Professional Documents
Culture Documents
SUPREME COURT
Manila
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.
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
1 Negotiable Instruments – Negotiable Insrturments
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.10 Petitioner 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
BELLOSILLO, J.:
The liability to a holder in due course of the drawer of checks issued to another merely as security, and the right of a real estate
mortgagee after extrajudicial foreclosure to recover the balance of the obligation, are the issues in this Petition for Review of the
Decision of respondent Court of Appeals.
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two (2)
post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August
1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner 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. The checks, however,
could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates, MOULIC withdrew her
funds from the drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979, STATE allegedly notified
MOULIC of the dishonor of the checks and requested that it be paid in cash instead, although MOULIC avers that no such notice was
given her.
On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the checks because the jewelry was never sold and the checks
were negotiated without her knowledge and consent. She also instituted a Third-Party Complaint against Corazon Victoriano, who later
assumed full responsibility for the checks.
On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered STATE to pay MOULIC
P3,000.00 for attorney's fees.
STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground that the
Notice of Dishonor to MOULIC was made beyond the period prescribed by the Negotiable Instruments Law and that even if STATE did
serve such notice on MOULIC within the reglementary period it would be of no consequence as the checks should never have been
presented for payment. The sale of the jewelry was never effected; the checks, therefore, ceased to serve their purpose as security for
the jewelry.
We are not persuaded.
The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the pre-trial, the parties agreed to limit the
issue to whether or not STATE was a holder of the checks in due course. 1
In this regard, Sec. 52 of the Negotiable Instruments Law provides —
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.
Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable instrument is a holder in due course. 2
Consequently, the burden of proving that STATE is not a holder in due course lies in the person who disputes the presumption. In this
regard, MOULIC failed.
The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner bought these
checks from the payee, Corazon Victoriano, before their due dates; 3 (c) petitioner took these checks in good faith and for value, albeit
at a discounted price; and, (d) petitioner was never informed nor made aware that these checks were merely issued to payee as
security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties,
and from defenses available to prior parties among themselves; STATE may, therefore, enforce full payment of the checks. 4
DECISION
CRUZ, J.:p
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials, are easily
told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings
and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with the other private respondents as its
principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38
treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly
signed by its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others
appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of
Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for
clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been
cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however,
"exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided
to allow Golden Savings to withdraw from the proceeds of the
warrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of
P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount
of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July
19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial, judgment was
rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On
November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association,
Inc. and defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to
reinstate and credit to such account such amount existing before the debit was made including the amount of
P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and thereafter, to allow defendant
Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and
expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and
expenses of litigation in the amount of P100,000.00.
SO ORDERED.
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 day it deposited the same with the Bank of America, and one day thereafter the latter cleared it with the Bureau of Posts
and received from the latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting for and in
behalf of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that money order No. 124688 attached to his letter
had been found to have been irregularly issued and that, in view thereof, the amount it represented had been deducted from the bank's
clearing account. For its part, on August 2 of the same year, the Bank of America debited appellant's account with the same amount
and gave it advice thereof by means of a debit memo.
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.
RESOLUTION
FELICIANO, J.:p
Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00 from Niceta Ribaya. On 21
March 1968, petitioner, then in need of money, instructed her private secretary, Josefina Rocco, to pawn the jewelry. Josefina Rocco
went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for P22,000.00 with its principal owner and
General Manager, Yu An Kiong, and then absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina
Rocco stipulated that it was redeemable "on presentation by the bearer."
Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket issued by private respondent
was being offered for sale. They told Niceta the ticket probably covered jewelry once owned by the latter which jewelry had been
pawned by one Josefina Rocco. Suspecting that it was the same jewelry she had sold to petitioner, Niceta informed the latter of this
offer and suggested that petitioner go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private
respondent pawnshop, verified that indeed her missing jewelry was pledged there and told Yu An Kiong not to permit anyone to redeem
the jewelry because she was the lawful owner thereof. Petitioner claims that Yu An Kiong agreed.
On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first for qualified theft and later
changed to estafa was subsequently filed against Josefina Rocco. On the same date, Detective Corporal Oswaldo Mateo of the Manila
Police also claims to have gone to the pawnshop, showed Yu An Kiong petitioner's report and left the latter a note asking him to hold
the jewelry and notify the police in case some one should redeem the same. The next day, on 10 July 1968, Yu An Kiong permitted one
Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry.
On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of Manila for damages against private respondent
Long Life for failure to hold the jewelry and for allowing its redemption without first notifying petitioner or the police. After trial, the trial
judge, Hon. Luis B. Reyes, rendered a decision in favor of petitioner, awarding her P26,500.00 as actual damages, with legal interest
thereon from the date of the filing of the complaint, P2,000.00 as attorney's fees, and the costs of the suit.
Judge L.B. Reyes' decision was reversed on appeal and the complaint dismissed by the public respondent Court of Appeals in a
Decision promulgated on 26 September 1976.
The Court of Appeals gave credence to Yu An Kiong's testimony that neither petitioner nor Detective Mateo ever apprised him of the
misappropriation of petitioner's loan, or obtained a commitment from him not to permit redemption of the jewelry, prior to 10 July 1968.
Yu An Kiong claims to have become aware of the loan's misappropriation only on 16 August 1968 when a subpoena duces tecum was
served by the Manila Fiscal's Office requiring him to bring the record of the pledge in connection with the preliminary investigation of the
estafa charge against Josefina Rocco. Consequently, the appellate court ruled, there could have been no negligence, much less a
grave one amounting to bad faith, imputable to Yu An Kiong as the basis for an award of damages.
In this Petition for Review, petitioner seeks reversal of the Public respondent's findings relating to the credibility of witnesses and the
restoration of the trial court's decision.
Deliberating on the present Petition for Review, the Court considers that the public respondent Court of Appeals committed reversible
error in rendering its questioned Decision.
It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are entitled to great
respect from the appellate courts because the trial court had an opportunity to observe the demeanor of witnesses while giving
testimony which may indicate their candor or lack thereof. 1 While the Supreme Court ordinarily does not rule on the issue of credibility
of witnesses, that being a question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in
exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions on
questions of fact and the credibility of witnesses. 2
The Court of Appeals rejected what it considered to be the incredible testimony of petitioner and Detective Mateo. It faulted petitioner
for failing to report to the police authorities the loss of her jewelry immediately on 21 March 1968 when Josefina Rocco failed to return
to her either the loan proceeds or the jewelry. But it must be noted that Josefina Rocco simply disappeared without a trace on said date.
Petitioner had no way of knowing if Josefina had misappropriated her jewelry, or had first pledged the jewelry as instructed and then
17 Negotiable Instruments – Overview of Kinds of Nego Inst
misappropriated the proceeds of the loan. In the latter case, which was in fact what had occurred, petitioner could have had no idea as
to the identity of the pawnbroker. Moreover, this Court has several times recognized that different people may have diverse reasons for
failing to report promptly to the police their having been victimized by some criminal or fraudulent scheme and that such failure does not
by itself render their subsequent testimony unworthy of credence. 3 The Court of Appeals also found it hard to believe that Detective
Mateo had failed to obtain a written acknowledgment from Yu An Kiong of the receipt of the note as corroboration for his testimony.
However, absent evidence that it was an established practice for police officers to obtain such acknowledgment in situations like the
one here, it is difficult to see why Detective Mateo's behavior should be considered unbelievable. On the other hand, as the trial court
pointed out, it would not have been sensible for Detective Mateo to leave a note reminding Yu An Kiong to hold unto the jewelry if the
latter had in fact then told the policeman that the jewelry had already been redeemed.
The public respondent apparently believed petitioner had failed to establish her ownership of the jewelry pledged by Josefina Rocco,
such failure purportedly engendering doubt that Tomasa de Leon may have redeemed jewelry different from that owned by petitioner.
This is curious and untenable because the record on appeal indicates that Yu An Kiong had admitted in his answer and memorandum
before the trial court that he received pledged jewelry from Josefina Rocco and, in his memorandum, that such jewelry had been
entrusted to Josefina by petitioner as the latter's employer. It is clear from these judicial admissions that he considered petitioner to
have been the true owner of the jewelry.
Finally, the Court of Appeals did not believe petitioner's testimony because of a claimed material inconsistency therein. On direct
examination, petitioner said she "immediately" went to the private respondent's establishment upon being informed by Niceta Ribaya of
the possible whereabouts of her jewelry. On cross-examination, she said she went to the establishment "a few days later." If this is an
inconsistency, it relates to an unimportant detail. What is clear is that in any event, petitioner testified that she went to the respondent's
pawnshop to meet Yu An Kiong and notify him of the misappropriation before anyone had redeemed the jewelry.
We must also note that the Court of Appeals apparently over-looked a fact of substance which did not escape the attention of the trial
court. Petitioner's version of events was corroborated by Police Detective Mateo and by Niceta Ribaya. These were two (2) individuals
who had nothing to gain from the outcome of the case. Certainly, their disinterested testimony should have been accorded more
probative weight than the negative, uncorroborated and self-serving testimony of Yu An Kiong, which presented a diametrically
opposed version of events calculated to show that in permitting redemption of the jewelry, he was acting in good faith. 4 The testimony
of Detective Mateo was moreover supported by the presumption that he had acted in the regular performance of his official duty as a
police officer, a presumption that Yu An Kiong did not try to rebut.
This being a civil case, it was enough for petitioner to show, by a preponderance of evidence, that her version of events did in fact
occur. We agree with the trial court that this burden of proof had been discharged by petitioner because her evidence was direct and
more credible and persuasive than that propounded by Yu An Kiong, 5 and corroborated by disinterested witnesses.
Turning to the substantive legal rights and duties of the parties, we believe and so hold that, having been notified by petitioner and the
police that jewelry pawned to it was either stolen or involved in an embezzlement of the proceeds of the pledge, private respondent
pawnbroker became duty bound to hold the things pledged and to give notice to petitioner and the police of any effort to redeem them.
Such a duty was imposed by Article 21 of the Civil Code. 6 The circumstance that the pawn ticket stated that the pawn was redeemable
by the bearer, did not dissolve that duty. The pawn ticket was not a negotiable instrument under the Negotiable Instruments Law nor a
negotiable document of title under Articles 1507 et seq. of the Civil Code. If the third person Tomasa de Leon, who redeemed the things
pledged a day after petitioner and the police had notified Long Life, claimed to be owner thereof, the prudent recourse of the
pawnbroker was to file an interpleader suit, impleading both petitioner and Tomasa de Leon. The respondent pawnbroker was, of
course, entitled to demand payment of the loan extended on the security of the pledge before surrendering the jewelry, upon the
assumption that it had given the loan in good faith and was not a "fence" for stolen articles and had not conspired with the faithless
Josefina Rocco or with Tomasa de Leon. Respondent pawnbroker acted in reckless disregard of that duty in the instant case and must
bear the consequences, without prejudice to its right to recover damages from Josefina Rocco.
The trial court correctly held that private respondent was liable to petitioner for actual damages which corresponded to the difference in
the value of the jewelry (P48,500.00) and the amount of the loan (P22,000.00), or the sum of P26,500.00. Petitioner is entitled to collect
the balance of the value of the jewelry, corresponding to the amount of the loan, in an appropriate action against Josefina Rocco.
Private respondent Long Life in turn is entitled to seek reimbursement from Josefina Rocco of the amount of the damages it must pay to
petitioner.
ACCORDINGLY, the Petition is GRANTED. The Decision of the Court of Appeals dated 23 September 1976 is hereby REVERSED and
SET ASIDE. The Decision of the Court of First Instance dated 22 May 1970 is hereby REINSTATED in toto. No pronouncement as to
costs.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
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.
SECOND DIVISION
[G.R. No. 136729. September 23 ,2003]
ASTRO ELECTRONICS CORP. and PETER ROXAS, Petitioner, vs. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE
CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:chanroblesvirtuallawlibrary
Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision of the Court of Appeals in CA-G.R.
CV No. 41274,[1] affirming the decision of the Regional Trial Court (Branch 147) of Makati, then Metro Manila, whereby petitioners
Peter Roxas and Astro Electronics Corp. (Astro for brevity) were ordered to pay respondent Philippine Export and Foreign Loan
Guarantee Corporation (Philguarantee), jointly and severally, the amount of P3,621,187.52 with interests and
costs.chanroblesvirtuallawlibrary
The antecedent facts are undisputed.chanroblesvirtuallawlibrary
Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by
three promissory notes: PN NO. PFX-254 dated December 14, 1981 for P600,000.00, PN No. PFX-258 also dated December 14, 1981
for P400,000.00 and PN No. 15477 dated August 27, 1981 for P2,000,000.00. In each of these promissory notes, it appears that
petitioner Roxas signed twice, as President of Astro and in his personal capacity.[2] Roxas also signed a Continuing Surety ship
Agreement in favor of Philtrust Bank, as President of Astro and as surety.[3]chanroblesvirtuallawlibrary
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astros loan,[4] subject to
the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against
Astro.[5]chanroblesvirtuallawlibrary
As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust.
Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of
Makati.chanroblesvirtuallawlibrary
In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the same in blank and the
phrases in his personal capacity and in his official capacity were fraudulently inserted without his knowledge.
[6]chanroblesvirtuallawlibrary
After trial, the RTC rendered its decision in favor of Philguarantee with the following dispositive portion:chanroblesvirtuallawlibrary
WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the plaintiff and against the defendants
Astro Electronics Corporation and Peter T. Roxas, ordering the then (sic) to pay, jointly and severally, the plaintiff the sum of
P3,621.187.52 representing the total obligation of defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest at
the stipulated rate of 16% per annum and stipulated penalty charges of 16% per annum computed from January 1, 1985 until the
amount is fully paid. With costs.chanroblesvirtuallawlibrary
SO ORDERED.[7]chanroblesvirtuallawlibrary
The trial court observed that if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should
have signed only once in the promissory note.[8]chanroblesvirtuallawlibrary
On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that Roxas failed to explain satisfactorily why he
had to sign twice in the contract and therefore the presumption that private transactions have been fair and regular must be sustained.
[9]chanroblesvirtuallawlibrary
In the present petition, the principal issue to be resolved is whether or not Roxas should be jointly and severally liable (solidary) with
Astro for the sum awarded by the RTC.chanroblesvirtuallawlibrary
The answer is in the affirmative.chanroblesvirtuallawlibrary
Astros loan with Philtrust Bank is secured by three promissory notes. These promissory notes are valid and binding against Astro and
Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in his personal capacity. In signing his
name aside from being the President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any liability
arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers,[10]
promising that they will pay to the order of the payee or any holder according to its tenor.[11] Thus, even without the phrase personal
capacity, Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as
such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he
is undertaking the obligation in two different capacities, official and personal.chanroblesvirtuallawlibrary
Unnoticed by both the trial court and the Court of Appeals, a closer examination of the signatures affixed by Roxas on the promissory
notes, Exhibits A-4 and 3-A and B-4 and 4-A readily reveals that portions of his signatures covered portions of the typewritten words
personal capacity indicating with certainty that the typewritten words were already existing at the time Roxas affixed his signatures thus
REGALADO, J.:
Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station located at Shaw Boulevard,
corner Old Wack-Wack Road, Mandaluyong, Metro Manila. They regularly purchased bulk fuel and other related products from
Petrophil Corporation on cash on delivery (COD) basis. Orders for bulk fuel and other related products were made by telephone and
payments were effected by personal checks upon delivery. 1
Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7) and two savings accounts, (Nos.
1037002387 and 1037001372) with the Shaw Boulevard branch of Citytrust Banking Corporation. As a special privilege to the Morans,
whom it considered as valued clients, the bank allowed them to maintain a zero balance in their current account. Transfers from Saving
Account No. 1037002387 to their current account could be made only with their prior authorization, but they gave written authority to
Citytrust to automatically transfer funds from their Savings Account No. 1037001372 to their Current Account No. 37-00066-7 at any
time whenever the funds in their current account were insufficient to meet withdrawals from said current account. Such arrangement for
automatic transfer of funds was called a pre-authorized transfer (PAT) agreement. 2
The PAT letter-agreement entered into by the parties on March 19, 1982 contained the following provisions:
xxx xxx xxx
1. The transfer may be effected on the day following the overdrawing of the current account, but the check/s would
be honored if the savings account has sufficient balance to cover the overdraft.
2. The regular charges on overdraft, and activity fees will be imposed by the Bank.
3. This is merely an accommodation on our part and we have the right, at all times and for any reason whatsoever, to
refuse to effect transfer of funds at our sole and absolute option and discretion, reserving our right to terminate this
arrangement at any time without written notice to you.
4. You hold CITYTRUST free and harmless for any and all omissions or oversight in executing this automatic transfer
of funds; . . . 3
xxx xxx xxx
On December 12, 1983, petitioners, through Librada Moran, drew a check (Citytrust No. 041960) for P50,576.00 payable to Petrophil
Corporation. 4 The next day, December 13, 1983, petitioners, again through Librada Moran, issued another check (Citytrust No.
041962) in the amount of P56,090.00 in favor of the same corporation. 5 The total sum of the two checks was P106,666.00.
On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its account with the Pandacan branch of the
Philippine National Bank (PNB), the collecting bank. In turn, PNB, Pandacan branch presented them for clearing with the Philippine
Clearing House Corporation in the afternoon of the same day. The records show that on December 14, 1983, Current Account No. 37-
00066-7 had a zero balance, while Savings Account No. 1037001372 (covered by the PAT) had an available balance of
P26,104.30 6 and Savings Account No. 1037002387 had an available balance of P43,268.39. 7
At about ten o'clock in the morning of the following day, December 15, 1983, petitioner George Moran went to the bank, as was his
regular practice, to personally oversee their daily transactions with the bank. He deposited in their Savings Account No. 1037002387
the amounts of P10,874.58 and P6,754.25, 8 and he likewise deposited in their Savings Account No. 1037001372 the amounts of
P5,900.00, P35,100.00 and 30.00. 9 The amount of P40,000.00 was then transferred by him from Saving Account No. 1037002387 to
their current account by means of a pro forma withdrawal form (a debit memorandum), which was provided by the bank, authorizing the
latter to make the necessary transfer. At the same time, the amount of P66,666.00 was transferred from Savings Account No.
1037001372 to the same current account through the pre-authorized transfer (PAT) agreement. 10
Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada, that Petrophil refused to deliver their orders
on a credit basis because the two checks they had previously issued were dishonored upon presentment for payment. Apparently, the
bank dishonored the checks due to "insufficiency of funds." 11 The non-delivery of gasoline forced petitioners to temporarily stop
business operations, allegedly causing them to suffer loss of earnings. In addition, Petrophil cancelled their credit accommodation,
forcing them to pay for their purchases in cash. 12 George Moran, furious and upset, demanded an explanation from Raul Diaz, the
FERNANDO, J.:
There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While several points were raised, the
decisive issue is whether a creditor is barred by prescription in his attempt to collect on a promissory note executed more than fifteen
years earlier with the debtor sued promising to pay either upon receipt by him of his share from a certain estate or upon demand, the
basis for the action being the latter alternative. The lower court held that the ten-year period of limitation of actions did apply, the note
being immediately due and demandable, the creditor admitting expressly that he was relying on the wording "upon demand." On the
above facts as found, and with the law being as it is, it cannot be said that its decision is infected with error. We affirm.
From the appealed decision, the following appears: "The parties in this case agreed to submit the matter for resolution on the basis of
their pleadings and annexes and their respective memoranda submitted. Petitioner George Pay is a creditor of the Late Justo Palanca
who died in Manila on July 3, 1963. The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby the late
Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount of P26,900.00, with interest
thereon at the rate of 12% per annum. George Pay is now before this Court, asking that Segundina Chua vda. de Palanca, surviving
spouse of the late Justo Palanca, he appointed as administratrix of a certain piece of property which is a residential dwelling located at
2656 Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the name of Justo Palanca, assessed at P41,800.00. The idea is
that once said property is brought under administration, George Pay, as creditor, can file his claim against the administratrix." 1 It then
stated that the petition could not prosper as there was a refusal on the part of Segundina Chua Vda. de Palanca to be appointed as
administratrix; that the property sought to be administered no longer belonged to the debtor, the late Justo Palanca; and that the rights
of petitioner-creditor had already prescribed. The promissory note, dated January 30, 1962, is worded thus: " `For value received from
time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his office at the China Banking Corporation the
sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by
either of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand'. . . . As stated, this
promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." 2 Then came this paragraph: "The Court has
inquired whether any cash payment has been received by either of the signers of this promissory note from the Estate of the late Carlos
Palanca. Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his right under the promissory
note ." 3 After which, came the ruling that the wording of the promissory note being "upon demand," the obligation was immediately due.
Since it was dated January 30, 1952, it was clear that more "than ten (10) years has already transpired from that time until to date. The
action, therefore, of the creditor has definitely prescribed." 4 The result, as above noted, was the dismissal of the petition.
In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the correctness of the rulings of the lower
court as to the effect of the refusal of the surviving spouse of the late Justo Palanca to be appointed as administratrix, as to the property
sought to be administered no longer belonging to the debtor, the late Justo Palanca, and as to the rights of petitioner-creditor having
already prescribed. As noted at the outset, only the question of prescription need detain us in the disposition of this appeal. Likewise,
as intimated, the decision must be affirmed, considering the clear tenor of the promissory note.
From the manner in which the promissory note was executed, it would appear that petitioner was hopeful that the satisfaction of his
credit could he realized either through the debtor sued receiving cash payment from the estate of the late Carlos Palanca presumptively
as one of the heirs, or, as expressed therein, "upon demand." There is nothing in the record that would indicate whether or not the first
alternative was fulfilled. What is undeniable is that on August 26, 1967, more than fifteen years after the execution of the promissory
note on January 30, 1952, this petition was filed. The defense interposed was prescription. Its merit is rather obvious. Article 1179 of
the Civil Code provides: "Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once." This used to be Article 1113 of the Spanish Civil Code of 1889. As far back as Floriano
v. Delgado, 5 a 1908 decision, it has been applied according to its express language. The well-known Spanish commentator, Manresa,
on this point, states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de este, se fija, para
determinar el concepto de la obligacion pura, en el distinctive de esta, y que es consecuencia de aquel: la exigibilidad immediata." 6
The obligation being due and demandable, it would appear that the filing of the suit after fifteen years was much too late. For again,
according to the Civil Code, which is based on Section 43 of Act No. 190, the prescriptive period for a written contract is that of ten
years. 7 This is another instance where this Court has consistently adhered to the express language of the applicable norm. 8 There is
no necessity therefore of passing upon the other legal questions as to whether or not it did suffice for the petition to fail just because the
30 Negotiable Instruments – Form and Interpretation (Sec 1-23)
surviving spouse refuses to be made administratrix, or just because the estate was left with no other property. The decision of the lower
court cannot be overturned.
WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against George Pay.
Zaldivar (Chairman), Barredo, Antonio, Fernandez and Aquino, JJ., concur.
MEDIALDEA, J.:
This is a petition for review on certiorari filed by the Government Service Insurance System (GSIS) seeking the reversal of the decision
of the respondent Court of Appeals dated October 13, 1975, in the special civil action for certiorari docketed as CA-G.R. No. SP-04300,
entitled "Rene Knecht vs. Hon. Pedro JL. Bautista, etc., et. al.," and its resolution dated December 18, 1975, denying petitioner's motion
for reconsideration. Per Resolution dated May 4, 1976, however, We treated this case as a special civil action (p. 217, Rollo).
The assailed decision set aside, "as having been issued in grave abuse of discretion," the Orders of the Court of First Instance (now
Regional Trial Court) of Rizal, Branch III, Pasay City, dated May 26, 1975 and May 27, 1976, which respectively denied private
respondent Knecht's "Urgent Motion for Intervention" and granted GSIS' "Ex-parte Motion for Issuance of Writ of Possession" in GLRO
Record No. 317 and 1356, or CFI Case No. 1104.
The antecedent facts in the instant case are as follows:
Mariano R. Dulay Enterprises (hereinafter referred to as Dulay) obtained on various occassions, real estate loans from the Government
Service Insurance System (GSIS for short) all amounting to P9,535,000.00 (p. 3, Rollo). These loans were secured by a real estate
mortgage of a certain parcel of land (which included Hotel Frederick), then covered by Transfer Certificate of Title No. 17638 of the
Registry of Deeds of Pasay City, under Act No. 3135, as amended by Act No. 4118.
As of September 10, 1974, DULAY had incurred arrearages in the payment of its loans all amounting to P3,335,878.81. In view thereof,
the GSIS instituted extrajudicial foreclosure proceedings on the mortgaged property and on November 5, 1974, the said property was
sold at public auction by the Sheriff of Pasay City to the GSIS as the highest bidder for P13,426,382.00. A Certificate of Sale was
subsequently issued on November 22, 1974, and the same was duly registered on December 13, 1974 (p. 4, Rollo).
On January 7, 1975, the GSIS filed with the Court of First Instance (now Regional Trial Court) of Rizal, with station at Pasay City, an
"Ex-Parte Petition for Issuance of a Writ of Possession" in the original registration proceedings (therein docketed as GLRO Record No.
317 and 1356, or CPI Case No. 1104), conformably with Section 4 of P.D. 385 (p. 355, Rollo).
On January 16, 1975, private respondent Rene C. Knecht (Knecht for short), filed with the aforesaid court, an "Urgent Motion for
Intervention" claiming that DULAY had sold the property to him on May 4, 1974 and assigned to him on November 5, 1974, the right to
redeem the same. The GSIS opposed the motion alleging that "intervention will not lie when there is no pending litigation; when it
impairs substantial rights of the adverse party; when the intervenor is guilty of laches; and that the intervenor has no legal interest in the
property subject of a writ of possession" (p. 5, Rollo).
On May 26, 1975, the Court of First Instance of Rizal, with Judge Pedro JL. Bautista presiding, denied Knecht's motion for intervention
citing Section 7 of Act No. 3135 and Section 4 of PD No. 385, and, on May 27, 1975, directed the issuance of a writ of possession in
favor of the GSIS upon the latter's posting a bond in the amount of P2,000,000.00 (p. 6, Rollo).
On June 11, 1975, Knecht filed a special civil action for certiorari with the Court of Appeals wherein he assailed the said Orders of the
Court of First Instance of Rizal as having been issued in grave abuse of discretion amounting to lack of jurisdiction (p. 4, Rollo). The
Court of Appeals immediately, and without any prior hearing, issued a writ of preliminary injunction, upon Knecht's filing of a bond in the
sum of Pl,000.00, enjoying the Court of First Instance of Rizal from issuing the writ of possession and the Sheriff of Pasay City from
executing the same, if already issued (p. 642, Rollo).
On October 13, 1975, respondent Court of Appeals rendered a decision (p. 78, Rollo) (after GSIS had filed its Answer to the Petition but
therefore the parties could file their respective Memoranda) upholding Knecht's right to intervene in the proceedings for the issuance of
a writ of possession, as a successor-in-interest of the Dulays, and standing "on better footing than a necessary or an indispensable
party" (p. 89, Rollo). Respondent Court of Appeals likewise set aside, "as having been issued in grave abuse of discretion," the Orders
of the CFI of Rizal, dated May 26, 1975 (denying the motion for intervention) and May 27, 1975 (granting the writ of possession), and
making permanent the injunction it had earlier issued. The motion for reconsideration filed by GSIS (p. 102, Rollo) was denied per
Resolution dated December 18, 1975 (p. 108, Rollo).
On January 7, 1976, the GSIS filed the present "Petition for Review on Certiorari" praying for the reversal of respondent Court of
Appeals' Decision.
Meantime, title to the subject property was consolidated in the name of the GSIS on January 15, 1976. Transfer Certificate of Title No.
17638, in the name of Manuel R. Dulay Enterprises, Inc. was cancelled and Transfer Certificate of Title No. 19836 of the Register of
Deeds of Pasay City was issued in the name of the GSIS.
MALCOLM, J.:
This is an appeal taken by Philippine National Bank from a judgment of the Court of First Instance of Manila requiring bank to pay
to the Insular Drug Co., Inc., the sum of P18,285.92 with legal interest and costs.
The record consists of the testimony of Alfred Von Arend, President and Manager of the Insular Drug Co., Inc., and of exhibits
obtained from the Philippine National Bank showing transactions of U.E. Foerster with the bank. The Philippine National Bank was
content to submit the case without presenting evidence in its behalf. The meagre record and the statement of facts agreed upon by the
attorneys for the contending parties disclose the following facts:
The Insular Drug Co., Inc., is a Philippine corporation with offices in the City of Manila. U.E. Foerster was formerly a salesman of
drug company for the Islands of Panay and Negros. Foerster also acted as a collector for the company. He was instructed to take the
checks which came to his hands for the drug company to the Iloilo branch of the Chartered Bank of India, Australia and China and
deposit the amounts to the credit of the drug company. Instead, Foerster deposited checks, including those of Juan Llorente, Dolores
Salcedo, Estanislao Salcedo, and a fourth party, with the Iloilo branch of the Philippine National Bank. The checks were in that bank
placed in the personal account of Foerster. Some of the checks were drawn against the Bank of Philippine National Bank. After the
indorsement on the checks was written "Received payment prior indorsement guaranteed by Philippine National bank, Iloilo Branch,
Angel Padilla, Manager." The indorsement on the checks took various forms, some being "Insular Drug Company, Inc., By: (Sgd.) U.
Foerster, Agent. (Sgd.) U. Foerster" other being "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Agent (Sgd.) Carmen E. de
Foerster"; others "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Carmen E. de Froster"; others "(Sgd.) Carmen E. de
Foerster, (Sgd.) Carmen E. de Foerster"; one (Sgd.) U. Foerster. (Sgd.) U. Foerster"; others; "Insular Drug Co., Inc., Carmen E. de
Foerster, By: (Sgd.) V. Bacaldo," etc. In this connection it should be explained that Carmen E. de Foerster was his stenographer. As a
consequence of the indorsements on checks the amounts therein stated were subsequently withdrawn by U. E., Foerster and Carmen
E. de Foerster.
Eventually the Manila office of the drug company investigated the transactions of Foerster. Upon the discovery of anomalies,
Foerster committed suicide. But there is no evidence showing that the bank knew that Foerster was misappropriating the funds of his
principal. The Insular Drug Company claims that it never received the face value of 132 checks here in the question covering a total of
P18,285.92.lawphil.net
There is no Philippine authority which directly fits the proven facts. The case of Fulton Iron Works Co., vs. China Banking
Corporation ([1930], 55 Phil., 208), mentioned by both parties rest on a different states of facts. However, there are elementary
principles governing the relationship between a bank and its customers which are controlling.
In first place, the bank argues that the drug company was never defrauded at all. While the evidence on the extent of the loss
suffered by the drug company is not nearly as clear as it should be, it is a sufficient answer to state that no such special defense was
relied upon by the bank in the trial court. The drug company saw fit to stand on the proposition that checks drawn in its favor were
improperly and illegally cashed by the bank for Foerster and placed in his personal account, thus making it possible for Foerster to
defraud the drug company, and the bank did not try to go back of this proposition.
The next point relied upon by the bank, to the effect that Foerster had implied authority to indorse all checks made out in the
name of the Insular Drug Co., Inc., has even less force. Not only did the bank permit Foerster to indorse checks and then place them to
his personal account, but it went farther and permitted Foerster's wife and clerk to indorse the checks. The right of an agent to indorse
commercial paper is a very responsible power and will not be lightly inferred. A salesman with authority to collect money belonging to
his principal does not have the implied authority to indorse checks received in payment. Any person taking checks made payable to a
corporation, which can act only by agent does so at his peril, and must same by the consequences if the agent who indorses the same
is without authority. (Arcade Realty Co. vs. Bank of Commerce [1919], 180 Cal., 318; Standard Steam Specialty Co., vs. Corn
Exchange Bank [1917], 220 N.Y., 278; People vs. Bank of North America [1879], 75 N.Y., 547; Graham vs. United States Savings
Institution [1870], 46 Mo., 186.) Further speaking to the errors specified by the bank, it is sufficient to state that no trust fund was
involved; that the fact that bank acted in good faith does not relieve it from responsibility; that no proof was adduced, admitting that
Foerster had right to indorse the checks, indicative of right of his wife and clerk to do the same , and that the checks drawn on the Bank
of the Philippine Islands can not be differentiated from those drawn on the Philippine National Bank because of the indorsement by the
latter.
In brief, this is a case where 132 checks made out in the name of the Insular Drug Co., Inc., were brought to the branch office of
the Philippine National Bank in Iloilo by Foerster, a salesman of the drug company, Foerster's wife, and Foerster's clerk. The bank
49 Negotiable Instruments – Form and Interpretation (Sec 1-23)
could tell by the checks themselves that the money belonged to the Insular Drug Co., Inc., and not to Foerster or his wife or his clerk.
When the bank credited those checks to the personal account of Foerster and permitted Foerster and his wife to make withdrawals
without there being made authority from the drug company to do so, the bank made itself responsible to the drug company for the
amounts represented by the checks. The bank could relieve itself from responsibility by pleading and proving that after the money was
withdrawn from the bank it passed to the drug company which thus suffered no loss, but the bank has not done so. Much more could
be said about this case, but it suffices to state in conclusion that bank will have to stand the loss occasioned by the negligence of its
agents.
Overruling the errors assigned, judgment of the trial court will be affirmed, the costs of this instance to be paid by appellant.
Villa-Real, Hull, Imperial, and Butte, JJ., concur.
FACTS:
Checks were deposited by petitioner in its current account with the bank. These checks were from a certain
Ramirez, a consistent better in its games, who was a sales agent from Inter-Island Gas. Inter-Island
later found out that of the forgeries committed in the checks and thus, it informed all the parties
concerned. Upon the demands on the bank as the collecting bank, it debited the account of petitioner.
Thereafter, petitioner tried to issue a check for payment of shares of stock but such was dishonored for
insufficient funds. It filed a complaint against the bank.
HELD:
Respondent bank acted within legal bounds when it debited the account of petitioner. When the petitioner
deposited the checks to its account, the relationship created was one of agency still and not of creditor-
debtor. The bank was to collect from the drawees of the checks with the corresponding
proceeds.
The Bank may have the proceeds already when it debited the account of petitioner. Nonetheless, there is
still no creditor-debtor relationship.
Following Section 23, a forged signature is wholly inoperative and no right to discharge it or enforce its
payment can be acquired through or under the forged signature except against a party who cannot invoke
its forgery or want of authority. It stands to reason that as a collecting bank which
indorsed the checks to the drawee-banks for clearing, should be liable to the latter for reimbursement for
the indorsements on the checks had been forged prior to their delivery to the petitioner. The payments made by
the drawee banks to respondent were ineffective—the creditor-debtor relationship hadn’t been validly
effected.
BARRERA, J.:
Petitioners herein seek to review the decision of the Court of Appeals reversing that of the Court of First Instance of Negros
Occidental, and sentencing petitioners to pay the respondent Philippine National Bank the of P1,982.24 with interest thereon at 5% per
annum from August 20, 1940 and 10% on the principal as attorneys' fees; and the sum of P1,349.90 with interest at 5% per annum,
from September 20, 1941, and 10% on the principal as attorneys' fees, and costs.
There is no dispute as to the amounts involved; that they represent the balances they represent the balances due and unpaid on
sugar crop loans applied from and granted by the PNB to Dolores, Estrella, 1 Feliza, and Corazon, all surnamed Granada; that said
loans were personally received by the petitioners for which the corresponding promissory notes were principally executed and signed
by them, uniformly worded as follows:
On demand after date, for value received, I promise to pay to the order of the Philippine National Bank at its office in
Bacolod or Manila, the sum of (amount in pesos stated), Philippine currency, with interest at the rate of 5% per annum from
date until paid.
In case of judicial execution of this obligation or any part of it, the debtor waives his right under the provisions of Rule
39, Section 12 of the Rules of Court.
In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall pay, 10% of
the amount due on the notes as attorney's fee. Demand and dishonor waived. Holder may accept partial payment reserving
his right of recourse against each and all indorsers.
The only issue raised by petitioners emanated from an amended complaint filed by the attorney of the PNB branch in Bacolod,
Occidental Negros, wherein it was alleged that
defendants Dolores Granada and Estrella Granada, together with their sisters Feliza Granada and Corazon Granada,
who are now dead, as representative of their parents, Cristeta Granada and Matias Granada, borrowed from and were granted
by, the plaintiff ... sugar crop loan .. for the cultivation and production of sugar canes in hacienda Cristeta.
that said ... loan ... was released to, and received by, defendants Dolores Granada and Estrella Granada and their
sisters Feliza Granada and Corazon Granada, as representatives of their parents Cristeta Granada and Matias Granada, as
evidenced by promissory notes hereto attached as Exhibit A, B,C, ... etc., and made integral parts hereof.
Solely on the strength of the phrase "as representatives of their parents, etc." inserted in the amended complaint, the petitioners
contended, and that trial court sustained the contention, that they are not liable personally as they merely acted as agents of a
disclosed principal.
The Court of Appeals, however, reversed the decision of the court a quo after reviewing the facts and antecedents of the case.
It appears that in the original complaint filed by the plaintiff bank, it was alleged that the defendants Dolores, Estrella, Feliza, and
Corazon, all surnamed Granada, secured sugar crop loans for the crop year 1940-41 and 1941-42 from the plaintiff and received the
money as evidenced by various promissory notes attached to said original complaint marked as Exhibits "A" to "F" and "G" to "P" that
the balances of said crop loans in the sum of P1,982.24 and P1,349.90 were not paid; hence, it was prayed that the defendants be
sentenced to pay the same, plus interest and costs.2
A motion to dismiss the complaint was filed by the defendants alleging prescription and that the signers of the promissory notes
have secured and received the amounts of the loans as "mere representatives of the parents Matias and Cristeta Granada," who were
the owners of Hda. Cristeta, and that the money was used for maintenance and support of the said spouses and their children Dolores,
Estrella, Feliza and Corazon, who were then still single and living with their parents.
In answer to the motion, plaintiff reiterated that the documents covering that loans were signed and executed by Dolores
Granada, for herself and as attorney-in-fact of Estrella, Feliza and Corazon, by virtue of a duly notarized power of attorney, and that
plaintiff has no documents or evidence in its possession to hold the spouses Matias and Cristeta Granada liable for the payment of the
accounts. The motion to dismiss was denied.
Thereafter, the defendants filed their answer, again alleging that the promissory notes were signed by them as mere
representatives and administrators of their parents and that the plaintiff has been informed by Cristeta Granada and her attorney-in-
fact, Jose Granada that the so-called accounts of "Granada Hermanas" were the accounts of the spouses Matias and Cristeta and
could be charged against their properties known as Hda. Cristeta.
52 Negotiable Instruments – Form and Interpretation (Sec 1-23)
Subsequently, the defendants filed another motion calling attention to their defense alleged in their answer and praying that in
view thereof "the plaintiff be given leave of court to amend the complaint and include as principal party defendants Cristeta Granada,
and the defendants be allowed to file their answer, if they so desire." The motion was granted in an order of the following tenor, "... por
el presente si les concede a ambas partes autorizacion para presentar los escritos enmendados que deseen presentar dentro del plazo
reglamentario."
Accordingly, the plaintiff filed an amended complaint, this time impleading Cristeta Granada, together with the original
defendants, and it was in this amended complaint that for the first time, the phrase "as representatives of their parents" was inserted.
There was no other amendment in the complaint, and in the prayer, the plaintiff insisted that judgment be rendered ordering defendants
Dolores Granada, Estrella Granada and Cristeta Granada to pay the plaintiff the amounts claimed in the complaint, and granting such
other relief as the court may deem just and equitable.1awphîl.nèt
In their answer to the amended complaint, defendants Dolores and Estrella Granada reproduced and reiterated their allegations
in their answer to the original complaint.
Cristeta Granada, in his answer under oath, significantly denied that she has given or granted any authority to Dolores, Estrella,
Feliza and Corazon, or to any of them, to borrow money or secure a loan in her behalf from the bank.
Replying to the answer to the amended complaint of the defendants Dolores and Estrella Granada, the plaintiff again averred that
as alleged in the original complaint, Dolores, Estrella, Feliza and Corazon were personally, jointly and severally liable to the plaintiff for
the payment of the amount of the loans, as that is what appears in the promissory notes and the borrowers did not inform the bank
when they applied for and secured the loan that they were acting as agents for and in behalf of their parents, and the filing of the
amended complaint joining Cristeta Granada as a party defendant was in obedience to the order of the court issued upon motion of the
original defendants, and "in order to be relieved of any liability it is incumbent upon defendants Dolores and Estrella to prove or help the
plaintiff prove that they acted as representatives of their parents."
Thereafter, trial was held and plaintiff presented the promissory notes whose genuineness and due execution were
unquestioned; proof of the receipt of the loans by defendants and the amounts still unpaid thereon in spite of demands. All this
evidence was admitted without objection on the part of the defendants.
Upon these facts, the Court of Appeals, as already stated, reversed the decision of the court a quo and rendered judgment in
favor of the plaintiff, reasoning thus:
As a general rule, facts alleged in a party's pleading are deemed admissions of that party and binding upon it. However,
that is not an absolute and inflexible rule. Every admission is to be taken as an entirety of the fact which makes for the one
side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is that, where part of a
statement of a party is used against him as an admission, the court should consider and weigh any other portions connected
with the statement which tend to neutralize or explain the portion which is against interest. In other words, while the admission
is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or
connected therewith as an integrated unit for, as said by the Supreme Court, although acts or facts admitted do not require
proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through
palpable mistake. (Irlanda vs. Pitargue, 22 Phil. 383.)
From the pleadings filed by the parties it clearly appears that the cause of action stated in the original complaint was
against Dolores, Estrella, Felisa and Corazon, surnamed Granada, for the payment of the loans which they obtained from the
bank in their individual and personal capacity, as evidenced by the promissory notes in question.1awphîl.nèt
The foregoing facts called from the pleadings of the parties have persuaded us to believe, and we so hold, that in filing
the amended complaint containing the allegation which has become the bone of contention on this appeal, the plaintiff had
acted through a mistaken belief that the adverted allegation in the amended complaint did not constitute an amendment of its
cause of action, and this matter was made known to the court and the defendants when in its reply to the motion to dismiss it
stated that it has no document or evidence in its possession to hold the spouses Matias and Cristeta Granada liable to the
payment of the account; and it honestly relied on the belief that the defendants, Dolores and Estrella, surnamed Granada, had
the necessary evidence to establish the fact. At any rate, guided by the provisions of the rules of court that "These rules shall
be liberally construed in order to promote their object and to assist the parties in obtaining just, speedy, and inexpensive
determination of every action and proceeding"; the amended complaint may be treated as stating two or more statements of a
claim in a single cause of action, which is permitted under Section 9, Rule 15, or it may be considered as including several
defendants in the alternative against any of which plaintiff may be entitled to relief, a course of action sanctioned by Section
13, Rule 3. There are cases where the facts essential to the party's claim or defense are within the knowledge of the adverse
party, as to be unable to state them with certainty. He may, however, know that one out of two or more sets of facts is true,
without knowing which. In such a case, plaintiff is allowed to make alternative statements of his claim under Section 9, Rule
15. (Everett vs. Asia Banking Corporation, 59 Phil. 512, 526, cited in 1 Moran 235, 1957 ed.) On the other hand, Section 13 of
Rule 3 "gives the plaintiff the right to include alternatively several possible defendants when he is uncertain against which of
them he is entitled to relief, as ... where a defendant may have been acting either as an agent or a principal." ... And the above
provision is applicable, although the right to relief alleged to exist against one of the defendants may be inconsistent with the
right to relief against the other, as where A is sued as principal and B is joined in the alternative, if A should be found to have
been B's agents. (1 Moran 71, 1957 ed.) The amended complaint in the instant case may not be a model pleading for an
alternative statements of the claim or against two or more defendants in the alternative; however, judging the said complaint
from a liberal standpoint as ordained by the Rules and considering that in the prayer judgment is asked against all the
defendants, Dolores Granada, Estrella Granada and Cristeta Granada, it is within the jurisdiction of the court to render such
judgment as the facts warrant against all or some of the defendants for the payment of the amount claimed by the plaintiff.
Taking into account the circumstances of this case, we find no error committed by the Court of Appeals, both in the assessment
of the facts and the application of the law on the matter in dispute. It is evident that the plaintiff bank, in amending the complaint
53 Negotiable Instruments – Form and Interpretation (Sec 1-23)
conformably with the order of the trial court, never intended to change the cause of action which was embodied in the original
complaint.
WHEREFORE, this petition is hereby dismissed, with costs against the petitioners. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Regala, J., took no part.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of Manila, Branch XIII, in
Civil Case No. 42066 denying his motion to set aside the order declaring him in default, 1 and from the order of said court in the same
case denying his motion to set aside the judgment rendered after he was declared in default. 2 These two appeals of the defendant
were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one consolidated record on appeal of
CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal to the Supreme
Court on the ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for the recovery of the
total sum of about P35,000.00 with daily interest thereon from November 17, 1959 until fully paid and commission equivalent to 3/8%
for every thirty (30) days or fraction thereof plus attorney's fees equivalent to 10% of the total amount due and costs. 6 The complaint
filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring to twenty-two (22) transactions entered
into by the said Bank and Aruego on different dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to
be recovered represents the cost of the printing of "World Current Events," a periodical published by the defendant. To facilitate the
payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of the "World Current
Events," the printer, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft against the plaintiff, said draft
being sent later to the defendant for acceptance. As an added security for the payment of the amounts advanced to Encal Press and
Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said
defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the
proceeds of the sale of said publication to answer for the payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On December 14, 1959 defendant filed an
urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10 At the hearing, the court denied defendant's
motion for extension. Whereupon, the defendant filed a motion to dismiss the complaint on December 17, 1959 on the ground that the
complaint states no cause of action because:
a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts thereof had already
been paid by the plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating party only for the
drawer (Encal Press and Photo-Engraving) and win be liable in the event that the accommodating party (drawer) fails to pay its
obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the defendant on December 24,
1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon the motion for reconsideration
filed by the plaintiff, the trial court set aside its order dismissing the complaint and set the case for hearing on March 15, 1960 at 8:00 in
the morning. 14 A copy of the order setting aside the order of dismissal was received by the defendant on March 11, 1960 at 5:00
o'clock in the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the following day, March 12,
1960, the defendant filed a motion to postpone the trial of the case on the ground that there having been no answer as yet, the issues
had not yet been joined. 15 On the same date, the defendant filed his answer to the complaint interposing the following defenses: That
he signed the document upon which the plaintiff sues in his capacity as President of the Philippine Education Foundation; that his
liability is only secondary; and that he believed that he was signing only as an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the ground that the defendant should
have filed his answer on March 11, 1960. He contends that by filing his answer on March 12, 1960, defendant was one day late. 17 On
March 19, 1960 the trial court declared the defendant in default. 18 The defendant learned of the order declaring him in default on March
21, 1960. On March 22, 1960 the defendant filed a motion to set aside the order of default alleging that although the order of the court
dated March 7, 1960 was received on March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of the
defendant to file his answer on the last day of the reglementary period, March 11, 1960, within office hours, especially because the
order of the court dated March 7, 1960 was brought to the attention of counsel only in the early hours of March 12, 1960. The defendant
also alleged that he has a good and substantial defense. Attached to the motion are the affidavits of deputy sheriff Mamerto de la Cruz
that he served the order of the court dated March 7, 1960 on March 11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the
defendant Aruego that he has a good and substantial defense. 19 The trial court denied the defendant's motion on March 25, 1960. 20
On May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the plaintiff the sum of P35,444.35 representing
BELLOSILLO, J.:
RAUL H. SESBREÑO filed a complaint for damages against Assistant City Fiscals Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr.,
before the Regional Trial Court of Cebu City. After trial judgment was rendered ordering the defendants to pay P11,000.00 to the
plaintiff, private respondent herein. The decision having become final and executory, on motion of the latter, the trial court ordered its
execution. This order was questioned by the defendants before the Court of Appeals. However, on 15 January 1992 a writ of execution
was issued.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City where
defendant Mabanto, Jr., was then detailed. The notice directed petitioner not to disburse, transfer, release or convey to any other
person except to the deputy sheriff concerned the salary checks or other checks, monies, or cash due or belonging to Mabanto, Jr.,
under penalty of law. 1 On 10 March 1992 private respondent filed a motion before the trial court for examination of the garnishees.
On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no more legal obstacle to
act on the motion for examination of the garnishees, directed petitioner on 4 November 1992 to submit his report showing the amount
of the garnished salaries of Mabanto, Jr., within fifteen (15) days from receipt 2 taking into consideration the provisions of Sec. 12, pars.
(f) and (i), Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to require petitioner to explain why he should not be cited in contempt of court
for failing to comply with the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment claiming that he was not in possession of
any money, funds, credit, property or anything of value belonging to Mabanto, Jr., except his salary and RATA checks, but that said
checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds which
could not be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply with its order of 4 November 1992. 3
It opined that the checks of Mabanto, Jr., had already been released through petitioner by the Department of Justice duly signed by the
officer concerned. Upon service of the writ of garnishment, petitioner as custodian of the checks was under obligation to hold them for
the judgment creditor. Petitioner became a virtual party to, or a forced intervenor in, the case and the trial court thereby acquired
jurisdiction to bind him to its orders and processes with a view to the complete satisfaction of the judgment. Additionally, there was no
sufficient reason for petitioner to hold the checks because they were no longer government funds and presumably delivered to the
payee, conformably with the last sentence of Sec. 16 of the Negotiable Instruments Law.
With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt. For, while his explanation suffered
from procedural infirmities nevertheless he took pains in enlightening the court by sending a written explanation dated 22 July 1992
requesting for the lifting of the notice of garnishment on the ground that the notice should have been sent to the Finance Officer of the
Department of Justice. Petitioner insists that he had no authority to segregate a portion of the salary of Mabanto, Jr. The explanation
however was not submitted to the trial court for action since the stenographic reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was not the duty of the garnishee to inquire
or judge for himself whether the issuance of the order of execution, writ of execution and notice of garnishment was justified. His only
duty was to turn over the garnished checks to the trial court which issued the order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or its duly authorized representative is
owned by the payee before physical delivery to the latter: and, (2) whether the salary check of a government official or employee
funded with public funds can be subject to garnishment.
Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because they were not yet delivered to him,
and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to be applied to Mabanto, Jr.'s
judgment debt. The thesis of petitioner is that the salary checks still formed part of public funds and therefore beyond the reach of
garnishment proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing to him from a
stranger to the litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the focal point in resolving the
issues raised.
MARTIN, J.:
Two novel questions of law are presented to Us in these petitions to review on certiorari the quashal orders of the Court of First
Instance of Bulacan, sitting at Malolos, first, the rule on venue or jurisdiction in a case of estafa for postdating or issuing a check without
insufficient funds, and second, whether the new law on checks punishes the postdating or issuance thereof in payment of a pre-existing
obligation.
Private respondent Cecilia Que Yabut in L-42847 was accused of estafa by means of false pretenses before the Court of First Instance
of Bulacan, presided over by respondent Judge Jesus de Vega. The information, docketed as criminal case 1404, charges:
That during the period from February 22, to February 26, 1975, in the Municipality of Malolos, Province of Bulcan,
Philippines, and within the jurisdiction of this Honorable Court, the said accused Cecilia Que Yabut, as treasurer of
the Yabut Transit Line, by means of false pretenses and pretending to have sufficient funds in the Merchants Banking
Corporation, located and doing business in Caloocan City, prepared issued and make out Check Nos. CB-19035 B,
CB-190396 and CB-190397, dated February 22, 1975, February 24, 1975 and February 26, 1975, in the total sum of
P6,568.94, drawn against the Merchants Banking Corporation, payable to Freeway Tires Supply, owned and
operated by Alicia P. Andan, in payment of articles and merchandise delivered to and received by said accused, gave
and delivered the said checks to the said Freeway Tires Supply, the said accused Cecilia Que Yabut well knowing
that at the time there was no or insufficient funds in the said Merchants Banking Corporation, and upon presentation
of the said checks to the bank, the checks were dishonored and inspite of repeated demands by the owner of the
Freeway Tires Supply to deposit the necessary funds to cover the checks within the reglementary period enjoined by
law, failed and refused to do so, to the damage and prejudice of Alicia P. Andan, owner and operator of the Freeway
Tires Supply, in the total amount of P6,568.94.
Instead of entering a plea, respondent Cecilia Que Yabut filed a motion to quash on September 1, 1975, contending that the acts
charged do not constitute the offense as there is no allegation that the postdated checks were issued and delivered to the complainant
prior to or simultaneously with the delivery of the merchandise, the crime of estafa not being indictable ,when checks are postdated or
issued in payment of pre-existing obligation; and the venue was improperly laid in Malolos, Bulacan, because the postdated checks
were issued and delivered to, and received by, the complainant in the City of Caloocan, where she (respondent Que Yabut) holds
office.
An opposition was interposed by the People, maintaining that the new law on checks (Rep. Act 4885, amending Art. 315, par. 2 (d),
Revised Penal Code), penalizes the postdating or issuance thereof in payment of pre-existing obligation and that the Malolos court can
exercise jurisdiction over the case, since the last ingredient of the offense, i.e., damage, transpired in Bulacan (residence of
complainant) after the dishonor of the checks for lack of funds.
Judge Jesus de Vega quashed the information, as prayed for by respondent Que Yabut, on November 10, 1975 for the reason "that the
proper venue in this case is Caloocan City and not Bulacan." Whether estafa lies for postdating or issuing a check in payment of a pre-
existing obligation was not by respondent Judge.
The People's motion for reconsideration of this dismissal order was denied on January 12, 1976.
The other private respondent, Germiniano Yabut, Jr. (L-42902), husband of respondent Cecilia Que Yabut, stood charged in criminal
case 1405-M before the Court of First Instance of Bulacan, presided over by Judge Edgardo L. Paras, of the crime of estafa under Art.
315, par. 2 (d) of the Revised Penal Code in that:
(D)uring the period from February 23 to April 9, 1975, in the municipality of Malolos, Province of Bulacan, Philippines,
and within the jurisdiction of this Honorable Court, the said accused Geminiano Yabut, Jr., as presided of the Yabut
Transit Line, by means of false pretenses and pretending to have sufficient funds in the Merchants Banking
Corporation and Manufacturers Bank and Trust Company, located and doing business in Caloocan City, prepared,
BELLOSILLO, J.:
MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial Court of Malabon with estafa on three (3) counts
under Art. 315, par. 2 (d), of The Revised Penal Code, docketed as Crim. Cases Nos. 1696-MN to 1698-MN. The Informations
substantially alleged that Manuel and Rosita, conspiring together, purchased goods from Linton Commercial Company, Inc. (LINTON),
and with deceit issued seven Consolidated Bank and Trust Company (SOLIDBANK) checks simultaneously with the delivery as
payment therefor. When presented to the drawee bank for payment the checks were dishonored as payment on the checks had been
stopped and/or for insufficiency of funds to cover the amounts. Despite repeated notice and demand the Lim spouses failed and
refused to pay the checks or the value of the goods.
On the basis of the same checks, Manuel and Rosita Lim were also charged with seven (7) counts of violation of B.P. Blg. 22,
otherwise known as the Bouncing Checks Law, docketed as Crim. Cases Nos. 1699-MN to 1705-MN. In substance, the Informations
alleged that the Lims issued the checks with knowledge that they did not have sufficient funds or credit with the drawee bank for
payment in full of such checks upon presentment. When presented for payment within ninety (90) days from date thereof the checks
were dishonored by the drawee bank for insufficiency of funds. Despite receipt of notices of such dishonor the Lims failed to pay the
amounts of the checks or to make arrangements for full payment within five (5) banking days.
Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries, Inc. (RIGI). RIGI had been transacting
business with LINTON for years, the latter supplying the former with steel plates, steel bars, flat bars and purlin sticks which it uses in
the fabrication, installation and building of steel structures. As officers of RIGI the Lim spouses were allowed 30, 60 and sometimes
even up to 90 days credit.
On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00 from LINTON which were delivered on the same
day at their place of business at 666 7th Avenue, 8th Street, Kalookan City. To pay LINTON for the delivery the Lims issued
SOLIDBANK Check No. 027700 postdated 3 September 1983 in the amount of P51,800.00. 1
On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth P63,455.00 from LINTON which were delivered at their
place of business on the same day. They issued as payment SOLIDBANK Check No. 027699 in the amount of P63,455.00 postdated
20 August 1983. 2
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were delivered to them on various dates, to wit: 15 and 22
April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9 June 1983. To pay for the deliveries, they issued seven SOLIDBANK
checks, five of which were —
Check No. Date of Issue Amount
027683 16 July 1983 P27,900.00 3
027684 23 July 1983 P27,900.00 4
027719 6 Aug. 1983 P32,550.00 5
027720 13 Aug. 1983 P27,900.00 6
027721 27 Aug. 1983 P37,200.00 7
William Yu Bin, Vice President and Sales Manager of LINTON, testified that when those seven (7) checks were deposited with the Rizal
Commercial Banking Corporation they were dishonored for "insufficiency of funds" with the additional notation "payment stopped"
stamped thereon. Despite demand Manuel and Rosita refused to make good the checks or pay the value of the deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan City, where the Lim spouses maintained an account,
testified on the following transactions with respect to the seven (7) checks:
CHECK NO. DATE PRESENTED REASON FOR DISHONOR
027683 22 July 1983 Payment Stopped (PS) 8
027684 23 July 1983 PS and Drawn Against
Insufficient Fund (DAIF) 9
027699 24 Aug. 1983 PS and DAIF 10
027700 5 Sept. 1983 PS and DAIF 11
027719 9 Aug. 1983 DAIF 12
027720 16 Aug. 1983 PS and DAIF 13
027721 30 Aug. 1983 PS and DAIF 14
SO ORDERED.
DECISION
TINGA, J.:
Called to fore in the present petition is a classic textbook question – if a bank pays out on a forged check, is it liable to reimburse the
drawer from whose account the funds were paid out? The Court of Appeals, in reversing a trial court decision adverse to the bank,
invoked tenuous reasoning to acquit the bank of liability. We reverse, applying time-honored principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. ("Samsung Construction"), while based in Biñan, Laguna, maintained a
current account with defendant Far East Bank and Trust Company1 ("FEBTC") at the latter’s Bel-Air, Makati branch.2 The sole signatory
to Samsung Construction’s account was Jong Kyu Lee ("Jong"), its Project Manager,3 while the checks remained in the custody of the
company’s accountant, Kyu Yong Lee ("Kyu").4
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the bank’s branch in Bel-Air,
Makati. The check, payable to cash and drawn against Samsung Construction’s current account, was in the amount of Nine Hundred
Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of Samsung
Construction’s account. After ascertaining there were enough funds to cover the check,5 she compared the signature appearing on the
check with the specimen signature of Jong as contained in the specimen signature card with the bank. After comparing the two
signatures, Justiani was satisfied as to the authenticity of the signature appearing on the check. She then asked Gonzaga to submit
proof of his identity, and the latter presented three (3) identification cards.6
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it was bank policy that two
bank branch officers approve checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise
counterchecked the signature on the check as against that on the signature card. He too concluded that the check was indeed signed
by Jong. Velez then forwarded the check and signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that
Jose Sempio III ("Sempio"), the assistant accountant of Samsung Construction, was also in the bank. Sempio was well-known to Syfu
and the other bank officers, he being the assistant accountant of Samsung Construction. Syfu showed the check to Sempio, who
vouched for the genuineness of Jong’s signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase
of equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the bank’s
encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account and discovered that a
check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been encashed. Aware that he
had not prepared such a check for Jong’s signature, Kyu perused the checkbook and found that the last blank check was missing.7 He
reported the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and realized that his
signature had been forged. The Bank Manager reputedly told Jong that he would be reimbursed for the amount of the check. 8 Jong
proceeded to the police station and consulted with his lawyers.9 Subsequently, a criminal case for qualified theft was filed against
Sempio before the Laguna court.10
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC credit to it the amount of Nine Hundred
Ninety Nine Thousand Five Hundred Pesos (P999,500.00), with interest.11 In response, FEBTC said that it was still conducting an
investigation on the matter. Unsatisfied, Samsung Construction filed a Complaint on 10 June 1992 for violation of Section 23 of the
Negotiable Instruments Law, and prayed for the payment of the amount debited as a result of the questioned check plus interest, and
attorney’s fees.12 The case was docketed as Civil Case No. 92-61506 before the Regional Trial Court ("RTC") of Manila, Branch 9.13
During the trial, both sides presented their respective expert witnesses to testify on the claim that Jong’s signature was forged.
Samsung Corporation, which had referred the check for investigation to the NBI, presented Senior NBI Document Examiner Roda B.
Flores. She testified that based on her examination, she concluded that Jong’s signature had been forged on the check. On the other
hand, FEBTC, which had sought the assistance of the Philippine National Police (PNP), 14 presented Rosario C. Perez, a document
examiner from the PNP Crime Laboratory. She testified that her findings showed that Jong’s signature on the check was genuine.15
Confronted with conflicting expert testimony, the RTC chose to believe the findings of the NBI expert. In a Decision dated 25 April 1994,
the RTC held that Jong’s signature on the check was forged and accordingly directed the bank to pay or credit back to Samsung
Construction’s account the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), together with interest
tolled from the time the complaint was filed, and attorney’s fees in the amount of Fifteen Thousand Pesos (P15,000.00).
HULL, J.:
Plaintiff corporation, organized under the laws of the Territory of Hawaii, is authorized to engaged in business in the Philippine Islands,
and maintains its main office in these Islands in the City of Manila.
The business in the Philippine Islands was in the hands of Alfred D. Cooper, its agent under general power of attorney with authority of
substitution. The principal employee in the Manila office was one Joseph L. Wilson, to whom had been given a general power of
attorney but without power of substitution. In 1926 Cooper, desiring to go on vacation, gave a general power of attorney to Newland
Baldwin and at the same time revoked the power of Wilson relative to the dealings with the Bank of the Philippine Islands, one of the
banks in Manila in which plaintiff maintained a deposit.
About a year thereafter Wilson, conspiring together with one Alfredo Dolores, a messenger-clerk in plaintiff's Manila office, sent a cable
gram in code to the company in Honolulu requesting a telegraphic transfer to the China Banking Corporation of Manila of $100,00. The
money was transferred by cable, and upon its receipt the China Banking Corporation, likewise a bank in which plaintiff maintained a
deposit, sent an exchange contract to plaintiff corporation offering the sum of P201,000, which was then the current rate of exchange.
On this contract was forged the name of Newland Baldwin and typed on the body of the contract was a note:
Please send us certified check in our favor when transfer is received.
A manager's check on the China Banking Corporation for P201,000 payable to San Carlos Milling Company or order was receipted for
by Dolores. On the same date, September 28, 1927, the manger's check was deposited with the Bank of the Philippine Islands by the
following endorsement:
For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd.
By (Sgd.) NEWLAND BALDWIN
For Agent
The endorsement to which the name of Newland Baldwin was affixed was spurious.
The Bank of the Philippine Islands thereupon credited the current account of plaintiff in the sum of P201,000 and passed the cashier's
check in the ordinary course of business through the clearing house, where it was paid by the China Banking Corporation.
On the same day the cashier of the Bank of the Philippine Islands received a letter, purporting to be signed by Newland Baldwin,
directing that P200,000 in bills of various denominations, named in the letter, be packed for shipment and delivery the next day. The
next day, Dolores witnessed the counting and packing of the money, and shortly afterwards returned with the check for the sum of
P200,000, purporting to be signed by Newland Baldwin as agent.
Plaintiff had frequently withdrawn currency for shipment to its mill from the Bank of the Philippine Islands but never in so large an
amount, and according to the record, never under the sole supervision of Dolores as the representative of plaintiff.
Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the money, and he left the bank and shortly
afterwards returned with another check for P1, purporting to be signed by Newland Baldwin. Whereupon the money was turned over to
Dolores, who took it to plaintiff's office, where he turned the money over to Wilson and received as his share, P10,000.
Shortly thereafter the crime was discovered, and upon the defendant bank refusing to credit plaintiff with the amount withdrawn by the
two forged checks of P200,000 and P1, suit was brought against the Bank of the Philippine Islands, and finally on the suggestion of the
defendant bank, an amended complaint was filed by plaintiff against both the Bank of the Philippine Islands and the China Banking
Corporation.
At the trial the China Banking Corporation contended that they had drawn a check to the credit of the plaintiff company, that the check
had been endorsed for deposit, and that as the prior endorsement had in law been guaranteed by the Bank of the Philippine Islands,
when they presented the cashier's check to it for payment, the China Banking Corporation was absolved even if the endorsement of
Newland Baldwin on the check was a forgery.
and that, accordingly, the PI Bank credited the proceeds of said warrants to the Corporation, which, in turn, withdrew said proceeds by
means of its own checks and eventually paid the corresponding amounts to Jacinto Carranza. On December 23, 1952, the Treasurer
returned three (3) of said warrants (Nos. 2159659, 2159656, and 2159666) to the Central Bank, and demanded, on the ground that
they had been forged, that the value thereof be charged against the accounts of the PI Bank in the Clearing Office and credited back to
the demand deposit of the Bureau of the Treasury, hereinafter referred to as the Treasury. Four (4) days later, two (2) more warrants
(Nos. 2468977 and 2468978), and, finally, on January 16, 1953, the remaining nineteen (19) warrants were returned by the Treasury to
the Central Bank for the same reason and with the same demand. The Central Bank in turn referred said warrants, together with the
letters of demand of the Treasurer, for appropriate action to the PI Bank, which opposed the return of the warrants or to have the value
thereof charged against its account in the Clearing Office and requested the Central Bank to return the warrants to the Treasurer.
The records of G.R. No. L-15894 show that the four (4) warrants involved therein were deposited with the Equitable Bank by persons
known thereto as its depositors or customers, namely, Robert Wong, Lu Chill Kau and Chung Ching; that, in due course, the Equitable
Bank cleared said warrants, thru the Clearing Office, then collected the corresponding amounts from the Treasurer and thereafter
credited said amounts to the accounts of the respective depositors; that on January 15, 1958, the Treasurer notified the Equitable Bank
of the alleged defect of said warrants and demanded reimbursement of the amounts thereof; and that this demand was rejected by the
Equitable Bank. Hence, the institution of G.R. No. L-15895 (Civil Case No. 19599 of the Court of First Instance of Manila), against the
PI Bank, for the recovery of P342,767.63, and of G.R. No. L-15894 (Civil Case No. 19600 of the Court of First Instance of Manila),
against the Equitable Bank for, the recovery of P17,100.00.
Upon leave of the lower court, the PI Bank filed a third-party complaint against the Corporacion. In G.R. No. L-15895, and the Equitable
Bank filed a similar complaint against, Robert Wong, Lu Chill Kau and Chung Ching in G.R. No. L-15894, for whatever reimbursements
the PI Bank and the Equitable Bank may respectively be sentenced to make to the Government. By agreement of the parties, the two
(2) cases were jointly heard, and after appropriate proceedings, the lower court rendered the decision adverted to above. 1äwphï1.ñët
The clearing of the aforementioned twenty-eight (28) warrants thru the Clearing Office was made pursuant to the "24-hour clearing
house rule", which had been adopted by the Central Bank in a conference with representatives and officials of the different banking
institutions in the Philippines. The rule is embodied in Section 4, subsection (c) of Circular No. 9 of the Central Bank, dated February
17, 1949 (Exhibit B), as amended by the letter of the Governor of the Central Bank, dated June 4, 1949 (Exhibit D), reading:
Items which should be returned for any reason whatsoever shall be returned directly to the bank, institution or entity from
which the item was received. For this purpose, the Receipt for Returned Checks (Cash Form No. 9) should be used. The
original and duplicate copies of said Receipt shall be given to the bank, institution or entity which returned the items and the
triplicate copy should be retained by the bank, institution or entity whose demand is being returned. At the following clearing,
the original of the Receipt for returned Checks shall be presented through the Clearing Office as a demand against the bank,
institution or entity whose item has been returned. Nothing in this section shall prevent the resumed items from being settled
by direct reimbursement to the bank, institution or entity returning the items. All items cleared at 11:00 o'clock a.m. shall be
returned not later than 2:00 o'clock p.m. on the same day and all items cleared at 3:00 o'clock p.m. shall be returned not later
than 8:30 a.m. of the following business day, except for items cleared on Saturday which may be returned not later than 3:30
a.m. of the following day. (Emphasis supplied.)
The Government maintains that it is not bound by this rule because: (1) the Treasury is not a bank; and (2) the Treasurer has objected
to the application of said rule to his office. This contention, however, untenable for, admittedly, the Treasury is a member of the
aforementioned Clearing Office and Exh. A clearly shows that the former "has agreed to clear its clearable items through" the latter
"subject to the rules and regulations of the Central Bank." Besides, the above quoted rule applies not only to banks, but, also, to the
institutions and entities therein alluded to. Then too, the opposition of the Treasurer to the "24-hour clearing house rule" is not sufficient
to exempt the Treasury from the operation thereof. Upon the other hand, said opposition is predicated upon the allegation that it is
GANCAYCO, J.:
This is a petition for review on certiorari of a decision of the Regional Trial Court of Quezon City promulgated on March 24, 1986 in Civil
Case No. Q-46517 entitled Banco de Oro Savings and Mortgage Bank versus Equitable Banking Corporation and the Philippine
Clearing House Corporation after a review of the Decision of the Board of Directors of the Philippine Clearing House Corporation
(PCHC) in the case of Equitable Banking Corporation (EBC) vs. Banco de Oro Savings and Mortgage (BCO), ARBICOM Case No.
84033.
The undisputed facts are as follows:
It appears that some time in March, April, May and August 1983, plaintiff through its Visa Card Department, drew six
crossed Manager's check (Exhibits "A" to "F", and herein referred to as Checks) having an aggregate amount of Forty
Five Thousand Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member
establishments of Visa Card. Subsequently, the Checks were deposited with the defendant to the credit of its
depositor, a certain Aida Trencio.
Following normal procedures, and after stamping at the back of the Checks the usual endorsements. All prior and/or
lack of endorsement guaranteed the defendant sent the checks for clearing through the Philippine Clearing House
Corporation (PCHC). Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of the
Checks and defendant's clearing account was credited for the same amount,
Thereafter, plaintiff discovered that the endorsements appearing at the back of the Checks and purporting to be that
of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the Checks directly to the defendant for
the purpose of claiming reimbursement from the latter. However, defendant refused to accept such direct
presentation and to reimburse the plaintiff for the value of the Checks; hence, this case.
In its Complaint, plaintiff prays for judgment to require the defendant to pay the plaintiff the sum of P45,982.23 with
interest at the rate of 12% per annum from the date of the complaint plus attorney's fees in the amount of P10,000.00
as well as the cost of the suit.
In accordance with Section 38 of the Clearing House Rules and Regulations, the dispute was presented for
Arbitration; and Atty. Ceasar Querubin was designated as the Arbitrator.
After an exhaustive investigation and hearing the Arbiter rendered a decision in favor of the plaintiff and against the
defendant ordering the PCHC to debit the clearing account of the defendant, and to credit the clearing account of the
plaintiff of the amount of P45,982.23 with interest at the rate of 12% per annum from date of the complaint and
Attorney's fee in the amount of P5,000.00. No pronouncement as to cost was made. 1
In a motion for reconsideration filed by the petitioner, the Board of Directors of the PCHC affirmed the decision of the said Arbiter in this
wise:
In view of all the foregoing, the decision of the Arbiter is confirmed; and the Philippine Clearing House Corporation is
hereby ordered to debit the clearing account of the defendant and credit the clearing account of plaintiff the amount of
Forty Five Thousand Nine Hundred Eighty Two & 23/100 (P45,982.23) Pesos with interest at the rate of 12% per
annum from date of the complaint, and the Attorney's fee in the amount of Five Thousand (P5,000.00) Pesos.
Thus, a petition for review was filed with the Regional Trial Court of Quezon City, Branch XCII, wherein in due course a decision was
rendered affirming in toto the decision of the PCHC.
Hence this petition.
The petition is focused on the following issues:
1. Did the PCHC have any jurisdiction to give due course to and adjudicate Arbicom Case No. 84033?
2. Were the subject checks non-negotiable and if not, does it fall under the ambit of the power of the PCHC?
3. Is the Negotiable Instrument Law, Act No. 2031 applicable in deciding controversies of this nature by the PCHC?
4. What law should govern in resolving controversies of this nature?
5. Was the petitioner bank negligent and thus responsible for any undue payment?
96 Negotiable Instruments – Form and Interpretation (Sec 1-23)
Petitioner maintains that the PCHC is not clothed with jurisdiction because the Clearing House Rules and Regulations of PCHC cover
and apply only to checks that are genuinely negotiable. Emphasis is laid on the primary purpose of the PCHC in the Articles of
Incorporation, which states:
To provide, maintain and render an effective, convenient, efficient, economical and relevant exchange and facilitate
service limited to check processing and sorting by way of assisting member banks, entities in clearing checks and
other clearing items as defined in existing and in future Central Bank of the Philippines circulars, memoranda, circular
letters, rules and regulations and policies in pursuance to the provisions of Section 107 of R.A. 265. ...
and Section 107 of R.A. 265 which provides:
xxx xxx xxx
The deposit reserves maintained by the banks in the Central Bank, in accordance with the provisions of Section 1000
shall serve as a basis for the clearing of checks, and the settlement of interbank balances ...
Petitioner argues that by law and common sense, the term check should be interpreted as one that fits the articles of incorporation of
the PCHC, the Central Bank and the Clearing House Rules stating that it is a negotiable instrument citing the definition of a "check" as
basically a "bill of exchange" under Section 185 of the NIL and that it should be payable to "order" or to "bearer" under Section 126 of
game law. Petitioner alleges that with the cancellation of the printed words "or bearer from the face of the check, it becomes non-
negotiable so the PCHC has no jurisdiction over the case.
The Regional Trial Court took exception to this stand and conclusion put forth by the herein petitioner as it held:
Petitioner's theory cannot be maintained. As will be noted, the PCHC makes no distinction as to the character or
nature of the checks subject of its jurisdiction. The pertinent provisions quoted in petitioners memorandum simply
refer to check(s). Where the law does not distinguish, we shall not distinguish.
In the case of Reyes vs. Chuanico (CA-G.R. No. 20813 R, Feb. 5, 1962) the Appellate Court categorically stated that
there are four kinds of checks in this jurisdiction; the regular check; the cashier's check; the traveller's check; and the
crossed check. The Court, further elucidated, that while the Negotiable Instruments Law does not contain any
provision on crossed checks, it is coon practice in commercial and banking operations to issue checks of this
character, obviously in accordance with Article 541 of the Code of Commerce. Attention is likewise called to Section
185 of the Negotiable Instruments Law:
Sec. 185. Check defined. — A check is a bill of exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions of this act applicable to a bill of exchange
payable on demand apply to a check
and the provisions of Section 61 (supra) that the drawer may insert in the instrument an express stipulation negating
or limiting his own liability to the holder. Consequently, it appears that the use of the term "check" in the Articles of
Incorporation of PCHC is to be perceived as not limited to negotiable checks only, but to checks as is generally
known in use in commercial or business transactions.
Anent Petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC Board of
Directors that:
In presenting the Checks for clearing and for payment, the defendant made an express guarantee
on the validity of "all prior endorsements." Thus, stamped at the back of the checks are the
defendant's clear warranty; ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS
GUARANTEED. With. out such warranty, plaintiff would not have paid on the checks.
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty
has proven to be false and inaccurate, the defendant is liable for any damage arising out of the
falsity of its representation.
The principle of estoppel, effectively prevents the defendant from denying liability for any damage
sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on the
Checks. The same principle of estoppel effectively prevents the defendant from denying the
existence of the Checks. (Pp. 1011 Decision; pp. 4344, Rollo)
We agree.
As provided in the aforecited articles of incorporation of PCHC its operation extend to "clearing checks and other clearing items." No
doubt transactions on non-negotiable checks are within the ambit of its jurisdiction.
In a previous case, this Court had occasion to rule: "Ubi lex non distinguish nec nos distinguere debemos." 2 It was enunciated in Loc
Cham v. Ocampo, 77 Phil. 636 (1946):
The rule, founded on logic is a corollary of the principle that general words and phrases in a statute should ordinarily
be accorded their natural and general significance. In other words, there should be no distinction in the application of
a statute where none is indicated.
There should be no distinction in the application of a statute where none is indicated for courts are not authorized to distinguish where
the law makes no distinction. They should instead administer the law not as they think it ought to be but as they find it and without
regard to consequences. 3
The term check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in commercial and
business activities. It cannot be conceived to be limited to negotiable checks only.
97 Negotiable Instruments – Form and Interpretation (Sec 1-23)
Checks are used between banks and bankers and their customers, and are designed to facilitate banking operations. It is of the
essence to be payable on demand, because the contract between the banker and the customer is that the money is needed on
demand. 4
The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their
submission to its jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and regulations provide:
SEC. 3. AGREEMENT TO THESE RULES. — It is the general agreement and understanding that any participant in
the Philippine Clearing House Corporation, MICR clearing operations by the mere fact of their participation, thereby
manifests its agreement to these Rules and Regulations and its subsequent amendments."
Sec 36.6. (ARBITRATION) — The fact that a bank participates in the clearing operations of the PCHC shall be
deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in
accordance with section 4 of the Republic Act No. 876, otherwise known as the Arbitration Law.
Further Section 2 of the Arbitration Law mandates:
Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing
between them at the time of the submission and which may be the subject of an action, or the parties of any contract
may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or
contract shall be valid and irrevocable, save upon grounds as exist at law for the revocation of any contract.
Such submission or contract may include question arising out of valuations, appraisals or other controversies which
may be collateral, incidental, precedent or subsequent to any issue between the parties. ...
Sec. 21 of the same rules, says:
Items which have been the subject of material alteration or items bearing forged endorsement when such
endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting Bank
and not through the regular clearing house facilities within the period prescribed by law for the filing of a legal action
by the returning bank/branch, institution or entity sending the same. (Emphasis supplied)
Viewing these provisions the conclusion is clear that the PCHC Rules and Regulations should not be interpreted to be applicable only
to checks which are negotiable instruments but also to non-negotiable instruments and that the PCHC has jurisdiction over this case
even as the checks subject of this litigation are admittedly non-negotiable.
Moreover, petitioner is estopped from raising the defense of non-negotiability of the checks in question. It stamped its guarantee on the
back of the checks and subsequently presented these checks for clearing and it was on the basis of these endorsements by the
petitioner that the proceeds were credited in its clearing account.
The petitioner by its own acts and representation can not now deny liability because it assumed the liabilities of an endorser by
stamping its guarantee at the back of the checks.
The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped
from claiming that the checks under consideration are not negotiable instruments. The checks were accepted for deposit by the
petitioner stamping thereon its guarantee, in order that it can clear the said checks with the respondent bank. By such deliberate and
positive attitude of the petitioner it has for all legal intents and purposes treated the said cheeks as negotiable instruments and
accordingly assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back of the checks. It led
the said respondent to believe that it was acting as endorser of the checks and on the strength of this guarantee said respondent
cleared the checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by
claiming that the disputed checks are not negotiable instrument.
This Court enunciated in Philippine National Bank vs. Court of Appeals 5 a point relevant to the issue when it stated the doctrine of
estoppel is based upon the grounds of public policy, fair dealing, good faith and justice and its purpose is to forbid one to speak against
his own act, representations or commitments to the injury of one to whom they were directed and who reasonably relied thereon.
A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement.
Whenever any bank treats the signature at the back of the checks as endorsements and thus logically guarantees the same as such
there can be no doubt said bank has considered the checks as negotiable.
Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that the collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting
the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements. This is laid down in the case of PNB vs. National City Bank. 6 In another case, this court held that if
the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it
can recover the amount paid from the collecting bank. 7
A truism stated by this Court is that — "The doctrine of estoppel precludes a party from repudiating an obligation voluntarily assumed
after having accepted benefits therefrom. To countenance such repudiation would be contrary to equity and put premium on fraud or
misrepresentation". 8
We made clear in Our decision in Philippine National Bank vs. The National City Bank of NY & Motor Service Co. that:
Where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the
genuineness of the drawers signature and his capacity to issue the instrument.
If a drawee bank pays a forged check which was previously accepted or certified by the said bank, it can not recover
from a holder who did not participate in the forgery and did not have actual notice thereof.
GRIÑO-AQUINO, J.:
A complaint for recovery of the value of forty-nine (49) checks with alleged forged/unauthorized indorsements of the payee of which 26
were paid to the petitioner or order and twenty-three (23) to petitioner or bearer, was filed by herein petitioner against private
respondent China Banking Corporation on May 22, 1962. The complaint alleged that the checks were issued by customers of the
petitioner in payment of brokerage/lighterage services and were all delivered, without petitioner's knowledge, to its collector, Augusto
Perez. Upon forged indorsements of the petitioner's general manager, the checks found their way into the accounts of third persons in
the respondent bank and the proceeds were later withdrawn, to the damage of the petitioner who sought reimbursement or restoration
by said bank of the value of the checks.
Respondent Bank denied liability for the petitioner's loss which was due to its own negligence. It alleged that petitioner is estopped from
denying its collector's authority to receive the checks from the drawers/customers; that petitioner failed to give defendant Bank and the
drawee Banks notice of the alleged forged or unauthorized indorsements within a reasonable time; and that its loss was occasioned by
its own failure to observe the proper degree of diligence in the supervision of its employees, particularly its collector, Augusta Perez.
Upon leave of court, respondent Bank filed a third-party complaint against Cao Pek & Co. and Ko Lit who had deposited the checks in
question in their respective accounts with the former and had thereafter withdrawn the proceeds thereof.
The trial court, in its decision dated January 22, 1972, made the following findings of facts:
... . Over a period of eighteen months, from January 29, 1960 (Exh. B) to June 22, 1961 (Exh. B-11), Augusto Perez
collected from different clients of plaintiff company some 49 checks (Exhs. A to E-2) with a total value of P91,153.11.
The endorsement of the payee, plaintiff Manila Lighter Transportation, Inc., by its general manager, Luis Gaskell
appear on the checks. The latter disclaimed such signatures and presented a handwriting expert who gave the
opinion that the signatures "L. Gaskell" on the indorsement were indeed forgeries. The checks as thus endorsed were
negotiated by Wilfredo Lagamon, accountant of the plaintiff company and relative of Luis Gaskell with Cao Pek and
Co., an electronic store, whose treasurer is Ko Lit. Most of the checks, with a total amount of P90,500.24, were
deposited by Ko Lit in his account with defendant bank (Exh. 4). Three checks with a total amount of P1,115.05 were
deposited in the account of Cao Pek & Co. while one check for P2,735.19 was deposited in the accounts of Lu Siu
Po, manager of Cao Pek & Co. These accounts have no more balances at present.
As late as July 21, 1961, plaintiff apparently did not know what was happening because on that date it sent S.
Quintos Transportation, Inc., one of its clients whose checks were collected by Augusto Perez, the following letter:
"Upon a detailed examination of our records, we found out that various jobs undertaking (sic) by us
in your behalf in 1960 and 1961 are still pending payment as of this date.
We are sending you herewith our statement covering these jobs which amount to P23,520.30 and
would request you to kindly confirm its correctness at your earliest."
It may be assumed that similar letters were sent to other clients of plaintiff in a similar situation, namely: Go Fay and
Co., for P12,568.77; Peter Paul Phil. Corp. for P36,967.80; Central Azucarera Don Pedro for P11,190.14; and Helena
Cigar Co. for P4,296.90.
"Another client, Cia. Gral. de Tabacos de Filipinas, had also paid plaintiff four checks in the total
amount of P3,453.53 all drawn against Hongkong and Shanghai Banking Corp. (Exhs. 2-a to 2-d).
Upon complaint of the drawer after the anomalies were discovered (Exhs. 2-F, 2) defendant bank
refunded the amount to drawee bank (Exh. 3) and the amount is not included in the complaint,
although defendant bank has entered a counterclaim for the amount against plaintiff.
Plaintiff made its initial demand against defendant bank for the refund of the amount of the checks
on September 9, 1961 (Exh T). There were some attempts made to negotiate an amicable
settlement, but nothing came of it."
On May 30, 1962, the defendant Bank filed a third-party complaint against Cao Pek and Co. and Ko Lit. Cao Pek and
Co., in turn, filed a cross-claim against Ko Lit. (pp. 38-40, Rollo.)
MARTIN, J.:
Appeal on a question of law of the decision of the Court of First Instance of Manila, Branch XXIII in Civil Case No. 69288, entitled
"Republic Bank vs. Mauricia T. Ebrada."
On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed Back Pay Check No. 508060 dated January 15, 1963 for
P1,246.08 at the main office of the plaintiff Republic Bank at Escolta, Manila. The check was issued by the Bureau of Treasury. 1
Plaintiff Bank was later advised by the said bureau that the alleged indorsement on the reverse side of the aforesaid check by the
payee, "Martin Lorenzo" was a forgery 2 since the latter had allegedly died as of July 14, 1952. 3 Plaintiff Bank was then requested by
the Bureau of Treasury to refund the amount of P1,246.08. 4 To recover what it had refunded to the Bureau of Treasury, plaintiff Bank
made verbal and formal demands upon defendant Ebrada to account for the sum of P1,246.08, but said defendant refused to do so. So
plaintiff Bank sued defendant Ebrada before the City Court of Manila.
On July 11, 1966, defendant Ebrada filed her answer denying the material allegations of the complaint and as affirmative defenses
alleged that she was a holder in due course of the check in question, or at the very least, has acquired her rights from a holder in due
course and therefore entitled to the proceeds thereof. She also alleged that the plaintiff Bank has no cause of action against her; that it
is in estoppel, or so negligent as not to be entitled to recover anything from her. 5
About the same day, July 11, 1966 defendant Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn, filed on
September 14, 1966 a Fourth-Party complaint against Justina Tinio.
On March 21, 1967, the City Court of Manila rendered judgment for the plaintiff Bank against defendant Ebrada; for Third-Party plaintiff
against Third-Party defendant, Adelaida Dominguez, and for Fourth-Party plaintiff against Fourth-Party defendant, Justina Tinio.
From the judgment of the City Court, defendant Ebrada took an appeal to the Court of First Instance of Manila where the parties
submitted a partial stipulation of facts as follows:
COME NOW the undersigned counsel for the plaintiff, defendant, Third-Party defendant and Fourth-Party plaintiff and
unto this Honorable Court most respectfully submit the following:
PARTIAL STIPULATION OF FACTS
1. That they admit their respective capacities to sue and be sued;
2. That on January 15, 1963 the Treasury of the Philippines issued its Check No. BP-508060, payable to the order of
one MARTIN LORENZO, in the sum of P1,246.08, and drawn on the Republic Bank, plaintiff herein, which check will
be marked as Exhibit "A" for the plaintiff;
3. That the back side of aforementioned check bears the following signatures, in this order:
1) MARTIN LORENZO;
2) RAMON R. LORENZO;
3) DELIA DOMINGUEZ; and
4) MAURICIA T. EBRADA;
4. That the aforementioned check was delivered to the defendant MAURICIA T. EBRADA by the Third-Party defendant and Fourth-
Party plaintiff ADELAIDA DOMINGUEZ, for the purpose of encashment;
5. That the signature of defendant MAURICIA T. EBRADA was affixed on said check on February 27, 1963 when she
encashed it with the plaintiff Bank;
6. That immediately after defendant MAURICIA T. EBRADA received the cash proceeds of said check in the sum of
P1,246.08 from the plaintiff Bank, she immediately turned over the said amount to the third-party defendant and
fourth-party plaintiff ADELAIDA DOMINGUEZ, who in turn handed the said amount to the fourth-party defendant
JUSTINA TINIO on the same date, as evidenced by the receipt signed by her which will be marked as Exhibit "1-
Dominguez"; and
RECTO, J.:
This case was submitted for decision to the court below on the following stipulation of facts:
1. That plaintiff is a banking corporation organized and existing under and by virtue of a special act of the Philippine
Legislature, with office as principal place of business at the Masonic Temple Bldg., Escolta, Manila, P. I.; that the defendant
National City Bank of New York is a foreign banking corporation with a branch office duly authorized and licensed to carry and
engage in banking business in the Philippine Islands, with branch office and place of business in the National City Bank Bldg.,
City of Manila, P. I., and that the defendant Motor Service Company, Inc., is a corporation organized and existing under and by
virtue of the general corporation law of the Philippine Islands, with office and principal place of business at 408 Rizal Avenue,
City of Manila, P. I., engaged in the purchase and sale of automobile spare parts and accessories.
2. That on April 7 and 9, 1933, an unknown person or persons negotiated with defendant Motor Service Company, Inc., the
checks marked as Exhibits A and A-1, respectively, which are made parts of the stipulation, in payment for automobile tires
purchased from said defendant's stores, purporting to have been issued by the "Pangasinan Transportation Co., Inc. by J. L.
Klar, Manager and Treasurer", against the Philippine National Bank and in favor of the International Auto Repair Shop, for
P144.50 and P215.75; and said checks were indorsed by said unknown persons in the manner indicated at the back thereof,
the Motor Service Co., Inc., believing at the time that the signature of J. L. Klar, Manager and Treasurer of the Pangasinan
Transportation Co., Inc., on both checks were genuine.
3. The checks Exhibits A and A-1 were then indorsed for deposit by the defendant Motor Service Company, Inc, at the
National City Bank of New York and the former was accordingly credited with the amounts thereof, or P144.50 and P215.75.
4. On April 8 and 10, 1933, the said checks were cleared at the clearing house and the Philippine National Bank credited the
National City Bank of New York for the amounts thereof, believing at the time that the signatures of the drawer were genuine,
that the payee is an existing entity and the endorsement at the back thereof regular and genuine.
5. The Philippine National Bank then found out that the purported signatures of J. L. Klar, as Manager and Treasurer of the
Pangasinan Transportation Company, Inc., in said Exhibits A and A-1 were forged when so informed by the said Company,
and it accordingly demanded from the defendants the reimbursement of the amounts for which it credited the National City
Bank of New York at the clearing house and for which the latter credited the Motor Service Co., but the defendants refused,
and continue to refuse, to make such reimbursements.
6. The Pangasinan Transportation Co., Inc., objected to have the proceeds of said check deducted from their deposit.
7. Exhibits B, C, D, E, F, and G, which were introduced at the trial in the municipal court of Manila and forming part of the
record of the present case, are admitted by the parties as genuine and are made part of this stipulation as well as Exhibit H
hereto attached and made a part hereof.
Upon plaintiff's motion, the case was dismissed before trial as to the defendant National City Bank of New York. a decision was
thereafter rendered giving plaintiff judgment for the total amount of P360.25, with interest and costs. From this decision the instant
appeal was taken.
Before us is the preliminary question of whether the original appeal taken by the plaintiff from the decision of the municipal court
of Manila where this case originated, became perfected because of plaintiff's failure to attach to the record within 15 days from receipt
of notice of said decision, the certificate of appeal bond required by section 76 of the Code of Civil Procedure. It is not disputed that
both the appeal docket fee and the appeal cash bond were paid and deposited within the prescribed time. The issue is whether the
mere failure to file the official receipt showing that such deposit was made within the said period is a sufficient ground to dismiss
plaintiff's appeal. This question was settled by our decision in the case of Blanco vs. Bernabe and lawyers Cooperative Publishing Co.
(page 124, ante), and no further consideration. No error was committed in allowing said appeal.
We now pass on to consider and determine the main question presented by this appeal, namely, whether the appellee has the
right to recover from the appellant, under the circumstances of this case, the value of the checks on which the signatures of the drawer
were forged. The appellant maintains that the question should be answered in the negative and in support of its contention appellant
advanced various reasons presently to be examined carefully.
I. It is contended, first of all, that the payment of the checks in question made by the drawee bank constitutes an "acceptance",
and, consequently, the case should be governed by the provisions of section 62 of the Negotiable Instruments Law, which says:
123 Negotiable Instruments – Form and Interpretation (Sec 1-23)
SEC. 62. Liability of acceptor. —The acceptor by accepting the instrument engages that he will pay it according to the
tenor of his acceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the
instrument; and
(b) The existence of the payee and his then capacity to indorse.
This contention is without merit. A check is a bill of exchange payable on demand and only the rules governing bills of exchange
payable on demand are applicable to it, according to section 185 of the Negotiable Instruments Law. In view of the fact that acceptance
is a step unnecessary, in so far as bills of exchange payable on demand are concerned (sec. 143), it follows that the provisions relative
to "acceptance" are without application to checks. Acceptance implies, in effect, subsequent negotiation of the instrument, which is not
true in case of the payment of a check because from the moment a check is paid it is withdrawn from circulation. The warranty
established by section 62, is in favor of holders of the instrument after its acceptance. When the drawee bank cashes or pays a check,
the cycle of negotiation is terminated, and it is illogical thereafter to speak of subsequent holders who can invoke the warranty provided
in section 62 against the drawee. Moreover, according to section 191, "acceptance" means "an acceptance completed by delivery or
notification" and this concept is entirely incompatible with payment, because when payment is made the check is retained by the bank,
and there is no such thing as delivery or notification to the party receiving the payment. Checks are not to be accepted, but presented
at once for payment. (1 Bouvier's Law Dictionary, 476.) There can be no such thing as "acceptance" in the ordinary sense of the term.
A check being payable immediately and on demand, the bank can fulfill its duty to the depositor only by paying the amount demanded.
The holder has no right to demand from the bank anything but payment of the check, and the bank has no right, as against the drawer,
to do anything but pay it. (5 R. C. L., p. 516, par. 38.) A check is not an instrument which in the ordinary course of business calls for
acceptance. The holder can never claim acceptance as his legal right. He can present for payment, and only for payment. (1 Morse on
Banks and Banking, 6th ed., pp. 898, 899.)
There is, however, nothing in the law or in, business practice against the presentation of checks for acceptance, before they are
paid, in which case we have a "certification" equivalent to "acceptance" according to section 187, which provides that "where a check is
certified by the bank on which it is drawn, the certification is equivalent to an acceptance", and it is then that the warranty under section
62 exists. This certification or acceptance consists in the signification by the drawee of his assent to the order of the drawer, which must
not express that the drawee will perform his promise by any other means than the payment of money. (Sec. 132.) When the holder of a
check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon (sec. 188), and then the
check operates as an assignment of a part of the funds to the credit of the drawer with the bank. (Sec. 189.) There is nothing in the
nature of the check which intrinsically precludes its acceptance, in like manner and with like effect as a bill of exchange or draft may be
accepted. The bank may accept if it chooses; and it is frequently induced by convenience, by the exigencies of business, or by the
desire to oblige customers, voluntarily to incur the obligation. The act by which the bank places itself under obligation to pay to the
holder the sum called for by a check must be the expressed promise or undertaking of the bank signifying its intent to assume the
obligation, or some act from which the law will imperatively imply such valid promise or undertaking. The most ordinary form which such
an act assumes is the acceptance by the bank of the check, or, as it is perhaps more often called, the certifying of the check. (1 Morse
on Banks and Banking, pp. 898, 899; 5 R. C. L., p. 520.)
No doubt a bank may by an unequivocal promise in writing make itself liable in any event to pay the check upon demand, but this
is not an "acceptance" of the check in the true sense of that term. Although a check does not call for acceptance, and the holder can
present it only for payment, the certification of checks is a means in constant and extensive use in the business of banking, and its
effects and consequences are regulated by the law merchant. Checks drawn upon banks or bankers, thus marked and certified, enter
largely into the commercial and financial transactions of the country; they pass from hand to hand, in the payment of debts, the
purchase of property, and in the transfer of balances from one house and one bank to another. In the great commercial centers, they
make up no inconsiderable portion of the circulation, and thus perform a useful, valuable, and an almost indispensable office. The
purpose of procuring a check to be certified is to impart strength and credit to the paper by obtaining an acknowledgment from the
certifying bank that the drawer has funds therein sufficient to cover the check and securing the engagement of the bank that the check
will be paid upon presentation. A certified check has a distinctive character as a species of commercial paper, and performs important
functions in banking and commercial business. When a check is certified, it ceases to possess the character, or to perform the
functions, of a check, and represents so much money on deposit, payable to the holder on demand. The check becomes a basis of
credit — an easy mode of passing money from hand to hand, and answers the purposes of money. (5 R. C. L., pp. 516,
517.)lâwphi1.nêt
All the authorities, both English and American, hold that a check may be accepted, though acceptance is not usual. By the law
merchant, the certificate of the bank that a check is good is equivalent to acceptance. It implies that the check is drawn upon sufficient
funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the
check is presented for payment. It is an undertaking that the check is good then, and shall continue good, and this agreement is as
binding on the bank as its notes of circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can
assume. The object of certifying a check, as regards both parties is to enable the holder to use it as money. The transferee takes it with
the same readiness and sense of security that he would take the notes of the bank. It is available also to him for all the purposes of
money. Thus it continues to perform its important functions until in the course of business it goes back to the bank for redemption, and
is extinguished by payment. It cannot be doubted that the certifying bank intended these consequences, and it is liable accordingly. To
hold otherwise would render these important securities only a snare and a delusion. A bank incurs no greater risk in certifying a check
than in giving a certificate of deposit. In well-regulated banks the practice is at once to charge the check to the account of the drawer, to
credit it in a certified check account, and, when the check is paid, to debit that account with the amount. Nothing can be simpler or safer
than this process. (Merchants' Bank vs. States Bank, 10 Wall., 604, at p. 647; 19 Law. ed., 1008, 1019.)
Ordinarily the acceptance or certification of a check is performed and evidenced by some word or mark, usually the words
"good", "certified" or "accepted" written upon the check by the banker or bank officer. (1 Morse, Banks and Banking, 915; 1 Bouvier's
Law Dictionary, 476.) The bank virtually says, that check is good; we have the money of the drawer here ready to pay it. We will pay it
JOHNS, J.:
There is no dispute about any of the findings of fact made by the trial court, and the plaintiff relies upon them for a reversal. Among
other things, the trial court says:
Who is responsible for the refund to the drawer of the amount of the check drawn and payable to order, when its value was
collected by a third person by means of forgery of the signature of the payee? Is it the drawee or the last indorser, who ignored
the forgery at the time of making the payment, or the forger?
To lower court found that Melicor's name was forged to the check. "So that the person to whose order the check was issued did not
receive the money, which was collected by E. M. Maasim," and then says:
Now then, the National Bank should not be held responsible for the payment of made to Maasim in good faith of the amount of
the check, because the indorsement of Maasim is unquestionable and his signature perfectly genuine, and the bank was not
obliged to identify the signature of the former indorser. Neither could the Hongkong and Shanghai Banking Corporation be
held responsible in making payment in good faith to the National Bank, because the latter is a holder in due course of the
check in question. In other words, the two defendant banks can not be held civilly responsible for the consequences of the
falsification or forgery of the signature of Lazaro Melicor, the National Bank having had no notice of said forgery in making
payment to Maasim, nor the Hongkong bank in making payment to National Bank. Neither bank incurred in any responsibility
arising from that crime, nor was either of the said banks by subsequent acts, guilty of negligence or fault.
This was fundamental error.
Plaintiff's check was drawn on Shanghai Bank payable to the order of Melicor. In other words, the plaintiff authorized and directed the
Shanghai Bank to pay Melicor, or his order, P2,000. It did not authorize or direct the bank to pay the check to any other person than
Melicor, or his order, and the testimony is undisputed that Melicor never did part with his title or endorse the check, and never received
any of its proceeds. Neither is the plaintiff estopped or bound by the banks statement, which was made to it by the Shanghai Bank. This
is not a case where the plaintiff's own signature was forged to one of it checks. In such a case, the plaintiff would have known of the
forgery, and it would have been its duty to have promptly notified the bank of any forged signature, and any failure on its part would
have released bank from any liability. That is not this case. Here, the forgery was that of Melicor, who was the payee of the check, and
the legal presumption is that the bank would not honor the check without the genuine endorsement of Melicor. In other words, when the
plaintiff received it banks statement, it had a right to assume that Melicor had personally endorsed the check, and that, otherwise, the
bank would not have paid it.
133 Negotiable Instruments – Form and Interpretation (Sec 1-23)
Section 23 of Act No. 2031, known as the Negotiable Instruments Law, says:
When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority.
That section is square in point.
The money was on deposit in the Shanghai Bank, and it had no legal right to pay it out to anyone except the plaintiff or its order. Here,
the plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor, and the money was actually paid to Maasim and was never paid
to Melicor, and he never paid to Melicor, and he never personally endorsed the check, or authorized any one to endorse it for him, and
the alleged endorsement was a forgery. Hence, upon the undisputed facts, it must follow that the Shanghai Bank has no defense to this
action.
It is admitted that the Philippine National Bank cashed the check upon a forged signature, and placed the money to the credit of
Maasim, who was a forger. That the Philippine National Bank then endorsed the check and forwarded it to the Shanghai Bank by whom
it was paid. The Philippine National Bank had no license or authority to pay the money to Maasim or anyone else upon a forge
signature. It was its legal duty to know that Melicor's endorsment was genuine before cashing the check. Its remedy is against Maasim
to whom it paid the money.
The judgment of the lower court is reversed, and one will be entered here in favor of the plaintiff and against the Hongkong and
Shanghai Banking Corporation for the P2,000, with interest thereon from November 8, 1920 at the rate of 6 per cent per annum, and
the costs of this action, and a corresponding judgment will be entered in favor of the Hongkong Shanghai Banking Corporation against
the Philippine National Bank for the same amount, together with the amount of its costs in this action. So ordered.
FERNANDO, J.:
Defendant, now appellee Peoples Bank & Trust Company, is sought to be held liable in the amount of P14,608.05, the sum payable in
a check issued by the Philippine Long Distance Telephone Company drawn on plaintiff Hongkong & Shanghai Banking Corporation,
now appellant, with itself as payee, the check thereafter falling into the hands of a third party who substituted his name thereon and was
able to collect such amount from defendant Bank where it was deposited. Plaintiff was unsuccessful, the Court of First Instance of
Manila, the Honorable Jesus de Veyra presiding, dismissing the complaint. It considered as decisive the fact that plaintiff Bank allowed
27 days to elapse after clearing before notifying defendant Bank as to such alteration, the applicable Central Bank regulation providing
for a 24-hour period. Hence, this appeal. Relying as the lower court did on a controlling decision, 1 its decision cannot be reversed. We
affirm.
The undisputed facts, as noted in the appealed decision, follow: "On March 8, 1965, the Philippine Long Distance Telephone Company
drew the check ... on the Hongkong & Shanghai Banking Corporation and in favor of the same bank in the sum of P14,608.05. This
check was sent by mail to the Payee. Somehow or other, the check fell in the hands of a certain Florentino Changco, who was able to
erase the name of the payee Bank and instead typed his own name on the check. Four days before, Changco had opened a current
account with Defendant Peoples Bank and Trust Company and on March 16, 1965, he deposited the altered check in his name. This
check was presented by the Peoples Bank for clearing wherein the Peoples Bank made the following indorsement: "For clearance,
clearing office. All prior endorsements and/or lack of endorsements guaranteed. Peoples Bank and Trust Company." The check was
duly cleared by the Hongkong Shanghai Bank, so that the Peoples Bank credited Changco with the amount of the check. Beginning
March 17, 1965, Changco began to withdraw from his account and on March 31, 1965 he closed his account. In the meantime, the
cancelled check went the route of the regular routine and on April 12, 1965 it was returned to the Philippine Long Distance Telephone
Company when the alteration in the name of the payee was discovered. On that same date, Peoples Bank was notified of the
alteration, so that the Hongkong Shanghai Bank requested Peoples Bank to refund to it the sum of P14,608.05 which had been
previously credited by Plaintiff Bank in favor of Defendant Bank. Upon its refusal to do so, this case has been filed." 2
Why the complaint had to be dismissed was made clear in such decision. Thus: "The entire case of Plaintiff is based on the
indorsement that has been heretofore copied — namely, a guarantee of all prior indorsements made by Peoples Bank and since such
an indorsement carries with it a concomitant guarantee of genuineness, the Peoples Bank is liable to the Hongkong Shanghai Bank for
alteration made in the name of payee. On the other hand, the People Bank relies on the "24 hour" regulation of the Central Bank that
requires after a clearing, that all cleared items must be returned not later than 3:00 PM of the following business day. And since the
Hongkong Shanghai Bank only advised the Peoples Bank as to the alteration on April 12, 1965 or 27 days after clearing, the Peoples
Bank claims that it is now too late to do so. This regulation of the Central Bank as to 24 hours is challenged by Plaintiff Bank as being
merely part of an ingenious device to facilitate banking transactions. Be that what it may — as both Plaintiff as well as Defendant Banks
are part of our banking system and both are subject to regulations of the Central Bank — they are both bound by such regulations. In
fact, our Supreme Court has already held that the 24-hour regulation of the Central Bank in clearing house operations is valid and if
banks feel the 24-hour period is unwise, they should make proper representations with the Central Bank. But until they do so, they are
bound by such 24-hour period (Republic v. Equitable Banking Corporation, GR No. L-15894; January 30, 1964). But Plaintiff Bank
insists that Defendant Bank is liable on its indorsement during clearing house operations. The indorsement, itself, is very clear when it
begins with the words "For clearance, clearing office ...". In other words, such an indorsement must be read together with the 24-hour
regulation on clearing House Operations of the Central Bank. Once that 24-hour period is over, the liability on such an indorsement has
ceased. This being so, Plaintiff Bank has not made out a case for relief." 3
The complaint was therefore dismissed, resulting in this appeal to us on a question of law, which, as set forth in the principal assigned
error is predicated on the inapplicability of the 24-hour clearing house rule of the Central Bank. Plaintiff does not deny that in Republic
v. Equitable Banking Corporation, 4 this Honorable Court, through the then Justice, now Chief Justice Concepcion, applied the "24-hour"
clearing house rule issued by the Central Bank in accordance with its rule-making authority. As noted in the aforesaid decision, its
adoption came after a conference with representatives and officials of different banking institutions in the Philippines. It is embodied in
section 4, subsection (c) of Circular No. 9 of the Central Bank dated February 17, 1949, as amended by the then Governor of the
Central Bank on June 4, 1949, and reads thus: " "Items which should be returned for any reason whatsoever shall be returned directly
to the bank, institution or entity from which the item was received. For this purpose, the Receipt for Returned Checks (Cash Form No.
9) should be used. The original and duplicate copies of said Receipt shall be given to the bank, institution or entity which returned the
items and the triplicate copy should be retained by the bank, institution or entity whose demand is being returned. At the following
clearing, the original of the Receipt for Returned Checks shall be presented through the Clearing Office as a demand against the bank,
135 Negotiable Instruments – Form and Interpretation (Sec 1-23)
institution or entity whose item has been returned. Nothing in this section shall prevent the returned items from being settled by direct
reimbursement to the bank, institution or entity returning the items. All items cleared at 11:00 o'clock a.m. shall be returned not later
than 2:00 o'clock p.m. on the same day and all items cleared at 3:00 o'clock p.m. shall be returned not later than 8:30 a.m. of the
following business day, except for items cleared on Saturday which may be returned not later than 8:30 of the following day. (Emphasis
supplied)" 5 It is apparent from the above that the attempted distinction sought to be made by plaintiff to the effect that it refers to forged,
but not to altered checks is not warranted. The circular is clear and comprehensive; the facts of the present case fall within it. The lower
court acted correctly in relying on the doctrine announced in the above Republic v. Equitable Banking Corporation decision.
An excerpt from the opinion of the Chief Justice is likewise relevant as indicative of the correctness of the decision appealed from.
Thus: "At any rate, the aforementioned twenty-eight (28) warrants were cleared and paid by the Treasurer, in view of which the PI Bank
and the Equitable Bank credited the corresponding amounts to the respective depositors of the warrants and then honored their checks
for said amounts. Thus, the Treasury had not only been negligent in clearing its own warrants, but had, also, thereby induced the PI
Bank and the Equitable Bank to pay the amounts thereof to said depositors. The gross nature of the negligence of the Treasury
becomes more apparent when we consider that each one of the twenty-four (24) warrants involved in G.R. No. L-15895 was for over
P5,000, and, hence; beyond the authority of the auditor of the Treasury — whose signature thereon had been forged — to approve. In
other words, the irregularity of said warrants was apparent on the fact thereof, from the viewpoint of the Treasury. Moreover, the same
had not advertised the loss of genuine forms of its warrants. Neither had the PI Bank nor the Equitable Bank been informed of any
irregularity in connection with any of the warrants involved in these two (2) cases, until after December 23, 1952, — or after the
warrants had been cleared and honored — when the Treasury gave notice of the forgeries adverted to above. As a consequence, the
loss of the amounts thereof is mainly imputable to acts and omissions of the Treasury, for which the PI Bank and the Equitable Bank
should not and cannot be penalized." 6
Moreover, in one of the very cases relied upon by plaintiff, as appellant, mention is made of a principle on which defendant Bank could
have acted without incurring the liability now sought to be imposed by plaintiff. Thus: "It is a settled rule that a person who presents for
payment checks such as are here involved guarantees the genuineness of the check, and the drawee bank need concern itself with
nothing but the genuineness of the signature, and the state of the account with it of the drawee." 7 It at all, then, whatever remedy the
plaintiff has would lie not against defendant Bank but as against the party responsible for changing the name of the payee. Its failure to
call the attention of defendant Bank as to such alteration until after the lapse of 27 days would, in the light of the above Central Bank
circular, negate whatever right it might have had against defendant Bank. While not exactly in point, a later decision of the Chief Justice
announced in 1968, involving a forged check, argues for the correctness of the conclusion reached by the lower court even assuming
that a fault could be imputed to defendant Bank. Thus: "Then, again, it has, likewise, been held that, where the collecting (PCIB) and
the drawee (PNB) banks are equally at fault, the court will leave the parties where it finds them." 8
WHEREFORE, the appealed decision of April 24, 1967, dismissing the complaint, is affirmed. With costs against plaintiff Hongkong &
Shanghai Banking Corporation.
MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the Decision of the Court of Appeals in CA-G.R. No. 57129-R entitled, First National City
Bank vs. Metropolitan Bank and Trust Company, which affirmed in toto the Decision of the Court of First Instance of Manila, Branch
VIII, in Civil Case No. 61488, ordering petitioner herein, Metropolitan Bank, to reimburse respondent First National City Bank the
amount of P50,000.00, with legal rate of interest from June 25, 1965, and to pay attorney's fees of P5,000.00 and costs.
The controversy arose from the following facts:
On August 25, 1964, Check No. 7166 dated July 8, 1964 for P50,000.00, payable to CASH, drawn by Joaquin Cunanan & Company on
First National City Bank (FNCB for brevity) was deposited with Metropolitan Bank and Trust Company (Metro Bank for short) by a
certain Salvador Sales. Earlier that day, Sales had opened a current account with Metro Bank depositing P500.00 in cash. 1 Metro Bank
immediately sent the cash check to the Clearing House of the Central Bank with the following words stamped at the back of the check:
Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements
Guaranteed. 2
The check was cleared the same day. Private respondent paid petitioner through clearing the amount of P50,000.00, and Sales was
credited with the said amount in his deposit with Metro Bank.
On August 26, 1964, Sales made his first withdrawal of P480.00 from his current account. On August 28, 1964, he withdrew
P32,100.00. Then on August 31, 1964, he withdrew the balance of P17,920.00 and closed his account with Metro Bank.
On September 3, 1964, or nine (9) days later, FNCB returned cancelled Check No. 7166 to drawer Joaquin Cunanan & Company,
together with the monthly statement of the company's account with FNCB. That same day, the company notified FNCB that the check
had been altered. The actual amount of P50.00 was raised to P50,000.00, and over the name of the payee, Manila Polo Club, was
superimposed the word CASH.
FNCB notified Metro Bank of the alteration by telephone, confirming it the same day with a letter, which was received by Metro Bank on
the following day, September 4, 1964.
On September 10, 1964, FNCB wrote Metro Bank asking for reimbursement of the amount of P50,000.00. The latter did not oblige, so
that FNCB reiterated its request on September 29, 1964. Metro Bank was adamant in its refusal.
On June 29, 1965, FNCB filed in the Court of First Instance of Manila, Branch VIII, Civil Case No. 61488 against Metro Bank for
recovery of the amount of P50,000.00.
On January 27, 1975, the Trial Court rendered its Decision ordering Metro Bank to reimburse FNCB the amount of P50,000.00 with
legal rate of interest from June 25, 1965 until fully paid, to pay attorney's fees of P5,000.00, and costs.
Petitioner appealed said Decision to the Court of Appeals (CA-G.R. No. 57129-R). On August 29, 1980, respondent Appellate Court 3
affirmed in toto the judgment of the Trial Court.
Petitioner came to this instance on appeal by Certiorari, alleging:
I
The Respondent Court of Appeals erred in completely ignoring and disregarding the 24-hour clearing house rule
provided for under Central Bank Circular No. 9, as amended, although:
1. The 24-hour regulation of the Central Bank in clearing house operations is valid and banks are subject to and are
bound by the same; and
2. The 24-hour clearing house rule applies to the present case of the petitioner and the private respondent.
II
The Respondent Court of Appeals erred in relying heavily on its decision in Gallaites, et al. vs. RCA, etc.,
promulgated on October 23, 1950 for the same is not controlling and is not applicable to the present case.
III
B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE INSTRUMENTS LAW.10
C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF IS WITH THE RESPONDENT
BANK TO PROVE THE DUE DILIGENCE TO PREVENT DAMAGE, TO THE PETITIONER, AND THAT IT WAS NOT
NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES.11
D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT BANK SHOULD BEAR THE LOSS,
AND SHOULD BE MADE TO PAY PETITIONER, WITH RECOURSE AGAINST KATHERINE EUGENIO ESTEBAN.12
Essentially the issues in this case are: (1) whether or not petitioner has a cause of action against private respondent; and (2) whether or
not private respondent, in filing an estafa case against petitioner’s secretary, is barred from raising the defense that the fact of forgery
was not established.
Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks. He adds that as a
general rule a bank which has obtained possession of a check upon an unauthorized or forged endorsement of the payee’s signature
and which collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. Petitioner invokes the
doctrine of estoppel, saying that having itself instituted a forgery case against Eugenio, Manila Bank is now estopped from asserting
that the fact of forgery was never proven.
For its part, Manila Bank contends that respondent appellate court did not depart from the accepted and usual course of judicial
proceedings, hence there is no reason for the reversal of its ruling. Manila Bank additionally points out that Section 2313 of the
Negotiable Instruments Law is inapplicable, considering that the fact of forgery was never proven. Lastly, the bank negates petitioner’s
claim of estoppel.14
On the first issue, we find that petitioner has no cause of action against Manila Bank. To be entitled to damages, petitioner has the
burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on
the questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as requested by the National
Bureau of Investigation from which to draw a conclusive finding regarding forgery. The Court of Appeals found that petitioner, by his
own inaction, was precluded from setting up forgery. Said the appellate court:
We cannot fault the court a quo for such declaration, considering that the plaintiff’s evidence on the alleged forgery is not convincing
enough. The burden to prove forgery was upon the plaintiff, which burden he failed to discharge. Aside from his own testimony, the
appellant presented no other evidence to prove the fact of forgery. He did not even submit his own specimen signatures, taken on or
about the date of the questioned checks, for examination and comparison with those of the subject checks. On the other hand, the
appellee presented specimen signature cards of the appellant, taken at various years, namely, in 1976, 1979 and 1981 (Exhibits "1",
"2", "3" and "7"), showing variances in the appellant’s unquestioned signatures. The evidence further shows that the appellee, as soon
as it was informed by the appellant about his questioned signatures, sought to borrow the questioned checks from the appellant for
purposes of analysis and examination (Exhibit "9"), but the same was denied by the appellant. It was also the former which sought the
assistance of the NBI for an expert analysis of the signatures on the questioned checks, but the same was unsuccessful for lack of
sufficient specimen signatures.15
Moreover, petitioner’s contention that Manila Bank was remiss in the exercise of its duty as drawee lacks factual basis. Consistently, the
CA and the RTC found that Manila Bank employees exercised due diligence in cashing the checks. The bank’s employees in the
present case did not have a hint as to Eugenio’s modus operandi because she was a regular customer of the bank, having been
designated by petitioner himself to transact in his behalf. According to the appellate court, the employees of the bank exercised due
diligence in the performance of their duties. Thus, it found that:
The evidence on both sides indicates that TMBC’s employees exercised due diligence before encashing the checks. Its verifiers first
verified the drawer’s signatures thereon as against his specimen signature cards, and when in doubt, the verifier went further, such as
by referring to a more experienced verifier for further verification. In some instances the verifier made a confirmation by calling the
depositor by phone. It is only after taking such precautionary measures that the subject checks were given to the teller for payment.
Of course it is possible that the verifiers of TMBC might have made a mistake in failing to detect any forgery -- if indeed there was.
However, a mistake is not equivalent to negligence if they were honest mistakes. In the instant case, we believe and so hold that if
there were mistakes, the same were not deliberate, since the bank took all the precautions.16
As borne by the records, it was petitioner, not the bank, who was negligent. Negligence is the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do.17 In the present case, it appears that petitioner accorded his secretary
unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and
possession of cancelled checks and reconciliation of accounts. Said the Court of Appeals on this matter:
WESTMONT BANK (formerly ASSOCIATED BANKING CORP.),petitioner, vs. EUGENE ONG, respondent.
DECISION
QUISUMBING, J.:
This is a petition for review of the decision[1] dated January 13, 1998, of the Court of Appeals in CA-G.R. CV No. 28304 ordering the
petitioner to pay respondent P1,754,787.50 plus twelve percent (12%) interest per annum computed from October 7, 1977, the date of
the first extrajudicial demand, plus damages.
Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated Banking Corporation, but now known as
Westmont Bank. Sometime in May 1976, he sold certain shares of stocks through Island Securities Corporation. To pay Ong, Island
Securities purchased two (2) Pacific Banking Corporation manager’s checks,[2] both dated May 4, 1976, issued in the name of Eugene
Ong as payee. Before Ong could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ong’s signature and
deposited these with petitioner, where Tanlimco was also a depositor. Even though Ong’s specimen signature was on file, petitioner
accepted and credited both checks to the account of Tanlimco, without verifying the ‘signature indorsements’ appearing at the back
thereof. Tanlimco then immediately withdrew the money and absconded.
Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimco’s family to recover the
amount. Later, he reported the incident to the Central Bank, which like the first effort, unfortunately proved futile.
It was only on October 7, 1977, about five (5) months from discovery of the fraud, did Ong cry foul and demanded in his complaint that
petitioner pay the value of the two checks from the bank on whose gross negligence he imputed his loss. In his suit, he insisted that he
did not “deliver, negotiate, endorse or transfer to any person or entity” the subject checks issued to him and asserted that the signatures
on the back were spurious.[3]
The bank did not present evidence to the contrary, but simply contended that since plaintiff Ong claimed to have never received the
originals of the two (2) checks in question from Island Securities, much less to have authorized Tanlimco to receive the same, he never
acquired ownership of these checks. Thus, he had no legal personality to sue as he is not a real party in interest. The bank then filed a
demurrer to evidence which was denied.
On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch 38, rendered a decision, thus:
IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and against the defendant, and orders the
defendant to pay the plaintiff:
1. The sum of P1,754,787.50 representing the total face value of the two checks in question, exhibits “A” and “B”, respectively, with
interest thereon at the legal rate of twelve percent (12%) per annum computed from October 7, 1977 (the date of the first extrajudicial
demand) up to and until the same shall have been paid in full;
3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or correction for the public good;
SO ORDERED.[4]
Petitioner elevated the case to the Court of Appeals without success. In its decision, the appellate court held:
Petitioner now comes before this Court on a petition for review, alleging that the Court of Appeals erred:
II
... IN AFFIRMING THE TRIAL COURT’S DECISION FINDING PETITIONER LIABLE TO RESPONDENT AND DECLARING THAT THE
LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND
III
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING PETITIONER FROM LIABILITY.
Essentially the issues in this case are: (1) whether or not respondent Ong has a cause of action against petitioner Westmont Bank; and
(2) whether or not Ong is barred to recover the money from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of the two (2) checks of the Island Securities nor did he
authorize Tanlimco or any of the latter’s representative to demand, accept and receive the same. For this reason, petitioner argues,
respondent cannot sue petitioner because under Section 51 of the Negotiable Instruments Law[6] it is only when a person becomes a
holder of a negotiable instrument can he sue in his own name. Conversely, prior to his becoming a holder, he had no right or cause of
action under such negotiable instrument. Petitioner further argues that since Section 191[7] of the Negotiable Instruments Law defines
a “holder” as the ‘payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof,’ in order to be a holder, it is a
requirement that he be in possession of the instrument or the bearer thereof. Simply stated, since Ong never had possession of the
checks nor did he authorize anybody, he did not become a holder thereof hence he cannot sue in his own name.[8]
Petitioner also cites Article 1249[9] of the Civil Code explaining that a check, even if it is a manager’s check, is not legal tender. Hence,
the creditor cannot be compelled to accept payment thru this means.[10] It is petitioner’s position that for all intents and purposes,
Island Securities has not yet tendered payment to respondent Ong, thus, any action by Ong should be directed towards collecting the
amount from Island Securities. Petitioner claims that Ong’s cause of action against it has not ripened as of yet. It may be that
petitioner would be liable to the drawee bank - - but that is a matter between petitioner and drawee-bank, Pacific Banking Corporation.
[11]
For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which held that the suit of Ong against the
petitioner bank is a desirable shortcut to reach the party who ought in any event to be ultimately liable.[12] It likewise cites the ruling of
the courts a quo which held that according to the general rule, a bank who has obtained possession of a check upon an unauthorized
or forged indorsement of the payee’s signature and who collects the amount of the check from the drawee is liable for the proceeds
thereof to the payee. The theory of said rule is that the collecting bank’s possession of such check is wrongful.[13]
Respondent also cites Associated Bank vs. Court of Appeals[14]which held that the collecting bank or last endorser generally suffers
the loss because it has the duty to ascertain the genuineness of all prior endorsements. The collecting bank is also made liable
because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client.
Hence, it is in a better position to detect forgery, fraud or irregularity in the indorsement.[15]
Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed by the Negotiable Instruments Law
which is a special law and only in the absence of specific provisions or deficiency in the special law may the Civil Code be invoked.[16]
Considering the contentions of the parties and the evidence on record, we find no reversible error in the assailed decisions of the
appellate and trial courts, hence there is no justifiable reason to grant the petition.
Petitioner’s claim that respondent has no cause of action against the bank is clearly misplaced. As defined, a cause of action is the act
or omission by which a party violates a right of another.[17] The essential elements of a cause of action are: (a) a legal right or rights of
the plaintiff, (b) a correlative obligation of the defendant, and (c) an act or omission of the defendant in violation of said legal right.[18]
The complaint filed before the trial court expressly alleged respondent’s right as payee of the manager’s checks to receive the amount
involved, petitioner’s correlative duty as collecting bank to ensure that the amount gets to the rightful payee or his order, and
a breach of that duty because of a blatant act of negligence on the part of petitioner which violated respondent’s rights.[19]
Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor of the
forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to recover from the collecting
bank.
The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee’s endorsement
was genuine before cashing the check.[20] As a general rule, a bank or corporation who has obtained possession of a check upon an
unauthorized or forged indorsement of the payee’s signature and who collects the amount of the check from the drawee, is liable for the
proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was
obtained.[21]
The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful, and when the money
had been collected on the check, the bank or other person or corporation can be held as for moneys had and received, and the
proceeds are held for the rightful owners who may recover them. The position of the bank taking the check on the forged or
unauthorized indorsement is the same as if it had taken the check and collected the money without indorsement at all and the act of the
bank amounts to conversion of the check.[22]
Petitioner’s claim that since there was no delivery yet and respondent has never acquired possession of the checks, respondent’s
remedy is with the drawer and not with petitioner bank. Petitioner relies on the view to the effect that where there is no delivery to the
payee and no title vests in him, he ought not to be allowed to recover on the ground that he lost nothing because he never became the
owner of the check and still retained his claim of debt against the drawer.[23] However, another view in certain cases holds that even if
the absence of delivery is considered, such consideration is not material. The rationale for this view is that in said cases the plaintiff
uses one action to reach, by a desirable short cut, the person who ought in any event to be ultimately liable as among the innocent
persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank,
regardless of whether the check was delivered to the payee or not.[24]
Considering the circumstances in this case, in our view, petitioner could not escape liability for its negligent acts. Admittedly,
respondent Eugene Ong at the time the fraudulent transaction took place was a depositor of petitioner bank. Banks are engaged in a
business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business
with them.[25] They have the obligation to treat their client’s account meticulously and with the highest degree of care, considering the
fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.[26] In the
present case, petitioner was held to be grossly negligent in performing its duties. As found by the trial court:
xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimco’s account by defendant bank, defendant bank,
admittedly had in its files specimen signatures of plaintiff who maintained a current account with them (Exhibits “L-1” and “M-1”;
testimony of Emmanuel Torio). Given the substantial face value of the two checks, totalling P1,754,787.50, and the fact that they were
being deposited by a person not the payee, the very least defendant bank should have done, as any reasonable prudent man would
have done, was to verify the genuineness of the indorsements thereon. The Court cannot help but note that had defendant conducted
even the most cursory comparison with plaintiff’s specimen signatures in its files (Exhibit “L-1” and “M-1”) it would have at once seen
that the alleged indorsements were falsified and were not those of the plaintiff-payee. However, defendant apparently failed to make
such a verification or, what is worse did so but, chose to disregard the obvious dissimilarity of the signatures. The first omission makes
it guilty of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in
question.[27]
These findings are binding and conclusive on the appellate and the reviewing courts.
On the second issue, petitioner avers that respondent Ong is barred by laches for failing to assert his right for recovery from the bank
as soon as he discovered the scam. The lapse of five months before he went to seek relief from the bank, according to petitioner,
constitutes laches.
On the matter of delay in reporting the loss, respondent calls attention to the fact that the checks were issued on May 4, 1976, and on
the very next day, May 5, 1976, these were already credited to the account of Paciano Tanlimco and presented for payment to Pacific
Banking Corporation. So even if the theft of the checks were discovered and reported earlier, respondent argues, it would not have
altered the situation as the encashment of the checks was consummated within twenty four hours and facilitated by the gross
negligence of the petitioner bank.[28]
Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled thereto has either abandoned or declined to assert it.[29] It concerns itself with whether
or not by reason of long inaction or inexcusable neglect, a person claiming a right should be barred from asserting the same, because
to allow him to do so would be unjust to the person against whom such right is sought to be enforced.[30]
In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of the forgery by proceeding
to seek help from the Tanlimco family and later the Central Bank, to remedy the situation and recover his money from the forger,
Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the family of Tanlimco and through the
CB, about five months after the unlawful transaction took place, did he resort to making the demand upon the petitioner and eventually
before the court for recovery of the money value of the two checks. These acts cannot be construed as undue delay in or
abandonment of the assertion of his rights.
Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect responsibility for its
negligent act. As explained by the appellate court, it is petitioner which had the last clear chance to stop the fraudulent encashment of
the subject checks had it exercised due diligence and followed the proper and regular banking procedures in clearing checks.[31] As we
had earlier ruled, the one who had the last clear opportunity to avoid the impending harm but failed to do so is chargeable with the
consequences thereof.[32]
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals, sustaining the judgment
of the Regional Trial Court of Manila, is AFFIRMED.
SO ORDERED.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing the 9 August 1994 Amended Decision2 and the 16 July 1997 Resolution3 of the
Court of Appeals in CA-G.R. CV No. 25209.
The case originated from an action for collection of sum of money filed on 16 March 1982 by the International Corporate Bank,
Inc.4 ("petitioner") against the Philippine National Bank ("respondent"). The case was raffled to the then Court of First Instance (CFI) of
Manila, Branch 6. The complaint was amended on 19 March 1982. The case was eventually re-raffled to the Regional Trial Court of
Manila, Branch 52 ("trial court").
The Ministry of Education and Culture issued 15 checks5 drawn against respondent which petitioner accepted for deposit on various
dates. The checks are as follows:
The checks were deposited on the following dates for the following accounts:
After 24 hours from submission of the checks to respondent for clearing, petitioner paid the value of the checks and allowed the
withdrawals of the deposits. However, on 14 October 1981, respondent returned all the checks to petitioner without clearing them on
the ground that they were materially altered. Thus, petitioner instituted an action for collection of sums of money against respondent to
recover the value of the checks.
The trial court ruled that respondent is expected to use reasonable business practices in accepting and paying the checks presented to
it. Thus, respondent cannot be faulted for the delay in clearing the checks considering the ingenuity in which the alterations were
effected. The trial court observed that there was no attempt from petitioner to verify the status of the checks before petitioner paid the
value of the checks or allowed withdrawal of the deposits. According to the trial court, petitioner, as collecting bank, could have inquired
by telephone from respondent, as drawee bank, about the status of the checks before paying their value. Since the immediate cause of
petitioner’s loss was the lack of caution of its personnel, the trial court held that petitioner is not entitled to recover the value of the
checks from respondent.
WHEREFORE, judgment is hereby rendered dismissing both the complaint and the counterclaim. Costs shall, however be assessed
SO ORDERED.7
Petitioner appealed the trial court’s Decision before the Court of Appeals.
In its 10 October 1991 Decision,8 the Court of Appeals reversed the trial court’s Decision. Applying Section 4(c) of Central Bank
Circular No. 580, series of 1977,9 the Court of Appeals held that checks that have been materially altered shall be returned within 24
hours after discovery of the alteration. However, the Court of Appeals ruled that even if the drawee bank returns a check with material
alterations after discovery of the alteration, the return would not relieve the drawee bank from any liability for its failure to return the
checks within the 24-hour clearing period. The Court of Appeals explained:
Does this mean that, as long as the drawee bank returns a check with material alteration within 24 hour[s] after discovery of such
alteration, such return would have the effect of relieving the bank of any liability whatsoever despite its failure to return the check within
the 24- hour clearing house rule?
Obviously, such bank cannot be held liable for its failure to return the check in question not later than the next regular clearing.
However, this Court is of the opinion and so holds that it could still be held liable if it fails to exercise due diligence in verifying the
alterations made. In other words, such bank would still be expected, nay required, to make the proper verification before the 24-hour
regular clearing period lapses, or in cases where such lapses may be deemed inevitable, that the required verification should be made
within a reasonable time.
The implication of the rule that a check shall be returned within the 24-hour clearing period is that if the collecting bank paid the check
before the end of the aforesaid 24-hour clearing period, it would be responsible therefor such that if the said check is dishonored and
returned within the 24-hour clearing period, the drawee bank cannot be held liable. Would such an implication apply in the case of
materially altered checks returned within 24 hours after discovery? This Court finds nothing in the letter of the above-cited C.B. Circular
that would justify a negative answer. Nonetheless, the drawee bank could still be held liable in certain instances. Even if the return of
the check/s in question is done within 24 hours after discovery, if it can be shown that the drawee bank had been patently negligent in
the performance of its verification function, this Court finds no reason why the said bank should be relieved of liability.
Although banking practice has it that the presumption of clearance is conclusive when it comes to the application of the 24-hour
clearing period, the same principle may not be applied to the 24-hour period vis-a-vis material alterations in the sense that the drawee
bank which returns materially altered checks within 24 hours after discovery would be conclusively relieved of any liability thereon. This
is because there could well be various intervening events or factors that could affect the rights and obligations of the parties in cases
such as the instant one including patent negligence on the part of the drawee bank resulting in an unreasonable delay in detecting the
alterations. While it is true that the pertinent proviso in C.B. Circular No. 580 allows the drawee bank to return the altered check within
the period "provided by law for filing a legal action", this does not mean that this would entitle or allow the drawee bank to be grossly
negligent and, inspite thereof, avail itself of the maximum period allowed by the above-cited Circular. The discovery must be made
within a reasonable time taking into consideration the facts and circumstances of the case. In other words, the aforementioned C.B.
Circular does not provide the drawee bank the license to be grossly negligent on the one hand nor does it preclude the collecting bank
from raising available defenses even if the check is properly returned within the 24-hour period after discovery of the material
alteration.10
The Court of Appeals rejected the trial court’s opinion that petitioner could have verified the status of the checks by telephone call since
such imposition is not required under Central Bank rules. The dispositive portion of the 10 October 1991 Decision reads:
PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and the defendant-appellee Philippine National Bank is
declared liable for the value of the fifteen checks specified and enumerated in the decision of the trial court (page 3) in the amount
ofP1,447,920.00
SO ORDERED.11
Respondent filed a motion for reconsideration of the 10 October 1991 Decision. In its 9 August 1994 Amended Decision, the Court of
Appeals reversed itself and affirmed the Decision of the trial court dismissing the complaint.
In reversing itself, the Court of Appeals held that its 10 October 1991 Decision failed to appreciate that the rule on the return of altered
checks within 24 hours from the discovery of the alteration had been duly passed by the Central Bank and accepted by the members
Petitioner moved for the reconsideration of the Amended Decision. In its 16 July 1997 Resolution, the Court of Appeals denied the
motion for lack of merit.
The Issues
2. Whether respondent was negligent in failing to recognize within a reasonable period the altered checks and in not returning the
checks within the period; and
3. Whether the motion for reconsideration filed by respondent was out of time thus making the 10 October 1991 Decision final and
executory.12
Respondent asserts that the petition should be dismissed outright since petitioner availed of a wrong mode of appeal. Respondent
cites Ybañez v. Court of Appeals13 where the Court ruled that "a petition cannot be subsumed simultaneously under Rule 45 and Rule
65 of the Rules of Court, and neither may petitioners delegate upon the court the task of determining under which rule the petition
should fall."
The remedies of appeal and certiorari are mutually exclusive and not alternative or successive.14However, this Court may set aside
technicality for justifiable reasons. The petition before the Court is clearly meritorious. Further, the petition was filed on time both under
Rules 45 and 65.15 Hence, in accordance with the liberal spirit which pervades the Rules of Court and in the interest of justice,16we
will treat the petition as having been filed under Rule 45.
Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of. ― Where a negotiable instrument is materially altered without the assent of all parties
liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent
indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may
enforce payment thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. ― Any alteration which changes:
or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the
The question on whether an alteration of the serial number of a check is a material alteration under the Negotiable Instruments Law is
already a settled matter. In Philippine National Bank v. Court of Appeals, this Court ruled that the alteration on the serial number of a
check is not a material alteration. Thus:
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the Negotiable Instrument[s] Law.
Section 1. ― Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements:
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent alteration
(generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger)
will not avoid the instrument, but the holder may enforce it only according to its original tenor.
xxxx
The case at the bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can
readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered.
The intended payee was the same. The sum of money due to the payee remained the same. x x x
xxxx
The check’s serial number is not the sole indication of its origin. As succinctly found by the Court of Appeals, the name of the
government agency which issued the subject check was prominently printed therein. The check’s issuer was therefore sufficiently
identified, rendering the referral to the serial number redundant and inconsequential. x x x
xxxx
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an
immaterial or innocent one.17
Likewise, in the present case the alterations of the serial numbers do not constitute material alterations on the checks.
Incidentally, we agree with the petitioner’s observation that the check in the PNB case appears to belong to the same batch of checks
as in the present case. The check in the PNB case was also issued by the Ministry of Education and Culture. It was also drawn against
PNB, respondent in this case. The serial number of the check in the PNB case is 7-3666-223-3 and it was issued on 7 August 1981.
Respondent filed its motion for reconsideration of the 10 October 1991 Decision on 6 November 1991. Respondent’s motion for
reconsideration states that it received a copy of the 10 October 1991 Decision on 22 October 1991.18 Thus, it appears that the motion
for reconsideration was filed on time. However, the Registry Return Receipt shows that counsel for respondent or his agent received a
copy of the 10 October 1991 Decision on 16 October 1991,19 not on 22 October 1991 as respondent claimed. Hence, the Court of
Appeals is correct when it noted that the motion for reconsideration was filed late. Despite its late filing, the Court of Appeals resolved
There are instances when rules of procedure are relaxed in the interest of justice. However, in this case, respondent did not proffer any
explanation for the late filing of the motion for reconsideration. Instead, there was a deliberate attempt to deceive the Court of Appeals
by claiming that the copy of the 10 October 1991 Decision was received on 22 October 1991 instead of on 16 October 1991. We find
no justification for the posture taken by the Court of Appeals in admitting the motion for reconsideration. Thus, the late filing of the
motion for reconsideration rendered the 10 October 1991 Decision final and executory.
The Court will not rule on the proper application of Central Bank Circular No. 580 in this case. Since there were no material alterations
on the checks, respondent as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank.21 Thus,
respondent is liable to petitioner for the value of the checks, with legal interest from the time of filing of the complaint on 16 March 1982
until full payment.22 Further, considering that respondent’s motion for reconsideration was filed late, the 10 October 1991 Decision,
which held respondent liable for the value of the checks amounting to P1,447,920, had become final and executory.
WHEREFORE, we SET ASIDE the 9 August 1994 Amended Decision and the 16 July 1997 Resolution of the Court of Appeals. We
rule that respondent Philippine National Bank is liable to petitioner International Corporate Bank, Inc. for the value of the checks
amounting to P1,447,920, with legal interest from 16 March 1982 until full payment. Costs against respondent.
SO ORDERED.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank and Trust Company (Metrobank) seeking to
reverse and set aside the Decision1 of the Court of Appeals dated 8 March 2002 and its Resolution dated 26 July 2002 affirming the
Decision of the Regional Trial Court (RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive portion of the Court of
Appeals Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with modifications (sic) that the awards for exemplary
damages and attorney’s fees are hereby deleted.
Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a current account with Metrobank Pasong
Tamo Branch.3
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH" and postdated on 24 November 1994 in
the amount of One Thousand Pesos (P1,000.00). The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo
Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission.4
Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for
appropriate clearing. After the entries thereon were examined, including the availability of funds and the authenticity of the signature of
the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules.
On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to make some transaction when he was
asked by a bank personnel if Cabilzo had issued a check in the amount of P91,000.00 to which the former replied in the negative. On
the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount ofP91,000.00
and requested that the questioned check be returned to him for verification, to which Metrobank complied.5
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount
of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to 14 November 1994.6
Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank, however, refused reasoning
that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still
failed to re-credit the amount of P91,000.00 to Cabilzo’s account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand8 to Metrobank for the payment of P90,000.00, after deducting the
original value of the check in the amount of P1,000.00. Such written demand notwithstanding, Metrobank still failed or refused to
comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to
his claim for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor.9
For its part, Metrobank countered that upon the receipt of the said check through the PCHC on 14 November 1994, it examined the
genuineness and the authenticity of the drawer’s signature appearing thereon and the technical entries on the check including the
amount in figures and in words to determine if there were alterations, erasures, superimpositions or intercalations thereon, but none
was noted. After verifying the authenticity and propriety of the aforesaid entries, including the indorsement of the collecting bank located
Anent thereto, Metrobank claimed that as a collecting bank and the last indorser, Westmont Bank should be held liable for the value of
the check. Westmont Bank indorsed the check as the an unqualified indorser, by virtue of which it assumed the liability of a general
indorser, and thus, among others, warranted that the instrument is genuine and in all respect what it purports to be.
In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the check, which, made the fraudulent
insertion of the amount and figures thereon, possible. On account of his negligence in the preparation and issuance of the check, which
according to Metrobank, was the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by virtue of the doctrine of
equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which represents the cost of litigation and
attorney’s fees, for allegedly bringing a frivolous and baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party Complaint12 against Westmont Bank on account of its unqualified indorsement
stamped at the dorsal side of the check which the former relied upon in clearing what turned out to be a materially altered check.
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by Westmont bank because another case involving the
same cause of action was pending before a different court. The said case arose from an action for reimbursement filed by Metrobank
before the Arbitration Committee of the PCHC against Westmont Bank, and now the subject of a Petition for Review before the RTC of
Manila, Branch 19.
In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-Party Complaint on the ground of litis
pendentia.
On 4 September 1998, the RTC rendered a Decision15 in favor of Cabilzo and thereby ordered Metrobank to pay the sum
of P90,000.00, the amount of the check. In stressing the fiduciary nature of the relationship between the bank and its clients and the
negligence of the drawee bank in failing to detect an apparent alteration on the check, the trial court ordered for the payment of
exemplary damages, attorney’s fees and cost of litigation. The dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust Company to pay plaintiff Renato Cabilzo the sum
of P90,000 with legal interest of 6 percent per annum from November 16, 1994 until payment is made plus P20,000 attorney’s fees,
exemplary damages of P50,000, and costs of the suit.16
Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its previous argument that as the last indorser,
Westmont Bank shall bear the loss occasioned by the fraudulent alteration of the check. Elaborating, Metrobank maintained that by
reason of its unqualified indorsement, Westmont Bank warranted that the check in question is genuine, valid and subsisting and that
upon presentment the check shall be accepted according to its tenor.
Even more, Metrobank argued that in clearing the check, it was not remiss in the performance of its duty as the drawee bank, but
rather, it exercised the highest degree of diligence in accordance with the generally accepted banking practice. It further insisted that
the entries in the check were regular and authentic and alteration could not be determined even upon close examination.
In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with modification the Decision of the court a quo, similarly finding
Metrobank liable for the amount of the check, without prejudice, however, to the outcome of the case between Metrobank and
Westmont Bank which was pending before another tribunal. The decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with the modifications (sic) that the awards for exemplary
damages and attorney’s fees are hereby deleted.18
Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by the appellate court in its Resolution19 issued
on 26 July 2002, for lack of merit.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, AS DRAWEE BANK, LIABLE FOR THE
ALTERATIONS ON THE SUBJECT CHECK BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.
Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements:
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
Also pertinent is the following provision in the Negotiable Instrument Law which states:
Section 125. What constitutes material alteration. – Any alteration which changes:
Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the
instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was increased from P1,000.00 toP91,000.00 and the date was changed
from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among those enumerated under Section 1
and 125, namely, the sum of money payable and the date of the check, the instant controversy therefore squarely falls within the
purview of material alteration.
Now, having laid the premise that the present petition is a case of material alteration, it is now necessary for us to determine the effect
of a materially altered instrument, as well as the rights and obligations of the parties thereunder. The following provision of the
Negotiable Instrument Law will shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially altered without the assent of all parties
liable thereon, it is avoided, except as against a party who has himself made, authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may
enforce the payment thereof according to its original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or
implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which could
have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance
of the check, and there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the
amount in words and figures in order to forewarn the subsequent holders that nothing follows before and after the amount indicated
other than the one specified between the asterisks.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his rights under the
doctrine of equitable estoppel when the facts on record are bare of evidence to support such conclusion. The doctrine of equitable
estoppel states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must
be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury.21 Metrobank’s reliance on
this dictum, is misplaced. For one, Metrobank’s representation that it is an innocent party is flimsy and evidently, misleading. At the
same time, Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause22 of the loss in the
absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it.23
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary businessman who, in order to facilitate
his business transactions, entrusted his money with a bank, not knowing that the latter would yield a substantial amount of his deposit
to fraud, for which Cabilzo can never be faulted.
We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the country’s
economy in general. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business
and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence.24
Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of his choice, knowing that they will be
safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking
account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for a businessman
like the respondent, the bank is a trusted and active associate that can help in the running of his affairs, not only in the form of loans
when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.25
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees
fit, confident that the bank will deliver it as and to whomever he directs.26
The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The
appropriate degree of diligence required of a bank must be a high degree of diligence, if not the utmost diligence.27
In the present case, it is obvious that Metrobank was remiss in that duty and violated that relationship. As observed by the Court of
Appeals, there are material alterations on the check that are visible to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a white figure in the shape of the number "2". The appellant’s employees who
examined the said check should have likewise been put on guard as to why at the end of the amount in words, i.e., after the word
"ONLY", there are 4 asterisks, while at the beginning of the line or before said phrase, there is none, even as 4 asterisks have been
placed before and after the word "CASH" in the space for payee. In addition, the 4 asterisks before the words "ONE THOUSAND
PESOS ONLY" have noticeably been erased with typing correction paper, leaving white marks, over which the word "NINETY" was
superimposed. The same can be said of the numeral "9" in the amount "91,000", which is superimposed over a whitish mark, obviously
an erasure, in lieu of the asterisk which was deleted to insert the said figure. The appellant’s employees should have again noticed why
only 2 asterisks were placed before the amount in figures, while 3 asterisks were placed after such amount. The word "NINETY" is also
typed differently and with a lighter ink, when compared with the words "ONE THOUSAND PESOS ONLY." The letters of the word
"NINETY" are likewise a little bigger when compared with the letters of the words "ONE THOUSAND PESOS ONLY".28
Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of even an ordinary person.
This negligence was exacerbated by the fact that, as found by the trial court, the check in question was examined by the cash
custodian whose functions do not include the examinations of checks indorsed for payment against drawer’s accounts.29 Obviously,
the employee allowed by Metrobank to examine the check was not verse and competent to handle such duty. These factual findings of
the trial court is conclusive upon this court especially when such findings was affirmed the appellate court.30
Apropos thereto, we need to reiterate that by the very nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far better than those of ordinary clerks and employees. Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees.31
When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client’s
account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the
original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the
right to deduct the erroneous payment it made from the drawer’s account which it was expected to treat with utmost fidelity.
Metrobank vigorously asserts that the entries in the check were carefully examined: The date of the instrument, the amount in words
and figures, as well as the drawer’s signature, which after verification, were found to be proper and authentic and was thus cleared. We
are not persuaded. Metrobank’s negligence consisted in the omission of that degree of diligence required of a bank owing to the
fiduciary nature of its relationship with its client. Article 1173 of the Civil Code provides:
The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. x x x.
Beyond question, Metrobank failed to comply with the degree required by the nature of its business as provided by law and
jurisprudence. If indeed it was not remiss in its obligation, then it would be inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical expertise in the intricacies of the banking business. This Court is not completely unaware
of banks’ practices of employing devices and techniques in order to detect forgeries, insertions, intercalations, superimpositions and
alterations in checks and other negotiable instruments so as to safeguard their authenticity and negotiability. Metrobank cannot now
feign ignorance nor claim diligence; neither can it point its finger at the collecting bank, in order to evade liability.
Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the loss. Without ruling on the matter
between the drawee bank and the collecting bank, which is already under the jurisdiction of another tribunal, we find that Metrobank
cannot rely on such indorsement, in clearing the questioned check. The corollary liability of such indorsement, if any, is separate and
independent from the liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Bank’s indorsement is clearly inconsistent, if not totally offensive to the dictum that
being impressed with public interest, banks should exercise the highest degree of diligence, if not utmost diligence in dealing with the
accounts of its own clients. It owes the highest degree fidelity to its clients and should not therefore lightly rely on the judgment of other
banks on occasions where its clients money were involve, no matter how small or substantial the amount at stake.
Metrobank’s contention that it relied on the strength of collecting bank’s indorsement may be merely a lame excuse to evade liability, or
may be indeed an actual banking practice. In either case, such act constitutes a deplorable banking practice and could not be allowed
by this Court bearing in mind that the confidence of public in general is of paramount importance in banking business.
What is even more deplorable is that, having been informed of the alteration, Metrobank did not immediately re-credit the amount that
was erroneously debited from Cabilzo’s account but permitted a full blown litigation to push through, to the prejudice of its client.
Anyway, Metrobank is not left with no recourse for it can still run after the one who made the alteration or with the collecting bank, which
it had already done. It bears repeating that the records are bare of evidence to prove that Cabilzo was negligent. We find no justifiable
reason therefore why Metrobank did not immediately reimburse his account. Such ineptness comes within the concept of wanton
manner contemplated under the Civil Code which warrants the imposition of exemplary damages, "by way of example or correction for
the public good," in the words of the law. It is expected that this ruling will serve as a stern warning in order to deter the repetition of
similar acts of negligence, lest the confidence of the public in the banking system be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8 March 2002 and the Resolution dated 26
July 2002 of the Court of Appeals are AFFIRMED with modification that exemplary damages in the amount of P50,000.00 be awarded.
Costs against the petitioner.
SO ORDERED.
NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . .
In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall pay ten
percent (10%) of the amount due on the note as attorney's fees, which in no case shall be less than P100.00 exclusive of
all costs and fees allowed by law as stipulated in the contract of real estate mortgage. Demand and Dishonor Waived.
Holder may accept partial payment reserving his right of recourse again each and all indorsers.
Upon the filing of the complaint the defendants presented their answer in which they allege that the co-maker the promissory note Don
Vicente L. Legarda died on February 24, 1946 and his estate is in the process of judicial determination in Special Proceedings No.
29060 of the Court of First Instance of Manila. On the basis of this allegation it is prayed, as a special defense, that the estate of said
deceased Vicente L. Legarda be included as party-defendant. The court in its decision ruled that the inclusion of said defendant is
unnecessary and immaterial, in accordance with the provisions of Article 1216 of the Deny Civil Code and section 17 (g) of the
Negotiable Instruments Law.
A motion to reconsider this decision was denied and thereupon defendants presented a petition for relief, asking that the effects of the
judgment be suspended for the reason that the deceased Vicente L. Legarda should have been included as a party-defendant and his
liability should be determined in pursuance of the provisions of the promissory note. This motion for relief was also denied, hence
defendant appealed to this Court.
Section 17 (g) of the Negotiable Instruments Law provides as follows:
SEC. 17. Construction where instrument is ambiguous. — Where the language of the instrument is ambiguous or there are omissions
therein, the following rules of construction apply:
xxx xxx xxx
(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
And Article 1216 of the Civil Code of the Philippines also provides as follows:
ART. 1216. The creditor may proceed against any one of the solidary debtors or some of them simultaneously. The demand made
against one of them shall not be an obstacle to those which may subsequently be directed against the others so long as the debt has
not been fully collected.
In view of the above quoted provisions, and as the promissory note was executed jointly and severally by the same parties, namely,
Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the promissory note had the right to hold
DECISION
PUNO, J.:
Petitioners, Spouses Evangelista (“Petitioners”), are before this Court on a Petition for Review onCertiorari under Rule 45 of the
Revised Rules of Court, assailing the decision of the Court of Appeals dismissing their petition.
Petitioners filed a complaint[1] for annulment of titles against respondents, Mercator Finance Corporation, Lydia P. Salazar,
Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. Petitioners claimed being the registered owners
of five (5) parcels of land[2]contained in the Real Estate Mortgage[3] executed by them and Embassy Farms, Inc. (“Embassy Farms”).
They alleged that they executed the Real Estate Mortgage in favor of Mercator Financing Corporation (“Mercator”) only as officers of
Embassy Farms. They did not receive the proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms.
Thus, they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or
credit accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage is void.[4] With the
void mortgage, they assailed the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in
the public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same parcels of land to respondent
Lydia P. Salazar (“Salazar”), and the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent
Lamecs Realty & Development Corporation (“Lamecs”).
Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that “on February 16,
1982, plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation ‘for and in consideration of certain loans,
and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to
EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) PESOS, Philippine Currency
and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x
x.’”[5] It contended that since petitioners and Embassy Farms signed the promissory note[6] as co-makers, aside from the Continuing
Suretyship Agreement[7] subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding promissory
notes[8] restructuring the loan, then petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the
obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.
Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the validity of
the title of Mercator. Lamecs admitted the prior ownership of petitioners of the subject parcels of land, but alleged that they are the
present registered owner. Both respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse of
almost ten (10) years from the foreclosure of the property and the subsequent sales that they made their claim. Thus, Salazar and
Lamecs averred that petitioners are in estoppel and guilty of laches.[9]
During pre-trial, the parties agreed on the following issues:
a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant Mercator Finance Corp. is null
and void;
b. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of land to satisfy the
indebtedness of Embassy Farms, Inc. is (sic) null and void;
c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia Salazar and that executed by the
latter in favor of defendant Lamecs Realty and Development Corp. are null and void;
d. Whether or not the parties are entitled to damages.[10]
After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages, there is no factual
issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note, the
continuing suretyship agreement and the subsequent promissory notes restructuring the loan, hence, there is no genuine issue
regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the complaint must be
dismissed.[11]
Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue, there is
a need for a full-blown trial.[12]
The RTC granted the motion for summary judgment and dismissed the complaint. It held:
A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in view of the phrase “jointly and
severally.” On the promissory note appears (sic) the signatures of Eduardo B. Evangelista, Epifania C. Evangelista and another
signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is crystal clear then that the plaintiffs-spouses signed the
promissory note not only as officers of Embassy Farms, Inc. but in their personal capacity as well(.) Plaintiffs(,) by affixing their
signatures thereon in a dual capacity have bound themselves as solidary debtor(s) with Embassy Farms, Inc. to pay defendant
Dela Rama is a practising lawyer whose services were retained by Pineda for the purpose of making representations with the chairman
and general manager of the National Rice and Corn Administration (NARIC) to stop or delay the institution of criminal charges against
Pineda who allegedly misappropriated 11,000 cavans of palay deposited at his ricemill in Concepcion, Tarlac. The NARIC general
manager was allegedly an intimate friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a big hacienda in Mindoro and, therefore, borrowed the
P9,300.00 subject of his complaint for collection. In addition to filling the suit to collect the loan evidenced by the matured promissory
note, Dela Rama also sued to collect P5,000.00 attorney's fees for legal services rendered as Pineda's counsel in the case being
investigated by NARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of petitioner Pineda. The court believed the evidence of
Pineda that he signed the promissory note for P9,300.00 only because Dela Rama had told him that this amount had already been
advanced to grease the palms of the 'Chairman and General Manager of NARIC in order to save Pineda from criminal prosecution.
The court stated:
xxx xxx xxx
... The Court, after hearing the testimonies of the witness and examining the exhibits in question, finds that Exhibit A proves that the
defendant himself did not receive the amount stated therein, because according to said exhibit that amount was advanced by the
plaintiff in connection with the defendant's case, entirely contradicting the testimony of the plaintiff himself, who stated in open Court
that he gave the amount in cash in two installments to the defendant. The Court is more inclined to believe the contents of Exhibit A,
than the testimony of the plaintiff. On this particular matter, the defendant has established that the plaintiff made him believe that he
was giving money to the authorities of the NARIC to grease their palms to suspend the prosecution of the defendant, but the defendant,
upon inquiry, found out that none of the authorities has received that amount, and there was no case that was ever contemplated to be
filed against him. It clearly follows, therefore, that the amount involved in this Exhibit A was imaginary. It was given to the defendant, not
to somebody else. The purpose for which the amount was intended was illegal.
However, the Court believes that plaintiff was able to get from the defendant the amount of P3,000.00 on October 7, as shown by the
check issued by the defendant, Exhibit 2, and the letter, Exhibit 7, was antedated October 6, as per plaintiff's wishes to show that
defendant was indebted for P3,000.00 when, as a matter of fact, such amount was produced in order to grease the palms of the NARIC
officials for withholding an imaginary criminal case. Such amount was never given to such officials nor was there any contemplated
case against the defendant. The purpose for which such amount was intended was indeed illegal.
The trial court rendered judgment as follows:
WHEREFORE, the Court finds by a preponderance of evidence that the amount of P9,300.00 evidenced by Exhibit A was not received
by the defendant, nor given to any party for the defendant's benefit.Consequently, the plaintiff has no right to recover said amount. The
amount of P3,000.00 was given by the defendant to grease the palms of the NARIC officials. The purpose was illegal, null and void.
Besides, it was not given at all, nor was it true that there was a contemplated case against the defendant. Such amount should be
returned to the defendant. The services rendered by the plaintiff to the defendant is worth only P400.00, taking into consideration that
the plaintiff received an air-conditioner and six sacks of rice. The court orders that the plaintiff should return to the defendant the
amount of P3,000.00, minus P400.00 plus costs.
The Court of Appeals reversed the decision of the trial court on a finding that Pineda, being a person of more than average intelligence,
astute in business, and wise in the ways of men would not "sign any document or paper with his name unless he was fully aware of the
contents and important thereof, knowing as he must have known that the language and practices of business and of trade and
commerce call to account every careless or thoughtless word or deed."
The appellate court stated:
No rule is more fundamental and by men of honor and goodwill more dearly cherished, than that which declares that obligations arising
from contracts have the force of law between the contracting parties and should be complied with in good faith. Corollary to and in
furtherance of this principle, Section 24 of the Negotiable instruments Law (Act No. 2031) explicitly provides that every negotiable
instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon
to have become a party thereto for value.
We find this petition meritorious.
FELICITO G. SANSON, CELEDONIA SANSON-SAQUIN, ANGELES A. MONTINOLA, EDUARDO A. MONTINOLA, JR., petitioners-
appellants,
vs.
HONORABLE COURT OF APPEALS, FOURTH DIVISION and MELECIA T. SY, as Administratrix of the Intestate Estate of the
Late Juan Bon Fing Sy, respondents-appellees.
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of Appeals Decision of May
31, 1996 and Resolution of December 9, 1996.
On February 7, 1990, herein petitioner-appellant Felicito G. Sanson (Sanson), in his capacity as creditor, filed before the Regional Trial
Court (RTC) of Iloilo City a petition, docketed as Special Proceedings No. 4497, for the settlement of the estate of Juan Bon Fing Sy
(the deceased) who died on January 10, 1990. Sanson claimed that the deceased was indebted to him in the amount ofP603,000.00
and to his sister Celedonia Sanson-Saquin (Celedonia) in the amount ofP360,000.00.1
Petitioners-appellants Eduardo Montinola, Jr. and his mother Angeles Montinola (Angeles) later filed separate claims against the estate,
alleging that the deceased owed them P50,000.00 andP150,000.00, respectively.2
By Order of February 12, 1991, Branch 28 of the Iloilo RTC to which the petition was raffled, appointed Melecia T. Sy, surviving spouse
of the deceased, as administratrix of his estate, following which she was issued letters of administration.3
During the hearing of the claims against the estate, Sanson, Celedonia, and Jade Montinola, wife of claimant Eduardo Montinola, Jr.,
testified on the transactions that gave rise thereto, over the objection of the administratrix who invoked Section 23, Rule 130 of the
Revised Rules of Court otherwise known as the Dead Man’s Statute which reads:
SEC. 23. Disqualification by reason of death or insanity of adverse party.—Parties or assignors of parties to a case, or persons in
whose behalf a case is prosecuted, against an executor or administrator or other representative of a deceased person, or against a
person of unsound mind, upon a claim or demand against the estate of such deceased person or against such person of unsound
mind, cannot testify as to any matter of fact occurring before the death of such deceased person or before such person became of
unsound mind. (Emphasis supplied)
Sanson, in support of the claim of his sister Celedonia, testified that she had a transaction with the deceased which is evidenced by six
checks4 issued by him before his death; before the deceased died, Celedonia tried to enforce settlement of the checks from his (the
deceased’s) son Jerry who told her that his father would settle them once he got well but he never did; and after the death of the
deceased, Celedonia presented the checks to the bank for payment but were dishonored5 due to the closure of his account.6
Celedonia, in support of the claim of her brother Sanson, testified that she knew that the deceased issued five checks7 to Sanson in
settlement of a debt; and after the death of the deceased, Sanson presented the checks to the bank for payment but were returned due
to the closure of his account.8
Jade, in support of the claims of her husband Eduardo Montinola, Jr. and mother-in-law Angeles, testified that on separate occasions,
the deceased borrowed P50,000 and P150,000 from her husband and mother-in-law, respectively, as shown by three checks issued by
the deceased,9 two to Angeles and the other10 to Eduardo Montinola, Jr.; before the deceased died or sometime in August 1989, they
advised him that they would be depositing the checks, but he told them not to as he would pay them cash, but he never did; and after
the deceased died on January 10, 1990, they deposited the checks but were dishonored as the account against which they were drawn
was closed,11 hence, their legal counsel sent a demand letter12 dated February 6, 1990 addressed to the deceased’s heirs Melicia,
James, Mini and Jerry Sy, and Symmels I & II but the checks have remained unsettled.13
The administratrix, denying having any knowledge or information sufficient to form a belief as to the truth of the claims, nevertheless
alleged that if they ever existed, they had been paid and extinguished, are usurious and illegal and are, in any event, barred by
prescription.14 And she objected to the admission of the checks and check return slips-exhibits offered in evidence by the claimants
upon the ground that the witnesses who testified thereon are disqualified under the Dead Man’s Statute.
Specifically with respect to the checks-exhibits identified by Jade, the administratrix asserted that they are inadmissible because Jade is
the daughter-in-law of claimant Angeles and wife of claimant Eduardo Montinola, Jr., hence, she is covered by the above-said rule on
disqualification.
After the claimants rested their case, the administratrix filed four separate manifestations informing the trial court that she was
dispensing with the presentation of evidence against their claims.16
Finding that the Dead Man’s Statute does not apply to the witnesses who testified in support of the subject claims against the estate,
the trial court issued an Order of December 8, 1993,17 the dispositive portion of which reads:
WHEREFORE, Judicial Administratrix Melecia T. Sy, is hereby ordered, to pay, in due course of administration, creditors-claimants
Felicito G. Sanson, in the amount of P603,500.00; Celedonia S. Saquin, in the amount of P315,000.00;18 Angeles A. Montinola, in the
amount of P150,000.00 and Eduardo Montinola, Jr., in the amount of P50,000.00, from the assets and/or properties of the above-
entitled intestate estate.
I.
THE LOWER COURT ERRED IN NOT DISMISSING THE CLAIM[S] FOR FAILURE TO PAY THE FILING FEES THEREON
II.
THE LOWER COURT ERRED IN NOT DISMISSING THE CLAIM[S] BECAUSE [THEY ARE] ALREADY BARRED BY THE LAW OF
LIMITATIONS OR STATUTE OF NON-CLAIMS
III.
THE LOWER COURT ERRED IN NOT HOLDING THAT CLAIMANT[S’] EVIDENCE OF THE CLAIM IS INCOMPETENT UNDER THE
DEAD MAN’S STATUTE, AND INADMISSIBLE
IV.
the Court of Appeals set aside the December 8, 1993 Order of the trial court, by Decision of May 31, 1996, disposing as follows:
WHEREFORE, the order appealed from is hereby set aside and another order is entereddismissing the claims of:
4. Eduardo Montinola, Jr., in the amount of P50,000.00 against the estate of the deceased JUAN BON FING SY.
No pronouncement as to costs.
The claimants’ Motion for Reconsideration21 of the Court of Appeals decision having been denied by Resolution of December 9,
1996,22 they filed the present petition anchored on the following assigned errors:
RESPONDENT COURT OF APPEALS, 4TH DIVISION, ERRED IN FINDING THAT THE TESTIMONY OF JADE MONTINOLA IS
INSUFFICIENT TO PROVE THE CLAIMS OF CLAIMANTS ANGELES A. MONTINOLA AND EDUARDO A. MONTINOLA, JR..
With respect to the first assigned error, petitioners argue that since the administratrix did not deny the testimony of Jade nor present
any evidence to controvert it, and neither did she deny the execution and genuineness of the checks issued by the deceased (as well
as the check return slips issued by the clearing bank), it was error for the Court of Appeals to find the evidence of the Montinolas
insufficient to prove their claims.
The administratrix counters that the due execution and authenticity of the checks-exhibits of the Montinolas were not duly proven since
Jade did not categorically state that she saw the filling up and signing of the checks by the deceased, hence, her testimony is self-
serving; besides, as Jade had identical and unitary interest with her husband and mother-in-law, her testimony was a circumvention of
the Dead Man’s Statute.24
The administratrix’s counter-argument does not lie. Relationship to a party has never been recognized as an adverse factor in
determining either the credibility of the witness or—subject only to well recognized exceptions none of which is here present—the
admissibility of the testimony. At most, closeness of relationship to a party, or bias, may indicate the need for a little more caution in the
assessment of a witness’ testimony but is not necessarily a negative element which should be taken as diminishing the credit otherwise
accorded to it.25
Jade’s testimony on the genuineness of the deceased’s signature on the checks-exhibits of the Montinolas is clear:
xxx
Q: Showing to you this check dated July 16, 1989, Far East Bank and Trust Company Check No. 84262, in the amount of
P100,000.00, is this the check you are referring to?
A: Yes, sir.
Q: There appears a signature in the face of the check. Whose signature is this?
A: Because he signed this check I was . . . I was present when he signed this check.
xxx
Q: Showing to you this check dated September 8, 1989, is this the check you are referring to?
A: Yes, sir.
xxx
Q: Showing to you this Far East Bank and Trust Company Check No. 84262 dated July 6, 1989, in the amount of P50,000.00, in
the name of Eduardo Montinola, are you referring to this check?
A: Yes, sir.
The genuineness of the deceased’s signature having been shown, he is prima facie presumed to have become a party to the check for
value, following Section 24 of the Negotiable Instruments Law which reads:
Section 24. Presumption of Consideration. – Every negotiable instrument is deemedprima facie to have been issued for a
valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.
(Underscoring and italics in the original; emphasis supplied),
Since, with respect to the checks issued to the Montinolas, the prima facie presumption was not rebutted or contradicted by the
administratrix who expressly manifested that she was dispensing with the presentation of evidence against their claims, it has become
conclusive.
As for the administratrix’s invocation of the Dead Man’s Statute, the same does not likewise lie. The rule renders incompetent: 1)
parties to a case; 2) their assignors; or 3) persons in whose behalf a case is prosecuted.
xxx
The rule is exclusive and cannot be construed to extend its scope by implication so as to disqualify persons not mentioned
therein. Mere witnesses who are not included in the above enumeration are not prohibited from testifying as to a conversation or
transaction between the deceased and a third person, if he took no active part therein.
Jade is not a party to the case. Neither is she an assignor nor a person in whose behalf the case is being prosecuted. She testified as a
witness to the transaction. In transactions similar to those involved in the case at bar, the witnesses are commonly family members or
relatives of the parties. Should their testimonies be excluded due to their apparent interest as a result of their relationship to the parties,
there would be a dearth of evidence to prove the transactions. In any event, as will be discussed later, independently of the testimony of
Jade, the claims of the Montinolas would still prosper on the basis of their documentary evidence—the checks.
As to the second assigned error, petitioners argue that the testimonies of Sanson and Celedonia as witnesses to each other’s claim
against the deceased are not covered by the Dead Man’s Statute;28besides, the administratrix waived the application of the law when
she cross-examined them.
The administratrix, on the other hand, cites the ruling of the Court of Appeals in its decision on review, the pertinent portion of which
reads:
The more logical interpretation is to prohibit parties to a case, with like interest, from testifying in each other’s favor as to acts occurring
prior to the death of the deceased.
Since the law disqualifies parties to a case or assignors to a case without distinguishing between testimony in his own behalf and that in
behalf of others, he should be disqualified from testifying for his co-parties. The law speaks of "parties or assignors of parties to a case."
Apparently, the testimonies of Sanson and Saquin on each other’s behalf, as co-parties to the same case, falls under the prohibition.
(Citation omitted; underscoring in the original and emphasis supplied)
But Sanson’s and Celedonia’s claims against the same estate arose from separate transactions. Sanson is a third party with respect to
Celedonia’s claim. And Celedonia is a third party with respect to Sanson’s claim. One is not thus disqualified to testify on the other’s
transaction.
In any event, what the Dead Man’s Statute proscribes is the admission of testimonial evidence upon a claim which arose before the
death of the deceased. The incompetency is confined to the giving of testimony.29 Since the separate claims of Sanson and Celedonia
are supported by checks-documentary evidence, their claims can be prosecuted on the bases of said checks.
This brings this Court to the matter of the authenticity of the signature of the deceased appearing on the checks issued to Sanson and
Celedonia. By Celedonia’s account, she "knows" the signature of the deceased.
xxx
Q: Showing to you these checks already marked as Exhibit "A" to "E", please go over these checks if you know the signatures of
the late Juan Bon Fing Sy? on these checks?
178 Negotiable Instruments – Consideration (Sec 24 – 29)
A: Yes, sir.
Q: Insofar as the amount that he borrowed from you, he also issued checks?
A: Yes, sir.
A: Yes, sir.
x x x30
xxx
Q: I show you now checks which were already marked as Exhibit "A" to "G-1" – Saquin, please go over this if these are the checks
that you said was issued by the late Juan Bon Fing Sy in favor of your sister?
Q: Do you know the signature of the late Juan Bon Fing Sy?
A: Yes, sir.
Q: And these signatures are the same signatures that you know?
A: Yes, sir.
x x x31
While the foregoing testimonies of the Sanson siblings have not faithfully discharged the quantum of proof under Section 22, Rule 132
of the Revised Rules on Evidence which reads:
Section 22. How genuineness of handwriting proved. – The handwriting of a person may be proved by any witness who believes it to be
the handwriting of such person because he has seen the person write, or has seen writing purporting to be his upon which the witness
has acted or been charged and has thus acquired knowledge of the handwriting of such person. x x x,
not only did the administratrix fail to controvert the same; from a comparison32 with the naked eye of the deceased’s signature
appearing on each of the checks-exhibits of the Montinolas with that of the checks-exhibits of the Sanson siblings all of which checks
were drawn from the same account, they appear to have been affixed by one and the same hand.
In fine, as the claimants-herein petitioners have, by their evidence, substantiated their claims against the estate of the deceased, the
burden of evidence had shifted to the administratrix who, however, expressly opted not to discharge the same when she manifested
that she was dispensing with the presentation of evidence against the claims.
WHEREFORE, the impugned May 31, 1996 Decision of the Court of Appeals is hereby SET ASIDE and another rendered ordering the
intestate estate of the late Juan Bon Fing Sy, through Administratrix Melecia T. Sy, to pay:
GRIÑO-AQUINO, J.:
This is a petition for review on certiorari to set aside the decision dated March 12, 1992, of the Court of Appeals in CA-G.R. CV No.
29475 entitled, "Town Savings and Loan Bank, Inc. vs. Spouses Miguel Hipolito and Alicia N. Hipolito" reversing the decision dated
September 14, 1990 of the Regional Trial Court of Bulacan which declared that the Hipolitos were accommodation parties on the
promissory note and holding them liable to pay Town Savings And Loan Bank the sum of P1,392, 600.00.
On or about May 4, 1983, the Hipolitos applied for, and were granted, a loan in the amount of P700,000.00 with interest of 24% per
annum for which they executed and delivered to Town Savings and Loan Bank (or TSLB) a promissory note with a maturity period of
three (3) years and an acceleration clause upon default in the payment of any amortization, plus a penalty of 36% and 10% attorney's
fees, if the note were referred to an attorney for collection. For failure to keep current their monthly payments on the account, the
obligors were deemed to have defaulted on May 24, 1984. Notices of past due account and demands for payment were sent but
ignored. At the time of the institution of the action on March 12, 1986, the unpaid obligation amounted to P1,114,983.40.
The Hipolitos denied being personally liable on the P700,000.00 promissory note which they executed. The loan was allegedly for the
account of Pilarita H. Reyes, the sister of Miguel Hipolito. She was the real party-in-interest. The Hipolitos, not having received any part
of the loan, were mere guarantors for Pilarita. They allegedly signed the promissory note because they were persuaded to do so by
Joey Santos, President of TSLB. When they received the demand letters, they confronted him but they were told that the Bank had to
observe the formality of sending notices and demand letters. The real purpose was only to pressure Pilarita to comply with her
undertaking.
Insisting that they were mere guarantors, the Hipolitos vehemently protested against being dragged into the litigation as principal
parties. As a result of the unfounded suit, they allegedly incurred actual damages estimated at P200,000.00 and attorney's fees of
P30,000.00.
In a decision dated September 14, 1990, Judge Zotico A. Toleto of the RTC of Malolos, Branch 18, held the respondents (then
defendants) spouses Miguel and Alicia Hipolito, liable as accommodation parties on the promissory note.
The spouses appealed to the Court of Appeals. In a decision dated March 12, 1992, the Court of Appeals found that the Hipolitos did
not accommodate Pilarita but the TSLB, whose lending authority was restricted by the size of its loan portfolio. The Hipolitos were
relieved from any liability to TSLB.
Hence, this petition for review by TSLB.
The lone issue in this case is whether the Hipolitos are liable on the promissory note which they executed in favor of the petitioner.
We hold for the petitioner.
An accommodation party is one who has signed the instrument as marker, drawer, indorser, without receiving value therefor and for the
purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of the taking of the instrument knew him to be only an accommodation party. In lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated party
to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties
thereto because he wants to accommodate another. (The Phil. Bank of Commerce vs. Aruego, 102 SCRA 530, 539, 540.)
In this case, there is no question that the private respondents signed the promissory note in order to enable Pilarita H. Reyes, who is
Miguel Hipolito's sister, to borrow the total sum of P1.4 million from TSLB. As observed by both the trial court and the appellate court,
the actual beneficiary of the loan was Pilarita H. Reyes and no other. The Hipolitos accommodated her by signing a promissory note for
half of the loan that she applied for because TSLB may not lend any single borrower more than the authorized limit of its loan portfilio.
Under Section 29 of the Negotiable Instruments Law, the Hipolitos are liable to the bank on the promissory note that they signed to
accommodate Pilarita.
Respondent appellate court erred in giving credence to Hipolito's allegation that it was the bank's president who induced him to sign the
promissory note so that the bank would not violate the Central Bank's regulation limiting the amount that TSLB could lend out. Besides
being self-serving, Hipolito's testimony was uncorroborated by any other evidence on record, therefore, it should have been received
with extreme caution. The Court is convinced that the intention of respondents Hipolitos in signing the promissory note was not so much
to enable the Bank to grant a loan to Pilarita but for the latter to be able to obtain the full amount of the loan that she needed at the
time.
It is not credible that a Bank would want so much to lend money to a borrower that it would go out of its way to convince another person
(respondent Miguel Hipolito) to accommodate the borrower (Pilarita H. Reyes). In the ordinary course of things, the borrower, Pilarita,
REGALADO, J.:
Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals, promulgated on September 8, 1987, which reversed
the decision of the trial Court 2 dismissing the complaint for consignation filed by therein plaintiff Ricardo S. Santos, Jr.
The parties are substantially agreed on the following facts as found by both lower courts:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales; and the
president of the said corporation was Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in accommodation of his clients, the
spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against Traders Royal Bank, dated June 14, 1980, in the amount of
P45,000.00 (Exh- 'I') payable to defendant Ernestina Crisologo-Jose. Since the check was under the account of Mover Enterprises,
Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at
that time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign
the aforesaid chEck as an alternate story. Plaintiff Ricardo S. Santos, Jr. did sign the check.
It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or quitclaim by said
defendant over a certain property which the Government Service Insurance System (GSIS) agreed to sell to the clients of Atty. Oscar
Benares, the spouses Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of the compromise agreement
with the spouses Ong, the check will be encashed accordingly. However, since the compromise agreement was not approved within the
expected period of time, the aforesaid check for P45,000.00 (Exh. '1') was replaced by Atty. Benares with another Traders Royal Bank
cheek bearing No. 379299 dated August 10, 1980, in the same amount of P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant
Jose. This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant
deposited this replacement check (Exhs. 'A' and '2') with her account at Family Savings Bank, Mayon Branch, it was dishonored for
insufficiency of funds. A subsequent redepositing of the said check was likewise dishonored by the bank for the same reason. Hence,
defendant through counsel was constrained to file a criminal complaint for violation of Batas Pambansa Blg. 22 with the Quezon City
Fiscal's Office against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The investigating Assistant City Fiscal, Alfonso Llamas,
accordingly filed an amended information with the court charging both Oscar Benares and Ricardo S. Santos, Jr., for violation of Batas
Pambansa Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of First Instance of Rizal, Quezon City.
Meanwhile, during the preliminary investigation of the criminal charge against Benares and the plaintiff herein, before Assistant City
Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. CC 160152 for P45,000.00 dated April 10, 1981 to
the defendant Ernestina Crisologo-Jose, the complainant in that criminal case. The defendant refused to receive the cashier's check in
payment of the dishonored check in the amount of P45,000.00. Hence, plaintiff encashed the aforesaid cashier's check and
subsequently deposited said amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' and 'E'). Incidentally, the
cashier's check adverted to above was purchased by Atty. Oscar Z. Benares and given to the plaintiff herein to be applied in payment of
the dishonored check. 3
After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to in Article 1256 of the Civil Code is
applicable to this case," rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. 4
As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived the complaint for consignation,
directing the trial court to give due course thereto.
Hence, the instant petition, the assignment of errors wherein are prefatorily stated and discussed seriatim.
1. Petitioner contends that respondent Court of Appeals erred in holding that private respondent, one of the signatories of the check
issued under the account of Mover Enterprises, Inc., is an accommodation party under the Negotiable Instruments Law and a debtor of
petitioner to the extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private respondent who merely signed the
check in question in a representative capacity, that is, as vice-president of said corporation, hence he is not liable thereon under the
Negotiable Instruments Law.
The pertinent provision of said law referred to provides:
Sec. 29. Liability of accommodation party an accommodation party is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an
accommodation party.
DECISION
PANGANIBAN, J.:
Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by the complete
incompatibility between the old and the new agreements. Petitioner herein fails to show either requirement convincingly; hence, the
summary judgment holding him liable as a joint andsolidary debtor stands.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify theNovember 26, 2001 Decision[2] and
the June 26, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 60521. The appellate court disposed as follows:
“UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it pertains to [Petitioner] Romeo Garcia,
must be, as it hereby is, AFFIRMED, subject to the modification that the award for attorney’s fees and cost of suit is DELETED. The
portion of the judgment that pertains to x x x Eduardo de Jesus isSET ASIDE and VACATED. Accordingly, the case against
x x x Eduardo de Jesus is REMANDED to the court of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas’ evidence
against x x x Eduardo de Jesus.”[4]
The challenged Resolution, on the other hand, denied petitioner’s Motion for Reconsideration.
The Antecedents
The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus. According to the
appellate court, his Answer raised genuinely contentious issues. Moreover, he was still required to present his evidence ex parte. Thus,
respondent was not ipso facto entitled to the RTC judgment, even though De Jesus had been declared in default. The case against the
latter was therefore remanded by the CA to the trial court for the ex parte reception of the former’s evidence.
As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to raise even a single genuine
issue regarding any material fact.
The appellate court ruled that no novation -- express or implied -- had taken place when respondent accepted the check from De
Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by the promissory note jointly and
severally undertaken by petitioner and De Jesus. Respondent’s acceptance of the check did not serve to make De Jesus the sole
debtor because, first, the obligation incurred by him and petitioner was joint and several; and, second, the check -- which had been
intended to extinguish the obligation -- bounced upon its presentment.
Hence, this Petition.[7]
Issues
First Issue:
Novation
Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting thatnovation took place, either
through the substitution of De Jesus as sole debtor or the replacement of the promissory note by the check. Alternatively, the former
argues that the original obligation was extinguished when the latter, who was his co-obligor, “paid” the loan with the check.
The fallacy of the second (alternative) argument is all too apparent. The check could not have extinguished the obligation,
because it bounced upon presentment. By law,[9] the delivery of a check produces the effect of payment only when it is encashed.
We now come to the main issue of whether novation took place.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in
place of the old one, or by subrogating a third person to the rights of the creditor.[10] Article 1293 of the Civil Code defines novation as
follows:
“Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights
mentioned in articles 1236 and 1237.”
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)delegacion. In expromision, the
initiative for the change does not come from -- and may even be made without the knowledge of -- the debtor, since it consists of a third
person’s assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion, the
debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent of
these three persons are necessary.[11] Both modes of substitution by the debtor require the consent of the creditor.[12]
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one
that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with
the amendatory agreement.[13] Whether extinctive or modificatory, novation is made either by changing the object or the principal
conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the
rights of the creditor, an act known as subjective or personal novation.[14] Fornovation to take place, the following requisites must
concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.[15]
Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old
obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point.[16] The test of
incompatibility is whether the two obligations can stand together, each one with its own independent existence.[17]
Applying the foregoing to the instant case, we hold that no novation took place.
The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the
check, or that the check would take the place of the note. There is no incompatibility between the promissory note and the check. As
the CA correctly observed, the check had been issued precisely to answer for the obligation. On the one hand, the note evidences the
loan obligation; and on the other, the check answers for it. Verily, the two can stand together.
Neither could the payment of interests -- which, in petitioner’s view, also constitutes novation[18] -- change the terms and
conditions of the obligation. Such payment was already provided for in the promissory note and, like the check, was totally in accord
with the terms thereof.
Second Issue:
Accommodation Party
Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as such, he was released as
obligor when respondent agreed to extend the term of the obligation.
This reasoning is misplaced, because the note herein is not a negotiable instrument. The note reads:
“PROMISSORY NOTE
“P400,000.00
“RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS, Philippine Currency payable on
or before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City, with interest at the rate of 5% per month or fraction thereof.
“It is understood that our liability under this loan is jointly and severally [sic].
“Done at Quezon City, Metro Manila this 23rd day of December, 1996.”[30]
By its terms, the note was made payable to a specific person rather than to bearer or to order[31] -- a requisite for negotiability
under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NIL’s provisions on the liabilities
and defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and is evidence of such
intangible rights as may have been created by the assent of the parties.[32] The promissory note is thus covered by the general
provisions of the Civil Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of
Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the
former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect,
one of principal and surety -- the accommodation party being the surety.[33] It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promissor and debtor from the beginning. The liability is immediate and direct.
[34]
Third Issue:
Propriety of Summary Judgment
or Judgment on the Pleadings
The next issue illustrates the usual confusion between a judgment on the pleadings and a summary judgment. Under Section 3 of
Rule 35 of the Rules of Court, a summary judgment may be rendered after a summary hearing if the pleadings, supporting affidavits,
192 Negotiable Instruments – Consideration (Sec 24 – 29)
depositions and admissions on file show that (1) except as to the amount of damages, there is no genuine issue regarding any material
fact; and (2) the moving party is entitled to a judgment as a matter of law.
A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings raise only a
legal, not a genuine, issue regarding any material fact.[35] Consequently, facts are asserted in the complaint regarding which there is
yet no admission, disavowal or qualification; or specific denials or affirmative defenses are set forth in the answer, but the issues are
fictitious as shown by the pleadings, depositions or admissions.[36] A summary judgment may be applied for by either a claimant or a
defending party.[37]
On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is proper when an answer fails
to render an issue or otherwise admits the material allegations of the adverse party’s pleading. The essential question is whether there
are issues generated by the pleadings.[38] A judgment on the pleadings may be sought only by a claimant, who is the party seeking to
recover upon a claim, counterclaim or cross-claim; or to obtain a declaratory relief. [39]
Apropos thereto, it must be stressed that the trial court’s judgment against petitioner was correctly treated by the appellate court
as a summary judgment, rather than as a judgment on the pleadings. His Answer[40] apparently raised several issues -- that he signed
the promissory note allegedly as a mere accommodation party, and that the obligation was extinguished by either payment or novation.
However, these are not factual issues requiring trial. We quote with approval the CA’s observations:
“Although Garcia’s [A]nswer tendered some issues, by way of affirmative defenses, the documents submitted by [respondent]
nevertheless clearly showed that the issues so tendered were not valid issues. Firstly, Garcia’s claim that he was merely an
accommodation party is belied by the promissory note that he signed. Nothing in the note indicates that he was only an accommodation
party as he claimed to be. Quite the contrary, the promissory note bears the statement: ‘It is understood that our liability under this loan
is jointly and severally [sic].’ Secondly, his claim that his co-defendant de Jesus already paid the loan by means of a check collapses in
view of the dishonor thereof as shown at the dorsal side of said check.”[41]
From the records, it also appears that petitioner himself moved to submit the case for judgment on the basis of the pleadings and
documents. In a written Manifestation,[42] he stated that “judgment on the pleadings may now be rendered without further evidence,
considering the allegations and admissions of the parties.”[43]
In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had issued against
petitioner.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.