Republic of the Philippines day it deposited the same with the Bank of America, and one day thereafter
SUPREME COURT the latter cleared it with the Bureau of Posts and received from the latter its
Manila
EN BANC
G.R. No. L-22405 June 30, 1971
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General
Antonio G. Ibarra and Attorney Concepcion Torrijos-Agapinan for defendants-
appellees.
DIZON, J.:
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
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.
On October 12, 1961 appellant requested the Postmaster General to
reconsider 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.
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
It is not disputed that our postal statutes were patterned after statutes in force
is hereby affirmed with costs.
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 Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee,
from this policy or practice. The weight of authority in the United States is that Barredo and Villamor, JJ., concur.
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 Castro and Makasiar, JJ., took no part.
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).
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofileña & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the
decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV
No. 23615 1 affirming with modifications, the earlier decision of the Regional
Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein
by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and
adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial banking
institution, through its Sucat Branch issued 280 certificates of
time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount of
P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and
Statement of Issues, Original Records, p. 207; Defendant's
Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time
(CTDs) to herein plaintiff in connection with his purchased of
fuel products from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr.
Timoteo Tiangco, the Sucat Branch Manger, that he lost all
the certificates of time deposit in dispute. Mr. Tiangco advised
said depositor to execute and submit a notarized Affidavit of
Loss, as required by defendant bank's procedure, if he
desired replacement of said lost CTDs (TSN, February 9, 1987,
pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and
delivered to defendant bank the required Affidavit of Loss
(Defendant's Exhibit 281). On the basis of said affidavit of loss,
280 replacement CTDs were issued in favor of said depositor
(Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and
obtained a loan from defendant bank in the amount of Eight
Hundred Seventy Five Thousand Pesos (P875,000.00). On the
same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among
others, that he (de la Cruz) surrenders to defendant bank "full
control of the indicated time deposits from and after date" of
the assignment and further authorizes said bank to pre-
terminate, set-off and "apply the said time deposits to the
payment of whatever amount or amounts may be due" on
the loan upon its maturity (TSN, February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager
of plaintiff Caltex (Phils.) Inc., went to the defendant bank's
Sucat branch and presented for verification the CTDs
declared lost by Angel dela Cruz alleging that the same were
delivered to herein plaintiff "as security for purchases made
 with Caltex Philippines, Inc." by said depositor (TSN, February
9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter
(Defendant's Exhibit 563) from herein plaintiff formally
informing it of its possession of the CTDs in question and of its
decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein
defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela
Cruz" as well as "the details of Mr. Angel dela Cruz" obligation
against which plaintiff proposed to apply the time deposits
(Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein
defendant.
10. Accordingly, defendant bank rejected the plaintiff's
demand and claim for payment of the value of the CTDs in a
letter dated February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the
defendant bank matured and fell due and on August 5, 1983,
the latter set-off and applied the time deposits in question to
the payment of the matured loan (TSN, February 9, 1987, pp.
130-131).
12. In view of the foregoing, plaintiff filed the instant
complaint, praying that defendant bank be ordered to pay it
the aggregate value of the certificates of time deposit of
P1,120,000.00 plus accrued interest and compounded interest
therein at 16% per annum, moral and exemplary damages as
well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the
instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's
dismissal of the complaint, hence this petition wherein petitioner faults
respondent court in ruling (1) that the subject certificates of deposit are non-
negotiable despite being clearly negotiable instruments; (2) that petitioner did
not become a holder in due course of the said certificates of deposit; and (3)
in disregarding the pertinent provisions of the Code of Commerce relating to
lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to
provide a better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited
in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731
days. after date, upon presentation and
surrender of this certificate, with interest at
the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
—————————— ———————————
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 made including the amount of P812,033.37 in favor of defendant
Calapan, Mindoro. They were then sent for clearing by the branch office to Golden Savings and Loan Association, Inc. and thereafter, to allow
the principal office of Metrobank, which forwarded them to the Bureau of defendant Golden Savings and Loan Association, Inc. to withdraw the
Treasury for special clearing.2 amount outstanding thereon before the debit;

More than two weeks after the deposits, Gloria Castillo went to the Calapan 4. Ordering the plaintiff to pay the defendant Golden Savings and
branch several times to ask whether the warrants had been cleared. She was Loan Association, Inc. attorney's fees and expenses of litigation in the
told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw amount of P200,000.00.
from his account. Later, however, "exasperated" over Gloria's repeated
inquiries and also as an accommodation for a "valued client," the petitioner 5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo
says it finally decided to allow Golden Savings to withdraw from the proceeds and Lucia Castillo attorney's fees and expenses of litigation in the
of the amount of P100,000.00.
warrants.3
SO ORDERED.
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
On appeal to the respondent court,6 the decision was affirmed, prompting
July 16, 1979, in the amount of P150,000.00. The total withdrawal was
Metrobank to file this petition for review on the following grounds:
P968.000.00.4

1. Respondent Court of Appeals erred in disregarding and failing to

In turn, Golden Savings subsequently allowed Gomez to make withdrawals
apply the clear contractual terms and conditions on the deposit slips
from his own account, eventually collecting the total amount of P1,167,500.00
allowing Metrobank to charge back any amount erroneously
from the proceeds of the apparently cleared warrants. The last withdrawal
credited.
was made on July 16, 1979.

(a) Metrobank's right to charge back is not limited to

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants
instances where the checks or treasury warrants are forged or
had been dishonored by the Bureau of Treasury on July 19, 1979, and
unauthorized.
demanded the refund by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
(b) Until such time as Metrobank is actually paid, its obligation
is that of a mere collecting agent which cannot be held
The demand was rejected. Metrobank then sued Golden Savings in the
liable for its failure to collect on the warrants.
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 2. Under the lower court's decision, affirmed by respondent Court of
modified its decision thus: Appeals, Metrobank is made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by Eduardo Gomez.
ACCORDINGLY, judgment is hereby rendered:
3. Respondent Court of Appeals erred in not finding that as between
Metrobank and Golden Savings, the latter should bear the loss.
1. Dismissing the complaint with costs against the plaintiff;

4. Respondent Court of Appeals erred in holding that the treasury

2. Dissolving and lifting the writ of attachment of the properties of
warrants involved in this case are not negotiable instruments.
defendant Golden Savings and Loan Association, Inc. and defendant
Spouses Magno Castillo and Lucia Castillo;
The petition has no merit.
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 From the above undisputed facts, it would appear to the Court that
credit to such account such amount existing before the debit was 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 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.
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.
But an order or promise to pay out of a particular fund is not
unconditional.
The indication of Fund 501 as the source of the payment to be made on the
treasury warrants makes the order or promise to pay "not unconditional" and
the warrants themselves non-negotiable. There should be no question that the
exception on Section 3 of the Negotiable Instruments Law is applicable in the
case at bar. This conclusion conforms to Abubakar vs. Auditor
General11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of
a negotiable instrument and is entitled to the rights and privileges of a
holder in due course, free from defenses. But this treasury warrant is
not within the scope of the negotiable instrument law. For one thing,
the document bearing on its face the words "payable from the
appropriation for food administration, is actually an Order for
payment out of "a particular fund," and is not unconditional and does
not fulfill one of the essential requirements of a negotiable instrument
(Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments
Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden SO ORDERED.
Savings assumed that they were "genuine and in all respects what they
purport to be," in accordance with Section 66 of the Negotiable Instruments Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
Law. The simple reason is that this law is not applicable to the non-negotiable
treasury warrants. The indorsement was made by Gloria Castillo not for the
Republic of the Philippines
purpose of guaranteeing the genuineness of the warrants but merely to
SUPREME COURT
deposit them with Metrobank for clearing. It was in fact Metrobank that made
Manila
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." THIRD DIVISION

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 G.R. No. 89252 May 24, 1993
treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for RAUL SESBREÑO, petitioner,
clearance. Also, the fact of forgery was proved in that case but not in the vs.
case before us. Finally, the Court found the Jai Alai Corporation negligent in HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS
accepting the checks without question from one Antonio Ramirez BANK, respondents.
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. Salva, Villanueva & Associates for Delta Motors Corporation.

We find the challenged decision to be basically correct. However, we will Reyes, Salazar & Associates for Pilipinas Bank.
have to amend it insofar as it directs the petitioner to credit Golden Savings
with the full amount of the treasury checks deposited to its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from
which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings
was notified of the dishonor. The amount he has withdrawn must be charged
not to Golden Savings but to Metrobank, which must bear the consequences
of its own negligence. But the balance of P586,589.00 should be debited to
Golden Savings, 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. To also credit the balance to Golden Savings would
unduly enrich it at the expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that
Paragraph 3 of the dispositive portion of the judgment of the lower court shall
be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only
and thereafter allowing defendant Golden Savings & Loan
Association, Inc. to withdraw the amount outstanding thereon, if any,
after the debit.
FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreño made a money market
placement in the amount of P300,000.00 with the Philippine Underwriters
Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term
of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9
February 1981, issued the following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse,"
No. 20496 of one (1) Delta Motors Corporation Promissory
Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per
annum;
(b) the Certificate of securities Delivery Receipt No. 16587
indicating the sale of DMC PN No. 2731 to petitioner, with the
notation that the said security was in custodianship of Pilipinas
Bank, as per Denominated Custodian Receipt ("DCR") No.
10805 dated 9 February 1981; and
 (c) post-dated checks payable on 13 March 1981 (i.e., the TO Raul Sesbreño
maturity date of petitioner's investment), with petitioner as
payee, Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.

On 13 March 1981, petitioner sought to encash the postdated checks issued

by Philfinance. However, the checks were dishonored for having been drawn
against insufficient funds.

On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805

issued by private respondent Pilipinas Bank ("Pilipinas"). It reads as follows:

PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila

F
e
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9
,
1
9
8
1
—
—
—
—
—
—
—
V
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DENOMINATED CUSTODIAN
D RECEIPT
A
This confirms that as a duly Custodian
T Bank, and upon
instruction of PHILIPPINE UNDERWRITES
E FINANCE
 CORPORATION, we have in our custody the following
securities to you [sic] the extent herein indicated.

SERIAL MAT. FACE ISSUED REGISTERED AMOUNT

NUMBER DATE VALUE BY HOLDER PAYEE

2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33

UNDERWRITERS
FINANCE CORP.

We further certify that these securities may be inspected by

you or your duly authorized representative at any time during
regular banking hours.

Upon your written instructions we shall undertake physical

delivery of the above securities fully assigned to you should
this Denominated Custodianship Receipt remain outstanding
in your favor thirty (30) days after its maturity.

P
I
L
I
P
On 2 April 1981, petitioner approached
I Ms. Elizabeth de Villa of private
respondent Pilipinas, Makati Branch,
N and handed her a demand letter
informing the bank that his placement
A with Philfinance in the amount
reflected in the DCR No. 10805 S had remained unpaid and outstanding, and
that he in effect was asking for
B the physical delivery of the underlying
promissory note. Petitioner then
A examined the original of the DMC PN No. 2731
and found: that the security had
N been issued on 10 April 1980; that it would
mature on 6 April 1981; that itKhad a face value of P2,300,833.33, with the
Philfinance as "payee" and private
( respondent Delta Motors Corporation
("Delta") as "maker;" and thatBon face of the promissory note was stamped
"NON NEGOTIABLE." Pilipinas didy not deliver the Note, nor any certificate of
participation in respect thereof,
E to petitioner.
l
i
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August
z
1981,2 again asking private respondent Pilipinas for physical delivery of the
original of DMC PN No. 2731. a Pilipinas allegedly referred all of petitioner's
demand letters to Philfinancebfor written instructions, as has been supposedly
e
agreed upon in "Securities Custodianship Agreement" between Pilipinas and
t provide the appropriate instructions; Pilipinas
Philfinance. Philfinance did not
never released DMC PN No. 2731,h nor any other instrument in respect thereof,
to petitioner. D
e
V
Petitioner also made a written demand on 14 July 1981 3 upon private
respondent Delta for the partial satisfaction of DMC PN No. 2731, explaining
that Philfinance, as payee thereof, had assigned to him said Note to the
extent of P307,933.33. Delta, however, denied any liability to petitioner on the
promissory note, and explained in turn that it had previously agreed with
Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730)
against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint
management of the Securities and exchange commission ("SEC") and the
Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date
apparently remains in the custody of the SEC.4
As petitioner had failed to collect his investment and interest thereon, he filed
on 28 September 1982 an action for damages with the Regional Trial Court
("RTC") of Cebu City, Branch 21, against private respondents Delta and
Pilipinas.5The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action,
with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No.
15195. In a Decision dated 21 March 1989, the Court of Appeals denied the
appeal and held:6
Be that as it may, from the evidence on record, if there is
anyone that appears liable for the travails of plaintiff-
appellant, it is Philfinance. As correctly observed by the trial
court:
This act of Philfinance in accepting the
investment of plaintiff and charging it against
DMC PN No. 2731 when its entire face value
was already obligated or earmarked for set-
off or compensation is difficult to
comprehend and may have been
motivated with bad faith. Philfinance,
therefore, is solely and legally obligated to
return the investment of plaintiff, together
with its earnings, and to answer all the
damages plaintiff has suffered incident
thereto. Unfortunately for plaintiff, Philfinance
was not impleaded as one of the defendants
in this case at bar; hence, this Court is
without jurisdiction to pronounce judgement
against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision
appealed from, the same is hereby affirmed in toto. Cost
against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the
pleadings, the Court resolved to give due course to the petition and required
the parties to file their respective memoranda.7
Petitioner reiterates the assignment of errors he directed at the trial court
decision, and contends that respondent court of Appeals gravely erred: (i) in
concluding that he cannot recover from private respondent Delta his
assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions
stipulated in DCR No. 10805 issued in favor r of petitioner, and (iii) in refusing to
pierce the veil of corporate entity between Philfinance, and private
respondents Delta and Pilipinas, considering that the three (3) entities belong
to the "Silverio Group of Companies" under the leadership of Mr. Ricardo
Silverio, Sr.8
There are at least two (2) sets of relationships which we need to address: firstly,
the relationship of petitioner vis-a-vis Delta; secondly, the relationship of
petitioner in respect of Pilipinas. Actually, of course, there is a third relationship
that is of critical importance: the relationship of petitioner and Philfinance.
However, since Philfinance has not been impleaded in this case, neither the
trial court nor the Court of Appeals acquired jurisdiction over the person of
Philfinance. It is, consequently, not necessary for present purposes to deal with
this third relationship, except to the extent it necessarily impinges upon or
intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-
vis Delta in respect of the Delta promissory note (DMC PN No. 2731) which
Philfinance sold "without recourse" to petitioner, to the extent of P304,533.33.
The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over
DMC PN No. 2731 as the same is "non-negotiable" as stamped
on its face (Exhibit "6"), negotiation being defined as the
transfer of an instrument from one person to another so as to
 constitute the transferee the holder of the instrument (Sec. 30, to exempt the bill from the statutory provisions relative
Negotiable Instruments Law). A person not a holder cannot thereto, and a bill, though not negotiable, may be transferred
sue on the instrument in his own name and cannot demand by assignment; the assignee taking subject to the equities
or receive payment (Section 51, id.)9 between the original parties.12 (Emphasis added)

Petitioner admits that DMC PN No. 2731 was non-negotiable but contends
that the Note had been validly transferred, in part to him by assignment and
that as a result of such transfer, Delta as debtor-maker of the Note, was
obligated to pay petitioner the portion of that Note assigned to him by the
payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
DMC PN No. 2731, while marked "non-negotiable," was not at the same time
stamped "non-transferable" or "non-assignable." It contained no stipulation
which prohibited Philfinance from assigning or transferring, in whole or in part,
that Note.
Delta adduced the "Letter of Agreement" which it had entered into with
Philfinance and which should be quoted in full:

(1) that DMC PN No. 2731 was not intended to be negotiated

or otherwise transferred by Philfinance as manifested by the
word "non-negotiable" stamp across the face of the
Note10 and because maker Delta and payee Philfinance
intended that this Note would be offset against the
outstanding obligation of Philfinance represented by
Philfinance PN No. 143-A issued to Delta as payee;

(2) that the assignment of DMC PN No. 2731 by Philfinance

was without Delta's consent, if not against its instructions; and

(3) assuming (arguendo only) that the partial assignment in

favor of petitioner was valid, petitioner took the Note subject
to the defenses available to Delta, in particular, the offsetting Philippine Underwriters Finance Corp.
of DMC PN No. 2731 against Philfinance PN No. 143-A.11 Benavidez St., Makati,
Metro Manila.
We consider Delta's arguments seriatim.
Attention:
Mr. Alfredo
Firstly, it is important to bear in mind that the negotiation of a negotiable
O. Banaria
instrument must be distinguished from the assignment or transfer of an
SVP-
instrument whether that be negotiable or non-negotiable. Only an instrument
Treasurer
qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery, or by
delivery alone where the negotiable instrument is in bearer form. A negotiable GENTLEMEN:
instrument may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of negotiation as This refers to our outstanding placement of P4,601,666.67 as
distinguished from assignment of a negotiable instrument are, of course, evidenced by your Promissory Note No. 143-A, dated April 10,
different. A non-negotiable instrument may, obviously, not be negotiated; but 1980, to mature on April 6, 1981.
it may be assigned or transferred, absent an express prohibition against
assignment or transfer written in the face of the instrument: As agreed upon, we enclose our non-negotiable Promissory
Note No. 2730 and 2731 for P2,000,000.00 each, dated April
The words "not negotiable," stamped on the face of the bill of 10, 1980, to be offsetted [sic] against your PN No. 143-A upon
lading, did not destroy its assignability, but the sole effect was co-terminal maturity.
Please deliver the proceeds of our PNs to our representative,
Mr. Eric Castillo.

V
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We find nothing in his "Letter of
s Agreement" which can be reasonably
construed as a prohibition upon, Philfinance assigning or transferring all or part
of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to
add that, even had this "Letter( of Agreement" set forth an explicit prohibition
of transfer upon Philfinance, such
S a prohibition cannot be invoked against an
assignee or transferee of the Note
g who parted with valuable consideration in
good faith and without notice d of such prohibition. It is not disputed that
petitioner was such an assignee. or transferee. Our conclusion on this point is
reinforced by the fact that what
) Philfinance and Delta were doing by their
exchange of their promissory Fnotes was this: Delta invested, by making a
money market placement with l Philfinance, approximately P4,600,000.00 on 10
April 1980; but promptly, on the
o same day, borrowed back the bulk of that
placement, i.e., P4,000,000.00,r by issuing its two (2) promissory notes: DMC PN
No. 2730 and DMC PN No. 2731, e both also dated 10 April 1980. Thus,
Philfinance was left with not P4,600,000.00
n but only P600,000.00 in cash and the
two (2) Delta promissory notes.c
i
Apropos Delta's complaint that o the partial assignment by Philfinance of DMC
PN No. 2731 had been effected B without the consent of Delta, we note that
such consent was not necessary . for the validity and enforceability of the
assignment in favor of petitioner.B 14 Delta's argument that Philfinance's sale or
assignment of part of its rightsi to DMC PN No. 2731 constituted conventional
subrogation, which required its a (Delta's) consent, is quite mistaken.
Conventional subrogation, which g in the first place is never lightly
inferred,15 must be clearly established
a by the unequivocal terms of the
substituting obligation or by the n evident incompatibility of the new and old
obligations on every point.16 Nothing
S of the sort is present in the instant case.
e
n
It is in fact difficult to be impressed with Delta's complaint, since it released its
DMC PN No. 2731 to Philfinance, i an entity engaged in the business of buying
and selling debt instruments and o other securities, and more generally, in
r
money market transactions. In Perez v. Court of Appeals,17 the Court, speaking
through Mme. Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a
money market transaction. As defined by Lawrence Smith
"the money market is a market dealing in standardized short-
term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other
but through a middle manor a dealer in the open market." It
involves "commercial papers" which are instruments
"evidencing indebtness of any person or entity. . ., which are
issued, endorsed, sold or transferred or in any manner
conveyed to another person or entity, with or without
recourse". The fundamental function of the money market
device in its operation is to match and bring together in a
most impersonal manner both the "fund users" and the "fund
suppliers." The money market is an "impersonal market", free
from personal considerations. "The market mechanism is
intended to provide quick mobility of money and securities."
The impersonal character of the money market device
overlooks the individuals or entities concerned. The issuer of a
commercial paper in the money market necessarily knows in
advance that it would be expenditiously transacted and
transferred to any investor/lender without need of notice to
said issuer. In practice, no notification is given to the borrower
or issuer of commercial paper of the sale or transfer to the
investor.
xxx xxx xxx
There is need to individuate a money market transaction, a
relatively novel institution in the Philippine commercial
scene. It has been intended to facilitate the flow and
acquisition of capital on an impersonal basis. And as
specifically required by Presidential Decree No. 678, the
investing public must be given adequate and effective
protection in availing of the credit of a borrower in the
commercial paper market.18(Citations omitted; emphasis
supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting
between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to
note that at the time Philfinance sold part of its rights under DMC PN No. 2731
to petitioner on 9 February 1981, no compensation had as yet taken place
and indeed none could have taken place. The essential requirements of
compensation are listed in the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things
due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor. (Emphasis
supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A
was due. This was explicitly recognized by Delta in its 10 April 1980 "Letter of
Agreement" with Philfinance, where Delta acknowledged that the relevant
promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-
A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from
forty-nine (49) days before the "co-terminal maturity" date, that is to say,
before any compensation had taken place. Further, the assignment to
petitioner would have prevented compensation had taken place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution
of the assignment in favor of petitioner, Philfinance and Delta would have
ceased to be creditors and debtors of each other in their own right to the
extent of the amount assigned by Philfinance to petitioner. Thus, we conclude
that the assignment effected by Philfinance in favor of petitioner was a valid
one and that petitioner accordingly became owner of DMC PN No. 2731 to
the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the
assignment to him only on 14 July 1981, 19 that is, after the maturity not only of
the money market placement made by petitioner but also of both DMC PN
No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta
of his rights as assignee after compensation had taken place by operation of
law because the offsetting instruments had both reached maturity. It is a firmly
settled doctrine that the rights of an assignee are not any greater that the
rights of the assignor, since the assignee is merely substituted in the place of
the assignor 20 and that the assignee acquires his rights subject to the equities
— i.e., the defenses — which the debtor could have set up against the original
assignor before notice of the assignment was given to the debtor. Article 1285
of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot
set up against the assignee the compensation which would
pertain to him against the assignor, unless the assignor was
notified by the debtor at the time he gave his consent, that
he reserved his right to the compensation.
If the creditor communicated the cession to him but
the debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge of the
debtor, he may set up the compensation of all credits prior to
the same and also later ones until he had knowledge of the
assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having
knowledge of the assignment, pays his creditor shall be released from the
obligation." In Sison v. Yap-Tico,21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him
with whom he contacted to pay; and if he pay before notice
that his debt has been assigned, the law holds him
exonerated, for the reason that it is the duty of the person
who has acquired a title by transfer to demand payment of
the debt, to give his debt or notice.22
At the time that Delta was first put to notice of the assignment in petitioner's
favor on 14 July 1981, DMC PN No. 2731 had already been discharged by
compensation. Since the assignor Philfinance could not have then compelled
payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the
Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the
assignment or sale was effected on 9 February 1981. He could have notified
Delta as soon as his money market placement matured on 13 March 1981
without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again
petitioner could have notified Delta on 26 March 1981 when petitioner
received from Philfinance the Denominated Custodianship Receipt ("DCR")
No. 10805 issued by private respondent Pilipinas in favor of petitioner.
Petitioner could, in fine, have notified Delta at any time before the maturity
date of DMC PN No. 2731. Because petitioner failed to do so, and because
the record is bare of any indication that Philfinance had itself notified Delta of
the assignment to petitioner, the Court is compelled to uphold the defense of
compensation raised by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the assignment made by
Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent
Pilipinas. Petitioner contends that Pilipinas became solidarily liable with
Philfinance and Delta when Pilipinas issued DCR No. 10805 with the following
words:
Upon your written instruction, we [Pilipinas] shall
undertake physical delivery of the above securities fully
assigned to you —.23
The Court is not persuaded. We find nothing in the DCR that establishes an
obligation on the part of Pilipinas to pay petitioner the amount of P307,933.33
nor any assumption of liability in solidum with Philfinance and Delta under
DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas
that:
(1) it has in its custody, as duly constituted custodian bank,
DMC PN No. 2731 of a certain face value, to mature on 6
April 1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment
by Philfinance to petitioner (9 February 1981), holding that
Note on behalf and for the benefit of petitioner, at least to
the extent it had been assigned to petitioner by payee
Philfinance;24
(3) petitioner may inspect the Note either "personally or by
authorized representative", at any time during regular bank
hours; and
(4) upon written instructions of petitioner, Pilipinas would
physically deliver the DMC PN No. 2731 (or a participation
therein to the extent of P307,933.33) "should this Denominated
Custodianship receipt remain outstanding in [petitioner's]
favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably
be read as converting Pilipinas into an obligor under the terms of DMC PN No.
2731 assigned to petitioner, either upon maturity thereof or any other time. We
note that both in his complaint and in his testimony before the trial court,
petitioner referred merely to the obligation of private respondent Pilipinas to
effect the physical delivery to him of DMC PN No. 2731.25 Accordingly,
petitioner's theory that Pilipinas had assumed a solidary obligation to pay the
amount represented by a portion of the Note assigned to him by Philfinance,
appears to be a new theory constructed only after the trial court had ruled
against him. The solidary liability that petitioner seeks to impute Pilipinas
cannot, however, be lightly inferred. Under article 1207 of the Civil Code,
"there is a solidary liability only when the law or the nature of the obligation
requires solidarity," The record here exhibits no express assumption of solidary
liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to
us to any law which imposed such liability upon Pilipinas nor has petitioner
argued that the very nature of the custodianship assumed by private
respondent Pilipinas necessarily implies solidary liability under the securities,
custody of which was taken by Pilipinas. Accordingly, we are unable to hold
Pilipinas solidarily liable with Philfinance and private respondent Delta under
DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and
liability in respect of petitioner under the terms of the DCR. To the contrary, we
find, after prolonged analysis and deliberation, that private respondent
Pilipinas had breached its undertaking under the DCR to petitioner Sesbreño.
We believe and so hold that a contract of deposit was constituted by the act
of Philfinance in designating Pilipinas as custodian or depositary bank. The
depositor was initially Philfinance; the obligation of the depository was owed,
however, to petitioner Sesbreño as beneficiary of the custodianship or
depository agreement. We do not consider that this is a simple case of a
stipulation pour autri. The custodianship or depositary agreement was
established as an integral part of the money market transaction entered into
by petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731;
Philfinance as assignor-vendor deposited that Note with Pilipinas in order that
the thing sold would be placed outside the control of the vendor. Indeed, the
constituting of the depositary or custodianship agreement was equivalent to
constructive delivery of the Note (to the extent it had been sold or assigned to
petitioner) to petitioner. It will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis
for confidence on the part of the investors or placers that the instruments
bought by them are effectively taken out of the pocket, as it were, of the
vendors and placed safely beyond their reach, that those instruments will be
there available to the placers of funds should they have need of them. The
depositary in a contract of deposit is obliged to return the security or the thing
deposited upon demand of the depositor (or, in the presented case, of the
beneficiary) of the contract, even though a term for such return may have
been established in the said contract.26 Accordingly, any stipulation in the
contract of deposit or custodianship that runs counter to the fundamental
purpose of that agreement or which was not brought to the notice of and
accepted by the placer-beneficiary, cannot be enforced as against such
beneficiary-placer.
We believe that the position taken above is supported by considerations of
public policy. If there is any party that needs the equalizing protection of the
law in money market transactions, it is the members of the general public
whom place their savings in such market for the purpose of generating interest
revenues.27 The custodian bank, if it is not related either in terms of equity
ownership or management control to the borrower of the funds, or the
commercial paper dealer, is normally a preferred or traditional banker of such
borrower or dealer (here, Philfinance). The custodian bank would have every
incentive to protect the interest of its client the borrower or dealer as against
the placer of funds. The providers of such funds must be safeguarded from the
impact of stipulations privately made between the borrowers or dealers and
the custodian banks, and disclosed to fund-providers only after trouble has
erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver
the security deposited with it when petitioner first demanded physical delivery
thereof on 2 April 1981. We must again note, in this connection, that on 2 April
1981, DMC PN No. 2731 had not yet matured and therefore, compensation or
offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of
complying with the demand of the petitioner, Pilipinas purported to require
and await the instructions of Philfinance, in obvious contravention of its
undertaking under the DCR to effect physical delivery of the Note upon
receipt of "written instructions" from petitioner Sesbreño. The ostensible term
written into the DCR (i.e., "should this [DCR] remain outstanding in your favor
thirty [30] days after its maturity") was not a defense against petitioner's
demand for physical surrender of the Note on at least three grounds: firstly,
such term was never brought to the attention of petitioner Sesbreño at the
time the money market placement with Philfinance was made; secondly, such
term runs counter to the very purpose of the custodianship or depositary
agreement as an integral part of a money market transaction; and thirdly, it is
inconsistent with the provisions of Article 1988 of the Civil Code noted above.
Indeed, in principle, petitioner became entitled to demand physical delivery
of the Note held by Pilipinas as soon as petitioner's money market placement
matured on 13 March 1981 without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to
petitioner for damages sustained by arising out of its breach of duty. By failing
to deliver the Note to the petitioner as depositor-beneficiary of the thing
deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note
deposited with it. Whether or not Pilipinas itself benefitted from such
conversion or unlawful deprivation inflicted upon petitioner, is of no moment
for present purposes. Prima facie, the damages suffered by petitioner
consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to
petitioner but lost by him by reason of discharge of the Note by
compensation, plus legal interest of six percent (6%)per annum containing
from 14 March 1981.
The conclusion we have reached is, of course, without prejudice to such right
of reimbursement as Pilipinas may have vis-a-vis Philfinance.
III.
The third principal contention of petitioner — that Philfinance and private
respondents Delta and Pilipinas should be treated as one corporate entity —
need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance
was never acquired either by the trial court nor by the respondent Court of
Appeals. Petitioner similarly did not seek to implead Philfinance in the Petition
before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and
Pilipinas have been organized as separate corporate entities. Petitioner asks us
to pierce their separate corporate entities, but has been able only to cite the
presence of a common Director — Mr. Ricardo Silverio, Sr., sitting on the Board
of Directors of all three (3) companies. Petitioner has neither alleged nor
proved that one or another of the three (3) concededly related companies
used the other two (2) as mere alter egos or that the corporate affairs of the
other two (2) were administered and managed for the benefit of one. There is
simply not enough evidence of record to justify disregarding the separate
corporate personalities of delta and Pilipinas and to hold them liable for any
assumed or undetermined liability of Philfinance to petitioner.28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of
Appeals in C.A.-G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989,
respectively, are hereby MODIFIED and SET ASIDE, to the extent that such
Decision and Resolution had dismissed petitioner's complaint against Pilipinas
Bank. Private respondent Pilipinas bank is hereby ORDERED to indemnify
petitioner for damages in the amount of P304,533.33, plus legal interest
thereon at the rate of six percent (6%) per annum counted from 2 April 1981.
As so modified, the Decision and Resolution of the Court of Appeals are
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
SECOND DIVISION
G.R. No. 113236 March 5, 2001
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
QUISUMBING, J.:
This petition assails the decision 1 dated December 29, 1993 of the Court of
Appeals in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the
Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P,
dismissing Firestone's complaint for damages.
The facts of this case, adopted by the CA and based on findings by the trial
court, are as follows:
. . . [D]efendant is a banking corporation. It operates under a
certificate of authority issued by the Central Bank of the Philippines,
and among its activities, accepts savings and time deposits. Said
defendant had as one of its client-depositors the Fojas-Arca
Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining
a special savings account with the defendant, the latter authorized
and allowed withdrawals of funds therefrom through the medium of
special withdrawal slips. These are supplied by the defendant to Fojas-
Arca.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised
Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege
to purchase on credit and sell plaintiff's products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid
Agreement, Fojas-Arca purchased on credit Firestone products from
plaintiff with a total amount of P4,896,000.00. In payment of these
purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal
slips drawn upon the defendant. In turn, these were deposited by the
plaintiff with its current account with the Citibank. All of them were
honored and paid by the defendant. This singular circumstance
made plaintiff believe [sic] and relied [sic] on the fact that the
succeeding special withdrawal slips drawn upon the defendant
would be equally sufficiently funded. Relying on such confidence and
belief and as a direct consequence thereof, plaintiff extended to
Fojas-Arca other purchases on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on
credit (Exh. M, I, J, K) and delivered to plaintiff the corresponding
special withdrawal slips in payment thereof drawn upon the
defendant, to wit:
WITHDRAWAL SLIP
DATE AMOUNT
NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00
These were likewise deposited by plaintiff in its current account with
Citibank and in turn the Citibank forwarded it [sic] to the defendant
for payment and collection, as it had done in respect of the previous
special withdrawal slips. Out of these four (4) withdrawal slips only
withdrawal slip No. 42130 in the amount of P981,500.00 was honored
and paid by the defendant in October 1978. Because of the absence
for a long period coupled with the fact that defendant honored and
paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of
P981,500.00 plaintiff's belief was all the more strengthened that the
other withdrawal slips were likewise sufficiently funded, and that it had
received full value and payment of Fojas-Arca's credit purchased
then outstanding at the time. On this basis, plaintiff was induced to
continue extending to Fojas-Arca further purchase on credit of its
products as per agreement (Exh. "B").
However, on December 14, 1978, plaintiff was informed by Citibank
that special withdrawal slips No. 42127 dated June 15, 1978 for
P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00
were dishonored and not paid for the reason 'NO ARRANGEMENT.' As
a consequence, the Citibank debited plaintiff's account for the total
sum of P2,078,092.80 representing the aggregate amount of the
above-two special withdrawal slips. Under such situation, plaintiff
averred that the pecuniary losses it suffered is caused by and directly
attributable to defendant's gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand
upon the defendant for the satisfaction of the damages suffered by it.
And due to defendant's refusal to pay plaintiff's claim, plaintiff has
been constrained to file this complaint, thereby compelling plaintiff to
incur litigation expenses and attorney's fees which amount are
recoverable from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant
asserted, inter alia that the transactions mentioned by plaintiff are
that of plaintiff and Fojas-Arca only, [in] which defendant is not
involved; Vehemently, it was denied by defendant that the special
withdrawal slips were honored and treated as if it were checks, the
truth being that when the special withdrawal slips were received by
defendant, it only verified whether or not the signatures therein were
authentic, and whether or not the deposit level in the passbook
concurred with the savings ledger, and whether or not the deposit is
sufficient to cover the withdrawal; if plaintiff treated the special
withdrawal slips paid by Fojas-Arca as checks then plaintiff has to
blame itself for being grossly negligent in treating the withdrawal slips
as check when it is clearly stated therein that the withdrawal slips are
non-negotiable; that defendant is not a privy to any of the
transactions between Fojas-Arca and plaintiff for which reason
defendant is not duty bound to notify nor give notice of anything to
plaintiff. If at first defendant had given notice to plaintiff it is merely an
extension of usual bank courtesy to a prospective client; that
defendant is only dealing with its depositor Fojas-Arca and not the
plaintiff. In summation, defendant categorically stated that plaintiff
has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).3
Petitioner's complaint4 for a sum of money and damages with the Regional
Trial Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was
dismissed together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that
respondent Luzon Development Bank was liable for damages under Article
21765 in relation to Articles 196 and 207 of the Civil Code. As noted by the CA,
petitioner alleged the following tortious acts on the part of private respondent:
1) the acceptance and payment of the special withdrawal slips without the
presentation of the depositor's passbook thereby giving the impression that
the withdrawal slips are instruments payable upon presentment; 2) giving the
special withdrawal slips the general appearance of checks; and 3) the failure
of respondent bank to seasonably warn petitioner that it would not honor two
of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed
decision. It denied the appeal and affirmed the judgment of the trial court.
According to the appellate court, respondent bank notified the depositor to
present the passbook whenever it received a collection note from another
bank, belying petitioner's claim that respondent bank was negligent in not
requiring a passbook under the subject transaction. The appellate court also
found that the special withdrawal slips in question were not purposely given
the appearance of checks, contrary to petitioner's assertions, and thus should
not have been mistaken for checks. Lastly, the appellate court ruled that the
respondent bank was under no obligation to inform petitioner of the dishonor
of the special withdrawal slips, for to do so would have been a violation of the
law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon Development]
Bank was free from any fault or negligence regarding the dishonor, or
in failing to give fair and timely advice of the dishonor, of the
two intermediate LDB Slips and in failing to award damages to
Firestone pursuant to Article 2176 of the New Civil Code.8
The issue for our consideration is whether or not respondent bank should be
held liable for damages suffered by petitioner, due to its allegedly belated
notice of non-payment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca,
whereby the latter purchased tires from the former with special withdrawal
slips drawn upon Fojas-Arca's special savings account with respondent bank.
Petitioner in turn deposited these withdrawal slips with Citibank. The latter
credited the same to petitioner's current account, then presented the slips for
payment to respondent bank. It was at this point that the bone of contention
arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal
slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978,
respectively, were refused payment by respondent bank due to insufficiency
of Fojas-Arca's funds on deposit. That information came about six months from
the time Fojas-Arca purchased tires from petitioner using the subject
withdrawal slips. Citibank then debited the amount of these withdrawal slips
from petitioner's account, causing the alleged pecuniary damage subject of
petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in
question were non-negotiable.9 Hence, the rules governing the giving of
immediate notice of dishonor of negotiable instruments do not apply in this
case.10Petitioner itself concedes this point.11 Thus, respondent bank was under
no obligation to give immediate notice that it would not make payment on
the subject withdrawal slips. Citibank should have known that withdrawal slips
were not negotiable instruments. It could not expect these slips to be treated
as checks by other entities. Payment or notice of dishonor from respondent
bank could not be expected immediately, in contrast to the situation involving
checks.
In the case at bar, it appears that Citibank, with the knowledge that
respondent Luzon Development Bank, had honored and paid the previous
withdrawal slips, automatically credited petitioner's current account with the
amount of the subject withdrawal slips, then merely waited for the same to be
honored and paid by respondent bank. It presumed that the withdrawal slips
were "good."
It bears stressing that Citibank could not have missed the non-negotiable
nature of the withdrawal slips. The essence of negotiability which
characterizes a negotiable paper as a credit instrument lies in its freedom to
circulate freely as a substitute for money.12 The withdrawal slips in question
lacked this character.
A bank is under obligation to treat the accounts of its depositors with
meticulous care, whether such account consists only of a few hundred pesos
or of millions of pesos.13 The fact that the other withdrawal slips were honored
and paid by respondent bank was no license for Citibank to presume that
subsequent slips would be honored and paid immediately. By doing so, it
failed in its fiduciary duty to treat the accounts of its clients with the highest
degree of care.14
In the ordinary and usual course of banking operations, current account
deposits are accepted by the bank on the basis of deposit slips prepared and
signed by the depositor, or the latter's agent or representative, who indicates
therein the current account number to which the deposit is to be credited, the
name of the depositor or current account holder, the date of the deposit, and
the amount of the deposit either in cash or in check.15
The withdrawal slips deposited with petitioner's current account with Citibank
were not checks, as petitioner admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having erroneously accepted
them as such, Citibank — and petitioner as account-holder — must bear the
risks attendant to the acceptance of these instruments. Petitioner and
Citibank could not now shift the risk and hold private respondent liable for
their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in
CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ ., concur.
Footnotes
1 Rollo, pp. 27-34.
2 Id. at 44-48.
3 Id. at 27-30.
4 Id. at 35-43.
5 ARTICLE 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and
is governed by the provisions of this Chapter.
6 ARTICLE 19. The local civil registrar shall require the payment of the
fees prescribed by law or regulations before the issuance of the
marriage license. No other sum shall be collected in the nature of a
fee or tax of any kind for the issuance of said license. It shall, however,
be issued free of charge to indigent parties, that is, those who have
no visible means of income or whose income is insufficient for their
subsistence, a fact established by their affidavit or by their oath
before the local civil registrar.
7 ARTICLE 20. The license shall be valid in any part of the Philippines for
a period of one hundred twenty days from the date of issue, and shall
be deemed automatically cancelled at the expiration of said period
if the contracting parties have not made use of it. The expiry date
shall be stamped in bold characters on the face of every license
issued.
8 Rollo, p. 13.
9 Id. at 19; Petition, paragraph 34, subparagraph B.
10 NEGOTIABLE INSTRUMENTS LAW — ACT NO. 2031
SECTION 89. To whom notice of dishonor must be given. —
Except as otherwise provided, when a negotiable instrument
has been dishonored by non-acceptance or non-payment,
notice of dishonor must be given to the drawer and to each
indorser, and any drawer or indorser to whom such notice is
not given is discharge.
SECTION 103. Where parties reside in same place. — Where
the person giving and the person to receive notice reside in
the same place, notice must be given within the following
times:
(a) If given at the place of business of the person to receive
notice, it must be given before the close of business hours the
day following;
(b) If given at his residence, it must be given before the usual
hours of rest on the day following;
(c) If sent by mail, it must be deposited in the post-office in
time to reach him in usual course on the day following.
SECTION 104. Where parties reside in different places. —
Where the person giving and the person to receive notice
reside in different places, the notice must be given within the
following times:
(a) If sent by mail, it must be deposited in the post-office in
time to go by mail the day following the day of dishonor, or if
there be no mail at a convenient hour on that day, by the
next mail thereafter;
(b) If given otherwise than through the post-office, then within
the time that notice would have been received in due course
of mail if it had been deposited in the post-office within the
time specified in the last subdivision.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 76788 January 22, 1990
JUANITA SALAS, petitioner,
vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING
CORPORATION, respondents.
Arsenio C. Villalon, Jr. for petitioner.
Labaguis, Loyola, Angara & Associates for private respondent.
FERNAN, C.J.:
Assailed in this petition for review on certiorari is the decision of the Court of
Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance & Leasing
Corporation v. Salas", which modified the decision of the Regional Trial Court
of San Fernando, Pampanga in Civil Case No. 5915, a collection suit between
the same parties.
Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred
to as petitioner) bought a motor vehicle from the Violago Motor Sales
Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory
note. This note was subsequently endorsed to Filinvest Finance & Leasing
Corporation (hereinafter referred to as private respondent) which financed
the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due
to a discrepancy in the engine and chassis numbers of the vehicle delivered
to her and those indicated in the sales invoice, certificate of registration and
deed of chattel mortgage, which fact she discovered when the vehicle
figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No. 5915
for a sum of money against petitioner before the Regional Trial Court of San
Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:
WHEREFORE, and in view of all the foregoing, judgment is hereby
rendered ordering the defendant to pay the plaintiff the sum of
P28,414.40 with interest thereon at the rate of 14% from October 2,
1980 until the said sum is fully paid; and the further amount of
P1,000.00 as attorney's fees.
The counterclaim of defendant is dismissed.
With costs against defendant. 1
Both petitioner and private respondent appealed the aforesaid decision to
the Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having
delivered a different vehicle to petitioner, the latter prayed for a reversal of
the trial court's decision so that she may be absolved from the obligation
under the contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision, the
pertinent portion of which is quoted hereunder:
The allegations, statements, or admissions contained in a pleading are
conclusive as against the pleader. A party cannot subsequently take
a position contradictory of, or inconsistent with his pleadings
(Cunanan vs. Amparo, 80 Phil. 227). Admissions made by the parties in
the pleadings, or in the course of the trial or other proceedings, do not
require proof and cannot be contradicted unless previously shown to
have been made through palpable mistake (Sec. 2, Rule 129, Revised
Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA
1018).
When an action or defense is founded upon a written instrument,
copied in or attached to the corresponding pleading as provided in
the preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party, under
oath, specifically denied them, and sets forth what he claims to be
the facts (Sec. 8, Rule 8, Revised Rules of Court; Hibbered vs. Rohde
and McMillian, 32 Phil. 476).
A perusal of the evidence shows that the amount of P58,138.20 stated
in the promissory note is the amount assumed by the plaintiff in
financing the purchase of defendant's motor vehicle from the Violago
Motor Sales Corp., the monthly amortization of winch is Pl,614.95 for 36
months. Considering that the defendant was able to pay twice (as
admitted by the plaintiff, defendant's account became delinquent
only beginning May, 1980) or in the total sum of P3,229.90, she is
therefore liable to pay the remaining balance of P54,908.30 at l4% per
annum from October 2, 1980 until full payment.
WHEREFORE, considering the foregoing, the appealed decision is
hereby modified ordering the defendant to pay the plaintiff the sum
of P54,908.30 at 14% per annum from October 2, 1980 until full
payment. The decision is AFFIRMED in all other respects. With costs to
defendant. 2
Petitioner's motion for reconsideration was denied; hence, the present
recourse.
In the petition before us, petitioner assigns twelve (12) errors which focus on
the alleged fraud, bad faith and misrepresentation of Violago Motor Sales
Corporation in the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability to private
respondent who should instead proceed against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by
description 4 which she alleges is applicable here, no contract ever existed
between her and VMS and therefore none had been assigned in favor of
private respondent.
She contends that it is not necessary, as opined by the appellate court, to
implead VMS as a party to the case before it can be made to answer for
damages because VMS was earlier sued by her for "breach of contract with
damages" before the Regional Trial Court of Olongapo City, Branch LXXII,
docketed as Civil Case No. 2916-0. She cites as authority the decision therein
where the court originally ordered petitioner to pay the remaining balance of
the motor vehicle installments in the amount of P31,644.30 representing the
difference between the agreed consideration of P49,000.00 as shown in the
sales invoice and petitioner's initial downpayment of P17,855.70 allegedly
evidenced by a receipt. Said decision was however reversed later on, with the
same court ordering defendant VMS instead to return to petitioner the sum of
P17,855.70. Parenthetically, said decision is still pending consideration by the
First Civil Case Division of the Court of Appeals, upon an appeal by VMS,
docketed as AC-G.R. No. 02922. 5
Private respondent in its comment, prays for the dismissal of the petition and
counters that the issues raised and the allegations adduced therein are a
mere rehash of those presented and already passed upon in the court below,
and that the judgment in the "breach of contract" suit cannot be invoked as
an authority as the same is still pending determination in the appellate court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in question is a
negotiable instrument which will bar completely all the available defenses of
the petitioner against private respondent.
Petitioner's liability on the promissory note, the due execution and genuineness
of which she never denied under oath is, under the foregoing factual milieu,
as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of
credit as petitioner would have it appear, where the assignee merely steps
into the shoes of, is open to all defenses available against and can enforce
payment only to the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing
and Acceptance Corp., 6 this Court had the occasion to clearly distinguish
between a negotiable and a non-negotiable instrument.
Among others, the instrument in order to be considered negotiable must
contain the so-called "words of negotiability — i.e., must be payable to "order"
or "bearer"". Under Section 8 of the Negotiable Instruments Law, there are only
two ways by which an instrument may be made payable to order. There must
always be a specified person named in the instrument and the bill or note is to
be paid to the person designated in the instrument or to any person to whom
he has indorsed and delivered the same. Without the words "or order or "to the
order of", the instrument is payable only to the person designated therein and
is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy
the advantages of being a holder of a negotiable instrument, but will merely
"step into the shoes" of the person designated in the instrument and will thus
be open to all defenses available against the latter. Such being the situation
in the above-cited case, it was held that therein private respondent is not a
holder in due course but a mere assignee against whom all defenses
available to the assignor may be raised. 7
In the case at bar, however, the situation is different. Indubitably, the basis of
private respondent's claim against petitioner is a promissory note which bears
all the earmarks of negotiability.
The pertinent portion of the note reads:
PROMISSORY NOTE
(MONTHLY)
P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
For value received, I/We jointly and severally, promise to pay Violago
Motor Sales Corporation or order, at its office in San
Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE
HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine
currency, which amount includes interest at 14% per annum based on
the diminishing balance, the said principal sum, to be payable,
without need of notice or demand, in installments of the amounts
following and at the dates hereinafter set forth, to
wit: P1,614.95 monthly for "36" months due and payable on the 21st
day of each month starting March 21, 1980 thru and inclusive of
February 21, 1983. P_________ monthly for ______ months due and
payable on the ______ day of each month starting _____198__ thru
and inclusive of _____, 198________ provided that interest at 14% per
annum shall be added on each unpaid installment from maturity
hereof until fully paid.
xxx xxx xxx
Maker; Co-Maker:
(SIGNED) JUANITA SALAS _________________
Address:
 ____________________ ____________________ this matter cannot be passed upon in the case before us, where the VMS was
never impleaded as a party.
WITNESSES
Whatever issue is raised or claim presented against VMS must be resolved in
SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE the "breach of contract" case.
TAN # TAN #
Hence, we reach a similar opinion as did respondent court when it held:
PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION We can only extend our sympathies to the defendant (herein
petitioner) in this unfortunate incident. Indeed, there is nothing We
VIOLAGO MOTOR SALES CORPORATION can do as far as the Violago Motor Sales Corporation is concerned
BY: (SIGNED) GENEVEVA V. BALTAZAR since it is not a party in this case. To even discuss the issue as to
Cash Manager 8 whether or not the Violago Motor Sales Corporation is liable in the
transaction in question would amount, to denial of due process,
hence, improper and unconstitutional. She should have impleaded
A careful study of the questioned promissory note shows that it is a negotiable
Violago Motor Sales.14
instrument, having complied with the requisites under the law as follows: [a] it
is in writing and signed by the maker Juanita Salas; [b] it contains an
unconditional promise to pay the amount of P58,138.20; [c] it is payable at a IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With
fixed or determinable future time which is "P1,614.95 monthly for 36 months costs against petitioner.
due and payable on the 21 st day of each month starting March 21, 1980 thru
and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales SO ORDERED.
Corporation, or order and as such, [e] the drawee is named or indicated with
certainty. 9 Gutierrez, Jr., Feliciano, Bidin and Cortés, JJ., concur.

It was negotiated by indorsement in writing on the instrument itself payable to Republic of the Philippines
the Order of Filinvest Finance and Leasing Corporation 10 and it is an SUPREME COURT
indorsement of the entire instrument. 11 Manila

Under the circumstances, there appears to be no question that Filinvest is a EN BANC

holder in due course, having taken the instrument under the following
conditions: [a] it is complete and regular upon its face; [b] it became the
G.R. No. L-2516 September 25, 1950
holder thereof before it was overdue, and without notice that it had previously
been dishonored; [c] it took the same in good faith and for value; and [d]
when it was negotiated to Filinvest, the latter had no notice of any infirmity in ANG TEK LIAN, petitioner,
the instrument or defect in the title of VMS Corporation. 12 vs.
THE COURT OF APPEALS, respondent.
Accordingly, respondent corporation holds the instrument free from any
defect of title of prior parties, and free from defenses available to prior parties Laurel, Sabido, Almario and Laurel for petitioner.
among themselves, and may enforce payment of the instrument for the full Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel
amount thereof. 13 This being so, petitioner cannot set up against respondent Tomacruz for respondent.
the defense of nullity of the contract of sale between her and VMS.
BENGZON, J.:
Even assuming for the sake of argument that there is an iota of truth in
petitioner's allegation that there was in fact deception made upon her in that For having issued a rubber check, Ang Tek Lian was convicted of estafa in the
the vehicle she purchased was different from that actually delivered to her, 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.
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.

Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.