming that he had been instructed
On September 10, 1993, PCIB filed an action for recovery of sum of by one of the Banks corporate clients to purchase Managers checks on its
money with damages before the RTC against Antonio Balmaceda, the behalf, with the value of the checks to be debited from the clients corporate
Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB bank account. First, he would instruct the Bank staff to prepare the
alleged that between 1991 and 1993, Balmaceda, by taking advantage of application forms for the purchase of Managers checks, payable to several
his position as branch manager, fraudulently obtained and encashed 31 persons. Then, he would forge the signature of the clients authorized
Managers checks in the total amount of Ten Million Seven Hundred Eighty representative on these forms and sign the forms as PCIBs approving
Two Thousand One Hundred Fifty Pesos (P10,782,150.00). officer. Finally, he would have an authorized officer of PCIB issue the
Managers checks. Balmaceda would subsequently ask his subordinates to
On February 28, 1994, PCIB moved to be allowed to file an amended release the Managers checks to him, claiming that the client had requested
complaint to implead Rolando Ramos as one of the recipients of a portion of that he deliver the checks.[5] After receiving the Managers checks, he
the proceeds from Balmacedas alleged fraud. PCIB also increased the encashed them by forging the signatures of the payees on the checks.
number of fraudulently obtained and encashed Managers checks to 34, in
the total amount of Eleven Million Nine Hundred Thirty Seven Thousand One In ruling that Ramos acted in collusion with Balmaceda, the RTC
Hundred Fifty Pesos (P11,937,150.00). The RTC granted this motion. noted that although the Managers checks payable to Ramos were crossed
checks, Balmaceda was still able to encash the checks. [6] After Balmaceda
Since Balmaceda did not file an Answer, he was declared in default. On the encashed three of these Managers checks, he deposited most of the money
other hand, Ramos filed an Answer denying any knowledge of Balmacedas into Ramos account.[7] The RTC concluded that from the P11,937,150.00
scheme. According to Ramos, he is a reputable businessman engaged in the that Balmaceda misappropriated from PCIB, P895,000.00 actually went to
business of buying and selling fighting cocks, and Balmaceda was one of his Ramos. Since the RTC disbelieved Ramos allegation that the sum of money
clients. Ramos admitted receiving money from Balmaceda as payment for deposited into his Savings Account (PCIB, Pasig branch) were proceeds from
the fighting cocks that he sold to Balmaceda, but maintained that he had no the sale of fighting cocks, it held Ramos liable to pay PCIB the amount
knowledge of the source of Balmacedas money. of P895,000.00.

THE RTC DECISION THE COURT OF APPEALS DECISION


On appeal, the CA dismissed the complaint against Ramos, holding that no
On September 22, 2000, the RTC issued a decision in favor of PCIB, with the sufficient evidence existed to prove that Ramos colluded with Balmaceda in
following dispositive portion: the latters fraudulent manipulations.[8]
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff and against the According to the CA, the mere fact that Balmaceda made Ramos the payee
defendants as follows: in some of the Managers checks does not suffice to prove that Ramos was
1. Ordering defendant Antonio Balmaceda to pay the complicit in Balmacedas fraudulent scheme. It observed that other persons
amount of P11,042,150.00 with interest thereon at the legal were also named as payees in the checks that Balmaceda acquired and
rate from [the] date of his misappropriation of the said encashed, and PCIB only chose to go after Ramos. With PCIBs failure to
amount until full restitution shall have been made[.] prove Ramos actual participation in Balmacedas fraud, no legal and factual
2. Ordering defendant Rolando Ramos to pay the basis exists to hold him liable.
amount of P895,000.00 with interest at the legal rate from
the date of misappropriation of the said amount until full The CA also found that PCIB acted illegally in freezing and
restitution shall have been made[.] debiting P251,910.96 from Ramos bank account. The CA thus decreed:
3. Ordering the defendants to pay plaintiff moral
damages in the sum of P500,000.00 and attorneys fees in
WHEREFORE, the appeal is granted. The Decision of the trial evidence and the factual circumstance of the case when the findings of fact
court rendered on September 22, 2000[,] insofar as appellant in the tribunals below (in this case between those of the CA and of the RTC)
Ramos is concerned, is SET ASIDE, and the complaint below are conflicting. When the exception applies, we are given latitude to review
against him is DISMISSED. the evidence on record to decide the case with finality. [12]

Appellee is hereby ordered to release the amount of P251,910.96 to Ramos participation in


appellant Ramos plus interest at [the] legal rate computed from Balmacedas scheme not
September 30, 1993 until appellee shall have fully complied proven
therewith.
From the testimonial and documentary evidence presented, we find it
Appellee is likewise ordered to pay appellant Ramos the following: beyond question that Balmaceda, by taking advantage of his position as
a) P50,000.00 as moral damages branch manager of PCIBs Sta. Cruz, Manila branch, was able to apply for
b) P50,000.00 as exemplary damages, and and obtain Managers checks drawn against the bank account of one of
c) P20,000.00 as attorneys fees. PCIBs clients. The unsettled question is whether Ramos, who received a
No costs. SO ORDERED.[9] portion of the money that Balmaceda took from PCIB, should also be held
liable for the return of this money to the Bank.
THE PETITION
In the present petition, PCIB avers that: PCIB insists that it presented sufficient evidence to establish that
Ramos colluded with Balmaceda in the scheme to fraudulently secure
I THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE Managers checks and to misappropriate their proceeds. Since Ramos
TO HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH defense anchored on mere denial of any participation in Balmacedas
RESPONDENT BALMACEDA wrongdoing is an intrinsically weak defense, it was error for the CA to
II THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO exonerate Ramos from any liability.
RELEASE THE AMOUNT OF P251,910.96 TO RESPONDENT RAMOS AND TO
PAY THE LATTER MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS In civil cases, the party carrying the burden of proof must establish
FEES[10] his case by a preponderance of evidence, or evidence which, to the court, is
PCIB contends that the circumstantial evidence shows that Ramos more worthy of belief than the evidence offered in opposition. [13] This Court,
had knowledge of, and acted in complicity with Balmaceda in, the in Encinas v. National Bookstore, Inc.,[14] defined preponderance of evidence
perpetuation of the fraud. Ramos explanation that he is a businessman and in the following manner:
that he received the Managers checks as payment for the fighting cocks he
sold to Balmaceda is unconvincing, given the large sum of money involved. "Preponderance of evidence" is the weight, credit, and
While Ramos presented evidence that he is a reputable businessman, this value of the aggregate evidence on either side and is usually
evidence does not explain why the Managers checks were made payable to considered to be synonymous with the term "greater weight
him in the first place. of the evidence" or "greater weight of the credible
evidence." Preponderance of evidence is a phrase which, in
PCIB maintains that it had the right to freeze and debit the amount the last analysis, means probability of the truth. It is
of P251,910.96 from Ramos bank account, even without his consent, since evidence which is more convincing to the court as worthy of
legal compensation had taken place between them by operation of law. PCIB belief than that which is offered in opposition thereto.
debited Ramos bank account, believing in good faith that Ramos was not
entitled to the proceeds of the Managers checks and was actually privy to The party, whether the plaintiff or the defendant, who asserts the
the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for affirmative of an issue has the onus to prove his assertion in order to obtain
moral and exemplary damages. a favorable judgment, subject to the overriding rule that the burden to
prove his cause of action never leaves the plaintiff. For the defendant, an
OUR RULING affirmative defense is one that is not merely a denial of an essential
ingredient in the plaintiff's cause of action, but one which, if established, will
We partly grant the petition. constitute an "avoidance" of the claim.[15]
At the outset, we observe that the petition raises mainly questions
of fact whose resolution requires the re-examination of the evidence on Thus, PCIB, as plaintiff, had to prove, by preponderance of
record. As a general rule, petitions for review on certiorari only involve evidence, its positive assertion that Ramos conspired with Balmaceda in
questions of law.[11] By way of exception, however, we can delve into perpetrating the latters scheme to defraud the Bank. In PCIBs estimation, it
successfully accomplished this through the submission of the following Q: On that particular application?
evidence: A: Yes sir.
[1] Exhibits A, D, PPPP, QQQQ, and RRRR and their Q: Showing to you several applications for Managers
submarkings, the application forms for MCs, show Check previously attached as Annexes A, B, C, D and E[] of
that [these MCs were applied for in favor of Ramos;] the complaint. Could you please tell us where is that
[2] Exhibits K, N, SSSS, TTTT, and UUUU and their particular alleged signature of a client applying for the
submarkings prove that the MCs were issued in Managers check which you claimed to have been forged by
favor of x x x Ramos[; and] Mr. Balmaceda?
[3] [T]estimonies of the witness for [PCIB]. [16] A: Here sir.
xxxx
We cannot accept these submitted pieces of evidence as sufficient to Q: After the accomplishment of this application form
satisfy the burden of proof that PCIB carries as plaintiff. as you stated Mrs. witness, do you know what happened to
the application form?
On its face, all that PCIBs evidence proves is that Balmaceda used A: Before that application form is processed it goes
Ramos name as a payee when he filled up the application forms for the to several stages. Here for example this was signed
Managers checks. But, as the CA correctly observed, the mere fact that supposed to be by the client and his signature representing
Balmaceda made Ramos the payee on some of the Managers checks is not that, he certified the signature based on their records
enough basis to conclude that Ramos was complicit in Balmacedas fraud; a to be authentic.
number of other people were made payees on the other Managers checks Q: When you said he to whom are you referring to?
yet PCIB never alleged them to be liable, nor did the Bank adduce any other A: Mr. Balmaceda. And at the same time he
evidence pointing to Ramos participation that would justify his separate approved the transaction.
treatment from the others. Also, while Ramos is Balmacedas brother-in-law, xxxx
their relationship is not sufficient, by itself, to render Ramos liable, absent Q: Do you know if the corresponding checks applied
concrete proof of his actual participation in the fraudulent scheme. for in the application forms were issued?
A: Yes sir.
Moreover, the evidence on record clearly shows that Balmaceda Q: Could you please show us where these checks are
acted on his own when he applied for the Managers checks against the bank now, the one applied for in Exhibit A which is in the amount
account of one of PCIBs clients, as well as when he encashed the of P150,000.00, where is the corresponding check?
fraudulently acquired Managers checks. A: Rolando Ramos dated December 26, 1991 and
one of the signatories with higher authority, this is Mr.
Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of Balmacedas signature.
the relevant events, testified that Balmaceda committed all the acts Q: In other words he is likewise approving
necessary to obtain the unauthorized Managers checks from filling up the signatory to the Managers check?
application form by forging the signature of the clients representative, to A: Yes sir. This is an authority that the check
forging the signatures of the payees in order to encash the checks. As Mrs. [has] been encashed.
Costes stated in her testimony: Q: In other words this check issued to Rolando
Q: I am going into [these] particular instances Ramos dated December 26, 1991 is a cross check but
where you said that Mr. Balmaceda [has] been making nonetheless he allowed to encash by granting it.
unauthorized withdrawals from particular account of a client Could you please show us?
or a client of yours at Sta. Cruz branch. Would you tell us ATTY. PACES: Witness pointing to an initial of the
how he effected his unauthorized withdrawals? defendant Antonio Balmaceda, the notation cross check.
A: He prevailed upon the domestic remittance clerk A: And this is his signature.
to prepare the application of a Managers check which [has] xxxx
been debited to a clients account. This particular Managers Q: How about the check corresponding to Exhibit E-2
check will be payable to a certain individual thru his account which is an application for P125,000.00 for a certain Rolando
as the instruction of the client. Ramos. Do you have the check?
Q: What was your findings in so far as the particular A: Yes sir.
alleged instruction of a client is concerned? ATTY. PACES: Witness producing a check dated
A: We found out that he forged the signature of December 19, 1991 the amount of P125,000.00 payable to
the client. certain Rolando Ramos.
Q: Can you tell us whether the same modus A: Yes he is not going to call PCIBank Sta. Cruz
operandi was ad[o]pted by Mr. Balmaceda in so far as he is branch because his account is maintained at Pasig
concerned? Q: So Mr. Balmaceda was the one who just
A: Yes sir he is also the right signer and he remitted or transmitted the amount that you claimed
authorized the cancellation of the cross check. [was sent] to the account of my client?
[17]
(emphasis ours) A: Yes.[20] (emphases ours)
xxxx
Q: These particular checks [Mrs.] witness in your Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to
findings, do you know if Mr. Balmaceda [has] again any prove that Ramos encashed a Managers check for P480,000.00, could only
participation in these checks? testify that the money was deposited into Ramos PCIB bank account. She
A: He is also the right signer and approved officer could not attest that Ramos himself presented the Managers check for
and he was authorized to debit on file. deposit in his bank account.[21] These testimonies clearly dispute PCIBs
xxxx theory that Ramos was instrumental in the encashment of the Managers
Q: And do you know if these particular checks checks.
marked as Exhibit G-2 to triple FFF were subsequently We also find no reason to doubt Ramos claim that Balmaceda
encashed? deposited these large sums of money into his bank account as payment for
A: Yes sir. the fighting cocks that Balmaceda purchased from him. Ramos presented
Q: Were you able to find out who encashed? two witnesses Vicente Cosculluela and Crispin Gadapan who testified that
A: Mr. Balmaceda himself and besides he Ramos previously engaged in the business of buying and selling fighting
approved the encashment because of the signature cocks, and that Balmaceda was one of Ramos biggest clients.
that he allowed the encashment of the check.
xxxx Quoting from the RTC decision, PCIB stresses that Ramos own witness and
Q: Do you know if this particular person having in business partner, Cosculluela, testified that the biggest net profit he and
fact withdraw of received the proceeds of [these] particular Ramos earned from a single transaction with Balmaceda amounted to no
checks, the payee? more than P100,000.00, for the sale of approximately 45 fighting cocks.
A: No sir. [22]
In PCIBs view, this testimony directly contradicts Ramos assertion that
Q: It was all Mr. Balmaceda dealing with you? he received approximately P400,000.00 from his biggest transaction with
A: Yes sir. Balmaceda. To PCIB, the testimony also renders questionable Ramos
Q: In other words it would be possible that Mr. assertion that Balmaceda deposited large amounts of money into his bank
Balmaceda himself gotten the proceeds of the checks account as payment for the fighting cocks.
by forging the payees signature?
A: Yes sir.[18] (emphases ours) On this point, we find that PCIB misunderstood Cosculluelas
testimony. A review of the testimony shows that Cosculluela specifically
Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. referred to the net profit that they earned from the sale of the fighting
Cruz, Manila branch at the time the events of this case occurred, confirmed cocks;[23] PCIB apparently did not take into account the capital,
Mrs. Costes testimony by stating that it was Balmaceda who forged transportation and other expenses that are components of these
Ramos signature on the Managers checks where Ramos was the transactions. Obviously, in sales transactions, the buyer has to pay not only
payee, so as to encash the amounts indicated on the checks.[19] Mrs. for the value of the thing sold, but also for the shipping costs and other
Laforteza also testified that Ramos never went to the PCIB, Sta. incidental costs that accompany the acquisition of the thing sold. Thus, while
Cruz, Manila branch to encash the checks since Balmaceda was the one the biggest net profit that Ramos and Cosculluela earned in a single
who deposited the checks into Ramos bank account. As revealed transaction amounted to no more than P100,000.00,[24] the inclusion of the
during Mrs. Lafortezas cross-examination: actual acquisition costs of the fighting cocks, the transportation expenses
Q: Mrs. Laforteza, these checks that were (i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other
applied for by Mr. Balmaceda, did you ever see my attendant expenses could account for the P400,000.00 that Balmaceda
client go to the bank to encash these checks? deposited into Ramos bank account.
A: No it is Balmaceda who is depositing in his
behalf. Given that PCIB failed to establish Ramos participation in
Q: Did my client ever call up the bank concerning Balmacedas scheme, it was not even necessary for Ramos to provide an
this amount? explanation for the money he received from Balmaceda. Even if the
evidence adduced by the plaintiff appears stronger than that presented by
the defendant, a judgment cannot be entered in the plaintiffs favor if his The General Banking Law of 2000[31] requires of banks the highest
evidence still does not suffice to sustain his cause of action; [25] to reiterate, a standards of integrity and performance. The banking business is impressed
preponderance of evidence as defined must be established to achieve this with public interest. Of paramount importance is the trust and confidence of
result. the public in general in the banking industry. Consequently, the diligence
required of banks is more than that of a Roman pater familias or a good
PCIB itself at fault as father of a family.[32] The highest degree of diligence is expected. [33]
employer
While we appreciate that Balmaceda took advantage of his authority
In considering this case, one point that cannot be disregarded is the and position as the branch manager to commit these acts, this circumstance
significant role that PCIB played which contributed to the perpetration of the cannot be used to excuse the manner the Bank through its employees
fraud. We cannot ignore that Balmaceda managed to carry out his handled its clients bank accounts and thereby ignored established bank
fraudulent scheme primarily because other PCIB employees failed to carry procedures at the branch managers mere order. This lapse is made all the
out their assigned tasks flaws imputable to PCIB itself as the employer. more glaring by Balmacedas repetition of his modus operandi 33 more times
in a period of over one year by the Banks own estimation. With this kind of
Ms. Analiza Vega, an accounting clerk, teller and domestic record, blame must be imputed on the Bank itself and its systems, not
remittance clerk working at the PCIB, Sta. Cruz, Manila branch at the time solely on the weakness or lapses of individual employees.
of the incident, testified that Balmaceda broke the Banks protocol when he
ordered the Banks employees to fill up the application forms for the Principle of unjust
Managers checks, to be debited from the bank account of one of the banks enrichment not applicable
clients, without providing the necessary Authority to Debit from the client.
[26]
PCIB also admitted that these Managers checks were subsequently PCIB maintains that even if Ramos did not collude with Balmaceda,
released to Balmaceda, and not to the clients representative, based solely it still has the right to recover the amounts unjustly received by Ramos
on Balmacedas word that the client had tasked him to deliver these checks. pursuant to the principle of unjust enrichment. This principle is embodied in
[27]
Article 22 of the Civil Code which provides:

Despite Balmacedas gross violations of bank procedures mainly in Article 22. Every person who through an act of
the processing of the applications for Managers checks and in the releasing performance by another, or any other means, acquires or
of the Managers checks Balmacedas co-employees not only turned a blind comes into possession of something at the expense of the
eye to his actions, but actually complied with his instructions. In this way, latter without just or legal ground, shall return the same to
PCIBs own employees were unwitting accomplicesin Balmacedas fraud. him.

Another telling indicator of PCIBs negligence is the fact that it To have a cause of action based on unjust enrichment, we explained
allowed Balmaceda to encash the Managers checks that were plainly in University of the Philippines v. Philab Industries, Inc. [34] that:
crossed checks. A crossed check is one where two parallel lines are drawn
across its face or across its corner.[28] Based on jurisprudence, the crossing Unjust enrichment claims do not lie simply because one
of a check has the following effects: (a) the check may not be encashed party benefits from the efforts or obligations of others, but
but only deposited in the bank; (b) the check may be negotiated only instead it must be shown that a party was unjustly enriched
once to the one who has an account with the bank; and (c) the act of in the sense that the term unjustly could mean illegally or
crossing the check serves as a warning to the holder that the check has unlawfully.
been issued for a definite purpose and he must inquire if he received the
check pursuant to this purpose; otherwise, he is not a holder in due course. Moreover, to substantiate a claim for unjust enrichment,
[29]
In other words, the crossing of a check is a warning that the check the claimant must unequivocally prove that another
should be deposited only in the account of the payee. When a check is party knowingly received something of value to which
crossed, it is the duty of the collecting bank to ascertain that the he was not entitledand that the state of affairs are
check is only deposited to the payees account.[30] In complete disregard such that it would be unjust for the person to keep the
of this duty, PCIBs systems allowed Balmaceda to encash 26 Managers benefit. Unjust enrichment is a term used to depict result
checks which were all crossed checks, or checks payable to the payees or effect of failure to make remuneration of or for property
account only. or benefits received under circumstances that give rise to
legal or equitable obligation to account for them; to be
entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is
not itself a theory of reconvey. Rather, it is a prerequisite for Although PCIBs act of freezing and debiting Ramos account is
the enforcement of the doctrine of restitution. [35] (emphasis unlawful, we cannot hold PCIB liable for moral and exemplary damages.
ours) Since a contractual relationship existed between Ramos and PCIB as the
depositor and the depositary bank, respectively, the award of moral
Ramos cannot be held liable to PCIB on account of unjust enrichment simply damages depends on the applicability of Article 2220 of the Civil Code,
because he received payments out of money secured by fraud from PCIB. To which provides:
hold Ramos accountable, it is necessary to prove that he received the
money from Balmaceda, knowing that he (Ramos) was not entitled to it. Article 2220. Willful injury to property may be a legal ground
PCIB must also prove that Ramos, at the time that he received the money for awarding moral damages if the court should find that,
from Balmaceda, knew that the money was acquired through fraud. under the circumstances, such damages are justly due. The
Knowledge of the fraud is the link between Ramos and PCIB that would same rule applies to breaches of contract where the
obligate Ramos to return the money based on the principle of unjust defendant acted fraudulently or in bad faith. [emphasis
enrichment. ours]

However, as the evidence on record indicates, Ramos accepted the


deposits that Balmaceda made directly into his bank account, believing that Bad faith does not simply connote bad judgment or negligence; it imports a
these deposits were payments for the fighting cocks that Balmaceda had dishonest purpose or some moral obliquity and conscious commission of a
purchased. Significantly, PCIB has not presented any evidence proving that wrong; it partakes of the nature of fraud.[39]
Ramos participated in, or that he even knew of, the fraudulent sources of
Balmacedas funds. As the facts of this case bear out, PCIB did not act out of malice or
bad faith when it froze Ramos bank account and subsequently debited the
PCIB illegally froze and amount of P251,910.96 therefrom. While PCIB may have acted hastily and
debited Ramos assets without regard to its primary duty to treat the accounts of its depositors
with meticulous care and utmost fidelity,[40] we find that its actions were
We also find that PCIB acted illegally in freezing and debiting Ramos propelled more by the need to protect itself, and not out of malevolence or
bank account. In BPI Family Bank v. Franco,[36] we cautioned against the ill will. One may err, but error alone is not a ground for granting moral
unilateral freezing of bank accounts by banks, noting that: damages.[41]

More importantly, [BPI Family Bank] does not have We also disallow the award of exemplary damages. Article 2234 of the Civil
a unilateral right to freeze the accounts of Franco based on Code requires a party to first prove that he is entitled to moral, temperate
its mere suspicion that the funds therein were proceeds of or compensatory damages before he can be awarded exemplary damages.
the multi-million peso scam Franco was allegedly involved Since no reason exists to award moral damages, so too can there be no
in. To grant [BPI Family Bank], or any bank for that matter, reason to award exemplary damages.
the right to take whatever action it pleases on deposits We deem it just and equitable, however, to uphold the award of attorneys
which it supposes are derived from shady transactions, fees in Ramos favor. Taking into consideration the time and efforts involved
would open the floodgates of public distrust in the banking that went into this case, we increase the award of attorneys fees
industry.[37] from P20,000.00 to P75,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED.


We see no legal merit in PCIBs claim that legal compensation took We AFFIRM the decision of the Court of Appeals dated April 29, 2003 in CA-
place between it and Ramos, thereby warranting the automatic deduction G.R. CV No. 69955 with the MODIFICATION that the award of moral and
from Ramos bank account. For legal compensation to take place, exemplary damages in favor of Rolando N. Ramos is DELETED, while the
two persons, in their own right, must first be creditors and debtors of each award of attorneys fees is INCREASED to P75,000.00. Costs against the
other.[38] While PCIB, as the depositary bank, is Ramos debtor in the amount Philippine Commercial International Bank.
of his deposits, Ramos is not PCIBs debtor under the evidence the PCIB
adduced. PCIB thus had no basis, in fact or in law, to automatically debit SO ORDERED.
from Ramos bank account.

On the award of damages


10.Cayanan v. North Star International Travel Inc., G.R. No. 172954, Payable to : North Star International Travel, Inc.
5 October 2011 (consideration)
Check No : 687804
Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision of the
[1] Drawn Against : PCIB
Court of Appeals (CA) in CA-G.R. SP No. 65538 finding him civilly liable for Amount : P35,000.00
the value of the five checks which are the subject of Criminal Case Nos. Dated/Postdated : April 14, 1994
166549-53. Payable to : North Star International Travel, Inc.[6]

The antecedent facts are as follows: When presented for payment, the checks in the amount of P1,500,000
and P35,000 were dishonored for insufficiency of funds while the other three
North Star International Travel Incorporated (North Star) is a corporation checks were dishonored because of a stop payment order from petitioner.
engaged in the travel agency business while petitioner is the owner/general
[7]
North Star, through its counsel, wrote petitioner on September 14,
manager of JEAC International Management and Contractor Services, a 1994[8] informing him that the checks he issued had been dishonored. North
recruitment agency. Star demanded payment, but petitioner failed to settle his
obligations. Hence, North Star instituted Criminal Case Nos. 166549-53
On March 17,[2] 1994, Virginia Balagtas, the General Manager of North Star, charging petitioner with violation of Batas Pambansa Blg. 22, or
in accommodation and upon the instruction of its client, petitioner herein, the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of
sent the amount of US$60,000[3] to View Sea Ventures Ltd., in Nigeria from Makati City.
her personal account in Citibank Makati. On March 29, 1994, Virginia again
sent US$40,000 to View Sea Ventures by telegraphic transfer, [4] with The Informations,[9] which were similarly worded except as to the check
US$15,000 coming from petitioner. Likewise, on various dates, North Star numbers, the dates and amounts of the checks, alleged:
extended credit to petitioner for the airplane tickets of his clients, with the
total amount of such indebtedness under the credit extensions eventually That on or about and during the month of March 1994 in the
reaching P510,035.47.[5] Municipality of Makati, Metro Manila, Philippines, a place
within the jurisdiction of this Honorable Court, the above-
To cover payment of the foregoing obligations, petitioner issued the named accused, being the authorized signatory of [JEAC]
following five checks to North Star: Intl Mgt & Cont. Serv. did then and there willfully, unlawfully
and feloniously make out[,] draw and issue to North Star
Check No : 246822 Intl. Travel Inc. herein rep. by Virginia D. Balagtas to apply
Drawn Against : Republic Planters Bank on account or for value the checks described below:
Amount : P695,000.00 xxxx
Dated/Postdated : May 15, 1994 said accused well knowing that at the time of issue thereof,
Payable to : North Star International Travel, Inc. did not have sufficient funds in or credit with the drawee
bank for the payment in full of the face amount of such
Check No : 246823 check upon its presentment, which check when presented
Drawn Against : Republic Planters Bank for payment within ninety (90) days from the date thereof
Amount : P278,000.00 was subsequently dishonored by the drawee bank for the
Dated/Postdated : May 15, 1994 reason PAYMENT STOPPED/DAIF and despite receipt of
Payable to : North Star International Travel, Inc. notice of such dishonor the accused failed to pay the payee
the face amount of said check or to make arrangement for
Check No : 246824 full payment thereof within five (5) banking days after
Drawn Against : Republic Planters Bank receiving notice.
Amount : P22,703.00 Contrary to law.
Dated/Postdated : May 15, 1994
Payable to : North Star International Travel, Inc. Upon arraignment, petitioner pleaded not guilty to the charges.
After trial, the MeTC found petitioner guilty beyond reasonable doubt of
Check No : 687803 violation of B.P. 22. Thus:
Drawn Against : PCIB
Amount : P1,500,000.00 WHEREFORE, finding the accused, ENGR. JOSE E.
Dated/Postdated : April 14, 1994 CAYANAN GUILTY beyond reasonable doubt of
Violation of Batas Pambansa Blg. 22 he is hereby
sentenced to suffer imprisonment of one (1) year for each of Petitioner now assails the CA decision raising the lone issue of whether the
the offense committed. CA erred in holding him civilly liable to North Star for the value of the
Accused is likewise ordered to indemnify the checks.[13]
complainant North Star International Travel, Inc.
represented in this case by Virginia Balagtas, the sum Petitioner argues that the CA erred in holding him civilly liable to
of TWO MILLION FIVE HUNDRED THIRTY THOUSAND AND North Star for the value of the checks since North Star did not give any
SEVEN HUNDRED THREE PESOS (P2,530,703.00) valuable consideration for the checks. He insists that the US$85,000 sent to
representing the total value of the checks in [question] plus View Sea Ventures was not sent for the account of North Star but for the
FOUR HUNDRED EIGHTY[-]FOUR THOUSAND account of Virginia as her investment. He points out that said amount was
SEVENTY[-]EIGHT PESOS AND FORTY[-]TWO CENTAVOS taken from Virginias personal dollar account in Citibank and not from North
(P484,078.42) as interest of the value of the checks subject Stars corporate account.
matter of the instant case, deducting therefrom the amount
of TWO HUNDRED TWENTY THOUSAND PESOS Respondent North Star, for its part, counters that petitioner is liable
(P220,000.00) paid by the accused as interest on the value for the value of the five subject checks as they were issued for
of the checks duly receipted by the complainant and marked value. Respondent insists that petitioner owes North Star P2,530,703 plus
as Exhibit FF of the record. interest of P264,078.45, and that the P220,000 petitioner paid to North
xxxx Star is conclusive proof that the checks were issued for value.

SO ORDERED.[10] The petition is bereft of merit.

On appeal, the Regional Trial Court (RTC) acquitted petitioner of the We have held that upon issuance of a check, in the absence of
criminal charges. The RTC also held that there is no basis for the imposition evidence to the contrary, it is presumed that the same was issued for
of the civil liability on petitioner. The RTC ratiocinated that: valuable consideration which may consist either in some right, interest,
profit or benefit accruing to the party who makes the contract, or some
In the instant cases, the checks issued by the forbearance, detriment, loss or some responsibility, to act, or labor, or
accused were presented beyond the period of NINETY (90) service given, suffered or undertaken by the other side. [14] Under
DAYS and therefore, there is no violation of the provision of the Negotiable Instruments Law, it is presumed that every party to an
Batas Pambansa Blg. 22 and the accused is not considered instrument acquires the same for a consideration or for value. [15] As
to have committed the offense. There being no offense petitioner alleged that there was no consideration for the issuance of the
committed, accused is not criminally liable and there would subject checks, it devolved upon him to present convincing evidence to
be no basis for the imposition of the civil liability arising overthrow the presumption and prove that the checks were in fact issued
from the offense.[11] without valuable consideration.[16] Sadly, however, petitioner has not
presented any credible evidence to rebut the presumption, as well as North
Aggrieved, North Star elevated the case to the CA. On May 31, Stars assertion, that the checks were issued as payment for the US$85,000
2006, the CA reversed the decision of the RTC insofar as the civil aspect is petitioner owed.
concerned and held petitioner civilly liable for the value of the subject
checks. The fallo of the CA decision reads: Notably, petitioner anchors his defense of lack of consideration on
the fact that he did not personally receive the US$85,000 from
WHEREFORE, the petition is GRANTED. The Virginia. However, we note that in his pleadings, he never denied having
assailed Decision of the RTC insofar as Cayanan's civil instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently,
liability is concerned, is NULLIFIED and SET ASIDE. Virginia sent the money upon the agreement that petitioner will give to
The indemnity awarded by the MeTC in its September 1, North Star the peso equivalent of the amount remitted plus
1999 Decision is REINSTATED. interest. As testified to by Virginia, Check No. 246822 dated May 15, 1994
SO ORDERED.[12] in the amount of P695,000.00 is equivalent to US$25,000; Check No.
246823 dated May 15, 1994 in the amount of P278,000 is equivalent to
The CA ruled that although Cayanan was acquitted of the criminal US$10,000; Check No. 246824 in the amount of P22,703 represents the one
charges, he may still be held civilly liable for the checks he issued since he month interest for P695,000 and P278,000 at the rate of twenty-eight
never denied having issued the five postdated checks which were (28%) percent per annum;[17] Check No. 687803 dated April 14, 1994 in the
dishonored. amount of P1,500,000 is equivalent to US$50,000 and Check No.
687804 dated 14 April 1994 in the amount of P35,000 represents the one consideration. Moreover, we note that Virginia Balagtas averred in her
month interest for P1,500,000 at the rate of twenty-eight (28%) Affidavit[20] that North Star caused the payment of the US$60,000 and
percent per annum.[18] Petitioner has not substantially refuted these US$25,000 to View Sea Ventures to accommodate petitioner, which
averments. statement petitioner failed to refute. In addition, petitioner did not question
the Statement of Account No. 8639[21] dated August 31, 1994 issued by
Concomitantly, petitioners assertion that the dollars sent to Nigeria North Star which contained itemized amounts including the US$60,000 and
was for the account of Virginia Balagtas and as her own investment with US$25,000 sent through telegraphic transfer to View Sea Ventures per his
View Sea Ventures deserves no credence. Virginia has not been shown to instruction. Thus, the inevitable conclusion is that when petitioner issued the
have any business transactions with View Sea Ventures and from all subject checks to North Star as payee, he did so to settle his obligation with
indications, she only remitted the money upon the request and in North Star for the US$85,000. And since the only payment petitioner made
accordance with petitioners instructions. The evidence shows that it was to North Star was in the amount of P220,000.00, which was applied to
petitioner who had a contract with View Sea Ventures as he was sending interest due, his liability is not extinguished.Having failed to fully settle his
contract workers to Nigeria; Virginia Balagtass participation was merely to obligation under the checks, the appellate court was correct in holding
send the money through telegraphic transfer in exchange for the checks petitioner liable to pay the value of the five checks he issued in favor of
issued by petitioner to North Star. Indeed, the transaction between North Star.
petitioner and North Star is actually in the nature of a loan and the checks
were issued as payment of the principal and the interest. WHEREFORE, the present appeal by way of a petition for review on
certiorari is DENIED for lack of merit. The Decision dated May 31, 2006 of
As aptly found by the trial court: the Court of Appeals in CA-G.R. SP No. 65538 is AFFIRMED.

It is to be noted that the checks subject matter of the With costs against petitioner.
instant case were issued in the name of North Star
International Inc., represented by private complainant SO ORDERED.
Virginia Balagtas in replacement of the amount of dollars
remitted by the latter to Vie[w] Sea Ventures in Nigeria. x x
x But Virginia Balagtas has no business transaction with
Vie[w] Sea Ventures where accused has been sending his
contract workers and the North Star provided the trip tickets
for said workers sent by the accused. North Star
International has no participation at all in the transaction
between accused and the Vie[w] Sea Ventures except in
providing plane ticket used by the contract workers of the
accused upon its understanding with the latter. The
contention of the accused that the dollars were sent by
Virginia Balagtas to Nigeria as business investment has not
been shown by any proof to set aside the foregoing negative
presumptions, thus negates accused contentions regarding
the absence of consideration for the issuance of checks. x x
x[19]

Petitioner claims that North Star did not give any valuable
consideration for the checks since the US$85,000 was taken from the
personal dollar account of Virginia and not the corporate funds of North
Star. The contention, however, deserves scant consideration. The subject
checks, bearing petitioners signature, speak for themselves. The fact that
petitioner himself specifically named North Star as the payee of the checks
is an admission of his liability to North Star and not to Virginia Balagtas,
who as manager merely facilitated the transfer of funds. Indeed, it is highly
inconceivable that an experienced businessman like petitioner would issue
various checks in sizeable amounts to a payee if these are without
11. Allied Bank v. BPI, G.R. No. 188363, 27 February 2013 (liability prayed that respondent be ordered to reimburse the sum of ₱500,000.00
of drawee bank, collecting bank) with 12% interest per annum, and to pay attorney’s fees and other
arbitration expenses.
A collecting bank is guilty of contributory negligence when it accepted for
deposit a post-dated check notwithstanding that said check had been In its Answer with Counterclaims,9 respondent charged petitioner with gross
cleared by the drawee bank which failed to return the check within the 24- negligence for accepting the post-dated check in the first place. It
hour reglementary period. contended that petitioner’s admitted negligence was the sole and proximate
cause of the loss.
Petitioner Allied Banking Corporation appeals the Decision 1 dated March 19,
2009 of the Court of Appeals (CA) in CA-G.R. SP No. 97604 which set aside On December 8, 2004, the Arbitration Committee rendered its Decision 10 in
the Decision2 dated December 13, 2005 of the Regional Trial Court (RTC) of favor of petitioner and against the respondent. First, it ruled that the
Makati City, Branch 57 in Civil Case No. 05-418. situation of the parties does not involve a "Ping-Pong" controversy since the
subject check was neither returned within the reglementary time or through
the PCHC return window, nor coursed through the clearing facilities of the
The factual antecedents:
PCHC.

On October 10, 2002, a check in the amount of ₱1,000,000.00 payable to


As to respondent’s direct presentation of a photocopy of the subject check,
"Mateo Mgt. Group International" (MMGI) was presented for deposit and
it was declared to be without legal basis because Section 21.1 11 of the CHRR
accepted at petitioner's Kawit Branch. The check, post-dated "Oct. 9,
2000 does not apply to post-dated checks. The Arbitration Committee
2003", was drawn against the account of Marciano Silva, Jr. (Silva) with
further noted that respondent not only failed to return the check within the
respondent Bank of the Philippine Islands (BPI) Bel-Air Branch. Upon
24-hour reglementary period, it also failed to institute any formal complaint
receipt, petitioner sent the check for clearing to respondent through the
within the contemplation of Section 20.3 12 and it appears that respondent
Philippine Clearing House Corporation (PCHC). 3
was already contented with the 50-50 split initially implemented by the
PCHC. Finding both parties negligent in the performance of their duties, the
The check was cleared by respondent and petitioner credited the account of Committee applied the doctrine of "Last Clear Chance" and ruled that the
MMGI with ₱1,000,000.00. On October 22, 2002, MMGI’s account was loss should be shouldered by respondent alone, thus:
closed and all the funds therein were withdrawn. A month later, Silva
discovered the debit of ₱1,000,000.00 from his account. In response to
WHEREFORE, premises considered, judgment is hereby rendered in favor
Silva’s complaint, respondent credited his account with the aforesaid sum. 4
of plaintiff Allied Banking Corporation and against defendant Bank of the
Philippine Islands, ordering the latter to pay the former the following:
On March 21, 2003, respondent returned a photocopy of the check to (a) The sum of ₱500,000.00, plus interest thereon at the rate of
petitioner for the reason: "Postdated." Petitioner, however, refused to 12% per annum counted from the date of filing of the complaint;
accept and sent back to respondent a photocopy of the check. Thereafter, (b) Attorney’s fees in the amount of ₱25,000.00;
the check, or more accurately, the Charge Slip, was tossed several times (c) The sum of ₱2,090.00 as and by way of reimbursement of filing
from petitioner to respondent, and back to petitioner, until on May 6, 2003, fees, plus the cost of suit.
respondent requested the PCHC to take custody of the check. Acting on the SO ORDERED.13
request, PCHC directed the respondent to deliver the original check and
informed it of PCHC’s authority under Clearing House Operating Memo
Respondent filed a motion for reconsideration14 but it was denied by the
(CHOM) No. 279 dated 06 September 1996 to split 50/50 the amount of the
PCHC Board of Directors under Board Resolution No. 10-2005 15 dated April
check subject of a "Ping-Pong" controversy which shall be implemented thru
22, 2005. The Board pointed out that what actually transpired was a "ping-
the issuance of Debit Adjustment Tickets against the outward demands of
pong" "not of a check but of a Charge Slip (CS) enclosed in a carrier
the banks involved. PCHC likewise encouraged respondent to submit the
envelope that went back and forth through the clearing system in apparent
controversy for resolution thru the PCHC Arbitration Mechanism. 5
reaction by [petitioner] to the wrongful return via the PCHC clearing
system." Respondent’s conduct was held as a "gross and unmistakably
However, it was petitioner who filed a complaint 6 before the Arbitration deliberate violation" of Section 20.2, 16 in relation to Section 20.1(e) of the
Committee, asserting that respondent should solely bear the entire face CHRR 2000.17
value of the check due to its negligence in failing to return the check to
petitioner within the 24-hour reglementary period as provided in Section
20.17 of the Clearing House Rules and Regulations 8(CHRR) 2000. Petitioner
On May 13, 2005, respondent filed a petition for review 18 in the RTC With the denial of its motion for partial reconsideration, respondent elevated
claiming that PCHC erred in constricting the return of a post-dated check to the case to the CA by filing a petition for review under Rule 42 of the 1997
Section 20.1, overlooking the fact that Section 20.3 is also applicable which Rules of Civil Procedure, as amended.
provision necessarily contemplates defects that are referred to in Section
20.1 as both sections are subsumed under the general provision (Section By Decision dated March 19, 2009, the CA set aside the RTC judgment and
20) on the return of regular items. Respondent also argued that assuming it ruled for a 60-40 sharing of the loss as it found petitioner guilty of
to be liable, the PCHC erred in holding it solely responsible and should bear contributory negligence in accepting what is clearly a post-dated check. The
entirely the consequent loss considering that while respondent may have the CA found that petitioner’s failure to notice the irregularity on the face of the
"last" opportunity in proximity, it was petitioner which had the longest, check was a breach of its duty to the public and a telling sign of its lack of
fairest and clearest chance to discover the mistake and avoid the happening due diligence in handling checks coursed through it. While the CA conceded
of the loss. Lastly, respondent assailed the award of attorney’s fees, arguing that the drawee bank has a bigger responsibility in the clearing of checks, it
that PCHC’s perception of "malice" against it and misuse of the clearing declared that the presenting bank cannot take lightly its obligation to make
machinery is clearly baseless and unfounded. sure that only valid checks are introduced into the clearing system.
According to the CA, considerations of public policy and substantial justice
In its Decision dated December 13, 2005, the RTC affirmed with will be served by allocating the damage on a 60-40 ratio, as it thus decreed:
modification the Arbitration Committee’s decision by deleting the award of
attorney’s fees. The RTC found no merit in respondent’s stance that through WHEREFORE, the decision of the Regional Trial Court of Makati City (Branch
inadvertence it failed to discover that the check was post-dated and that 57) dated December 13, 2005 is ANNULLED and SET ASIDE and judgment is
confirmation within 24 hours is often "elusive if not outright impossible" rendered ordering petitioner to pay respondent Allied Banking Corporation
because a drawee bank receives hundreds if not thousands of checks in an the sum of ₱100,000.00 plus interest thereon at the rate of 6% from July
ordinary clearing day. Thus: 10, 2003, which shall become 12% per annum from finality hereof, until
fully paid, aside from costs.
Petitioner admitted par. 4 in its Answer with Counterclaim and in its SO ORDERED.20
Memorandum, further adding that upon receipt of the subject check
"through inadvertence", it did not notice that the check was postdated, Its motion for reconsideration having been denied by the CA, petitioner is
hence, petitioner did not return the same to respondent." now before the Court seeking a partial reversal of the CA’s decision and
affirmance of the December 13, 2005 Decision of the RTC.
These contradict petitioner’s belated contention that it discovered the defect
only after the lapse of the reglementary period. What the evidence on Essentially, the two issues for resolution are: (1) whether the doctrine of
record discloses is that petitioner received the check on October 10, 2002, last clear chance applies in this case; and (2) whether the 60-40
that it was promptly sent for clearing, that through inadvertence, it did not apportionment of loss ordered by the CA was justified.
notice that the check was postdated. Petitioner did not even state when it
discovered the defect in the subject check.
As well established by the records, both petitioner and respondent were
admittedly negligent in the encashment of a check post-dated one year from
Likewise, petitioner’s contention that its discovery of the defect was a non- its presentment.
issue in view of the admissions made in its Answer is unavailing. The Court
has noted the fact that the PCHC Arbitration Committee conducted a
Petitioner argues that the CA should have sustained PCHC’s finding that
clarificatory hearing during which petitioner admitted that its standard
despite the antecedent negligence of petitioner in accepting the postdated
operating procedure as regards confirmation of checks was not followed. No
check for deposit, respondent, by exercising reasonable care and prudence,
less than petitioner’s witness admitted that BPI tried to call up the drawer of
might have avoided injurious consequences had it not negligently cleared
the check, as their procedure dictates when it comes to checks in large
the check in question. It pointed out that in applying the doctrine of last
amounts. However, having initially failed to contact the drawer, no follow up
clear chance, the PCHC cited the case of Philippine Bank of Commerce v.
calls were made nor other actions taken. Despite these, petitioner cleared
Court of Appeals21 which ruled that assuming the bank’s depositor, private
the check. Having admitted making said calls, it is simply impossible
respondent, was negligent in entrusting cash to a dishonest employee, thus
for petitioner to have missed the fact that the check was
providing the latter with the opportunity to defraud the company, it cannot
postdated.19 (Emphasis supplied)
be denied that petitioner bank had the last clear opportunity to avert the
injury incurred by its client, simply by faithfully observing their self-imposed
validation procedure.
Petitioner underscores respondent’s failure to observe clearing house rules The foregoing notwithstanding, it cannot be denied that, indeed, private
and its own standard operating procedure which, the PCHC said constitute respondent was likewise negligent in not checking its monthly statements of
further negligence so much so that respondent should be solely liable for the account. Had it done so, the company would have been alerted to the series
loss. Specifically, respondent failed to return the subject check within the of frauds being committed against RMC by its secretary. The damage would
24-hour reglementary period under Section 20.1 and to institute any formal definitely not have ballooned to such an amount if only RMC, particularly
complaint within the contemplation of Section 20.3 of the CHRR 2000. The Romeo Lipana, had exercised even a little vigilance in their financial
PCHC likewise faulted respondent for not making follow-up calls or taking affairs. This omission by RMC amounts to contributory negligence
any other action after it initially attempted, without success, to contact by which shall mitigate the damages that may be awarded to the
telephone the drawer of the check, and clearing the check despite such lack private respondent under Article 2179 of the New Civil Code, to wit:
of confirmation from its depositor in violation of its own standard procedure
for checks involving large amounts. "x x x. When the plaintiff’s own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if his
The doctrine of last clear chance, stated broadly, is that the negligence of negligence was only contributory, the immediate and proximate cause of the
the plaintiff does not preclude a recovery for the negligence of the injury being the defendant's lack of due care, the plaintiff may recover
defendant where it appears that the defendant, by exercising reasonable damages, but the courts shall mitigate the damages to be awarded."
care and prudence, might have avoided injurious consequences to the
plaintiff notwithstanding the plaintiff’s negligence. 22The doctrine necessarily In view of this, we believe that the demands of substantial justice are
assumes negligence on the part of the defendant and contributory satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the
negligence on the part of the plaintiff, and does not apply except upon that damage awarded by the respondent appellate court, except the award of
assumption.23 Stated differently, the antecedent negligence of the plaintiff ₱25,000.00 attorney’s fees, shall be borne by private respondent RMC; only
does not preclude him from recovering damages caused by the supervening the balance of 60% needs to be paid by the petitioners. The award of
negligence of the defendant, who had the last fair chance to prevent the attorney’s fees shall be borne exclusively by the petitioners. 27 (Italics in the
impending harm by the exercise of due diligence. 24Moreover, in situations original; emphasis supplied)
where the doctrine has been applied, it was defendant’s failure to exercise
such ordinary care, having the last clear chance to avoid loss or injury,
In another earlier case,28 the Court refused to hold petitioner bank solely
which was the proximate cause of the occurrence of such loss or injury. 25
liable for the loss notwithstanding the finding that the proximate cause of
the loss was due to its negligence. Since the employees of private
In this case, the evidence clearly shows that the proximate cause of the respondent bank were likewise found negligent, its claim for damages is
unwarranted encashment of the subject check was the negligence of subject to mitigation by the courts. Thus:
respondent who cleared a post-dated check sent to it thru the PCHC clearing
facility without observing its own verification procedure. As correctly found
Both banks were negligent in the selection and supervision of their
by the PCHC and upheld by the RTC, if only respondent exercised ordinary
employees resulting in the encashment of the forged checks by an impostor.
care in the clearing process, it could have easily noticed the glaring defect
Both banks were not able to overcome the presumption of negligence in the
upon seeing the date written on the face of the check "Oct. 9, 2003".
selection and supervision of their employees. It was the gross negligence of
Respondent could have then promptly returned the check and with the
the employees of both banks which resulted in the fraud and the subsequent
check thus dishonored, petitioner would have not credited the amount
loss. While it is true that petitioner BPI’s negligence may have been
thereof to the payee’s account. Thus, notwithstanding the antecedent
the proximate cause of the loss, respondent CBC’s negligence
negligence of the petitioner in accepting the post-dated check for deposit, it
contributed equally to the success of the impostor in encashing the
can seek reimbursement from respondent the amount credited to the
proceeds of the forged checks. Under these circumstances, we apply
payee’s account covering the check.
Article 2179 of the Civil Code to the effect that while respondent CBC may
recover its losses, such losses are subject to mitigation by the courts. x x x
What petitioner omitted to mention is that in the cited case of Philippine
Bank of Commerce v. Court of Appeals,26while the Court found petitioner
Considering the comparative negligence of the two (2) banks, we rule that
bank as the culpable party under the doctrine of last clear chance since it
the demands of substantial justice are satisfied by allocating the loss of
had, thru its teller, the last opportunity to avert the injury incurred by its
₱2,413,215.16 and the costs of the arbitration proceedings in the amount of
client simply by faithfully observing its own validation procedure, it
₱7,250.00 and the costs of litigation on a 60-40 ratio. Conformably with this
nevertheless ruled that the plaintiff depositor (private respondent) must
ruling, no interests and attorney’s fees can be awarded to either of the
share in the loss on account of its contributory negligence. Thus:
parties.29 (Emphasis supplied)
Apportionment of damages between parties who are both negligent was between the bank and the depositor on a 60-40 ratio. We apply the same
followed in subsequent cases involving banking transactions notwithstanding ruling in this case considering that, as shown above, PNB’s negligence is the
the court’s finding that one of them had the last clear opportunity to avoid proximate cause of the loss while the issue as to FFCCI’s contributory
the occurrence of the loss. negligence has been settled with finality in G.R. No. 173278. Thus, the
appellate court properly adjudged PNB to bear the greater part of the loss
In Bank of America NT & SA v. Philippine Racing Club,30 the Court consistent with these rulings.33
ruled:
"Contributory negligence is conduct on the part of the injured party,
In the case at bar, petitioner cannot evade responsibility for the loss by contributing as a legal cause to the harm he has suffered, which falls below
attributing negligence on the part of respondent because, even if we concur the standard to which he is required to conform for his own
that the latter was indeed negligent in pre-signing blank checks, the former protection."34 Admittedly, petitioner’s acceptance of the subject check for
had the last clear chance to avoid the loss. To reiterate, petitioner’s own deposit despite the one year postdate written on its face was a clear
operations manager admitted that they could have called up the client for violation of established banking regulations and practices. In such instances,
verification or confirmation before honoring the dubious checks. Verily, payment should be refused by the drawee bank and returned through the
petitioner had the final opportunity to avert the injury that befell the PCHC within the 24-hour reglementary period. As aptly observed by the CA,
respondent. x x x Petitioner’s negligence has been undoubtedly established petitioner’s failure to comply with this basic policy regarding post-dated
and, thus, pursuant to Art. 1170 of the NCC, it must suffer the consequence checks was "a telling sign of its lack of due diligence in handling checks
of said negligence. coursed through it."35

In the interest of fairness, however, we believe it is proper to It bears stressing that "the diligence required of banks is more than that of
consider respondent’s own negligence to mitigate petitioner’s a Roman paterfamilias or a good father of a family. The highest degree of
liability.1âwphi1 Article 2179 of the Civil Code provides: diligence is expected,"36 considering the nature of the banking business that
xxxx is imbued with public interest. While it is true that respondent's liability for
Explaining this provision in Lambert v. Heirs of Ray Castillon, the Court held: its negligent clearing of the check is greater, petitioner cannot take lightly
"The underlying precept on contributory negligence is that a plaintiff who is its own violation of the long-standing rule against encashment of post-dated
partly responsible for his own injury should not be entitled to recover checks and the injurious consequences of allowing such checks into the
damages in full but must bear the consequences of his own negligence. The clearing system.
defendant must thus be held liable only for the damages actually caused by
his negligence. xxx xxx xxx" Petitioner repeatedly harps on respondent's transgression of clearing house
xxxx rules when the latter resorted to direct presentment way beyond the
Following established jurisprudential precedents, we believe the allocation of reglementary period but glosses over its own negligent act that clearly fell
sixty percent (60%) of the actual damages involved in this case short of the conduct expected of it as a collecting bank. Petitioner must bear
(represented by the amount of the checks with legal interest) to petitioner is the consequences of its omission to exercise extraordinary diligence in
proper under the premises. Respondent should, in light of its scrutinizing checks presented by its depositors.
contributory negligence, bear forty percent (40%) of its own
loss.31 (Emphasis supplied) Assessing the facts and in the light of the cited precedents, the Court thus
finds no error committed by the CA in allocating the resulting loss from the
In Philippine National Bank v. F.F. Cruz and Co., Inc.,32 the Court made wrongful encashment of the subject check on a 60-40 ratio.
a similar disposition, thus:
WHEREFORE, the petition for review on certiorari is DENIED. The Decision
Given the foregoing, we find no reversible error in the findings of the dated March 19, 2009 of the Court of Appeals in CA-G.R. SP No. 97604 is
appellate court that PNB was negligent in the handling of FFCCI’s combo hereby AFFIRMED.
account, specifically, with respect to PNB’s failure to detect the forgeries in
the subject applications for manager’s check which could have prevented No pronouncement as to costs.
the loss. x x x PNB failed to meet the high standard of diligence required by
the circumstances to prevent the fraud. In Philippine Bank of Commerce v.
SO ORDERED.
Court of Appeals and The Consolidated Bank & Trust Corporation v. Court of
Appeals, where the bank’s negligence is the proximate cause of the loss and
the depositor is guilty of contributory negligence, we allocated the damages
12.Equitable Banking Corporation v. Special Steel Products, G.R. No. stamped "ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT
175350, 13 June 2012 (crossed check; liability of drawee bank) GUARANTEED" on their dorsal portion.18 Uy promptly withdrew the proceeds
of the checks.
A crossed check with the notation "account payee only" can only be
deposited in the named payee’s account. It is gross negligence for a bank to In October 1991, SSPI reminded Interco of the unpaid welding electrodes,
ignore this rule solely on the basis of a third party’s oral representations of amounting to ₱985,234.98.19 It reiterated its demand on January 14,
having a good title thereto. Before the Court is a Petition for Review on 1992.20 SSPI explained its immediate need for payment as it was
Certiorari of the October 13, 2006 Decision of the Court of Appeals (CA) in experiencing some financial crisis of its own. Interco replied that it had
CA-G.R. CV No. 62425. The dispositive portion of the assailed Decision already issued three checks payable to SSPI and drawn against Equitable.
reads: SSPI denied receipt of these checks.
WHEREFORE, premises considered, the May 4, 1998 Decision of the
Regional Trial Court of Pasig City, Branch 168, in Civil Case No. 63561, is On August 6, 1992, SSPI requested information from Equitable regarding
hereby AFFIRMED. SO ORDERED.1 the three checks. The bank refused to give any information invoking the
confidentiality of deposits.21
Factual Antecedents
Respondent Special Steel Products, Inc. (SSPI) is a private domestic The records do not disclose the circumstances surrounding Interco’s and
corporation selling steel products. Its co-respondent Augusto L. Pardo SSPI’s eventual discovery of Uy’s scheme. Nevertheless, it was determined
(Pardo) is SSPI’s President and majority stockholder. 2 International Copra that Uy, not SSPI, received the proceeds of the three checks that were
Export Corporation (Interco) is its regular customer. 3 Jose Isidoro4 Uy, alias payable to SSPI. Thus, on June 30, 1993 (twenty-three months after the
Jolly Uy (Uy), is an Interco employee, in charge of the purchasing issuance of the three checks), Interco finally paid the value of the three
department, and the son-in-law of its majority stockholder. 5 Petitioner checks to SSPI, plus a portion of the accrued interests. Interco refused to
Equitable Banking Corporation (Equitable or bank) is a private domestic pay the entire accrued interest of ₱767,345.64 on the ground that it was not
corporation engaged in banking6and is the depository bank of Interco and of responsible for the delay. Thus, SSPI was unable to collect ₱437,040.35 (at
Uy. the contracted rate of 36% per annum) in interest income. 22

In 1991, SSPI sold welding electrodes to Interco, as evidenced by the SSPI and its president, Pardo, filed a complaint for damages with application
following sales invoices: for a writ of preliminary attachment against Uy and Equitable Bank. The
Sales Invoice No. 65042 dated February 14, 1991 for ₱325,976.34 7 complaint alleged that the three crossed checks, all payable to the order of
Sales Invoice No. 65842 dated April 11, 1991 for ₱345,412.80 8 SSPI and with the notation "account payee only," could be deposited and
Sales Invoice No. 65843 dated April 11, 1991 for ₱313,845.84 9 encashed by SSPI only. However, due to Uy’s fraudulent representations,
and Equitable’s indispensable connivance or gross negligence, the restrictive
The due dates for these invoices were March 16, 1991 (for the first sales nature of the checks was ignored and the checks were deposited in Uy’s
invoice) and May 11, 1991 (for the others). The invoices provided that account. Had the defendants not diverted the three checks in July 1991, the
Interco would pay interest at the rate of 36% per annum in case of delay. plaintiffs could have used them in their business and earned money from
In payment for the above welding electrodes, Interco issued three checks them. Thus, the plaintiffs prayed for an award of actual damages consisting
payable to the order of SSPI on July 10, 1991,10 July 16, 1991,11 and July 29, of the unrealized interest income from the proceeds of the checks for the
1991.12 Each check was crossed with the notation "account payee only" and two-year period that the defendants withheld the proceeds from them (from
was drawn against Equitable. The records do not identify the signatory for July 1991 up to June 1993).23
these three checks, or explain how Uy, Interco’s purchasing officer, came
into possession of these checks. In his personal capacity, Pardo claimed an award of ₱3 million as moral
damages from the defendants. He allegedly suffered hypertension, anxiety,
The records only disclose that Uy presented each crossed check to Equitable and sleepless nights for fear that the government would charge him for tax
on the day of its issuance and claimed that he had good title thereto. 13 He evasion or money laundering. He maintained that defendants’ actions
demanded the deposit of the checks in his personal accounts in Equitable, amounted to money laundering and that it unfairly implicated his company
Account No. 18841-2 and Account No. 03474-0. 14 in the scheme. As for his fear of tax evasion, Pardo explained that the
Bureau of Internal Revenue might notice a discrepancy between the
Equitable acceded to Uy’s demands on the assumption that Uy, as the son- financial reports of Interco (which might have reported the checks as SSPI’s
in-law of Interco’s majority stockholder,15was acting pursuant to Interco’s income in 1991) and those of SSPI (which reported the income only in
orders. The bank also relied on Uy’s status as a valued client. 16 Thus, 1993). Since Uy and Equitable were responsible for Pardo’s worries, they
Equitable accepted the checks for deposit in Uy’s personal accounts 17 and should compensate him jointly and severally therefor. 24
SSPI and Pardo also prayed for exemplary damages and attorney’s fees. 25 checks from Uy. Equitable was negligent in permitting Uy to deposit the
In support of their application for preliminary attachment, the plaintiffs checks in his account without verifying Uy’s right to endorse the crossed
alleged that the defendants are guilty of fraud in incurring the obligation checks. The court reiterated that banks have the duty to scrutinize the
upon which the action was brought and that there is no sufficient security checks deposited with it, for a determination of their genuineness and
for the claim sought to be enforced in this action. 26 regularity. The law holds banks to a high standard because banks hold
themselves out to the public as experts in the field. Thus, the trial court
The trial court granted plaintiffs’ application.27 It issued the writ of found Equitable’s explanation regarding Uy’s close relations with the drawer
preliminary attachment on September 20, 1993, 28upon the filing of plaintiffs’ unacceptable.40
bond for ₱500,000.00. The sheriff served and implemented the writ against
the personal properties of both defendants.29 Uy’s conversion of the checks and Equitable’s negligence make them liable
to compensate SSPI for the actual damage it sustained. This damage
Upon Equitable’s motion and filing of a counter-bond, however, the trial consists of the income that SSPI failed to realize during the delay. 41 The trial
court eventually discharged the attachment 30against it.31 court then equated this unrealized income with the interest income that
Equitable then argued for the dismissal of the complaint for lack of cause of SSPI failed to collect from Interco. Thus, it ordered Uy and Equitable to pay,
action. It maintained that interest income is due only when it is expressly jointly and severally, the amount of ₱437,040.35 to SSPI as actual
stipulated in writing. Since Equitable and SSPI did not enter into any damages.42
contract, Equitable is not liable for damages, in the form of unobtained
interest income, to SSPI.32 Moreover, SSPI’s acceptance of Interco’s It also ordered the defendants to pay exemplary damages of ₱500,000.00,
payment on the sales invoices is a waiver or extinction of SSPI’s cause of attorney’s fees amounting to ₱200,000.00, as well as costs of suit. 43
action based on the three checks.33Equitable further argued that it is not The trial court likewise found merit in Pardo’s claim for moral damages. It
liable to SSPI because it accepted the three crossed checks in good found that Pardo suffered anxiety, sleepless nights, and hypertension in fear
faith.34Equitable averred that, due to Uy’s close relations with the drawer of that he would face criminal prosecution. The trial court awarded Pardo the
the checks, the bank had basis to assume that the drawer authorized Uy to amount of ₱3 million in moral damages.44
countermand the original order stated in the check (that it can only be
deposited in the named payee’s account). Since only Uy is responsible for The dispositive portion of the trial court’s Decision reads:
the fraudulent conversion of the checks, he should reimburse Equitable for WHEREFORE, judgment is hereby rendered in favor of plaintiffs Special
any amounts that it may be made liable to plaintiffs.35 Steel Products, Inc., and Augusto L. Pardo and against defendants Equitable
Banking Corporation [and] Jose Isidoro Uy, alias "Jolly Uy," ordering
The bank counter-claimed that SSPI is liable to it in damages for the defendants to jointly and severally pay plaintiffs the following:
wrongful and malicious attachment of Equitable’s personal properties. The 1. ₱437,040.35 as actual damages;
bank maintained that SSPI knew that the allegation of fraud against the 2. ₱3,000,000.00 as moral damages to Augusto L. Pardo;
bank is a falsehood. Further, the bank is financially capable to meet the 3. ₱500,000.00 as exemplary damages;
plaintiffs’ claim should the latter receive a favorable judgment. SSPI was 4. ₱200,000.00 as attorney’s fees; and
aware that the preliminary attachment against the bank was unnecessary, 5. Costs of suit.
and intended only to humiliate or destroy the bank’s reputation. 36 Defendant EBC’s counterclaim is hereby DISMISSED for lack of factual and
Meanwhile, Uy answered that the checks were negotiated to him; that he is legal basis.
a holder for value of the checks and that he has a good title thereto. 37 He did
not, however, explain how he obtained the checks, from whom he obtained Likewise, the crossclaim filed by defendant EBC against defendant Jose
his title, and the value for which he received them. During trial, Uy did not Isidoro Uy and the crossclaim filed by defendant Jose Isidoro Uy against
present any evidence but adopted Equitable’s evidence as his own. defendant EBC are hereby DISMISSED for lack of factual and legal basis.
SO ORDERED.
Ruling of the Regional Trial Court 38
The RTC clarified that SSPI’s cause of action against Uy and Equitable is for Pasig City, May 4, 1998.45
quasi-delict. SSPI is not seeking to enforce payment on the undelivered
checks from the defendants, but to recover the damage that it sustained The trial court denied Equitable’s motion for reconsideration in its Order
from the wrongful non-delivery of the checks. 39 dated November 19, 1998.46
Only Equitable appealed to the CA,47 reiterating its defenses below.
The crossed checks belonged solely to the payee named therein, SSPI. Since Appealed Ruling of the Court of Appeals48
SSPI did not authorize anyone to receive payment in its behalf, Uy clearly
had no title to the checks and Equitable had no right to accept the said The appellate court found no merit in Equitable’s appeal.
It affirmed the trial court’s ruling that SSPI had a cause of action for quasi- The checks that Interco issued in favor of SSPI were all crossed, made
delict against Equitable.49 The CA noted that the three checks presented by payable to SSPI’s order, and contained the notation "account payee only."
Uy to Equitable were crossed checks, and strictly made payable to SSPI This creates a reasonable expectation that the payee alone would receive
only. This means that the checks could only be deposited in the account of the proceeds of the checks and that diversion of the checks would be
the named payee.50 Thus, the CA found that Equitable had the responsibility averted. This expectation arises from the accepted banking practice that
of ensuring that the crossed checks are deposited in SSPI’s account only. crossed checks are intended for deposit in the named payee’s account only
Equitable violated this duty when it allowed the deposit of the crossed and no other.56 At the very least, the nature of crossed checks should place
checks in Uy’s account.51 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 CA found factual and legal basis to affirm the trial court’s award of the holder to deposit the same in a different account. It is well to remember
moral damages in favor of Pardo.52 that "[t]he banking system has become an indispensable institution in the
It likewise affirmed the award of exemplary damages and attorney’s fees in modern world and plays a vital role in the economic life of every civilized
favor of SSPI.53 society. Whether as mere passive entities for the safe-keeping and saving of
money or as active instruments of business and commerce, banks have
Issues attained an [sic] ubiquitous presence among the people, who have come to
1. Whether SSPI has a cause of action against Equitable for quasi-delict; regard them with respect and even gratitude and, above all, trust and
2. Whether SSPI can recover, as actual damages, the stipulated 36% per confidence. In this connection, it is important that banks should guard
annum interest from Equitable; against injury attributable to negligence or bad faith on its part. As
3. Whether speculative fears and imagined scenarios, which cause sleepless repeatedly emphasized, since the banking business is impressed with public
nights, may be the basis for the award of moral damages; and interest, the trust and confidence of the public in it is of paramount
4. Whether the attachment of Equitable’s personal properties was wrongful. importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it." 57
Our Ruling
SSPI’s cause of action Equitable did not observe the required degree of diligence expected of a
banking institution under the existing factual circumstances.
This case involves a complaint for damages based on quasi-delict. SSPI The fact that a person, other than the named payee of the crossed check,
asserts that it did not receive prompt payment from Interco in July 1991 was presenting it for deposit should have put the bank on guard. It should
because of Uy’s wilful and illegal conversion of the checks payable to SSPI, have verified if the payee (SSPI) authorized the holder (Uy) to present the
and of Equitable’s gross negligence, which facilitated Uy’s actions. The same in its behalf, or indorsed it to him. Considering however, that the
combined actions of the defendants deprived SSPI of interest income on the named payee does not have an account with Equitable (hence, the latter has
said moneys from July 1991 until June 1993. Thus, SSPI claims damages in no specimen signature of SSPI by which to judge the genuineness of its
the form of interest income for the said period from the parties who wilfully indorsement to Uy), the bank knowingly assumed the risk of relying solely
or negligently withheld its money from it. on Uy’s word that he had a good title to the three checks. Such misplaced
reliance on empty words is tantamount to gross negligence, which is the
Equitable argues that SSPI cannot assert a right against the bank based on "absence of or failure to exercise even slight care or diligence, or
the undelivered checks.54 It cites provisions from the Negotiable Instruments the entire absence of care, evincing a thoughtless disregard of
Law and the case of Development Bank of Rizal v. Sima Wei 55 to argue that consequences without exerting any effort to avoid them."58
a payee, who did not receive the check, cannot require the drawee bank to
pay it the sum stated on the checks. Equitable contends that its knowledge that Uy is the son-in-law of the
majority stockholder of the drawer, Interco, made it safe to assume that the
Equitable’s argument is misplaced and beside the point. SSPI’s cause of drawer authorized Uy to countermand the order appearing on the check. In
action is not based on the three checks. SSPI does not ask Equitable or Uy other words, Equitable theorizes that Interco reconsidered its original order
to deliver to it the proceeds of the checks as the rightful payee. SSPI does and decided to give the proceeds of the checks to Uy. 59 That the bank
not assert a right based on the undelivered checks or for breach of contract. arrived at this conclusion without anything on the face of the checks to
Instead, it asserts a cause of action based on quasi-delict. A quasi-delict is support it is demonstrative of its lack of caution. It is troubling that
an act or omission, there being fault or negligence, which causes damage to Equitable proceeded with the transaction based only on its knowledge that
another. Quasi-delicts exist even without a contractual relation between the Uy had close relations with Interco. The bank did not even make inquiries
parties. The courts below correctly ruled that SSPI has a cause of action for with the drawer, Interco (whom the bank considered a "valued client"), to
quasi-delict against Equitable. verify Uy’s representation. The banking system is placed in peril when
bankers act out of blind faith and empty promises, without requiring proof of
the assertions and without making the appropriate inquiries. Had it only
exercised due diligence, Equitable could have saved both Interco and the Moral damages
named payee, SSPI, from the trouble that the bank’s mislaid trust wrought Both the trial and appellate courts awarded Pardo ₱3 million in moral
for them. damages. Pardo claimed that he was frightened, anguished, and seriously
anxious that the government would prosecute him for money laundering and
Equitable’s pretension that there is nothing under the circumstances that tax evasion because of defendants’ actions. 63 In other words, he was worried
rendered Uy’s title to the checks questionable is outrageous. These are about the repercussions that defendants’ actions would have on him.
crossed checks, whose manner of discharge, in banking practice, is
restrictive and specific. Uy’s name does not appear anywhere on the crossed Equitable argues that Pardo’s fears are all imagined and should not be
checks. Equitable, not knowing the named payee on the check, had no way compensated. The bank points out that none of Pardo’s fears panned out. 64
of verifying for itself the alleged genuineness of the indorsement to Uy. The Moral damages are recoverable only when they are the proximate result of
checks bear nothing on their face that supports the belief that the drawer the defendant’s wrongful act or omission.65 Both the trial and appellate
gave the checks to Uy. Uy’s relationship to Interco’s majority stockholder courts found that Pardo indeed suffered as a result of the diversion of the
will not justify disregarding what is clearly ordered on the checks. three checks. It does not matter that the things he was worried and anxious
about did not eventually materialize. It is rare for a person, who is beset
Actual damages with mounting problems, to sift through his emotions and distinguish which
For its role in the conversion of the checks, which deprived SSPI of the use fears or anxieties he should or should not bother with. So long as the
thereof, Equitable is solidarily liable with Uy to compensate SSPI for the injured party’s moral sufferings are the result of the defendants’ actions, he
damages it suffered. may recover moral damages.

Among the compensable damages are actual damages, which encompass The Court, however, finds the award of ₱3 million excessive. Moral damages
the value of the loss sustained by the plaintiff, and the profits that the are given not to punish the defendant but only to give the plaintiff the
plaintiff failed to obtain.60 Interest payments, which SSPI claims, fall under means to assuage his sufferings with diversions and recreation. 66 We find
the second category of actual damages. that the award of ₱50,000.0067 as moral damages is reasonable under the
SSPI computed its claim for interest payments based on the interest rate circumstances.
stipulated in its contract with Interco. It explained that the stipulated
interest rate is the actual interest income it had failed to obtain from Interco Equitable to recover amounts from Uy
due to the defendants’ tortious conduct. Equitable then insists on the allowance of their cross-claim against Uy. The
bank argues that it was Uy who was enriched by the entire scheme and
The Court finds the application of the stipulated interest rate erroneous. should reimburse Equitable for whatever amounts the Court might order it
SSPI did not recover interest payments at the stipulated rate from Interco to pay in damages to SSPI.68
because it agreed that the delay was not Interco’s fault, but that of the
defendants’. If that is the case, then Interco is not in delay (at least not Equitable is correct. There is unjust enrichment when (1) a person is
after issuance of the checks) and the stipulated interest payments in their unjustly benefited, and (2) such benefit is derived at the expense of or with
contract did not become operational. If Interco is not liable to pay for the damages to another.69 In the instant case, the fraudulent scheme concocted
36% per annum interest rate, then SSPI did not lose that income. SSPI by Uy allowed him to improperly receive the proceeds of the three crossed
cannot lose something that it was not entitled to in the first place. Thus, checks and enjoy the profits from these proceeds during the entire time that
SSPI’s claim that it was entitled to interest income at the rate stipulated in it was withheld from SSPI. Equitable, through its gross negligence and
its contract with Interco, as a measure of its actual damage, is fallacious. mislaid trust on Uy, became an unwitting instrument in Uy’s scheme.
More importantly, the provisions of a contract generally take effect only
among the parties, their assigns and heirs. 61SSPI cannot invoke the Equitable’s fault renders it solidarily liable with Uy, insofar as respondents
contractual stipulation on interest payments against Equitable because it is are concerned. Nevertheless, as between Equitable and Uy, Equitable should
neither a party to the contract, nor an assignee or an heir to the contracting be allowed to recover from Uy whatever amounts Equitable may be made to
parties. pay under the judgment. It is clear that Equitable did not profit in Uy’s
Nevertheless, it is clear that defendants’ actions deprived SSPI of the scheme. Disallowing Equitable’s cross-claim against Uy is tantamount to
present use of its money for a period of two years. SSPI is therefore entitled allowing Uy to unjustly enrich himself at the expense of Equitable. For this
to obtain from the tortfeasors the profits that it failed to obtain from July reason, the Court allows Equitable’s cross-claim against Uy.
1991 to June 1993. SSPI should recover interest at the legal rate of 6% per Preliminary attachment
annum,62 this being an award for damages based on quasi-delict and not for
a loan or forbearance of money.
Equitable next assails as error the trial court’s dismissal of its counter-claim accordingly denied SPECIAL STEEL’s valid request, thereby knowingly
for wrongful preliminary attachment. It maintains that, contrary to SSPI’s shielding the identity of the ma[le]factors involved [in] the unlawful and
allegation in its application for the writ, there is no showing whatsoever that fraudulent transactions.73
Equitable was guilty of fraud in allowing Uy to deposit the checks. Thus, the
trial court should not have issued the writ of preliminary attachment in favor The above affidavit and the allegations of the complaint are bereft of specific
of SSPI. The wrongful attachment compelled Equitable to incur expenses for and definite allegations of fraud against Equitable that would justify the
a counter-bond, amounting to ₱30,204.26, and caused it to sustain damage, attachment of its properties. In fact, SSPI admits its uncertainty whether
amounting to ₱5 million, to its goodwill and business credit. 70 Equitable’s participation in the transactions involved fraud or was a result of
SSPI submitted the following affidavit in support of its application for a writ its negligence. Despite such uncertainty with respect to Equitable’s
of preliminary attachment: participation, SSPI applied for and obtained a preliminary attachment of
I, Augusto L. Pardo, of legal age, under oath hereby depose and declare: Equitable’s properties on the ground of fraud. We believe that such
1. I am one of the plaintiffs in the above-entitled case; the other plaintiff is preliminary attachment was wrongful. "[A] writ of preliminary attachment is
our family corporation, Special Steel Products, Inc., of which I am the too harsh a provisional remedy to be issued based on mere abstractions of
president and majority stockholder; I caused the preparation of the fraud. Rather, the rules require that for the writ to issue, there must be a
foregoing Complaint, the allegations of which I have read, and which I recitation of clear and concrete factual circumstances manifesting that the
hereby affirm to be true and correct out of my own personal knowledge; debtor practiced fraud upon the creditor at the time of the execution of their
2. The corporation and I have a sufficient cause of action against defendants agreement in that said debtor had a preconceived plan or intention not to
Isidoro Uy alias Jolly Uy and Equitable Banking Corporation, who are guilty pay the creditor."74 No proof was adduced tending to show that Equitable
of fraud in incurring the obligation upon which this action is brought, as had a preconceived plan not to pay SSPI or had knowingly participated in
particularly alleged in the Complaint, which allegations I hereby adopt and Uy’s scheme.
reproduce herein;
3. There is no sufficient security for our claim in this action and that the That the plaintiffs eventually obtained a judgment in their favor does not
amount due us is as much as the sum for which the order is granted above detract from the wrongfulness of the preliminary attachment.1âwphi1 While
all legal counterclaims; "the evidence warrants [a] judgment in favor of [the] applicant, the proofs
4. We are ready and able to put up a bond executed to the defendants in an may nevertheless also establish that said applicant’s proffered ground for
amount to be fixed by the Court[,] conditioned on the payment of all attachment was inexistent or specious, and hence, the writ should not have
costs[,] which may be adjudged to defendants[,] and all damages[,] which issued at all x x x."75
they may sustain by reason of the attachment of the court, should [the
court] finally adjudge that we are not entitled thereto. 71 For such wrongful preliminary attachment, plaintiffs may be held liable for
The complaint (to which the supporting affidavit refers) cites the following damages. However, Equitable is entitled only to such damages as its
factual circumstances to justify SSPI’s application: evidence would allow,76 for the wrongfulness of an attachment does not
6. x x x Yet, notwithstanding the fact that SPECIAL STEEL did not open an automatically warrant the award of damages. The debtor still has the burden
account with EQUITABLE BANK as already alleged, thru its connivance with of proving the nature and extent of the injury that it suffered by reason of
defendant UY in his fraudulent scheme to defraud SPECIAL STEEL, or at the wrongful attachment.77
least thru its gross negligence EQUITABLE BANK consented to or allowed the
opening of Account No. 18841-2 at its head office and Account No. 03474-0 The Court has gone over the records and found that Equitable has duly
at its Ermita Branch in the name of SPECIAL STEEL without the latter’s proved its claim for, and is entitled to recover, actual damages. In order to
knowledge, let alone authority or consent, but obviously on the bases of lift the wrongful attachment of Equitable’s properties, the bank was
spurious or falsified documents submitted by UY or under his authority, compelled to pay the total amount of ₱30,204.26 in premiums for a counter-
which documents EQUITABLE BANK did not bother to verify or check their bond.78 However, Equitable failed to prove that it sustained damage to its
authenticity with SPECIAL STEEL.72x x x x "goodwill and business credit" in consequence of the alleged wrongful
9. On August 6, 1992, plaintiffs, thru counsel, wrote EQUITABLE BANK attachment. There was no proof of Equitable’s contention that respondents’
about the fraudulent transactions involving the aforesaid checks, which actions caused it public embarrassment and a bank run.
could not have been perpetrated without its indispensable participation and
cooperation, or gross negligence, and therein solicited its cooperation in WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED.
securing information as to the anomalous and irregular opening of the false The assailed October 13, 2006 Decision of the Court of Appeals in CA-G.R.
accounts maintained in SPECIAL STEEL’s name, but EQUITABLE BANK CV No. 62425 is MODIFIED by:
malevolently shirking from its responsibility to prevent the further 1. REDUCING the award of actual damages to respondents to the rate of 6%
perpetration of fraud, conveniently, albeit unjustifiably, invoked the per annum of the value of the three checks from July 1991 to June 1993 or
confidentiality of the deposits and refused to give any information, and a period of twenty-three months;
2. REDUCING the award of moral damages in favor of Augusto L. Pardo from CONTRARY TO LAW.1
₱3,000,000.00 to ₱ 50,000.00; and
3. REVERSING the dismissal of Equitable Banking Corporation’s cross-claim After Wagas entered a plea of not guilty,2 the pre-trial was held, during
against Jose Isidoro Uy, alias Jolly Uy. Jolly Uy is hereby ORDERED to which the Defense admitted that the check alleged in the information had
REIMBURSE Equitable Banking Corporation the amounts that the latter will been dishonored due to insufficient funds. 3 On its part, the Prosecution
pay to respondents. made no admission.4
Additionally, the Court hereby REVERSES the dismissal of Equitable Banking
Corporation’s counterclaim for damages against Special Steel Products, Inc. At the trial, the Prosecution presented complainant Alberto Ligaray as its
This Court ORDERS Special Steel Products, Inc. to PAY Equitable Banking lone witness. Ligaray testified that on April 30, 1997, Wagas placed an order
Corporation actual damages in the total amount of ₱30,204.36, for the for 200 bags of rice over the telephone; that he and his wife would not
wrongful preliminary attachment of its properties.The rest of the assailed agree at first to the proposed payment of the order by postdated check, but
Decision is AFFIRMED.SO ORDERED. because of Wagas’ assurance that he would not disappoint them and that he
13.People v. Wagas, G.R. No. 157943, 4 September 2013 (post- had the means to pay them because he had a lending business and money
dated check; delivery) 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 Bill of Rights guarantees the right of an accused to be presumed the Philippine Islands (BPI) Check No. 0011003 for ₱200,000.00 payable to
innocent until the contrary is proved. In order to overcome the presumption cash and postdated May 8, 1997; that he later deposited the check with
of innocence, the Prosecution is required to adduce against him nothing less Solid Bank, his depository bank, but the check was dishonored due to
than proof beyond reasonable doubt. Such proof is not only in relation to the insufficiency of funds;5 that he called Wagas about the matter, and the latter
elements of the offense, but also in relation to the identity of the offender. If told him that he would pay upon his return to Cebu; and that despite
the Prosecution fails to discharge its heavy burden, then it is not only the repeated demands, Wagas did not pay him.6
right of the accused to be freed, it becomes the Court’s constitutional duty
to acquit him. On cross-examination, Ligaray admitted that he did not personally meet
The Case Wagas because they transacted through telephone only; that he released
the 200 bags of rice directly to Robert Cañada, the brother-in-law of Wagas,
Gilbert R. Wagas appeals his conviction for estafa under the decision who signed the delivery receipt upon receiving the rice. 7
rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu
City (RTC), meting on him the indeterminate penalty of 12 years of prision After Ligaray testified, the Prosecution formally offered the following: (a)
mayor, as minimum, to 30 years of reclusion perpetua, as maximum. 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) Ligaray’s
Antecedents affidavit; and (d) the delivery receipt signed by Cañada. After the RTC
admitted the exhibits, the Prosecution then rested its case. 8
Wagas was charged with estafa under the information that reads:
That on or about the 30th day of April, 1997, and for sometime prior and In his defense, Wagas himself testified. He admitted having issued BPI
subsequent thereto, in the City of Cebu, Philippines, and within the Check No. 0011003 to Cañada, his brother-in-law, not to Ligaray. He denied
jurisdiction of this Honorable Court, the said accused, with deliberate intent, having any telephone conversation or any dealings with Ligaray. He
with intent to gain and by means of false pretenses or fraudulent acts explained that the check was intended as payment for a portion of Cañada’s
executed prior to or simultaneously with the commission of the fraud, to property that he wanted to buy, but when the sale did not push through, he
wit: knowing that he did not have sufficient funds deposited with the Bank did not anymore fund the check.9
of Philippine Islands, and without informing Alberto Ligaray of that
circumstance, with intent to defraud the latter, did then and there issue On cross-examination, the Prosecution confronted Wagas with a letter dated
Bank of the Philippine Islands Check No. 0011003, dated May 08, 1997 in July 3, 1997 apparently signed by him and addressed to Ligaray’s counsel,
the amount of ₱200,000.00, which check was issued in payment of an wherein he admitted owing Ligaray ₱200,000.00 for goods received, to wit:
obligation, but which check when presented for encashment with the bank, This is to acknowledge receipt of your letter dated June 23, 1997 which is
was dishonored for the reason "drawn against insufficient funds" and inspite self-explanatory. It is worthy also to discuss with you the environmental
of notice and several demands made upon said accused to make good said facts of the case for your consideration, to wit:
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 It is true that I obtained goods from your client worth ₱200,000.00 and I
of Alberto Ligaray in the amount aforestated. 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 postdated check and upon Wagas’ assurance that the check would be
your client. Unfortunately, said buyer likewise failed to make good with such funded on its date.
obligation. Hence, I failed to fulfill my promise resultant thereof. (sic)
Again, I made another promise to settle said obligation on or before June Wagas filed a motion for new trial and/or reconsideration, 15 arguing that the
15, 1997, but still to no avail attributable to the same reason as Prosecution did not establish that it was he who had transacted with Ligaray
aforementioned. (sic) and who had negotiated the check to the latter; that the records showed
that Ligaray did not meet him at any time; and that Ligaray’s testimony on
To arrest this problem, we decided to source some funds using the subject their alleged telephone conversation was not reliable because it was not
property as collateral. This other means is resorted to for the purpose of shown that Ligaray had been familiar with his voice. Wagas also sought the
settling the herein obligation. And as to its status, said funds will be reopening of the case based on newly discovered evidence, specifically: (a)
rele[a]sed within thirty (30) days from today. the testimony of Cañada who could not testify during the trial because he
was then out of the country, and (b) Ligaray’s testimony given against
In view of the foregoing, it is my sincere request and promise to settle said
obligation on or before August 15, 1997. Wagas in another criminal case for violation of Batas Pambansa Blg. 22.
Lastly, I would like to manifest that it is not my intention to shy away from On October 21, 2002, the RTC denied the motion for new trial and/or
any financial obligation. reconsideration, opining that the evidence Wagas desired to present at a
xxxx new trial did not qualify as newly discovered, and that there was no
Respectfully yours, compelling ground to reverse its decision.16
(SGD.)
GILBERT R. WAGAS10 Wagas appealed directly to this Court by notice of appeal. 17
Prior to the elevation of the records to the Court, Wagas filed a petition for
Wagas admitted the letter, but insisted that it was Cañada who had admission to bail pending appeal. The RTC granted the petition and fixed
transacted with Ligaray, and that he had signed the letter only because his Wagas’ bond at ₱40,000.00.18 Wagas then posted bail for his provisional
sister and her husband (Cañada) had begged him to assume the liberty pending appeal.19
responsibility.11 On redirect examination, Wagas declared that Cañada, a
seafarer, was then out of the country; that he signed the letter only to The resolution of this appeal was delayed by incidents bearing on the grant
accommodate the pleas of his sister and Cañada, and to avoid jeopardizing of Wagas’ application for bail. On November 17, 2003, the Court required
Cañada’s application for overseas employment.12 The Prosecution the RTC Judge to explain why Wagas was out on bail. 20 On January 15,
subsequently offered and the RTC admitted the letter as rebuttal evidence. 13 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
Decision of the RTC (OCA) for evaluation, report, and recommendation. 21 On July 5, 2005, the
Court, upon the OCA’s recommendation, directed the filing of an
As stated, the RTC convicted Wagas of estafa on July 11, 2002, viz: administrative complaint for simple ignorance of the law against the RTC
WHEREFORE, premises considered, the Court finds the accused GUILTY Judge.22 On September 12, 2006, the Court directed the OCA to comply with
beyond reasonable doubt as charged and he is hereby sentenced as follows: its July 5, 2005 directive, and to cause the filing of the administrative
To suffer an indeterminate penalty of from twelve (12) years of pris[i]on complaint against the RTC Judge. The Court also directed Wagas to explain
mayor, as minimum, to thirty (30) years of reclusion perpetua as maximum; why his bail should not be cancelled for having been erroneously
To indemnify the complainant, Albert[o] Ligaray in the sum of ₱200,000.00; granted.23 Finally, in its memorandum dated September 27, 2006, the OCA
To pay said complainant the sum of ₱30,000.00 by way of attorney’s fees; manifested to the Court that it had meanwhile filed the administrative
and the costs of suit. complaint against the RTC Judge.24

SO ORDERED.14 Issues

The RTC held that the Prosecution had proved beyond reasonable doubt all In this appeal, Wagas insists that he and Ligaray were neither friends nor
the elements constituting the crime of estafa, namely: (a) that Wagas personally known to one other; that it was highly incredible that Ligaray, a
issued the postdated check as payment for an obligation contracted at the businessman, would have entered into a transaction with him involving a
time the check was issued; (b) that he failed to deposit an amount sufficient huge amount of money only over the telephone; that on the contrary, the
to cover the check despite having been informed that the check had been evidence pointed to Cañada as the person with whom Ligaray had
dishonored; and (c) that Ligaray released the goods upon receipt of the transacted, considering that the delivery receipt, which had been signed by
Cañada, indicated that the goods had been "Ordered by ROBERT CAÑADA,"
that the goods had been received by Cañada in good order and condition, The Prosecution established that Ligaray had released the goods to Cañada
and that there was no showing that Cañada had been acting on behalf of because of the postdated check the latter had given to him; and that the
Wagas; that he had issued the check to Cañada upon a different check was dishonored when presented for payment because of the
transaction; that Cañada had negotiated the check to Ligaray; and that the insufficiency of funds.
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 In every criminal prosecution, however, the identity of the offender, like the
telephone. crime itself, must be established by proof beyond reasonable doubt. 28 In
that regard, the Prosecution did not establish beyond reasonable doubt that
The circumstances beg the question: did the Prosecution establish it was Wagas who had defrauded Ligaray by issuing the check.
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? Firstly, Ligaray expressly admitted that he did not personally meet the
person with whom he was transacting over the telephone, thus:
Q:
Ruling On April 30, 1997, do you remember having a transaction with the accused
The appeal is meritorious. in this case?
Article 315, paragraph 2(d) of the Revised Penal Code, as amended, A:
provides: Yes, sir. He purchased two hundred bags of rice from me.
Article 315. Swindling (estafa). — Any person who shall defraud another Q:
by any of the means mentioned hereinbelow shall be punished by: How did this purchase of rice transaction started? (sic)
xxxx A:
2. By means of any of the following false pretenses or fraudulent acts He talked with me over the phone and told me that he would like to
executed prior to or simultaneously with the commission of the fraud: purchase two hundred bags of rice and he will just issue a check. 29
xxxx Even after the dishonor of the check, Ligaray did not personally see and
(d) By postdating a check, or issuing a check in payment of an obligation meet whoever he had dealt with and to whom he had made the demand for
when the offender had no funds in the bank, or his funds deposited therein payment, and that he had talked with him only over the telephone, to wit:
were not sufficient to cover the amount of the check. The failure of the Q:
drawer of the check to deposit the amount necessary to cover his check After the check was (sic) bounced, what did you do next?
within three (3) days from receipt of notice from the bank and/or the payee A:
or holder that said check has been dishonored for lack or insufficiency of I made a demand on them.
funds shall be prima facie evidence of deceit constituting false pretense or Q:
fraudulent act. How did you make a demand?
A:
In order to constitute estafa under this statutory provision, the act of I called him over the phone.
postdating or issuing a check in payment of an obligation must be the Q:
efficient cause of the defraudation. This means that the offender must be Who is that "him" that you are referring to?
able to obtain money or property from the offended party by reason of the A:
issuance of the check, whether dated or postdated. In other words, the Gilbert Wagas.30
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 Secondly, the check delivered to Ligaray was made payable to cash. Under
issuance of the check by the offender. 25 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
The essential elements of the crime charged are that: (a) a check is indorsement.31 This rendered it highly probable that Wagas had issued the
postdated or issued in payment of an obligation contracted at the time the check not to Ligaray, but to somebody else like Cañada, his brother-in-law,
check is issued; (b) lack or insufficiency of funds to cover the check; and (c) who then negotiated it to Ligaray.1âwphi1 Relevantly, Ligaray confirmed
damage to the payee thereof.26 It is the criminal fraud or deceit in the that he did not himself see or meet Wagas at the time of the transaction
issuance of a check that is punishable, not the non-payment of a and thereafter, and expressly stated that the person who signed for and
debt.27 Prima facie evidence of deceit exists by law upon proof that the received the stocks of rice was Cañada.
drawer of the check failed to deposit the amount necessary to cover his
check within three days from receipt of the notice of dishonor. It bears stressing that the accused, to be guilty of estafa as charged, must
have used the check in order to defraud the complainant. What the law
punishes is the fraud or deceit, not the mere issuance of the worthless admissibility, and the responsibility lies in the first instance with the district
check. Wagas could not be held guilty of estafa simply because he had court to determine within its sound discretion whether the threshold of
issued the check used to defraud Ligaray. The proof of guilt must still clearly admissibility has been met.35 (Bold emphasis supplied)
show that it had been Wagas as the drawer who had defrauded Ligaray by
means of the check. Yet, the Prosecution did not tender any plausible explanation or offer any
proof to definitely establish that it had been Wagas whom Ligaray had
Thirdly, Ligaray admitted that it was Cañada who received the rice from him conversed with on the telephone. The Prosecution did not show through
and who delivered the check to him. Considering that the records are bereft Ligaray during the trial as to how he had determined that his caller was
of any showing that Cañada was then acting on behalf of Wagas, the RTC Wagas. All that the Prosecution sought to elicit from him was whether he
had no factual and legal bases to conclude and find that Cañada had been had known and why he had known Wagas, and he answered as follows:
acting for Wagas. This lack of factual and legal bases for the RTC to infer so
obtained despite Wagas being Cañada’s brother-in-law. Q:
Do you know the accused in this case?
Finally, Ligaray’s declaration that it was Wagas who had transacted with him A:
over the telephone was not reliable because he did not explain how he Yes, sir.
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 If he is present inside the courtroom […]
it essential for purposes of reliability and trustworthiness that a telephone A:
conversation like that one Ligaray supposedly had with the buyer of rice to No, sir. He is not around.
be first authenticated before it could be received in evidence. Among others, Q:
the person with whom the witness conversed by telephone should be first Why do you know him?
satisfactorily identified by voice recognition or any other means. 32 Without A:
the authentication, incriminating another person just by adverting to the I know him as a resident of Compostela because he is an ex-mayor of
telephone conversation with him would be all too easy. In this respect, an Compostela.36
identification based on familiarity with the voice of the caller, or because of During cross-examination, Ligaray was allowed another opportunity to show
clearly recognizable peculiarities of the caller would have sufficed. 33 The how he had determined that his caller was Wagas, but he still failed to
identity of the caller could also be established by the caller’s self- provide a satisfactory showing, to wit:
identification, coupled with additional evidence, like the context and timing Q:
of the telephone call, the contents of the statement challenged, internal Mr. Witness, you mentioned that you and the accused entered into [a]
patterns, and other distinctive characteristics, and disclosure of knowledge transaction of rice selling, particularly with these 200 sacks of rice subject of
of facts known peculiarly to the caller.34 this case, through telephone conversation?
A:
Verily, it is only fair that the caller be reliably identified first before a Yes, sir.
telephone communication is accorded probative weight. The identity of the Q:
caller may be established by direct or circumstantial evidence. According to But you cannot really ascertain that it was the accused whom you are
one ruling of the Kansas Supreme Court: talking with?
A:
Communications by telephone are admissible in evidence where they are I know it was him because I know him.
relevant to the fact or facts in issue, and admissibility is governed by the Q:
same rules of evidence concerning face-to-face conversations except the Am I right to say [that] that was the first time that you had a transaction
party against whom the conversations are sought to be used must ordinarily with the accused through telephone conversation, and as a consequence of
be identified. It is not necessary that the witness be able, at the time of the that alleged conversation with the accused through telephone he issued a
conversation, to identify the person with whom the conversation was had, check in your favor?
provided subsequent identification is proved by direct or circumstantial A:
evidence somewhere in the development of the case. The mere statement of No. Before that call I had a talk[ ] with the accused.
his identity by the party calling is not in itself sufficient proof of such Q:
identity, in the absence of corroborating circumstances so as to render the But still through the telephone?
conversation admissible. However, circumstances preceding or following the A:
conversation may serve to sufficiently identify the caller. The completeness Yes, sir.
of the identification goes to the weight of the evidence rather than its Q:
There was no instant (sic) that the accused went to see you personally may be weak is inconsequential if, in the first place, the State has failed to
regarding the 200 bags rice transaction? discharge the onus of his identity and culpability. The presumption of
A: innocence dictates that it is for the Prosecution to demonstrate the guilt and
No. It was through telephone only. not for the accused to establish innocence. 41
Q:
In fact[,] you did not cause the delivery of these 200 bags of rice through Indeed, the accused, being presumed innocent, carries no burden of proof
the accused himself? on his or her shoulders. For this reason, the first duty of the Prosecution is
A: not to prove the crime but to prove the identity of the criminal. For even if
Yes. It was through Robert. the commission of the crime can be established, without competent proof of
Q: the identity of the accused beyond reasonable doubt, there can be no
So, after that phone call[,] you deliver[ed] th[ose] 200 sacks of rice through conviction.42
somebody other than the accused?
A: There is no question that an identification that does not preclude a
Yes, sir.37 reasonable possibility of mistake cannot be accorded any evidentiary
force.43 Thus, considering that the circumstances of the identification of
Ligaray’s statement that he could tell that it was Wagas who had ordered Wagas as the person who transacted on the rice did not preclude a
the rice because he "know[s]" him was still vague and unreliable for not reasonable possibility of mistake, the proof of guilt did not measure up to
assuring the certainty of the identification, and should not support a finding the standard of proof beyond reasonable doubt demanded in criminal cases.
of Ligaray’s familiarity with Wagas as the caller by his voice. It was evident Perforce, the accused’s constitutional right of presumption of innocence until
from Ligaray’s answers that Wagas was not even an acquaintance of the contrary is proved is not overcome, and he is entitled to an
Ligaray’s prior to the transaction. Thus, the RTC’s conclusion that Ligaray acquittal,44 even though his innocence may be doubted. 45
had transacted with Wagas had no factual basis. Without that factual basis,
the RTC was speculating on a matter as decisive as the identification of the Nevertheless, an accused, though acquitted of estafa, may still be held
buyer to be Wagas. civilly liable where the preponderance of the established facts so
warrants.46 Wagas as the admitted drawer of the check was legally liable to
The letter of Wagas did not competently establish that he was the person pay the amount of it to Ligaray, a holder in due course. 47 Consequently, we
who had conversed with Ligaray by telephone to place the order for the rice. 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.
The letter was admitted exclusively as the State’s rebuttal evidence to
controvert or impeach the denial of Wagas of entering into any transaction WHEREFORE, the Court REVERSES and SETS ASIDE the decision
with Ligaray on the rice; hence, it could be considered and appreciated only rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu
for that purpose. Under the law of evidence, the court shall consider City; and ACQUITS Gilbert R. Wagas of the crime of estafa on the ground of
evidence solely for the purpose for which it is offered, 38 not for any other reasonable doubt, but ORDERS him to pay Alberto Ligaray the amount of
purpose.39 Fairness to the adverse party demands such exclusivity. ₱200,000.00 as actual damages, plus interest of 6% per annum from the
finality of this decision.
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 No pronouncement on costs of suit.
him to do so could not be taken for granted.
SO ORDERED.
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, which means that he who asserts, not he who denies, must
prove,40 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
14.Ting Ting Pua v. Spouses Benito, G.R. No. 198660, 23 October Respondents then delivered to petitioner Asiatrust Check No. BND057750
2013 (check; consideration) bearing the reduced amount of PhP 8,500,000 dated March 30, 1997 with
the assurance that the check was good.15 In turn, respondents demanded
Under consideration is the Motion for Reconsideration interposed by the return of the 17 previously dishonored checks. Petitioner, however,
petitioner Ting Ting Pua Pua) of our Resolution dated April 18, 2012 refused to return the bad checks and advised respondents that she will do
effectively affirming the Decision1 and Resolution2 dated March 31, 2011 and so only after the encashment of Asiatrust Check No. BND057750. 16
September 26, 2011, respectively, of the Court of Appeals CA) In CA- G.R.
CV No. 93755, which, in turn, reversed the Decision of the Regional Trial Like the 17 checks, however, Check No. BND057750 was also dishonored
Court RTC) of the City of Manila, Branch 29 in Civil Case No. 97-83027. when it was presented by petitioner to the drawee bank. Hence, as claimed
by petitioner, she decided to file a complaint to collect the money owed her
As culled from the adverted R TC Decision, as adopted for the most part by by respondents.
the CA, the antecedent facts may be summarized as follows:
For the defense, both respondents Caroline and Benito testified along with
The controversy arose from a Complaint for a Sum of Money filed by
3 Rosa Dela Cruz Tuazon (Tuazon), who was the OIC-Manager of Asiatrust-
petitioner Pua against respondent-spouses Benito Lo Bun Tiong Benito) and Binondo Branch in 1997. Respondents categorically denied obtaining a loan
Caroline Siok Ching Teng Caroline). In the complaint, Pua prayed that, from petitioner.17 Respondent Caroline, in particular, narrated that, in
among other things, respondents, or then defendants, pay Pua the amount August 1995, she and petitioner’s sister, Lilian, forged a partnership that
eight million five hundred thousand pesos (PhP 8,500,000), covered by a operated a mahjong business. Their agreement was for Lilian to serve as the
check. (Exhibit "A," for plaintiff) capitalist while respondent Caroline was to act as the cashier. Caroline also
agreed to use her personal checks to pay for the operational expenses
including the payment of the winners of the games. 18 As the partners
During trial, petitioner Pua clarified that the PhP 8,500,000 check was given
anticipated that Caroline will not always be in town to prepare these checks,
by respondents to pay the loans they obtained from her under a
she left with Lilian five (5) pre-signed and consecutively numbered
compounded interest agreement on various dates in 1988. 4 As Pua narrated,
checks19 on the condition that these checks will only be used to cover the
her sister, Lilian Balboa (Lilian), vouched for respondents’ ability to pay so
costs of the business operations and in no circumstance will the amount of
that when respondents approached her, she immediately acceded and lent
the checks exceed PhP 5,000.20
money to respondents without requiring any collateral except post-dated
checks bearing the borrowed amounts.5 In all, respondents issued
176 checks for a total amount of one million nine hundred seventy-five In March 1996, however, respondent Caroline and Lilian had a serious
thousand pesos (PhP 1,975,000). These checks were dishonored upon disagreement that resulted in the dissolution of their partnership and the
presentment to the drawee bank.7 cessation of their business. In the haste of the dissolution and as a result of
their bitter separation, respondent Caroline alleged that she forgot about the
five (5) pre-signed checks she left with Lilian.21 It was only when Lilian’s
As a result of the dishonor, petitioner demanded payment. Respondents,
husband, Vicente Balboa (Vicente), filed a complaint for sum of money in
however, pleaded for more time because of their financial
February 1997 against respondents to recover five million one hundred
difficulties.8 Petitioner Pua obliged and simply reminded the respondents of
seventy-five thousand two hundred fifty pesos (PhP 5,175,250), covering
their indebtedness from time to time.9
three of the five post-dated and pre-signed checks. 22

Sometime in September 1996, when their financial situation turned better,


Respondent Caroline categorically denied having completed Check No.
respondents allegedly called and asked petitioner Pua for the computation of
BND057750 by using a check writer or typewriter as she had no check writer
their loan obligations.10 Hence, petitioner handed them a computation dated
and she had always completed checks in her own handwriting. 23 She insisted
October 2, 199611 which showed that, at the agreed 2% compounded
that petitioner and her sister completed the check after its
interest rate per month, the amount of the loan payable to petitioner rose to
delivery.24 Furthermore, she could not have gone to see petitioner Pua with
thirteen million two hundred eighteen thousand five hundred forty-four
her husband as they had been separated in fact for nearly 10 years. 25 As for
pesos and 20/100 (PhP 13,218,544.20).12 On receiving the computation, the
the 17 checks issued by her in 1988, Caroline alleged that they were not
respondents asked petitioner to reduce their indebtedness to PhP
intended for Pua but were issued for the benefit of other persons. 26 Caroline
8,500,000.13 Wanting to get paid the soonest possible time, petitioner Pua
postulated that the complaint is designed to allow Pua’s sister, Lilian, to
agreed to the lowered amount. 14
recover her losses in the foreign exchange business she had with Caroline in
the 1980s. Respondent Benito corroborated Caroline’s testimony respecting
their almost a decade separation.27 As such, he could not have had
accompanied his wife to see petitioner to persuade the latter to lower down By Decision of March 31, 2011, as reiterated in a Resolution dated
any alleged indebtedness.28 In fact, Benito declared, before the filing of the September 26, 2011, the appellate court set aside the RTC Decision holding
Complaint, he had never met petitioner Pua, let alone approached her with that Asiatrust Bank Check No. BND057550 was an incomplete delivered
his wife to borrow money.29He claimed that he was impleaded in the case to instrument and that petitioner has failed to prove the existence of
attach his property and force him to enter into an amicable settlement with respondents’ indebtedness to her. Hence, the CA added, petitioner does not
petitioner.30 Benito pointed out that Check No. BND057750 was issued under have a cause of action against respondents.37
Asiatrust Account No. 5513-0054-9, which is solely under the name of his
wife.31 Hence, petitioner came to this Court via a Petition for Review on
Certiorari38 alleging grievous reversible error on the part of the CA in
The witness for the respondents, Ms. Tuazon, testified that respondent reversing the findings of the court a quo.
Caroline opened Asiatrust Account No. 5513-0054-9 in September
1994.32 She claimed that the average maintaining balance of respondent As adverted to at the outset, the Court, in a Minute Resolution dated April
Caroline was PhP 2,000 and the highest amount issued by Caroline from her 18, 2012, resolved to deny the petition.39
account was PhP 435,000.33 She maintained that respondent Caroline had
always completed her checks with her own handwriting and not with a check
In this Motion for Reconsideration,40 petitioner pleads that this Court take a
writer. On October 15, 1996, Caroline’s checking account was closed at the
second hard look on the facts and issues of the present case and affirm the
instance of the bank due to 69 instances of check issuance against
RTC’s case disposition. Petitioner argues, in the main, that the finding of the
insufficient balance.34
appellate court that petitioner has not established respondents’
indebtedness to her is not supported by the evidence on record and is based
After trial, the RTC issued its Decision dated January 31, 2006 in favor of solely on respondents’ general denial of liability.
petitioner. In holding thus, the RTC stated that the possession by petitioner
of the checks signed by Caroline, under the Negotiable Instruments Law,
Respondents, on the other hand, argued in their Comment on the Motion for
raises the presumption that they were issued and delivered for a valuable
Reconsideration dated October 6, 2012 that the CA correctly ruled that
consideration. On the other hand, the court a quo discounted the testimony
Asiatrust Check No. BND057550 is an incomplete instrument which found its
for the defense completely denying respondents’ loan obligation to Pua. 35
way into petitioner’s hands and that the petitioner failed to prove
respondents’ indebtedness to her. Petitioner, so respondents contend, failed
The trial court, however, refused to order respondents to pay petitioner the to show to whom the 17 1988 checks were delivered, for what consideration
amount of PhP 8,500,000 considering that the agreement to pay interest on or purpose, and under whose account said checks were deposited or
the loan was not expressly stipulated in writing by the parties. The RTC, negotiated.
instead, ordered respondents to pay the principal amount of the loan as
represented by the 17 checks plus legal interest from the date of demand.
Clearly, the issue in the present case is factual in nature as it involves an
As rectified,36 the dispositive portion of RTC’s Decision reads:
inquiry into the very existence of the debt supposedly owed by respondents
to petitioner.
Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are
hereby ordered jointly and solidarily:
The general rule is that this Court in petitions for review on certiorari only
concerns itself with questions of law, not of fact, 41 the resolution of factual
1. To pay plaintiff ₱1,975,000.00 plus 12% interest per annum from issues being the primary function of lower courts. 42 However, several
September 30, 1998, until fully paid; exceptions have been laid down by jurisprudence to allow the scrutiny of the
factual arguments advanced by the contending parties, viz: (1) the
2. To pay plaintiff attorney’s fees of ₱200,000.00; and conclusion is grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or impossible ; (3) there is grave
3. To pay the costs of the suit. abuse of discretion; (4) the judgment is based on a misapprehension of
facts; (5) the findings of fact are conflicting ; (6) there is no citation of
specific evidence on which the factual findings are based; (7) the findings of
Aggrieved, respondents went to the CA arguing that the court a quo erred in
absence of fact are contradicted by the presence of evidence on record ; (8)
finding that they obtained and are liable for a loan from petitioner. To
the findings of the CA are contrary to those of the trial court ; (9) the CA
respondents, petitioner has not sufficiently proved the existence of the loan
manifestly overlooked certain relevant and undisputed facts that, if properly
that they supposedly acquired from her way back in the late 1980s by any
considered, would justify a different conclusion ; (10) the findings of the CA
written agreement or memorandum.
are beyond the issues of the case; and (11) such findings are contrary to In Pacheco v. Court of Appeals,46 this Court has expressly recognized that a
the admissions of both parties.43 At the very least, therefore, the check "constitutes an evidence of indebtedness"47 and is a veritable "proof of
inconsonance of the findings of the RTC and the CA regarding the existence an obligation."48 Hence, it can be used "in lieu of and for the same purpose
of the loan sanctions the recalibration of the evidence presented by the as a promissory note."49 In fact, in the seminal case of Lozano v.
parties before the trial court. Martinez,50 We pointed out that a check functions more than a promissory
note since it not only contains an undertaking to pay an amount of money
In the main, petitioner asserts that respondents owed her a sum of money but is an "order addressed to a bank and partakes of a representation that
way back in 1988 for which the latter gave her several checks. These the drawer has funds on deposit against which the check is drawn, sufficient
checks, however, had all been dishonored and petitioner has not been paid to ensure payment upon its presentation to the bank." 51 This Court
the amount of the loan plus the agreed interest. In 1996, respondents reiterated this rule in the relatively recent Lim v. Mindanao Wines and
approached her to get the computation of their liability including the 2% Liquour Galleria stating that "a check, the entries of which are in writing,
compounded interest. After bargaining to lower the amount of their liability, could prove a loan transaction."52 This very same principle underpins Section
respondents supposedly gave her a postdated check bearing the discounted 24 of the Negotiable Instruments Law (NIL):
amount of the money they owed to petitioner. Like the 1988 checks, the
drawee bank likewise dishonored this check. To prove her allegations, Section 24. Presumption of consideration. – Every negotiable instrument is
petitioner submitted the original copies of the 17 checks issued by deemed prima facie to have been issued for a valuable consideration; and
respondent Caroline in 1988 and the check issued in 1996, Asiatrust Check every person whose signature appears thereon to have become a party for
No. BND057750. In ruling in her favor, the RTC sustained the version of the value.
facts presented by petitioner.
Consequently, the 17 original checks, completed and delivered to petitioner,
Respondents, on the other hand, completely deny the existence of the debt are sufficient by themselves to prove the existence of the loan obligation of
asserting that they had never approached petitioner to borrow money in the respondents to petitioner. Note that respondent Caroline had not denied
1988 or in 1996. They hypothesize, instead, that petitioner Pua is simply the genuineness of these checks.53 Instead, respondents argue that they
acting at the instance of her sister, Lilian, to file a false charge against them were given to various other persons and petitioner had simply collected all
using a check left to fund a gambling business previously operated by Lilian these 17 checks from them in order to damage respondents’
and respondent Caroline. While not saying so in express terms, the reputation.54 This account is not only incredible; it runs counter to human
appellate court considered respondents’ denial as worthy of belief. experience, as enshrined in Sec. 16 of the NIL which provides that when an
instrument is no longer in the possession of the person who signed it and it
After another circumspect review of the records of the present case, is complete in its terms "a valid and intentional delivery by him is presumed
however, this Court is inclined to depart from the findings of the CA. until the contrary is proved."

Certainly, in a suit for a recovery of sum of money, as here, the plaintiff- The appellate court’s justification in giving credit to respondents’ contention
creditor has the burden of proof to show that defendant had not paid her the that the respondents had delivered the 17 checks to persons other than
amount of the contracted loan. However, it has also been long established petitioner lies on the supposed failure of petitioner "to establish for whose
that where the plaintiff-creditor possesses and submits in evidence an accounts [the checks] were deposited and subsequently dishonored." 55 This
instrument showing the indebtedness, a presumption that the credit has not is clearly contrary to the evidence on record. It seems that the appellate
been satisfied arises in her favor. Thus, the defendant is, in appropriate court overlooked the original copies of the bank return slips offered by
instances, required to overcome the said presumption and present evidence petitioner in evidence. These return slips show that the 1988 checks issued
to prove the fact of payment so that no judgment will be entered against by respondent Caroline were dishonored by the drawee banks because they
him.44 were "drawn against insufficient funds."56 Further, a close scrutiny of
these return slips will reveal that the checks were deposited either in
petitioner’s account57 or in the account of her brother, Ricardo Yulo—a fact
In overruling the trial court, however, the CA opined that petitioner "failed
she had previously testified to explaining that petitioner indorsed some
to establish [the] alleged indebtedness in writing." 45 Consequently, so the
checks to her brother to pay for a part of the capital she used in her
CA held, respondents were under no obligation to prove their defense.
financing business.58
Clearly, the CA had discounted the value of the only hard pieces of evidence
extant in the present case—the checks issued by respondent Caroline in
1988 and 1996 that were in the possession of, and presented in court by, As for the Asiatrust check issued by respondent Caroline in 1996 to
petitioner. substitute the compounded value of the 1988 checks, the appellate court
likewise sympathized with respondents’ version of the story holding that it is
buttressed by respondents’ allegations describing the same defense made in In Magdiwang Realty Corp. v. Manila Banking Corp., We stressed that
the two related cases filed against them by petitioner’s brother-in-law, the quantum of evidence required in civil cases—preponderance of evidence
Vicente Balboa.1âwphi1 These related cases consisted of a criminal case for —"is a phrase which, in the last analysis, means probability to truth. It is
violation of BP 2259and a civil case for collection of sum of money60 involving evidence which is more convincing to the court as worthier of belief than
three (3) of the five (5) consecutively numbered checks she allegedly left that which is offered in opposition thereto."67 Based on the evidence
with Lilian.61 It should be noted, however, that while respondents were submitted by the parties and the legal presumptions arising therefrom,
exculpated from their criminal liability, 62 in Sps. Benito Lo Bun Tiong and petitioner’s evidence outweighs that of respondents. This preponderance of
Caroline Siok Ching Teng v. Vicente Balboa,63 this Court sustained the evidence in favor of Pua requires that a judgment ordering respondents to
factual findings of the appellate court in the civil case finding respondents pay their obligation be entered.
civilly liable to pay the amount of the checks.
As aptly held by the court a quo, however, respondents cannot be obliged to
It bears to note that the Decision of the appellate court categorically pay the interest of the loan on the ground that the supposed agreement to
debunked the same defense advanced by respondents in the present case pay such interest was not reduced to writing. Article 1956 of the Civil Code,
primarily because of Caroline’s admission to the contrary. The Decision of which refers to monetary interest, specifically mandates that no interest
the appellate court found without any reversible error by this Court reads, shall be due unless it has been expressly stipulated in writing. 68 Thus, the
thus: collection of interest in loans or forbearance of money is allowed
only when these two conditions concur: (1) there was an express
The claim of Caroline Siok Ching Teng that the three (3) checks were part of stipulation for the payment of interest; (2) the agreement for the payment
the blank checks she issued and delivered to Lilian Balboa, wife of plaintiff- of the interest was reduced in writing.69 Absent any of these two conditions,
appellee, and intended solely for the operational expenses of their mahjong the money debtor cannot be made liable for interest. Thus, petitioner is
business is belied by her admission that she issued three (3) checks (Exhs. entitled only to the principal amount of the loan plus the allowable legal
"A", "B" "C") because Vicente showed the listing of their account totaling interest from the time of the demand,70 at the rate of 6% per annum.71
₱5,175,250.00 (TSN, November 17, 1997, p. 10).64 x x x
Respondent Benito cannot escape the joint and solidary liability to pay the
Clearly, respondents’ defense that Caroline left blank checks with loan on the ground that the obligation arose from checks solely issued by his
petitioner’s sister who, it is said, is now determined to recoup her past wife. Without any evidence to the contrary, it is presumed that the proceeds
losses and bring financial ruin to respondents by falsifying the same blank of the loan redounded to the benefit of their family. Hence, the conjugal
checks, had already been thoroughly passed upon and rejected by this partnership is liable therefor. 72 The unsupported allegation that respondents
Court. It cannot, therefore, be used to support respondents’ denial of their were separated in fact, standing alone, does not persuade this Court to
liability. solely bind respondent Caroline and exempt Benito. As the head of the
family, there is more reason that respondent Benito should answer for the
liability incurred by his wife presumably in support of their family.
Respondents’ other defenses are equally unconvincing. They assert that
petitioner could not have accepted a check worth PhP 8.5 million considering
that she should have known that respondent Caroline had issued several WHEREFORE, the Motion for Reconsideration is GRANTED. The
checks for PhP 25,000 each in favor of Lilian and all of them had Resolution of this Court dated April 18, 2012 is set aside and a new one
bounced.65 Needless to state, an act done contrary to law cannot be entered REVERSING and SETTING ASIDE the Decision dated March 31, 2011
sustained to defeat a legal obligation; repeated failure to honor obligations and the Resolution dated September 26, 2011 of the Court of Appeals in CA-
covered by several negotiable instruments cannot serve to defeat yet G.R. CV No. 93755. The Decision in Civil Case No. 97-83027 of the Regional
another obligation covered by another instrument. Trial Court (RTC) of the City of Manila, Branch 29 is REINSTATED with
MODIFICATION.
Indeed, it seems that respondent Caroline had displayed a cavalier attitude
towards the value, and the obligation concomitant with the issuance, of a Accordingly, respondents Benito Lo Bun Tiong and Caroline Siok
check. As attested to by respondents’ very own witness, respondent Ching Teng are ordered jointly and solidarily to pay petitioner PhP
Caroline has a documented history of issuing insufficiently funded checks for 1,975,000 plus 6% interest per annum from April 18, 1997, until fully paid,
69 times, at the very least.66 This fact alone bolsters petitioner’s allegation and ₱200,000.00 as attorney’s fees.
that the checks delivered to her by respondent Caroline were similarly not
funded. SO ORDERED.
15.Patrimonio v. Gutierrez, G.R. No. 187769, 4 June 2014 (holder in On May 24, 1994, Marasigan deposited the check but it was dishonored for
due course) the reason "ACCOUNT CLOSED." It was later revealed that petitioner’s
account with the bank had been closed since May 28, 1993.
Assailed in this petition for review on certiorari 1 under Rule 45 of the
Revised Rules of Court is the decision2 dated September 24, 2008 and the Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent
resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV several demand letters to the petitioner asking for the payment of
No. 82301. The appellate court affirmed the decision of the Regional Trial ₱200,000.00, but his demands likewise went unheeded. Consequently, he
Court (RTC) of Quezon City, Branch 77, dismissing the complaint for filed a criminal case for violation of B.P. 22 against the petitioner, docketed
declaration of nullity of loan filed by petitioner Alvin Patrimonio and ordering as Criminal Case No. 42816.
him to pay respondent Octavio Marasigan III (Marasigan) the sum of
₱200,000.00. On September 10, 1997, the petitioner filed before the Regional Trial Court
The Factual Background (RTC) a Complaint for Declaration of Nullity of Loan and Recovery of
Damages against Gutierrez and co-respondent Marasigan. He completely
The facts of the case, as shown by the records, are briefly summarized denied authorizing the loan or the check’s negotiation, and asserted that he
below. was not privy to the parties’ loan agreement.

The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered Only Marasigan filed his answer to the complaint. In the RTC’s order dated
into a business venture under the name of Slam Dunk Corporation (Slum December 22, 1997,Gutierrez was declared in default.
Dunk), a production outfit that produced mini-concerts and shows related to
basketball. Petitioner was already then a decorated professional basketball The Ruling of the RTC
player while Gutierrez was a well-known sports columnist. The RTC ruled on February 3,2003 in favor of Marasigan. 4 It found that the
petitioner, in issuing the pre-signed blank checks, had the intention of
In the course of their business, the petitioner pre-signed several checks to issuing a negotiable instrument, albeit with specific instructions to Gutierrez
answer for the expenses of Slam Dunk. Although signed, these checks had not to negotiate or issue the check without his approval. While under
no payee’s name, date or amount. The blank checks were entrusted to Section 14 of the Negotiable Instruments Law Gutierrez had the prima facie
Gutierrez with the specific instruction not to fill them out without previous authority to complete the checks by filling up the blanks therein, the RTC
notification to and approval by the petitioner. According to petitioner, the ruled that he deliberately violated petitioner’s specific instructions and took
arrangement was made so that he could verify the validity of the payment advantage of the trust reposed in him by the latter.
and make the proper arrangements to fund the account.
Nonetheless, the RTC declared Marasigan as a holder in due course and
In the middle of 1993, without the petitioner’s knowledge and consent, accordingly dismissed the petitioner’s complaint for declaration of nullity of
Gutierrez went to Marasigan (the petitioner’s former teammate), to secure a the loan. It ordered the petitioner to pay Marasigan the face value of the
loan in the amount of ₱200,000.00 on the excuse that the petitioner needed check with a right to claim reimbursement from Gutierrez.
the money for the construction of his house. In addition to the payment of
the principal, Gutierrez assured Marasigan that he would be paid an interest The petitioner elevated the case to the Court of Appeals (CA), insisting that
of 5% per month from March to May 1994. Marasigan is not a holder in due course. He contended that when Marasigan
received the check, he knew that the same was without a date, and hence,
After much contemplation and taking into account his relationship with the incomplete. He also alleged that the loan was actually between Marasigan
petitioner and Gutierrez, Marasigan acceded to Gutierrez’ request and gave and Gutierrez with his check being used only as a security.
him ₱200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed The Ruling of the CA
with Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank
portions filled out with the words "Cash" "Two Hundred Thousand Pesos On September 24, 2008, the CA affirmed the RTC ruling, although premised
Only", and the amount of "₱200,000.00". The upper right portion of the on different factual findings. After careful analysis, the CA agreed with the
check corresponding to the date was also filled out with the words "May 23, petitioner that Marasigan is not a holder in due course as he did not receive
1994" but the petitioner contended that the same was not written by the check in good faith.
Gutierrez.
The CA also concluded that the check had been strictly filled out by
Gutierrez in accordance with the petitioner’s authority. It held that the loan
may not be nullified since it is grounded on an obligation arising from law
and ruled that the petitioner is still liable to pay Marasigan the sum of exception is when the findings off act of both the trial court and the CA are
₱200,000.00. conflicting, making their review necessary.5 In the present case, the
tribunals below arrived at two conflicting factual findings, albeit with the
After the CA denied the subsequent motion for reconsideration that same conclusion, i.e., dismissal of the complaint for nullity of the loan.
followed, the petitioner filed the present petition for review on certiorari Accordingly, we will examine the parties’ evidence presented.
under Rule 45 of the Revised Rules of Court.
I. Liability Under the Contract of Loan
The Petition
The petitioner seeks to nullify the contract of loan on the ground that he
The petitioner argues that: (1) there was no loan between him and never authorized the borrowing of money. He points to Article 1878,
Marasigan since he never authorized the borrowing of money nor the paragraph 7 of the Civil Code, which explicitly requires a written authority
check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a when the loan is contracted through an agent. The petitioner contends that
special power of attorney is necessary for an individual to make a loan or absent such authority in writing, he should not be held liable for the face
borrow money in behalf of another; (3) the loan transaction was between value of the check because he was not a party or privy to the agreement.
Gutierrez and Marasigan, with his check being used only as a security; (4)
the check had not been completely and strictly filled out in accordance with Contracts of Agency May be Oral Unless The Law Requires a Specific
his authority since the condition that the subject check can only be used Form
provided there is prior approval from him, was not complied with; (5) even
if the check was strictly filled up as instructed by the petitioner, Marasigan is Article 1868 of the Civil Code defines a contract of agency as a contract
still not entitled to claim the check’s value as he was not a holder in due whereby a person "binds himself to render some service or to do something
course; and (6) by reason of the bad faith in the dealings between the in representation or on behalf of another, with the consent or authority of
respondents, he is entitled to claim for damages. the latter." Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the
The Issues agency, knowing that another person is acting on his behalf without
Reduced to its basics, the case presents to us the following issues: authority.
1. Whether the contract of loan in the amount of ₱200,000.00
granted by respondent Marasigan to petitioner, through respondent As a general rule, a contract of agency may be oral. 6 However, it must be
Gutierrez, may be nullified for being void; written when the law requires a specific form, for example, in a sale of a
2. Whether there is basis to hold the petitioner liable for the piece of land or any interest therein through an agent.
payment of the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the Article 1878 paragraph 7 of the Civil Code expressly requires a special
subject check strictly under the authority given by the petitioner; power of authority before an agent can loan or borrow money in behalf of
and the principal, to wit:
4. Whether Marasigan is a holder in due course.
Art. 1878. Special powers of attorney are necessary in the following
The Court’s Ruling cases:
xxxx
The petition is impressed with merit. (7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
We note at the outset that the issues raised in this petition are essentially administration. (emphasis supplied)
factual in nature. The main point of inquiry of whether the contract of loan
may be nullified, hinges on the very existence of the contract of loan – a Article 1878 does not state that the authority be in writing. As long as the
question that, as presented, is essentially, one of fact. Whether the mandate is express, such authority may be either oral or written. We
petitioner authorized the borrowing; whether Gutierrez completely filled out unequivocably declared in Lim Pin v. Liao Tian, et al., 7 that the requirement
the subject check strictly under the petitioner’s authority; and whether under Article 1878 of the Civil Code refers to the nature of the authorization
Marasigan is a holder in due course are also questions of fact, that, as a and not to its form. Be that as it may, the authority must be duly
general rule, are beyond the scope of a Rule 45 petition. established by competent and convincing evidence other than the self
The rule that questions of fact are not the proper subject of an appeal by serving assertion of the party claiming that such authority was verbally
certiorari, as a petition for review under Rule 45 is limited only to questions given, thus:
of law, is not an absolute rule that admits of no exceptions. One notable
The requirements of a special power of attorney in Article 1878 of the Civil The power to borrow money is one of those cases where corporate officers
Code and of a special authority in Rule 138 of the Rules of Court refer to the as agents of the corporation need a special power of attorney. In the case at
nature of the authorization and not its form. The requirements are met if bar, no special power of attorney conferring authority on de Villa was ever
there is a clear mandate from the principal specifically authorizing the presented. x x x There was no showing that respondent corporation ever
performance of the act. As early as 1906, this Court in Strong v. Gutierrez- authorized de Villa to obtain the loans on its behalf.
Repide (6 Phil. 680) stated that such a mandate may be either oral or xxxx
written, the one vital thing being that it shall be express. And more recently, Therefore, on the first issue, the loan was personal to de Villa. There was no
basis to hold the corporation liable since there was no authority, express,
We stated that, if the special authority is not written, then it must be duly implied or apparent, given to de Villa to borrow money from petitioner.
established by evidence: Neither was there any subsequent ratification of his act.
x x x the Rules require, for attorneys to compromise the litigation of their xxxx
clients, a special authority. And while the same does not state that the The liability arising from the loan was the sole indebtedness of de Villa (or of
special authority be in writing the Court has every reason to expect that, if his estate after his death). (citations omitted; emphasis supplied).
not in writing, the same be duly established by evidence other than the self- This principle was also reiterated in the case of Gozun v. Mercado, 10 where
serving assertion of counsel himself that such authority was verbally given this court held:
him.(Home Insurance Company vs. United States lines Company, et al., 21 Petitioner submits that his following testimony suffices to establish that
SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis respondent had authorized Lilian to obtain a loan from him.
supplied). xxxx
Petitioner’s testimony failed to categorically state, however, whether the
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner loan was made on behalf of respondent or of his wife. While petitioner
Should be Nullified for Being Void; Petitioner is Not Bound by the Contract of claims that Lilian was authorized by respondent, the statement of account
Loan. marked as Exhibit "A" states that the amount was received by Lilian "in
behalf of Mrs. Annie Mercado.
A review of the records reveals that Gutierrez did not have any authority to
borrow money in behalf of the petitioner.1âwphi1Records do not show that It bears noting that Lilian signed in the receipt in her name alone, without
the petitioner executed any special power of attorney (SPA) in favor of indicating therein that she was acting for and in behalf of respondent. She
Gutierrez. In fact, the petitioner’s testimony confirmed that he never thus bound herself in her personal capacity and not as an agent of
authorized Gutierrez (or anyone for that matter), whether verbally or in respondent or anyone for that matter.
writing, to borrow money in his behalf, nor was he aware of any such
transaction: It is a general rule in the law of agency that, in order to bind the principal by
a mortgage on real property executed by an agent, it must upon its face
ALVIN PATRIMONIO (witness) purport to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the agent
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney was in fact authorized to make the mortgage, if he has not acted in the
in writing authorizing him to borrow using your money? name of the principal. x x x (emphasis supplied).
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105) 8
xxxx In the absence of any showing of any agency relations or special authority
Marasigan however submits that the petitioner’s acts of pre-signing the to act for and in behalf of the petitioner, the loan agreement Gutierrez
blank checks and releasing them to Gutierrez suffice to establish that the entered into with Marasigan is null and void. Thus, the petitioner is not
petitioner had authorized Gutierrez to fill them out and contract the loan in bound by the parties’ loan agreement.
his behalf.
Furthermore, that the petitioner entrusted the blank pre-signed checks to
Marasigan’s submission fails to persuade us. Gutierrez is not legally sufficient because the authority to enter into a loan
In the absence of any authorization, Gutierrez could not enter into a can never be presumed. The contract of agency and the special fiduciary
contract of loan in behalf of the petitioner. As held in Yasuma v. Heirs of De relationship inherent in this contract must exist as a matter of fact. The
Villa,9 involving a loan contracted by de Villa secured by real estate person alleging it has the burden of proof to show, not only the fact of
mortgages in the name of East Cordillera Mining Corporation, in the absence agency, but also its nature and extent.11 As we held in People v. Yabut:12
of an SPA conferring authority on de Villa, there is no basis to hold the Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or
corporation liable, to wit: Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the
respondent Judges, be licitly taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City to fix the venue there. He did II. Liability Under the Instrument
not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And
there appears to beno contract of agency between Yambao and Andan so as The answer is supplied by the applicable statutory provision found in
to bind the latter for the acts of the former. Alicia P. Andan declared in that Section 14 of the Negotiable Instruments Law (NIL) which states:
sworn testimony before the investigating fiscal that Yambao is but her Sec. 14. Blanks; when may be filled.- Where the instrument is wanting
"messenger" or "part-time employee." There was no special fiduciary in any material particular, the person in possession thereof has a prima facie
relationship that permeated their dealings. For a contract of agency to exist, authority to complete it by filling up the blanks therein. And a signature on a
the consent of both parties is essential, the principal consents that the other blank paper delivered by the person making the signature in order that the
party, the agent, shall act on his behalf, and the agent consents so to act. It paper may be converted into a negotiable instrument operates as a prima
must exist as a fact. The law makes no presumption thereof. The person facie authority to fill it up as such for any amount. In order, however, that
alleging it has the burden of proof to show, not only the fact of its existence, any such instrument when completed may be enforced against any person
but also its nature and extent. This is more imperative when it is considered who became a party thereto prior to its completion, it must be filled up
that the transaction dealt with involves checks, which are not legal tender, strictly in accordance with the authority given and within a reasonable time.
and the creditor may validly refuse the same as payment of obligation.(at p. But if any such instrument, after completion, is negotiated to a holder in due
630). (emphasis supplied) course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority
The records show that Marasigan merely relied on the words of Gutierrez given and within a reasonable time.
without securing a copy of the SPA in favor of the latter and without
verifying from the petitioner whether he had authorized the borrowing of This provision applies to an incomplete but delivered instrument. Under this
money or release of the check. He was thus bound by the risk rule, if the maker or drawer delivers a pre-signed blank paper to another
accompanying his trust on the mere assurances of Gutierrez. person for the purpose of converting it into a negotiable instrument, that
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as person is deemed to have prima facie authority to fill it up. It merely
The Latter’s Consent Was Not Obtained. requires that the instrument be in the possession of a person other than the
drawer or maker and from such possession, together with the fact that the
Another significant point that the lower courts failed to consider is that a instrument is wanting in a material particular, the law presumes agency to
contract of loan, like any other contract, is subject to the rules governing fill up the blanks.16
the requisites and validity of contracts in general. 13 Article 1318 of the Civil
Code14enumerates the essential requisites for a valid contract, namely: In order however that one who is not a holder in due course can
1. consent of the contracting parties; enforce the instrument against a party prior to the instrument’s
2. object certain which is the subject matter of the contract; and completion, two requisites must exist: (1) that the blank must be filled
3. cause of the obligation which is established. strictly in accordance with the authority given; and (2) it must be filled up
within a reasonable time. If it was proven that the instrument had not been
In this case, the petitioner denied liability on the ground that the contract filled up strictly in accordance with the authority given and within a
lacked the essential element of consent. We agree with the petitioner. As we reasonable time, the maker can set this up as a personal defense and avoid
explained above, Gutierrez did not have the petitioner’s written/verbal liability. However, if the holder is a holder in due course, there is a
authority to enter into a contract of loan. While there may be a meeting of conclusive presumption that authority to fill it up had been given and that
the minds between Gutierrez and Marasigan, such agreement cannot bind the same was not in excess of authority.17
the petitioner whose consent was not obtained and who was not privy to the
loan agreement. Hence, only Gutierrez is bound by the contract of loan. In the present case, the petitioner contends that there is no legal basis to
True, the petitioner had issued several pre-signed checks to Gutierrez, one hold him liable both under the contract and loan and under the check
of which fell into the hands of Marasigan. This act, however, does not because: first, the subject check was not completely filled out strictly under
constitute sufficient authority to borrow money in his behalf and neither the authority he has given and second, Marasigan was not a holder in due
should it be construed as petitioner’s grant of consent to the parties’ loan course.
agreement. Without any evidence to prove Gutierrez’ authority, the
petitioner’s signature in the check cannot be taken, even remotely, as Marasigan is Not a Holder in Due Course
sufficient authorization, much less, consent to the contract of loan. Without The Negotiable Instruments Law (NIL) defines a holder in due
the consent given by one party in a purported contract, such contract could course, thus:
not have been perfected; there simply was no contract to speak of. 15
With the loan issue out of the way, we now proceed to determine whether Sec. 52 — A holder in due course is a holder who has taken the instrument
the petitioner can be made liable under the check he signed. under the following conditions:
(a) That it is complete and regular upon its face; liability to him, renders him dishonest, hence, in bad faith. The following
(b) That he became the holder of it before it was overdue, and exchange is significant on this point:
without notice that it had been previously dishonored, if such was
the fact; WITNESS: AMBET NABUS
(c) That he took it in good faith and for value; Q: Now, I refer to the second call… after your birthday. Tell us what you
(d) That at the time it was negotiated to him he had no notice of talked about?
any infirmity in the instrument or defect in the title of the person A: Since I celebrated my birthday in that place where Nap and I live
negotiating it.(emphasis supplied) together with the other crew, there were several visitors that included
Danny Espiritu. So a week after my birthday, Bong Marasigan called me up
Section 52(c) of the NIL states that a holder in due course is one again and he was fuming mad. Nagmumura na siya. Hinahanap niya si…
who takes the instrument "in good faith and for value." It also hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na
provides in Section 52(d) that in order that one may be a holder in due kailangan I-settle na niya yung utang ni Nap, dahil…
course, it is necessary that at the time it was negotiated to him he had no xxxx
notice of any infirmity in the instrument or defect in the title of the person WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi
negotiating it. sa kung saan ang tsekeng tumalbog… (He told me that we have to fix it up
before it…) mauwi pa kung saan…
Acquisition in good faith means taking without knowledge or notice of xxxx
equities of any sort which could beset up against a prior holder of the Q: What was your reply, if any?
instrument.18 It means that he does not have any knowledge of fact which A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
would render it dishonest for him to take a negotiable paper. The absence of (Whose check is it that you are referring to or talking about?)
the defense, when the instrument was taken, is the essential element of Q: What was his answer?
good faith.19 A: It was Alvin’s check.
Q: What was your reply, if any?
As held in De Ocampo v. Gatchalian:20 A: I told him do you know that it is not really Alvin who borrowed money
from you or what you want to appear…
In order to show that the defendant had "knowledge of such facts that his xxxx
action in taking the instrument amounted to bad faith," it is not necessary to Q: What was his reply?
prove that the defendant knew the exact fraud that was practiced upon the A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang
plaintiff by the defendant's assignor, it being sufficient to show that the maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis
defendant had notice that there was something wrong about his assignor's supplied)21
acquisition of title, although he did not have notice of the particular wrong
that was committed. Since he knew that the underlying obligation was not actually for the
petitioner, the rule that a possessor of the instrument is prima facie a holder
It is sufficient that the buyer of a note had notice or knowledge that the in due course is inapplicable. As correctly noted by the CA, his inaction and
note was in some way tainted with fraud. It is not necessary that he should failure to verify, despite knowledge of that the petitioner was not a party to
know the particulars or even the nature of the fraud, since all that is the loan, may be construed as gross negligence amounting to bad faith.
required is knowledge of such facts that his action in taking the note
amounted bad faith. Yet, it does not follow that simply because he is not a holder in due course,
Marasigan is already totally barred from recovery. The NIL does not provide
The term ‘bad faith’ does not necessarily involve furtive motives, but means that a holder who is not a holder in due course may not in any case recover
bad faith in a commercial sense. The manner in which the defendants on the instrument.22 The only disadvantage of a holder who is not in due
conducted their Liberty Loan department provided an easy way for thieves course is that the negotiable instrument is subject to defenses as if it were
to dispose of their plunder. It was a case of "no questions asked." Although non-negotiable.23 Among such defenses is the filling up blank not within the
gross negligence does not of itself constitute bad faith, it is evidence from authority.
which bad faith may be inferred. The circumstances thrust the duty upon
the defendants to make further inquiries and they had no right to shut their On this point, the petitioner argues that the subject check was not filled up
eyes deliberately to obvious facts. (emphasis supplied). strictly on the basis of the authority he gave. He points to his instruction not
to use the check without his prior approval and argues that the check was
In the present case, Marasigan’s knowledge that the petitioner is not a party filled up in violation of said instruction.
or a privy to the contract of loan, and correspondingly had no obligation or
Check Was Not Completed Strictly Under The Authority Given by The right to enforce payment against the petitioner and the latter cannot be
Petitioner obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered
Our own examination of the records tells us that Gutierrez has exceeded the GRANTING the petitioner Alvin Patrimonio's petition for review on
authority to fill up the blanks and use the check.1âwphi1 To repeat, certiorari. The appealed Decision dated September 24, 2008 and the
petitioner gave Gutierrez pre-signed checks to be used in their business Resolution dated April 30, 2009 of the Court of Appeals are consequently
provided that he could only use them upon his approval. His instruction ANNULLED AND SET ASIDE. Costs against the respondents.
could not be any clearer as Gutierrez’ authority was limited to the use of the
checks for the operation of their business, and on the condition that the SO ORDERED.
petitioner’s prior approval be first secured.

While under the law, Gutierrez had a prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e.,
subsequent transfer or negotiation)once the check is completed. In other
words, only the authority to complete the check is presumed. Further, the
law used the term "prima facie" to underscore the fact that the authority
which the law accords to a holder is a presumption juris tantumonly; hence,
subject to subject to contrary proof. Thus, evidence that there was no
authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument.

In the present case, no evidence is on record that Gutierrez ever secured


prior approval from the petitioner to fill up the blank or to use the check. In
his testimony, petitioner asserted that he never authorized nor approved the
filling up of the blank checks, thus:

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write
the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash?
In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure
₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the
words ₱200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999). 24

Notably, Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to pay
the loan he supposedly contracted for the construction of petitioner's house.
This is a clear violation of the petitioner's instruction to use the checks for
the expenses of Slam Dunk. It cannot therefore be validly concluded that
the check was completed strictly in accordance with the authority given by
the petitioner.

Considering that Marasigan is not a holder in due course, the petitioner can
validly set up the personal defense that the blanks were not filled up in
accordance with the authority he gave. Consequently, Marasigan has no
16. Areza v. Express Savings Bank Inc., G.R. No. 176697, 10 Sometime in July 2000, the subjectchecks were returned by PVAO to the
September 2014 (material alteration) drawee on the ground that the amount on the face of the checks was altered
from the original amount of ₱4,000.00 to ₱200,000.00. The drawee returned
Before this Court is a Petition for Review on Certiorari under Ruic 45 of the the checks to Equitable-PCI Bank by way of Special Clearing Receipts. In
Rules of Court, which seeks to reverse the Decision 1 and Resolution2 dated August 2000, the Bank was informed by Equitable-PCI Bank that the drawee
29 June 2006 and 12 February 2007 of the Court of Appeals in CAG.R. CV dishonored the checks onthe ground of material alterations. Equitable-PCI
No. 83192. The Court of Appeals affirmed with modification the 22 April Bank initially filed a protest with the Philippine Clearing House. In February
2004 Resolution3 of the Regional Trial Court (RTC) of Calamba, Laguna, 2001, the latter ruled in favor of the drawee Philippine Veterans Bank.
Branch 92, in Civil Case No. B-5886. Equitable-PCI Bank, in turn, debited the deposit account of the Bank in the
amount of ₱1,800,000.00.
The factual antecedents follow.
The Bank insisted that they informed petitioners of said development in
August 2000 by furnishing them copies of the documents given by its
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits
depositary bank.7 On the other hand, petitioners maintained that the Bank
with respondent Express Savings Bank’s Biñan branch: 1) Savings Account
never informed them of these developments.
No. 004-01-000185-5 and 2) Special Savings Account No. 004-02-000092-
3.
On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00.
Said check was dishonored by the Bank for the reason "Deposit Under Hold."
They were engaged in the business of "buy and sell" of brand new and
According topetitioners, the Bank unilaterally and unlawfully put their
second-hand motor vehicles. On 2 May 2000, they received an order from a
account with the Bank on hold. On 22 March 2001, petitioners’ counsel sent
certain Gerry Mambuay (Mambuay) for the purchase of a second-hand
a demand letter asking the Bank to honor their check. The Bank refused to
Mitsubishi Pajero and a brand-new Honda CRV.
heed their request and instead, closed the Special Savings Account of the
petitioners with a balance of ₱1,179,659.69 and transferred said amount to
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans their savings account. The Bank then withdrew the amount of
Affairs Office (PVAO) checks payable to different payees and drawn against ₱1,800,000.00representing the returned checks from petitioners’ savings
the Philippine Veterans Bank (drawee), each valued at Two Hundred account.
Thousand Pesos (₱200,000.00) for a total of One Million Eight Hundred
Thousand Pesos (₱1,800,000.00).
Acting on the alleged arbitrary and groundless dishonoring of their checks
and the unlawful and unilateral withdrawal from their savings account,
About this occasion, petitioners claimed that Michael Potenciano petitioners filed a Complaint for Sum of Money with Damages against the
(Potenciano), the branch manager of respondent Express Savings Bank (the Bank and Potenciano with the RTC of Calamba.
Bank) was present during the transaction and immediately offered the
services of the Bank for the processing and eventual crediting of the said
On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in
checks to petitioners’ account.4 On the other hand,Potenciano countered
favor of petitioners. The dispositive portion of the Decision reads:
that he was prevailed upon to accept the checks by way of accommodation
of petitioners who were valued clients of the Bank. 5
WHEREFORE, the foregoing considered, the Court orders that judgment be
rendered in favor of plaintiffs and against the defendants jointly and
On 3 May 2000, petitioners deposited the said checks in their savings
severally to pay plaintiffs as follows, to wit:
account with the Bank. The Bank, inturn, 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 1. ₱1,800,000.00 representing the amount unlawfully withdrawn by
honored the checks. the defendants from the account of plaintiffs;

On 6 May 2000, Potenciano informedpetitioners that the checks they 2. ₱500,000.00 as moral damages; and
deposited with the Bank werehonored. He allegedly warned petitioners that
the clearing of the checks pertained only to the availability of funds and did 3. ₱300,000.00 as attorney’s fees.8
not mean that the checks were not infirmed. 6 Thus, the entire amount of
₱1,800,000.00 was credited to petitioners’ savings account. Based on this The trial court reduced the issue to whether or not the rights of petitioners
information, petitioners released the two cars to the buyer. were violated by respondents when the deposits of the former were debited
by respondents without any court order and without their knowledge and The core issues in this case revolve on whether the appellee bank had the
consent. According to the trial court, it is the depositary bank which should right to debit the amount of ₱1,800,000.00 from the appellants’ accounts
safeguard the right ofthe depositors over their money. Invoking Article 1977 and whether the bank’s act of debiting was done "without the plaintiffs’
of the Civil Code, the trial court stated that the depositary cannot make use knowledge."
of the thing deposited without the express permission of the depositor. The
trial court also held that respondents should have observed the 24-hour We find that the elements of legal compensation are all present in the case
clearing house rule that checks should be returned within 24-hours after at bar. Hence, applying the case of the Bank of the Philippine Islands v.
discovery of the forgery but in no event beyond the period fixed by law for Court of Appeals, the obligors bound principally are at the same time
filing a legal action. In this case, petitioners deposited the checks in May creditors of each other. Appellee bank stands as a debtor of appellant, a
2000, and respondents notified them of the problems on the check three depositor. At the same time, said bank is the creditor of the appellant with
months later or in August 2000. In sum, the trial court characterized said respect to the dishonored treasury warrant checks which amount were
acts of respondents as attended with bad faith when they debited the already credited to the account of appellants. When the appellants had
amount of ₱1,800,000.00 from the account of petitioners. withdrawn the amount of the checks they deposited and later on said checks
were returned, they became indebted to the appellee bank for the
Respondents filed a motion for reconsideration while petitioners filed a corresponding amount.
motion for execution from the Decision of the RTC on the ground that
respondents’ motion for reconsideration did not conform with Section 5, It should be noted that [G]erry Mambuay was the appellants’ walkin buyer.
Rule 16 of the Rules of Court; hence, it was a mere scrap of paper that did As sellers, appellants oughtto have exercised due diligence in assessing his
not toll the running of the period to appeal. credit or personal background. The 24-hour clearing house rule is not the
one that governs in this case since the nine checks were discovered by the
On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon drawee bank to contain material alterations.
granted the motion for reconsideration, set aside the Pozas Decision, and
dismissed the complaint. The trial court awarded respondents their Appellants merely allege that they were not informed of any development on
counterclaim of moral and exemplary damages of ₱100,000.00 each. The the checks returned. However, this Court believes that the bank and
trial court first applied the principle of liberality when it disregarded the appellants had opportunities to communicate about the checks considering
alleged absence of a notice of hearing in respondents’ motion for that several transactions occurred from the time of alleged return of the
reconsideration. On the merits, the trial court considered the relationship of checks to the date of the debit.
the Bank and petitioners with respect to their savings account deposits as a
contract of loan with the bank as the debtor and petitioners as creditors. As
However, this Court agrees withappellants that they should not pay moral
such, Article 1977 of the Civil Code prohibiting the depository from making
and exemplary damages to each of the appellees for lack of basis. The
use of the thing deposited without the express permission of the depositor is
appellants were not shown to have acted in bad faith. 9
not applicable. Instead, the trial court applied Article 1980 which provides
that fixed, savings and current deposits ofmoney in banks and similar
institutions shall be governed by the provisions governing simple loan. The Petitioners filed the present petition for review on certiorariraising both
trial court then opined thatthe Bank had all the right to set-off against procedural and substantive issues, to wit:
petitioners’ savings deposits the value of their nine checks that were
returned. 1. Whether or not the Honorable Court of Appeals committed a
reversible error of law and grave abuse of discretion in upholding
On appeal, the Court of Appeals affirmed the ruling of the trial court but the legality and/or propriety of the Motion for Reconsideration filed
deleted the award of damages. The appellate court made the following in violation of Section 5, Rule 15 ofthe Rules on Civil Procedure;
ratiocination:
2. Whether or not the Honorable Court of Appeals committed a
Any argument as to the notice of hearing has been resolved when the grave abuse of discretion in declaring that the private respondents
pairing judge issued the order on February 24, 2004 setting the hearing on "had the right to debit the amount of ₱1,800,000.00 from the
March 26, 2004. A perusal of the notice of hearing shows that request was appellants’ accounts" and the bank’s act of debiting was done with
addressed to the Clerk of Court and plaintiffs’ counsel for hearing to be set the plaintiff’s knowledge.10
on March 26, 2004.
Before proceeding to the substantive issue, we first resolve the procedural
issue raised by petitioners.
Sections 5, Rule 15 of the Rules of Court states: discovered, the checks were already cleared by the drawee bank, the
Philippine Veterans Bank. Three months had lapsed before the drawee
Section 5. Notice of hearing. – The notice of hearing shall be addressed dishonored the checks and returned them to Equitable-PCI Bank, the
to all parties concerned, and shall specify the time and date of the hearing respondents’ depositary bank. And itwas not until 10 months later when
which must not be later than ten (10) days after the filing of the motion. petitioners’ accounts were debited. A question thus arises: What are the
liabilities of the drawee, the intermediary banks, and the petitioners for the
altered checks?
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 LIABILITY OF THE DRAWEE
days from the date of filing.
Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides
As held in Maturan v. Araula,11 the rule requiring that the notice be that the acceptor, by accepting the instrument, engages that he will pay it
addressed to the adverse party has beensubstantially complied with when a according to the tenor of his acceptance. The acceptor is a drawee who
copy of the motion for reconsideration was furnished to the counsel of the accepts the bill. In Philippine National Bank v. Court of Appeals, 14 the
adverse party, coupled with the fact that the trial court acted on said notice payment of the amount of a check implies not only acceptance but also
of hearing and, as prayed for, issued an order12 setting the hearing of the compliance with the drawee’s obligation.
motion on 26 March 2004.
In case the negotiable instrument isaltered before acceptance, is the drawee
We would reiterate later that there is substantial compliance with the liable for the original or the altered tenor of acceptance? There are two
foregoing Rule if a copy of the said motion for reconsideration was furnished divergent intepretations proffered by legal analysts. 15 The first view is
to the counsel of the adverse party.13 supported by the leading case of National City Bank ofChicago v. Bank of
the Republic.16 In said case, a certain Andrew Manning stole a draft and
substituted his name for that of the original payee. He offered it as payment
Now to the substantive issues to which procedural imperfection must, in this
to a jeweler in exchange for certain jewelry. The jeweler deposited the draft
case, give way.
to the defendant bank which collectedthe equivalent amount from the
drawee. Upon learning of the alteration, the drawee sought to recover from
The central issue is whether the Bank had the right to debit ₱1,800,000.00 the defendant bank the amount of the draft, as money paid by mistake. The
from petitioners’ accounts. court denied recovery on the ground that the drawee by accepting admitted
the existence of the payee and his capacity to endorse. 17 Still, in Wells Fargo
On 6 May 2000, the Bank informed petitioners that the subject checks had Bank & Union Trust Co. v. Bank of Italy, 18 the court echoed the court’s
been honored. Thus, the amountof ₱1,800,000.00 was accordingly credited interpretation in National City Bank of Chicago, in this wise:
to petitioners’ accounts, prompting them to release the purchased cars to
the buyer. We think the construction placed upon the section by the Illinois court is
correct and that it was not the legislative intent that the obligation of the
Unknown to petitioners, the Bank deposited the checks in its depositary acceptor should be limited to the tenorof the instrument as drawn by the
bank, Equitable-PCI Bank. Three months had passed when the Bank was maker, as was the rule at common law,but that it should be enforceable in
informed by its depositary bank that the drawee had dishonored the checks favor of a holder in due course against the acceptor according to its tenor at
on the ground of material alterations. the time of its acceptance or certification.

The return of the checks created a chain of debiting of accounts, the last The foregoing opinion and the Illinois decision which it follows give effect to
loss eventually falling upon the savings account of petitioners with the literal words of the Negotiable Instruments Law. As stated in the Illinois
respondent bank. The trial court inits reconsidered decision and the case: "The court must take the act as it is written and should give to the
appellate court were one in declaring that petitioners should bear the loss. words their natural and common meaning . . . ifthe language of the act
conflicts with statutes or decisions in force before its enactment the courts
We reverse. should not give the act a strained construction in order to make it
harmonize with earlier statutes or decisions." The wording of the act
suggests that a change in the common law was intended. A careful reading
The fact that material alteration caused the eventual dishonor of the checks thereof, independent of any common-law influence, requires that the words
issued by PVAO is undisputed. In this case, before the alteration was "according to the tenor of his acceptance" be construed as referring to the
instrument as it was at the time it came into the hands of the acceptor for The Bank and Equitable-PCI Bank are both depositary and collecting banks.
acceptance, for he accepts no other instrument than the one presented to
him — the altered form — and it alone he engages to pay. This conclusion is A depositary/collecting bank where a check is deposited, and which
in harmony with the law of England and the continental countries. It makes endorses the check upon presentment with the drawee bank, is an endorser.
for the usefulness and currency of negotiable paper without seriously Under Section 66 of the Negotiable Instruments Law, an endorser warrants
endangering accepted banking practices, for banking institutions can readily "that the instrument is genuine and in all respects what it purports to be;
protect themselves against liability on altered instruments either by that he has good title to it; that all prior parties had capacity to contract;
qualifying their acceptance or certification or by relying on forgery insurance and that the instrument is at the time of his endorsement valid and
and specialpaper which will make alterations obvious. All of the arguments subsisting." It has been repeatedly held that in check transactions, the
advanced against the conclusion herein announced seem highly technical in depositary/collecting bank or last endorser generally suffers the loss
the face of the practical facts that the drawee bank has authenticated an because it has the duty to ascertain the genuineness of all prior
instrument in a certain form, and that commercial policy favors the endorsements considering that the act of presenting the check for payment
protection of anyone who, in due course, changes his position on the faith of to the drawee is an assertion that the party making the presentment has
that authentication.19 done its duty to ascertain the genuineness of the endorsements. 26 If any of
the warranties made by the depositary/collecting bank turns out to be false,
The second view is that the acceptor/drawee despite the tenor of his then the drawee bank may recover from it up to the amount of the check. 27
acceptance is liable only to the extent of the bill prior to alteration. 20 This
view appears to be in consonance with Section 124 of the Negotiable The law imposes a duty of diligence on the collecting bank to scrutinize
Instruments Law which statesthat a material alteration avoids an instrument checks deposited with it for the purpose of determining their genuineness
except as against an assenting party and subsequent indorsers, but a holder and regularity. The collecting bank being primarily engaged in banking holds
in due course may enforce payment according to its original tenor. Thus, itself out to the public as the expert and the law holds it to a high standard
when the drawee bank pays a materially altered check, it violates the terms of conduct.28
of the check, as well as its duty tocharge its client’s account only for bona
fide disbursements he had made. If the drawee did not pay according to the
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the
original tenor of the instrument, as directed by the drawer, then it has no
amount of the materially altered checks. Since Equitable-PCI Bank is not a
right to claim reimbursement from the drawer, much less, the right to
party to this case and the Bank allowed its account with EquitablePCI Bank
deduct the erroneous payment it made from the drawer’s account which it
to be debited, it has the option toseek recourse against the latter in another
was expected to treat with utmost fidelity.21 The drawee, however, still has
forum.
recourse to recover its loss. It may pass the liability back to the collecting
bank which is what the drawee bank exactly did in this case. It debited the
account of Equitable-PCI Bank for the altered amount of the checks. 24-HOUR CLEARING RULE

LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK Petitioners faulted the drawee bank for not following the 24-hour clearing
period because it was only in August 2000 that the drawee bank notified
Equitable-PCI that there were material alterations in the checks.
A depositary bank is the first bank to take an item even though it is also the
payor bank, unless the item is presented for immediate payment over the
counter.22 It is also the bank to which a check is transferred for deposit in an We do not subscribe to the position taken by petitioners that the drawee
account at such bank, evenif the check is physically received and indorsed bank was at fault because it did not follow the 24-hour clearing period which
first by another bank.23 A collecting bank is defined as any bank handling an provides that when a drawee bank fails to return a forged or altered check
item for collection except the bank on which the check is drawn. 24 to the collecting bank within the 24-hour clearing period, the collecting bank
is absolved from liability.
When petitioners deposited the check with the Bank, they were designating
the latter as the collecting bank. This is in consonance with the rule that a Section 21 of the Philippine Clearing House Rules and Regulations provides:
negotiable instrument, such as a check, whether a manager's check or Sec. 21. Special Return Items Beyond The Reglementary Clearing Period.-
ordinary check, is not legal tender. As such, after receiving the deposit, Items which have been the subject of material alteration or items bearing
under its own rules, the Bank shall credit the amount in petitioners’ account forged endorsement when such endorsement is necessary for negotiation
or infuse value thereon only after the drawee bank shall have paid the shall be returned by direct presentation or demand to the Presenting Bank
amount of the check or the check has been cleared for deposit. 25 and not through the regular clearing house facilities within the period
prescribed by law for the filing of a legal action by the returning the payment of the difference between the amount in the altered draft and
bank/branch, institution or entity sending the same. the amount debited from Gold Palace Jewellery.

Antonio Viray, in his book Handbook on Bank Deposits, elucidated: However, for the reasons already discussed above, our pronouncement in
the Far East Bank and Trust Companycase that "the drawee is liable on its
It is clear that the so-called "24-hour" rule has been modified. In the case of payment of the check according to the tenor of the check at the time of
Hongkong & Shanghai vs. People’s Bank reiterated in Metropolitan Bank and payment, which was the raised amount" 31 is inapplicable to the factual
Trust Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour rule milieu obtaining herein.
under which the drawee bank forever loses the right to claim against
presenting/collecting bank if the check is not returned at the next clearing We only adopt said decision in so far as it adjudged liability on the part of
day orwithin 24 hours. Apparently, the commercial banks felt strict the collecting bank, thus:
enforcement of the 24-hour rule is too harsh and therefore made
representations and obtained modification of the rule, which modification is Thus, considering that, in this case, Gold Palace is protected by Section 62
now incorporated in the Manual of Regulations. Since the same commercial of the NIL, its collecting agent, Far East, should not have debited the money
banks controlled the Philippine Clearing House Corporation, incorporating paid by the drawee bank from respondent company's account. When Gold
the amended rule in the PCHC Rules naturally followed. Palace deposited the check with Far East, the latter, under the terms of the
deposit and the provisions of the NIL, became an agent of the former for the
As the rule now stands, the 24-hour rule is still in force, that is, any check collection of the amount in the draft. The subsequent payment by the
which should be refused by the drawee bank in accordance with long drawee bank and the collection of the amount by the collecting bank closed
standing and accepted banking practices shall be returned through the the transaction insofar as the drawee and the holder of the check or his
PCHC/local clearing office, as the case may be, not later than the next agent are concerned, converted the check into a mere voucher, and, as
regular clearing (24-hour). The modification, however, is that items which already discussed, foreclosed the recovery by the drawee of the amount
have been the subject of material alteration or bearing forged endorsement paid. This closure of the transaction is a matter of course; otherwise,
may be returned even beyond 24 hours so long that the same is returned uncertainty in commercial transactions, delay and annoyance will arise if a
within the prescriptive period fixed by law. The consensus among lawyers is bank at some future time will call on the payee for the return of the money
that the prescriptiveperiod is ten (10)years because a check or the paid to him on the check.
endorsement thereon is a written contract. Moreover, the item need not be
returned through the clearing house but by direct presentation to the As the transaction in this case had been closed and the principalagent
presenting bank.29 relationship between the payee and the collecting bank had already ceased,
the latter in returning the amount to the drawee bank was already acting on
In short, the 24-hour clearing ruledoes not apply to altered checks. its own and should now be responsible for its own actions. x x x Likewise,
Far East cannot invoke the warranty of the payee/depositor who indorsed
LIABILITY OF PETITIONERS the instrument for collection to shift the burden it brought upon itself. This is
precisely because the said indorsement is only for purposes of collection
which, under Section 36 of the NIL, is a restrictive indorsement. It did not in
The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery
any way transfer the title of the instrument to the collecting bank. Far East
Co.30 is in point. A foreigner purchased several pieces of jewelry from Gold
did not own the draft, it merely presented it for payment. Considering that
Palace Jewellery using a United Overseas Bank (Malaysia) issued draft
the warranties of a general indorser as provided in Section 66 of the NIL are
addressed to the Land Bank of the Philippines (LBP). Gold Palace Jewellery
based upon a transfer of title and are available only to holders in due
deposited the draft in the company’s account with Far East Bank. Far East
course, these warranties did not attach to the indorsement for deposit and
Bank presented the draft for clearing to LBP. The latter cleared the same
collection made by Gold Palace to Far East. Without any legal right to do so,
and Gold Palace Jewellery’s account was credited with the amount stated in
the collecting bank, therefore, could not debit respondent's account for the
the draft. Consequently, Gold Palace Jewellery released the pieces of
amount it refunded to the drawee bank.
jewelries to the foreigner. Three weeks later, LBP informed Far East Bank
that the amount in the foreign draft had been materially altered from
₱300,000.00 to ₱380,000.00. LBP returnedthe check to Far East Bank. Far The foregoing considered, we affirm the ruling of the appellate court to the
East Bank refunded LBP the ₱380,000.00 paid by LBP. Far East Bank initially extent that Far East could not debit the account of Gold Palace, and for
debited ₱168,053.36 from Gold Palace Jewellery’s account and demanded doing so, it must return what it had erroneously taken. 32
Applying the foregoing ratiocination, the Bank cannot debit the savings depositor lends the bank money and the bank agrees to pay the depositor
account of petitioners. A depositary/collecting bank may resist or defend on demand. The savings deposit agreement between the bank and the
against a claim for breach of warranty if the drawer, the payee, or either the depositor is the contract that determines the rights and obligations of the
drawee bank or depositary bank was negligent and such negligence parties.33
substantially contributed tothe loss from alteration. In the instant case, no
negligence can be attributed to petitioners. We lend credence to their claim But as previously discussed, petitioners are not liable for the deposit of the
that at the time of the sales transaction, the Bank’s branch manager was altered checks. The Bank, asthe depositary and collecting bank ultimately
present and even offered the Bank’s services for the processing and bears the loss. Thus, there being no indebtedness to the Bank on the part of
eventual crediting of the checks. True to the branch manager’s words, the petitioners, legal compensation cannot take place. DAMAGES
checks were cleared three days later when deposited by petitioners and the
entire amount ofthe checks was credited to their savings account.
The Bank incurred a delay in informing petitioners of the checks’ dishonor.
The Bank was informed of the dishonor by Equitable-PCI Bank as early as
ON LEGAL COMPENSATION August 2000 but it was only on 7 March 2001 when the Bank informed
petitioners that it will debit from their account the altered amount. This
Petitioners insist that the Bank cannotbe considered a creditor of the delay is tantamount to negligence on the part of the collecting bank which
petitioners because it should have made a claim of the amount of would entitle petitioners to an award for damages under Article 1170 of the
₱1,800,000.00 from Equitable-PCI Bank, its own depositary bank and the New Civil Code which reads:
collecting bank in this case and not from them.
Art. 1170. Those who in the performance of their obligations are guilty of
The Bank cannot set-off the amount it paid to Equitable-PCI Bank with fraud, negligence, or delay, and those who in any manner contravene the
petitioners’ savings account. Under Art. 1278 of the New Civil Code, tenor thereof, are liable for damages.
compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. And the requisites for legal The damages in the form of actual or compensatory damages represent the
compensation are: amount debited by the Bank from petitioners’ account.

Art. 1279. In order that compensation may be proper, it is necessary: We delete the award of moral damages. Contrary to the lower court’s
finding, there was no showing that the Bank acted fraudulently or in bad
(1) That each one of the obligors be bound principally, and that he faith. It may have been remiss in its duty to diligently protect the account of
be at the same time a principal creditor of the other; its depositors but its honest but mistaken belief that petitioners’ account
should be debited is not tantamount to bad faith. We also delete the award
(2) That both debts consist in a sum of money, or if the things due of attorney’s fees for it is not a sound public policy to place a premium on
are consumable, they be of the same kind, and also of the same the right to litigate. No damages can becharged to those who exercise such
quality if the latter has been stated; precious right in good faith, even if done erroneously. 34

(3) That the two debts be due; To recap, the drawee bank, Philippine Veterans Bank in this case, is only
liable to the extent of the check prior to alteration.1âwphi1 Since Philippine
Veterans Bank paid the altered amount of the check, it may pass the liability
(4) That they be liquidated and demandable;
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
(5) That over neither of them there be any retention or controversy, amount of the materially altered check. It cannot further pass the liability
commenced by third persons and communicated in due time to the back to the petitioners absent any showing in the negligence on the part of
debtor. the petitioners which substantially contributed to the loss from alteration.

It is well-settled that the relationship of the depositors and the Bank or Based on the foregoing, we affirm the Pozasdecision only insofar as it
similar institution is that of creditor-debtor. Article 1980 of the New Civil ordered respondents to jointly and severally pay petitioners ₱1,800,000.00,
Code provides that fixed, savings and current deposits of money in banks representing the amount withdrawn from the latter’s account. We do not
and similar institutions shall be governed by the provisions concerning conform with said ruling regarding the finding of bad faith on the part of
simple loans. The bank is the debtorand the depositor is the creditor. The respondents, as well as its failure toobserve the 24-hour clearing rule.
WHEREFORE, the petition is GRANTED. The Decision and Resolution dated name of Gonzalo Bernardo. The same was debited from Chiok’s Savings
29 June 2006 and 12 February 2007 respectively of the Court of Appeals in Account No. 154-42504955. The checks bought by Chiok for payee Gonzalo
CA-G.R. CV No. 83192 are REVERSED and SET ASIDE. The 15 January 2004 Bernardo are therefore summarized as follows:
Decision of the Regional Trial Court of Calamba City, Branch 92 in Civil Case
No. B-5886 rendered by Judge Antonio S. Pozas is REINSTATEDonly insofar
as it ordered respondents to jointly and severally pay petitioners Drawee
₱1,800,000.00 representing the amount withdrawn from the latter’s Bank/Check Amount (P) Source of fund
account. The award of moral damages and attorney’s fees are DELETED. No.

Asian Bank MC 7,550,000.00


SO ORDERED. No. 025935 Chiok’s Asian Bank Savings
Asian Bank MC 10,905,350.00 Account No. 2-007-03-00201-3,
No. 025939 which had been credited with the
(aggregate value of SBTC MC No. 037364
17. MBTC v. Chiok, G.R. No. 175394, 26 November 2014 (checks) value of (₱25,500,000.00) when the latter was
Asian Bank purchased by Asian Bank from Chiok
The three consolidated petitions herein all assail the Decision 1 of the Court MCs: pursuant to their BPLA.
of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the 18,455,350.00)
Resolution2 in the same case dated November 6, 2006.
Metrobank CC 7,613,000.00 Chiok’s Metrobank Savings
No. 003380 Account No. 154-425049553
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for
several years. He usually buys dollars from Gonzalo B. Nuguid (Nuguid) at TOTAL 26,068,350.00
the exchange rate prevailing on the date of the sale. Chiok pays Nuguid
either in cash or manager’s check, to be picked up by the latter or deposited
in the latter’s bank account. Nuguid delivers the dollars either on the same Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and
day or on a later date as may be agreed upon between them, up to a week 025939, and Metrobank CC No. 003380), with an aggregate value of
later. Chiok and Nuguid had been dealing in this manner for about six to ₱26,068,350.00 in Nuguid’s account with Far East Bank & Trust Company
eight years, with their transactions running into millions of pesos. For this (FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine
purpose, Chiok maintained accounts with petitioners Metropolitan Bank and Islands (BPI). Nuguid was supposed to deliver US$1,022,288.50, 4 the dollar
Trust Company (Metrobank) and Global Business Bank, Inc. (Global Bank), equivalent of the three checks as agreed upon, in the afternoon of the same
the latter being then referred to as the Asian Banking Corporation (Asian day. Nuguid, however, failed to do so, prompting Chiok to request that
Bank). Chiok likewise entered into a Bills Purchase Line Agreement (BPLA) payment on the three checks be stopped. Chiok was allegedly advised to
with Asian Bank. Under the BPLA, checks drawn in favor of, or negotiated to, secure a court order within the 24-hour clearing period. On the following
Chiok may be purchased by Asian Bank. Upon such purchase, Chiok receives day, July 6, 1995, Chiok filed a Complaint for damages with application for
a discounted cash equivalent of the amount of the check earlier than the ex parte restraining order and/or preliminary injunction with the Regional
normal clearing period. Trial Court (RTC) of Quezon City against the spouses Gonzalo and Marinella
Nuguid, and the depositary banks, Asian Bank and Metrobank, represented
by their respective managers, Julius de la Fuente and Alice Rivera. The
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased"
complaint was docketed as Civil Case No. Q-95-24299 and was raffled to
Security Bank & Trust Company (SBTC) Manager’s Check (MC) No. 037364
Branch 96. The complaint was later amended5 to include the prayer of Chiok
in the amount of ₱25,500,000.00 issued in the name of Chiok, and credited
to be declared the legal owner of the proceeds of the subject checks and to
the same amount to the latter’s Savings Account No. 2-007-03-00201-3.
be allowed to withdraw the entire proceeds thereof.

On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the
On the same day, July 6, 1995, the RTC issued a temporary restraining
amount of ₱7,550,000.00 and MC No. 025939 in the amount of
order (TRO) directing the spouses Nuguid to refrain from presenting the said
₱10,905,350.00 to Gonzalo Bernardo, who is the same person as Gonzalo B.
checks for payment and the depositary banks from honoring the sameuntil
Nuguid. The two Asian Bank manager’s checks, with a total value of
further orders from the court. 6
₱18,455,350.00 were issued pursuant toChiok’s instruction and was debited
from his account. Likewise upon Chiok’s application, Metrobank issued
Cashier’s Check (CC) No. 003380 in the amount of ₱7,613,000.00 in the Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to
the TRO. Metrobank claimed that when it received the TRO on July 6, 1995,
it refused to honor CC No. 003380 and stopped payment thereon. However, The application for preliminary mandatory injunctionis hereby denied and
in a letter also dated July 6, 1995, Ms. Jocelyn T. Paz of FEBTC, Cubao- the order issued on July 7, 1995 directing defendant Metro Bank (Annapolis,
Araneta Branch informed Metrobank that the TRO was issued a day after the Greenhills Branch) to allow the plaintiff to withdraw the proceeds of
check was presented for payment. Thus, according to Paz, the transaction Cashier’s Check No. 003380 in the amount of ₱7,613,000.00 is hereby set
was already consummated and FEBTC had already validly accepted the aside.
same. In another letter, FEBTC informed Metrobank that "the restraining
order indicates the name of the payee of the check as GONZALO NUGUID, The plaintiff’s urgent motion todeclare defendants Asian Bank and Metro
but the check isin fact payable to GONZALO BERNARDO. We believe there is Bank in contempt of court filed last July 13, 1995 is hereby denied for lack
a defect in the restraining order and as such should not bind your of legal basis.
bank."7 Alice Rivera of Metrobank replied to said letters, reiterating
Metrobank’s position tocomply with the TRO lest it be cited for contempt by
The writ of preliminary prohibitory injunction and a copy of this order shall
the trial court. However, as would later be alleged in Metrobank’s Answer
be served on the defendants by Deputy Sheriff Jose Martinez of this
before the trial court, Metrobank eventually acknowledged the check when it
Branch.8
became clear that nothing more can be done to retrieve the proceeds of the
check. Metrobank furthermore claimed that since it is the issuer of CC No.
003380, the check is its primary obligation and should not be affected by Upon the filing by Chiok of the requisite bond, the Writ was subsequently
any prior transaction between the purchaser (Chiok) and the payee issued on July 26, 1995.
(Nuguid).
Before the RTC, Asian Bank pointed out that SBTC returned and issued a
In the meantime, FEBTC, as the collecting bank, filed a complaint against Stop Payment Order on SBTC MC No. 037364 (payable to Chiok in the
Asian Bank before the Philippine Clearing House Corporation (PCHC) amount of ₱25,500,000.00) on the basis of an Affidavit of Loss &
Arbitration Committee for the collection of the value of Asian Bank MC No. Undertaking executed by a certain Helen Tan. Under said Affidavit of Loss &
025935 and 025939, which FEBTC had allegedly allowed Nuguid to withdraw Undertaking, Tan claims that she purchased SBTC MC No. 037364 from
on July 5, 1995, the same day the checks were deposited. The case was SBTC, but the manager’s check got lost on that day. Asian Bank argued that
docketed as Arbicom Case No. 95-082. The PCHC Arbitration Committee Chiok would therefore be liable for the dishonor of the manager’s check
later relayed, in a letter dated August 4, 1995, its refusal to assume under the terms of the BPLA, which provides for recourse against the seller
jurisdiction over the case on the ground that any step it may take might be (Chiok) of the check when it is dishonored by the drawee (SBTC) for any
misinterpreted as undermining the jurisdiction of the RTC over the case or a reason, whether valid or not.
violation of the July 6, 1995 TRO.
On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case
On July 25, 1995, the RTC issued an Order directing the issuance of a writ of No. Q-95-24299. On February6, 1996, the RTC initially denied FEBTC’s
preliminary prohibitory injunction: intervention in the case. On Motion for Reconsideration, however, the RTC,
on April 15, 1996, reversed itself and allowed the same.
WHEREFORE, upon filing by the plaintiff of a sufficient bond in the amount of
₱26,068,350.00, to be executed in favor of the defendants under the In the Complaint-in-Intervention, FEBTC claimed that it allowed the
condition that the same shall answer for whatever damages they may immediate withdrawal of the proceeds of Asian Bank MC Nos. 025935 and
sustain by reason of this injunction should the Court ultimately determine 025939 on the ground that, as manager’schecks, they were the direct
that he was not entitled thereto, let a writ of preliminary prohibitory obligations of Asian Bank and were accepted in advance by Asian Bank by
injunction issue restraining and preventing during the pendency of the case: the mere issuance thereof. FEBTC presented the checks for payment on July
5, 1995 through the PCHC. Asian Bank, as admitted in its Answer before the
RTC, received the same on that day. Consequently, Asian Bank was deemed
a) Defendant Asian Bank frompaying Manager’s Checks No. 025935
to have confirmed and booked payment of the subject checks in favor of
in the amount of ₱7,550,000.00 and No. 025939 in the amount of
FEBTC or, at the latest, during the first banking hour of July 6, 1995, when
₱10,905,350.00; and
payment should have been made. FEBTC claimed that Asian Bank exhibited
bad faith when, in anticipation of the TRO, it opted to float the checks until it
b) Defendant Metro Bank frompaying Cashier’s Check No. 003380 in received the TRO at 12:00 noon of July 6, 1995 to justify the nonpayment
the amount of ₱7,613,000.00. thereof.
In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had (Emphases supplied.)
delivered much more dollars than what was required for the three checks at
the time of payment. By way of special affirmative defense, the spouses The RTC held that Nuguid failed to prove the delivery of dollars to Chiok.
Nuguid also claims that since the subject checks had already been paid to According to the RTC, Nuguid’s claim that Chiok was still liable for seven
him, Chiok is no longer entitled to an injunction (to hold the payment of the dishonored China Banking Corporation (CBC) checks with a total worth of
subject checks), and Civil Case No. Q-95-24299 has already become moot. ₱72,984,020.00 is highly doubtful since such claim was not presented as a
counterclaim in the case. Furthermore, the court ruled that the certification
On August 29, 2002, the RTC rendered its Decision, the dispositive portion of CBC stating the reasons10 for the stop payment order "are indicative of
of which states: Chiok’s non-liability to Nuguid." The RTC further noted that there was a
criminal case filed by Chiok against Nuguid on March 29, 1996 for estafa
WHEREFORE, judgment is rendered: and other deceit on account of Nuguid’s alleged failure to return the
originals of the seven CBC checks.11
1. Declaring as permanent the writ of preliminary injunction issued
under the Order of July 25, 1995; The RTC went on to rule that manager’s checks and cashier’s checks may be
the subject of a Stop Payment Order from the purchaser on the basis of the
payee’s contractual breach. As explanation for this ruling, the RTC adopted
2. Ordering Global Business Bank, Inc.to pay the plaintiff [Chiok]:
its pronouncements when it issued the July 25, 1995 Order:

a.) The amount of ₱34,691,876.71 (less the attorney’s fees


Defendant Nuguid’s argument that the injunction could render manager’s
of ₱255,000.00 which shall remain with Global Business
and cashier’schecks unworthy of the faith they should have and could impair
Bank, Inc.), plus interest at the legal rate of 12%/p.a. from
their nature as independent undertakings of the issuing banks is probably an
September 30, 1999 until fully paid;
undistinguished simplification. While the argument may be applicable to
such checks in general, it does not adequately address the situation, as
b.) The amount of ₱215,000.00, representing the excess here, when specific manager’s and cashier’s checks are already covered by
amount debited from the plaintiff’s deposit in his account reciprocal undertakings between their purchaser and their payee, in which
with Global Business Bank, Inc. on July 7, 1995, plus the latter allegedly failed to perform. The agreement herein was supposedly
interest of 12%/p.a. from July 7, 1995, until fully paid; one in which Nuguid would deliver the equivalent amount in US dollars
($1,022,288.23) "on the same date" that the plaintiff purchased and
c.) Attorney’s fees equivalentof 5% of the total amount due; delivered the manager’s and cashier’s checks (₱26,068,350.00). Assuming
and that such a reciprocity was true, the purchaser should have the legal
protection of the injunctive writ (which, after all, the legal departments of
3. Ordering Metropolitan Bank & Trust Companyto pay the plaintiff: the issuing banks themselves allegedly advised the plaintiff to obtain), since
the usual order or instruction to stop payment available in case of ordinary
checks did not avail. This was probably the reason that Asian Bank has
a. The amount of his deposit of ₱7,613,000.00, plus interest expressly announced in its own comment/opposition of July 14, 1995 that it
of 12%/p.a. from July 5, 1995 until said amount is fully was not opposing the application for the prohibitory injunction.
paid; and
The dedication of such checks pursuantto specific reciprocal undertakings
b. Attorney’s fees of 5%of the total amount due; between their purchasers and payees authorizes rescission by the former to
prevent substantial and material damage to themselves, which authority
4. Ordering Spouses Gonzalo B. Nuguid and Marinella O. Nuguid includes stopping the payment of the checks. 12 According to the RTC, both
liable jointly and severally with Global Business Bank, Inc. and manager’s and cashier’s checks are still subject to regular clearing under the
Metropolitan Bank & Trust Company, Inc. for the respective regulations of the Bangko Sentral ng Pilipinas. Since manager’s and
attorney’s fees; cashier’s checks are the subject of regular clearing, they may consequently
be refused for cause by the drawee, which refusal is in fact provided for in
5. Dismissing the complaint-in-interventionof BPI for lack of merit; the PCHC Rule Book.

6. Ordering the defendantsand the intervenorto pay, jointly and


severally, the costs of suit.9
The RTC found the argument by BPI that the manager’s and cashier’s 1. That Metro Bank paid the amount of CC No. 003280;
checks are pre-cleared untenable under Section 60 of the New Central Bank
Act and Article 1249 of the Civil Code, which respectively provides: 2. That the payment on July 12, 1995 was made while the TRO of
July 5, 1995 was in force;
Section 60. Legal Character. – Checks representing demand deposits do not
have legal tender power and their acceptance in the payment of debts, both 3. [That] the payment on July 12, 1995 was on the third clearing of
public and private, is at the option of the creditor; Provided, however, that a CC No. 003380; and
check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an amount equal
4. That the PCHC Rule book was the authority on the rules and
to the amount credited to his account.
regulations on the clearing operations of banks.

Art. 1249. The payment of debts inmoney shall be made in the currency
The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995
stipulated, and if it is not possible to deliver such currency, then in the
was an open defiance of the TRO of July 6, 1995. Metro Bank’s Branch
currency which is legal tender in the Philippines. The delivery of promissory
Manager Alice Rivera, through her letter of July 10, 1995 to FEBTC as the
notes payable to order, or bills of exchange or other mercantile documents
collecting bank, returned the CC to FEBTC in compliance with the TRO which
shall produce the effect of payment only when they have been cashed, or
was received about 12:10 noon of July 6, 1999. Hence, Metro Bank should
when through the fault of the creditor they have been impaired.
not have paid because the TRO was served within the 24-hour period to
clear checks. Moreover, the payment, being made on third clearing, was
In the meantime, the action derived from the original obligation shall be unjustified for violating existing regulations, particularly paragraph 1 of the
held in the abeyance. The RTC went on to rule that due to the timely service Clearing House Operating Memo (CHOM), effective September 1, 1984,
of the TRO and the injunction, the value of the three checks remained with which prohibited the reclearing of a check after its first presentation if it was
Global Bank and Metrobank.13 The RTC concluded that since Nuguid did not returned for the reason of "stop payment" or "closed account."
have a valid title to the proceeds of the manager’s and cashier’s checks,
Chiok is entitled to be paid back everything he had paid to the drawees for
It also seems that Metro Bank paid the CC without first checking whether, in
the checks.14
fact, any actual payment of the 3 checks had been made on July 5, 1995 to
the payee when the checks were deposited in payee’s account with FEBTC
With respect to Global Bank, the RTC ruled that the entire amount of on July 5, 1995. The records show no such payment was ever made to
₱34,691,876.71 it recovered from SBTC from the September 15, 1997 PCHC render the TRO of July 6, 1995 or the writ of preliminary injunction applied
Decision, as reflected in the September 29, 1999 Charge Slip No. 114977, for moot and academic.
less the sum of ₱225,000.00 awarded by the arbitration committee’s
decision as attorney’s fees, should be paidto Chiok, with interest at 12% per
Jessy A. Degaños – adopted by Metro Bank as its own witness in injunction
annum from September 30, 1999 until full payment. The RTC likewise
hearing of July 24, 1995 – stated that the payment of the 3 checks
ordered Global Bank to pay Chiok the amount of ₱215,390.00, an amount
consisted of the accounting entry made at the PCHC during the presenting
debited from Chiok’s account as payment for outstanding bills purchase. 15
process by debiting the respective accounts of the drawees and crediting the
account of collecting bank FEBTC. Yet, as already found hereinabove, such
With respect to Metrobank, the RTC ruled that it should pay Chiok process was reversed due to the return by the drawees of the checks which
₱7,613,000.00, the amount paid by Chiok to purchase the CC, plus interest they dishonored on account of the TRO.
of 12 percent per annum from July 5,1995 until full payment. The RTC
explained this finding as follows:
Also, Degaños, testifying on January 17, 2002 for intervenor BPI, was asked
in what form was the withdrawal of the amounts of the checks made by
The same conclusion is true with respect to Metro Bank, with whom the Nuguid on July 5, 1995, that is, whether:- 1) cash withdrawal; or 2) credit
funds amounting to ₱7,613,000.00 for the purchase of CC No. 003380 has to Nuguid’s account; or 3) draft issued to Nuguid. His reply was that only
remained. According to Chiok, Metro Bank used such funds in its operations. the bank’s branch which serviced the payee’s account could provide the
answer. Yet, BPI did not present any competent personnel from the branch
In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness concerned to enlighten the Court on this material point.
for Metro Bank, but in lieu ofher testimony, the parties agreed to stipulate
on the following as her testimony, to wit: This amount of ₱7,613,000.00, having remained with Metro Bank since the
service of the TRO of July 6, 1995 and the writ of preliminary injunction
issued under the Order of July 25, 1998, should be returned to Chiok with its claim of the amounts of the 3 checks against the defendant
interest of 12%/p.a. from July 7, 1995 until full payment. 16 banks.17 (Citation omitted.)

(Citations omitted.) The RTC held Global Bank and Metrobank liable for attorney’s fees
equivalent to 5% of the total amountdue them, while the spouses Nuguid
The RTC likewise denied BPI’s complaint-in-intervention to recover the value were held solidarily liable for said fees.
of the three checks from drawees Global Bank and Metrobank for lack of
merit. The RTC, after reprimanding Global Bank and Metrobank for siding Defendants Global Bank, Metrobank, and the spouses Nuguid, and
with BPI on this issue, held that BPI, as a mere collecting bank of the payee intervenor BPI filed separate notices of appeal, which were approved in the
with a void title to the checks, had no valid claim as to the amounts of such Order18 dated April 3, 2003. Chiok filed a Motion to Dismiss against the
checks. The RTC explained: appeal of Global Bank, on the ground that the latter had ceased to operate
as a banking institution.
Firstly: BPI, being a collecting bankin relation to the 3 checks, was merely
performing collection services as an agent of Nuguid, the payee. If, as found On May 26, 2004, the Court of Appeals dismissed the appeal of the spouses
hereinbefore, Nuguid could not have legal title to the 3 checks, it follows Nuguid pursuant to Section 1(e), Rule 50 of the Rules of Court, on account
that BPI could not stake any claim for title better than Nuguid’s own void of their failure to file their appellant’s brief. In the same Resolution, the
title. Consequently, BPI has no right to claim the amounts of the 3 checks Court of Appeals denied Chiok’s Motion to Dismiss.
from the drawee-banks.
On May 5, 2006, the Court of Appeals rendered the assailed Decision
Secondly: The purpose of the delivery of the 3 checks to BPI – which was affirming the RTC Decision with modifications. The fallo of the Decision
not even accompanied by Nuguid’s endorsement – was solely for deposit in reads:
the account of payee Nuguid. Assuming, for the sake of argument, that BPI
as the collecting bank paid the value of the checks – of which fact there has WHEREFORE, premises considered, the Decision dated August 29, 2000 of
been no proof whatsoever – BPI was nonetheless, at best, a mere transferee the RTC, Branch 96, Quezon City is AFFIRMED with the following
whose title was no better than the void title of the transferor, payee Nuguid. MODIFICATIONS:
Under such circumstance, BPI has no legal basis to demand payment of the
amounts of the 3 checks from the draweebanks.
1.) The contract to buy foreign currency in the amount of
$1,022,288.50 between plaintiff-appellee Wilfred N. Chiok and
Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily,
without indorsement, was not considered a holder of the instrument since it Manager’s Check Nos. 025935 and 025939 and Cashier’s Check No.
was neither a payee nor an indorsee. It would become so only when and if 003380 are ordered cancelled.
the indorsement is actually made, and only as of then, but not before, is the
issue whether BPI was a holder in due course or not is determined.
2.) Global Business Holdings, Inc. is ordered to credit Savings
Account No. 2-007-03-00201-3 with:
Consequently, any alleged payment by BPI as the collecting bank, through
the supposed though unproved withdrawal of the amounts of the 3 checks
a) The amount of ₱25,500,000.00, plus interest at 4% from
by Nuguid upon the deposit of the checks on July 5, 1995, is not the
September 29, 1999 until withdrawn by plaintiff-appellee;
payment which discharges liability under the 3 checks because BPI is neither
the party primarily liable northe drawee.
b) The amount of ₱215,390.00, plus interest at 4% from
July 7, 1995 until withdrawn by plaintiff-appellee.
Such a payment, if true, is akin to, if it is not, drawing against uncollected
deposits (DAUD). In such a case, BPI was in duty bound to send the 3
checks to the PCHC for clearing pursuant to Section 1603.c.1 of the BSP 3.) Metropolitan Bank & Trust Company is ordered to credit Savings
Manual of Regulations and Sec. 60, R.A. No. 7653. It serves well to note Account No. 154-42504955 the amount of ₱7,613,000.00, with
herein that Global Bank and Metro Bank returned the checks through the interest at 6% [per annum] from July 12, 1995 until the same is
PCHC on July 6, 1995, well within the 24-hour clearing period, in compliance withdrawn;
with the TRO of July 6, 1995. Finally: As earlier noted and discussed, there
is no evidence of any prior valid payment by the collecting bank to support
4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are of negotiable instruments – Manager’s Check/Cashier’s Check. Hence,
ordered to pay attorney’s fees equivalent to 5% of the total amount respecting the negotiation thereof, and in order to afford complete relief to
due to plaintiff-appellee from both depository banks, as well as the Chiok, there arose the necessity for the issuance of the injunction
costs of suit.19 restraining the payment of the subject checks with the end in view of the
eventual return of the proceeds to give effect to Article 1385. In other
According to the Court of Appeals, Article 1191 of the Civil Code provides a words, the injunctive relief was necessary in order not to render ineffectual
legal basis of the right of purchasers of MCs and CCs to make a stop the judgment in the instant case. We quote with approval the following
payment order on the ground of the failure of the payee to perform his disquisition of the trial court, to wit:
obligation to the purchaser. The appellate court ruled that such claim was
impliedly incorporated in Chiok’s complaint. The Court of Appeals held: xxxx

By depositing the subject checks to the account of Nuguid, Chiok had There is no question about the nature of manager’s and cashier’s checks
already performed his obligation under the contract, and the subsequent being as good as cash, being primary obligations of the issuing bank and
failure of Nuguid to comply with what was incumbent upon him gave rise to accepted in advanceby their mere issuance. But even as such nature of
an action for rescission pursuant to Article 1191 of the Civil Code, which unconditional commitment to pay on the part of the issuing bank may be
states: conceded, the Court opines that the injunctive relief cannot be denied to a
party who purchased the manager’s or cashier’s check to stop its payment
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in to the payee in a suit against the payee and the issuing banks upon a claim
case one of the obligors should not comply with what is incumbent upon that the payee himself had not performed his reciprocal obligation for which
him. the issuance and delivery of the self-same manager’sor cashier’s check
were, in the first place, made x x x.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also It bears stressing that the subject checks would not have been issued were
seek rescission, even after he has chosen fulfillment, if the latter should it not for the contract between Chiok and Nuguid. Therefore, they cannot be
become impossible. disassociated from the contract and given a distinct and exclusive
signification, as the purchase thereof is part and parcel of the series of
transactions necessary to consummate the contract. Taken in this light, it
The court shall decree the rescission claimed, unless there be just cause
cannot be argued that the issuing banks are bound to honor only their
authorizing the fixing of a period.
unconditional undertakings on the subject checks vis-à-vis the payee thereof
regardless of the failed transaction between the purchaser of the checks and
xxxx the payee on the ground that the banks were not privy to the said
transaction.
Although the complaint a quowas entitled "DAMAGES, W/ EX PARTE
RESTRAINING ORDER/INJUNCTION" when the action was really one for Lest it be forgotten, the purchase of the checks was funded by the account
rescission and damages, it is an elementary rule of procedure that what of Chiok with the banks. As such, the banks were equally obligated to treat
controls or determines the nature of the action is not the caption of the the account of their depositor with meticulous care bearing in mind the
complaint but the allegations contained therein. And even without the fiduciary nature of their relationship with the depositor. Surely, the banks
prayer for a specific remedy, proper relief may nevertheless be granted by would not allow their depositor to sit idly by and watch the dissipation of his
the court if the facts alleged in the complaint and the evidence introduced so livelihood considering that the business of foreign currency exchange is a
warrant. highly volatile undertaking where the probability of losing or gaining is
counted by the ticking of the clock. With the millions of money involved in
That Chiok had intended rescission isevident from his prayer to be declared this transaction, Chiok could not afford to be complacent and his vigilance
the legal owner of the proceeds of the subject checks and to be allowed to for his rights could not have been more opportune under the
withdraw the same. Therefore, the argument of BPI that the obligation on circumstances.20 (Citations omitted.)
the part of Nuguid to deliver the dollars still subsists is untenable. Article
1385 of the same Code provides that rescission creates the obligation to The Court of Appeals proceeded to sustain the dismissal of BPI’s complaint-
return the things which were the object of the contract, together with their in-intervention, which sought to recover from Global Bank the amounts
fruits, and the price with its interest. The object of the contract herein to allegedly paid to Nuguid. The Court of Appeals pointed out that BPI failed to
buy foreign currency is the peso-value of the dollars bought but in the form prove the alleged withdrawal by Nuguid of the proceeds of the two
manager’s checks, as BPI’s representative, Jessy A. Degaños, failed to KNOWLEDGE. (C) WHETHER OR NOT THE HONORABLE COURT OF
answer the question on the form of the alleged withdrawal. Furthermore, APPEALS ERRED IN SUSTAINING THE TRIAL COURT’S ORDER FOR
BPI failed to prove that it was a holder in due course of the subject PETITIONER HEREIN "TO PAY (TO CHIOK) THE VALUE OF CASHIER’S
manager’s checks, for two reasons: (1) the checks were not indorsed to it CHECK NO. 003380 IN THE AMOUNT OF ₱7,613,000.00, WHICH
by Nuguid; and (2) BPI never presented its alleged bills purchase agreement WAS DEBITED AGAINST CHIOK’S SAVINGS ACCOUNT # 154-
with Nuguid.21 42504955 ON THE OBSERVATION THAT THE PAYMENT TO FEBTC BY
METROBANK OF CC NO. 003380ON JULY 12, 1995 WAS AN OPEN
The Court of Appeals likewise modified the order by the RTC for Global Bank DEFIANCE OF THE TRO OF JULY 6, 1995." 26
and Metrobank to pay Chiok. The Court of Appeals held that Chiok’s cause of
action against Global Bank is limited to the proceeds of the two manager’s BPI, on the other hand, presented the following issues:
checks. Hence, Global Bank was ordered to credit Chiok’s Savings Account
No. 2-007-03-00201-3 with the amount of ₱25,500,000.00, the aggregate I.
value of the two managers’ checks, instead of the entire ₱34,691,876.71
recovered from SBTC from the September 15, 1997 PCHC Decision. The
Whether or not the Court of Appeals detracted from well-settled concepts
interest was also reduced from 12% per annum to that imposed upon
and principles in commercial law regarding the nature, causes, and effects
savings deposits, which was established during the trial as 4% per annum. 22
of a manager’s check and cashier’s checkin ruling that [the] power of the
court can be invoked by the purchaser [Chiok] in a proper action, which the
As regards Metrobank, the appellate court noted that there was no evidence Court su[b]stantially construed as a rescissory action or the power to
as to the interest rate imposed upon savings deposits at Metrobank. rescind obligations under Article 1191 of the Civil Code.
Metrobank was ordered to credit the amount of ₱7,613,000.00 to Chiok’s
Savings Account No. 154-42504955, with interest at 6% per annum. 23
II.

Global Bank and BPI filed separate Motions for Reconsideration of the May 5,
Whether or not the Honorable Court of Appeals erred in ruling that where a
2006 Court of Appeals’ Decision. On November 6, 2006, the Court of
purchaser invokes rescission due to an alleged breach of the payee’s
Appeals denied the Motions for Reconsideration.
contractual obligation, it is deemed as "peculiar circumstance" which
justifies a stop payment order issued by the purchaser or a temporary
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank restraining order/injunction from a Court to prevent payment of a Manager’s
(G.R. No. 175394) filed with this Court separate Petitions for Review on Check or a Cashier’s Check.
Certiorari. In Resolutions dated February 21, 2007 24 and March 12,
2007,25 this Court resolved to consolidate the three petitions. Metrobank
III.
submitted the following issues for the consideration of this Court:

Whether or not the Honorable Court of Appeals erred in ruling that judicial
(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED
admissions in the pleadings of Nuguid, BPI, Asian Bank, Metrobank and even
IN RULING THAT "IT IS LEGALLY POSSIBLE FOR A PURCHASER OF A
Chiok himself that Nuguid had withdrawn the proceeds of the checks will not
MANAGER’S CHECK OR CASHIER’S CHECK TO STOP PAYMENT
defeat Chiok’s "substantial right" to restrain the drawee bank from paying
THEREON THROUGH A COURT ORDER ON THE GROUND OF THE
BPI, the collecting bank or presenting bank in this case who paid the value
PAYEE’S ALLEGED BREACH OF CONTRACTUAL OBLIGATION
of the Cashier’s/Manager’s Checks to the payee. 27
AMOUNTING TO AN ABSENCE OF CONSIDERATION THEREFOR."

Finally, Global Bank rely upon the following grounds in its petition with this
(B) GRANTING ARGUENDO THAT A MANAGER’S CHECK OR
Court:
CASHIER’S CHECK, "IN VIEW OF THE PECULIAR CIRCUMSTANCES
OF THIS CASE" MAY BE SUBJECT TO A STOP PAYMENT ORDER BY
THE PURCHASER THEREOF THROUGH A COURT ORDER, WHETHER A.
OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
CONCLUDING THAT PETITIONER HEREIN "HAD KNOWLEDGE OF THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER
CIRCUMSTANCES THAT WOULD DEFEAT THE TITLE OF THE PAYEE GLOBAL BANK HAD NO JUSTIFICATION FOR ITS RIGHT OF RECOURSE
TO THE CHECKS" WITHOUT, HOWEVER, CITING ANY SPECIFIC AGAINST RESPONDENT CHIOK NOTWITHSTANDING THE CLEAR AND
EVIDENCE WHICH WOULD PROVE THE EXISTENCE OF SUCH UNMISTAKABLE PROVISIONS OF THE BILLS PURCHASE AGREEMENT.
B. Considering the joint manifestation and motion of petitioners Metropolitan
Bank and Trust Company and Global Business Bank, Inc., and respondent,
THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER GLOBAL that after a thorough consideration, they have decided to forego their
BANK LIABLE FOR INTEREST OF 4% PER ANNUM DESPITE THE FACT THAT: respective claims against each other, including past, present and/or
contingent, in these cases and praying that the instant proceedings in G.R.
Nos. 172652 and 175394 be declared closed and terminated, the Court
1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS
resolves to require petitioner Bank of the Philippine Islands to COMMENT
COMPLAINT;
thereon within ten (10) days from notice thereof x x x.

2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST; AND


On September 12, 2013, respondent Chiok, this time assisted by his counsel
of record, Cruz Durian Alday & Cruz-Matters, filed a Motion for
3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR ANY Reconsideration of our Resolution dated June 19, 2013. The signatory to the
INTEREST.28 Motion for Reconsideration, Atty. Angel Cruz, grossly misread our Resolution
requiring BPI to comment on the Joint Manifestation and Motion, and
Before delving into the merits of these cases, we shall first dispose of a apparently contemplated that we are already granting said Motion. Atty.
procedural development during their pendency with the Court. Cruz objected to the Joint Manifestation and Motion, labeling the same as
tainted with fraud. According to Atty. Cruz, Espiritu Vitales and Espiritu’s
Joint Manifestation and Motion allegedly failure to give prior notice to him is in violation of Canon 8 of the Code of
filed by Metrobank, Global Bank and Professional Responsibility. Atty. Cruz prays that Metrobank and Global Bank
respondent Chiok be ordered to submit a document of their settlement showing the amounts
paid to Chiok, and for the June19, 2013 Resolution of this Court be
reconsidered and set aside.
On May 28, 2013, this Court received a Joint Manifestation and Motion
allegedly filed by petitioners Metrobank, Global Bank, and respondent Chiok,
which reads: On October 9, 2013, BPI filed its comment to the Joint Manifestation and
Motion, opposing the samefor being an implied procedural shortcut to a
Compromise Agreement. It averred that while the courts encourage parties
PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL to amicably settle cases, such settlements are strictly scrutinized by the
BUSINESS BANK, INC., and RESPONDENT WILFRED N. CHIOK, by their courts for approval. BPI also pointed out that the Joint Manifestation and
respective counsels, unto this Honorable Court, respectfully state that after Motion was not supported by any required appropriate Board Resolution of
a thorough consideration, the parties herein have decided to forego their Metrobank and Global Bank granting the supposed signatories the authority
respective claims against each other, including, past, present and/or to enter into a compromise. BPI prayed that the Joint Manifestation and
contingent, in relation to the above referenced cases. Motion of Metrobank, Global Bank, and Chiok be denied, and to render a full
Decision on the merits reversing the Decision of the Court of Appeals.
PRAYER
On January 20, 2014, Global Bank filed a Comment to Atty. Cruz’s Motion
WHEREFORE, it is respectfully prayed that no further action be taken by this for Reconsideration on behalf of Chiok, praying that said Motion be
Honorable Court on the foregoing petitions, that the instant proceedings be expunged from the records for failure of Atty. Cruz to indicate the number
declared CLOSED and TERMINATED, and that an Order be rendered and date of issue of his MCLE Certificate of Compliance or Certificate of
dismissing the above-referenced cases with prejudice. Exemption for the immediately preceding compliance period.

In the above Joint Manifestation and Motion, respondent Chiok was not As far as this Court is concerned, the counsel of record of respondent Chiok
represented by his counsel of record, Cruz Durian Alday and Cruz-Matters, is still Cruz Durian Alday & Cruz-Matters. The requisites of a proper
but was assisted by Espiritu Vitales Espiritu Law Office, with Atty. Cesar D. substitution of counsel of record are stated and settled in jurisprudence:
Vitales as signatory, by way of special appearance and assistance.
No substitution of counsel of record is allowed unless the following essential
On June 19, 2013, this Court issued a Resolution requiring petitioner BPI to requisites of a valid substitution of counsel concur: (1) there must be a
comment on the Joint Manifestation and Motion filed by its copetitioners written request for substitution; (2) it must be filed with the written consent
Metrobank, Global Bank, and respondent Chiok. The Resolution reads: of the client; (3) it must be with the written consent of the attorney to be
substituted; and (4) in case the consent of the attorney to be substituted
cannot be obtained, there must be at least a proof of notice that the motion Whether or not payment of manager’s
for substitution was served on him in the manner prescribed by the Rules of and cashier’s checks are subject to the
Court.29 (Citation omitted.) condition that the payee thereof should
comply with his obligations to the
Therefore, while we should indeed require Atty. Cruz to indicate the number purchaser of the checks
and date of issue of his MCLE Certificate of Compliance or Certificate of
Exemption for the immediately preceding compliance period, he is justified The legal effects of a manager’s check and a cashier’s check are the same. A
in pointing out the violation of Canon 8 30 of the Code of Professional manager’s check, like a cashier’s check, is an order of the bank to pay,
Responsibility, Rule 8.02 of which provides: drawn upon itself, committing in effect its total resources, integrity, and
honor behind its issuance. By its peculiar character and general use in
Rule 8.02. – A lawyer shall not, directly or indirectly, encroach upon the commerce, a manager’s check or a cashier’s check is regarded substantially
professional employment of another lawyer; however, it is the right of any to be as good as the money it represents.32 Thus, the succeeding
lawyer, without fear or favor, to give proper advice and assistance to those discussions and jurisprudence on manager’s checks, unless stated
seeking relief against unfaithful or neglectful counsel. otherwise, are applicable to cashier’s checks, and vice versa. The RTC
effectively ruled that payment of manager’s and cashier’s checks are subject
to the condition that the payee thereof complies with his obligations to the
We should also give weight to the opposition of BPI to the supposed
purchaser of the checks:
compromise agreement. As stated above, the consolidated petitions filed by
Metrobank, BPI, and Global Bank all assail the Decision of the Court of
Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution on The dedication of such checks pursuant to specific reciprocal undertakings
the same case dated November 6, 2006. BPI itself has a claim against between their purchasers and payees authorizes rescission by the former to
Global Bank, which appear to be intimately related to issues brought forth in prevent substantial and material damage to themselves, which authority
the other consolidated petitions. includes stopping the payment of the checks.

Furthermore, the failure of the parties to the Joint Manifestation and Motion Moreover, it seems to be fallacious to hold that the unconditional payment
to declare with particularity the terms of their agreement prevents us from of manager’s and cashier’s checks is the rule. To begin with, both
approving the same so as to allow it to attain the effect of res judicata. A manager’sand cashier’s checks are still subject to regular clearing under the
judicial compromise is not a mere contract between the parties. Thus, we regulations of the Bangko Sentral ng Pilipinas, a fact borne out by the BSP
have held that: manual for banks and intermediaries, which provides, among others, in its
Section 1603.1, c, as follows:
A compromise agreement intended to resolve a matter already under
litigation is a judicial compromise. Having judicial mandate and entered as xxxx
its determination of the controversy, such judicial compromise has the force
and effect of a judgment. It transcends its identity as a mere contract c. Items for clearing. All checks and documents payable on demand and
between the parties, as it becomes a judgment that is subject to execution drawn against a bank/branch, institution or entity allowed to clear may be
in accordance with the Rules of Court. Thus, a compromise agreement that exchanged through the Clearing Office inManila and the Regional Clearing
has been made and duly approved by the court attains the effect and Units in regional clearing centers designated by the Central Bank x x x. 33
authority of res judicata, although no execution may be issued unless the
agreement receives the approval of the court where the litigation is pending The RTC added that since manager’s and cashier’s checks are the subject of
and compliance with the terms of the agreement is decreed. 31 (Citation regular clearing, they may consequently be refused for cause by the
omitted.) drawee, which refusal is in fact provided for in Section 20 of the Rule Book
of the PCHC:
We are therefore constrained to deny the Joint Manifestation and Motion
filed with this Court on May 28, 2013 and to hereby decide the consolidated Sec. 20 – REGULAR RETURN ITEM PROCEDURE
petitions on their merits.
20.1 Any check/item sent for clearing through the PCHC on which payment
The Court’s ruling on the merits of these should be refused by the Drawee Bank in accordance with long standing and
consolidated petitions accepted banking practices, such as but not limited to the fact that:
(a) it bears the forged or unauthorized signature of the drawer(s); equivalent to acceptance. Said certification "implies that the check is drawn
or upon sufficient funds in the hands of the drawee, that they have been set
apart for its satisfaction, and that they shall be so applied whenever the
(b) it is drawn against a closed account; or check is presented for payment. It is an understanding that the check is
good then, and shall continue good, and this agreement is as binding on the
bank as its notes in circulation, a certificate of deposit payable to the order
(c) it is drawn against insufficient funds; or
of the depositor, or any other obligation it can assume. The object of
certifying a check, as regards both parties, is to enable the holder to use it
(d) payment thereof has been stopped; or as money." When the holder procures the check to be certified, "the check
operates as an assignment of a part of the funds to the creditors." Hence,
(e) it is post-dated or stale-dated; and the exception to the rule enunciated under Section 63 of the Central Bank
Act to the effect "that a check which has been cleared and credited to the
(f) it is a cashier’s/manager’s/treasurer’s check of the drawee which account of the creditor shall be equivalent to a delivery to the creditor in
has been materially altered; cash in an amount equal to the amount credited to his account" shall apply
in this case. x x x. (Emphases supplied, citations omitted.)

shall be returned through the PCHC not later than the next regular clearing
for local exchanges and the acceptance of said return by the Sending Bank Even more telling is the Court’s pronouncement in Tan v. Court of
shall be mandatory. Appeals,36 which unequivocally settled the unconditional nature of the credit
created by the issuance of manager’s or cashier’s checks:

It goes without saying that under the aforecited clearing rule[,] the
enumeration of causes to return checks is not exclusive but may include A cashier’s check is a primary obligation of the issuing bank and accepted in
other causes which are consistent with long standing and accepted banking advanceby its mere issuance. By its very nature, a cashier’s check is the
practices. The reason of plaintiffs can well constitute such a justifiable cause bank’s order to pay drawn upon itself, committing in effect its total
to enjoin payment.34 resources, integrity and honor behind the check. A cashier’s check by its
peculiar character and general use in the commercial world is regarded
substantially to be as good asthe money which it represents. In this case,
The RTC made an error at this point. While indeed, it cannot be said that therefore, PCIB by issuing the check created an unconditional creditin favor
manager’s and cashier’s checks are pre-cleared, clearing should not be of any collecting bank. (Emphases supplied, citations omitted.)
confused with acceptance. Manager’s and cashier’s checks are still the
subject of clearing to ensure that the same have not been materially altered
or otherwise completely counterfeited. However, manager’s and cashier’s Furthermore, under the principle of ejusdem generis, where a statute
checks are pre-accepted by the mere issuance thereof by the bank, which is describes things of a particular class or kind accompanied by words of a
both its drawer and drawee. Thus, while manager’s and cashier’s checks are generic character, the generic word willusually be limited to things of a
still subject to clearing, they cannot be countermanded for being drawn similar nature with those particularly enumerated, unless there be
against a closed account, for being drawn against insufficient funds, or for something in the context of the statute which would repel such
similar reasons such as a condition not appearing on the face of the check. inference.37 Thus, any long standing and accepted banking practice which
Long standing and accepted banking practicesdo not countenance the can be considered as a valid cause to return manager’s or cashier’s checks
countermanding of manager’s and cashier’s checks on the basis of a mere should be of a similar nature to the enumerated cause applicable to
allegation of failure of the payee to comply with its obligations towards the manager’s or cashier’s checks: material alteration. As stated above, an
purchaser. On the contrary, the accepted banking practice is that such example ofa similar cause is the presentation of a counterfeit check.
checks are as good as cash. Thus, in New Pacific Timber & Supply Company,
Inc. v. Hon. Seneris,35 we held: Whether or not the purchaser of
manager’s and cashier’s checks has the
It is a well-known and accepted practice in the business sector that a right to have the checks cancelled by
Cashier's Check is deemed as cash. Moreover, since the said check had been filing an action for rescission of its
certified by the drawee bank, by the certification, the funds represented by contract with the payee
the check are transferred from the credit of the maker to that of the payee
or holder, and for all intents and purposes, the latter becomes the depositor The Court of Appeals affirmed the order of the RTC for Global Bank and
of the drawee bank, with rights and duties of one in such situation. Where a Metrobank to pay Chiok for the amounts of the subject manager’s and
check is certified by the bank on which it is drawn, the certification is cashier’s checks. However, since it isclear to the appellate court that the
payment of manager’s and cashier’s checks cannot be considered to be The court shall decree the rescission claimed, unless there be just cause
subject to the condition the payee thereof complies with his obligations to authorizing the fixing of a period.
the purchaser of the checks, the Court of Appeals provided another legal
basis for such liability – rescission under Article 1191 of the Civil Code: This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and the
WHEREFORE, premises considered, the Decision dated August 29, 2000 of Mortgage Law.
the RTC, Branch 96, Quezon City is AFFIRMED with the following
MODIFICATIONS: The cause of action supplied by the above article, however, is clearly
predicated upon the reciprocity of the obligations of the injured party and
1.) The contract to buy foreign currency in the amount of $1,022,288.50 the guilty party. Reciprocal obligations are those which arise from the same
between plaintiff-appellee Wilfred N. Chiok and defendant Gonzalo B. Nuguid cause, and in which each party is a debtor and a creditor of the other, such
is hereby rescinded. Corollarily, Manager’s Check Nos. 025935 and 025939 that the obligation of one is dependent upon the obligation of the other.
and Cashier’s Check No. 003380 are ordered cancelled. 38 They are to be performed simultaneously such that the performance of one
is conditioned upon the simultaneous fulfillment of the other. 42 When Nuguid
According to the Court of Appeals, while such rescission was not mentioned failed to deliver the agreed amount to Chiok, the latter had a cause of action
in Chiok’s Amended Complaint, the same was evident from his prayer to be against Nuguid to ask for the rescission of their contract. On the other hand,
declared the legal owner of the proceeds of the subject checks and to be Chiok did not have a cause of action against Metrobank and Global Bank
allowed to withdraw the same. Since rescission creates the obligation to that would allow him to rescind the contracts of sale of the manager’s or
return the things which are the object of the contract, together with the cashier’s checks, which would have resulted in the crediting of the amounts
fruits, the price and the interest,39 injunctive relief was necessary to restrain thereof back to his accounts.
the payment of the subject checks with the end in view of the return of the
proceeds to Chiok.40 Otherwise stated, the right of rescission43 under Article 1191 of the Civil
Code can only be exercised in accordance with the principle of relativity of
Thus, as it was construed by the Court of Appeals, the Amended Complaint contracts under Article 1131 of the same code, which provides:
of Chiok was in reality an action for rescission of the contract to buy foreign
currency between Chiok and Nuguid. The Court of Appeals then proceeded Art. 1311. Contracts take effect only between the parties, their assigns and
to cancel the manager’s and cashier’s checks as a consequence of the heirs, except in case where the rights and obligations arising from the
granting of the action for rescission, explaining that "the subject checks contract are not transmissible by their nature, or by stipulation or by
would not have been issued were it not for the contract between Chiok and provision of law. x x x.
Nuguid. Therefore, they cannot be disassociated from the contract and given
a distinct and exclusive signification, as the purchase thereof is part and In several cases, this Court has ruled that under the civil law principle of
parcel of the series of transactions necessary to consummate the relativity of contracts under Article 1131, contracts can only bind the parties
contract."41 who entered into it, and it cannot favor or prejudice a third person, even if
he is aware of such contract and has acted with knowledge
We disagree with the above ruling. thereof.44 Metrobank and Global Bank are not parties to the contract to buy
foreign currency between Chiok and Nuguid. Therefore, they are not bound
The right to rescind invoked by the Court of Appeals is provided by Article by such contract and cannot be prejudiced by the failure of Nuguid to
1191 of the Civil Code, which reads: comply with the terms thereof.

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in Neither could Chiok be validly granted a writ of injunction against Metrobank
case one of the obligors should not comply with what is incumbent upon and Global Bank to enjoin said banks from honoring the subject manager’s
him. and cashier’s checks. It is elementary that "(a)n injunction should never
issue when an action for damages would adequately compensate the injuries
caused. The very foundation of the jurisdiction to issue the writ of injunction
The injured party may choose between the fulfillment and the rescission of
rests in the fact that the damages caused are irreparable and that damages
the obligation, with the payment of damages in either case. He may also
would not adequately compensate."45 Chiok could have and should have
seek rescission, even after he has chosen fulfillment, if the latter should
proceeded directly against Nuguid to claim damages for breach of contract
become impossible.
and to have the very account where he deposited the subject checks
garnished under Section 7(d)46 and Section 8,47 Rule 57 of the Rules of alleged breach of contractual obligation amounting to an absence of
Court. Instead, Chiok filed an action to enjoin Metrobank and Global Bank consideration therefor.
from complying with their primary obligation under checks in which they are
liable as both drawer and drawee. In view of the peculiar circumstances of this case, and in the interest of
substantial justice, We are constrained to rule in the affirmative.
It is undisputed that Chiok personally deposited the subject manager’s and
cashier’s checks to Nuguid’s account.1âwphi1 If the intention of Chiok was xxxx
for Nuguid to be allowed to withdraw the proceeds of the checks after
clearing, he could have easily deposited personal checks, instead of going
In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its
through the trouble of purchasing manager’s and cashier’s checks. Chiok
appeal brief, the Supreme Court had the occasion to rule that general
therefore knew, and actually intended, that Nuguid will be allowed to
principles on causes and effects of a cashier’s check, i.e., that it cannot be
immediately withdraw the proceeds of the subject checks. The deposit of the
countermanded in the hands of a holder in due course and that it is a bill of
checks which were practically as good as cash was willingly and voluntarily
exchange drawn by the bank against itself, cannot be applied without
made by Chiok, without any assurance that Nuguid will comply with his end
considering that the bank was aware of facts (in this case, the cashier’s
of the bargain on the same day. The explanation for such apparently
check was stolen) that would not entitle the payee thereof to collect on the
reckless action was admitted by Chiok in the Amended Complaint itself:
check and, consequently, the bank has the right to refuse payment when
the check is presented by the payee.
That plaintiff [Chiok] due to the numberof years (five to seven years) of
business transactions with defendant [Nuguid] has reposed utmost trust and
While the factual milieu of the Mesinacase is different from the case at
confidence on the latterthat their transactions as of June 1995 reaches
bench, the inference drawn therein by the High Court is nevertheless
millions of pesos. x x x.48 (Emphases supplied.)
applicable. The refusal of Nuguid to deliver the dollar equivalent of the three
checks in the amount of $1,022,288.50 in the afternoon of July 5, 1995
As between two innocent persons, one of whom must suffer the amounted to a failure of consideration that would not entitle Nuguid to
consequences of a breach of trust, the one who made it possible by his act collect on the subject checks.
of confidence must bear the loss.49 Evidently, it was the utmost trust and
confidence reposed by Chiok to Nuguid that caused this entire debacle,
xxxx
dragging three banks into the controversy, and having their resources
threatened because of an alleged default in a contract they were not privy
to. Let it be emphasized that in resolving the matter before Us, We do not
detract from well-settled concepts and principles in commercial law
regarding the nature, causes and effects of a manager’s check and cashier’s
Whether or not the peculiar
check. Such checks are primary obligations of the issuing bank and accepted
circumstances of this case justify the
in advance by the mere issuance thereof. They are a bank’s order to pay
deviation from the general principles on
drawn upon itself, committing in effect its total resources, integrity, and
causes and effects of manager’s and
honor. By their peculiar character and general use in the commercial world,
cashier’s checks
they are regarded substantially as good as the money they represent.
However, in view of the peculiar circumstances of the case at bench, We are
The Court of Appeals, while admitting that the general principles on the constrained to set aside the foregoing concepts and principles in favor of the
causes and effects of manager’s and cashier’s checks do not allow the exercise of the right to rescind a contract upon the failure of consideration
countermanding of such checks on the basis of an alleged failure of thereof.50 (Emphases ours, citations omitted.)
consideration of the payee to the purchaser, nevertheless held that the
peculiar circumstances of this case justify a deviation from said general
In deviating from general banking principles and disposing the case on the
principles, applying the aforementioned case of Mesina. The Court of
basis of equity, the courts a quo should have at least ensured that their
Appeals held:
dispositions were indeed equitable. This Court observes that equity was not
served in the dispositions below wherein Nuguid, the very person found to
At the core of the appeal interposed by the intervenor BPI, as well as the have violated his contract by not delivering his dollar obligation, was
depository banks, Global Bank and Metrobank, is the issue of whether or not absolved from his liability, leaving the banks who are not parties to the
it is legally possible for a purchaser of a Manager’s Check or Cashier’s Check contract to suffer the losses of millions of pesos.
to stop payment thereon through a court order on the ground of the payee’s
The Court of Appeals’ reliance in the 1986 case of Mesina was likewise Asian Bank, which is now Global Bank, obeyed the TRO and denied the
inappropriate. In Mesina, respondent Jose Go purchased from Associated clearing of the manager’s checks. As such, Global Bank may not be held
Bank a cashier’s check for ₱800,000.00, payable to bearer. 51 Jose Go liable on account of the knowledge of whatever else Chiok told them when
inadvertently left the check on the top desk of the bank manager he asked for the procedure to secure a Stop Payment Order. On the other
hand, there was no mention that Metrobank was ever notified of the alleged
when he left the bank. The bank manager entrusted the check for failure of consideration. Only Asian Bank was notified of such fact.
safekeeping to a certain bank official named Albert Uy, who then had a Furthermore, the mere allegation of breach on the part of the payee of his
certain Alexander Lim as visitor. Uy left his deskto answer a phone call and personal contract with the purchaser should not be considered a sufficient
to go to the men’s room. When Uy returned to his desk, Lim was gone. Jose cause to immediately nullify such checks, thereby eroding their integrity and
Go inquired for his check from Uy, but the check was nowhereto be found. honor as being as good as cash.
At the advice of Uy, Jose Go accomplished a Stop Payment Order and
executed an affidavit of loss. Uy reported the loss to the police. Petitioner In view of all the foregoing, we resolve that Chiok’s complaint should be
Marcelo Mesina tried to encash the check with Prudential Bank, but the denied insofar as it prayed for the withdrawal of the proceeds of the subject
check was dishonored by Associated Bank by sending it back to Prudential manager’s and cashier’s checks. Accordingly, the writ of preliminary
Bank with the words "Payment Stopped" stamped on it. When the police prohibitory injunction enjoining Metrobank and Global Bank from honoring
asked Mesina how he came to possess the check, he said it was paid to him the subject manager’s and cashier’s checks should be lifted.
by Alexander Lim in a "certain transaction"but refused to elucidate further.
Associated Bank filed an action for Interpleader against Jose Go and Mesina Since we have ruled that Chiok cannot claim the amounts of the checks from
to determine which of them is entitled to the proceeds of the check. It was Metrobank and Global Bank, the issue concerning the setting off of Global
in the appeal on said interpleader case that this Court allowed the deviation Bank’s judgment debt to Chiok with the outstanding obligations of Chiok is
from the general principles on cashier’s checks on account of the bank’s hereby mooted. We furthermore note that Global Bank had not
awareness of certain facts that would prevent the payee to collect on the presented53 such issue as a counterclaim in the case at bar, preventing us
check. from ruling on the same.

There is no arguing that the peculiar circumstances in Mesina indeed called BPI’s right to the proceeds of the
for such deviation on account of the drawee bank’s awareness of certain manager’s checks from Global Bank
relevant facts. There is, however, no comparable peculiar circumstance in
the case at bar that would justify applying the Mesina disposition. In Mesina,
While our ruling in Mesinais inapplicable to the case at bar, a much more
the cashier’s check was stolen while it was in the possession of the drawee
relevant case as regards the effect of a Stop Payment Order upon a
bank. In the case at bar, the manager’s and cashier’s checks were
manager’s check would be Security Bank and Trust Company v. Rizal
personally deposited by Chiok in the account of Nuguid. The only knowledge
Commercial Banking Corporation,54 which was decided by this Court in 2009.
that can be attributed to the drawee banks is whatever was relayed by
In said case, SBTC issued a manager’s check for ₱8 million, payable to
Chiok himself when he asked for a Stop Payment Order. Chiok testified on
"CASH," as proceeds of the loan granted to Guidon Construction and
this matter, to wit:
Development Corporation (GCDC). On the same day, the manager’s check
was deposited by Continental Manufacturing Corporation (CMC) in its
Q: Now, Mr. witness, since according to you the defendant failed to current account with Rizal Commercial Banking Corporation (RCBC). RCBC
deliver [this] amount of ₱1,023,288.23 what action have you immediately honored the manager’s check and allowed CMC to withdraw the
undertaken to protect yourinterest Mr. witness? same. GCDC issued a Stop Payment Order to SBTC on the next day,
claiming that the check was released to a third party by mistake. SBTC
A: I immediately call my lawyer, Atty. Espiritu to seek his legal dishonored and returned the manager’s check to RCBC. The check was
advise in this matter. returned back and forth between the two banks, resulting in automatic
debits and credits in each bank’s clearing balance. RCBC filed a complaint
Q: Prior to that matter that you soughtthe advise of your lawyer, for damages against SBTC. When the case reached this Court, we held:
Atty. Espiritu insofar as the issuing bank is concerned, namely,
Asian Bank, what did you do in order to protect your interest? A: I At the outset, it must be noted that the questioned check issued by SBTC is
immediately call the bank asking them if what is the procedure for not just an ordinary check but a manager’s check. A manager’s check is one
stop payment and the bank told me that you have to secure a court drawn by a bank’s manager upon the bank itself. It stands on the same
order as soon as possible before the clearing of these footing as a certified check, which is deemed to have been accepted by the
checks.52 (Emphasis supplied.) bank that certified it. As the bank’s own check, a manager’s check becomes
the primary obligation of the bank and is accepted in advance by the act of The Court of Appeals, however, sustained the dismissal of BPI’s complaint-
its issuance. in-intervention to recover the amounts of the manager’s checks from Global
Bank on account of BPI’s failure to prove the supposed withdrawal by
In this case, RCBC, in immediately crediting the amount of ₱8 million to Nuguid of the value of the checks:
CMC’s account, relied on the integrity and honor of the check as it is
regarded in commercial transactions. Where the questioned check, which BPI’s cause of action against Asian Bank (now Global Bank) is derived from
was payable to"Cash," appeared regular on its face, and the bank found the supposed withdrawal by Nuguid of the proceeds of the two Manager’s
nothing unusual in the transaction, as the drawer usually issued checks in Checks it issued and the refusal of Asian Bank to make good the same. That
big amounts made payable to cash, RCBC cannot be faulted in paying the the admissions in the pleadings to the effect that Nuguid had withdrawn the
value of the questioned check. said proceeds failed to satisfy the trial court is understandable. Such
withdrawal is anessential fact that, if properly substantiated, would have
In our considered view, SBTC cannot escape liability by invoking Monetary defeated Chiok’s right toan injunction. BPI could so easily have presented
Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings withdrawal slips or, with Nuguid’s consent, statements of account orthe
against uncollected deposits. For we must point out that the Central Bank at passbook itself, which would indubitably show that money actually changed
that timeissued a Memorandum dated July 9, 1980, which interpreted said hands at the crucial period before the issuance of the TRO. But it did not. 56
Monetary Board Resolution No. 2202. In its pertinent portion,
saidMemorandum reads: We disagree with this ruling. As provided for in Section 4, Rule 129 of the
Rules of Court, admissions in pleadings are judicial admissions and do not
MEMORANDUM TO ALL BANKS require proof:

July 9, 1980 Section 4. Judicial admissions. – An admission, verbal or written, made by a


party in the course of the proceedings in the same case, does not require
proof. The admission may be contradicted only by showing that it was made
For the guidance of all concerned, Monetary Board Resolution No. 2202
through palpable mistake or that no such admission was made.
dated December 31, 1979 prohibiting, as a matter of policy, drawing against
uncollected deposit effective July 1, 1980, uncollected deposits representing
manager’s/cashier’s/treasurer’schecks, treasury warrants, postal money Nuguid has admitted that FEBTC (now BPI) has paid him the value of the
orders and duly funded "on us" checks which may be permitted at the subject checks.57 This statement by Nuguid is certainly against his own
discretion of each bank, covers drawings against demand deposits as well as interest as he can be held liable for said amounts. Unfortunately, Nuguid
withdrawals from savings deposits. allowed his appeal with the Court of Appeals to lapse, without taking steps
to have it reinstated. This course of action, which is highly unlikely if Nuguid
had not withdrawn the value of the manager’s and cashier’s checks
Thus, it is clear from the July 9, 1980 Memorandum that banks were given
deposited into his account, likewise prevents us from ordering Nuguid to
the discretion to allow immediate drawings on uncollected deposits of
deliver the amounts of the checks to Chiok. Parties who did not appeal will
manager’s checks, among others. Consequently, RCBC, in allowing the
not be affected by the decision of an appellate court rendered to appealing
immediate withdrawal against the subject manager’s check, only exercised a
parties.58
prerogative expressly granted to it bythe Monetary Board.

Another reason given by the Court of Appeals for sustaining the dismissal of
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980
BPI’s complaint-in-intervention was that BPI failed to prove that it was a
Memorandum alters the extraordinary nature of the manager’s check and
holder in due course with respect to the manager’s checks. 59
the relativerights of the parties thereto. SBTC’s liability as drawer remains
the same— by drawing the instrument, it admits the existence of the payee
and his then capacity to indorse; and engages that on due presentment, the We agree with the finding of the Court of Appeals that BPI is not a holder in
instrument will be accepted, or paid, or both, according to its due course with respect to manager’s checks. Said checks were never
tenor.55(Emphases supplied, citations omitted.) indorsed by Nuguid to FEBTC, the predecessor-in-interest of BPI, for the
reason that they were deposited by Chiok directly to Nuguid’s account with
FEBTC. However, inview of our ruling that Nuguid has withdrawn the value
As in SBTC, BPI in the case at bar relied on the integrity and honor of the
of the checks from his account, BPI has the rights of an equitable assignee
manager’s and cashier’s checks asthey are regarded in commercial
for value under Section 49 of the Negotiable Instruments Law, which
transactions when it immediately credited their amounts to Nuguid’s
provides:
account.
Section 49. Transfer without indorsement; effect of. – Where the holder of Decision. This is a consequence of the finality of the Decision of the Court of
an instrument payable to his order transfers it for value without indorsing it, Appeals with respect to him.
the transfer vests in the transferee suchtitle as the transferor had therein,
and the transferee acquires in addition, the right to have the indorsement of WHEREFORE, the Court resolves to DENY the Joint Manifestation and Motion
the transferor. But for the purpose of determining whether the transferee is filed with this Court on May 28, 2013.
a holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made.
The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED. The
Decision of the Court of Appeals in CA-G.R. CV No. 77508 dated May 5,
As an equitable assignee, BPI acquires the instrument subject to defenses 2006, and the Resolution on the same case dated November 6, 2006 are
and equities available among prior parties60 and, in addition, the right to hereby REVERSED AND SET ASIDE, and a new one is issued ordering the
have the indorsement of Nuguid. Since the checks in question are manager’s DENIAL of the Amended Complaint in Civil Case No. Q-95-24299 in Branch
checks, the drawer and the drawee thereof are both Global Bank. 96 of the Regional Trial Court of Quezon City for lack of merit. The Writ of
Respondent Chiok cannot be considered a prior party as he is not the Preliminary Prohibitory Injunction enjoining Asian Banking Corporation (now
check’s drawer, drawee, indorser, payee or indorsee. Global Bank is Global Business Bank, Inc.) from honoring MC No. 025935 and MC No.
consequently primarily liable upon the instrument, and cannot hide behind 025939, and Metropolitan Bank & Trust Company from honoring CC No.
respondent Chiok’s defenses. As discussed above, manager’s checks are 003380, is hereby LIFTED and SET ASIDE.
pre-accepted. By issuing the manager’s check, therefore, Global Bank
committed in effect its total resources, integrity and honor towards its
Global Business Bank, Inc. is ORDERED TO PAY the Bank of the Philippine
payment.61
Islands, as successor-in-interest of Far East Bank & Trust Company, the
amount of ₱18,455,350.00, representing the aggregate face value of MC No.
Resultantly, Global Bank should pay BPI the amount of ₱18,455,350.00, 025935 and MC No. 025939, with interest based on the rates it actually paid
representing the aggregate face value ofMC No. 025935 and MC No. its depositors from July 7, 1995 until the finality of this Decision, in
025939. Since Global Bank was merely following the TRO and preliminary accordance with the same compounding rules it applies to its depositors.
injunction issued by the RTC, it cannot be held liable for legal interest during
the time said amounts are in its possession. Instead, we are adopting the
The petition in G.R. No. 175394 is hereby rendered MOOT.
formulation of the Court of Appeals that the amounts be treated as savings
deposits in Global Bank. The interest rate, however, should not be fixed at
4% as determined by the Court of Appeals, since said rates have fluctuated The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid under
since July 7, 1995, the date Global Bank refused to honor the subject the Decision and Resolution of the Court of Appeals in CAG.R. CV No. 77508
manager’s checks. Thus, Global Bank should pay BPI interest based on the remain VALID and SUBSISTING, computed from the amounts adjudged by
rates it actually paid its depositors from July 7, 1995 until the finality of this the Court of Appeals, without prejudice to any further action that may be
Decision, in accordance with the same compounding rules it applies to its filed by Wilfred N. Chiok.
depositors. The legal rate of6% per annum shall apply after the finality of
this Decision.62 SO ORDERED.

We have to stress that respondent Chiok is not left without recourse.


Respondent Chiok’s cause of action to recover the value of the checks is
against Nuguid. Unfortunately, Nuguid allowed his appeal with the Court of
Appeals to lapse, without taking steps tohave it reinstated. As stated above,
parties who did not appeal will not be affected by the decision of the
appellate court rendered to appealing parties.63 Moreover, since Nuguid was
not impleaded as a party to the present consolidated cases, he cannot be
bound by our judgment herein. Respondent Chiok should therefore pursue
his remedy against Nuguid in a separate action to recover the amounts of
the checks.

Despite the reversal of the Court of Appeals Decision, the liability of Nuguid
therein to respondent Chiok for attorney’s fees equivalent to 5% of the total
amount due remains valid, computed from the amounts stated in said

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