G.R. No.
L-22405 June 30, 1971 On October 12, 1961 appellant requested the Postmaster General to reconsider
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
An appeal from a decision of the Court of First Instance of Manila dismissing the
complaint filed by the Philippine Education Co., Inc. against Mauricio A. Soriano,
Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post
Office ten (10) money orders of P200.00 each payable to E.P. Montinola
withaddress at Lucena, Quezon. After the postal teller had made out money
ordersnumbered 124685, 124687-124695, Montinola offered to pay for them with a
private checks were not generally accepted in payment of money orders, the teller
advised him to see the Chief of the Money Order Division, but instead of doing so,
Montinola managed to leave building with his own check and the ten(10) money
orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the
unpaid money orders, an urgent message was sent to all postmasters, and the
following day notice was likewise served upon all banks, instructing them not to
pay anyone of the money orders aforesaid if presented for payment. The Bank of
America received a copy of said notice three days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688
was received by appellant as part of its sales receipts. The following day it
deposited the same with the Bank of America, and one day thereafter the latter
cleared it with the Bureau of Posts and received from the latter its face value of
P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order
Division of the Manila Post Office, acting for and in behalf of his co-appellee,
Postmaster Enrico Palomar, notified the Bank of America that money order No.
124688 attached to his letter had been found to have been irregularly issued and
that, in view thereof, the amount it represented had been deducted from the bank's
clearing account. For its part, on August 2 of the same year, the Bank of America
debited appellant's account with the same amount and gave it advice thereof by
means of a debit memo.
Page |1
the action taken by his office deducting the sum of P200.00 from the clearing
account of the Bank of America, but his request was denied. So was appellant's
subsequent request that the matter be referred to the Secretary of Justice for
advice. Thereafter, appellant elevated the matter to the Secretary of Public Works
and Communications, but the latter sustained the actions taken by the postal
officers.
In connection with the events set forth above, Montinola was charged with theft in
the Court of First Instance of Manila (Criminal Case No. 43866) but after trial he
was acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal
Court of Manila praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be
ordered:
(a) To countermand the notice given to the Bank of America on
September 27, 1961, deducting from the said Bank's clearing
account the sum of P200.00 represented by postal money order
No. 124688, or in the alternative indemnify the plaintiff in the
same amount with interest at 8-½% per annum from September
27, 1961, which is the rate of interest being paid by plaintiff on its
overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly
and severally, actual and moral damages in the amount of
P1,000.00 or in such amount as will be proved and/or
determined by this Honorable Court: exemplary damages in the
amount of P1,000.00, attorney's fees of P1,000.00, and the costs
of action.
Plaintiff also prays for such other and further relief as may be
deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts
reproduced at pages 12 to 15 of the Record on Appeal, the above-named court
rendered judgment as follows:
 WHEREFORE, judgment is hereby rendered, ordering the
defendants to countermand the notice given to the Bank of
America on September 27, 1961, deducting from said Bank's
clearing account the sum of P200.00 representing the amount of
postal money order No. 124688, or in the alternative, to
indemnify the plaintiff in the said sum of P200.00 with interest
thereon at the rate of 8-½% per annum from September 27,
1961 until fully paid; without any pronouncement as to cost and
attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the
parties had resubmitted the same stipulation of facts, the appealed decision
dismissing the complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are
related to the other and will therefore be discussed jointly. They raise this main
issue: that the postal money order in question is a negotiable instrument; that its
nature as such is not in anyway affected by the letter dated October 26, 1948
signed by the Director of Posts and addressed to all banks with a clearing account
with the Post Office, and that money orders, once issued, create a contractual
relationship of debtor and creditor, respectively, between the government, on the
one hand, and the remitters payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in
the United States. For this reason, ours are generally construed in accordance with
the construction given in the United States to their own postal statutes, in the
absence of any special reason justifying a departure from this policy or practice.
The weight of authority in the United States is that postal money orders are not
negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers
National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing
and operating a postal money order system, the government is not engaging in
commercial transactions but merely exercises a governmental power for the public
benefit.
It is to be noted in this connection that some of the restrictions imposed upon
money orders by postal laws and regulations are inconsistent with the character of
negotiable instruments. For instance, such laws and regulations usually provide for
not more than one endorsement; payment of money orders may be withheld under
a variety of circumstances (49 C.J. 1153).
Page |2
Of particular application to the postal money order in question are the conditions
laid down in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the
Bank of America for the redemption of postal money orders received by it from its
depositors. Among others, the condition is imposed that "in cases of adverse claim,
the money order or money orders involved will be returned to you (the bank) and
the, corresponding amount will have to be refunded to the Postmaster, Manila, who
reserves the right to deduct the value thereof from any amount due you if such
step is deemed necessary." The conditions thus imposed in order to enable the
bank to continue enjoying the facilities theretofore enjoyed by its depositors, were
accepted by the Bank of America. The latter is therefore bound by them. That it is
so is clearly referred from the fact that, upon receiving advice that the amount
represented by the money order in question had been deducted from its clearing
account with the Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal
officers, on the one hand, and the Bank of America, on the other, appellant has no
right to assail the terms and conditions thereof on the ground that the letter setting
forth the terms and conditions aforesaid is void because it was not issued by a
Department Head in accordance with Sec. 79 (B) of the Revised Administrative
Code. In reality, however, said legal provision does not apply to the letter in
question because it does not provide for a department regulation but merely sets
down certain conditions upon the privilege granted to the Bank of Amrica to accept
and pay postal money orders presented for payment at the Manila Post Office.
Such being the case, it is clear that the Director of Posts had ample authority to
issue it pursuant to Sec. 1190 of the Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in
the third and fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with law, the same is
hereby affirmed with costs.
 G.R. No. 100290 June 4, 1993
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, Petitioners, vs. THE
HONORABLE COURT OF APPEALS and EDEN TAN,
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court
assailing the decision * of respondent appellate court dated 24 April 1991 in CA-
G.R. SP No. 24164 denying their petition for certiorari prohibition, and injunction
which sought to annul the order of Judge Eutropio Migriño of the Regional Trial
Court, Branch 151, Pasig, Metro Manila in Civil Case No. 54863 entitled "Eden Tan
vs. Sps. Norberto and Carmen Tibajia."virtual law
Stated briefly, the relevant facts are as follows:virtual l
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan
against the Tibajia spouses. A writ of attachment was issued by the trial court on
17 August 1987 and on 17 September 1987, the Deputy Sheriff filed a return
stating that a deposit made by the Tibajia spouses in the Regional Trial Court of
Kalookan City in the amount of Four Hundred Forty Two Thousand Seven Hundred
and Fifty Pesos (P442,750.00) in another case, had been garnished by him. On 10
March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered
its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the
Tibajia spouses to pay her an amount in excess of Three Hundred Thousand
Pesos (P300,000.00). On appeal, the Court of Appeals modified the decision by
reducing the award of moral and exemplary damages. The decision having
become final, Eden Tan filed the corresponding motion for execution and
thereafter, the garnished funds which by then were on deposit with the cashier of
the Regional Trial Court of Pasig, Metro Manila, were levied upon.virtual
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo
Bolima the total money judgment in the following form:
Cashier's Check P262,750.00
Cash 135,733.70
----
Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the Tibajia
spouses and instead insisted that the garnished funds deposited with the cashier
of the Regional Trial Court of Pasig, Metro Manila be withdrawn to satisfy the
judgment obligation. On 15 January 1991, defendant spouses (petitioners) filed a
Page |3
motion to lift the writ of execution on the ground that the judgment debt had already
been paid. On 29 January 1991, the motion was denied by the trial court on the
ground that payment in cashier's check is not payment in legal tender and that
payment was made by a third party other than the defendant. A motion for
reconsideration was denied on 8 February 1991. Thereafter, the spouses Tibajia
filed a petition for certiorari, prohibition and injunction in the Court of Appeals. The
appellate court dismissed the petition on 24 April 1991 holding that payment by
cashier's check is not payment in legal tender as required by Republic Act No. 529.
The motion for reconsideration was denied on 27 May 1991.virtual law In this
petition for review, the Tibajia spouses raise the following issues:
I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE
AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR PAYMENT OF
THE JUDGMENT DEBT, IS "LEGAL TENDER".II WHETHER OR NOT THE
PRIVATE RESPONDENT MAY VALIDLY REFUSE THE TENDER OF PAYMENT
PARTLY IN CHECK AND PARTLY IN CASH MADE BY PETITIONERS, THRU
AURORA VITO AND COUNSEL, FOR THE SATISFACTION OF THE
MONETARY OBLIGATION OF PETITIONERS-SPOUSES. The only issue to be
resolved in this case is whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as required by the Civil
Code, Republic Act No. 529, and the Central Bank Act.It is contended by the
petitioners that the check, which was a cashier's check of the Bank of the
Philippine Islands, undoubtedly a bank of good standing and reputation, and which
was a crossed check marked "For Payee's Account Only" and payable to private
respondent Eden Tan, is considered legal tender, payment with which operates to
discharge their monetary obligation. 2Petitioners, to support their contention, cite
the case of New Pacific Timber and Supply Co., Inc. v. Señeris 3where this Court
held through Mr. Justice Hermogenes Concepcion, Jr. that "It is a well-known and
accepted practice in the business sector that a cashier's check is deemed as
cash".virtual The provisions of law applicable to the case at bar are the following:a.
Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.The delivery of promissory notes payable to
order, or bills of exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.In the meantime, the action derived from the
original obligation shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to, any obligation which proceeds of said encashment to the judgment creditor.In the more recent case
purports to give the obligee the right to require payment in gold or in any particular of Fortunado vs. Court of Appeals, 8this Court stressed that, "We are not, by this
kind of coin or currency other than Philippine currency or in an amount of money of decision, sanctioning the use of a check for the payment of obligations over the
the Philippines measured thereby, shall be as it is hereby declared against public objection of the creditor."WHEREFORE, the petition is DENIED. The appealed
policy null and void, and of no effect, and no such provision shall be contained in, decision is hereby AFFIRMED, with costs against the petitioners.SO ORDERED.
or made with respect to, any obligation thereafter incurred. Every obligation
heretofore and hereafter incurred, whether or not any such provision as to payment
is contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal tender for
public and private debts.

c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which
provides:

Sec. 63. Legal character - Checks representing deposit money do not have legal
tender power and their acceptance in the payment of debts, both public and
private, is at the option of the creditor: Provided, however, that a check which has
been cleared and credited to the account of the creditor shall be equivalent to a
delivery to the creditor of cash in an amount equal to the amount credited to his
account.

From the aforequoted provisions of law, it is clear that this petition must failIn the
recent cases of Philippine Airlines, Inc. vs. Court of Appeals 4and Roman Catholic
Bishop of Malolos, Inc. vs. Intermediate Appellate Court, 5this Court held that -

A check, whether a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor.

The ruling in these two (2) cases merely applies the statutory provisions which lay
down the rule that a check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a manager's, cashier's or personal
check.Petitioners erroneously rely on one of the dissenting opinions in
the Philippine Airlines case6to support their cause. The dissenting opinion however
does not in any way support the contention that a check is legal tender but, on the
contrary, states that "If the PAL checks in question had not been encashed by
Sheriff Reyes, there would be no payment by PAL and, consequently, no
discharge or satisfaction of its judgment obligation." 7Moreover, the circumstances
in the Philippine Airlines case are quite different from those in the case at bar for in
that case the checks issued by the judgment debtor were made payable to the
sheriff, Emilio Z. Reyes, who encashed the checks but failed to deliver the

Page |4
 G.R. No. 70145 November 13, 1986
MARCELO A. MESINA, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M.
GONONG, in his capacity as Judge of Regional Trial Court — Manila (Branch
VIII), JOSE GO, and ALBERT UY, respondents.
This is an appeal by certiorari from the decision of the then Intermediate Appellate
Court (IAC for short), now the Court of Appeals (CA) in AC-G.R. S.P. 04710, dated
Jan. 22, 1985, which dismissed the petition for certiorari and prohibition filed by
Marcelo A. Mesina against the trial court in Civil Case No. 84-22515. Said case (an
Interpleader) was filed by Associated Bank against Jose Go and Marcelo A.
Mesina regarding their conflicting claims over Associated Bank Cashier's Check
No. 011302 for P800,000.00, dated December 29, 1983.
Briefly, the facts and statement of the case are as follows:
Respondent Jose Go, on December 29, 1983, purchased from Associated Bank
Cashier's Check No. 011302 for P800,000.00. Unfortunately, Jose Go left said
check on the top of the desk of the bank manager when he left the bank. The bank
manager entrusted the check for safekeeping to a bank official, a certain Albert Uy,
who had then a visitor in the person of Alexander Lim. Uy had to answer a phone
call on a nearby telephone after which he proceeded to the men's room. When he
returned to his desk, his visitor Lim was already gone. When Jose Go inquired for
his cashier's check from Albert Uy, the check was not in his folder and nowhere to
be found. The latter advised Jose Go to go to the bank to accomplish a "STOP
PAYMENT" order, which suggestion Jose Go immediately followed. He also
executed an affidavit of loss. Albert Uy went to the police to report the loss of the
check, pointing to the person of Alexander Lim as the one who could shed light on
it.
The records of the police show that Associated Bank received the lost check for
clearing on December 31, 1983, coming from Prudential Bank, Escolta Branch.
The check was immediately dishonored by Associated Bank by sending it back to
Prudential Bank, with the words "Payment Stopped" stamped on it. However, the
same was again returned to Associated Bank on January 4, 1984 and for the
second time it was dishonored. Several days later, respondent Associated Bank
received a letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro
demanding payment on the cashier's check in question, which was being held by
his client. He however refused to reveal the name of his client and threatened to
Page |5
sue, if payment is not made. Respondent bank, in its letter, dated January 20,
1984, replied saying the check belonged to Jose Go who lost it in the bank and is
laying claim to it.
On February 1, 1984, police sent a letter to the Manager of the Prudential Bank,
Escolta Branch, requesting assistance in Identifying the person who tried to
encash the check but said bank refused saying that it had to protect its client's
interest and the Identity could only be revealed with the client's conformity. Unsure
of what to do on the matter, respondent Associated Bank on February 2, 1984 filed
an action for Interpleader naming as respondent, Jose Go and one John Doe, Atty.
Navarro's then unnamed client. On even date, respondent bank received summons
and copy of the complaint for damages of a certain Marcelo A. Mesina from the
Regional Trial Court (RTC) of Caloocan City filed on January 23, 1984 bearing the
number C-11139. Respondent bank moved to amend its complaint, having been
notified for the first time of the name of Atty. Navarro's client and substituted
Marcelo A. Mesina for John Doe. Simultaneously, respondent bank, thru
representative Albert Uy, informed Cpl. Gimao of the Western Police District that
the lost check of Jose Go is in the possession of Marcelo Mesina, herein petitioner.
When Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the
check, he said it was paid to him by Alexander Lim in a "certain transaction" but
refused to elucidate further. An information for theft (Annex J) was instituted
against Alexander Lim and the corresponding warrant for his arrest was issued
(Annex 6-A) which up to the date of the filing of this instant petition remains
unserved because of Alexander Lim's successful evation thereof.
Meanwhile, Jose Go filed his answer on February 24, 1984 in the Interpleader
Case and moved to participate as intervenor in the complain for damages. Albert
Uy filed a motion of intervention and answer in the complaint for Interpleader. On
the Scheduled date of pretrial conference inthe interpleader case, it was disclosed
that the "John Doe" impleaded as one of the defendants is actually petitioner
Marcelo A. Mesina. Petitioner instead of filing his answer to the complaint in the
interpleader filed on May 17, 1984 an Omnibus Motion to Dismiss Ex Abudante
Cautela alleging lack of jurisdiction in view of the absence of an order to litigate,
failure to state a cause of action and lack of personality to sue. Respondent bank
in the other civil case (CC-11139) for damages moved to dismiss suit in view of the
existence already of the Interpleader case.
The trial court in the interpleader case issued an order dated July 13, 1984,
denying the motion to dismiss of petitioner Mesina and ruling that respondent
bank's complaint sufficiently pleaded a cause of action for itnerpleader. Petitioner
filed his motion for reconsideration which was denied by the trial court on
September 26, 1984. Upon motion for respondent Jose Go dated October 31,
1984, respondent judge issued an order on November 6, 1984, declaring petitioner
in default since his period to answer has already expirecd and set the ex-
parte presentation of respondent bank's evidence on November 7, 1984.
Petitioner Mesina filed a petition for certioari with preliminary injunction with IAC to
set aside 1) order of respondent court denying his omnibus Motion to Dismiss 2)
order of 3) the order of default against him.
On January 22, 1985, IAC rendered its decision dimissing the petition for certiorari.
Petitioner Mesina filed his Motion for Reconsideration which was also denied by
the same court in its resolution dated February 18, 1985.
Meanwhile, on same date (February 18, 1985), the trial court in Civil Case #84-
22515 (Interpleader) rendered a decisio, the dispositive portion reading as follows:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered ordering plaintiff Associate Bank to replace Cashier's
Check No. 011302 in favor of Jose Go or its cas equivalent with
legal rate of itnerest from date of complaint, and with costs of
suit against the latter.
SO ORDERED.
On March 29, 1985, the trial court in Civil Case No. C-11139, for
damages, issued an order, the pertinent portion of which states:
The records of this case show that on August 20, 1984
proceedings in this case was (were) ordered suspended
because the main issue in Civil Case No. 84-22515 and in this
instant case are the same which is: who between Marcelo
Mesina and Jose Go is entitled to payment of Associated Bank's
Cashier's Check No. CC-011302? Said issue having been
resolved already in Civil casde No. 84-22515, really this instant
case has become moot and academic.
WHEREFORE, in view of the foregoing, the motion sholud be as
it is hereby granted and this case is ordered dismissed.
In view of the foregoing ruling no more action should be taken on
the "Motion For Reconsideration (of the order admitting the
Page |6
Intervention)" dated June 21, 1984 as well as the Motion For
Reconsideration dated September 10, 1984.
SO ORDERED.
Petitioner now comes to Us, alleging that:
1. IAC erred in ruling that a cashier's check can be countermanded even in the
hands of a holder in due course.
2. IAC erred in countenancing the filing and maintenance of an interpleader suit by
a party who had earlier been sued on the same claim.
3. IAC erred in upholding the trial court's order declaring petitioner as in default
when there was no proper order for him to plead in the interpleader complaint.
4. IAC went beyond the scope of its certiorari jurisdiction by making findings of
facts in advance of trial.
Petitioner now interposes the following prayer:
1. Reverse the decision of the IAC, dated January 22, 1985 and set aside the
February 18, 1985 resolution denying the Motion for Reconsideration.
2. Annul the orders of respondent Judge of RTC Manila giving due course to the
interpleader suit and declaring petitioner in default.
Petitioner's allegations hold no water. Theories and examples advanced by
petitioner on causes and effects of a cashier's check such as 1) it cannot be
countermanded in the hands of a holder in due course and 2) a cashier's check is
a bill of exchange drawn by the bank against itself-are general principles which
cannot be aptly applied to the case at bar, without considering other things.
Petitioner failed to substantiate his claim that he is a holder in due course and for
consideration or value as shown by the established facts of the case. Admittedly,
petitioner became the holder of the cashier's check as endorsed by Alexander Lim
who stole the check. He refused to say how and why it was passed to him. He had
therefore notice of the defect of his title over the check from the start. The holder of
a cashier's check who is not a holder in due course cannot enforce such check
against the issuing bank which dishonors the same. If a payee of a cashier's check
obtained it from the issuing bank by fraud, or if there is some other reason why the
payee is not entitled to collect the check, the respondent bank would, of course,
have the right to refuse payment of the check when presented by the payee, since
respondent bank was aware of the facts surrounding the loss of the check in
question. Moreover, there is no similarity in the cases cited by petitioner since
respondent bank did not issue the cashier's check in payment of its obligation.
Jose Go bought it from respondent bank for purposes of transferring his funds from
respondent bank to another bank near his establishment realizing that carrying
money in this form is safer than if it were in cash. The check was Jose Go's
property when it was misplaced or stolen, hence he stopped its payment. At the
outset, respondent bank knew it was Jose Go's check and no one else since Go
had not paid or indorsed it to anyone. The bank was therefore liable to nobody on
the check but Jose Go. The bank had no intention to issue it to petitioner but only
to buyer Jose Go. When payment on it was therefore stopped, respondent bank
was not the one who did it but Jose Go, the owner of the check. Respondent bank
could not be drawer and drawee for clearly, Jose Go owns the money it represents
and he is therefore the drawer and the drawee in the same manner as if he has a
current account and he issued a check against it; and from the moment said
cashier's check was lost and/or stolen no one outside of Jose Go can be termed a
holder in due course because Jose Go had not indorsed it in due course. The
check in question suffers from the infirmity of not having been properly negotiated
and for value by respondent Jose Go who as already been said is the real owner of
said instrument.
In his second assignment of error, petitioner stubbornly insists that there is no
showing of conflicting claims and interpleader is out of the question. There is
enough evidence to establish the contrary. Considering the aforementioned facts
and circumstances, respondent bank merely took the necessary precaution not to
make a mistake as to whom to pay and therefore interpleader was its proper
remedy. It has been shown that the interpleader suit was filed by respondent bank
because petitioner and Jose Go were both laying their claims on the check,
petitioner asking payment thereon and Jose Go as the purchaser or owner. The
allegation of petitioner that respondent bank had effectively relieved itself of its
primary liability under the check by simply filing a complaint for interpleader is
belied by the willingness of respondent bank to issue a certificate of time deposit in
the amount of P800,000 representing the cashier's check in question in the name
of the Clerk of Court of Manila to be awarded to whoever wig be found by the court
as validly entitled to it. Said validity will depend on the strength of the parties'
respective rights and titles thereto. Bank filed the interpleader suit not because
petitioner sued it but because petitioner is laying claim to the same check that Go
is claiming. On the very day that the bank instituted the case in interpleader, it was
not aware of any suit for damages filed by petitioner against it as supported by the
fact that the interpleader case was first entitled Associated Bank vs. Jose Go and
Page |7
John Doe, but later on changed to Marcelo A. Mesina for John Doe when his name
became known to respondent bank.
In his third assignment of error, petitioner assails the then respondent IAC in
upholding the trial court's order declaring petitioner in default when there was no
proper order for him to plead in the interpleader case. Again, such contention is
untenable. The trial court issued an order, compelling petitioner and respondent
Jose Go to file their Answers setting forth their respective claims. Subsequently, a
Pre-Trial Conference was set with notice to parties to submit position papers.
Petitioner argues in his memorandum that this order requiring petitioner to file his
answer was issued without jurisdiction alleging that since he is presumably a
holder in due course and for value, how can he be compelled to litigate against
Jose Go who is not even a party to the check? Such argument is trite and
ridiculous if we have to consider that neither his name or Jose Go's name appears
on the check. Following such line of argument, petitioner is not a party to the check
either and therefore has no valid claim to the Check. Furthermore, the Order of the
trial court requiring the parties to file their answers is to all intents and purposes an
order to interplead, substantially and essentially and therefore in compliance with
the provisions of Rule 63 of the Rules of Court. What else is the purpose of a law
suit but to litigate?
The records of the case show that respondent bank had to resort to details in
support of its action for Interpleader. Before it resorted to Interpleader, respondent
bank took an precautionary and necessary measures to bring out the truth. On the
other hand, petitioner concealed the circumstances known to him and now that
private respondent bank brought these circumstances out in court (which
eventually rendered its decision in the light of these facts), petitioner charges it with
"gratuitous excursions into these non-issues." Respondent IAC cannot rule on
whether respondent RTC committed an abuse of discretion or not, without being
apprised of the facts and reasons why respondent Associated Bank instituted the
Interpleader case. Both parties were given an opportunity to present their sides.
Petitioner chose to withhold substantial facts. Respondents were not forbidden to
present their side-this is the purpose of the Comment of respondent to the petition.
IAC decided the question by considering both the facts submitted by petitioner and
those given by respondents. IAC did not act therefore beyond the scope of the
remedy sought in the petition.
WHEREFORE, finding that the instant petition is merely dilatory, the same is
hereby denied and the assailed orders of the respondent court are hereby
AFFIRMED in toto
 September 1997 P 6,981,447.90
G.R. No. 166018 June 4, 2014 October 1997 6,209,316.60

November 1997 3,978,510.30

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-
PHILIPPINE BRANCHES, Petitioner, vs. COMMISSIONER OF INTERNAL December 1997 2,403,717.30
REVENUE, Respondent;
Total ₱19,572,992.10
These petitions for review on certiorari1
assail the Decision2and Resolution dated B. January to December 1998
July 8, 2004 and October 25, 2004, respectively, of the Court of Appeals in CA-
G.R. SP No. 77580, as well as the Decision3 and Resolution dated September 2,
January 1998 P 3,328,305.60
2004 and April 4, 2005, respectively, of the Court of Appeals in CA-G.R. SP No.
70814. The respective Decisions in the said cases similarly reversed and set aside February 1998 4,566,924.90
the decisions of the Court of Tax Appeals (CTA) in CTA Case Nos. 5951 4 and
6009,5 respectively, and dismissed the petitions of petitioner Hongkong and March 1998 5,371,797.30
Shanghai Banking Corporation Limited-Philippine Branches (HSBC). The April 1998 4,197,235.50
corresponding Resolutions, on the other hand, denied the respective motions for
reconsideration of the said Decisions. May 1998 2,519,587.20

June 1998 2,301,333.00

HSBC performs, among others, custodial services on behalf of its investor-clients,
corporate and individual, resident or non-resident of the Philippines, with respect to July 1998 1,586,404.50
their passive investments in the Philippines, particularly investments in shares of
stocks in domestic corporations. As a custodian bank, HSBC serves as the August 1998 1,787,359.50
collection/payment agent with respect to dividends and other income derived from September 1998 1,231,828.20
its investor-clients’ passive investments.6
October 1998 1,303,184.40
HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts,
November 1998 2,026,379.70
which are managed by HSBC through instructions given through electronic
messages. The said instructions are standard forms known in the banking industry December 1998 2,684,097.50
as SWIFT, or "Society for Worldwide Interbank Financial Telecommunication." In
purchasing shares of stock and other investment in securities, the investor-clients Total ₱32,904,437.30
would send electronic messages from abroad instructing HSBC to debit their local On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then
or foreign currency accounts and to pay the purchase price therefor upon receipt of Commissioner, Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect that
the securities.7 instructions or advises from abroad on the management of funds located in the
Philippines which do not involve transfer of funds from abroad are not subject to
Pursuant to the electronic messages of its investor-clients, HSBC purchased and DST. BIR Ruling No. 132-99 reads:
paid Documentary Stamp Tax (DST) from September to December 1997 and also
from January to December 1998 amounting to ₱19,572,992.10 and Date: August 23, 1999
₱32,904,437.30, respectively, broken down as follows:
FERRY TOLEDO VICTORINO GONZAGA
A. September to December 1997 & ASSOCIATES

Page |8
G/F AFC Building, Alfaro St.
Salcedo Village, Makati
Metro Manila
Attn: Atty. Tomas C. Toledo
Tax Counsel
Gentlemen:
This refers to your letter dated July 26, 1999 requesting on behalf of your clients,
the CITIBANK & STANDARD CHARTERED BANK, for a ruling as to whether or
not the electronic instructions involving the following transactions of residents and
non-residents of the Philippines with respect to their local or foreign currency
accounts are subject to documentary stamp tax under Section 181 of the 1997 Tax
Code, viz:
A. Investment purchase transactions:
An overseas client sends instruction to its bank in the Philippines to either:
(i) debit its local or foreign currency account and to pay a named
recipient in the Philippines; or
(ii) receive funds from another bank in the Philippines for deposit
into its account and to pay a named recipient in the Philippines."
The foregoing transactions are carried out under instruction from abroad and [do]
not involve actual fund transfer since the funds are already in the Philippine
accounts. The instructions are in the form of electronic messages (i.e., SWIFT
MT100 or MT 202 and/or MT 521). In both cases, the payment is against the
delivery of investments purchased. The purchase of investments and the payment
comprise one single transaction. DST has already been paid under Section 176 for
the investment purchase.
B. Other transactions:
An overseas client sends an instruction to its bank in the Philippines to either:
Page |9
(i) debit its local or foreign currency account and to pay a named
recipient, who may be another bank, a corporate entity or an
individual in the Philippines; or
(ii) receive funds from another bank in the Philippines for deposit
to its account and to pay a named recipient, who may be another
bank, a corporate entity or an individual in the Philippines."
The above instruction is in the form of an electronic message (i.e., SWIFT MT 100
or MT 202) or tested cable, and may not refer to any particular transaction.
The opening and maintenance by a non-resident of local or foreign currency
accounts with a bank in the Philippines is permitted by the Bangko Sentral ng
Pilipinas, subject to certain conditions.
In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code,
which provides that –
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others.– Upon
any acceptance or payment of any bill of exchange or order for the payment of
money purporting to be drawn in a foreign country but payable in the Philippines,
there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on
each Two hundred pesos (₱200), or fractional part thereof, of the face value of any
such bill of exchange, or order, or Philippine equivalent of such value, if expressed
in foreign currency. (Underscoring supplied.)
a documentary stamp tax shall be imposed on any bill of exchange or order for
payment purporting to be drawn in a foreign country but payable in the Philippines.
Under the foregoing provision, the documentary stamp tax shall be levied on the
instrument, i.e., a bill of exchange or order for the payment of money, which
purports to draw money from a foreign country but payable in the Philippines. In
the instant case, however, while the payor is residing outside the Philippines, he
maintains a local and foreign currency account in the Philippines from where he
will draw the money intended to pay a named recipient. The instruction or order to
pay shall be made through an electronic message, i.e., SWIFT MT 100 or MT 202
and/or MT 521. Consequently, there is no negotiable instrument to be made,
signed or issued by the payee. In the meantime, such electronic instructions by the
non-resident payor cannot be considered as a transaction per se considering that
the same do not involve any transfer of funds from abroad or from the place where
the instruction originates. Insofar as the local bank is concerned, such instruction
could be considered only as a memorandum and shall be entered as such in its
books of accounts. The actual debiting of the payor’s account, local or foreign
currency account in the Philippines, is the actual transaction that should be
properly entered as such.
Under the Documentary Stamp Tax Law, the mere withdrawal of money from a
bank deposit, local or foreign currency account, is not subject to DST, unless the
account so maintained is a current or checking account, in which case, the
issuance of the check or bank drafts is subject to the documentary stamp tax
imposed under Section 179 of the 1997 Tax Code. In the instant case, and subject
to the physical impossibility on the part of the payor to be present and prepare and
sign an instrument purporting to pay a certain obligation, the withdrawal and
payment shall be made in cash. In this light, the withdrawal shall not be subject to
documentary stamp tax. The case is parallel to an automatic bank transfer of local
funds from a savings account to a checking account maintained by a depositor in
one bank.
Likewise, the receipt of funds from another bank in the Philippines for deposit to
the payee’s account and thereafter upon instruction of the non-resident depositor-
payor, through an electronic message, the depository bank to debit his account
and pay a named recipient shall not be subject to documentary stamp tax.
It should be noted that the receipt of funds from another local bank in the
Philippines by a local depository bank for the account of its client residing abroad is
part of its regular banking transaction which is not subject to documentary stamp
tax. Neither does the receipt of funds makes the recipient subject to the
documentary stamp tax. The funds are deemed to be part of the deposits of the
client once credited to his account, and which, thereafter can be disposed in the
manner he wants. The payor-client’s further instruction to debit his account and
pay a named recipient in the Philippines does not involve transfer of funds from
abroad. Likewise, as stated earlier, such debit of local or foreign currency account
in the Philippines is not subject to the documentary stamp tax under the
aforementioned Section 181 of the Tax Code.
In the light of the foregoing, this Office hereby holds that the instruction made
through an electronic message by non-resident payor-client to debit his local or
foreign currency account maintained in the Philippines and to pay a certain named
recipient also residing in the Philippines is not the transaction contemplated under
Section 181 of the 1997 Tax Code. Such being the case, such electronic
instruction purporting to draw funds from a local account intended to be paid to a
P a g e | 10
named recipient in the Philippines is not subject to documentary stamp tax
imposed under the foregoing Section.
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation it shall be disclosed that the facts are different, this
ruling shall be considered null and void.
Very truly yours,
(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue8
With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an
administrative claim for the refund of the amount of ₱19,572,992.10 allegedly
representing erroneously paid DST to the BIR for the period covering September to
December 1997.
Subsequently, on January 31, 2000, HSBC filed another administrative claim for
the refund of the amount of ₱32,904,437.30 allegedly representing erroneously
paid DST to the BIR for the period covering January to December 1998.
As its claims for refund were not acted upon by the BIR, HSBC subsequently
brought the matter to the CTA as CTA Case Nos. 5951 and 6009, respectively, in
order to suspend the running of the two-year prescriptive period.
The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated
December 18, 2002 in CTA Case No. 5951 favored HSBC. Respondent
Commissioner of Internal Revenue was ordered to refund or issue a tax credit
certificate in favor of HSBC in the reduced amounts of ₱30,360,570.75 in CTA
Case No. 6009 and ₱16,436,395.83 in CTA Case No. 5951, representing
erroneously paid DST that have been sufficiently substantiated with documentary
evidence. The CTA ruled that HSBC is entitled to a tax refund or tax credit
because Sections 180 and 181 of the 1997 Tax Code do not apply to electronic
message instructions transmitted by HSBC’s non-resident investor-clients:
The instruction made through an electronic message by a nonresident investor-
client, which is to debit his local or foreign currency account in the Philippines and
pay a certain named recipient also residing in the Philippines is not the transaction
contemplated in Section 181 of the Code. In this case, the withdrawal and payment
shall be made in cash. It is parallel to an automatic bank transfer of local funds
from a savings account to a checking account maintained by a depositor in one
bank. The act of debiting the account is not subject to the documentary stamp tax
under Section 181. Neither is the transaction subject to the documentary stamp tax
under Section 180 of the same Code. These electronic message instructions
cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred (Words and Phrases).
These instructions are considered as mere memoranda and entered as such in the
books of account of the local bank, and the actual debiting of the payor’s local or
foreign currency account in the Philippines is the actual transaction that should be
properly entered as such.9
The respective dispositive portions of the Decisions dated May 2, 2002 in CTA
Case No. 6009 and dated December 18, 2002 in CTA Case No. 5951 read:
II. CTA Case No. 6009
WHEREFORE, in the light of all the foregoing, the instant Petition for Review is
PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE
A TAX CREDIT CERTIFICATE in favor of Petitioner the amount of ₱30,360,570.75
representing erroneous payment of documentary stamp tax for the taxable year
1998.10
II. CTA Case No. 5951
WHEREFORE, in the light of the foregoing, the instant petition is hereby partially
granted. Accordingly, respondent is hereby ORDERED to REFUND, or in the
alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the
reduced amount of ₱16,436,395.83 representing erroneously paid documentary
stamp tax for the months of September 1997 to December 1997.11
However, the Court of Appeals reversed both decisions of the CTA and ruled that
the electronic messages of HSBC’s investor-clients are subject to DST. The Court
of Appeals explained:
At bar, [HSBC] performs custodial services in behalf of its investor-clients as
regards their passive investments in the Philippines mainly involving shares of
stocks in domestic corporations. These investor-clients maintain Philippine peso
and/or foreign currency accounts with [HSBC]. Should they desire to purchase
shares of stock and other investments securities in the Philippines, the investor-
clients send their instructions and advises via electronic messages from abroad to
[HSBC] in the form of SWIFT MT 100, MT 202, or MT 521 directing the latter to
P a g e | 11
debit their local or foreign currency account and to pay the purchase price upon
receipt of the securities (CTA Decision, pp. 1-2; Rollo, pp. 41-42). Pursuant to
Section 181 of the NIRC, [HSBC] was thus required to pay [DST] based on its
acceptance of these electronic messages – which, as [HSBC] readily admits in its
petition filed before the [CTA], were essentially orders to pay the purchases of
securities made by its client-investors (Rollo, p. 60).
Appositely, the BIR correctly and legally assessed and collected the [DST] from
[HSBC] considering that the said tax was levied against the acceptances and
payments by [HSBC] of the subject electronic messages/orders for payment. The
issue of whether such electronic messages may be equated as a written document
and thus be subject to tax is beside the point. As We have already stressed,
Section 181 of the law cited earlier imposes the [DST] not on the bill of exchange
or order for payment of money but on the acceptance or payment of the said bill or
order. The acceptance of a bill or order is the signification by the drawee of its
assent to the order of the drawer to pay a given sum of money while payment
implies not only the assent to the said order of the drawer and a recognition of the
drawer’s obligation to pay such aforesaid sum, but also a compliance with such
obligation (Philippine National Bank vs. Court of Appeals, 25 SCRA 693 [1968];
Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257 [1992]). What is
vital to the valid imposition of the [DST] under Section 181 is the existence of the
requirement of acceptance or payment by the drawee (in this case, [HSBC]) of the
order for payment of money from its investor-clients and that the said order was
drawn from a foreign country and payable in the Philippines. These requisites are
surely present here.
It would serve the parties well to understand the nature of the tax being imposed in
the case at bar. In Philippine Home Assurance Corporation vs. Court of Appeals
(301 SCRA 443 [1999]), the Supreme Court ruled that [DST is] levied on the
exercise by persons of certain privileges conferred by law for the creation, revision,
or termination of specific legal relationships through the execution of specific
instruments, independently of the legal status of the transactions giving rise
thereto. In the same case, the High Court also declared – citing Du Pont vs. United
States (300 U.S. 150, 153 [1936])
The tax is not upon the business transacted but is an excise upon the privilege,
opportunity, or facility offered at exchanges for the transaction of the business. It is
an excise upon the facilities used in the transaction of the business separate and
apart from the business itself. x x x.
To reiterate, the subject [DST] was levied on the acceptance and payment made
by [HSBC] pursuant to the order made by its client-investors as embodied in the
cited electronic messages, through which the herein parties’ privilege and
opportunity to transact business respectively as drawee and drawers was
exercised, separate and apart from the circumstances and conditions related to
such acceptance and subsequent payment of the sum of money authorized by the
concerned drawers. Stated another way, the [DST] was exacted on [HSBC’s]
exercise of its privilege under its drawee-drawer relationship with its client-investor
through the execution of a specific instrument which, in the case at bar, is the
acceptance of the order for payment of money. The acceptance of a bill or order
for payment may be done in writing by the drawee in the bill or order itself, or in a
separate instrument (Prudential Bank vs. Intermediate Appellate Court,
supra.)Here, [HSBC]’s acceptance of the orders for the payment of money was
veritably ‘done in writing in a separate instrument’ each time it debited the local or
foreign currency accounts of its client-investors pursuant to the latter’s instructions
and advises sent by electronic messages to [HSBC]. The [DST] therefore must be
paid upon the execution of the specified instruments or facilities covered by the tax
– in this case, the acceptance by [HSBC] of the order for payment of money sent
by the client-investors through electronic messages. x x x.12
Hence, these petitions.
HSBC asserts that the Court of Appeals committed grave error when it disregarded
the factual and legal conclusions of the CTA. According to HSBC, in the absence
of abuse or improvident exercise of authority, the CTA’s ruling should not have
been disturbed as the CTA is a highly specialized court which performs judicial
functions, particularly for the review of tax cases. HSBC further argues that the
Commissioner of Internal Revenue had already settled the issue on the taxability of
electronic messages involved in these cases in BIR Ruling No. 132-99 and
reiterated in BIR Ruling No. DA-280-2004.13
The Commissioner of Internal Revenue, on the other hand, claims that Section 181
of the 1997 Tax Code imposes DST on the acceptance or payment of a bill of
exchange or order for the payment of money. The DST under Section 18 of the
1997 Tax Code is levied on HSBC’s exercise of a privilege which is specifically
taxed by law. BIR Ruling No. 132-99 is inconsistent with prevailing law and long
standing administrative practice, respondent is not barred from questioning his own
revenue ruling. Tax refunds like tax exemptions are strictly construed against the
taxpayer.14
The Court finds for HSBC.
P a g e | 12
The Court agrees with the CTA that the DST under Section 181 of the Tax Code is
levied on the acceptance or payment of "a bill of exchange purporting to be drawn
in a foreign country but payable in the Philippines" and that "a bill of exchange is
an unconditional order in writing addressed by one person to another, signed by
the person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a sum certain in money to order
or to bearer." A bill of exchange is one of two general forms of negotiable
instruments under the Negotiable Instruments Law.15
The Court further agrees with the CTA that the electronic messages of HSBC’s
investor-clients containing instructions to debit their respective local or foreign
currency accounts in the Philippines and pay a certain named recipient also
residing in the Philippines is not the transaction contemplated under Section 181 of
the Tax Code as such instructions are "parallel to an automatic bank transfer of
local funds from a savings account to a checking account maintained by a
depositor in one bank." The Court favorably adopts the finding of the CTA that the
electronic messages "cannot be considered negotiable instruments as they lack
the feature of negotiability, which, is the ability to be transferred" and that the said
electronic messages are "mere memoranda" of the transaction consisting of the
"actual debiting of the [investor-client-payor’s] local or foreign currency account in
the Philippines" and "entered as such in the books of account of the local bank,"
HSBC.16
More fundamentally, the instructions given through electronic messages that are
subjected to DST in these cases are not negotiable instruments as they do not
comply with the requisites of negotiability under Section 1 of the Negotiable
Instruments Law, which provides:
Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
 (e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
The electronic messages are not signed by the investor-clients as supposed
drawers of a bill of exchange; they do not contain an unconditional order to pay a
sum certain in money as the payment is supposed to come from a specific fund or
account of the investor-clients; and, they are not payable to order or bearer but to a
specifically designated third party. Thus, the electronic messages are not bills of
exchange. As there was no bill of exchange or order for the payment drawn abroad
and made payable here in the Philippines, there could have been no acceptance or
payment that will trigger the imposition of the DST under Section 181 of the Tax
Code.
Section 181 of the 1997 Tax Code, which governs HSBC’s claim for tax refund for
taxable year 1998 subject of G.R. No. 167728, provides:
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon
any acceptance or payment of any bill of exchange or order for the payment of
money purporting to be drawn in a foreign country but payable in the Philippines,
there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on
each Two hundred pesos (₱200), or fractional part thereof, of the face value of any
such bill of exchange, or order, or the Philippine equivalent of such value, if
expressed in foreign currency. (Emphasis supplied.)
Section 230 of the 1977 Tax Code, as amended, which governs HSBC’s claim for
tax refund for DST paid during the period September to December 1997 and
subject of G.R. No. 166018, is worded exactly the same as its counterpart
provision in the 1997 Tax Code quoted above.
The origin of the above provision is Section 117 of the Tax Code of 1904, 17 which
provided: SECTION 117. The acceptor or acceptors of any bill of exchange or
order for the payment of any sum of money drawn or purporting to be drawn in any
foreign country but payable in the Philippine Islands, shall, before paying or
accepting the same, place thereupon a stamp in payment of the tax upon such
document in the same manner as is required in this Act for the stamping of inland
bills of exchange or promissory notes, and no bill of exchange shall be paid nor
negotiated until such stamp shall have been affixed thereto. 18 (Emphasis supplied.)
It then became Section 30(h) of the 1914 Tax Code 19:
P a g e | 13
SEC. 30. Stamp tax upon documents and papers. – Upon documents, instruments,
and papers, and upon acceptances, assignments, sales, and transfers of the
obligation, right, or property incident thereto documentary taxes for and in respect
of the transaction so had or accomplished shall be paid as hereinafter prescribed,
by the persons making, signing, issuing, accepting, or transferring the same, and
at the time such act is done or transaction had:
xxxx
(h) Upon any acceptance or payment upon acceptance of any bill of exchange or
order for the payment of money purporting to be drawn in a foreign country but
payable in the Philippine Islands, on each two hundred pesos, or fractional part
thereof, of the face value of any such bill of exchange or order, or the Philippine
equivalent of such value, if expressed in foreign currency, two centavos[.]
(Emphasis supplied.)
It was implemented by Section 46 in relation to Section 39 of Revenue Regulations
No. 26,20 as amended:
SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds
of orders for the payment of money, payable at sight or on demand, or after a
specific period after sight or from a stated date."
SEC. 46. Bill of Exchange, etc. – When any bill of exchange or order for the
payment of money drawn in a foreign country but payable in this country whether
at sight or on demand or after a specified period after sight or from a stated date, is
presented for acceptance or payment, there must be affixed upon acceptance or
payment of documentary stamp equal to P0.02 for each ₱200 or fractional part
thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939,21 which provided:
SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon
any acceptance or payment of any bill of exchange or order for the payment of
money purporting to be drawn in a foreign country but payable in the Philippines,
there shall be collected a documentary stamp tax of four centavos on each two
hundred pesos, or fractional part thereof, of the face value of any such bill of
exchange or order, or the Philippine equivalent of such value, if expressed in
foreign currency. (Emphasis supplied.)
It then became Section 230 of the 1977 Tax Code, 22 as amended by Presidential
Decree Nos. 1457 and 1959,which, as stated earlier, was worded exactly as
Section 181 of the current Tax Code:
SEC. 230. Stamp tax upon acceptance of bills of exchange and others. – Upon any
acceptance or payment of any bill of exchange or order for the payment of money
purporting to be drawn in a foreign country but payable in the Philippines, there
shall be collected a documentary stamp tax of thirty centavos on each two hundred
pesos, or fractional part thereof, of the face value of any such bill of exchange, or
order, or the Philippine equivalent of such value, if expressed in foreign currency.
(Emphasis supplied.)
The pertinent provision of the present Tax Code has therefore remained
substantially the same for the past one hundred years.1âwphi1 The identical text
and common history of Section 230 of the 1977 Tax Code, as amended, and the
1997 Tax Code, as amended, show that the law imposes DST on either (a) the
acceptance or (b) the payment of a foreign bill of exchange or order for the
payment of money that was drawn abroad but payable in the Philippines.
DST is an excise tax on the exercise of a right or privilege to transfer obligations,
rights or properties incident thereto.23 Under Section 173 of the 1997 Tax Code,
the persons primarily liable for the payment of the DST are those (1) making, (2)
signing, (3) issuing, (4) accepting, or (5) transferring the taxable documents,
instruments or papers.24
In general, DST is levied on the exercise by persons of certain privileges conferred
by law for the creation, revision, or termination of specific legal relationships
through the execution of specific instruments. Examples of such privileges, the
exercise of which, as effected through the issuance of particular documents, are
subject to the payment of DST are leases of lands, mortgages, pledges and trusts,
and conveyances of real property.25
As stated above, Section 230 of the 1977 Tax Code, as amended, now Section
181 of the 1997 Tax Code, levies DST on either (a) the acceptance or (b) the
payment of a foreign bill of exchange or order for the payment of money that was
drawn abroad but payable in the Philippines. In other words, it levies DST as an
excise tax on the privilege of the drawee to accept or pay a bill of exchange or
order for the payment of money, which has been drawn abroad but payable in the
Philippines, and on the corresponding privilege of the drawer to have acceptance
of or payment for the bill of exchange or order for the payment of money which it
has drawn abroad but payable in the Philippines.
P a g e | 14
Acceptance applies only to bills of exchange. 26 Acceptance of a bill of exchange
has a very definite meaning in law.27 In particular, Section 132 of the Negotiable
Instruments Law provides:
Sec. 132. Acceptance; how made, by and so forth. – The acceptance of a bill [of
exchange28] is the signification by the drawee of his assent to the order of the
drawer. The acceptance must be in writing and signed by the drawee. It must not
express that the drawee will perform his promise by any other means than the
payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the
acceptance of a bill of exchange is both the manifestation of the drawee’s consent
to the drawer’s order to pay money and the expression of the drawee’s promise to
pay. It is "the act by which the drawee manifests his consent to comply with the
request contained in the bill of exchange directed to him and it contemplates an
engagement or promise to pay."29 Once the drawee accepts, he becomes an
acceptor.30 As acceptor, he engages to pay the bill of exchange according to the
tenor of his acceptance.31
Acceptance is made upon presentment of the bill of exchange, or within 24 hours
after such presentment.32Presentment for acceptance is the production or
exhibition of the bill of exchange to the drawee for the purpose of obtaining his
acceptance.33
Presentment for acceptance is necessary only in the instances where the law
requires it.34 In the instances where presentment for acceptance is not necessary,
the holder of the bill of exchange can proceed directly to presentment for payment.
Presentment for payment is the presentation of the instrument to the person
primarily liable for the purpose of demanding and obtaining payment thereof. 35
Thus, whether it be presentment for acceptance or presentment for payment, the
negotiable instrument has to be produced and shown to the drawee for acceptance
or to the acceptor for payment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of
exchange or orders for the payment of money that have been drawn abroad but
payable in the Philippines) that is subjected to DST under Section 181 of the 1997
Tax Code is done after presentment for acceptance or presentment for payment,
respectively. In other words, the acceptance or payment of the subject bill of
exchange or order for the payment of money is done when there is presentment
either for acceptance or for payment of the bill of exchange or order for the
payment of money.

Applying the above concepts to the matter subjected to DST in these cases, the
electronic messages received by HSBC from its investor-clients abroad instructing
the former to debit the latter's local and foreign currency accounts and to pay the
purchase price of shares of stock or investment in securities do not properly qualify
as either presentment for acceptance or presentment for payment. There being
neither presentment for acceptance nor presentment for payment, then there was
no acceptance or payment that could have been subjected to DST to speak of.

Indeed, there had been no acceptance of a bill of exchange or order for the
payment of money on the part of HSBC. To reiterate, there was no bill of exchange
or order for the payment drawn abroad and made payable here in the Philippines.
Thus, there was no acceptance as the electronic messages did not constitute the
written and signed manifestation of HSBC to a drawer's order to pay money. As
HSBC could not have been an acceptor, then it could not have made any payment
of a bill of exchange or order for the payment of money drawn abroad but payable
here in the Philippines. In other words, HSBC could not have been held liable for
DST under Section 230 of the 1977 Tax Code, as amended, and Section 181 of
the 1997 Tax Code as it is not "a person making, signing, issuing, accepting, or,
transferring" the taxable instruments under the said provision. Thus, HSBC
erroneously paid DST on the said electronic messages for which it is entitled to a
tax refund.

WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May
2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CT A Case No.
5951 of the Court of Tax Appeals are REINSTATED.

SO ORDERED.

P a g e | 15
 G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC.,
LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents
This case, for all its seeming complexity, turns on a simple question of negligence.
The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches
throughout the Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden
Savings and deposited over a period of two months 38 treasury warrants with a
total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing
Authority and purportedly signed by its General Manager and countersigned by its
Auditor. Six of these were directly payable to Gomez while the others appeared to
have been indorsed by their respective payees, followed by Gomez as second
indorser.1
On various dates between June 25 and July 16, 1979, all these warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan,
Mindoro. They were then sent for clearing by the branch office to the principal
office of Metrobank, which forwarded them to the Bureau of Treasury for special
clearing.2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch
several times to ask whether the warrants had been cleared. She was told to wait.
Accordingly, Gomez was meanwhile not allowed to withdraw from his account.
Later, however, "exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner says it finally decided to allow
Golden Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the
second on July 13, 1979, in the amount of P310,000.00, and the third on July 16,
1979, in the amount of P150,000.00. The total withdrawal was P968.000.00.4
P a g e | 16
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from
his own account, eventually collecting the total amount of P1,167,500.00 from the
proceeds of the apparently cleared warrants. The last withdrawal was made on
July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had
been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the
refund by Golden Savings of the amount it had previously withdrawn, to make up
the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional
Trial Court of Mindoro.5 After trial, judgment was rendered in favor of Golden
Savings, which, however, filed a motion for reconsideration even as Metrobank
filed its notice of appeal. On November 4, 1986, the lower court modified its
decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of
defendant Golden Savings and Loan Association, Inc. and defendant
Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account
No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such
account such amount existing before the debit was made including the
amount of P812,033.37 in favor of defendant Golden Savings and Loan
Association, Inc. and thereafter, to allow defendant Golden Savings and
Loan Association, Inc. to withdraw the amount outstanding thereon before
the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan
Association, Inc. attorney's fees and expenses of litigation in the amount
of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and
Lucia Castillo attorney's fees and expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed, prompting
Metrobank to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply
the clear contractual terms and conditions on the deposit slips allowing
Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances
where the checks or treasury warrants are forged or
unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is
that of a mere collecting agent which cannot be held liable for its
failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of
Appeals, Metrobank is made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between
Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury
warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was
indeed negligent in giving Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it was safe to allow Gomez to
withdraw the proceeds thereof from his account with it. Without such assurance,
Golden Savings would not have allowed the withdrawals; with such assurance,
there was no reason not to allow the withdrawal. Indeed, Golden Savings might
even have incurred liability for its refusal to return the money that to all
appearances belonged to the depositor, who could therefore withdraw it any time
and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden
Savings deposited them to its account with Metrobank. Golden Savings had no
clearing facilities of its own. It relied on Metrobank to determine the validity of the
warrants through its own services. The proceeds of the warrants were withheld
P a g e | 17
from Gomez until Metrobank allowed Golden Savings itself to withdraw them from
its own deposit.7 It was only when Metrobank gave the go-signal that Gomez was
finally allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care
in checking the personal circumstances of Gomez before accepting his deposit
does not hold water. It was Gomez who was entrusting the warrants, not Golden
Savings that was extending him a loan; and moreover, the treasury warrants were
subject to clearing, pending which the depositor could not withdraw its proceeds.
There was no question of Gomez's identity or of the genuineness of his signature
as checked by Golden Savings. In fact, the treasury warrants were dishonored
allegedly because of the forgery of the signatures of the drawers, not of Gomez as
payee or indorser. Under the circumstances, it is clear that Golden Savings acted
with due care and diligence and cannot be faulted for the withdrawals it allowed
Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved
was not trifling — more than one and a half million pesos (and this was 1979).
There was no reason why it should not have waited until the treasury warrants had
been cleared; it would not have lost a single centavo by waiting. Yet, despite the
lack of such clearance — and notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants, as it now repeatedly stresses
— it allowed Golden Savings to withdraw — not once, not twice, but thrice — from
the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo
about the clearance and it also wanted to "accommodate" a valued client. It
"presumed" that the warrants had been cleared simply because of "the lapse of
one week."8 For a bank with its long experience, this explanation is unbelievably
naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions
printed on the dorsal side of the deposit slips through which the treasury warrants
were deposited by Golden Savings with its Calapan branch. The conditions read
as follows:
Kindly note that in receiving items on deposit, the bank obligates itself
only as the depositor's collecting agent, assuming no responsibility
beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount previously
 credited, whether or not such item is returned. This also applies to
checks drawn on local banks and bankers and their branches as well as
on this bank, which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as
a collecting agent for Golden Savings and give it the right to "charge back to the
depositor's account any amount previously credited, whether or not such item is
returned. This also applies to checks ". . . which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft of any other reason." It is claimed that the
said conditions are in the nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that
they have apparently been imposed by the bank unilaterally, without the consent of
the depositor. Indeed, it could be argued that the depositor, in signing the deposit
slip, does so only to identify himself and not to agree to the conditions set forth in
the given permit at the back of the deposit slip. We do not have to rule on this
matter at this time. At any rate, the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility
thereunder in the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to be suggesting that as a mere agent it cannot be liable to the
principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code
clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but also for
negligence, which shall be judged 'with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that assured Golden Savings it was
already safe to allow Gomez to withdraw the proceeds of the treasury warrants he
had deposited Metrobank misled Golden Savings. There may have been no
express clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its allowing Golden
Savings to withdraw from its account not only once or even twice but three times.
The total withdrawal was in excess of its original balance before the treasury
warrants were deposited, which only added to its belief that the treasury warrants
had indeed been cleared.
P a g e | 18
Metrobank's argument that it may recover the disputed amount if the warrants are
not paid for any reason is not acceptable. Any reason does not mean no reason at
all. Otherwise, there would have been no need at all for Golden Savings to deposit
the treasury warrants with it for clearance. There would have been no need for it to
wait until the warrants had been cleared before paying the proceeds thereof to
Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not
binding for being arbitrary and unconscionable. And it becomes more so in the
case at bar when it is considered that the supposed dishonor of the warrants was
not communicated to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving
express or at least implied clearance to the treasury warrants and allowing
payments therefrom to Golden Savings. But that is not all. On top of this, the
supposed reason for the dishonor, to wit, the forgery of the signatures of the
general manager and the auditor of the drawer corporation, has not been
established.9 This was the finding of the lower courts which we see no reason to
disturb. And as we said in MWSS v. Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238).
It must be established by clear, positive and convincing evidence. This
was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in
question are not negotiable instruments. Clearly stamped on their face is the word
"non-negotiable." Moreover, and this is of equal significance, it is indicated that
they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the
underscored parts, are pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
 (e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. — An unqualified order or
promise to pay is unconditional within the meaning of this Act though
coupled with —
(a) An indication of a particular fund out of which reimbursement is to be
made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument
judgment.
clearing. It was in fact Metrobank that made the guarantee when it stamped on the
back of the warrants: "All prior indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine
Islands,12 but we feel this case is inapplicable to the present
controversy.1âwphi1 That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for clearance.
Also, the fact of forgery was proved in that case but not in the case before us.
Finally, the Court found the Jai Alai Corporation negligent in accepting the checks
without question from one Antonio Ramirez notwithstanding that the payee was the
Inter-Island Gas Services, Inc. and it did not appear that he was authorized to
indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to

But an order or promise to pay out of a particular fund is not
amend it insofar as it directs the petitioner to credit Golden Savings with the full
unconditional.
amount of the treasury checks deposited to its account.

The indication of Fund 501 as the source of the payment to be made on the
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from
treasury warrants makes the order or promise to pay "not unconditional" and the
which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was
warrants themselves non-negotiable. There should be no question that the
notified of the dishonor. The amount he has withdrawn must be charged not to
exception on Section 3 of the Negotiable Instruments Law is applicable in the case
Golden Savings but to Metrobank, which must bear the consequences of its own
at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the
negligence. But the balance of P586,589.00 should be debited to Golden Savings,
Court held:
as obviously Gomez can no longer be permitted to withdraw this amount from his
deposit because of the dishonor of the warrants. Gomez has in fact disappeared.
The petitioner argues that he is a holder in good faith and for value of a To also credit the balance to Golden Savings would unduly enrich it at the expense
negotiable instrument and is entitled to the rights and privileges of a of Metrobank, let alone the fact that it has already been informed of the dishonor of
holder in due course, free from defenses. But this treasury warrant is not the treasury warrants.
within the scope of the negotiable instrument law. For one thing, the
document bearing on its face the words "payable from the appropriation
WHEREFORE, the challenged decision is AFFIRMED, with the modification that
for food administration, is actually an Order for payment out of "a
Paragraph 3 of the dispositive portion of the judgment of the lower court shall be
particular fund," and is not unconditional and does not fulfill one of the
reworded as follows:
essential requirements of a negotiable instrument (Sec. 3 last sentence
and section [1(b)] of the Negotiable Instruments Law).
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only
and thereafter allowing defendant Golden Savings & Loan Association,
Metrobank cannot contend that by indorsing the warrants in general, Golden
Inc. to withdraw the amount outstanding thereon, if any, after the debit.
Savings assumed that they were "genuine and in all respects what they purport to
be," in accordance with Section 66 of the Negotiable Instruments Law. The simple
reason is that this law is not applicable to the non-negotiable treasury warrants. SO ORDERED.
The indorsement was made by Gloria Castillo not for the purpose of guaranteeing
the genuineness of the warrants but merely to deposit them with Metrobank for
P a g e | 19
 G.R. No. 184458 January 14, 2015
RODRIGO RIVERA, Petitioner,
vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents.
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision1 of the Court of Appeals in CA-G.R. SP No.
90609 which affirmed with modification the separate rulings of the Manila City trial
courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-1052562 and the
Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No. 163661, 3 a case for
collection of a sum of money due a promissory note. While all three (3) lower
courts upheld the validity and authenticity of the promissory note as duly signed by
the obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate
court modified the trial courts’ consistent awards: (1) the stipulated interest rate of
sixty percent (60%) reduced to twelve percent (12%) per annumcomputed from the
date of judicial or extrajudicial demand, and (2) reinstatement of the award of
attorney’s fees also in a reduced amount of ₱50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no valid
promissory note and questions the entire ruling of the lower courts. On the other
hand, petitioners in G.R. No. 184472, Spouses Salvador and Violeta Chua
(Spouses Chua), take exception to the appellate court’s reduction of the stipulated
interest rate of sixty percent (60%) to twelve percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other since 1973:
Rivera and Salvador are kumpadres, the former is the godfather of the Spouses
Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
PROMISSORY NOTE
120,000.00
P a g e | 20
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses
SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty
Thousand Philippine Currency (₱120,000.00) on December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of
(120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I
agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly from the
date of default until the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the further
sum equivalent to twenty percent (20%) of the total amount due and payable as
and for attorney’s fees which in no case shall be less than ₱5,000.00 and to pay in
addition the cost of suit and other incidental litigation expense.
Any action which may arise in connection with this note shall be brought in the
proper Court of the City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in the
promissory note, Rivera, as partial payment for the loan, issued and delivered to
the SpousesChua, as payee, a check numbered 012467, dated 30 December
1998, drawn against Rivera’s current account with the Philippine Commercial
International Bank (PCIB) in the amount of ₱25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably
issued by Rivera, likewise drawn against Rivera’s PCIB current account, numbered
013224, duly signed and dated, but blank as to payee and amount. Ostensibly, as
per understanding by the parties, PCIB Check No. 013224 was issued in the
amount of ₱133,454.00 with "cash" as payee. Purportedly, both checks were
simply partial payment for Rivera’s loan in the principal amount of ₱120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason
"account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at
₱366,000.00 covering the principal of ₱120,000.00 plus five percent (5%) interest
per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from
Rivera to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses
Chua were constrained to file a suit on 11 June 1999. The case was raffled before
the MeTC, Branch 30, Manila and docketed as Civil Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never
executed the subject Promissory Note; (2) in all instances when he obtained a loan
from the Spouses Chua, the loans were always covered by a security; (3) at the
time of the filing of the complaint, he still had an existing indebtedness to the
Spouses Chua, secured by a real estate mortgage, but not yet in default; (4) PCIB
Check No. 132224 signed by him which he delivered to the Spouses Chua on 21
December 1998, should have been issued in the amount of only 1,300.00,
representing the amount he received from the Spouses Chua’s saleslady; (5)
contrary to the supposed agreement, the Spouses Chua presented the check for
payment in the amount of ₱133,454.00; and (6) there was no demand for payment
of the amount of ₱120,000.00 prior to the encashment of PCIB Check No.
0132224.5
In the main, Rivera claimed forgery of the subject Promissory Note and denied his
indebtedness thereunder.
The MeTC summarized the testimonies of both parties’ respective witnesses:
[The spouses Chua’s] evidence include[s] documentary evidence and oral
evidence (consisting of the testimonies of [the spouses] Chua and NBI Senior
Documents Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI (1987);
NBI document examiner (1989); NBI Senior Document Examiner (1994 to the date
he testified); registered criminologist; graduate of 18th Basic Training Course [i]n
Questioned Document Examination conducted by the NBI; twice attended a
seminar on US Dollar Counterfeit Detection conducted by the US Embassy in
Manila; attended a seminar on Effective Methodology in Teaching and Instructional
design conducted by the NBI Academy; seminar lecturer on Questioned
Documents, Signature Verification and/or Detection; had examined more than a
hundred thousand questioned documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature of
[Rivera] appearing in the Promissory Note and compared the signature thereon
P a g e | 21
with the specimen signatures of [Rivera] appearing on several documents. After a
thorough study, examination, and comparison of the signature on the questioned
document (Promissory Note) and the specimen signatures on the documents
submitted to him, he concluded that the questioned signature appearing in the
Promissory Note and the specimen signatures of [Rivera] appearing on the other
documents submitted were written by one and the same person. In connection with
his findings, Magbojos prepared Questioned Documents Report No. 712-1000
dated 8 January 2001, with the following conclusion: "The questioned and the
standard specimen signatures RODGRIGO RIVERA were written by one and the
same person."
[Rivera] testified as follows: he and [respondent] Salvador are "kumpadres;" in May
1998, he obtained a loan from [respondent] Salvador and executed a real estate
mortgage over a parcel of land in favor of [respondent Salvador] as collateral;
aside from this loan, in October, 1998 he borrowed ₱25,000.00 from Salvador and
issued PCIB Check No. 126407 dated 30 December 1998; he expressly denied
execution of the Promissory Note dated 24 February 1995 and alleged that the
signature appearing thereon was not his signature; [respondent Salvador’s] claim
that PCIB Check No. 0132224 was partial payment for the Promissory Note was
not true, the truth being that he delivered the check to [respondent Salvador] with
the space for amount left blank as he and [respondent] Salvador had agreed that
the latter was to fill it in with the amount of ₱1,300.00 which amount he owed [the
spouses Chua]; however, on 29 December 1998 [respondent] Salvador called him
and told him that he had written ₱133,454.00 instead of ₱1,300.00; x x x. To rebut
the testimony of NBI Senior Document Examiner Magbojos, [Rivera] reiterated his
averment that the signature appearing on the Promissory Note was not his
signature and that he did not execute the Promissory Note. 6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: ₱120,000.00 plus
stipulated interest at the rate of 5% per month from 1 January 1996, and legal
interest at the rate of 12% percent per annum from 11 June 1999, as actual and
compensatory damages; 20% of the whole amount due as attorney’s fees. 7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of
the MeTC, but deleted the award of attorney’s fees to the Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is hereby deleted,
the rest of the Decision dated October 21, 2002 is hereby AFFIRMED.8
Both trial courts found the Promissory Note as authentic and validly bore the
signature of Rivera. Undaunted, Rivera appealed to the Court of Appeals which
affirmed Rivera’s liability under the Promissory Note, reduced the imposition of
interest on the loan from 60% to 12% per annum, and reinstated the award of
attorney’s fees in favor of the Spouses Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the
MODIFICATION that the interest rate of 60% per annum is hereby reduced to12%
per annum and the award of attorney’s fees is reinstated atthe reduced amount of
₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in G.R. No.
184458 and the Spouses Chua in G.R. No. 184472, respectively raising the
following issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN UPHOLDING THE RULING OF THE RTC
AND M[e]TC THAT THERE WAS A VALID PROMISSORY
NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN HOLDING THAT DEMAND IS NO
LONGER NECESSARY AND IN APPLYING THE PROVISIONS
OF THE NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN AWARDING ATTORNEY’S FEES
DESPITE THE FACT THAT THE SAME HAS NO BASIS IN
FACT AND IN LAW AND DESPITE THE FACT THAT [THE
SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION
OF THE RTC DELETING THE AWARD OF ATTORNEY’S
FEES.10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED
GROSS LEGAL ERROR WHEN IT MODIFIED THE APPEALED JUDGMENT BY
REDUCING THE INTEREST RATE FROM 60% PER ANNUM TO 12% PER
ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER RAISED IN HIS
P a g e | 22
ANSWER THE DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST
IS EXORBITANT, UNCONSCIONABLE, UNREASONABLE, INEQUITABLE,
ILLEGAL, IMMORAL OR VOID.11
As early as 15 December 2008, wealready disposed of G.R. No. 184472 and
denied the petition, via a Minute Resolution, for failure to sufficiently show any
reversible error in the ruling of the appellate court specifically concerning the
correct rate of interest on Rivera’s indebtedness under the Promissory Note.12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera
questioning the entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims that
given his friendship withthe Spouses Chua who were money lenders, he has been
able to maintain a loan account with them. However, each of these loan
transactions was respectively "secured by checks or sufficient collateral."
Rivera points out that the Spouses Chua "never demanded payment for the loan
nor interest thereof (sic) from [Rivera] for almost four (4) years from the time of the
alleged default in payment [i.e., after December 31, 1995]." 13
On the issue of the supposed forgery of the promissory note, we are not inclined to
depart from the lower courts’ uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the promissory
note was forged, only that the signature is not his and varies from his usual
signature. He likewise makes a confusing defense of having previously obtained
loans from the Spouses Chua who were money lenders and who had allowed him
a period of "almost four (4) years" before demanding payment of the loan under
the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the testimony
of the National Bureau of Investigation (NBI) handwriting expert on the integrity of
the promissory note. On that score, the appellate court aptly disabled Rivera’s
contention:
[Rivera] failed to adduce clear and convincing evidence that the signature on the
promissory note is a forgery. The fact of forgery cannot be presumed but must be
proved by clear, positive and convincing evidence. Mere variance of signatures
cannot be considered as conclusive proof that the same was forged. Save for the
denial of Rivera that the signature on the note was not his, there is nothing in the
records to support his claim of forgery. And while it is true that resort to experts is
not mandatory or indispensable to the examination of alleged forged documents,
the opinions of handwriting experts are nevertheless helpful in the court’s
determination of a document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the
promissory note and the testimony of the NBI witness. In fact, even a perfunctory
comparison of the signatures offered in evidence would lead to the conclusion that
the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must
establish his case by preponderance of evidence, which simply means "evidence
which is of greater weight, or more convincing than that which is offered in
opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses Chua]
have established a prima faciecase in their favor, hence, the burden of evidence
has shifted to [Rivera] to prove his allegation of forgery. Unfortunately for [Rivera],
he failed to substantiate his defense.14 Well-entrenched in jurisprudence is the rule
that factual findings of the trial court, especially when affirmed by the appellate
court, are accorded the highest degree of respect and are considered conclusive
between the parties.15 A review of such findings by this Court is not warranted
except upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises or
conjectures; (2) when a lower court's inference from its factual findings is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the appellate court
go beyond the issues of the case, or fail to notice certain relevant facts which, if
properly considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without
mention of the specific evidence on which they are based, are premised on the
absence of evidence, or are contradicted by evidence on record.16 None of these
exceptions obtains in this instance. There is no reason to depart from the separate
factual findings of the three (3) lower courts on the validity of Rivera’s signature
reflected in the Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations which he sets up
in his Answer to the plaintiff’s claim or cause of action, upon which issue is joined,
whether they relate to the whole case or only to certain issues in the case.17
P a g e | 23
In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the
testimony of a handwriting expert from the NBI. While it is true that resort to
experts is not mandatory or indispensable to the examination or the comparison of
handwriting, the trial courts in this case, on its own, using the handwriting expert
testimony only as an aid, found the disputed document valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the following:
categorical statement of [respondent] Salvador that [Rivera] signed the Promissory
Note before him, in his ([Rivera’s]) house; the conclusion of NBI Senior Documents
Examiner that the questioned signature (appearing on the Promissory Note) and
standard specimen signatures "Rodrigo Rivera" "were written by one and the same
person"; actual view at the hearing of the enlarged photographs of the questioned
signature and the standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it is beyond
logic for a money lender to extend another loan on May 4, 1998 secured by a real
estate mortgage, when he was already in default and has not been paying any
interest for a loan incurred in February 1995."20
We disagree.
It is likewise likely that precisely because of the long standing friendship of the
parties as "kumpadres," Rivera was allowed another loan, albeit this time secured
by a real estate mortgage, which will cover Rivera’s loan should Rivera fail to pay.
There is nothing inconsistent with the Spouses Chua’s two (2) and successive loan
accommodations to Rivera: one, secured by a real estate mortgage and the other,
secured by only a Promissory Note.
Also completely plausible is thatgiven the relationship between the parties, Rivera
was allowed a substantial amount of time before the Spouses Chua demanded
payment of the obligation due under the Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of
forgery and a discordant defense to assail the authenticity and validity of the
Promissory Note. Although the burden of proof rested on the Spouses Chua
having instituted the civil case and after they established a prima facie case
against Rivera, the burden of evidence shifted to the latter to establish his
defense.21 Consequently, Rivera failed to discharge the burden of evidence, refute
the existence of the Promissory Note duly signed by him and subsequently, that he
did not fail to pay his obligation thereunder. On the whole, there was no question
left on where the respective evidence of the parties preponderated—in favor of
plaintiffs, the Spouses Chua. Rivera next argues that even assuming the validity of
the Promissory Note, demand was still necessary in order to charge him liable
thereunder. Rivera argues that it was grave error on the part of the appellate court
to apply Section 70 of the Negotiable Instruments Law (NIL).22
We agree that the subject promissory note is not a negotiable instrument and the
provisions of the NIL do not apply to this case. Section 1 of the NIL requires the
concurrence of the following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note
is: SECTION 184. Promissory Note, Defined. – A negotiable promissory note
within the meaning of this Act is an unconditional promise in writing made by one
person to another, signed by the maker, engaging to pay on demand, or at a fixed
or determinable future time, a sum certain in money to order or to bearer. Where a
note is drawn to the maker’s own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein
respondents, the Spouses Chua, and not to order or to bearer, or to the order of
the Spouses Chua as payees. However, even if Rivera’s Promissory Note is not a
negotiable instrument and therefore outside the coverage of Section 70 of the NIL
which provides that presentment for payment is not necessary to charge the
person liable on the instrument, Rivera is still liable under the terms of the
Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due
and becomes demandable—31 December 1995. As of 1 January 1996, Rivera had
P a g e | 24
already incurred in delay when he failed to pay the amount of ₱120,000.00 due to
the Spouses Chua on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be delivered
or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other
begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in
default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement
for the creation of the obligation; and (4) where demand would be useless. In the
first two paragraphs, it is not sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the period lapses, default will
commence.
We refer to the clause in the Promissory Note containing the stipulation of interest:
It is agreed and understood that failure on my part to pay the amount of
(₱120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995.
(sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly
from the date of default until the entire obligation is fully paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the
"date of default" until the entire obligation is fully paid for. The parties evidently
agreed that the maturity of the obligation at a date certain, 31 December 1995, will
give rise to the obligation to pay interest. The Promissory Note expressly provided
that after 31 December 1995, default commences and the stipulation on payment
of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following
31 December 1995, the due date of the obligation. On that date, Rivera became
liable for the stipulated interest which the Promissory Note says is equivalent to 5%
a month. In sum, until 31 December 1995, demand was not necessary before
Rivera could be held liable for the principal amount of ₱120,000.00. Thereafter, on
1 January 1996, upon default, Rivera became liable to pay the Spouses Chua
damages, in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of
delay, in the performance of their obligations is laid down on Article 1170 24 of the
Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as
an indemnity for damages when the obligor incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for
a sum of money; (2) the debtor, Rivera, incurred in delay when he failed to pay on
or before 31 December 1995; and (3) the Promissory Note provides for an
indemnity for damages upon default of Rivera which is the payment of a
5%monthly interest from the date of default.
We do not consider the stipulation on payment of interest in this case as a penal
clause although Rivera, as obligor, assumed to pay additional 5% monthly interest
on the principal amount of ₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
P a g e | 25
Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance, if
there isno stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.
The penal clause is generally undertaken to insure performance and works as
either, or both, punishment and reparation. It is an exception to the general rules
on recovery of losses and damages. As an exception to the general rule, a penal
clause must be specifically set forth in the obligation. 25
In high relief, the stipulation in the Promissory Note is designated as payment of
interest, not as a penal clause, and is simply an indemnity for damages incurred by
the Spouses Chua because Rivera defaulted in the payment of the amount of
₱120,000.00. The measure of damages for the Rivera’s delay is limited to the
interest stipulated in the Promissory Note. In apt instances, in default of stipulation,
the interest is that provided by law.26
In this instance, the parties stipulated that in case of default, Rivera will pay
interest at the rate of 5% a month or 60% per annum. On this score, the appellate
court ruled:
It bears emphasizing that the undertaking based on the note clearly states the date
of payment tobe 31 December 1995. Given this circumstance, demand by the
creditor isno longer necessary in order that delay may exist since the contract itself
already expressly so declares. The mere failure of [Spouses Chua] to immediately
demand or collect payment of the value of the note does not exonerate [Rivera]
from his liability therefrom. Verily, the trial court committed no reversible error when
it imposed interest from 1 January 1996 on the ratiocination that [Spouses Chua]
were relieved from making demand under Article 1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60% per
annum in addition to legal interests and attorney’s fees is, indeed, highly iniquitous
and unreasonable. Stipulated interest rates are illegal if they are unconscionable
and the Court is allowed to temper interest rates when necessary. Since the
interest rate agreed upon is void, the parties are considered to have no stipulation
regarding the interest rate, thus, the rate of interest should be 12% per annum
computed from the date of judicial or extrajudicial demand.27
The appellate court found the 5% a month or 60% per annum interest rate, on top
of the legal interest and attorney’s fees, steep, tantamount to it being illegal,
iniquitous and unconscionable. Significantly, the issue on payment of interest has
been squarely disposed of in G.R. No. 184472 denying the petition of the Spouses
Chua for failure to sufficiently showany reversible error in the ruling of the appellate
court, specifically the reduction of the interest rate imposed on Rivera’s
indebtedness under the Promissory Note. Ultimately, the denial of the petition in
G.R. No. 184472 is res judicata in its concept of "bar by prior judgment" on
whether the Court of Appeals correctly reduced the interest rate stipulated in the
Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the following
requisites concur: (1) the former judgment or order must be final; (2) the judgment
or order must be on the merits; (3) the decision must have been rendered by a
court having jurisdiction over the subject matter and the parties; and (4) there must
be, between the first and the second action, identity of parties, of subject matter
and of causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of
parties and subject matter raising specifically errors in the Decision of the Court of
Appeals. Where the Court of Appeals’ disposition on the propriety of the reduction
of the interest rate was raised by the Spouses Chua in G.R. No. 184472, our ruling
thereon affirming the Court of Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of default under the
Promissory Note, the then prevailing rate of legal interest was 12% per annum
under Central Bank (CB) Circular No. 416 in cases involving the loan or for
bearance of money.29 Thus, the legal interest accruing from the Promissory Note is
12% per annum from the date of default on 1 January 1996. However, the 12% per
annumrate of legal interest is only applicable until 30 June 2013, before the advent
and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of
2013 reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in
Nacar v. Gallery Frames,30 BSP Circular No. 799 is prospectively applied from 1
July 2013. In short, the applicable rate of legal interest from 1 January 1996, the
date when Rivera defaulted, to date when this Decision becomes final and
executor is divided into two periods reflecting two rates of legal interest: (1) 12%
per annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM 1
July 2013 to date when this Decision becomes final and executory.
P a g e | 26
As for the legal interest accruing from 11 June 1999, when judicial demand was
made, to the date when this Decision becomes final and executory, such is
likewise divided into two periods: (1) 12% per annum from 11 June 1999, the date
of judicial demand to 30 June 2013; and (2) 6% per annum from 1 July 2013 to
date when this Decision becomes final and executor.31 We base this imposition of
interest on interest due earning legal interest on Article 2212 of the Civil Code
which provides that "interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent on this point."
From the time of judicial demand, 11 June 1999, the actual amount owed by
Rivera to the Spouses Chua could already be determined with reasonable certainty
given the wording of the Promissory Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
I. When an obligation, regardless of its source, i.e., law, contracts,
quasicontracts, delicts or quasi-delicts is breached, the contravenor can
be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or for bearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per
annum to be computed from default, i.e., from judicial or extra
judicial demand under and subject to the provisions ofArticle
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum.1âwphi1 No interest, however, shall be
adjudged on unliquidated claims or damages, except when or
until the demand can be established with reasonable certainty.
 Accordingly, where the demand is established with reasonable
executory Decision becomes
certainty, the interest shall begin to run from the time the claim is
final and executory
made judicially or extrajudicially (Art. 1169, Civil Code), but when
such certainty cannot be so reasonably established at the time ₱120,000.00 A. 12 % per annumon A. 12% per ₱50,000.00 Total amount
the demand is made, the interest shall begin to run only from the the principal amount annumon the total of Columns 1-4
date the judgment of the court is made (at which time the of ₱120,000.00 amount of column 2
quantification of damages may be deemed to have been B. 6% per annumon B. 6% per annumon
reasonably ascertained). The actual base for the computation of the principal amount the total amount of
legal interest shall, in any case, be on the amount finally of ₱120,000.00 column 235
adjudged. 3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above,
shall be 6% per annum from such finality until its satisfaction, The total amount owing to the Spouses Chua set forth in this Decision shall further
this interim period being deemed to be by then an equivalent to a earn legal interest at the rate of 6% per annum computed from its finality until full
for bearance of credit. And, in addition to the above, judgments payment thereof, the interim period being deemed to be a forbearance of credit.
that have become final and executory prior to July 1, 2013, shall
not be disturbed and shall continue to be implemented applying WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the
the rate of interest fixed therein. (Emphasis supplied) Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo
Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua the
On the reinstatement of the award of attorney’s fees based on the stipulation in the following:
Promissory Note, weagree with the reduction thereof but not the ratiocination of the
appellate court that the attorney’s fees are in the nature of liquidated damages or (1) the principal amount of ₱120,000.00;
penalty. The interest imposed in the Promissory Note already answers as
liquidated damages for Rivera’s default in paying his obligation. We award (2) legal interest of 12% per annumof the principal amount of
attorney’s fees, albeit in a reduced amount, in recognition that the Spouses Chua ₱120,000.00 reckoned from 1 January 1996 until 30 June 2013;
were compelled to litigate and incurred expenses to protect their interests. 34 Thus,
the award of ₱50,000.00 as attorney’s fees is proper. (3) legal interest of 6% per annumof the principal amount of ₱120,000.00
form 1 July 2013 to date when this Decision becomes final and executory;
For clarity and to obviate confusion, we chart the breakdown of the total amount
owed by Rivera to the Spouses Chua: (4) 12% per annumapplied to the total of paragraphs 2 and 3 from 11
June 1999, date of judicial demand, to 30 June 2013, as interest due
Face value of Stipulated Interest A & Interest due earning Attorney’s Total earning legal interest;
the Promissory B legal interest A & B fees Amount
Note (5) 6% per annumapplied to the total amount of paragraphs 2 and 3 from
1 July 2013 to date when this Decision becomes final and executor,
February 24, A. January 1, 1996 to A. June 11, 1999 Wholesale asinterest due earning legal interest;
1995 to June 30, 2013 (date of judicial Amount
December 31, demand) to June (6) Attorney’s fees in the amount of ₱50,000.00; and
1995 B. July 1 2013 to date 30, 2013
when this Decision B. July 1, 2013 to
(7) 6% per annum interest on the total of the monetary awards from the
becomes final and date when this
finality of this Decision until full payment thereof.

P a g e | 27
 G.R. No. L-2516 September 25, 1950
ANG TEK LIAN, petitioner,
vs.
THE COURT OF APPEALS, respondent.
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the
Court of First Instance of Manila. The Court of Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday,
November 16, 1946, the check Exhibits A upon the China Banking Corporation for
the sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong
in exchange for money which the latter handed in act. On November 18, 1946, the
next business day, the check was presented by Lee Hua Hong to the drawee bank
for payment, but it was dishonored for insufficiency of funds, the balance of the
deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on
November 16, 1946, appellant went to his (complainant's) office, at 1217 Herran,
Paco, Manila, and asked him to exchange Exhibit A — which he (appellant) then
brought with him — with cash alleging that he needed badly the sum of P4,000
represented by the check, but could not withdraw it from the bank, it being then
already closed; that in view of this request and relying upon appellant's assurance
that he had sufficient funds in the blank to meet Exhibit A, and because they used
to borrow money from each other, even before the war, and appellant owns a hotel
and restaurant known as the North Bay Hotel, said complainant delivered to him,
on the same date, the sum of P4,000 in cash; that despite repeated efforts to notify
him that the check had been dishonored by the bank, appellant could not be
located any-where, until he was summoned in the City Fiscal's Office in view of the
complaint for estafa filed in connection therewith; and that appellant has not paid
as yet the amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only question
of law for decision is whether under the facts found, estafa had been
accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes
swindling committed "By post dating a check, or issuing such check in payment of
an obligation the offender knowing that at the time he had no funds in the bank, or
the funds deposited by him in the bank were not sufficient to cover the amount of
the check, and without informing the payee of such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held liable.
In this connection, it must be stated that, as explained in People vs. Fernandez (59
Phil., 615), estafa is committed by issuing either a postdated check or an ordinary
check to accomplish the deceit.
P a g e | 28
It is argued, however, that as the check had been made payable to "cash" and had
not been endorsed by Ang Tek Lian, the defendant is not guilty of the offense
charged. Based on the proposition that "by uniform practice of all banks in the
Philippines a check so drawn is invariably dishonored," the following line of
reasoning is advanced in support of the argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit
A) from the appellant, he did so with full knowledge that it would be
dishonored upon presentment. In that sense, the appellant could not be
said to have acted fraudulently because the complainant, in so accepting
the check as it was drawn, must be considered, by every rational
consideration, to have done so fully aware of the risk he was running
thereby." (Brief for the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly
occurred wherein the Bank required the indorsement of the drawer before honoring
a check payable to "cash." But cases there are too, where no such requirement
had been made . It depends upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the
order of "cash" is a check payable to bearer, and the bank may pay it to the person
presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument.
Bacal vs. National City Bank of New York (1933), 146 Misc., 732; 262 N.
Y. S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104
N. Y. S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh
Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818. See
also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash
"does not purport to be the name of any person", and hence the
instrument is payable to bearer. The drawee bank need not obtain any
indorsement of the check, but may pay it to the person presenting it
without any indorsement. . . . (Zollmann, Banks and Banking, Permanent
Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has
the right to demand identification and /or assurance against possible
complications, — for instance, (a) forgery of drawer's signature, (b) loss of the
check by the rightful owner, (c) raising of the amount payable, etc. The bank may
therefore require, for its protection, that the indorsement of the drawer — or of
some other person known to it — be obtained. But where the Bank is satisfied of
the identity and /or the economic standing of the bearer who tenders the check for
collection, it will pay the instrument without further question; and it would incur no
liability to the drawer in thus acting.
 A check payable to bearer is authority for payment to holder. Where a
check is in the ordinary form, and is payable to bearer, so that no
indorsement is required, a bank, to which it is presented for payment,
need not have the holder identified, and is not negligent in falling to do so.
. . . (Michie on Banks and Banking, Permanent Edition, Vol. 5, p. 343.)

. . . Consequently, a drawee bank to which a bearer check is presented

for payment need not necessarily have the holder identified and ordinarily
may not be charged with negligence in failing to do so. See Opinions 6C:2
and 6C:3 If the bank has no reasonable cause for suspecting any
irregularity, it will be protected in paying a bearer check, "no matter what
facts unknown to it may have occurred prior to the presentment." 1 Morse,
Banks and Banking, sec. 393.

Although a bank is entitled to pay the amount of a bearer check without

further inquiry, it is entirely reasonable for the bank to insist that holder
give satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the check Exhibit A was
totally unconnected with its dishonor. The Court of Appeals declared that it was
returned unsatisfied because the drawer had insufficient funds— not because the
drawer's indorsement was lacking.

Wherefore, there being no question as to the correctness of the penalty imposed

on the appellant, the writ of certiorari is denied and the decision of the Court of
Appeals is hereby affirmed, with costs.

P a g e | 29
G.R. No. 170325 September 26, 2008
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
WHEN the payee of the check is not intended to be the true recipient of its
proceeds, is it payable to order or bearer? What is the fictitious-payee rule and
who is liable under it? Is there any exception?
These questions seek answers in this petition for review on certiorari of the
Amended Decision1 of the Court of Appeals (CA) which affirmed with modification
that of the Regional Trial Court (RTC).2
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner
Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City. They
maintained savings and demand/checking accounts, namely, PNBig Demand
Deposits (Checking/Current Account No. 810624-6 under the account name
Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current
Account No. 810480-4 under the account name Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their
business, they had a discounting3 arrangement with the Philnabank Employees
Savings and Loan Association (PEMSLA), an association of PNB employees.
Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The
association maintained current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would
rediscount the postdated checks issued to members whenever the association was
short of funds. As was customary, the spouses would replace the postdated
checks with their own checks issued in the name of the members.
It was PEMSLA’s policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a
scheme to obtain additional loans despite their outstanding loan accounts. They
took out loans in the names of unknowing members, without the knowledge or
consent of the latter. The PEMSLA checks issued for these loans were then given
to the spouses for rediscounting. The officers carried this out by forging the
indorsement of the named payees in the checks.
P a g e | 30
In return, the spouses issued their personal checks (Rodriguez checks) in the
name of the members and delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited by the spouses to their
account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its
savings account without any indorsement from the named payees. This was an
irregular procedure made possible through the facilitation of Edmundo Palermo,
Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this
became the usual practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty nine
(69) checks, in the total amount of P2,345,804.00. These were payable to forty
seven (47) individual payees who were all members of PEMSLA. 4
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to
this scheme, PNB closed the current account of PEMSLA. As a result, the
PEMSLA checks deposited by the spouses were returned or dishonored for the
reason "Account Closed." The corresponding Rodriguez checks, however, were
deposited as usual to the PEMSLA savings account. The amounts were duly
debited from the Rodriguez account. Thus, because the PEMSLA checks given as
payment were returned, spouses Rodriguez incurred losses from the rediscounting
transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil
complaint for damages against PEMSLA, the Multi-Purpose Cooperative of
Philnabankers (MCP), and petitioner PNB. They sought to recover the value of
their checks that were deposited to the PEMSLA savings account amounting
to P2,345,804.00. The spouses contended that because PNB credited the checks
to the PEMSLA account even without indorsements, PNB violated its contractual
obligation to them as depositors. PNB paid the wrong payees, hence, it should
bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB
argued that the claim for damages should come from the payees of the checks,
and not from spouses Rodriguez. Since there was no demand from the said
payees, the obligation should be considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNB’s motion to dismiss.
In its Answer,5 PNB claimed it is not liable for the checks which it paid to the
PEMSLA account without any indorsement from the payees. The bank contended
that spouses Rodriguez, the makers, actually did not intend for the named payees
to receive the proceeds of the checks. Consequently, the payees were considered
as "fictitious payees" as defined under the Negotiable Instruments Law (NIL).
Being checks made to fictitious payees which are bearer instruments, the checks
were negotiable by mere delivery. PNB’s Answer included its cross-claim against
its co-defendants PEMSLA and the MCP, praying that in the event that judgment is
rendered against the bank, the cross-defendants should be ordered to reimburse
PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It
ruled that PNB (defendant) is liable to return the value of the checks. All
counterclaims and cross-claims were dismissed. The dispositive portion of the
RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as
follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount
of P2,345,804.00 or reinstate or restore the amount of P775,337.00 in the
PNBig Demand Deposit Checking/Current Account No. 810480-4 of
Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig
Demand Deposit, Checking/Current Account No. 810624-6 of Erlando T.
Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon to
be computed from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following
reasonable amount of damages suffered by them taking into
consideration the standing of the plaintiffs being sugarcane planters,
realtors, residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount
of P4,000,000.00, as a result of their having incurred great
dificulty (sic) especially in the residential subdivision business,
which was not pushed through and the contractor even
threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorney’s fees in the amount of P150,000.00 considering
that this case does not involve very complicated issues; and for
the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed. 6
P a g e | 31
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that
the disputed checks should be considered as payable to bearer and not to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC
disposition. The CA concluded that the checks were obviously meant by the
spouses to be really paid to PEMSLA. The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses
Rodriguez) that their cause of action arose from the alleged breach of contract by
the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA
despite the checks being payable to order. Rather, we are more convinced by the
strong and credible evidence for the defendant-appellant with regard to the
plaintiffs-appellees’ and PEMSLA’s business arrangement – that the value of the
rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLA’s
account for payment of the loans it has approved in exchange for PEMSLA’s
checks with the full value of the said loans. This is the only obvious explanation as
to why all the disputed sixty-nine (69) checks were in the possession of PEMSLA’s
errand boy for presentment to the defendant-appellant that led to this present
controversy. It also appears that the teller who accepted the said checks was
PEMSLA’s officer, and that such was a regular practice by the parties until the
defendant-appellant discovered the scam. The logical conclusion, therefore, is that
the checks were never meant to be paid to order, but instead, to PEMSLA. We
thus find no breach of contract on the part of the defendant-appellant.
According to plaintiff-appellee Erlando Rodriguez’ testimony, PEMSLA allegedly
issued post-dated checks to its qualified members who had applied for loans.
However, because of PEMSLA’s insufficiency of funds, PEMSLA approached the
plaintiffs-appellees for the latter to issue rediscounted checks in favor of said
applicant members. Based on the investigation of the defendant-appellant,
meanwhile, this arrangement allowed the plaintiffs-appellees to make a profit by
issuing rediscounted checks, while the officers of PEMSLA and other members
would be able to claim their loans, despite the fact that they were disqualified for
one reason or another. They were able to achieve this conspiracy by using other
members who had loaned lesser amounts of money or had not applied at all. x x
x.8 (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require
indorsement for negotiation; and that spouses Rodriguez and PEMSLA conspired
with each other to accomplish this money-making scheme. The payees in the
checks were "fictitious payees" because they were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that
the checks on their faces were unquestionably payable to order; and that PNB
committed a breach of contract when it paid the value of the checks to PEMSLA
without indorsement from the payees. They also argued that their cause of action
is not only against PEMSLA but also against PNB to recover the value of the
checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last
paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-
appellees Sps. Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per
annum from 14 May 1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorney’s fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by
Us AFFIRMING WITH MODIFICATION the assailed decision rendered in Civil
Case No. 99-10892, as set forth in the immediately next preceding paragraph
hereof, and SETTING ASIDE Our original decision promulgated in this case on 22
July 2004.
SO ORDERED.9
The CA ruled that the checks were payable to order. According to the appellate
court, PNB failed to present sufficient proof to defeat the claim of the spouses
Rodriguez that they really intended the checks to be received by the specified
payees. Thus, PNB is liable for the value of the checks which it paid to PEMSLA
without indorsements from the named payees. The award for damages was
deemed appropriate in view of the failure of PNB to treat the Rodriguez account
with the highest degree of care considering the fiduciary nature of their
relationship, which constrained respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to
order or to bearer and who bears the loss?
P a g e | 32
PNB argues anew that when the spouses Rodriguez issued the disputed checks,
they did not intend for the named payees to receive the proceeds. Thus, they are
bearer instruments that could be validly negotiated by mere delivery. Further,
testimonial and documentary evidence presented during trial amply proved that
spouses Rodriguez and the officers of PEMSLA conspired with each other to
defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous
judgment attaining finality to the prejudice of innocent parties. A court discovering
an erroneous judgment before it becomes final may, motu proprio or upon motion
of the parties, correct its judgment with the singular objective of achieving justice
for the litigants.10
However, a word of caution to lower courts, the CA in Cebu in this particular case,
is in order. The Court does not sanction careless disposition of cases by courts of
justice. The highest degree of diligence must go into the study of every controversy
submitted for decision by litigants. Every issue and factual detail must be closely
scrutinized and analyzed, and all the applicable laws judiciously studied, before the
promulgation of every judgment by the court. Only in this manner will errors in
judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. A check is "a bill of
exchange drawn on a bank payable on demand." 11 It is either an order or a bearer
instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. – The instrument is payable to order where it is
drawn payable to the order of a specified person or to him or his order. It may be
drawn payable to the order of –
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
 (f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
SEC. 9. When payable to bearer. – The instrument is payable to bearer –
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person,
and such fact is known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any
person; or
(e) Where the only or last indorsement is an indorsement in
blank.12 (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of
negotiation. Under Section 30 of the NIL, an order instrument requires an
indorsement from the payee or holder before it may be validly negotiated. A bearer
instrument, on the other hand, does not require an indorsement to be validly
negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. – An instrument is negotiated when it is
transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the holder completed by
delivery.
A check that is payable to a specified payee is an order instrument. However,
under Section 9(c) of the NIL, a check payable to a specified payee may
nevertheless be considered as a bearer instrument if it is payable to the order of a
fictitious or non-existing person, and such fact is known to the person making it so
payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda,"
who are well-known characters in Philippine mythology, are bearer instruments
because the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used in the
NIL. It is for this reason that We look elsewhere for guidance. Court rulings in the
United States are a logical starting point since our law on negotiable instruments
P a g e | 33
was directly lifted from the Uniform Negotiable Instruments Law of the United
States.13
A review of US jurisprudence yields that an actual, existing, and living payee may
also be "fictitious" if the maker of the check did not intend for the payee to in fact
receive the proceeds of the check. This usually occurs when the maker places a
name of an existing payee on the check for convenience or to cover up an illegal
activity.14 Thus, a check made expressly payable to a non-fictitious and existing
person is not necessarily an order instrument. If the payee is not the intended
recipient of the proceeds of the check, the payee is considered a "fictitious" payee
and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the
drawer bears the loss. When faced with a check payable to a fictitious payee, it is
treated as a bearer instrument that can be negotiated by delivery. The underlying
theory is that one cannot expect a fictitious payee to negotiate the check by placing
his indorsement thereon. And since the maker knew this limitation, he must have
intended for the instrument to be negotiated by mere delivery. Thus, in case of
controversy, the drawer of the check will bear the loss. This rule is justified for
otherwise, it will be most convenient for the maker who desires to escape payment
of the check to always deny the validity of the indorsement. This despite the fact
that the fictitious payee was purposely named without any intention that the payee
should receive the proceeds of the check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance
Bank.16 In the said case, the corporation Mueller & Martin was defrauded by
George L. Martin, one of its authorized signatories. Martin drew seven checks
payable to the German Savings Fund Company Building Association (GSFCBA)
amounting to $2,972.50 against the account of the corporation without authority
from the latter. Martin was also an officer of the GSFCBA but did not have signing
authority. At the back of the checks, Martin placed the rubber stamp of the
GSFCBA and signed his own name as indorsement. He then successfully drew the
funds from Liberty Insurance Bank for his own personal profit. When the
corporation filed an action against the bank to recover the amount of the checks,
the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so
payable did not intend for the specified payee to have any part in the transactions,
the payee is considered as a fictitious payee. The check is then considered as a
bearer instrument to be validly negotiated by mere delivery. Thus, the US Supreme
Court held that Liberty Insurance Bank, as drawee, was authorized to make
payment to the bearer of the check, regardless of whether prior indorsements were
genuine or not.17
The more recent Getty Petroleum Corp. v. American Express Travel Related
Services Company, Inc.18 upheld the fictitious-payee rule. The rule protects the
depositary bank and assigns the loss to the drawer of the check who was in a
better position to prevent the loss in the first place. Due care is not even required
from the drawee or depositary bank in accepting and paying the checks. The effect
is that a showing of negligence on the part of the depositary bank will not defeat
the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A
showing of commercial bad faith on the part of the drawee bank, or any transferee
of the check for that matter, will work to strip it of this defense. The exception will
cause it to bear the loss. Commercial bad faith is present if the transferee of the
check acts dishonestly, and is a party to the fraudulent scheme. Said the US
Supreme Court in Getty:
Consequently, a transferee’s lapse of wary vigilance, disregard of suspicious
circumstances which might have well induced a prudent banker to investigate and
other permutations of negligence are not relevant considerations under Section 3-
405 x x x. Rather, there is a "commercial bad faith" exception to UCC 3-405,
applicable when the transferee "acts dishonestly – where it has actual knowledge
of facts and circumstances that amount to bad faith, thus itself becoming a
participant in a fraudulent scheme. x x x Such a test finds support in the text of the
Code, which omits a standard of care requirement from UCC 3-405 but imposes on
all parties an obligation to act with "honesty in fact." x x x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to
non-bank transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees.
It is unrefuted that the 69 checks were payable to specific persons. Likewise, it is
uncontroverted that the payees were actual, existing, and living persons who were
members of PEMSLA that had a rediscounting arrangement with spouses
Rodriguez.
What remains to be determined is if the payees, though existing persons, were
"fictitious" in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the
makers did not intend for the named payees to be part of the transaction involving
the checks. At most, the bank’s thesis shows that the payees did not have
knowledge of the existence of the checks. This lack of knowledge on the part of the
payees, however, was not tantamount to a lack of intention on the part of
respondents-spouses that the payees would not receive the checks’ proceeds.
Considering that respondents-spouses were transacting with PEMSLA and not the
individual payees, it is understandable that they relied on the information given by
the officers of PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as
found by both lower courts, PNB failed to present sufficient evidence to defeat the
P a g e | 34
claim of respondents-spouses that the named payees were the intended recipients
of the checks’ proceeds. The bank failed to satisfy a requisite condition of a
fictitious-payee situation – that the maker of the check intended for the payee to
have no interest in the transaction.
Because of a failure to show that the payees were "fictitious" in its broader sense,
the fictitious-payee rule does not apply. Thus, the checks are to be deemed
payable to order. Consequently, the drawee bank bears the loss.20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its
teller or tellers accepted the 69 checks for deposit to the PEMSLA account even
without any indorsement from the named payees. It bears stressing that order
instruments can only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer
nor duly indorsed by the payee is apparently grossly negligent in its
operations.21 This Court has recognized the unique public interest possessed by
the banking industry and the need for the people to have full trust and confidence
in their banks.22 For this reason, banks are minded to treat their customer’s
accounts with utmost care, confidence, and honesty. 23
In a checking transaction, the drawee bank has the duty to verify the genuineness
of the signature of the drawer and to pay the check strictly in accordance with the
drawer’s instructions, i.e., to the named payee in the check. It should charge to the
drawer’s accounts only the payables authorized by the latter. Otherwise, the
drawee will be violating the instructions of the drawer and it shall be liable for the
amount charged to the drawer’s account.24
In the case at bar, respondents-spouses were the bank’s depositors. The checks
were drawn against respondents-spouses’ accounts. PNB, as the drawee bank,
had the responsibility to ascertain the regularity of the indorsements, and the
genuineness of the signatures on the checks before accepting them for deposit.
Lastly, PNB was obligated to pay the checks in strict accordance with the
instructions of the drawers. Petitioner miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA
absent any type of indorsement, forged or otherwise. The facts clearly show that
the bank did not pay the checks in strict accordance with the instructions of the
drawers, respondents-spouses. Instead, it paid the values of the checks not to the
named payees or their order, but to PEMSLA, a third party to the transaction
between the drawers and the payees.alf-ITC
Moreover, PNB was negligent in the selection and supervision of its employees.
The trustworthiness of bank employees is indispensable to maintain the stability of
the banking industry. Thus, banks are enjoined to be extra vigilant in the
management and supervision of their employees. In Bank of the Philippine Islands
v. Court of Appeals,25 this Court cautioned thus:
Banks handle daily transactions involving millions of pesos. By the very nature of
their work the degree of responsibility, care and trustworthiness expected of their
employees and officials is far greater than those of ordinary clerks and employees.
For obvious reasons, the banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees.26
WHEREFORE, the appealed Amended Decision is AFFIRMED with the
MODIFICATION that the award for moral damages is reduced to P50,000.00, and
that this is without prejudice to whatever civil, criminal, or administrative action
PNB might take against PEMSLA, MPC, and the employees involved.
SO ORDERED.

PNB’s tellers and officers, in violation of banking rules of procedure, permitted the
invalid deposits of checks to the PEMSLA account. Indeed, when it is the gross
negligence of the bank employees that caused the loss, the bank should be held
liable.27

PNB’s argument that there is no loss to compensate since no demand for payment
has been made by the payees must also fail. Damage was caused to respondents-
spouses when the PEMSLA checks they deposited were returned for the reason
"Account Closed." These PEMSLA checks were the corresponding payments to
the Rodriguez checks. Since they could not encash the PEMSLA checks,
respondents-spouses were unable to collect payments for the amounts they had
advanced.

A bank that has been remiss in its duty must suffer the consequences of its
negligence. Being issued to named payees, PNB was duty-bound by law and by
banking rules and procedure to require that the checks be properly indorsed before
accepting them for deposit and payment. In fine, PNB should be held liable for the
amounts of the checks.

One Last Note

We note that the RTC failed to thresh out the merits of PNB’s cross-claim against
its co-defendants PEMSLA and MPC. The records are bereft of any pleading filed
by these two defendants in answer to the complaint of respondents-spouses and
cross-claim of PNB. The Rules expressly provide that failure to file an answer is a
ground for a declaration that defendant is in default. 28 Yet, the RTC failed to
sanction the failure of both PEMSLA and MPC to file responsive pleadings. Verily,
the RTC dismissal of PNB’s cross-claim has no basis. Thus, this judgment shall be
without prejudice to whatever action the bank might take against its co-defendants
in the trial court.

To PNB’s credit, it became involved in the controversial transaction not of its own
volition but due to the actions of some of its employees. Considering that moral
damages must be understood to be in concept of grants, not punitive or corrective
in nature, We resolve to reduce the award of moral damages to P50,000.00.29

P a g e | 35
 G.R. No. L-18103 June 8, 1922
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC., defendant-
appellant.
The question of first impression raised in this case concerns the validity in this
jurisdiction of a provision in a promissory note whereby in case the same is not
paid at maturity, the maker authorizes any attorney to appear and confess
judgment thereon for the principal amount, with interest, costs, and attorney's fees,
and waives all errors, rights to inquisition, and appeal, and all property exceptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil Refining & By-
Products Company, Inc., executed and delivered to the Philippine National Bank, a
written instrument reading as follows:
RENEWAL.
P61,000.00
MANILA, P.I., May 8, 1920.
On demand after date we promise to pay to the order of the Philippine
National Bank sixty-one thousand only pesos at Philippine National Bank,
Manila, P.I.
Without defalcation, value received; and to hereby authorize any attorney
in the Philippine Islands, in case this note be not paid at maturity, to
appear in my name and confess judgment for the above sum with
interest, cost of suit and attorney's fees of ten (10) per cent for collection,
a release of all errors and waiver of all rights to inquisition and appeal,
and to the benefit of all laws exempting property, real or personal, from
levy or sale. Value received. No. ____ Due ____
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) VICENTE SOTELO,
Manager.
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) RAFAEL LOPEZ,
Treasurer
P a g e | 36
The Manila Oil Refining and By-Products Company, Inc. failed to pay the
promissory note on demand. The Philippine National Bank brought action in the
Court of First Instance of Manila, to recover P61,000, the amount of the note,
together with interest and costs. Mr. Elias N. Rector, an attorney associated with
the Philippine National Bank, entered his appearance in representation of the
defendant, and filed a motion confessing judgment. The defendant, however, in a
sworn declaration, objected strongly to the unsolicited representation of attorney
Recto. Later, attorney Antonio Gonzalez appeared for the defendant and filed a
demurrer, and when this was overruled, presented an answer. The trial judge
rendered judgment on the motion of attorney Recto in the terms of the complaint.
The foregoing facts, and appellant's three assignments of error, raise squarely the
question which was suggested in the beginning of this opinion. In view of the
importance of the subject to the business community, the advice of prominent
attorneys-at-law with banking connections, was solicited. These members of the
bar responded promptly to the request of the court, and their memoranda have
proved highly useful in the solution of the question. It is to the credit of the bar that
although the sanction of judgement notes in the Philippines might prove of
immediate value to clients, every one of the attorneys has looked upon the matter
in a big way, with the result that out of their independent investigations has come a
practically unanimous protest against the recognition in this jurisdiction of judgment
notes.1
Neither the Code of Civil Procedure nor any other remedial statute expressly or
tacitly recognizes a confession of judgment commonly called a judgment note. On
the contrary, the provisions of the Code of Civil Procedure, in relation to
constitutional safeguards relating to the right to take a man's property only after a
day in court and after due process of law, contemplate that all defendants shall
have an opportunity to be heard. Further, the provisions of the Code of Civil
Procedure pertaining to counter claims argue against judgment notes, especially
as the Code provides that in case the defendant or his assignee omits to set up a
counterclaim, he cannot afterwards maintain an action against the plaintiff therefor.
(Secs. 95, 96, 97.) At least one provision of the substantive law, namely, that the
validity and fulfillment of contracts cannot be left to the will of one of the contracting
parties (Civil Code, art. 1356), constitutes another indication of fundamental legal
purposes.
The attorney for the appellee contends that the Negotiable Instruments Law (Act
No. 2031) expressly recognizes judgment notes, and that they are enforcible under
the regular procedure. The Negotiable Instruments Law, in section 5, provides that
"The negotiable character of an instrument otherwise negotiable is not affected by
a provision which ". . . (b) Authorizes a confession of judgment if the instrument be
not paid at maturity." We do not believe, however, that this provision of law can be
taken to sanction judgments by confession, because it is a portion of a uniform law
which merely provides that, in jurisdiction where judgment notes are recognized,
such clauses shall not affect the negotiable character of the instrument. Moreover,
the same section of the Negotiable Instruments. Law concludes with these words:
"But nothing in this section shall validate any provision or stipulation otherwise
illegal."
The court is thus put in the position of having to determine the validity in the
absence of statute of a provision in a note authorizing an attorney to appear and
confess judgment against the maker. This situation, in reality, has its advantages
for it permits us to reach that solution which is best grounded in the solid principles
of the law, and which will best advance the public interest.
The practice of entering judgments in debt on warrants of attorney is of ancient
origin. In the course of time a warrant of attorney to confess judgement became a
familiar common law security. At common law, there were two kinds of judgments
by confession; the one a judgment by cognovit actionem, and the other by
confession relicta verificatione. A number of jurisdictions in the United States have
accepted the common law view of judgments by confession, while still other
jurisdictions have refused to sanction them. In some States, statutes have been
passed which have either expressly authorized confession of judgment on warrant
of attorney, without antecedent process, or have forbidden judgments of this
character. In the absence of statute, there is a conflict of authority as to the validity
of a warrant of attorney for the confession of judgement. The weight of opinion is
that, unless authorized by statute, warrants of attorney to confess judgment are
void, as against public policy.
Possibly the leading case on the subject is First National Bank of Kansas City vs.
White ([1909], 220 Mo., 717; 16 Ann. Cas., 889; 120 S. W., 36; 132 Am. St. Rep.,
612). The record in this case discloses that on October 4, 1990, the defendant
executed and delivered to the plaintiff an obligation in which the defendant
authorized any attorney-at-law to appear for him in an action on the note at any
time after the note became due in any court of record in the State of Missouri, or
elsewhere, to waive the issuing and service of process, and to confess judgement
in favor of the First National Bank of Kansas City for the amount that might then be
due thereon, with interest at the rate therein mentioned and the costs of suit,
together with an attorney's fee of 10 per cent and also to waive and release all
errors in said proceedings and judgment, and all proceedings, appeals, or writs of
error thereon. Plaintiff filed a petition in the Circuit Court to which was attached the
above-mentioned instrument. An attorney named Denham appeared pursuant to
the authority given by the note sued on, entered the appearance of the defendant,
and consented that judgement be rendered in favor of the plaintiff as prayed in the
petition. After the Circuit Court had entered a judgement, the defendants, through
counsel, appeared specially and filed a motion to set it aside. The Supreme Court
of Missouri, speaking through Mr. Justice Graves, in part said:
But going beyond the mere technical question in our preceding paragraph
discussed, we come to a question urged which goes to the very root of
this case, and whilst new and novel in this state, we do not feel that the
case should be disposed of without discussing and passing upon that
question.
P a g e | 37
xxx xxx xxx
And if this instrument be considered as security for a debt, as it was by
the common law, it has never so found recognition in this state. The policy
of our law has been against such hidden securities for debt. Our
Recorder's Act is such that instruments intended as security for debt
should find a place in the public records, and if not, they have often been
viewed with suspicion, and their bona fides often questioned.
Nor do we thing that the policy of our law is such as to thus place a debtor
in the absolute power of his creditor. The field for fraud is too far enlarged
by such an instrument. Oppression and tyranny would follow the footsteps
of such a diversion in the way of security for debt. Such instruments
procured by duress could shortly be placed in judgment in a foreign court
and much distress result therefrom.
Again, under the law the right to appeal to this court or some other
appellate court is granted to all persons against whom an adverse
judgment is rendered, and this statutory right is by the instrument stricken
down. True it is that such right is not claimed in this case, but it is a part of
the bond and we hardly know why this pound of flesh has not been
demanded. Courts guard with jealous eye any contract innovations upon
their jurisdiction. The instrument before us, considered in the light of a
contract, actually reduces the courts to mere clerks to enter and record
the judgment called for therein. By our statute (Rev. St. 1899, sec. 645) a
party to a written instrument of this character has the right to show a
failure of consideration, but this right is brushed to the wind by this
instrument and the jurisdiction of the court to hear that controversy is by
the whose object is to oust the jurisdiction of the courts are contrary to
public policy and will not be enforced. Thus it is held that any stipulation
between parties to a contract distinguishing between the different courts
of the country is contrary to public policy. The principle has also been
applied to a stipulation in a contract that a party who breaks it may not be
sued, to an agreement designating a person to be sued for its breach who
is nowise liable and prohibiting action against any but him, to a provision
in a lease that the landlord shall have the right to take immediate
judgment against the tenant in case of a default on his part, without giving
the notice and demand for possession and filing the complaint required by
statute, to a by-law of a benefit association that the decisions of its
officers on claim shall be final and conclusive, and to many other
agreements of a similar tendency. In some courts, any agreement as to
the time for suing different from time allowed by the statute of limitations
within which suit shall be brought or the right to sue be barred is held
void.
xxx xxx xxx
 We shall not pursue this question further. This contract, in so far as it
goes beyond the usual provisions of a note, is void as against the public
policy of the state, as such public policy is found expressed in our laws
and decisions. Such agreements are iniquitous to the uttermost and
should be promptly condemned by the courts, until such time as they may
receive express statutory recognition, as they have in some states.
xxx xxx xxx
From what has been said, it follows that the Circuit Court never had
jurisdiction of the defendant, and the judgement is reversed.
The case of Farquhar and Co. vs. Dehaven ([1912], 70 W. Va., 738; 40 L.R.A. [N.
S.], 956; 75 S.E., 65; Ann. Cas. [1914-A], 640), is another well-considered
authority. The notes referred to in the record contained waiver of presentment and
protest, homestead and exemption rights real and personal, and other rights, and
also the following material provision: "And we do hereby empower and authorize
the said A. B. Farquhar Co. Limited, or agent, or any prothonotary or attorney of
any Court of Record to appear for us and in our name to confess judgement
against us and in favor of said A. B. Farquhar Co., Limited, for the above named
sum with costs of suit and release of all errors and without stay of execution after
the maturity of this note." The Supreme Court of West Virginia, on consideration of
the validity of the judgment note above described, speaking through Mr. Justice
Miller, in part said:
As both sides agree the question presented is one of first impression in
this State. We have no statutes, as has Pennsylvania and many other
states, regulating the subject. In the decision we are called upon to
render, we must have recourse to the rules and principles of the common
law, in force here, and to our statute law, applicable, and to such judicial
decisions and practices in Virginia, in force at the time of the separation,
as are properly binding on us. It is pertinent to remark in this connection,
that after nearly fifty years of judicial history this question, strong
evidence, we think, that such notes, if at all, have never been in very
general use in this commonwealth. And in most states where they are
current the use of them has grown up under statutes authorizing them,
and regulating the practice of employing them in commercial transactions.
xxx xxx xxx
It is contended, however, that the old legal maxim, qui facit per alium, facit
per se, is as applicable here as in other cases. We do not think so. Strong
reasons exist, as we have shown, for denying its application, when
holders of contracts of this character seek the aid of the courts and of
their execution process to enforce them, defendant having had no day in
court or opportunity to be heard. We need not say in this case that a
P a g e | 38
debtor may not, by proper power of attorney duly executed, authorize
another to appear in court, and by proper endorsement upon the writ
waive service of process, and confess judgement. But we do not wish to
be understood as approving or intending to countenance the practice
employing in this state commercial paper of the character here involved.
Such paper has heretofore had little if any currency here. If the practice is
adopted into this state it ought to be, we think, by act of the Legislature,
with all proper safeguards thrown around it, to prevent fraud and
imposition. The policy of our law is, that no man shall suffer judgment at
the hands of our courts without proper process and a day to be heard. To
give currency to such paper by judicial pronouncement would be to open
the door to fraud and imposition, and to subject the people to wrongs and
injuries not heretofore contemplated. This we are unwilling to do.
A case typical of those authorities which lend support to judgment notes is First
National Bank of Las Cruces vs. Baker ([1919], 180 Pac., 291). The Supreme
Court of New Mexico, in a per curiam decision, in part, said:
In some of the states the judgments upon warrants of attorney are
condemned as being against public policy. (Farquhar and Co. vs.
Dahaven, 70 W. Va., 738; 75 S.E., 65; 40 L.R.A. [N. S.], 956; Ann. Cas.
[1914 A]. 640, and First National Bank of Kansas City vs. White, 220 Mo.,
717; 120 S. W., 36; 132 Am. St. Rep., 612; 16 Ann. Cas., 889, are
examples of such holding.) By just what course of reasoning it can be
said by the courts that such judgments are against public policy we are
unable to understand. It was a practice from time immemorial at common
law, and the common law comes down to us sanctioned as justified by the
reason and experience of English-speaking peoples. If conditions have
arisen in this country which make the application of the common law
undesirable, it is for the Legislature to so announce, and to prohibit the
taking of judgments can be declared as against the public policy of the
state. We are aware that the argument against them is that they enable
the unconscionable creditor to take advantage of the necessities of the
poor debtor and cut him off from his ordinary day in court. On the other
hand, it may be said in their favor that it frequently enables a debtor to
obtain money which he could by no possibility otherwise obtain. It
strengthens his credit, and may be most highly beneficial to him at times.
In some of the states there judgments have been condemned by statute
and of course in that case are not allowed.
Our conclusion in this case is that a warrant of attorney given as security
to a creditor accompanying a promissory note confers a valid power, and
authorizes a confession of judgment in any court of competent jurisdiction
in an action to be brought upon said note; that our cognovit statute does
not cover the same field as that occupied by the common-law practice of
taking judgments upon warrant of attorney, and does not impliedly or
otherwise abrogate such practice; and that the practice of taking
 judgments upon warrants of attorney as it was pursued in this case is not
against any public policy of the state, as declared by its laws.

With reference to the conclusiveness of the decisions here mentioned, it may be

said that they are based on the practice of the English-American common law, and
that the doctrines of the common law are binding upon Philippine courts only in so
far as they are founded on sound principles applicable to local conditions.

Judgments by confession as appeared at common law were considered an

amicable, easy, and cheap way to settle and secure debts. They are a quick
remedy and serve to save the court's time. They also save the time and money of
the litigants and the government the expenses that a long litigation entails. In one
sense, instruments of this character may be considered as special agreements,
with power to enter up judgments on them, binding the parties to the result as they
themselves viewed it.

On the other hand, are disadvantages to the commercial world which outweigh the
considerations just mentioned. Such warrants of attorney are void as against public
policy, because they enlarge the field for fraud, because under these instruments
the promissor bargains away his right to a day in court, and because the effect of
the instrument is to strike down the right of appeal accorded by statute. The
recognition of such a form of obligation would bring about a complete
reorganization of commercial customs and practices, with reference to short-term
obligations. It can readily be seen that judgement notes, instead of resulting to the
advantage of commercial life in the Philippines might be the source of abuse and
oppression, and make the courts involuntary parties thereto. If the bank has a
meritorious case, the judgement is ultimately certain in the courts.

We are of the opinion that warrants of attorney to confess judgment are not
authorized nor contemplated by our law. We are further of the opinion that
provisions in notes authorizing attorneys to appear and confess judgments against
makers should not be recognized in this jurisdiction by implication and should only
be considered as valid when given express legislative sanction.

The judgment appealed from is set aside, and the case is remanded to the lower
court for further proceedings in accordance with this decision. Without special
finding as to costs in this instance, it is so ordered.

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