G.R. No.

74451 May 25, 1988 EQUITABLE BANKING CORPORATION, petitioner, -versusTHE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. NELL CO., respondents. William R. Veto for petitioner. Pelaez, Adriano & Gregorio for respondents. MELENCIO-HERRERA, J.: In this Petition for Review on certiorari petitioner, Equitable Banking Corporation, prays that the adverse judgment against it rendered by respondent Appellate Court, 1 dated 4 October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, 2 be annulled and set aside. The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by Respondent Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs. Liberato V. Casals, Casville Enterprises, Inc., and Equitable Banking Corporation" of the Court of First Instance of Rizal (Civil Case No. 25112), and read: From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant Liberato Casals went to plaintiff Edward J. Nell Company and told its senior sales engineer, Amado Claustro that he was interested in buying one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries, equipment and supplies. Defendant Casals represented himself as the majority stockholder, president and general manager of Casville Enterprises, Inc., a firm engaged in the large scale production, procurement and processing of logs and lumber products, which had a plywood plant in Sta. Ana, Metro Manila. After defendant Casals talked with plaintiff's sales engineer, he was referred to plaintiffs executive vice-president, Apolonio Javier, for negotiation in connection with the manner of payment. When Javier asked for cash payment for the skidders, defendant Casals informed him that his corporation, defendant Casville Enterprises, Inc., had a credit line with defendant Equitable Banking Corporation. Apparently, impressed with this assertion, Javier agreed to have the skidders paid by way of a domestic letter of credit which defendant Casals promised to open in plaintiffs favor, in lieu of cash payment. Accordingly, on December 22, 1975, defendant Casville, through its president, defendant Casals, ordered from plaintiff two units of garrett skidders ... The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975 (Exhibit "A") contained the following terms and conditions: Two (2) units GARRETT Skidders Model 30A complete as basically described in the bulletin PRICE: F.O.B. dock Manila P485,000.00/unit For two (2) units P970,000.00 SHIPMENT: We will inform you the date and name of the vessel as soon as arranged. TERMS: By irrevocable domestic letter of credit to be issued in favor of THE EDWARD J. NELL CO. or ORDER payable in thirty six (36) months and will be opened within ninety (90) days after date of shipment. at first installment will be due one hundred eighty (180) days after date of shipment. Interest-14% per annum (Exhibit A) ... in a letter dated April 21, 1976, defendants Casals and Casville requested from plaintiff the delivery of one (1) unit of the bidders, complete with tools and cables, to Cagayan de Oro, on or before Saturday, April 24,1976, on board a Lorenzo shipping vessel, with the information that an irrevocable Domestic Letter of Credit would be opened in plaintiff's favor on or before June 30, 1976 under the terms and conditions agreed upon (Exhibit "B") On May 3, 1976, in compliance with defendant Casvile's recognition request, plaintiff shipped to Cagayan de Oro City a Garrett skidder. Plaintiff paid the shipping cost in the amount of P10,640.00 because of the verbal assurance of defendant Casville that it would be covered by the letter of credit soon to be opened. On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00 postdated August 4, 1976, which was followed by another check of same date. Plaintiff considered these checks either as partial payment for the skidder that was already delivered to Cagayan de Oro or as reimbursement for the marginal deposit that plaintiff was supposed to pay. In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the plaintiff that their application for a letter of credit for the payment of the Garrett skidders had been approved by the Equitable Banking Corporation. However, the defendants said that they would need the sum of P300,000.00 to stand as collateral or marginal deposit in favor of Equitable Banking Corporation and an additional amount of P100,000.00, also in favor of Equitable Banking Corporation, to clear the title of the Estrada property belonging to defendant Casals which had been approved as security for the trust receipts to be issued by the bank, covering the above-mentioned equipment.

Although the marginal deposit was supposed to be produced by defendant Casville Enterprises, plaintiff agreed to advance the necessary amount in order to facilitate the transaction. Accordingly, on August 5,1976, plaintiff issued a check in the amount of P400,000.00 (Exhibit "2") drawn against the First National City Bank and made payable to the order of Equitable Banking Corporation and with the following notation or memorandum: a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward J. Nell Co." Said check together with the cash disbursement voucher (Exhibit "2-A") containing the explanation: Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent.. A covering letter (Exhibit "3") was also sent and when the three documents were presented to Severino Santos, executive vice president of defendant bank, Santos did not accept them because the terms and conditions required by the bank for the opening of the letter of credit had not yet been agreed on. On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover its purchase from plaintiff of two Garrett skidders, under the following terms and conditions: a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for P606,000.00; c) P300,000.00 CASH marginal deposit1 d) Real Estate Collateral to secure the Trust Receipts; e) We shall chattel mortgage the equipments purchased even after payment of the first L/C as additional security for the balance of the second L/C and f) Other conditions you deem necessary to protect the interest of the bank." In a letter dated August 11, 1976 (Exhibit "D-l"), defendant bank replied stating that it was ready to open the letters of credit upon defendant's compliance of the following terms and conditions: c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the Trust Receipts; e) Chattel Mortgage on the equipment; and Ashville f) Other terms and conditions that our bank may impose. Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated checks. In said letter, plaintiff was informed of the requirements imposed by the defendant bank pointing out that the "cash marginal required under paragraph (c) is 30% of Pl,091,000.00 or P327,300.00 plus another P100,000.00 to clean up the Estrada property or a total of P427,300.00" and that the check covering said amount should be made payable "to the Order of EQUITABLE BANKING CORPORATION for the account of Casville Enterprises Inc." Defendant Casville also stated that the three (3) enclosed postdated checks were intended as replacement of the checks that were previously issued to plaintiff to secure the sum of P427,300.00 that plaintiff would advance to defendant bank for the account of defendant Casville. All the new checks were postdated November 19, 1976 and drawn in the sum of Pl45,500.00 (Exhibit "F"), P181,800.00 (Exhibit "G") and P100,000.00 (Exhibit "H"). On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of Deeds of Quezon City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces of real estate properties. Subsequently, Cesar Umali, plaintiffs credit and collection manager, accompanied by a representative of defendant Casville, went to see Severino Santos to find out the status of the credit line being sought by defendant Casville. Santos assured Umali that the letters of credit would be opened as soon as the requirements imposed by defendant bank in its letter dated August 11, 1976 had been complied with by defendant Casville. On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the "order of EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC." and drawn against the first National City Bank (Exhibit "E-l"). The check did not contain the notation found in the previous check issued by the plaintiff (Exhibit "2") but the substance of said notation was reproduced in a covering letter dated August 16,1976 that went with the check (Exhibit "E"). Both the check and the covering letter were sent to defendant bank through defendant Casals. Plaintiff entrusted the delivery of the check and the latter to defendant Casals because it believed that no one, including defendant Casals, could encash the same as it was made payable to the defendant bank alone. Besides, defendant Casals was known to the bank as the one following up the application for the letters of credit. Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals immediately deposited it with the defendant bank and the bank teller accepted the same for deposit in defendant Casville's checking account. After depositing said check, defendant Casville, acting through defendant Casals, then withdrew all the amount deposited. Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks (Exhibits "F, "G" and "H") in the total amount of P427,300.00, that were issued by defendant Casville as collateral were all dishonored for having been drawn against a closed account. As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the mortgage executed by defendant Casville on the Estrada property which was sold in a public auction sale to a third party. Plaintiff allowed some time before following up the application for the letters of credit knowing that it took time to process the same. However, when the three checks issued to it by defendant Casville were dishonored, plaintiff became apprehensive and sent Umali on November 29, 1976, to inquire about the status of the application for the letters of credit. When plaintiff was informed that no letters of credit were opened by the defendant bank in its favor and then discovered that defendant Casville had in the meanwhile withdrawn the entire amount of P427,300.00, without paying its obligation to the bank plaintiff filed the instant action. While the the instant case was being tried, defendants Casals and Casville assigned the garrett skidder to plaintiff which credited in favor of defendants the amount of P450,000.00, as partial satisfaction of plaintiff's claim against them.

Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show lack of interest in disputing plaintiff's claim by not appearing in most of the hearings, but they also assigned to plaintiff the garrett skidder which is an action of clear recognition of their liability. What is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff. Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto, the pertinent portion of which reads: Defendants Casals and Casville Enterprises and Equitable Banking Corporation are ordered to pay plaintiff, jointly and severally, the sum of P427,300.00, representing the amount of plaintiff's check which defendant bank erroneously credited to the account of defendant Casville and which defendants Casal and Casville misappropriated, with 12% interest thereon from April 5, 1977, until the said sum is fully paid. Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's fees in the sum of P25,000.00 . Proportionate cost against all the defendants. SO ORDERED. The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly, the Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the second check issued by NELL, Exhibit "E-l," which was made payable to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF CASVILLE ENTERPRISES INC. and which the Bank teller credited to the account of Casville. The Trial Court found that the amount of the second check had been erroneously credited to the Casville account; held the Bank liable for the mistake of its employees; and ordered the Bank to pay NELL the value of the check in the sum of P427,300.00, with legal interest. Explained the Trial Court: The Court finds that the check in question was payable only to the defendant bank and to no one else. Although the words "A/C OF CASVILLE ENTERPRISES INC. "appear on the face of the check after or under the name of defendant bank, the payee was still the latter. The addition of said words did not in any way make Casville Enterprises, Inc. the Payee of the instrument for the words merely indicated for whose account or in connection with what account the check was issued by the plaintiff. Indeed, the bank teller who received it was fully aware that the check was not negotiable since he stamped thereon the words "NON-NEGOTIABLE For Payee's Account Only" and "NON-NEGOTIABLE TELLER NO. 4, August 17,1976 EQUITABLE BANKING CORPORATION. But said teller should have exercised more prudence in the handling of Id check because it was not made out in the usual manner. The addition of the words A/C OF CASVILLE ENTERPRISES INC." should have placed the teller on guard and he should have clarified the matter with his superiors. Instead of doing so, however, the teller decided to rely on his own judgment and at the risk of making a wrong decision, credited the entire amount in the name of defendant Casville although the latter was not the payee named in the check. Such mistake was crucial and was, without doubt, the proximate cause of plaintiffs defraudation. Respondent Appellate Court upheld the above conclusions stating in addition: 1) The appellee made the subject check payable to appellant's order, for the account of Casville Enterprises, Inc. In the light of the other facts, the directive was for the appellant bank to apply the value of the check as payment for the letter of credit which Casville Enterprises, Inc. had previously applied for in favor of the appellee (Exhibit D-1, p. 5). The issuance of the subject check was precisely to meet the bank's prior requirement of payment before issuing the letter of credit previously applied for by Casville Enterprises in favor of the appellee; We disagree. 1) The subject check was equivocal and patently ambiguous. By making the check read: Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC. the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. 3 As worded, it could be accepted as deposit to the account of the party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against NELL who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides: Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-negotiable. Neither was it a crossed check. The rubberstamping transversall on the face of the subject check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel lines, and "Non-

negotiable, Teller- No. 4, August 17, 1976," separately boxed, was made only by the Bank teller in accordance with customary bank practice, and not by NELL as the drawer of the check, and simply meant that thereafter the same check could no longer be negotiated. 3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the 16 August 1976 check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of its own defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the order solely of "Equitable Banking Corporation." NELL changed the payee in the subject check, Exhibit "E", however, to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon Casals request. NELL also eliminated both the cash disbursement voucher accompanying the check which read: Payment for marginal deposit and other expense re opening of L/C for account of Casville Enterprises. and the memorandum: a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward Ashville J Nell Co. Evidencing the real nature of the transaction was merely a separate covering letter, dated 16 August 1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller. (b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who, obviously, had his own antagonistic interests to promote. Thus it was that Casals did not purposely present the subject check to the Executive Vice-President of the Bank, who was aware of the negotiations regarding the Letter of Credit, and who had rejected the previous check, Exhibit "2," including its three documents because the terms and conditions required by the Bank for the opening of the Letter of Credit had not yet been agreed on. (c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL even advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller of goods, the price of which is to be covered by a letter of credit, to advance the marginal deposit for the same. (d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to secure the subject check and had accepted the deposit with it of two (2) titles of real properties as collateral for said postdated checks. Thus, NELL was erroneously confident that its interests were sufficiently protected. Never had it suspected that those postdated checks would be dishonored, nor that the subject check would be utilized by Casals for a purpose other than for opening the letter of credit. In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking Corporation, 89 Phil. 780 [1951]; Republic of the Philippines vs. Equitable Banking Corporation, L-15895, January 30,1964, 10 SCRA 8). ... As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss. WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4 October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, are hereby SET ASIDE. The Decision of the then Court of First Instance of Rizal, Branch XI. is modified in that petitioner Equitable Banking Corporation is absolved from any and all liabilities to the private respondent, Edward J. Nell Company, and the Amended Complaint against petitioner bank is hereby ordered dismissed. No costs. SO ORDERED.

G.R. No. 101163 January 11, 1993 Lessons Applicable: Rights of the Holder (Negotiable Instruments Law) FACTS: Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission,2 post-dated Equitable Banking Corporation checks OF P 50,000 each Corazon negotiated the checks to State Investment House. Inc. (State) MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. o The checks, however, could no longer be retrieved as they had already been negotiated before their maturity dates, MOULIC withdrew her funds from the drawee bank Upon presentment for payment, the checks were dishonored for insufficiency of funds October 6, 1983: State sued to recover the value of the checks plus attorney's fees and expenses of litigation CA affirmed RTC: dismissed

ISSUE: W/N State has a right to recourse as holder in due course regardless if the sale did not push through against MOULIC HELD: YES. Petition is Granted. Sec. 52. What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it was previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

a prima facie presumption exists that the holder of a negotiable instrument is a holder in due course o burden of proving that STATE is not a holder in due course lies in MOULIC - failed As holder in due course, it holds the instruments free from any defect of title of prior parties, and from defenses available to prior parties among themselves o State may, therefore, enforce full payment of the checks o MOULIC cannot set up against STATE the defense that there was failure or absence of consideration o That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in due course. o For the only grounds are those outlined in Sec. 119 of the Negotiable Instruments Law:

Sec. 119. Instrument; how discharged. A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. o But, the intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up, burning it, or writing the word "cancelled" on the instrument. o The act of destroying the instrument must also be made by the holder of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the intentional cancellation of the said checks is altogether impossible. o acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Sec. 119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. In the present action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned. State failed to give Notice of Dishonor to MOULIC is of no moment. The need for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law:

Sec. 114. When notice need not be given to drawer. Notice of dishonor is not required to be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded payment.

she was responsible for the dishonor of her checks, hence, there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it No unjust enrichment -absence of a similar provision in Act No. 3135, as amended, it cannot be concluded that the creditor loses his right recognized by the Rules of Court to take action for the recovery of any unpaid balance on the principal obligation simply because he has chosen to extrajudicially foreclose the real estate mortgagepursuant to a Special Power of Attorney given him by the mortgagor in the contract of mortgage o

4) G.R. No. 93073

December 21, 1992

Lessons Applicable: Incomplete instruments to rules of construction (Negotiable Instrument Law) FACTS: Shozo Yamaguchi (President/Chief Operating Officer) and Fermin Canlas (Treasurer) by virtue of Board Resolution of Worldwide Garment Manufacturing, Inc were authorized to apply for credit facilities with the Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. 9 promissory notes with Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of Yamaguchi and Canlas were issued to Republic Planters Bank December 20, 1982: Worldwide Garment Manufacturing, Inc. changed its corporate name to Pinch Manufacturing Corporation February 5, 1982: Republic Planters filed a complaint for the recovery of sums of money o Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice o Fermin Canlas denied having issued the promissory notes as an officer of Pinch Manufacturing Corporation and when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., it was in blank (typewritten entries not appearing when he signed)

ISSUE: W/N Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi on the 9 promissory notes because they are negotiable and ruled by the Negotiable Instruments Law HELD: CA absolving Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all 9 promissory notes with the following sums and at 16% interest per annum Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. o Fermin Canlas one of the co-makers of the promissory notes cannot escape liability arising therefrom made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank Severally and jointly or solidarily liable o "I promise to pay" is signed by 2 or more persons o "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons "and (in) his personal capacity" below the signatures of the makers - immaterial and will not affect to the liability of Fermin Canlas as a joint and several debtor of the notes. o With or without it, he is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities o The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or incurred.

GR: officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. EX: Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as follows:

Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability. incomplete stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date. o An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law:

Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any material particular, the person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time... The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

5)G.R. No. 93397 March 3, 1997 Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable Instrument Law) FACTS: Filriters (assigned) > Philfinance (still under the name of Filriters assigned) > Traders Royal Bank = ? (valid or not) November 27, 1979: Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness (CBCI) of P500k and having an aggregate value of P3.5M o The Detached Assignment contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance February 4, 1981: Traders Royal Bank (Traders) entered into a Repurchase Agreement w/ PhilFinance whereby in consideration of the sum of P500,000.00, PhilFinance sold, transferred and delivered a CBCI w/ a face value of P500K which CBCI was among those previously acquired by PhilFinance from Filriters PhilFinance failed to repurchase on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds Philfinance transferred and assigned all, its rights and title in the CBCI to Traders Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing Traders prayed for the registration by the Central Bank of the subject CBCI in its name. CA affirmed RTC: subsequent assignment in favor of Traders Royal Bank null and void and of no force and effect.

o o

Philfinance acquired no title or rights under CBCI which it could assign or transfer to Traders and which it can register with the Central Bank instrument is payable only to Filriters, the registered owner

ISSUE: W/N the CBCI is a negotiable instrument HELD: NO. Petition is dismissed. CA affirmed.

CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031) certificate of indebtedness o = certificates for the creation and maintenance of a permanent improvement revolving fund o similar to a "bond" properly understood as acknowledgment of an obligation to pay a fixed sum of money usually used for the purpose of long term loans Philfinance merely borrowed the CBCI from Filriters, a sister corporation. o lack of any consideration = assignment is a complete nullity Filriters to Philfinance did not conform to the "Rules and Regulations Governing Central Bank Certificates of Indebtedness" (Central Bank Circular No. 769, series of 1980) under which the note was issued. o Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the BOD o Traders, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. Traders knew that Philfinance is not registered owner of the CBCI. o The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully.
March 5, 2001

G.R. No. 113236

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 NO. 42127 42128 42129 42130

DATE June 15, 1978 July 15, 1978 Aug. 15, 1978 Sep. 15, 1978

AMOUNT P1,198,092.80 940,190.00 880,000.00 981,500.00

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. 3683 370, id). Petitioner's complaint 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 5 6 7 Article 2176 in relation to Articles 19 and 20 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 twointermediate LDB Slips and in failing to award damages to Firestone 8 pursuant to Article 2176 of the New Civil Code.
4

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. Hence, the rules governing the 10 11 giving of immediate notice of dishonor of negotiable instruments do not apply in this case. Petitioner itself concedes this point. 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 12 characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. 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 13 pesos or of millions of pesos. 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 14 accounts of its clients with the highest degree of care. 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 15 cash or in check. 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.
9

[G.R. No. 149420. October 8, 2003]

SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent. DECISION YNARES-SANTIAGO, J.: Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style Sans Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80.[1] He paid a downpayment in the amount of P150,000.00. The balance was made payable in ten monthly installments.

Respondent delivered the scaffoldings to petitioner.[2] Petitioner was able to pay the first two monthly installments. His business, however, encountered financial difficulties and he was unable to settle his obligation to respondent despite oral and written demands made against him.[3] On October 11, 1990, petitioner and respondent executed a Deed of Assignment,[4] whereby petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of the Deed provide: WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation; WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased on account scaffolding equipments from the ASSIGNEE payable to the latter; WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14); NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents part of the ASSIGNORs collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles amounting to the said amount of P335, 462.14; And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power and authority to demand, collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in the name and stead of the said ASSIGNOR; And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and that said ASSIGNOR has not done and will not cause anything to be done to diminish or discharge said debt, or delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the same; And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents. xxx[5] (Italics supplied) However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it. [6] On November 26, 1990, respondent sent a letter[7] to petitioner demanding payment of his obligation, but petitioner refused to pay claiming that his obligation had been extinguished when they executed the Deed of Assignment. Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074.[8] During the trial, petitioner argued that his obligation was extinguished with the execution of the Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee, Almeda Baaga, who testified that Jomero Realty refused to honor the assignment of credit because it claimed that petitioner had an outstanding indebtedness to it. On August 25, 1994, the trial court rendered a decision [9] dismissing the complaint on the ground that the assignment of credit extinguished the obligation. The decretal portion thereof provides: WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the defendant and against the plaintiff, dismissing the complaint and ordering the plaintiff to pay the defendant attorneys fees in the amount of P25,000.00. Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court rendered a decision,[10] the dispositive portion of which reads: WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing of the Complaint) until fully paid and attorneys fees equivalent to 10% of the amount due and costs of the suit. SO ORDERED.[11] In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment when he failed to execute and do all acts and deeds as shall be necessary to effectually enable the respondent to recover the collectibles. [12] Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of Appeals. [13] In this petition for review, petitioner assigns the following errors:

I THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING THE DEED OF ASSIGNMENT (EXH. 4) AS NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM. II THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT (EXH. 4) DID NOT EXTINGUISH PETITIONERS OBLIGATION ON THE WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS WARRANTY THEREUNDER. III THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEYS FEES.[14] The petition is without merit. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, su ch as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.[15] Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. [16] In order that there be a valid dation in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud proalio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.[17]The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtors debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances.[18] Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property, [19] produced the effects of a dation in payment which may extinguish the obligation. [20] However, as in any other contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code provides: The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation.[21] In other words, respondent alleged the nonexistence of the credit and asserted its claim to petitioners warranty under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid the obligation. Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to wit: And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents.[22] (underscoring ours) Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the performance thereof in case the same is later found to be inexistent. He should be held liable to pay to respondent the amount of his indebtedness. Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the sum of P335,462.14 with legal interest thereon. However, we find that the award by the Court of Appeals of attorneys fees is without factual basis. No evidence or testimony was presented to substantiate this claim. Attorneys fees, being in the nature of actual damages, must be duly substantiated by competent proof. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14 with legal interest of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with MODIFICATION. Upon finality of this Decision, the rate of legal interest shall be 12% per annum, inasmuch as the obligation shall thereafter become equivalent to a forbearance of credit. [23] The award of attorneys fees is DELETED for lack of evidentiary basis. SO ORDERED