NEGOTIABLE INSTRUMENTS CASES (SET 1)

1.) G.R. No. 72593 April 30, 19 7 CONSOLI!ATE! "L#$OO! IN!USTRIES, INC., %ENR# $EE, &'( RO!OL)O T. *ERGARA, petitioners, vs. I)C LEASING AN! ACCE"TANCE COR"ORATION, respondent

2.) G.R. No. 75502 No+,-.,r 12, 19 7 /ALILI! $OO! IN!USTRIES COR"ORATION, AL)RE!O SALONGA &'( 0OA1UIN MIGUEL !E 0ESUS,petitioners, vs. %ONORABLE INTERME!IATE A""ELLATE COURT &'( "%ILI""INE BAN/ING COR"ORATION

3.) G.R. No. L2 57 5 April 23, 19 9 BENITO S# 4 ONG, petitioner, vs. "EO"LE O) T%E "%ILI""INES "%ILI""INES &'( COURT O) A""EALS, respondents.

3.) G.R. No. L2391

0&'5&r4 30, 1990

"%ILI""INE AIRLINES, INC., petitioner, vs. %ON. COURT O) A""EALS, %ON. 0U!GE RICAR!O !. GALANO, Co5r6 o7 )ir86 I'86&'9, o7 M&'il&, Br&'9: ;III, 0AIME /. !EL ROSARIO, !,p564 S:,ri77, Co5r6 o7 )ir86 I'86&'9,, M&'il&, &'( AMELIA TAN,respondents

5.) G.R. No. 10 555 !,9,-.,r 20, 1993 RAMON TAN, petitioner, vs. T%E %ONORABLE COURT O) A""EALS &'( RI<AL COMMERCIAL BAN/ING COR"ORATION, respondents.

=.) G.R. No. 100290 05', 3, 1993 NORBERTO TIBA0IA, 0R. &'( CARMEN TIBA0IA, petitioners, vs. T%E %ONORABLE COURT O) A""EALS &'( E!EN TAN, respondents.

7.) G.R. No. 93397 M&r9: 3, 1997 TRA!ERS RO#AL BAN/, petitioner, vs. COURT O) A""EALS, )ILRITERS GUARANT# ASSURANCE COR"ORATION &'( CENTRAL BAN/ o7 6:, "%ILI""INES, respondents.

.) G.R. No. 9252 M&4 23, 1993 RAUL SESBRE>O, petitioner, vs. %ON. COURT O) A""EALS, !ELTA MOTORS COR"ORATION AN! "ILI"INAS BAN/, respondents.

9.) G.R. No. L230 23 ),.r5&r4 23, 19 9 GO*ERNMENT SER*ICE INSURANCE S#STEM, petitioner, vs. COURT O) A""EALS &'( MR. ? MRS. ISABELO R. RAC%O, respondents.

10.)G.R. No. 97753 A5@586 10, 1992 CALTE; ("%ILI""INES), INC., petitioner, vs. COURT O) A""EALS &'( SECURIT# BAN/ AN! TRUST COM"AN#, respondents.

Republic of the Philippines SU"REME COURT Manila SECOND DIVISION G.R. No. 72593 April 30, 19 7 CONSOLI!ATE! "L#$OO! IN!USTRIES, INC., %ENR# $EE, &'( RO!OL)O T. *ERGARA, petitioners, vs. I)C LEASING AN! ACCE"TANCE COR"ORATION, respondent. Carpio, Villaraza & Cruz Law Offices for petitioners. Europa, Dacanay & Tolentino for respondent.

GUTIERRE<, 0R., J.: his is a petition for certiorari under Rule !" of the Rules of Court #hich assails on $uestions of la# a decision of the Inter%ediate &ppellate Court in &C'(.R. CV No. )*)+, dated -ul. /0, /,*", as #ell as its resolution dated October /0, /,*", den.in1 the %otion for reconsideration. he antecedent facts culled fro% the petition are as follo#s2 he petitioner is a corporation en1a1ed in the lo11in1 business. It had for its pro1ra% of lo11in1 activities for the .ear /,0* the openin1 of additional roads, and si%ultaneous lo11in1 operations alon1 the route of said roads, in its lo11in1 concession area at 3a1an1a, Mana., and Cara1a, Davao Oriental. 4or this purpose, it needed t#o 567 additional units of tractors. Co1ni8ant of petitioner'corporation9s need and purpose, &tlantic (ulf : Pacific Co%pan. of Manila, throu1h its sister co%pan. and %ar;etin1 ar%, Industrial Products Mar;etin1 5the <seller'assi1nor<7, a corporation dealin1 in tractors and other heav. e$uip%ent business, offered to sell to petitioner' corporation t#o 567 <=sed< &llis Cra#ler ractors, one 5/7 an >DD'6/'3 and the other an >DD'/)'3. In order to ascertain the e?tent of #or; to #hich the tractors #ere to be e?posed, 5t.s.n., Ma. 6*, /,*+, p. !!7 and to deter%ine the capabilit. of the <=sed< tractors bein1 offered, petitioner'corporation re$uested the seller'assi1nor to inspect the @ob site. &fter conductin1 said inspection, the seller'assi1nor assured petitioner'corporation that the <=sed< &llis Cra#ler ractors #hich #ere bein1 offered #ere fit for the @ob, and 1ave the correspondin1 #arrant. of ninet. 5,+7 da.s perfor%ance of the %achines and availabilit. of parts. 5t.s.n., Ma. 6*, /,*+, pp. ",'))7. Aith said assurance and #arrant., and rel.in1 on the seller'assi1nor9s s;ill and @ud1%ent, petitioner' corporation throu1h petitioners Aee and Ver1ara, president and vice' president, respectivel., a1reed to purchase on install%ent said t#o 567 units of <=sed< &llis Cra#ler ractors. It also paid the do#n pa.%ent of #o >undred en housand Pesos 5P6/+,+++.++7. On &pril ", /,0*, the seller'assi1nor issued the sales invoice for the t#o 67 units of tractors 5E?h. <B'&<7. &t the sa%e ti%e, the deed of sale #ith chattel %ort1a1e #ith pro%issor. note #as e?ecuted 5E?h. <6<7. Si%ultaneousl. #ith the e?ecution of the deed of sale #ith chattel %ort1a1e #ith pro%issor. note, the seller'assi1nor, b. %eans of a deed of assi1n%ent 5E e?h. < / <7, assi1ned its ri1hts and interest in the chattel %ort1a1e in favor of the respondent. I%%ediatel. thereafter, the seller'assi1nor delivered said t#o 567 units of <=sed< tractors to the petitioner' corporation9s @ob site and as a1reed, the seller'assi1nor stationed its o#n %echanics to supervise the operations of the %achines. 3arel. fourteen 5/!7 da.s had elapsed after their deliver. #hen one of the tractors bro;e do#n and after another nine 5,7 da.s, the other tractor li;e#ise bro;e do#n 5t.s.n., Ma. 6*, /,*+, pp. )*'),7.

On &pril 6", /,0*, petitioner Rodolfo . Ver1ara for%all. advised the seller'assi1nor of the fact that the tractors bro;e do#n and re$uested for the seller'assi1nor9s usual pro%pt attention under the #arrant. 5E e?h. < " <7. In response to the for%al advice b. petitioner Rodolfo . Ver1ara, E?hibit <",< the seller'assi1nor sent to the @ob site its %echanics to conduct the necessar. repairs 5E?hs. <),< <)'&,< <)'3,< /) C,< </)'C'/,< <)'D,< and <)'E<7, but the tractors did not co%e out to be #hat the. should be after the repairs #ere underta;en because the units #ere no lon1er serviceable 5t. s. n., Ma. 6*, /,*+, p. 0*7. 3ecause of the brea;in1 do#n of the tractors, the road buildin1 and si%ultaneous lo11in1 operations of petitioner'corporation #ere dela.ed and petitioner Ver1ara advised the seller'assi1nor that the pa.%ents of the install%ents as listed in the pro%issor. note #ould li;e#ise be dela.ed until the seller'assi1nor co%pletel. fulfills its obli1ation under its #arrant. 5t.s.n, Ma. 6*, /,*+, p. 0,7. Since the tractors #ere no lon1er serviceable, on &pril 0, /,0,, petitioner Aee as;ed the seller'assi1nor to pull out the units and have the% reconditioned, and thereafter to offer the% for sale. he proceeds #ere to be 1iven to the respondent and the e?cess, if an., to be divided bet#een the seller'assi1nor and petitioner'corporation #hich offered to bear one'half 5/C67 of the reconditionin1 cost 5E e?h. < 0 <7. No response to this letter, E?hibit <0,< #as received b. the petitioner'corporation and despite several follo#'up calls, the seller'assi1nor did nothin1 #ith re1ard to the re$uest, until the co%plaint in this case #as filed b. the respondent a1ainst the petitioners, the corporation, Aee, and Ver1ara. he co%plaint #as filed b. the respondent a1ainst the petitioners for the recover. of the principal su% of One Million Ninet. hree housand Seven >undred Ei1ht. Nine Pesos : 0/C/++ 5P/,+,B,0*,.0/7, accrued interest of One >undred 4ift. One housand Si? >undred Ei1hteen Pesos : *)C/++ 5P/"/,)/*.*)7 as of &u1ust /", /,0,, accruin1 interest thereafter at the rate of t#elve 5/6D7 percent per annu%, attorne.9s fees of #o >undred 4ort. Nine housand Ei1ht. One Pesos : 0/C/++ 5P6!,,+*/.0 /7 and costs of suit. he petitioners filed their a%ended ans#er pra.in1 for the dis%issal of the co%plaint and as;in1 the trial court to order the respondent to pa. the petitioners da%a1es in an a%ount at the sound discretion of the court, #ent. housand Pesos 5P6+,+++.++7 as and for attorne.9s fees, and 4ive housand Pesos 5P",+++.++7 for e?penses of liti1ation. he petitioners li;e#ise pra.ed for such other and further relief as #ould be @ust under the pre%ises. In a decision dated &pril 6+, /,*/, the trial court rendered the follo#in1 @ud1%ent2 A>ERE4ORE, @ud1%ent is hereb. rendered2 /. orderin1 defendants to pa. @ointl. and severall. in their official and personal capacities the principal su% of ONE MIEEION NINE F >REE >O=S&ND SEVEN >=NDRED NINE F EI(> PESOS : 0/C/++ 5P/,+,B,0,*.0/7 #ith accrued interest of ONE >=NDRED 4I4 F ONE >O=S&ND SIG >=NDRED EI(> EEN PESOS : *)C/++ 5P/"/,)/*.,*)7 as of &u1ust /", /,0, and accruin1 interest thereafter at the rate of /6D per annu%H 6. orderin1 defendants to pa. @ointl. and severall. attorne.9s fees e$uivalent to ten percent 5/+D7 of the principal and to pa. the costs of the suit. Defendants9 counterclai% is disallo#ed. 5pp. !"'!), Rollo7 On -une *, /,*/, the trial court issued an order den.in1 the %otion for reconsideration filed b. the petitioners. hus, the petitioners appealed to the Inter%ediate &ppellate Court and assi1ned therein the follo#in1 errors2 I >& >E EOAER CO=R ERRED IN 4INDIN( >& >E SEEEER & E&N IC (=E4 &ND P&CI4IC COMP&NF O4 M&NIE& DID NO &PPROVE DE4END&N S'&PPEEE&N S CE&IM O4 A&RR&N F. II

>& >E EOAER CO=R ERRED IN 4INDIN( >& PE&IN I44' &PPEEEEE IS & >OEDER IN D=E CO=RSE O4 >E PROMISSORF NO E &ND S=ED =NDER S&ID NO E &S >OEDER >EREO4 IN D=E CO=RSE. On -ul. /0, /,*", the Inter%ediate &ppellate Court issued the challen1ed decision affir%in1 in toto the decision of the trial court. he pertinent portions of the decision are as follo#s2 ??? ??? ??? 4ro% the evidence presented b. the parties on the issue of #arrant., Ae are of the considered opinion that aside fro% the fact that no provision of #arrant. appears or is provided in the Deed of Sale of the tractors and even ad%ittin1 that in a contract of sale unless a contrar. intention appears, there is an i%plied #arrant., the defense of breach of #arrant., if there is an., as in this case, does not lie in favor of the appellants and a1ainst the plaintiff'appellee #ho is the assi1nee of the pro%issor. note and a holder of the sa%e in due course. Aarrant. lies in this case onl. bet#een Industrial Products Mar;etin1 and Consolidated Pl.#ood Industries, Inc. he plaintiff'appellant herein upon application b. appellant corporation 1ranted financin1 for the purchase of the $uestioned units of 4iat'&llis Cra#ler, ractors. ??? ??? ??? >oldin1 that breach of #arrant. if an., is not a defense available to appellants either to #ithdra# fro% the contract andCor de%and a proportionate reduction of the price #ith da%a1es in either case 5&rt. /")0, Ne# Civil Code7. Ae no# co%e to the issue as to #hether the plaintiff'appellee is a holder in due course of the pro%issor. note. o be1in #ith, it is be.ond ar1u%ents that the plaintiff'appellee is a financin1 corporation en1a1ed in financin1 and receivable discountin1 e?tendin1 credit facilities to consu%ers and industrial, co%%ercial or a1ricultural enterprises b. discountin1 or factorin1 co%%ercial papers or accounts receivable dul. authori8ed pursuant to R.&. ",*+ other#ise ;no#n as the 4inancin1 &ct. & stud. of the $uestioned pro%issor. note reveals that it is a ne1otiable instru%ent #hich #as discounted or sold to the I4C Eeasin1 and &cceptance Corporation for P*++,+++.++ 5E?h. <&<7 considerin1 the follo#in1. it is in #ritin1 and si1ned b. the %a;erH it contains an unconditional pro%ise to pa. a certain su% of %one. pa.able at a fi?ed or deter%inable future ti%eH it is pa.able to order 5Sec. /, NIE7H the pro%issor. note #as ne1otiated #hen it #as transferred and delivered b. IPM to the appellee and dul. endorsed to the latter 5Sec. B+, NIE7H it #as ta;en in the conditions that the note #as co%plete and re1ular upon its face before the sa%e #as overdue and #ithout notice, that it had been previousl. dishonored and that the note is in 1ood faith and for value #ithout notice of an. infir%it. or defect in the title of IPM 5Sec. "6, NIE7H that I4C Eeasin1 and &cceptance Corporation held the instru%ent free fro% an. defect of title of prior parties and free fro% defenses available to prior parties a%on1 the%selves and %a. enforce pa.%ent of the instru%ent for the full a%ount thereof a1ainst all parties liable thereon 5Sec. "0, NIE7H the appellants en1a1ed that the. #ould pa. the note accordin1 to its tenor, and ad%it the e?istence of the pa.ee IPM and its capacit. to endorse 5Sec. )+, NIE7. In vie# of the essential ele%ents found in the $uestioned pro%issor. note, Ae opine that the sa%e is le1all. and conclusivel. enforceable a1ainst the defendants'appellants. A>ERE4ORE, findin1 the decision appealed fro% accordin1 to la# and evidence, Ae find the appeal #ithout %erit and thus affir% the decision in toto. Aith costs a1ainst the appellants. 5pp. "+'"", Rollo7 he petitioners9 %otion for reconsideration of the decision of -ul. /0, /,*" #as denied b. the Inter%ediate &ppellate Court in its resolution dated October /0, /,*", a cop. of #hich #as received b. the petitioners on October 6/, /,*". >ence, this petition #as filed on the follo#in1 1rounds2 I. ON I S 4&CE, >E PROMISSORF NO E IS CEE&REF NO & NE(O I&3EE INS R=MEN &S DE4INED =NDER >E E&A SINCE I IS NEI >ER P&F&3EE O ORDER NOR O 3E&RER.

II >E RESPONDEN IS NO & >OEDER IN D=E CO=RSE2 & 3ES , I IS & MERE &SSI(NEE O4 >E S=3-EC PROMISSORF NO E. III. SINCE >E INS &N C&SE INVOEVES & NON'NE(O I&3EE INS R=MEN &ND >E R&NS4ER O4 RI(> S A&S >RO=(> & MERE &SSI(NMEN , >E PE I IONERS M&F R&ISE &(&INS >E RESPONDEN &EE DE4ENSES >& &RE &V&IE&3EE O I &S &(&INS >E SEEEER' &SSI(NOR, IND=S RI&E PROD=C S M&RIE IN(. IV. >E PE I IONERS &RE NO EI&3EE 4OR >E P&FMEN O4 >E PROMISSORF NO E 3EC&=SE2 &7 >E SEEEER'&SSI(NOR IS (=IE F O4 3RE&C> O4 A&RR&N F =NDER >E E&AH 37 I4 & &EE, >E RESPONDEN M&F RECOVER ONEF 4ROM >E SEEEER'&SSI(NOR O4 >E PROMISSORF NO E. V. >E &SSI(NMEN O4 >E C>& EE MOR (&(E 3F >E SEEEER' &SSI(NOR IN 4&VOR O4 >E RESPONDEN DOES NO C>&N(E >E N& =RE O4 >E R&NS&C ION 4ROM 3EIN( & S&EE ON INS &EEMEN S O & P=RE EO&N. VI. >E PROMISSORF NO E C&NNO 3E &DMI ED OR =SED IN EVIDENCE IN &NF CO=R 3EC&=SE >E REJ=ISI E DOC=MEN &RF S &MPS >&VE NO 3EEN &44IGED >EREON OR C&NCEEEED. he petitioners pra.ed that @ud1%ent be rendered settin1 aside the decision dated -ul. /0, /,*", as #ell as the resolution dated October /0, /,*" and dis%issin1 the co%plaint but 1rantin1 petitioners9 counterclai%s before the court of ori1in. On the other hand, the respondent corporation in its co%%ent to the petition filed on 4ebruar. 6+, /,*), contended that the petition #as filed out of ti%eH that the pro%issor. note is a ne1otiable instru%ent and respondent a holder in due courseH that respondent is not liable for an. breach of #arrant.H and finall., that the pro%issor. note is ad%issible in evidence. he core issue herein is #hether or not the pro%issor. note in $uestion is a ne1otiable instru%ent so as to bar co%pletel. all the available defenses of the petitioner a1ainst the respondent'assi1nee. Preli%inaril., it %ust be established at the outset that #e consider the instant petition to have been filed on ti%e because the petitioners9 %otion for reconsideration actuall. raised ne# issues. It cannot, therefore, be considered pro' for%al. he petition is i%pressed #ith %erit. 4irst, there is no $uestion that the seller'assi1nor breached its e?press ,+'da. #arrant. because the findin1s of the trial court, adopted b. the respondent appellate court, that </! da.s after deliver., the first tractor bro;e do#n and , da.s, thereafter, the second tractor beca%e inoperable< are sustained b. the records. he petitioner #as clearl. a victi% of a #arrant. not honored b. the %a;er. he Civil Code provides that2 &R . /")/. The vendor shall be responsible for warranty a ainst the hidden defects which the thin sold !ay have, should they render it unfit for the use for which it is intended, or should the. di%inish its fitness for such use to such an e?tent that, had the vendee been a#are thereof, he #ould not have ac$uired it or #ould have 1iven a lo#er price for itH but said vendor shall not be ans#erable for patent defects or those #hich %a.

be visible, or for those #hich are not visible if the vendee is an e?pert #ho, b. reason of his trade or profession, should have ;no#n the%. &R . /")6. "n a sale of oods, there is an i!plied warranty or condition as to the #uality or fitness of the oods, as follows$ 5/7 %here the buyer, e&pressly or by i!plication !a'es 'nown to the seller the particular purpose for which the oods are ac#uired, and it appears that the buyer relies on the sellers s'ill or (ud e (ud !ent )whether he be the rower or !anufacturer or not*, there is an i!plied warranty that the oods shall be reasonably fit for such purpose+ ??? ??? ??? &R . /")!. &n i%plied #arrant. or condition as to the $ualit. or fitness for a particular purpose %a. be anne?ed b. the usa1e of trade. ??? ??? ??? &R . /")). The vendor is responsible to the vendee for any hidden faults or defects in the thin sold even thou h he was not aware thereof. his provision shall not appl. if the contrar. has been stipulated, and the vendor #as not a#are of the hidden faults or defects in the thin1 sold. 5E%phasis supplied7. It is patent then, that the seller'assi1nor is liable for its breach of #arrant. a1ainst the petitioner. his liabilit. as a 1eneral rule, e?tends to the corporation to #ho% it assi1ned its ri1hts and interests unless the assi1nee is a holder in due course of the pro%issor. note in $uestion, assu%in1 the note is ne1otiable, in #hich case the latter9s ri1hts are based on the ne1otiable instru%ent and assu%in1 further that the petitioner9s defenses %a. not prevail a1ainst it. Secondl., it li;e#ise cannot be denied that as soon as the tractors bro;e do#n, the petitioner'corporation notified the seller'assi1nor9s sister co%pan., &( : P, about the brea;do#n based on the seller'assi1nor9s e?press ,+'da. #arrant., #ith #hich the latter co%plied b. sendin1 its %echanics. >o#ever, due to the seller'assi1nor9s dela. and its failure to co%pl. #ith its #arrant., the tractors beca%e totall. unserviceable and useless for the purpose for #hich the. #ere purchased. hirdl., the petitioner'corporation, thereafter, unilaterall. rescinded its contract #ith the seller'assi1nor. &rticles //,/ and /")0 of the Civil Code provide that2 &R . //,/. The power to rescind obli ations is i!plied in reciprocal ones, in case one of the obli1ors should not co%pl. #ith #hat is incu%bent upon hi%. The in(ured party !ay choose between the fulfill!ent and the rescission of the obli ation with the pay!ent of da!a es in either case. >e %a. also see; rescission, even after he has chosen fulfill%ent, if the latter should beco%e i%possible. ??? ??? ??? &R . /")0. In the cases of articles /")/, /")6, /")!, /")" and /")), the vendee !ay elect between withdrawin fro! the contract and de!andin a proportionate reduction of the price, with da!a es in either case. 5E%phasis supplied7 Petitioner, havin1 unilaterall. and e?tra@udiciall. rescinded its contract #ith the seller'assi1nor, necessaril. can no lon1er sue the seller'assi1nor e?cept b. #a. of counterclai% if the seller'assi1nor sues it because of the rescission. In the case of the =niversit. of the ,hilippines v. De los -n eles 5B" SCR& /+67 #e held2 In other #ords, the part. #ho dee%s the contract violated %a. consider it resolved or rescinded, and act accordin1l., without previous court action, but it proceeds at its own ris'. 4or it is onl. the final @ud1%ent of the correspondin1 court that #ill conclusivel. and finall. settle #hether the action ta;en #as or #as not correct in la#. 3ut the law definitely does not re#uire that the contractin party who believes itself in(ured !ust first file suit

and wait for ad(ud e!ent before ta'in e&tra(udicial steps to protect its interest. Otherwise, the party in(ured by the other.s breach will have to passively sit and watch its da!a es accu!ulate durin the pendency of the suit until the final (ud !ent of rescission is rendered when the law itself re#uires that he should e&ercise due dili ence to !ini!ize its own da!a es )Civil Code, -rticle //01*. 5E%phasis supplied7 (oin1 bac; to the core issue, #e rule that the pro%issor. note in $uestion is not a ne1otiable instru%ent. he pertinent portion of the note is as follo#s2 4OR V&E=E RECEIVED, IC#e @ointl. and severall. pro%ise to pa. to the IND=S RI&E PROD=C S M&RIE IN(, the su% of ONE MIEEION NINE F >REE >O=S&ND SEVEN >=NDRED EI(> F NINE PESOS : 0/C/++ onl. 5P /,+,B,0*,.0/7, Philippine Currenc., the said principal su%, to be pa.able in 6! %onthl. install%ents startin1 -ul. /", /,0* and ever. /"th of the %onth thereafter until full. paid. ... Considerin1 that para1raph 5d7, Section / of the Ne1otiable Instru%ents Ea# re$uires that a pro%issor. note <%ust be pa.able to order or bearer, < it cannot be denied that the pro%issor. note in $uestion is not a ne1otiable instru%ent. he instru%ent in order to be considered ne1otiablilit.'i.e. %ust contain the so'called 9#ords of ne1otiable, %ust be pa.able to 9order9 or 9bearer9. hese #ords serve as an e?pression of consent that the instru%ent %a. be transferred. his consent is indispensable since a %a;er assu%es 1reater ris; under a ne1otiable instru%ent than under a non'ne1otiable one. ... ??? ??? ??? Ahen instru%ent is pa.able to order. SEC. *. A>EN P&F&3EE O ORDER. K he instru%ent is pa.able to order #here it is dra#n pa.able to the order of a specified person or to hi% or his order. . . . ??? ??? ??? hese are the onl. t#o #a.s b. #hich an instru%ent %a. be %ade pa.able to order. here %ust al#a.s be a specified person na%ed in the instru%ent. It %eans that the bill or note is to be paid to the person desi1nated in the instru%ent or to an. person to #ho% he has indorsed and delivered the sa%e. %ithout the words 2or order2 or2to the order of, 2the instru!ent is payable only to the person desi nated therein and is therefore non3 ne otiable. -ny subse#uent purchaser thereof will not en(oy the advanta es of bein a holder of a ne otiable instru!ent but will !erely <step into the shoes< of the person desi1nated in the instru%ent and #ill thus be open to all defenses available a1ainst the latter.< 5Ca%pos and Ca%pos, Notes and Selected Cases on Ne1otiable Instru%ents Ea#, hird Edition, pa1e B*7. 5E%phasis supplied7 herefore, considerin1 that the sub@ect pro%issor. note is not a ne1otiable instru%ent, it follo#s that the respondent can never be a holder in due course but re%ains a %ere assi1nee of the note in $uestion. hus, the petitioner %a. raise a1ainst the respondent all defenses available to it as a1ainst the seller' assi1nor Industrial Products Mar;etin1. his bein1 so, there #as no need for the petitioner to i%plied the seller'assi1nor #hen it #as sued b. the respondent'assi1nee because the petitioner9s defenses appl. to both or either of either of the%. -ctually, the records show that even the respondent itself ad!itted to bein a !ere assi nee of the pro!issory note in #uestion, to wit$ & F. P&E&C&2

Did #e 1et it ri1ht fro% the counsel that #hat is bein1 assi1ned is the Deed of Sale #ith Chattel Mort1a1e #ith the pro%issor. note #hich is as testified to b. the #itness #as indorsedL 5Counsel for Plaintiff noddin1 his head.7 hen #e have no further $uestions on cross, CO=R 2

Fou confir% his %anifestationL Fou are noddin1 .our headL Do .ou confir% thatL & F. IE&(&N2

he Deed of Sale cannot be assi1ned. & deed of sale is a transaction bet#een t#o personsH #hat is assi1ned are ri1hts, the ri1hts of the %ort1a1ee #ere assi1ned to the I4C Eeasin1 : &cceptance Corporation. CO=R 2 >e puts it in a si%ple #a. as one'deed of sale and chattel %ort1a1e #ere assi1nedH . . . .ou #ant to %a;e a distinction, one is an assi1n%ent of %ort1a1e ri1ht and the other one is indorse%ent of the pro%issor. note. Ahat counsel for defendants #ants is that .ou stipulate that it is contained in one sin1le transactionL & F. IE&(&N2

Ae stipulate it is one sin1le transaction. 5pp. 60'6,, SN., 4ebruar. /B, /,*+7. Secondl., even concedin1 for purposes of discussion that the pro%issor. note in $uestion is a ne1otiable instru%ent, the respondent cannot be a holder in due course for a %ore si1nificant reason. he evidence presented in the instant case sho#s that prior to the sale on install%ent of the tractors, there #as an arran1e%ent bet#een the seller'assi1nor, Industrial Products Mar;etin1, and the respondent #hereb. the latter #ould pa. the seller'assi1nor the entire purchase price and the seller' assi1nor, in turn, #ould assi1n its ri1hts to the respondent #hich ac$uired the ri1ht to collect the price fro% the bu.er, herein petitioner Consolidated Pl.#ood Industries, Inc. & %ere perusal of the Deed of Sale #ith Chattel Mort1a1e #ith Pro%issor. Note, the Deed of &ssi1n%ent and the Disclosure of EoanCCredit ransaction sho#s that said docu%ents evidencin1 the sale on install%ent of the tractors #ere all e?ecuted on the sa%e da. b. and a%on1 the bu.er, #hich is herein petitioner Consolidated Pl.#ood Industries, Inc.H the seller'assi1nor #hich is the Industrial Products Mar;etin1H and the assi1nee'financin1 co%pan., #hich is the respondent. herefore, the respondent had actual ;no#led1e of the fact that the seller'assi1nor9s ri1ht to collect the purchase price #as not unconditional, and that it #as sub@ect to the condition that the tractors 'sold #ere not defective. he respondent ;ne# that #hen the tractors turned out to be defective, it #ould be sub@ect to the defense of failure of consideration and cannot recover the purchase price fro% the petitioners. Even assu%in1 for the sa;e of ar1u%ent that the pro%issor. note is ne1otiable, the respondent, #hich too; the sa%e #ith actual ;no#led1e of the fore1oin1 facts so that its action in ta;in1 the instru%ent a%ounted to bad faith, is not a holder in due course. &s such, the respondent is sub@ect to all defenses #hich the petitioners %a. raise a1ainst the seller'assi1nor. &n. other interpretation #ould be %ost ine$uitous to the unfortunate bu.er #ho is not onl. saddled #ith t#o useless tractors but %ust also face a la#suit fro% the assi1nee for the entire purchase price and all its incidents #ithout bein1 able to raise valid defenses available as a1ainst the assi1nor. Eastl., the respondent failed to present an. evidence to prove that it had no ;no#led1e of an. fact, #hich #ould @ustif. its act of ta;in1 the pro%issor. note as not a%ountin1 to bad faith. Sections "6 and ") of the Ne1otiable Instru%ents Ea# provide that2 ne1otiatin1 it. ??? ??? ??? SEC. "6. A>& CONS I = ES & >OEDER IN D=E CO=RSE. K & holder in due course is a holder #ho has ta;en the instru%ent under the follo#in1 conditions2 ??? ??? ??? ??? ??? ??? 5c7 That he too' it in ood faith and for value

5d7 That the ti!e it was ne otiated by hi! he had no notice of any infir!ity in the instru!ent of deffect in the title of the person ne otiatin it ??? ??? ??? SEC. "). %4-T CO56T"T7TE6 5OT"CE O8 DE88ECT. 9 To constitute notice of an infir!ity in the instru!ent or defect in the title of the person ne otiatin the sa!e, the person to who! it is ne otiated !ust have had actual 'nowled e of the infir!ity or defect, or 'nowled e of such facts that his action in ta'in the instru!ent a!ounts to bad faith. 5E%phasis supplied7 Ae subscribe to the vie# of Ca!pos and Ca!pos that a financin1 co%pan. is not a holder in 1ood faith as to the bu.er, to #it2 In install%ent sales, the bu.er usuall. issues a note pa.able to the seller to cover the purchase price. Man. ti%es, in pursuance of a previous arran1e%ent #ith the seller, a finance co%pan. pa.s the full price and the note is indorsed to it, subro1atin1 it to the ri1ht to collect the price fro% the bu.er, #ith interest. Aith the increasin1 fre$uenc. of install%ent bu.in1 in this countr., it is %ost probable that the tendenc. of the courts in the =nited States to protect the bu.er a1ainst the finance co%pan. #ill , the finance co%pan. #ill be sub@ect to the defense of failure of consideration and cannot recover the purchase price fro% the bu.er. &s a1ainst the ar1u%ent that such a rule #ould seriousl. affect <a certain %ode of transactin1 business adopted throu1hout the State,< a court in one case stated2 It %a. be that our holdin1 here #ill re$uire so%e chan1es in business %ethods and #ill i%pose a 1reater burden on the finance co%panies. Ae thin; the bu.er'Mr. : Mrs. (eneral Public'should have so%e protection so%e#here alon1 the line. Ae believe the finance co%pan. is better able to bear the ris; of the dealer9s insolvenc. than the bu.er and in a far better position to protect his interests a1ainst unscrupulous and insolvent dealers. . . . If this opinion i%poses 1reat burdens on finance co%panies it is a potent ar1u%ent in favor of a rule #hich #in afford public protection to the 1eneral bu.in1 public a1ainst unscrupulous dealers in personal propert.. . . . 5Mutual 4inance Co. v. Martin, )B So. 6d )!,, !! &ER 6d / M/,"BN7 5Ca%pos and Ca%pos, Notes and Selected Cases on Ne1otiable Instru%ents Ea#, hird Edition, p. /6*7. In the case of Co!!ercial Credit Corporation v. Oran e Country :achine %or's 5B! Cal. 6d 0))7 involvin1 si%ilar facts, it #as held that in a ver. real sense, the finance co%pan. #as a %ovin1 force in the transaction fro% its ver. inception and acted as a part. to it. Ahen a finance co%pan. activel. participates in a transaction of this t.pe fro% its inception, it cannot be re1arded as a holder in due course of the note 1iven in the transaction. In li;e %anner, therefore, even assu%in1 that the sub@ect pro%issor. note is ne1otiable, the respondent, a financin1 co%pan. #hich activel. participated in the sale on install%ent of the sub@ect t#o &llis Cra#ler tractors, cannot be re1arded as a holder in due course of said note. It follo#s that the respondent9s ri1hts under the pro%issor. note involved in this case are sub@ect to all defenses that the petitioners have a1ainst the seller'assi1nor, Industrial Products Mar;etin1. 4or Section "* of the Ne1otiable Instru%ents Ea# provides that <in the hands of an. holder other than a holder in due course, a ne1otiable instru%ent is sub@ect to the sa%e defenses as if it #ere non'ne1otiable. ... < Prescindin1 fro% the fore1oin1 and settin1 aside other peripheral issues, #e find that both the trial and respondent appellate court erred in holdin1 the pro%issor. note in $uestion to be ne1otiable. Such a rulin1 does not onl. violate the la# and applicable @urisprudence, but #ould result in un@ust enrich%ent on the part of both the assi1ner' assi1nor and respondent assi1nee at the e?pense of the petitioner' corporation #hich ri1htfull. rescinded an ine$uitable contract. Ae note, ho#ever, that since the seller' assi1nor has not been i%pleaded herein, there is no obstacle for the respondent to file a civil Suit and liti1ate its clai%s a1ainst the seller' assi1nor in the rather unli;el. possibilit. that it so desires, A>ERE4ORE, in vie# of the fore1oin1, the decision of the respondent appellate court dated -ul. /0, /,*", as #ell as its resolution dated October /0, /,*), are hereb. &NN=EEED and SE &SIDE. he co%plaint a1ainst the petitioner before the trial court is DISMISSED.SO ORDERED. 8ernan, ,aras, ,adilla, ;idin and Cortes, <<., conc

Republic of the Philippines SU"REME COURT Manila >IRD DIVISION G.R. No. 75502 No+,-.,r 12, 19 7 /ALILI! $OO! IN!USTRIES COR"ORATION, AL)RE!O SALONGA &'( 0OA1UIN MIGUEL !E 0ESUS,petitioners, vs. %ONORABLE INTERME!IATE A""ELLATE COURT &'( "%ILI""INE BAN/ING COR"ORATION.

)ELICIANO, J.: On /0 Nove%ber /,0), -oa$uin Mi1uel de -esus and &lfredo . Salon1a, President'(eneral Mana1er and Co%ptroller, respectivel., of P.3. De -esus and Co%pan., Inc., e?ecuted a pro%issor. note 5P3C No. /6+6'0)7 in favor of respondent Philippine 3an;in1 Corporation in the a%ount of P)++,+++.++, the obli1ation %aturin1 on 6, Dece%ber /,0). Si%ilarl., on 6 Dece%ber /,0), a second pro%issor. note 5P3C No. /6""'0)7 #as e?ecuted this ti%e in the a%ount of PB++,+++.++, pa.able on or before B -anuar. /,00. hese t#o instru%ents #ere e?ecuted to docu%ent or reflect loans secured fro% respondent 3an; and #ere si1ned b. Messrs. de -esus and Salon1a in the follo#in1 %anner2 &. ,ro!issory 5ote ,;C 5o. =/0/3>?'for P)++,+++.++2 Due Dece%ber 6,,/,0) No. /6+6'0) 4or value received, IC#e @ointl. and severall. pro%ise to pa. to the Philippine 3an;in1 Corporation at its office at &.ala &venue, Ma;ati, Metro Manila the su% of SIG >=NDRED >O=S&ND ONEF ... pesos 5P)++,+++.++7 #ith interest at the rate of 4O=R EEN percent /!D per annu%, fro% OD&F until paid. In case this note is not paid at %aturit. the interest rate shall auto%aticall. be increased to per annu%. ??? ??? ??? E?ecuted at Ma;ati, Philippines on Nove%ber /0,/,0). P.3. DE -ES=S : CO., INC. 5S1d.7 &lfredo Salon1a 5S1d.7 Mi1uel de -esus IN O=R PERSON&E C&P&CI F 5S1d.7 &lfredo Salon1a 5S1d.7 Mi1uel de -esus 3. ,ro!issory 5ote ,;C 5o. =/@@3>?'for PB++,+++.++2 Due -anuar. B, /,00 No. /6""'0) 4or valued received, IC#e @ointl. and severall. pro%ise to pa. to the Philippine 3an;in1 Corporation at its office at &.ala &venue, Ma;ati, Metro Manila the su% of >REE >=NDRED >O=S&ND ONEF ... pesos 5PB++,+++.++7, #ith interest at the rate of 4O=R EEN per cent 5/!D7 per annu%, fro% OD&F until paid. In case this note is not paid at %aturit. the interest rate shall auto%aticall. be increased to OOOOOOO 5OOOOOOD7 per annu%. ??? ??? ??? E?ecuted at Ma;ati, Philippines on Dece%ber 6,/,0). P.3. DE -ES=S : CO., INC.

5S1d.7 &lfredo Salon1a 5S1d.7 Mi1uel de -esus IN O=R PERSON&E C&P&CI IES 5S1d,7 &lfredo Salon1a 5S1d.7 Mi1uel de -esus On " March /,0*, P.D. De -esus and Co%pan., Inc., b. vote of its stoc;holders, chan1ed its corporate na%e to Ialilid Aood Industries Corporation 5hereafter <Ialilid<7, an act subse$uentl. validated b. the Securities and E?chan1e Co%%ission. hereafter, respondent 3an; served several letters of de%and upon petitioner Ialilid for pa.%ent b. the latter of the obli1ations contracted under pro%issor. notes P3C No. /6+6'0) and P3C No. /6""'0) #hich had apparentl. re%ained unsettled. Petitioner Ialilid, ho#ever, diso#ned its alle1ed indebtedness under both pro%issor. notes. On /" Ma. /,*/, respondent 3an; filed a Co%plaint for collection 5doc;eted as Civil Case No. !/6)*7 a1ainst petitioner Ialilid and Messrs. de -esus and Salon1a #ith 3ranch 6B of the then Court of 4irst Instance of Ri8al 5Seventh -udicial District7. 1 In its co%plaint, respondent 3an; alle1ed that petitioner Ialilid, as principal, should be held solidaril. liable under pro%issor. notes P3C No. /6+6'0) and P3C No. /6""0) to1ether #ith Messrs. de -esus and Salon1a, both of #ho% had si1ned said pro%issor. notes for and in behalf of the petitioners co%pan., as #ell as in their o#n personal capacities. Respondent 3an; further alle1ed that, as of B+ &pril /,*/, the total a%ount of the indebtedness of the obli1ors under the t#o pro%issor. notes had risen to Pl,0*+,6"B.+*Ki.e., PI /*)!,),) #ith respect to pro%issor. note P3C No. /6+60), and P",B,0")./6 #ith respect to pro%issor. note P3C No. /6"/0) he 3an; sub%itted in substantiation of these clai%ed a%ounts t#o separate State%ents of &ccount 5one for each pro%issor. note7, #hich had been prepared b. respondent 3an; and attached to the co%plaint as &nne?es <C< and <D< thereof. 2 Pro%issor. notes P3C No. /6+6'0) and I3C No. /6""'0) #ere li;e#ise attached to the co%plaint as its &nne?es <&< and <3<, respectivel.. 3 In its &ns#er dated /+ -ul. /,*l, 3 petitioner Ialilid alle1ed that it <haMdN no ;no#led1e or infor%ation sufficient to for% a belief as to the truth of Mthe %aterial alle1ations in the co%plaintN. 5 &s its affir%ative defense, petitioner Ialilid asserted that the authorit. to borro# %one. or contract loans on its behalf had not been 1ranted to Messrs. de -esus and Salon1a #ho, it #as further asserted, should be held solel. liable under the t#o pro%issor. notes. he ans#er of petitioner Ialilid, ho#ever, #as not verified. he co%plaint #as dis%issed, thou1h #ithout pre@udice, #ith respect to Messrs. de -esus and Salon1a #hose #hereabouts could not then be ascertained. he parties #ere unable to arrive at an a%icable settle%ent bet#een the%selves at the pre'trial sta1e of the liti1ation. Subse$uentl., a %otion for su%%ar. @ud1%ent #as filed b. respondent 3an; to #hich petitioner Ialilid raised neither ob@ection nor opposition. In a three'pa1e Decision dated /6 October /,*B, the trial court found petitioner Ialilid liable to respondent 3an; for the obli1ations contracted under pro%issor. notes P3C No. /6+6'0) and P3C No. /6""'0) . the dispositive portion of the decision reads2 A>ERE4ORE, @ud1%ent is hereb. rendered in favor of plaintiff Philippine 3an;in1 Corporation and a1ainst defendant Ialilid Aood Industries Corporation #ho is ordered to pa. plaintiff2 /. he a%ount of P/,0*+,6"B.+* plus le1al interest fro% &pril ,, /,*/ until the a%ount is full. paidH 6. the a%ount e$uivalent to /+D of the total a%ount due as attorne.9s feesH and B. the costs of suit. SO ORDERED. he trial -ud1e based his decision pri%aril. on t#o factors2 5/7 the failure of petitioner Ialilid to verif. its ans#er, #hich failure the trial -ud1e considered as a%ountin1 to an ad%ission b. petitioner Ialilid of the 1enuineness and due e?ecution of pro%issor. notes P3C No. /6+6'0) and P3C No. /6""'0), #hich #ere anne?ed to respondent 3an;9s co%plaintH and 567 the fact that the t#o disputed pro%issor. notes #ere si1ned b. Messrs. de -esus and Salon1a both for and in behalf of the for%er P.3. de -esus and Co%pan., Inc. 5no# petitioner Ialilid7 and in their o#n personal capacities.

he @ud1%ent of the lo#er court #as affir%ed in toto on appeal. In its disputed Decision dated * Nove%ber /,*", the then Inter%ediate &ppellate Court 5 hird Civil Cases Division7 held2 Defendant'appellant faults the lo#er court in holdin1 it liable to pa. the a%ount of Pl,0*+,6"B.+* inas%uch as the pro%issor. notes covered onl. P,++,+++.++ clai%in1 that plaintiff'appellee failed to adduce evidence as to ho# said a%ounts increased to the a%ount of Pl,0*+,6"B.+*. Defendant'appellant ar1u%ent is reall. fli%s., because it overloo;ed the fact that the pro%issor. notes in $uestion #hich #ere due and de%andable since Dece%ber 6,, /,0) and -anuar. B, /,00 bear interest at the rate of /!D and further stipulates for the pa.%ent of attorne.9s fees of /+D of the a%ount due includin1 interest in case of collection of the pro%issor. notes is done throu1h a la#.er. Moreover, the state%ents of account &nne?es & and 3 are also attached to the sa%e co%plaint as inte1ral part thereof. &nne? & pertains to the pro%issor. note No. /6+6'0) #ith the principal of P)++,+++.++ #hile &nne? 3 pertains to the pro%issor. note No. /6""0) #ith the principal of PB++,+++.++. E?plained in said state%ents of account are the char1es for past due interest and penalt. char1es and the total of said obli1ation as of &pril B+, /,*/ sho#ed a total of principal, interest and penalt. char1es of P/,0*+,6"B.+*. The enuineness and due e&ecution of said pro!issory notes and state!ents of account are dee!ed ad!itted by the failure to deny under oath said docu!ents. ... 6 Petitioner Ialilid9s Motion for Reconsideration #as denied b. the hird Civil Cases Division on 6, -ul. /,*). In the present Petition for Revie#, petitioner Ialilid no lon1er denies its liabilities and obli1ations under the t#o pro%issor. notes e?ecuted in favor of respondent 3an;. It #ould, ho#ever, contest the correctness of the a11re1ate a%ount of its indebtedness, as clai%ed b. respondent 3an;. In this respect, petitioner Ialilid contends that althou1h it %a. have i%pliedl. ad%itted the 1enuineness and due e?ecution of pro%issor. notes P3C No. /6+6'0) and P3C No. /6""0)K&nne?es <&< and <3< of the Co%plaintKas a result of its failure to den. specificall. and under oath the %aterial alle1ations in respondent 3an;9s co%plaint, such ad%ission cannot be %ade to e?tend and appl. to the t#o afore%entioned State%ents of &ccountK&nne?es <C< and <D< of the Co%plaint'since none of petitioner Ialilid9s dul. authori8ed representatives had participated in the preparation thereof. 4urther%ore, in the co%putations appearin1 therein, a%ounts correspondin1 to service char es, penalty char es, and interest char es on past due interest #ere included #hich, petitioner Ialilid clai%s, are not part of its underta;in1s under either pro%issor. note. Ae a1ree #ith the rulin1 of the trial -ud1e and the respondent appellate court that petitioner Ialilid, due to its failure to verif. its ans#er, is dee%ed to have ad%itted b. i%plication the authenticit. and due e?ecution of pro%issor. notes P3C No. /6+6'0) and P3C No. /6""'0), #hich #ere both anne?ed to and %ade the basis for respondent 3an;9s co%plaint. 7 Conse$uentl., defenses relatin1 to the 1enuineness and due e?ecution of the notes, such as that the instru%ents are spurious counterfeit, or of different i%port on their faces fro% the ones e?ecuted b. the partiesH or that the si natures appearin therein are for eries+ or that said si natures were unauthorized as in the case of an a ent si nin for his principal or one si nin in behalf of a partnership or corporation H or that the corporation #as not authori8ed under its charter to si1n the instru%entsH or that the part. char1ed si1ned the instru%ents in so%e capacit. other than that set out in the instru%entsH or that the instru%ents #ere never delivered, are effectivel. cut off, placin1 petitioner Ialilid in estoppel fro% disclai%in1 liabilit. under those pro%issor. notes. No 1enuine issue havin1 been raised in the trial court b. petitioner Ialilid re1ardin1 thee&istence and validity of its liabilities under pro%issor. notes P3C No. /6+6'0) and P3C No. /6""'0), su%%ar. @ud1%ent #as properl. and appropriatel. rendered in the case at bar. 9 In respect, ho#ever, of the a!ount of petitioner Ialilid9s total indebtedness to respondent 3an; under the t#o pro%issor. notes, it #as error for the appellate court 5as for the trial -ud1e7 to have e?panded the scope of petitioner Ialilid9s i%plied ad%ission of 1enuineness and due e?ecution so as to include the t#o State%ents of &ccount anne?ed to the co%plaint. On this point, Rule *, Section * of the Revised Rules of Court is $uite specific. Section *. 4ow to contest enuineness of such docu!ents.KAhen an action or defense is founded upon a #ritten instru%ent, copied in or attached to the correspondin1 pleadin1 as provided in the precedin1 section, the 1enuineness and due e?ecution of the instru%ent shall be dee%ed ad%itted unless the adverse part., under oath, specificall. denies the%, and sets forth #hat he clai%s to be the factsH but this provision does not apply when the adverse party does not appear to be a party to the instru!ent or #hen co%pliance #ith an order for an inspection of the ori1inal instru%ent is refused. 5E%phasis supplied.7

&n e?a%ination of the t#o disputed State%ents of &ccount reveals that both docu%ents 5/7 #ere printed under the official letterhead of respondent 3an;, 567 #ere prepared b. the Eoans and Discountin1 Depart%ent of respondent 3an;, and 5B7 bore the si1nature of approval of respondent 3an;9s authori8ed officer. No other si1nature appears on the face of either docu%ent. In other #ords, both State%ents of &ccount #ere prepared e&clusively b. respondent 3an;. It follo#s that petitioner Ialilid, not havin1 been priv. thereto, did not ad%it the 1enuineness and due e?ecution of the State%ents in spite of its failure to verif. its ans#er to the co%plaint, and that petitioner is not conclusivel. bound b. the char1es nor b. the co%putations of a%ounts set out therein. 10 he a11re1ate a%ount of petitioner Ialilid9s %onetar. obli1ations to respondent 3an; is deter%inable fro% the co%%on stipulations and conditions contained in pro%issor. notes P3C No. /6+6'0) and P3C No. /6""'0), under #hich petitioner Ialilid bound itself to pa. respondent 3an;, aside fro% the principal loan totallin1 P,++,+++.++2 5/7 interest at the rate of fourteen percent 5/!D7 per annu%, pa.able %onthl. and co%pounded %onthl. if unpaid,11 and 567 attorne.9s fees e$uivalent to ten percent 5/+D7 of the entire a%ount due, includin1 interest. 12 it does not, ho#ever, appear fro% the face of either pro%issor. note that petitioner Ialilid a1reed to pa. service char1es and penalty char es in case of late pa.%ent of its obli1ations to respondent 3an;. Since an underta;in1 to pa. service char1es and penalt. char1es on top of interest and interest on past due interest cannot be presu%ed, it is necessar. that evidence be adduced b. both parties to prove or disprove their respective clai%s re1ardin1 the basis and propriet. of includin1 such char1es and in such a%ounts as part of petitioner Ialilid9s liabilities under the t#o pro%issor. notes. Evidence relatin1 to the co%putation of interest on past due interest, that is due and pa.able %a. also be sub%itted. A>ERE4ORE, the decision of 3ranch 6B of the then Court of 4irst Instance of Ri8al 5Seventh -udicial District7 in Civil Case No. !/6)* and the decision of the then Inter%ediate &ppellate Court dated * Nove%ber /,*" are &44IRMED to the e?tent that the. refer to the principal a%ounts and stipulated interest due under Pro%issor. Notes P3C No. /6+6'0) and P3C No. /6""'0) and to attorne.9s fees e$uivalent to ten percent 5/+D7 of the entire a%ount due. his case is REM&NDED to the trial court for deter%ination of #hether or not service char1es and penalt. char1es in case of late pa.%ent are due fro% petitioner Ialilid to respondent 3an;, and if so, the a%ount thereof, as #ell as for deter%ination of the a%ount of interest on past due interest, due and pa.able b. petitioner Ialilid to respondent 3an;. No pronounce%ent as to costs. SO ORDERED. 8ernan )Chair!an*, Autierrez, <r., ;idin and Cortes, <<., concur.

Republic of the Philippines SU"REME COURT Manila SECOND DIVISION G.R. No. L2 57 5 April 23, 19 9 BENITO S# 4 ONG, petitioner, vs. "EO"LE O) T%E "%ILI""INES "%ILI""INES &'( COURT O) A""EALS, respondents. Law 8ir! of Bay!undo -. -r!ovit for petitioner. The 6olicitor Aeneral for respondent.

MELENCIO2%ERRERA, J.: Convicted of Estafa under &rticle B/", Para1raph /5b7 of the Revised Penal Code b. three 5B7 Courts, na%el., the Metropolitan rial Court, Caloocan Cit., 3ranch "6H 1 the Re1ional rial Court of the sa%e Cit., 3ranch /6, H 2and respondent Court of &ppeals, petitioner no# see;s to brea; the chain of convictions. he indict%ent a1ainst petitioner'accused, filed on /* &u1ust /,*), reads2 hat on or about and durin1 the %onth of -anuar. /,*) in Caloocan Cit., Metro Manila and #ithin the @urisdiction of this >onorable Court, the above' na%ed accused received fro% the Pana%a Sa#%ill Inc., represented in this case b. E PEN( MEN, P3C Chec; No. 6,/)/) dated -anuar. /", /,*) for P),+++.++ #hich chec; #as subse$uentl. encashed b. said accused for the purpose of and under the e?press obli1ation on his part to use the said a%ount in securin1 a Marine Insurance covera1e for PB,+++,+++.++ on a ship%ent of lo1s o#ned b. Pana%a Sa#%ill, Inc. but said accused #ith abuse of trust and confidence reposed upon hi% far fro% co%pl.in1 #ith his obli1ation and #ith intent to deceive and defraud said corporation, did then and there #illfull., unla#full. and feloniousl. receive a Marine Insurance covera1e for onl. Pl,+++,+++.++ to cover said ship%ent of lo1s, pa.in1 therefor onl. the a%ount of P6,0/6."+ as insurance pre%iu% #ithout the ;no#led1e and consent of said Pana%a Sa#%ill, Inc., and thereafter, said accused %isappropriated and converted to his o#n personal use and benefit the balance of PB,6*0."+, and despite repeated de%ands upon hi%, said accused refused and failed to account for said su% of PB,6*0."+ to the da%a1e and pre@udice of said Pana%a Sa#%ill Inc., in the aforestated a%ount of PB,6*0."+. 5p. B, Ori1inal Record7 &fter trial on the %erits, the Metropolitan rial Court of Caloocan Cit. convicted petitioner in a Decision, dated /0 Dece%ber /,*), the dispositive portion of #hich reads2 A>ERE4ORE, b. proof be.ond reasonable doubt, the accused 3ENI O SF is found (=IE F of violatin1 &rt. B/", Par. B of the Revised Penal Code, he is sentenced to a strai1ht penalt. of 4O=R 5!7 MON >S i%prison%ent, to rei%burse or 1ive restitution in the a%ount of >REE >O=S&ND AO >=NDRED EI(> F SEVEN 5B,6*0."+7 PESOS &ND "+C/++ CEN &VOS and to pa. costs. 5p. B0, Ori1inal Record.7 On appeal before it, the Re1ional rial Court of Caloocan Cit., affir%ed the @ud1%ent of conviction on B -une /,*0, but increased the penalt., as follo#s2 IN VIEA O4 >E 4ORE(OIN(, this Court finds the accused 3enito S. . On1 1uilt. be.ond reasonable doubt of the cri%e of estafa, thru %isappropriation, as defined under par. /5b7 and penali8ed under the Brd par. of &rt B/" of the Revised Penal Code and there bein1 no attendant %iti1atin1 nor a11ravatin1 circu%stance, he is hereb. sentenced to suffer an indeter%inate penalt. of >REE 5B7 MON >S O4 &RRES O M&FOR O ONE 5/7 FE&R &ND ONE 5/7 D&F O4 ,B"6"O5 COBBECC"O5-LH to suffer the accessor. penalties provided for b. la#H and to pa. co%plainant Pana%a Sa#%ill Co., b. #a. of reparation, the a%ount of PB,6*0."+. Costs a1ainst appellant. 5p. B+!, Ori1inal Record7

On B+ -une /,** respondent Court of &ppeals affir%ed the Re1ional rial Court Decision 3 not#ithstandin1 t#o 567 Manifestations in lieu of Co%%ent sub%itted b. the Office of the Solicitor (eneral, dated B March /,** and B October /,**, respectivel., reco%%endin1 ac$uittal of petitioner'accused. 3efore us no#, petitioner re'asserts his innocence. he Solicitor (eneral has also reiterated his reco%%endation for ac$uittal. &ccordin1 to e Pen1 Men Mana1er of Pana%a Sa#%ill, Inc. 5henceforth, si%pl. <Pana%a<7 and sole #itness of the prosecution, the develop%ents in this case unfolded as follo#s2 /. So%eti%e in -anuar. /,*) <Pana%a< en1a1ed petitioner, an insurance a1ent, to obtain %arine insurance in the a%ount of PBM to cover its lo1 ship%ent fro% Pala#an to Manila. 6. &s instructed,on l! -anuar. l,*) petitioner secured Marine Insurance Polic. No. O&C'M'*)C++6 fro% Oriental &ssurance Corporation 5<Oriental<, for short7, #ith a face value of PBM 5E?hibit <&<7. Onl. the duplicate ori1inal of the Polic. #as left #ith <Pana%a<. B. On /" -anuar. /,*), <Pana%a< 1ave petitioner Philippine 3an; of Co%%unication Chec; No. 6,/)/) in the a%ount of P),+++.++ pa.able to <Oriental< for the polic. covera1e of PBM. !. On 6* -anuar. /,*) so%e of the lo1s valued at P/.6M #ere lost #hen the bar1e transportin1 the ship%ent encountered rou1h seas in the vicinit. of Du%aran Island, Pala#an. ". <Pana%a< filed a clai% for loss a1ainst <Oriental< onl. to be infor%ed b. the latter that its %arine insurance covera1e #as onl. for P/M and that petitioner had paid a pre%iu% of onl. P6,0/6."+ 5E?hibit <D<7 ). Contendin1 that petitioner had %isappropriated the difference of PB,6*0."+ for his personal use and benefit to its pre@udice, <Pana%a< char1ed petitioner #ith Estafa. 4or his part, petitioner %aintains that the follo#in1 details constitute the truth2 a7 Petitioner had never, at an. one ti%e, dealt #ith prosecution #itness, e Pen1 Men. It #as onl. throu1h one au ian that petitioner had an. contact #ith <Pana%a<. b7 <Oriental< had issued a Marine Insurance Polic. in the a%ount of PBM in favor of <Pana%a< throu1h petitioner9s efforts. c7 >o#ever, au ian re$uested petitioner to return the Polic. since the rate #as $uite hi1h and <Pana%a< #anted to pa. onl. P),+++.++. hereafter, au ian returned the ori1inal of the Polic. to petitioner but retained the duplicate cop.. au ian instructed petitioner to obtain a reduction of the pre%iu% fro% P*,/B0."+ to P),+++.++. d7 Since petitioner #as not able to secure a reduction in the pre%iu%, he obtained instead a P/M polic. fro% <Oriental< pa.in1 for that purpose a pre%iu% of P6,0/6."+. In addition, he obtained a P6M polic. fro% the 4irst Inte1rated Insurance Co., Inc. pa.in1 a pre%iu% therefor of PB,6"".++. he t#o policies totalled PBM and the pre%iu%s paid reached P",,)0."+, or al%ost P),+++.++. e7 he real reason #h. <Pana%a< #as not able to recover on the afore%entioned policies #as because the polic. of <Oriental< #as for total loss onl. and not for partial loss. In fact, even the an (atue &d@ust%ent Co%pan. sustained the re@ection of <Pana%a9s< clai% for that reason. Defense #itness, Ient Cotoco, the =nder#ritin1 Mana1er of <Oriental< corroborated petitioner9s testi%on. that the PBM Polic. first issued b. <Oriental< 5E?hibit </<7 #as cancelled and replaced b. a P/M Polic. 5E?hibit <B<7. >e e?plained that before the PBM Polic. #as cancelled, petitioner had surrendered the ori1inal to <Oriental<H that the ori1inal and the replace%ent Policies bear the sa%e serial nu%ber *)C++6 because it is co%pan. polic. for the replace%ent Polic. to carr. the sa%e nu%ber as the ori1inal Polic.H and that he #as a#are that the 4irst Inte1rated Insurance Co., Inc., had issued a P6M Polic. for <Pana%a< 5t.s.n., Nove%ber 6/, /,*), pp. 0*'*+7 because the latter co%pan. char1es a lo#er pre%iu% rate than <Oriental< 5ibid., pp. *+'*67. Is the accused 1uilt. of Estafa co%%itted throu1h %isappropriation under para1raph l5b7, &rticle B6" of the Revised Penal CodeL Said provision reads2

&R . B/". 6windlin )estafa*. &n. person #ho shall defraud another b. an. of the %eans %entioned herein'belo# shall be punished b.2 ????????? 5b7 3. appropriatin1 or convertin1, to the pre@udice of another, %one., 1oods, or an. other personal propert. received b. the offender in trust or on co%%ission, or for ad%inistration, or under an. other obli1ation involvin1 the dut. to %a;e deliver. of or to return the sa%e, even thou1h such obli1ation be totall. or partiall. 1uaranteed b. a bond or b. den.in1 havin1 received such %one., 1oods, or other propert.. 4or the cri%e of Estafa throu1h %isappropriation to e?ist the follo#in1 ele%ents %ust be present2 /. hat %one., 1oods or other personal propert. is received b. the offender in trust, or on co%%ission, or for ad%inistration, or under an. other obli1ation involvin1 the dut. to %a;e deliver. of, or to return, the sa%eH 6. hat there be %isappropriation or conversion of such %one. or propert. b. the offender, or denial on his part of such receiptH B. hat such %isappropriation or conversion or denial is to the pre@udice of anotherH and !. hat there is a de%and %ade b. the offended part. to the offender. 5II Cri%inal Ea#, Euis 3. Re.es, /6th Edition, p. 0/07 >ave the fore1oin1 ele%ents been %et in respect of petitioner'accusedL Petitioner, supported b. the Solicitor (eneral, avers that the. have not because no conversion or %isappropriation has been co%%itted and that there #as no de%and for the return of the P),+++.++ 1iven to petitioner. In other #ords, ele%ents 6, B, and ! of the cri%e are lac;in1. he totalit. of the evidence .ields the follo#in1 incontrovertible data in chronolo1ical order2 -an. /!, /,*) ' Issuance of Oriental Marine Insurance Polic. No. O&C' M'*)C++6 for P BM, #ith a total pre%iu% of P*,/B0."+. <a1ainst total loss onl..< 5carbon cop., E?hibit <&<, ori1inal, E?hibit </<7. -an. /", /,*) ' P3C Chec; No. 6,/)/) pa.able to Oriental &ssurance Corporation for P),+++.++ 5E?hibit <C<7, endorsed at the bac; b. petitioner 5E?hibit <C'/<7 and sta%ped <cleared9 on the sa%e da., -anuar. /", /,*). -an. /", /,*) ' Issuance of 4irst Inte1rated Marine Insurance Polic. No. ++6)) for P6M #ith a pre%iu% of PB,+++.++ plus P66".++ docu%entar. sta%ps #ith a covera1e < otal Eoss b. otal Eoss of the Vessel Onl.< 5E?hibit <6<7. -an. 6+, /,*) ' Issuance of <Oriental< Marine Insurance O&C'M'*)/++6 for P/M, #ith a total pre%iu% of P6,0/6."+ <a1ainst total loss onl..< 5E?hibit <B<7. -an. 6/, /,*) ' Official receiptof <Oriental<for P6,0/6."+ representin1 pre%iu% for Polic. No. M'*)/++6 in the a%ount of P/M 5E?hibits <D< and !<7. -an. 6*, /,*) ' Partial loss of the lo1 ship%ent. 4eb. 6*, /,*) ' Report of the an'(atue &d@ust%ent Co., Inc., that the loss #as not co%pensable under the ter%s and conditions < otal Eoss Onl.< stipulated in the <Oriental< Polic. 5E?hibit <)<7. Ma. 6, /,*) ' Endorse%ent No. M'+++/ of 4irst Inte1rated declarin1 that its Marine Car1o Polic. No. ++6)), issued on -anuar. /", /,*), is <C&NCEEEED effective as of its inception date, for non'pa.%ent of pre%iu%< 5E?hibit <E<H <E'/<7.

Ma. , /,*) ' Investi1ation of case b. Cit. 4iscal of Caloocan cit.. -une /+, /,*) ' 4irst Inte1rated Official Receipt for PB,6"".++ in pa.%ent of pre%iu% for Marine Car1o Polic. No. ++6)) issued 5E?hibit <"<7 -une /+, /,*) ' Endorse%ent No. NP&CM'+++6C*) 4irst Inte1rated, reinstatin1 Marine Car1o Polic. No. ++6)) provided no loss <has occurred prior to the date of issuance of this endorse%ent< 5E?hibit <0<7. &u1. /*, /,*) ' Infor%ation for Estafa filed before the Metropolitan rial Court, Caloocan Cit.. =pon the established facts, there can be no dispute that petitioner received a chec; in the a%ount of P),+++.++ fro% <Pana%a< for the particular purpose of securin1 a %arine insurance covera1e of PBM. hat %ar;ed the creation of a fiduciar. relation bet#een the%, the e?istence of #hich, either in the for% of a trust or under an. other obli1ation involvin1 the dut. to %a;e deliver. of the sa%e, is an essential ele%ent of the cri%e of Estafa b. %isappropriation or conversion. he first ele%ent of the cri%e of Estafa, therefore, is satisfied. &s to the second ele%ent of <%isappropriation or conversion< of the %one. or propert. received, petitioner contends that the sa%e is in attendant because petitioner had, in fact, procured the PBM insurance covera1e fro% t#o co%panies, spendin1 therefor all of the entrusted a%ount of P),+++.++ for pre%iu%s. Ae find ourselves in disa1ree%ent. o <convert< 5<distraer<7 connotes the act of usin1 or disposin1 of another9s propert. as if it #ere one9s o#n. &nd to <%isappropriate< 5<appropiar<7 %eans to o#n, to ta;e so%ethin1 for one9s o#n benefit 5II Cri%inal Ea#, Euis 3. Re.es, /6th Edition, p. 06,7. hat there #as conversion or %isappropriation b. petitioner is i%%ediatel. sho#n b. the fact that, as ad%itted b. hi% on cross'e?a%ination, he had deposited the <Pana%a< chec; of P),+++.++ pa.able to <Oriental< in his o#n personal account 5t.s.n., Nove%ber 6/, /,*), p. B+7 even thou1h he #as not authori8ed to do so b. <Oriental< bein1 %erel. an ordinar., not a special a1ent, as testified to b. the under#ritin1 a1ent of <Oriental< 5 ibid., pp. 0+'0!7. Petitioner assu%ed the ri1ht to dispose of it as if it #ere his, thus co%%ittin1 conversion #ith unfaithfulness and a clear breach of trust. & chec; #hile not re1arded as le1al tender is nor%all., under co%%ercial usa1e, a substitute for cash. he credit represented b. it in stated %onetar. value is properl. capable of appropriation 5(alve8 vs. Court of &ppeals, E' 660)+, Nove%ber 6,, /,0/, !6 SCR& 60*7. More, petitioner onl. 1ave a duplicate ori1inal cop. of the <Oriental< polic. to <Pana%a<, #hich accepted it as the ri1ht polic.. If, as petitioner alle1es, <Pana%a< had as;ed hi% to secure a reduction in pre%iu%, it #ould have been a si%ple %atter for hi% to have infor%ed <Pana%a< of the second Polic. for P/M he had secured fro% <Oriental< as #ell as the P6M Polic. fro% 4irst Inte1rated. 3ut, no. &ll these #ere fraudulentl. concealed fro% <Pana%a< and #ere brou1ht out onl. durin1 the preli%inar. investi1ation of the case before the Cit. 4iscal9s Office. Petitioner9s obtain%ent of the 4irst Inte1rated Polic., #ith a covera1e of P6M, #as onl. on paper. >e had failed to pa. the pre%iu% therefor of PB,6"".++ at the ti%e of issuance so that the Polic. never beca%e valid and bindin1 5Sec. 00, Insurance Code of /,0*7. Elo$uent proof of that is the Endorse%ent of 6 Ma. /,*) of 4irst Inte1rated cancellin1 its said Polic. for non'pa.%ent of pre%iu% <effective as of its inception date,< or on /" -anuar. /,*). Petitioner9s e?planation that he paid for the pre%iu% t#ice ' the first ti%e on 6/ -anuar. /,*) e?cept that he #as not issued a receipt because he paid for it in cash 5t.s.n., Nove%ber 6/, /,*), pp. B)'B07, and the second ti%e on /+ -une /,*) <because the first ti%e %. sub'a1ent did not pa. it directl. to the co%pan. on the first ti%e so I paid it a1ain,< 5 ibid., p. B*7 ' is prevarication, pure and si%ple. Petitioner paid the pre%iu% for the 4irst Inte1rated Polic. onl. on /+ -une /,*) or five 5"7 %onths after its issuance and five 5"7 %onths after the partial loss of the ship%ent, and #hile the case #as alread. pendin1 investi1ation at the Cit. 4iscal9s Office. he co%pan. reinstated the Polic., also on /+ -une /,*), but on the condition that <no loss had occurred prior to the date of issuance of this endorse%ent.< It #as a useless reinstate%ent, therefore, and the star; fact re%ains that at the ti%e of loss there #as no covera1e fro% 4irst Inte1rated because of non'pa.%ent of pre%iu%. Evidentl. petitioner paid the pre%iu% at that late date in a futile atte%pt to revive the Polic. and as a last'ditch effort to sho# that the entire P),+++.++ a%ount received fro% <Pana%a< #as used b. petitioner for the purpose intended ' na%el., the pa.%ent of pre%iu% for %arine insurance covera1e of PBM. Indications are that no pa.%ent of pre%iu% to 4irst Inte1rated #ould have been %ade either, but for this cri%inal char1e. he evidence is clear that he had utili8ed the balance of the P),+++.++ 5after deductin1 the pre%iu% of P6,0/6."+ paid to

<Oriental<7 for his o#n benefit, and #ith abuse of confidence, #hich is the ver. essence of %isappropriation. &nd he #ould have 1otten a#a. scot'free if no loss of the ship%ent had occurred. he third ele%ent of Estafa is li;e#ise present. he %isappropriation or conversion resulted in pre@udice to <Pana%a< #hich had believed all alon1 that its ship%ent #as insured for PBM. here #as disturbance in its propert. ri1hts, and, althou1h te%porar., is sufficient to constitute in@ur. #ithin the %eanin1 of &rticle B/"5/'b7 of the Revised Penal Code 5Eu >a.co vs. Court of &ppeals, E'!,)+0'/B : ""00"'*), &u1ust 6), /,*", /B* SCR& 6607. &s to the fourth essential ele%ent, that of de%and %ade b. the offended part. to the offender, #hich petitioner clai%s is #antin1 in this case, suffice it to state that de%and is not necessar. #hen there is evidence of %isappropriation as in this case. It so happens onl. that failure to account, upon de%and, for funds or propert. held in trust, is circu%stantial evidence of %isappropriation. he sa%e %a., ho#ever, be established b. other proof, such as that introduced in the case at bar. 5 ubb vs. People, et al., /+/ Phil. //! M/,"0N7 &ll the essential ele%ents of Estafa throu1h %isappropriation or conversion bein1 present, #e do not see our #a. clear to brea;in1 the chain of convictions b. the other Courts before us. he 1uilt of petitioner' accused has been proven be.ond reasonable doubt. A>ERE4ORE, the @ud1%ent under revie# is hereb. &44IRMED. Aith costs a1ainst petitioner'accused, 3enito S. . On1. SO ORDERED. ,aras, ,adilla, 6ar!iento and Be alado, <<., concur.

Republic of the Philippines SU"REME COURT Manila EN 3&NC G.R. No. L2391 0&'5&r4 30, 1990

"%ILI""INE AIRLINES, INC., petitioner, vs. %ON. COURT O) A""EALS, %ON. 0U!GE RICAR!O !. GALANO, Co5r6 o7 )ir86 I'86&'9, o7 M&'il&, Br&'9: ;III, 0AIME /. !EL ROSARIO, !,p564 S:,ri77, Co5r6 o7 )ir86 I'86&'9,, M&'il&, &'( AMELIA TAN,respondents.

GUTIERRE<, 0R., J.: 3ehind the si%ple issue of validit. of an alias #rit of e?ecution in this case is a %ore funda%ental $uestion. Should the Court allo# a too literal interpretation of the Rules #ith an open invitation to ;naver. to prevail over a %ore discernin1 and @ust approachL Should #e not appl. the ancient rule of statutor. construction that la#s are to be interpreted b. the spirit #hich vivifies and not b. the letter #hich ;illethL his is a petition to revie# on certiorari the decision of the Court of &ppeals in C&'(.R. No. +0)," entitled <,hilippine -irlines, "nc. v. 4on. <ud e Bicardo D. Aalano, et al.2, dis%issin1 the petition for certiorari a1ainst the order of the Court of 4irst Instance of Manila #hich issued an alias #rit of e?ecution a1ainst the petitioner. he petition involvin1 the alias #rit of e?ecution had its be1innin1s on Nove%ber *, /,)0, #hen respondent &%elia an, under the na%e and st.le of &ble Printin1 Press co%%enced a co%plaint for da%a1es before the Court of 4irst Instance of Manila. he case #as doc;eted as Civil Case No. 0/B+0, entitled -!elia Tan, et al. v. ,hilippine -irlines, "nc. &fter trial, the Court of 4irst Instance of Manila, 3ranch /B, then presided over b. the late -ud1e -esus P. Morfe rendered @ud1%ent on -une 6,, /,06, in favor of private respondent &%elia an and a1ainst petitioner Philippine &irlines, Inc. 5P&E7 as follo#s2 A>ERE4ORE, @ud1%ent is hereb. rendered, orderin1 the defendant Philippine &ir Eines2 /. On the first cause of action, to pa. to the plaintiff the a%ount of P0",+++.++ as actual da%a1es, #ith le1al interest thereon fro% plaintiffs e?tra'@udicial de%and %ade b. the letter of -ul. 6+, /,)0H 6. On the third cause of action, to pa. to the plaintiff the a%ount of P/*,6++.++, representin1 the unreali8ed profit of /+D included in the contract price of P6++,+++.++ plus le1al interest thereon fro% -ul. 6+,/,)0H B. On the fourth cause of action, to pa. to the plaintiff the a%ount of P6+,+++.++ as and for %oral da%a1es, #ith le1al interest thereon fro% -ul. 6+, / ,)0H !. On the si?th cause of action, to pa. to the plaintiff the a%ount of P",+++.++ da%a1es as and for attorne.9s fee. Plaintiffs second and fifth causes of action, and defendant9s counterclai%, are dis%issed. Aith costs a1ainst the defendant. 5C& Rollo, p. /*7 On -ul. 6*, /,06, the petitioner filed its appeal #ith the Court of &ppeals. he case #as doc;eted as C&' (.R. No. "/+0,'R. On 4ebruar. B, /,00, the appellate court rendered its decision, the dispositive portion of #hich reads2

IN VIEA A>EREO4, #ith the %odification that P&E is conde%ned to pa. plaintiff the su% of P6",+++.++ as da%a1es and P",+++.++ as attorne.9s fee, @ud1%ent is affir%ed, #ith costs. 5C& Rollo, p. 6,7 Notice of @ud1%ent #as sent b. the Court of &ppeals to the trial court and on dates subse$uent thereto, a %otion for reconsideration #as filed b. respondent &%elia an, dul. opposed b. petitioner P&E. On Ma. 6B,/,00, the Court of &ppeals rendered its resolution den.in1 the respondent9s %otion for reconsideration for lac; of %erit. No further appeal havin1 been ta;en b. the parties, the @ud1%ent beca%e final and e?ecutor. and on Ma. B/, /,00, @ud1%ent #as correspondin1l. entered in the case. he case #as re%anded to the trial court for e?ecution and on Septe%ber 6,/,00, respondent &%elia an filed a %otion pra.in1 for the issuance of a #rit of e?ecution of the @ud1%ent rendered b. the Court of &ppeals. On October //, /,00, the trial court, presided over b. -ud1e (alano, issued its order of e?ecution #ith the correspondin1 #rit in favor of the respondent. he #rit #as dul. referred to Deput. Sheriff E%ilio P. Re.es of 3ranch /B of the Court of 4irst Instance of Manila for enforce%ent. 4our %onths later, on 4ebruar. //, /,0*, respondent &%elia an %oved for the issuance of an alias #rit of e?ecution statin1 that the @ud1%ent rendered b. the lo#er court, and affir%ed #ith %odification b. the Court of &ppeals, re%ained unsatisfied. On March /, /,0*, the petitioner filed an opposition to the %otion for the issuance of an alias #rit of e?ecution statin1 that it had alread. full. paid its obli1ation to plaintiff throu1h the deput. sheriff of the respondent court, E%ilio P. Re.es, as evidenced b. cash vouchers properl. si1ned and receipted b. said E%ilio P. Re.es. On March B,/,0*, the Court of &ppeals denied the issuance of the alias #rit for bein1 pre%ature, orderin1 the e?ecutin1 sheriff E%ilio P. Re.es to appear #ith his return and e?plain the reason for his failure to surrender the a%ounts paid to hi% b. petitioner P&E. >o#ever, the order could not be served upon Deput. Sheriff Re.es #ho had absconded or disappeared. On March 6*, /,0*, %otion for the issuance of a partial alias #rit of e?ecution #as filed b. respondent &%elia an. On &pril /,, /,0*, respondent &%elia an filed a %otion to #ithdra# <Motion for Partial &lias Arit of E?ecution< #ith Substitute Motion for &lias Arit of E?ecution. On Ma. /, /,0*, the respondent -ud1e issued an order #hich reads2 &s pra.ed for b. counsel for the plaintiff, the Motion to Aithdra# 9Motion for Partial &lias Arit of E?ecution #ith Substitute Motion for &lias Arit of E?ecution is hereb. 1ranted, and the %otion for partial alias #rit of e?ecution is considered #ithdra#n. Eet an &lias Arit of E?ecution issue a1ainst the defendant for the fall satisfaction of the @ud1%ent rendered. Deput. Sheriff -ai%e I. del Rosario is hereb. appointed Special Sheriff for the enforce%ent thereof. 5C& Rollo, p. B!7 On Ma. /*, /,0*, the petitioner received a cop. of the first alias #rit of e?ecution issued on the sa%e da. directin1 Special Sheriff -ai%e I. del Rosario to lev. on e?ecution in the su% of P6",+++.++ #ith le1al interest thereon fro% -ul. 6+,/,)0 #hen respondent &%elia an %ade an e?tra'@udicial de%and throu1h a letter. Eev. #as also ordered for the further su% of P",+++.++ a#arded as attorne.9s fees. On Ma. 6B, /,0*, the petitioner filed an ur1ent %otion to $uash the alias #rit of e?ecution statin1 that no return of the #rit had as .et been %ade b. Deput. Sheriff E%ilio P. Re.es and that the @ud1%ent debt had alread. been full. satisfied b. the petitioner as evidenced b. the cash vouchers si1ned and receipted b. the server of the #rit of e?ecution, Deput. Sheriff E%ilio P. Re.es. On Ma. 6),/,0*, the respondent -ai%e I. del Rosario served a notice of 1arnish%ent on the depositor. ban; of petitioner, 4ar East 3an; and rust Co%pan., Rosario 3ranch, 3inondo, Manila, throu1h its %ana1er and 1arnished the petitioner9s deposit in the said ban; in the total a%ount of P)!,!+*.++ as of Ma. /), /,0*. >ence, this petition for certiorari filed b. the Philippine &irlines, Inc., on the 1rounds that2 I

&N &EI&S ARI O4 EGEC= ION C&NNO 3E ISS=ED AI >O= PRIOR RE =RN O4 >E ORI(IN&E ARI 3F >E IMPEEMEN IN( O44ICER. II P&FMEN O4 -=D(MEN O >E IMPEEMEN IN( O44ICER &S DIREC ED IN >E ARI O4 EGEC= ION CONS I = ES S& IS4&C ION O4 -=D(MEN . III IN ERES IS NO P&F&3EE A>EN >E DECISION IS SIEEN &S O >E P&FMEN >EREO4. IV SEC ION ", R=EE B,, P&R IC=E&REF RE4ERS O EEVF O4 PROPER F O4 -=D(MEN DE3 OR &ND DISPOS&E OR S&EE >EREO4 O S& IS4F -=D(MEN . Can an alias #rit of e?ecution be issued #ithout a prior return of the ori1inal #rit b. the i%ple%entin1 officerL Ae rule in the affir%ative and #e $uote the respondent court9s decision #ith approval2 he issuance of the $uestioned alias #rit of e?ecution under the circu%stances here obtainin1 is @ustified because even #ith the absence of a Sheriffs return on the ori1inal #rit, the unalterable fact re%ains that such a return is incapable of bein1 obtained 5sic7 because the officer #ho is to %a;e the said return has absconded and cannot be brou1ht to the Court despite the earlier order of the court for hi% to appear for this purpose. 5Order of 4eb. 6/, /,0*, &nne? C, Petition7. Obviousl., ta;in1 co1ni8ance of this circu%stance, the order of Ma. //, /,0* directin1 the issuance of an alias #rit #as therefore issued. 5&nne? D. Petition7. he need for such a return as a condition precedent for the issuance of an alias #rit #as @ustifiabl. dispensed #ith b. the court belo# and its action in this re1ard %eets #ith our concurrence. & contrar. vie# #ill produce an abhorent situation #hereb. the %ischief of an errin1 officer of the court could be utili8ed to i%pede indefinitel. the undisputed and a#arded ri1hts #hich a prevailin1 part. ri1htfull. deserves to obtain and #ith dispatch. he final @ud1%ent in this case should not indeed be per%itted to beco%e illusor. or incapable of e?ecution for an indefinite and over e?tended period, as had alread. transpired. 5Rollo, pp. B"'B)7 <udiciu! non debet esse illusoriu!+ suu! effectu! habere debet 5& @ud1%ent ou1ht not to be illusor. it ou1ht to have its proper effect7. Indeed, technicalit. cannot be countenanced to defeat the e?ecution of a @ud1%ent for e?ecution is the fruit and end of the suit and is ver. aptl. called the life of the la# 5Ipe;d@ian Merchandisin1 Co. v. Court of a? &ppeals, * SCR& ", M/,)BNH Co%%issioner of Internal Revenue v. Visa.an Electric Co., /, SCR& ),0, ),* M/,)0N7. & @ud1%ent cannot be rendered nu1ator. b. the unreasonable application of a strict rule of procedure. Vested ri1hts #ere never intended to rest on the re$uire%ent of a return, the office of #hich is %erel. to infor% the court and the parties, of an. and all actions ta;en under the #rit of e?ecution. Ahere such infor%ation can be established in so%e other %anner, the absence of an e?ecutin1 officer9s return #ill not preclude a @ud1%ent fro% bein1 treated as dischar1ed or bein1 e?ecuted throu1h an alias #rit of e?ecution as the case %a. be. More so, as in the case at bar. Ahere the return cannot be e?pected to be forthco%in1, to re$uire the sa%e #ould be to co%pel the enforce%ent of ri1hts under a @ud1%ent to rest on an i%possibilit., thereb. allo#in1 the total avoidance of @ud1%ent debts. So lon1 as a @ud1%ent is not satisfied, a plaintiff is entitled to other #rits of e?ecution 5(overn%ent of the Philippines v. Echaus and (on8ales, 0/ Phil. B/*7. It is a #ell ;no#n le1al %a?i% that he #ho cannot prosecute his @ud1%ent #ith effect, sues his case vainl.. More i%portant in the deter%ination of the propriet. of the trial court9s issuance of an alias #rit of e?ecution is the issue of satisfaction of @ud1%ent. =nder the peculiar circu%stances surroundin1 this case, did the pa.%ent %ade to the abscondin1 sheriff b. chec; in his na%e operate to satisf. the @ud1%ent debtL he Court rules that the plaintiff #ho has #on her case should not be ad@ud1ed as havin1 sued in vain. o decide other#ise #ould not onl. 1ive her an e%pt. but a p.rrhic victor..

It should be e%phasi8ed that under the initial @ud1%ent, &%elia an #as found to have been #ron1ed b. P&E. She filed her co%plaint in /,)0. &fter ten 5/+7 .ears of protracted liti1ation in the Court of 4irst Instance and the Court of &ppeals, Ms. an #on her case. It is no# /,,+. &l%ost t#ent.'t#o 5667 .ears later, Ms. an has not seen a centavo of #hat the courts have sole%nl. declared as ri1htfull. hers. hrou1h absolutel. no fault of her o#n, Ms. an has been deprived of #hat, technicall., she should have been paid fro% the start, before =C?>, #ithout need of her 1oin1 to court to enforce her ri1hts. &nd all because P&E did not issue the chec;s intended for her, in her na%e. =nder the peculiar circu%stances of this case, the pa.%ent to the abscondin1 sheriff b. chec; in his na%e did not operate as a satisfaction of the @ud1%ent debt. In 1eneral, a pa.%ent, in order to be effective to dischar1e an obli1ation, %ust be %ade to the proper person. &rticle /6!+ of the Civil Code provides2 Pa.%ent shall be %ade to the person in #hose favor the obli1ation has been constituted, or his successor in interest, or an. person authorized to receive it. 5E%phasis supplied7 hus, pa.%ent %ust be %ade to the obli1ee hi%self or to an a1ent havin1 authorit., e?press or i%plied, to receive the particular pa.%ent 5=len v. Inecttle "+ A.o ,!, "* M6dN !!), /// &ER )"7. Pa.%ent %ade to one havin1 apparent authorit. to receive the %one. #ill, as a rule, be treated as thou1h actual authorit. had been 1iven for its receipt. Ei;e#ise, if pa.%ent is %ade to one #ho b. la# is authori8ed to act for the creditor, it #ill #or; a dischar1e 5>endr. v. 3enlisa B0 4la. )+,, 6+ SO *++,B! ER& 6*B7. he receipt of %one. due on a@ud1%ent b. an officer authori8ed b. la# to accept it #ill, therefore, satisf. the debt 5See !+ &% -% 06,, 6"H >endr. v. 3enlisa supraH Seattle v. Stirrat "" Aash. /+! p. *B!,6! ER& MNSN /60"7. he theor. is #here pa.%ent is %ade to a person authori8ed and reco1ni8ed b. the creditor, the pa.%ent to such a person so authori8ed is dee%ed pa.%ent to the creditor. =nder ordinar. circu%stances, pa.%ent b. the @ud1%ent debtor in the case at bar, to the sheriff should be valid pa.%ent to e?tin1uish the @ud1%ent debt. here are circu%stances in this case, ho#ever, #hich co%pel a different conclusion. he pa.%ent %ade b. the petitioner to the abscondin1 sheriff #as not in cash or le1al tender but in chec;s. he chec;s #ere not pa.able to &%elia an or &ble Printin1 Press but to the abscondin1 sheriff. Did such pa.%ents e?tin1uish the @ud1%ent debtL &rticle /6!, of the Civil Code provides2 he pa.%ent of debts in %one. shall be %ade in the currenc. stipulated, and if it is not possible to deliver such currenc., then in the currenc. #hich is le1al tender in the Philippines. he deliver. of pro%issor. notes pa.able to order, or bills of e?chan1e or other %ercantile docu%ents shall produce the effect of pa.%ent onl. #hen the. have been cashed, or #hen throu1h the fault of the creditor the. have been i%paired. In the %eanti%e, the action derived fro% the ori1inal obli1ation shall be held in abe.ance. In the absence of an a1ree%ent, either e?press or i%plied, pa.%ent %eans the dischar1e of a debt or obli1ation in %one. 5=S v. Robertson, " Pet. M=SN )!/, * E. ed. 6"07 and unless the parties so a1ree, a debtor has no ri1hts, e?cept at his o#n peril, to substitute so%ethin1 in lieu of cash as %ediu% of pa.%ent of his debt 5&nderson v. (ill, 0, Md.. B/6, 6, & "60, 6" ER& 6++,!0 &%. St. Rep. !+67. Conse$uentl., unless authori8ed to do so b. la# or b. consent of the obli1ee a public officer has no authorit. to accept an.thin1 other than %one. in pa.%ent of an obli1ation under a @ud1%ent bein1 e?ecuted. Strictl. spea;in1, the acceptance b. the sheriff of the petitioner9s chec;s, in the case at bar, does not, per se, operate as a dischar1e of the @ud1%ent debt.

Since a ne1otiable instru%ent is onl. a substitute for %one. and not %one., the deliver. of such an instru%ent does not, b. itself, operate as pa.%ent 5See. /*,, &ct 6+B/ on Ne1s. Insts.H &rt. /6!,, Civil CodeH 3r.an Eandon Co. v. &%erican 3an;, 0 Phil. 6""H an Sunco v. Santos, , Phil. !!H 6/ R.C.E. )+, )/7. & chec;, #hether a %ana1er9s chec; or ordinar. chee;, is not le1al tender, and an offer of a chec; in pa.%ent of a debt is not a valid tender of pa.%ent and %a. be refused receipt b. the obli1ee or creditor. Mere deliver. of chec;s does not dischar1e the obli1ation under a @ud1%ent. he obli1ation is not e?tin1uished and re%ains suspended until the pa.%ent b. co%%ercial docu%ent is actuall. reali8ed 5&rt. /6!,, Civil Code, par. B7. If bouncin1 chec;s had been issued in the na%e of &%elia an and not the Sheriff9s, there #ould have been no pa.%ent. &fter dishonor of the chec;s, Ms. an could have run after other properties of P&E. he theor. is that she has received no value for #hat had been a#arded her. 3ecause the chec;s #ere dra#n in the na%e of E%ilio P. Re.es, neither has she received an.thin1. he sa%e rule should appl.. It is ar1ued that if P&E had paid in cash to Sheriff Re.es, there #ould have been pa.%ent in full le1al conte%plation. he reasonin1 is lo1ical but is it valid and properL Eo1ic has its li%its in decision %a;in1. Ae should not follo# rulin1s to their lo1ical e?tre%es if in doin1 so #e arrive at un@ust or absurd results. In the first place, P&E did not pay in cash. It paid in chee;s. &nd second, pa.%ent in cash al#a.s carries #ith it certain cautions. Nobod. hands over bi1 a%ounts of cash in a careless and inane %anner. Mature thou1ht is 1iven to the possibilit. of the cash bein1 lost, of the bearer bein1 #a.laid or runnin1 off #ith #hat he is carr.in1 for another. Pa.%ent in chec;s is precisel. intended to avoid the possibilit. of the %one. 1oin1 to the #ron1 part.. he situation is entirel. different #here a Sheriff sei8es a car, a tractor, or a piece of land. Eo1ic often has to 1ive #a. to e?perience and to realit.. >avin1 paid #ith chec;s, P&E should have done so properl.. Pa.%ent in %one. or cash to the i%ple%entin1 officer %a. be dee%ed absolute pa.%ent of the @ud1%ent debt but the Court has never, in the least bit, su11ested that @ud1%ent debtors should settle their obli1ations b. turnin1 over hu1e a%ounts of cash or le1al tender to sheriffs and other e?ecutin1 officers. Pa.%ent in cash #ould result in da%a1e or inter%inable liti1ations each ti%e a sheriff #ith hu1e a%ounts of cash in his hands decides to abscond. &s a protective %easure, therefore, the courts encoura1e the practice of pa.%ents b. chee; provided ade$uate controls are instituted to prevent #ron1ful pa.%ent and ille1al #ithdra#al or disburse%ent of funds. If particularl. bi1 a%ounts are involved, escro# arran1e%ents #ith a ban; and carefull. supervised b. the court #ould be the safer procedure. &ctual transfer of funds ta;es place #ithin the safet. of ban; pre%ises. hese practices are perfectl. le1al. he ob@ect is al#a.s the safe and incorrupt e?ecution of the @ud1%ent. It is, indeed, out of the ordinar. that chec;s intended for a particular pa.ee are %ade out in the na%e of another. Ma;in1 the chec;s pa.able to the @ud1%ent creditor #ould have prevented the encash%ent or the ta;in1 of undue advanta1e b. the sheriff, or an. person into #hose hands the chec;s %a. have fallen, #hether #ron1full. or in behalf of the creditor. he issuance of the chec;s in the na%e of the sheriff clearl. %ade possible the %isappropriation of the funds that #ere #ithdra#n. &s e?plained and held b. the respondent court2 ... MINno#in1 as it does that the intended pa.%ent #as for the private part. respondent &%elia an, the petitioner corporation, utili8in1 the services of its personnel #ho are or should be ;no#led1eable about the accepted procedures and resultin1 conse$uences of the chec;s dra#n, nevertheless, in this instance, #ithout prudence, departed fro% #hat is 1enerall. observed and done, and placed as pa.ee in the chec;s the na%e of the errant Sheriff and not the na%e of the ri1htful pa.ee. Petitioner thereb. created a situation #hich per%itted the said Sheriff to personall. encash said chec;s and %isappropriate the proceeds thereof to his e?clusive personal benefit. 4or the pre@udice that resulted, the petitioner hi%self %ust bear the fault. he @udicial 1uideline #hich #e ta;e note of states as follo#s2 &s bet#een t#o innocent persons, one of #ho% %ust suffer the conse$uence of a breach of trust, the one #ho %ade it possible b. his act of confidence %ust bear the loss. 53londeau, et al. v. Nano, et al., E'!/B00, -ul. 6), /,B", )/ Phil. )6"7 >avin1 failed to e%plo. the proper safe1uards to protect itself, the @ud1%ent debtor #hose act %ade possible the loss had but itself to bla%e.

he attention of this Court has been called to the bad practice of a nu%ber of e?ecutin1 officers, of re$uirin1 chec;s in satisfaction of @ud1%ent debts to be %ade out in their o#n na%es. If a sheriff directs a @ud1%ent debtor to issue the chec;s in the sheriff9s na%e, clai%in1 he %ust 1et his co%%ission or fees, the debtor %ust report the sheriff i%%ediatel. to the court #hich ordered the e?ecution or to the Supre%e Court for appropriate disciplinar. action. 4ees, co%%issions, and salaries are paid throu1h re1ular channels. his i%proper procedure also allo#s such officers, #ho have si?t. 5)+7 da.s #ithin #hich to %a;e a return, to treat the %one.s as their personal finds and to deposit the sa%e in their private accounts to earn si?t. 5)+7 da.s interest, before said finds are turned over to the court or @ud1%ent creditor 5See 3al1os v. Velasco, /+* SCR& "6" M/,*/N7. Juite as easil., such officers could put up the defense that said chec;s had been issued to the% in their private or personal capacit.. Aithout a receipt evidencin1 pa.%ent of the @ud1%ent debt, the %isappropriation of finds b. such officers beco%es clean and co%plete. he practice is in1enious but evil as it un@ustl. enriches court personnel at the e?pense of liti1ants and the proper ad%inistration of @ustice. he te%ptation could be far 1reater, as proved to be in this case of the abscondin1 sheriff. he correct and prudent thin1 for the petitioner #as to have issued the chec;s in the intended pa.ee9s na%e. he pernicious effects of issuin1 chec;s in the na%e of a person other than the intended pa.ee, #ithout the latter9s a1ree%ent or consent, are as %an. as the #a.s that an artful %ind could concoct to 1et around the safe1uards provided b. the la# on ne1otiable instru%ents. &n an1r. liti1ant #ho loses a case, as a rule, #ould not #ant the #innin1 part. to 1et #hat he #on in the @ud1%ent. >e #ould thin; of #a.s to dela. the #innin1 part.9s 1ettin1 #hat has been ad@ud1ed in his favor. Ae cannot condone that practice especiall. in cases #here the courts and their officers are involved. Ae rule a1ainst the petitioner. &nent the applicabilit. of Section /", Rule B,, as follo#s2 Section /". E&ecution of !oney (ud !ents. K he officer %ust enforce an e?ecution of a %one. @ud1%ent b. lev.in1 on all the propert., real and personal of ever. na%e and nature #hatsoever, and #hich %a. be disposed of for value, of the @ud1%ent debtor not e?e%pt fro% e?ecution, or on a sufficient a%ount of such propert., if the. be sufficient, and sellin1 the sa%e, and payin to the (ud !ent creditor, or his attorne., so %uch of the proceeds as #ill satisf. the @ud1%ent. ... the respondent court held2 Ae are obli1ed to rule that the @ud1%ent debt cannot be considered satisfied and therefore the orders of the respondent @ud1e 1rantin1 the alias #rit of e?ecution %a. not be pronounced as a nullit.. ??? ??? ??? It is clear and %anifest that after lev. or 1arnish%ent, for a @ud1%ent to be e?ecuted there is the re$uisite of pa.%ent b. the officer to the @ud1%ent creditor, or his attorne., so %uch of the proceeds as #ill satisf. the @ud1%ent and none such pa.%ent had been concededl. %ade .et b. the abscondin1 Sheriff to the private respondent &%elia an. he ulti%ate and essential step to co%plete the e?ecution of the @ud1%ent not havin1 been perfor%ed b. the Cit. Sheriff, the @ud1%ent debt le1all. and factuall. re%ains unsatisfied. Strictl. spea;in1 e?ecution cannot be e$uated #ith satisfaction of a @ud1%ent. =nder unusual circu%stances as those obtainin1 in this petition, the distinction co%es out clearl.. E?ecution is the process #hich carries into effect a decree or @ud1%ent 5Painter v. 3er1lund, B/ Cal. &pp. 6d. )B, *0 P 6d B)+, B)BH Miller v. Eondon, 6,! Mass B++, / NE 6d /,*, 6++H 3lac;9s Ea# Dictionar.7, #hereas the satisfaction of a @ud1%ent is the pa.%ent of the a%ount of the #rit, or a la#ful tender thereof, or the conversion b. sale of the debtor9s propert. into an a%ount e$ual to that due, and, it %a. be done other#ise than upon an e?ecution 5Section !0, Rule B,7. Eev. and deliver. b. an e?ecution officer are not prere$uisites to the satisfaction of a @ud1%ent #hen the sa%e has alread. been reali8ed in fact 5Section !0, Rule B,7. E?ecution is for the sheriff to acco%plish #hile satisfaction of the @ud1%ent is for the creditor to achieve. Section /", Rule B, %erel. provides the sheriff #ith his duties as e?ecutin1 officer includin1 deliver. of the proceeds of his lev. on the debtor9s propert. to satisf. the @ud1%ent debt. It is but to stress that the i%ple%entin1 officer9s dut. should not stop at his receipt of pa.%ents but %ust continue until pa.%ent is delivered to the obli1or or creditor. 4inall., #e find no error in the respondent court9s pronounce%ent on the inclusion of interests to be recovered under the alias #rit of e?ecution. his lo1icall. follo#s fro% our rulin1 that P&E is liable for both the lost chec;s and interest. he respondent court9s decision in C&'(.R. No. "/+0,'R does not totall.

supersede the trial court9s @ud1%ent in Civil Case No. 0/B+0. It %erel. %odified the sa%e as to the principal a%ount a#arded as actual da%a1es. A>ERE4ORE, IN VIEA O4 >E 4ORE(OIN(, the petition is hereb. DISMISSED. he @ud1%ent of the respondent Court of &ppeals is &44IRMED and the trial court9s issuance of the alias #rit of e?ecution a1ainst the petitioner is upheld #ithout pre@udice to an. action it should ta;e a1ainst the errant sheriff E%ilio P. Re.es. he Court &d%inistrator is ordered to follo# up the actions ta;en a1ainst E%ilio P. Re.es. SO ORDERED. 8ernan, C.<., Cruz, ,aras, ;idin, AriDo3-#uino, :edialdea and Be alado, <<., concur.

Republic of the Philippines SU"REME COURT Manila 4IRS DIVISION

G.R. No. 10 555 !,9,-.,r 20, 1993 RAMON TAN, petitioner, vs. T%E %ONORABLE COURT O) A""EALS &'( RI<AL COMMERCIAL BAN/ING COR"ORATION, respondents. Eulo, Fuisu!bin , Torres, -li & ;ello Law Offices for petitioner. 6i uion Beyna, :ontecillo & On sia'o for private respondent.

/A"UNAN, J.: his petition see;s to set aside the decision of the Court of &ppeals dated -anuar. /6, /,,B in C&'(.R. CV No. B/+*B, entitled Ba!on Tan, plaintiff3appellee, vs. Bizal Co!!ercial ;an'in Corporation, defendant3appellant, reversin1 the decision of the Re1ional rial Court dated Dece%ber 6*, /,,+ orderin1 respondent ban; Ri8al Co%%ercial 3an;in1 Corporation 5RC3C7, 3inondo 3ranch, to pa. petitioner da%a1es and attorne.9s fees in the a%ount of ONE MIEEION >IR F 4IVE >O=S&ND 5P/,+B",+++.++7 PESOS. he follo#in1 are the uncontroverted facts2 Petitioner Ra%on an, a trader'business%an and co%%unit. leader in Puerto Princesa, had %aintained since /,0) Current &ccount No. /+,+"*+)* #ith respondent ban;9s 3inondo branch. On March //, /,**, to avoid carr.in1 cash #hile enroute to Manila, he secured a Cashier9s Chec; No. E !+)+++/6) fro% the Philippine Co%%ercial Industrial 3an; 5PCI37, Puerto Princesa branch, in the a%ount of hirt. housand 5PB+,+++.++7 Pesos, pa.able to his order. >e deposited the chec; in his account #ith RC3C 3inondo on March /". On the sa%e da., RC3C erroneousl. sent the sa%e cashier9s chec; for clearin1 to the Central 3an; #hich #as returned for havin1 been <%issent< or <%isrouted.< 1 he ne?t da., March /), RC3C debited the a%ount covered b. the sa%e cashier9s chec; fro% the account of the petitioner. Respondent ban; at this ti%e had not infor%ed the petitioner of its action #hich the latter clai%s he learned of onl. !6 da.s after, specificall. on March /), #hen he received the ban;9s debit %e%o. 2 Rel.in1 on the co%%on ;no#led1e that a cashier9s chec; #as as 1ood as cash, that the usual ban;in1 practice that local chec;s are cleared #ithin three 5B7 #or;in1 da.s and re1ional chec;s #ithin seven 507 #or;in1 da.s, and the fact that the cashier9s chec; #as accepted, petitioner issued t#o 567 personal chec;s both dated March /*. Chec; No. +!+0/, in the na%e of (o Eac for 4ive housand 4ive >undred 5P","+++.++7 Pesos #as presented on &pril 6", 3 %ore than B+ da.s fro% petitioner9s deposit date of the cashier9s chec;. Chec; No. +!+0/* in the na%e of MS Develop%ent radin1 Corporation for Si? housand 4ift.' hree Pesos and Sevent. Centavos 5P),+"B.0+7 #as returned twice on March 6!, nine 5,7 da.s fro% his deposit date and a1ain on &pril 6), t#ent.'t#o da.s after the da. the cashier9s chec; #as deposited for insufficienc. of funds. 3 Petitioner, alle1in1 to have suffered hu%iliation and loss of face in the business sector due to the bounced chec;s, filed a co%plaint a1ainst RC3C for da%a1es in the Re1ional rial Court of Pala#an and Puerto Princesa, 3ranch !0, doc;eted as Civil Case No. 6/+/. 5 Durin1 the trial, petitioner sou1ht to prove2 4irst, that it #as RC3C9s responsibilit. to call his attention there and then that he had erroneousl. filled the #ron1 deposit slip at the ti%e he deposited the cashier9s chec; #ith the respondent ban;9s teller and it #as ne1li1ence on RC3C9s part not to have done soH = Second, that RC3C had been re%iss in the perfor%ance of its obli1ation to the petitioner #hen it <%issent< the cashier9s chec; to the Central 3an; ;no#in1, as it should, that the source of the chec;,

PCI3, Puerto Princesa 3ranch, is not included in the areas re$uired to be cleared b. the Central 3an;, a fact ;no#n to the ban;in1 #orld and surel. to the respondent ban;H 7 hird, that RC3C upon ;no#in1 of its error in <%issendin1< the cashier9s chec; to the Central 3an; did not atte%pt to rectif. its <%isclearin1< error b. clearin1 it seasonabl. #ith PCI3, Puerto Princesa, thru its o#n RC3C Puerto Princesa 3ranch #ith #ho% it had direct radio contactH 4ourth, that as an old client, #ith t#elve 5/67 .ears of 1ood standin1 then, RC3C should have 1iven hi% %ore consideration b. e?ertin1 1reater dili1ence in clearin1 the chec; #ith PCI3, Puerto Princesa, to protect its client9s interestH 9 4ifth, that RC3C failed to infor% petitioner pro%ptl. that the chec; had not been cleared, despite its debitin1 #ithout dela. the a%ount covered b. the chec; fro% the account of the petitioner and hastil. char1in1 the latter service fees i%%ediatel. after the return of the <%issent chec;s<H 10 and 4inall., that the bounced chec;s resultin1 fro% RC3C9s <%isclearin1< had put in doubt his credibilit. a%on1 his business peers and sullied his reputation as a co%%unit. leader #hich he had painsta;in1l. cultivated for .ears. >is co%%unit. standin1 as a business'socio'civic leader #as a source of pride for hi% in his old a1e of 0+. >e cited bein1 Chair%an of Pala#an 3o. Scout Council, 6'ter% President of the Rotar. Club of Puerto Princesa, %e%ber of Pala#an Cha%ber of Co%%erce and Industr., %e%ber of the Monitorin1 ea% of the Pala#an Inte1rated &rea Develop%ent Pro@ect, %e%ber of Eion9s Club, Philippine Rifle Pistol &ssociation and the Saturda. >ealth Club to @ustif. his clai% for %oral da%a1es. 11 In its defense, RC3C diso#nin1 an. ne1li1ence, put the bla%e for the <%isroutin1< on the petitioner for usin1 the #ron1 chec; deposit slip. It insisted that the %isuse of a local chec; deposit slip, instead of a re1ional chec; deposit slip, tri11ered the <%isroutin1< b. RC3C of the cashier9s chec; to the Central 3an; and it #as petitioner9s ne1li1ent <%isuse< of a local deposit slip #hich #as the pro?i%ate cause of the <%isroutin1,< thus he should bear the conse$uence. 12 RC3C alle1ed that it co%plied strictl. #ith accepted ban;in1 practice #hen it debited the a%ount of PB+,+++.++ a1ainst petitioner9s account since under Resolution No. 66+6 dated Dece%ber 6/, /,0, of the Monetar. 3oard, it is a %atter of polic. to prohibit the dra#in1 a1ainst uncollected deposits 5D&=DS7 e?cept #hen the dra#in1s are %ade a1ainst uncollected deposits representin1 ban; %ana1er9sCcashier9sCtreasurer9s chec;s, treasur. #arrants, postal %one. orders and dul. funded <on us< chec;s #hich %a. be per!itted at the discretion of each ban'. 13Aithout creditin1 the PB+,+++.++ deposit, petitioner9s balance before and after #as #o housand Seven >undred Ninet.' #o Pesos and the 5P6,0,6.**7 Ei1ht.'Ei1ht Centavos. 13 hus, it dishonored the t#o 567 chec;s a%ountin1 to P//,""B.0+ since the. #ere dra#n a1ainst insufficient funds. RC3C added that petitioner had no bills purchase 53P7 line #hich allo#s a depositor to receive or dra# fro% proceeds of a chec; #ithout #aitin1 it to be cleared. 3esides, RC3C %aintained, had it for#arded the Cashier9s Chec; to PCI3 Puerto Princesa, Pala#an, it #ould ta;e at least t#ent. 56+7 #or;in1 da.s for the cashier9s chec; to be cleared and it #ould ta;e the sa%e len1th of ti%e to clear the t#o 567 personal chec;s of an. 15 RC3C further asseverated it #as %erel. actin1 as petitioner9s collectin1 a1ent and it assu!ed no responsibilitybe.ond care in selectin1 correspondents under the theor. that #here a chec; is deposited #ith a collectin1 ban; the relationship created is that of a1enc. and not creditor'debtor, thus it cannot be liable. 1= 4inall., respondent clai%ed that serious atte%pts #ere %ade to contact petitioner throu1h the telephone nu%bers in the si1nature speci%en card of petitioner but to no avail. 17 he &ssistant 3ranch &ccountant of RC3C 3inondo 3ranch testified that the first telephone nu%ber in the card had been deleted fro% the phone co%pan.9s list and that #hen RC3C tried to contact petitioner9s dau1hter Evel.n an'3an8on thru a certain telephone nu%ber and #hen the. as;ed for Evel.n an, the. #ere told there #as no such person. 1 he trial court rendered a decision on Dece%ber 6*, /,,+ in petitioner9s favor, the dispositive portion #hich reads2
19

of

A>ERE4ORE, pre%ises considered, plaintiff havin1 proven the alle1ations of his verified co%plaint b. preponderance of evidence, the court hereb. renders @ud1%ent orderin1 defendant ban;, 3inondo 3ranch, Manila, to pa. hi% da%a1es and attorne.9s fees in the total a%ount of P/,+B",+++.++ Philippine Currenc., bro;en do#n as follo#s2 P0++,+++.++ as %oral da%a1es, P6++,+++.++ as e?e%plar. da%a1esH P/B",+++.++ #hich is /"D of the su% herein a#arded to plaintiff, as attorne.9s fees and to pa. costs of suit.

4or havin1 failed to prove b. an. receipt or #ritin1 to underpin it, plaintiff9s clai% for actual da%a1e is denied for lac; of %erit. I IS SO ORDERED. RC3C appealed to the Court of &ppeals contendin1 that the trial court erred in holdin1 RC3C liable to petitioner on account of its alle1ed ne1li1ence and in a#ardin1 petitioner %oral and e?e%plar. da%a1es and attorne.9s fees. he Court of &ppeals on -anuar. /6, /,,B rendered a decision
20

#ith the follo#in1 decretal portion2

A>ERE4ORE, and upon all the fore1oin1, the decision of the court belo# is REVERSED and this co%plaint is DISMISSED #ithout pronounce%ent as to cost. he Court of &ppeals9 decision is based on the follo#in1 findin1s2
21

Ahat appeared to have caused the unfortunate incident #as that the plaintiff filled up the #ron1 deposit slip #hich led to the sendin1 of the chec; to the Central 3an; #hen the clearin1 should have been %ade else#here. 3ut the clai% of the plaintiff that he #as not advised that the Cashier9s chec; #as %issent does not see% to be correct. he evidence indicated that the defendant ban; thru its personnel had called hi% up thru telephone in the nu%ber 5No. )+'!"'6B7 #hich he 1ave in his speci%en si1nature card. 3ut it ca%e out, that said telephone nu%ber #as no lon1er active or #as alread. deleted fro% the list of telephone nu%bers. here #as an instruction on the part of the plaintiff for the ban; to contact his dau1hter, Mrs. Evel.n an 3an8on and accordin1 to the plaintiff, she too, #as not contacted as per his instruction. he evidence, ho#ever, indicated that Ms. Evel.n an also could not be contacted at the nu%ber supposed to pertain to her as appeared in the speci%en si1nature card. In other #ords #hile there #as co%pliance #ith the instructions 1iven b. the plaintiff but said instructions #ere fault.. he plaintiff as a custo%er of the ban; is under obli1ation to infor% the defendant of an. chan1es in the telephone nu%bers to be contacted in the event of an. e?i1enc.. &ll in all, the facts indicate that the refusal of RC3C to credit the a%ount of PB+,+++.++ to the plaintiff9s current account is consistent #ith the accepted ban;in1 practice. &s the defendant ban; had clai%ed, under Resolution No. 66+6 dated Dece%ber 6/, /,0, of the Monetar. 3oard, it had been e%phaticall. declared as a %atter of polic. that no dra#in1s should be %ade a1ainst uncollected deposits e?cept #hen the dra#in1s are %ade a1ainst uncollected deposits representin1 ban; %ana1er9sCcashier9sCtreasurer9s chec;s, treasur. #arrants, postal %one. orders, and dul. funded <on'us< chec;s as %a. be per%itted at the discretion of each ban;. It is clear that i%%ediate pa.%ent #ithout a#aitin1 clearance of a cashier9s chec; is discretionar. #ith the ban; to #ho% the chec; is presented and such bein1 the case, the refusal to allo# it as in this case is not to be e$uated #ith ne1li1ence in the basic perception that discretion is not de%andable as a ri1ht. In the instant case, prior to the deposit of PB+,+++.++, the plaintiff9s account appeared to be onl. in the a%ount of P6,0,6.,*. So the t#o 567 chec;s issued b. the plaintiff a%ountin1 to P//,""B.0+ had to be dishonored since the. #ere dra#n a1ainst insufficient funds. Ahat the plaintiff should have done, before issuin1 the t#o 567 chec;s, #as to a#ait the clearance of the Cashier9s chec; and his failure to do so is a fault not ascribable to the defendant #ho appeared under the circu%stance %erel. to have follo#ed the usual ban;in1 practice. Petitioner no# see;s to reverse the decision of the Court of &ppeals and affir% that of the lo#er court. >e raises the follo#in1 errors2 /. >E >ONOR&3EE CO=R O4 &PPE&ES COMMI ED (ROSS &ND M&NI4ES ERROR IN CONCE=DIN( >& >E NE(EI(ENCE A&S &SCRI3&3EE O >EREIN PE I IONER.

6. >E >ONOR&3EE CO=R O4 &PPE&ES (R&VEEF &3=SED I S DISCRE ION IN 4INDIN( >& >E RESPONDEN 3&NI >&D NO 3EEN REMISS IN >E PER4ORM&NCE O4 I S O3EI(& IONS O >EREIN PE I IONER. B. >E >ONOR&3EE CO=R O4 &PPE&ES COMMI ED (ROSS &ND M&NI4ES ERROR &ND (R&VE &3=SE O4 DISCRE ION IN REVERSIN( >E &A&RD O4 MOR&E &ND EGEMPE&RF D&M&(ES O >E PE I IONER. !. >E >ONOR&3EE CO=R O4 &PPE&ES COMMI ED (ROSS &ND M&NI4ES ERROR &ND (R&VE &3=SE O4 DISCRE ION IN NO &A&RDIN( & ORNEF9S 4EES O PE I IONER. In a %ost recent case decided b. this Court, City Trust Corporation v. The "nter!ediate -ppellate Court, 22involvin1 da%a1es a1ainst Cit. rust 3an;in1 Corporation, the depositor, instead of statin1 her correct account nu%ber 6,+++*6B inaccuratel. #rote 6,++*6B. 3ecause of this error, si? postdated chec;s a%ountin1 to P6+,6+,.++ she issued #ere dishonored for insufficienc. of funds. he Re1ional rial Court dis%issed the co%plaint for lac; of %erit. he Court of &ppeals, ho#ever, found the appeal %eritorious and ordered the ban; to pa. no%inal da%a1es of P6,+++.++, te%perate and %oderate da%a1es of P",+++.++ and attorne.9s fees of P!,+++.++. =pon revie#, this Court $uoted #ith favor the dis$uisition of the appellate court2 Ae cannot uphold the position of defendant. 4or, even if it be true that there #as error on the part of the plaintiff in o%ittin1 a 8ero in her account nu%ber, .et, it is a fact that her na%e, E%%a E. >errero, is clearl. #ritten on said deposit slip 5E?h. 37. his is controllin1 in deter%inin1 in #hose account the deposit is %ade or should be posted. his is so because it is not li;el. to co%%it an error in one9s na%e that %erel. rel.in1 on nu%bers #hich are difficult to re%e%ber, especiall. a nu%ber #ith ei1ht 5*7 di1its as the account nu%bers of defendant9s depositors. Ae vie# the use of nu%bers as si%pl. for the convenience of the ban; but #as never intended to disre1ard the real na%e of its depositors. he ban; is en1a1ed in business i%pressed #ith public interests, and it is its dut. to protect in return its %an. clients and depositors #ho transact business #ith it. It should not be a %atter of the ban; alone receivin1 deposits, lendin1 out %one. and collectin1 interests. It is also its obli1ation to see to it that all funds invested #ith it are properl. accounted for and dul. posted in its led1ers. In the case before =s, #e are not persuaded that defendant ban; #as not free fro% bla%e for the fiasco. In the first place, the teller should not have accepted plaintiff9s deposit #ithout correctin1 the account nu%ber on the deposit slip #hich, obviousl., #as erroneous because, as pointed out b. defendant, it contained onl. seven 507 di1its instead of ei1ht 5*7. Second, the co%plete na%e of plaintiff depositor appears in bold letters on the deposit slip 5E?h. 37. here could be no %ista;in1 in her na%e, and that the deposit #as %ade in her na%e, E%%a E. >errero. In fact, defendant9s teller should not have fed her deposit slip to the co%puter ;no#in1 that her account nu%ber #ritten thereon #as #ron1 as it contained onl. seven 507 di1its. &s it happened, accordin1 to defendant, plaintiff9s deposit had to be consi1ned to the suspense accounts pendin1 verification. This, indeed, could have been avoided at the first instance had the teller of defendant ban' perfor!ed her duties efficiently and well . 4or then she could have readil. detected that the account nu%ber in the na%e of E%%a E. >errero #as erroneous and #ould be re@ected b. the co%puter. That is, or should be, part of the trainin and standard operatin procedure of the ban'.s e!ployees. On the other hand, the depositors are not concerned with ban'in procedure. That is the responsibility of the ban' and its e!ployees. Depositors are only concerned with the facility of depositin their !oney, earnin interest thereon, if any, and withdrawin therefro!, particularly business!en, li'e plaintiff, who are supposed to be always on3the3 o . Plaintiff9s account is a current account #hich should i%%ediatel. be posted. &fter all, it does not earn interest. &t least, the forbearance should be co%%ensurated #ith pro%pt, efficient and satisfactor. service. ;an' clients are supposed to rely on the services e&tended by the ban', includin the assurance that their deposits will be duly credited the! as soon as they are !ade . 4or, an. dela. in creditin1 their account can be e%barrassin1 to the% as in the case of plaintiff. The point is that as a business affected with public interest and because of the nature of its functions, the ban' is under obli ation to treat the accounts of its depositors with !eticulous care, always havin in !ind the fiduciary nature of their relationship . 5E%phasis supplied7.

In the li1ht of the above'cited case, the respondent ban; cannot e?culpate itself fro% liabilit. b. clai%in1 that its depositor <i%pliedl. instructed< the ban; to clear his chec; #ith the Central 3an; b. fillin1 a local chec; deposit slip. Such posture is disin1enuous, to sa. the least. 4irst, #h. #ould RC3C follo# a patentl. erroneous act born of i1norance or inattention or both. Second, ban; transactions pass throu1h a succession of ban; personnel #hose dut. is to chec; and counterchec; transactions for possible errors. In the instant case, the teller should not have accepted the local deposit slip #ith the cashier9s chec; that on its face #as clearl. a re1ional chec; #ithout callin1 the depositor9s attention to the %ista;e at the ver. %o%ent this #as presented to her. Neither should ever.one else do#n the line #ho processed the sa%e chec; for clearin1 have allo#ed the chec; to be sent to Central 3an;. Depositors do not pretend to be past %aster of ban;in1 technicalities, %uch %ore of clearin1 procedures. &s soon as their deposits are accepted b. the ban; teller, the. #holl. repose trust in the ban; personnel9s %aster. of ban;in1, their and the ban;9s s#orn profession of dili1ence and %eticulousness in 1ivin1 irreproachable service. Ae do not subscribe to RC3C9s assertion that petitioner9s use of the #ron1 deposit slip #as the pro?i%ate cause of the clearin1 fiasco and so, petitioner %ust bear the conse$uence. In ,ilipinas ;an', v. C-, 23 this Court said2 he ban; is not e?pected to be infallible but, as correctl. observed b. respondent &ppellate Court, in this instance, it %ust bear the bla%e for not discoverin1 the %ista;e of its teller despite the established procedure re$uirin1 the papers and ban; boo;s to pass throu1h a batter. of ban; personnel #hose dut. it is to chec; and counterchec; the% for possible errors. &pparentl., the officials and e%plo.ees tas;ed to do that did not perfor% their duties #ith due care, . . . So it is in the instance case, #here the conclusion is inevitable that respondent RC3C had been re%iss in the perfor%ance of its dut. and obli1ation to its client, as #ell as to itself. Ae dra# attention to the fact that the t#o dishonored chec;s issued b. petitioner, Chec; No. +!+0/, and Chec; No. +!+0/* #ere presented for pa.%ent 23 %ore than !" da.s fro% the da. the cashier9s chec; #as deposited. his 1ave RC3C %ore than a%ple ti%e to have cleared the cashier9s chec; had it corrected its <%issendin1< the sa%e upon return fro% Central 3an; usin1 the correct slip this ti%e so it can be cleared properl.. Instead, RC3C pro%ptl. debited the a%ount of PB+,+++.++ a1ainst petitioner9s account and left it at that. Ae observe, li;e#ise, that RC3C in$uired about an Evel.n an but no Evel.n an' ;anzon as specificall. instructed in the sa%e si1nature card. 5E%phasis supplied7 25 RC3C insists that i%%ediate pa.%ent #ithout a#aitin1 clearance of a cashier9s chec; is discretionar. #ith the ban; to #ho% the chec; is presented and such bein1 the case, its refusal to i%%ediatel. pa. the cashier9s chec; in this case is not to be e$uated #ith ne1li1ence on its part. Ae find this disturbin1 and unfortunate. &n ordinar. chec; is not a %ere underta;in1 to pa. an a%ount of %one.. here is an ele%ent of certaint. or assurance that it #ill be paid upon presentation that is #h. it is perceived as a convenient substitute for currenc. in co%%ercial and financial transactions. he basis of the perception bein1 confidence. &n. practice that destro.s that confidence #ill i%pair the usefulness of the chec; as a currenc. substitute and create havoc in trade circles and the ban;in1 co%%unit.. 2= No#, #hat #as presented for deposit in the instant cases #as not @ust an ordinar. chec; but a cashier9s chec; pa.able to the account of the depositor hi%self. & cashier9s chec; is a pri%ar. obli1ation of the issuin1 ban; andaccepted in advance b. its %ere issuance. 27 3. its ver. nature, a cashier9s chec; is the ban;9s order to pa. dra#n upon itself, co%%ittin1 in effect its total resources, inte1rit. and honor behind the chec;. & cashier9s chec; b. its peculiar character and 1eneral use in the co%%ercial #orld is re arded substantially to be as ood as the !oney which it represents . 2 In this case, therefore, PCI3 b. issuin1 the chec; created an unconditional credit in favor of an. collectin1 ban;. &ll these considered, petitioner9s reliance on the la.%an9s perception that a cashier9s chec; is as 1ood as cash is not entirel. %isplaced, as it is rooted in practice, tradition, and principle. Ae see no reason thus #h. this so'called discretion #as not e?ercised in favor of petitioner, speciall. since PCI3 and RC3C are %e%bers of the sa%e clearin1 house 1roup rel.in1 on each other9s solvenc.. RC3C could surel. rel. on the solvenc. of PCI3 #hen the latter issued its cashier9s chec;. On the third and fourth issue, RC3C contends that %oral da%a1es cannot be recovered in an action for breach of contract since under &rticle 66/, of the Ne# Civil Code, the instant case is not a%on1 those enu%erated. 4or an a#ard of %oral da%a1es in a breach of contract, it is i%perative that the part. acted in bad faith or fraudulentl. as provided for in &rt. 666+ of the Civil Code, to #it2

&rt. 666+. Aillful in@ur. to propert. %a. be a le1al 1round for a#ardin1 %oral da%a1es if the court should find that, under the circu%stances, such da%a1es are @ustl. due. he sa%e rule applies to breaches of contract #here the defendant acted fraudulentl. or in bad faith. In the absence of %oral da%a1es, RC3C ar1ues, e?e%plar. da%a1es cannot be a#arded under &rt. 666" of the sa%e Code #hich states2 E?e%plar. da%a1es or corrective da%a1es are i%posed, b. #a. of e?a%ple or correction for the public 1ood, in addition to the %oral, te%perate, li$uidated or co%pensator. da%a1es. Ae hold that petitioner has the ri1ht to recover %oral da%a1es even if the ban;9s ne1li1ence %a. not have been attended #ith %alice and bad faith. In -!erican E&press "nternational, "nc. v. "-C, 29 #e held2 Ahile petitioner #as not in bad faith, its ne1li1ence caused the private respondent to suffer %ental an1uish, serious an?iet., e%barrass%ent and hu%iliation, for #hich he is entitled to recover, reasonable %oral da%a1es 5&rt. 66/0, Civil Code7. In Genith "nsurance Corporation v. C-, 30 #e also said that %oral da%a1es are not %eant to enrich a co%plainant at the e?pense of defendant. It is onl. intended to alleviate the %oral sufferin1 he has under1one. In the instant case, #e find the a#ard of P0++,+++.++ as %oral da%a1es e?cessive and, accordin1l., reduce it to one hundred thousand 5P/++,+++.++7 pesos. Ae find the a#ard of e?e%plar. da%a1es of P6++,+++.++ un@ustified in the absence of %alice, bad faith or 1ross ne1li1ence. 31 he a#ard of reasonable attorne.9s fees is proper for the petitioner #as co%pelled to liti1ate to protect his interest. 32 IN VIEA A>EREO4, #e REVERSE the decision of respondent Court of &ppeals and hereb. order private respondent RC3C, 3inondo 3ranch, to pa. petitioner the a%ount of one hundred thousand 5P/++,+++.++7 pesos as %oral da%a1es and the su% of fift. thousand 5P"+,+++.++7 pesos as attorne.9s fees, plus costs. SO ORDERED. ,adilla, Davide, <r., ;ellosillo and Fuiason, <<., concur.

Republic of the Philippines SU"REME COURT Manila SECOND DIVISION

G.R. No. 100290 05', 3, 1993 NORBERTO TIBA0IA, 0R. &'( CARMEN TIBA0IA, petitioners, vs. T%E %ONORABLE COURT O) A""EALS &'( E!EN TAN, respondents.

"A!ILLA, J.: Petitioners, spouses Norberto iba@ia, -r. and Car%en iba@ia, are before this Court assailin1 the decision A of respondent appellate court dated 6! &pril /,,/ in C&'(.R. SP No. 6!/)! den.in1 their petition for certiorariprohibition, and in@unction #hich sou1ht to annul the order of -ud1e Eutropio Mi1riQo of the Re1ional rial Court, 3ranch /"/, Pasi1, Metro Manila in Civil Case No. "!*)B entitled <Eden an vs. Sps. Norberto and Car%en iba@ia.< Stated briefl., the relevant facts are as follo#s2 Case No. "!*)B #as a suit for collection of a su% of %one. filed b. Eden an a1ainst the iba@ia spouses. & #rit of attach%ent #as issued b. the trial court on /0 &u1ust /,*0 and on /0 Septe%ber /,*0, the Deput. Sheriff filed a return statin1 that a deposit %ade b. the iba@ia spouses in the Re1ional rial Court of Ialoo;an Cit. in the a%ount of 4our >undred 4ort. #o housand Seven >undred and 4ift. Pesos 5P!!6,0"+.++7 in another case, had been 1arnished b. hi%. On /+ March /,**, the Re1ional rial Court, 3ranch /"/ of Pasi1, Metro Manila rendered its decision in Civil Case No. "!*)B in favor of the plaintiff Eden an, orderin1 the iba@ia spouses to pa. her an a%ount in e?cess of hree >undred housand Pesos 5PB++,+++.++7. On appeal, the Court of &ppeals %odified the decision b. reducin1 the a#ard of %oral and e?e%plar. da%a1es. he decision havin1 beco%e final, Eden an filed the correspondin1 %otion for e?ecution and thereafter, the 1arnished funds #hich b. then #ere on deposit #ith the cashier of the Re1ional rial Court of Pasi1, Metro Manila, #ere levied upon. On /! Dece%ber /,,+, the iba@ia spouses delivered to Deput. Sheriff Eduardo 3oli%a the total %one. @ud1%ent in the follo#in1 for%2 Cashier9s Chec; P6)6,0"+.++ Cash /B",0BB.0+ KKKK otal PB,*,!*B.0+ Private respondent, Eden an, refused to accept the pa.%ent %ade b. the iba@ia spouses and instead insisted that the 1arnished funds deposited #ith the cashier of the Re1ional rial Court of Pasi1, Metro Manila be #ithdra#n to satisf. the @ud1%ent obli1ation. On /" -anuar. /,,/, defendant spouses 5petitioners7 filed a %otion to lift the #rit of e?ecution on the 1round that the @ud1%ent debt had alread. been paid. On 6, -anuar. /,,/, the %otion #as denied b. the trial court on the 1round that pa.%ent in cashier9s chec; is not pa.%ent in le1al tender and that pa.%ent #as %ade b. a third part. other than the defendant. & %otion for reconsideration #as denied on * 4ebruar. /,,/. hereafter, the spouses iba@ia filed a petition for certiorari, prohibition and in@unction in the Court of &ppeals. he appellate court dis%issed the petition on 6! &pril /,,/ holdin1 that pa.%ent b. cashier9s chec; is not pa.%ent in le1al tender as re$uired b. Republic &ct No. "6,. he %otion for reconsideration #as denied on 60 Ma. /,,/. In this petition for revie#, the iba@ia spouses raise the follo#in1 issues2 I A>E >ER OR NO >E 3PI C&S>IER9S C>ECI NO. +/!+6/ IN >E &MO=N O4 P6)6,0"+.++ ENDERED 3F PE I IONERS 4OR P&FMEN O4 >E -=D(MEN DE3 , IS <EE(&E ENDER<. II A>E >ER OR NO >E PRIV& E RESPONDEN M&F V&EIDEF RE4=SE >E ENDER O4 P&FMEN P&R EF IN C>ECI &ND P&R EF IN C&S> M&DE 3F

PE I IONERS, >R= &=ROR& VI O &ND CO=NSEE, 4OR >E S& IS4&C ION O4 >E MONE &RF O3EI(& ION O4 PE I IONERS'SPO=SES. 1 he onl. issue to be resolved in this case is #hether or not pa.%ent b. %eans of chec; 5even b. cashier9s chec;7 is considered pa.%ent in le1al tender as re$uired b. the Civil Code, Republic &ct No. "6,, and the Central 3an; &ct. It is contended b. the petitioners that the chec;, #hich #as a cashier9s chec; of the 3an; of the Philippine Islands, undoubtedl. a ban; of 1ood standin1 and reputation, and #hich #as a crossed chec; %ar;ed <4or Pa.ee9s &ccount Onl.< and pa.able to private respondent Eden an, is considered le1al tender, pa.%ent #ith #hich operates to dischar1e their %onetar. obli1ation. 2 Petitioners, to support their contention, cite the case of 5ew ,acific Ti!ber and 6upply Co., "nc. v. 6eDeris 3 #here this Court held throu1h Mr. -ustice >er%o1enes Concepcion, -r. that <It is a #ell';no#n and accepted practice in the business sector that a cashier9s chec; is dee%ed as cash<. he provisions of la# applicable to the case at bar are the follo#in12 a. &rticle /6!, of the Civil Code #hich provides2 &rt. /6!,. he pa.%ent of debts in %one. shall be %ade in the currenc. stipulated, and if it is not possible to deliver such currenc., then in the currenc. #hich is le1al tender in the Philippines. he deliver. of pro%issor. notes pa.able to order, or bills of e?chan1e or other %ercantile docu%ents shall produce the effect of pa.%ent onl. #hen the. have been cashed, or #hen throu1h the fault of the creditor the. have been i%paired. In the %eanti%e, the action derived fro% the ori1inal obli1ation shall be held in abe.ance.H b. Section / of Republic &ct No. "6,, as a%ended, #hich provides2 Sec. /. Ever. provision contained in, or %ade #ith respect to, an. obli1ation #hich purports to 1ive the obli1ee the ri1ht to re$uire pa.%ent in 1old or in an. particular ;ind of coin or currenc. other than Philippine currenc. or in an a%ount of %one. of the Philippines %easured thereb., shall be as it is hereb. declared a1ainst public polic. null and void, and of no effect, and no such provision shall be contained in, or %ade #ith respect to, an. obli1ation thereafter incurred. Ever. obli1ation heretofore and hereafter incurred, #hether or not an. such provision as to pa.%ent is contained therein or %ade #ith respect thereto, shall be dischar1ed upon pa.%ent in an. coin or currenc. #hich at the ti%e of pa.%ent is le1al tender for public and private debts. c. Section )B of Republic &ct No. 6)", as a%ended 5Central 3an; &ct7 #hich provides2 Sec. )B. Le al character K Chec;s representin1 deposit %one. do not have le1al tender po#er and their acceptance in the pa.%ent of debts, both public and private, is at the option of the creditor2 Provided, ho#ever, that a chec; #hich has been cleared and credited to the account of the creditor shall be e$uivalent to a deliver. to the creditor of cash in an a%ount e$ual to the a%ount credited to his account. 4ro% the afore$uoted provisions of la#, it is clear that this petition %ust fail. In the recent cases of ,hilippine -irlines, "nc. vs. Court of -ppeals 3 and Bo!an Catholic ;ishop of :alolos, "nc. vs. "nter!ediate -ppellate Court, 5 this Court held that K & chec;, #hether a %ana1er9s chec; or ordinar. chec;, is not le1al tender, and an offer of a chec; in pa.%ent of a debt is not a valid tender of pa.%ent and %a. be refused receipt b. the obli1ee or creditor. he rulin1 in these t#o 567 cases %erel. applies the statutor. provisions #hich la. do#n the rule that a chec; is not le1al tender and that a creditor %a. validl. refuse pa.%ent b. chec;, #hether it be a %ana1er9s, cashier9s or personal chec;. Petitioners erroneousl. rel. on one of the dissentin1 opinions in the ,hilippine -irlines case = to support their cause. he dissentin1 opinion ho#ever does not in an. #a. support the contention that a chec; is

le1al tender but, on the contrar., states that <If the P&E chec;s in $uestion had not been encashed b. Sheriff Re.es, there #ould be no pa.%ent b. P&E and, conse$uentl., no dischar1e or satisfaction of its @ud1%ent obli1ation.< 7Moreover, the circu%stances in the ,hilippine -irlines case are $uite different fro% those in the case at bar for in that case the chec;s issued b. the @ud1%ent debtor #ere %ade pa.able to the sheriff, E%ilio P. Re.es, #ho encashed the chec;s but failed to deliver the proceeds of said encash%ent to the @ud1%ent creditor. In the %ore recent case of 8ortunado vs. Court of -ppeals, this Court stressed that, <Ae are not, b. this decision, sanctionin1 the use of a chec; for the pa.%ent of obli1ations over the ob@ection of the creditor.< A>ERE4ORE, the petition is DENIED. he appealed decision is hereb. &44IRMED, #ith costs a1ainst the petitioners. SO ORDERED. 5arvasa, C.<., Be alado and 5ocon, <<., concur.

Republic of the Philippines SU"REME COURT Manila SECOND DIVISION

G.R. No. 93397 M&r9: 3, 1997 TRA!ERS RO#AL BAN/, petitioner, vs. COURT O) A""EALS, )ILRITERS GUARANT# ASSURANCE COR"ORATION &'( CENTRAL BAN/ o7 6:, "%ILI""INES, respondents.

TORRES, 0R., J.: &ssailed in this Petition for Revie# on Certiorari is the Decision of the respondent Court of &ppeals dated -anuar. 6,, /,,+, 1 affir%in1 the nullit. of the transfer of Central 3an; Certificate of Indebtedness 5C3CI7 No. D*,/, 2 #ith a face value of P"++,+++.++, fro% the Philippine =nder#riters 4inance Corporation 5Philfinance7 to the petitioner rader9s Ro.al 3an; 5 R37, under a Repurchase &1ree%ent 3 dated 4ebruar. !, /,*/, and a Detached &ssi1n%ent 3 dated &pril 60, /,*/. Doc;eted as Civil Case No. *B'/0,)) in the Re1ional rial Court of Manila, 3ranch B6, the action #as ori1inall. filed as a Petition for :anda!us 5 under Rule )" of the Rules of Court, to co%pel the Central 3an; of the Philippines to re1ister the transfer of the sub@ect C3CI to petitioner raders Ro.al 3an; 5 R37. In the said petition, R3 stated that2 B. On Nove%ber 60, /,0,, 4ilriters (uarant. &ssurance Corporation 54ilriters7 e?ecuted a <Detached &ssi1n%ent< . . ., #hereb. 4ilriters, as re1istered o#ner, sold, transferred, assi1ned and delivered unto Philippine =nder#riters 4inance Corporation 5Philfinance7 all its ri1hts and title to Central 3an; Certificates of Indebtedness of PESOS2 4IVE >=NDRED >O=S&ND 5P"++,+++7 and havin1 an a11re1ate value of PESOS2 >REE MIEEION 4IVE >=NDRED >O=S&ND 5PB,"++,+++.++7H !. he aforesaid Detached &ssi1n%ent 5&nne? <&<7 contains an e?press authori8ation e?ecuted b. the transferor intended to co%plete the assi1n%ent throu1h the re1istration of the transfer in the na%e of Phil4inance, #hich authori8ation is specificall. phrased as follo#s2 954ilriters7 hereb. irrevocabl. authori8ed the said issuer 5Central 3an;7 to transfer the said bondCcertificates on the boo;s of its fiscal a1entH ". On 4ebruar. !, /,*/, petitioner entered into a Repurchase &1ree%ent #ith Phil4inance . . ., #hereb., for and in consideration of the su% of PESOS2 4IVE >=NDRED >O=S&ND 5P"++,+++.++7, Phil4inance sold, transferred and delivered to petitioner C3CI !'.ear, *th series, Serial No. D*,/ #ith a face value of P"++,+++.++ . . ., #hich C3CI #as a%on1 those previousl. ac$uired b. Phil4inance fro% 4ilriters as averred in para1raph B of the PetitionH ). Pursuant to the aforesaid Repurchase &1ree%ent 5&nne? <3<7, Philfinance a1reed to repurchase C3CI Serial No. D*,/ 5&nne? <C<7, at the stipulated price of PESOS2 4IVE >=NDRED NINE EEN >O=S&ND >REE >=NDRED SIG F'ONE : //C/++ 5P"/,,B)/.//7 on &pril 60, /,*/H 0. Phil4inance failed to repurchase the C3CI on the a1reed date of %aturit., &pril 60, /,*/, #hen the chec;s it issued in favor of petitioner #ere dishonored for insufficient fundsH *. O#in1 to the default of Phil4inance, it e?ecuted a Detached &ssi1n%ent in favor of the Petitioner to enable the latter to have its title co%pleted and re1istered in the boo;s of the respondent. &nd b. %eans of said Detach%ent, Philfinance transferred and assi1ned all, its ri1hts and title in the said C3CI 5&nne? <C<7 to petitioner and, further%ore, it did

thereb. <irrevocabl. authori8e the said issuer 5respondent herein7 to transfer the said bondCcertificate on the boo;s of its fiscal a1ent.< . . . ,. Petitioner presented the C3CI 5&nne? <C<7, to1ether #ith the t#o 567 afore%entioned Detached &ssi1n%ents 5&nne?es <3< and <D<7, to the Securities Servicin1 Depart%ent of the respondent, and re$uested the latter to effect the transfer of the C3CI on its boo;s and to issue a ne# certificate in the na%e of petitioner as absolute o#ner thereofH /+. Respondent failed and refused to re1ister the transfer as re$uested, and continues to do so not#ithstandin1 petitioner9s valid and @ust title over the sa%e and despite repeated de%ands in #ritin1, the latest of #hich is hereto attached as &nne? <E< and %ade an inte1ral part hereofH //. he e?press provisions 1overnin1 the transfer of the C3CI #ere substantiall. co%plied #ith the petitioner9s re$uest for re1istration, to #it2 <No transfer thereof shall be valid unless %ade at said office 5#here the Certificate has been re1istered7 b. the re1istered o#ner hereof, in person or b. his attorne. dul. authori8ed in #ritin1, and si%ilarl. noted hereon, and upon pa.%ent of a no%inal transfer fee #hich %a. be re$uired, a ne# Certificate shall be issued to the transferee of the re1istered holder thereof.< and, #ithout a doubt, the Detached &ssi1n%ents presented to respondent #ere sufficient authori8ations in #ritin1 e?ecuted b. the re1istered o#ner, 4ilriters, and its transferee, Phil4inance, as re$uired b. the above'$uoted provisionH /6. =pon such co%pliance #ith the aforesaid re$uire%ents, the %inisterial duties of re1isterin1 a transfer of o#nership over the C3CI and issuin1 a ne# certificate to the transferee devolves upon the respondentH =pon these assertions, R3 pra.ed for the re1istration b. the Central 3an; of the sub@ect C3CI in its na%e. On Dece%ber !, /,*!, the Re1ional rial Court the case too; co1ni8ance of the defendant Central 3an; of the Philippines9 Motion for &d%ission of &%ended &ns#er #ith Counter Clai% for Interpleader = thereb. callin1 to fore the respondent 4ilriters (uarant. &ssurance Corporation 54ilriters7, the re1istered o#ner of the sub@ect C3CI as respondent. 4or its part, 4ilriters inter@ected as Special Defenses the follo#in12 //. Respondent is the re1istered o#ner of C3CI No. *,/H /6. he C3CI constitutes part of the reserve invest%ent a1ainst liabilities re$uired of respondent as an insurance co%pan. under the Insurance CodeH /B. Aithout an. consideration or benefit #hatsoever to 4ilriters, in violation of la# and the trust fund doctrine and to the pre@udice of polic.holders and to all #ho have present or future clai% a1ainst policies issued b. 4ilriters, &lfredo 3anaria, then Senior Vice' President' reasur. of 4ilriters, #ithout an. board resolution, ;no#led1e or consent of the board of directors of 4ilriters, and #ithout an. clearance or authori8ation fro% the Insurance Co%%issioner, e?ecuted a detached assi1n%ent purportedl. assi1nin1 C3CI No. *,/ to PhilfinanceH ??? ??? ??? /!. Subse$uentl., &lberto 4abella, Senior Vice'President'Co%ptroller are Pilar -acobe, Vice'President' reasur. of 4ilriters 5both of #ho% #ere holdin1 the sa%e positions in Philfinance7, #ithout an. consideration or benefit redoundin1 to 4ilriters and to the 1rave pre@udice of 4ilriters, its polic. holders and all #ho have present or future clai%s a1ainst its policies, e?ecuted si%ilar detached assi1n%ent for%s transferrin1 the C3CI to plaintiffH ??? ??? ???

/". he detached assi1n%ent is patentl. void and inoperative because the assi1n%ent is #ithout the ;no#led1e and consent of directors of 4ilriters, and not dul. authori8ed in #ritin1 b. the 3oard, as re$uirin1 b. &rticle V, Section B of C3 Circular No. 0),H /). he assi1n%ent of the C3CI to Philfinance is a personal act of &lfredo 3anaria and not the corporate act of 4ilriters and such null and voidH a7 he assi1n%ent #as e?ecuted #ithout consideration and for that reason, the assi1n%ent is void fro% the be1innin1 5&rticle /!+,, Civil Code7H b7 he assi1n%ent #as e?ecuted #ithout an. ;no#led1e and consent of the board of directors of 4ilritersH c7 he C3CI constitutes reserve invest%ent of 4ilriters a1ainst liabilities, #hich is a re$uire%ent under the Insurance Code for its e?istence as an insurance co%pan. and the pursuit of its business operations. he assi1n%ent of the C3CI is ille1al act in the sense of !alu! in se or !alu! prohibitu!, for an.one to %a;e, either as corporate or personal actH d7 he transfer of di%unition of reserve invest%ents of 4ilriters is e?pressl. prohibited b. la#, is i%%oral and a1ainst public polic.H e7 he assi1n%ent of the C3CI has resulted in the capital i%pair%ent and in the solvenc. deficienc. of 4ilriters 5and has in fact helped in placin1 4ilriters under conservatorship7, an inevitable result ;no#n to the officer #ho e?ecuted assi1n%ent. /0. Plaintiff had acted in bad faith and #ith ;no#led1e of the ille1alit. and invalidit. of the assi1n%ent. a7 he C3CI No. *,/ is not a ne1otiable instru%ent and as a certificate of indebtedness is not pa.able to bearer but is a re1istered in the na%e of 4ilritersH b7 he provision on transfer of the C3CIs provides that the Central 3an; shall treat the re istered owner as the absolute owner and that the value of the re1istered certificates shall be pa.able onl. to the re1istered o#nerH a sufficient notice to plaintiff that the assi1n%ents do not 1ive the% the re1istered o#ner9s ri1ht as absolute o#ner of the C3CI9sH c7 C3 Circular 0),, Series of /,*+ 5Rules and Re1ulations (overnin1 C3CIs7 provides that the re1istered certificates are pa.able onl. to the re1istered o#ner 5&rticle II, Section /7. /*. Plaintiff ;ne# full #ell that the assi1n%ent b. Philfinance of C3CI No. *,/ b. 4ilriters is not a re1ular transaction %ade in the usual of ordinar. course of businessH a7 he C3CI constitutes part of the reserve invest%ents of 4ilriters a1ainst liabilities re$uires b. the Insurance Code and its assi1n%ent or transfer is e?pressl. prohibited b. la#. here #as no atte%pt to 1et an. clearance or authori8ation fro% the Insurance Co%%issionerH b7 he assi1n%ent b. 4ilriters of the C3CI is clearl. not a transaction in the usual or re1ular course of its businessH c7 he C3CI involved substantial a%ount and its assi1n%ent clearl. constitutes disposition of <all or substantiall. all< of the assets of 4ilriters, #hich re$uires the affir%ative action of the stoc;holders 5Section !+, Corporation M sicN Code. 7 In its Decision dated &pril 6,, /,**, the Re1ional rial Court of Manila, 3ranch GGGIII found the assi1n%ent of C3CI No. D*,/ in favor of Philfinance, and the subse$uent assi1n%ent of the sa%e C3CI b. Philfinance in favor of raders Ro.al 3an; null and void and of no force and effect. he dispositive portion of the decision reads2 &CCORDIN(EF, @ud1%ent is hereb. rendered in favor of the respondent 4ilriters (uarant. &ssurance Corporation and a1ainst the plaintiff raders Ro.al 3an;2

5a7 Declarin1 the assi1n%ent of C3CI No. *,/ in favor of Phil4inance, and the subse$uent assi1n%ent of C3CI b. Phil4inance in favor of the plaintiff raders Ro.al 3an; as null and void and of no force and effectH 5b7 Orderin1 the respondent Central 3an; of the Philippines to disre1ard the said assi1n%ent and to pa. the value of the proceeds of the C3CI No. D*,/ to the 4ilriters (uarant. &ssurance CorporationH 5c7 Orderin1 the plaintiff raders Ro.al 3an; to pa. respondent 4ilriters (uarant. &ssurance Corp. he su% of P/+,+++ as attorne.9s feesH and 5d7 to pa. the costs. SO ORDERED. 9 he petitioner assailed the decision of the trial court in the Court of &ppeals 10, but their appeals li;e#ise failed. he findin1s of the fact of the said court are hereb. reproduced2 he records reveal that defendant 4ilriters is the re1istered o#ner of C3CI No. D*,/. =nder a deed of assi1n%ent dated Nove%ber 60, /,0/, 4ilriters transferred C3CI No. D*,/ to Philippine =nder#riters 4inance Corporation 5Philfinance7. Subse$uentl., Philfinance transferred C3CI No. D*,/, #hich #as still re1istered in the na%e of 4ilriters, to appellant raders Ro.al 3an; 5 R37. he transfer #as %ade under a repurchase a1ree%ent dated 4ebruar. !, /,*/, 1rantin1 Philfinance the ri1ht to repurchase the instru%ent on or before &pril 60, /,*/. Ahen Philfinance failed to bu. bac; the note on %aturit. date, it e?ecuted a deed of assi1n%ent, dated &pril 60, /,*/, conve.in1 to appellant R3 all its ri1ht and the title to C3CI No. D*,/. &r%ed #ith the deed of assi1n%ent, R3 then sou1ht the transfer and re1istration of C3CI No. D*,/ in its na%e before the Securit. and Servicin1 Depart%ent of the Central 3an; 5C37. Central 3an;, ho#ever, refused to effect the transfer and re1istration in vie# of an adverse clai% filed b. defendant 4ilriters. Eeft #ith no other recourse, R3 filed a special civil action for !anda!us a1ainst the Central 3an; in the Re1ional rial Court of Manila. he suit, ho#ever, #as subse$uentl. treated b. the lo#er court as a case of interpleader #hen C3 pra.ed in its a%ended ans#er that 4ilriters be i%pleaded as a respondent and the court ad@ud1e #hich of the% is entitled to the o#nership of C3CI No. D*,/. 4ailin1 to 1et a favorable @ud1%ent. R3 no# co%es to this Court on appeal. 11 In the appellate court, petitioner ar1ued that the sub@ect C3CI #as a ne1otiable instru%ent, and havin1 ac$uired the said certificate fro% Philfinance as a holder in due course, its possession of the sa%e is thus free fro an. defect of title of prior parties and fro% an. defense available to prior parties a%on1 the%selves, and it %a. thus, enforce pa.%ent of the instru%ent for the full a%ount thereof a1ainst all parties liable thereon. 12 In i1norin1 said ar1u%ent, the appellate court that the C3CI is not a ne1otiable instru%ent, since the instru%ent clearl. stated that it #as pa.able to 4ilriters, the re1istered o#ner, #hose na%e #as inscribed thereon, and that the certificate lac;ed the #ords of ne1otiabilit. #hich serve as an e?pression of consent that the instru%ent %a. be transferred b. ne1otiation. Obviousl., the assi1n%ent of the certificate fro% 4ilriters to Philfinance #as fictitious, havin1 %ade #ithout consideration, and did not confor% to Central 3an; Circular No. 0),, series of /,*+, better ;no#n as the <Rules and Re1ulations (overnin1 Central 3an; Certificates of Indebtedness<, #hich provided that an. <assi1n%ent of re1istered certificates shall not be valid unless %ade . . . b. the re1istered o#ner thereof in person or b. his representative dul. authori8ed in #ritin1.< Petitioner9s clai%ed interest has no basis, since it #as derived fro% Philfinance #hose interest #as ine?istent, havin1 ac$uired the certificate throu1h si%ulation. Ahat happened #as Philfinance %erel. borro#ed C3CI No. D*,/ fro% 4ilriters, a sister corporation, to 1uarantee its financin1 operations. Said the Court2 In the case at bar, &lfredo O. 3anaria, #ho si1ned the deed of assi1n%ent purportedl. for and on behalf of 4ilriters, did not have the necessar. #ritten authori8ation fro% the 3oard

of Directors of 4ilriters to act for the latter. 4or lac; of such authorit., the assi1n%ent did not therefore bind 4ilriters and violated as the sa%e ti%e Central 3an; Circular No. 0), #hich has the force and effect of a la#, resultin1 in the nullit. of the transfer 5People v. Jue Po Ea., ,! Phil. )!+H BM Philippines, Inc. vs. Co%%issioner of Internal Revenue, /)" SCR& 00*7. In su%, Philfinance ac$uired no title or ri1hts under C3CI No. D*,/ #hich it could assi1n or transfer to raders Ro.al 3an; and #hich the latter can re1ister #ith the Central 3an;. A>ERE4ORE, the @ud1%ent appealed fro% is &44IRMED, #ith costs a1ainst plaintiff' appellant. SO ORDERED. 13 Petitioner9s present position rests solel. on the ar1u%ent that Philfinance o#ns ,+D of 4ilriters e$uit. and the t#o corporations have identical corporate officers, thus de%andin1 the application of the doctrine or piercin1 the veil of corporate fiction, as to 1ive validit. to the transfer of the C3CI fro% re1istered o#ner to petitioner R3. 13 his renders the pa.%ent b. R3 to Philfinance of C3CI, as actual pa.%ent to 4ilriters. hus, there is no %erit to the lo#er court9s rulin1 that the transfer of the C3CI fro% 4ilriters to Philfinance #as null and void for lac; of consideration. &d%ittedl., the sub@ect C3CI is not a ne1otiable instru%ent in the absence of #ords of ne1otiabilit. #ithin the %eanin1 of the ne1otiable instru%ents la# 5&ct 6+B/7. he pertinent portions of the sub@ect C3CI read2 ??? ??? ??? he Central 3an; of the Philippines 5the 3an;7 for value received, hereb. pro%ises to pa. bearer, of if this Certificate of indebtedness be re1istered, to 4IERI ERS (=&R&N F &SS=R&NCE CORPOR& ION, the re1istered o#ner hereof, the principal su% of 4IVE >=NDRED >O=S&ND PESOS. ??? ??? ??? Properl. understood, a certificate of indebtedness pertains to certificates for the creation and %aintenance of a per%anent i%prove%ent revolvin1 fund, is si%ilar to a <bond,< 5*6 Minn. 6+67. 3ein1 e$uivalent to a bond, it is properl. understood as ac;no#led1%ent of an obli1ation to pa. a fi?ed su% of %one.. It is usuall. used for the purpose of lon1 ter% loans. he appellate court ruled that the sub@ect C3CI is not a ne1otiable instru%ent, statin1 that2 &s #orded, the instru%ent provides a pro%ise <to pa. 4ilriters (uarant. &ssurance Corporation, the re1istered o#ner hereof.< Ver. clearl., the instru%ent is pa.able onl. to 4ilriters, the re1istered o#ner, #hose na%e is inscribed thereon. It lac;s the #ords of ne1otiabilit. #hich should have served as an e?pression of consent that the instru%ent %a. be transferred b. ne1otiation. 15 & readin1 of the sub@ect C3CI indicates that the sa%e is pa.able to 4IERI ERS (=&R&N F &SS=R&NCE CORPOR& ION, and to no one else, thus, discountin1 the petitioner9s sub%ission that the sa%e is a ne1otiable instru%ent, and that it is a holder in due course of the certificate. he lan1ua1e of ne1otiabilit. #hich characteri8e a ne1otiable paper as a credit instru%ent is its freedo% to circulate as a substitute for %one.. >ence, freedo% of ne1otiabilit. is the touchtone relatin1 to the protection of holders in due course, and the freedo% of ne1otiabilit. is the foundation for the protection #hich the la# thro#s around a holder in due course 5// &%. -ur. 6d, B67. his freedo% in ne1otiabilit. is totall. absent in a certificate indebtedness as it %erel. to pa. a su% of %one. to a specified person or entit. for a period of ti%e. &s held in Calte& ),hilippines*, "nc. v. Court of -ppeals, 1=2 he accepted rule is that the ne1otiabilit. or non'ne1otiabilit. of an instru%ent is deter%ined fro% the #ritin1, that is, fro% the face of the instru%ent itself. In the construction of a bill or note, the intention of the parties is to control, if it can be le1all. ascertained. Ahile the #ritin1 %a. be read in the li1ht of surroundin1 circu%stance in

order to %ore perfectl. understand the intent and %eanin1 of the parties, .et as the. have constituted the #ritin1 to be the onl. out#ard and visible e?pression of their %eanin1, no other #ords are to be added to it or substituted in its stead. he dut. of the court in such case is to ascertain, not #hat the parties %a. have secretl. intended as contradistin1uished fro% #hat their #ords e?press, but #hat is the %eanin1 of the #ords the. have used. Ahat the parties %eant %ust be deter%ined b. #hat the. said. hus, the transfer of the instru%ent fro% Philfinance to R3 #as %erel. an assi1n%ent, and is not 1overned b. the ne1otiable instru%ents la#. he pertinent $uestion then is, #as the transfer of the C3CI fro% 4ilriters to Philfinance and subse$uentl. fro% Philfinance to R3, in accord #ith e?istin1 la#, so as to entitle R3 to have the C3CI re1istered in its na%e #ith the Central 3an;L he follo#in1 are the appellate court9s pronounce%ents on the %atter2 Clearl. sho#n in the record is the fact that Philfinance9s title over C3CI No. D*,/ is defective since it ac$uired the instru%ent fro% 4ilriters fictitiousl.. &lthou1h the deed of assi1n%ent stated that the transfer #as for <value received<, there #as reall. no consideration involved. Ahat happened #as Philfinance %erel. borro#ed C3CI No. D*,/ fro% 4ilriters, a sister corporation. hus, for lac; of an. consideration, the assi1n%ent %ade is a co%plete nullit.. Ahat is %ore, Ae find that the transfer %ade b. 4ilriters to Philfinance did not confor% to Central 3an; Circular No. 0),, series of /,*+, other#ise ;no#n as the <Rules and Re1ulations (overnin1 Central 3an; Certificates of Indebtedness<, under #hich the note #as issued. Published in the Official (a8ette on Nove%ber /,, /,*+, Section B thereof provides that an. assi1n%ent of re1istered certificates shall not be valid unless %ade . . . b. the re1istered o#ner thereof in person or b. his representative dul. authori8ed in #ritin1. In the case at bar, &lfredo O. 3anaria, #ho si1ned the deed of assi1n%ent purportedl. for and on behalf of 4ilriters, did not have the necessar. #ritten authori8ation fro% the 3oard of Directors of 4ilriters to act for the latter. 4or lac; of such authorit., the assi1n%ent did not therefore bind 4ilriters and violated at the sa%e ti%e Central 3an; Circular No. 0), #hich has the force and effect of a la#, resultin1 in the nullit. of the transfer 5People vs. Jue Po Ea., ,! Phil. )!+H BM Philippines, Inc. vs. Co%%issioner of Internal Revenue, /)" SCR& 00*7. In su%, Philfinance ac$uired no title or ri1hts under C3CI No. D*,/ #hich it could assi1n or transfer to raders Ro.al 3an; and #hich the latter can re1ister #ith the Central 3an; Petitioner no# ar1ues that the transfer of the sub@ect C3CI to R3 %ust upheld, as the respondent 4ilriters and Philfinance, thou1h separate corporate entities on paper, have used their corporate fiction to defraud R3 into purchasin1 the sub@ect C3CI, #hich purchase no# is refused re1istration b. the Central 3an;. Sa.s the petitionerH Since Philfinance o#n about ,+D of 4ilriters and the t#o co%panies have the sa%e corporate officers, if the principle of piercin1 the veil of corporate entit. #ere to be applied in this case, then R39s pa.%ent to Philfinance for the C3CI purchased b. it could @ust as #ell be considered a pa.%ent to 4ilriters, the re1istered o#ner of the C3CI as to bar the latter fro% clai%in1, as it has, that it never received an. pa.%ent for that C3CI sold and that said C3CI #as sold #ithout its authorit.. ??? ??? ??? Ae respectfull. sub%it that, considerin1 that the Court of &ppeals has held that the C3CI #as %erel. borro#ed b. Philfinance fro% 4ilriters, a sister corporation, to 1uarantee its 5Philfinance9s7 financin1 operations, if it #ere to be consistent there#ith, on the issued raised b. R3 that there #as a piercin1 a veil of corporate entit., the Court of &ppeals should have ruled that such veil of corporate entit. #as, in fact, pierced, and the pa.%ent b. R3 to Philfinance should be construed as pa.%ent to 4ilriters. 17 Ae disa1ree #ith Petitioner.

Petitioner cannot put up the e?cuse of piercin1 the veil of corporate entit., as this %erel. an e$uitable re%ed., and %a. be a#arded onl. in cases #hen the corporate fiction is used to defeat public convenience, @ustif. #ron1, protect fraud or defend cri%e or #here a corporation is a %ere alter e1o or business conduit of a person. 1 Peiercin1 the veil of corporate entit. re$uires the court to see throu1h the protective shroud #hich e?e%pts its stoc;holders fro% liabilities that ordinaril., the. could be sub@ect to, or distin1uished one corporation fro% a see%in1l. separate one, #ere it not for the e?istin1 corporate fiction. 3ut to do this, the court %ust be sure that the corporate fiction #as %isused, to such an e?tent that in@ustice, fraud, or cri%e #as co%%itted upon another, disre1ardin1, thus, his, her, or its ri1hts. It is the protection of the interests of innocent third persons dealin1 #ith the corporate entit. #hich the la# ai%s to protect b. this doctrine. he corporate separateness bet#een 4ilriters and Philfinance re%ains, despite the petitioners insistence on the contrar.. 4or one, other than the alle1ation that 4ilriters is ,+D o#ned b. Philfinance, and the identit. of one shall be %aintained as to the other, there is nothin1 else #hich could lead the court under circu%stance to disre1ard their corporate personalities. hou1h it is true that #hen valid reasons e?ist, the le1al fiction that a corporation is an entit. #ith a @uridical personalit. separate fro% its stoc;holders and fro% other corporations %a. be disre1arded, 19 in the absence of such 1rounds, the 1eneral rule %ust upheld. he fact that 4ilfinance o#ns %a@orit. shares in 4ilriters is not b. itself a 1round to disre1ard the independent corporate status of 4ilriters. In Liddel & Co., "nc. vs. Collector of "nternal Bevenue, 20 the %ere o#nership b. a sin1le stoc;holder or b. another corporation of all or nearl. all of the capital stoc; of a corporation is not of itself a sufficient reason for disre1ardin1 the fiction of separate corporate personalities. In the case at bar, there is sufficient sho#in1 that the petitioner #as not defrauded at all #hen it ac$uired the sub@ect certificate of indebtedness fro% Philfinance. On its face the sub@ect certificates states that it is re1istered in the na%e of 4ilriters. his should have put the petitioner on notice, and pro%pted it to in$uire fro% 4ilriters as to Philfinance9s title over the sa%e or its authorit. to assi1n the certificate. &s it is, there is no sho#in1 to the effect that petitioner had an. dealin1s #hatsoever #ith 4ilriters, nor did it %a;e in$uiries as to the o#nership of the certificate. he ter%s of the C3CI No. D*,/ contain a provision on its R&NS4ER. hus2 R&NS4ER. his Certificate shall pass b. deliver. unless it is re1istered in the o#ner9s na%e at an. office of the 3an; or an. a1enc. dul. authori8ed b. the 3an;, and such re1istration is noted hereon. &fter such re1istration no transfer thereof shall be valid unless %ade at said office 5#here the Certificates has been re1istered7 b. the re1istered o#ner hereof, in person, or b. his attorne., dul. authori8ed in #ritin1 and si%ilarl. noted hereon and upon pa.%ent of a no%inal transfer fee #hich %a. be re$uired, a ne# Certificate shall be issued to the transferee of the re1istered o#ner thereof. he ban; or an. a1enc. dul. authori8ed b. the 3an; %a. dee% and treat the bearer of this Certificate, or if this Certificate is re1istered as herein authori8ed, the person in #hose na%e the sa%e is re1istered as the absolute o#ner of this Certificate, for the purpose of receivin1 pa.%ent hereof, or on account hereof, and for all other purpose #hether or not this Certificate shall be overdue. his is notice to petitioner to secure fro% 4ilriters a #ritten authori8ation for the transfer or to re$uire Philfinance to sub%it such an authori8ation fro% 4ilriters. Petitioner ;ne# that Philfinance is not re1istered o#ner of the C3CI No. D*,/. he fact that a non'o#ner #as disposin1 of the re1istered C3CI o#ned b. another entit. #as a 1ood reason for petitioner to verif. of in$uire as to the title Philfinance to dispose to the C3CI. Moreover, C3CI No. D*,/ is 1overned b. C3 Circular No. 0),, series of /,,+ 21, ;no#n as the Rules and Re1ulations (overnin1 Central 3an; Certificates of Indebtedness, Section B, &rticle V of #hich provides that2 Sec. B. &ssi1n%ent of Re1istered Certificates. K &ssi1n%ent of re1istered certificates shall not be valid unless %ade at the office #here the sa%e have been issued and re1istered or at the Securities Servicin1 Depart%ent, Central 3an; of the Philippines, and b. the re1istered o#ner thereof, in person or b. his representative, dul. authori8ed in #ritin1. 4or this purpose, the transferee %a. be desi1nated as the representative of the re1istered o#ner.

Petitioner, bein1 a co%%ercial ban;, cannot fei1n i1norance of Central 3an; Circular 0),, and its re$uire%ents. &n entit. #hich deals #ith corporate a1ents #ithin circu%stances sho#in1 that the a1ents are actin1 in e?cess of corporate authorit., %a. not hold the corporation liable. 22 his is onl. fair, as ever.one %ust, in the e?ercise of his ri1hts and in the perfor%ance of his duties, act #ith @ustice, 1ive ever.one his due, and observe honest. and 1ood faith. 23 he transfer %ade b. 4ilriters to Philfinance did not confor% to the said. Central 3an; Circular, #hich for all intents, is considered part of the la#. &s found b. the courts a #uo, &lfredo O. 3anaria, #ho had si1ned the deed of assi1n%ent fro% 4ilriters to Philfinance, purportedl. for and in favor of 4ilriters, did not have the necessar. #ritten authori8ation fro% the 3oard of Directors of 4ilriters to act for the latter. &s it is, the sale fro% 4ilriters to Philfinance #as fictitious, and therefore void and ine?istent, as there #as no consideration for the sa%e. his is fatal to the petitioner9s cause, for then, Philfinance had no title over the sub@ect certificate to conve. the raders Ro.al 3an;. 5e!o potest nisi #uod de (ure potest K no %an can do an.thin1 e?cept #hat he can do la#full.. Concededl., the sub@ect C3CI #as ac$uired b. 4ilriters to for% part of its le1al and capital reserves, #hich are re$uired b. la# 23 to be %aintained at a %andated level. his #as pointed out b. Elias (arcia, Mana1er'in'Char1e of respondent 4ilriters, in his testi%on. 1iven before the court on Ma. B+, /,*). J Do .ou ;no# this Central 3an; Certificate of Indebtedness, in short, C3CI No. D*,/ in the face value of P"+++,+++.++ sub@ect of this caseL & Fes, sir. J Ah. do .ou ;no# thisL & Aell, this #as C3CI of the co%pan. sou1ht to be e?a%ined b. the Insurance Co%%ission so%eti%e in earl. /,*/ and this C3CI No. *,/ #as a%on1 the C3CI9s that #ere found to be %issin1. J Eet %e ta;e .ou bac; further before /,*/. Did .ou have the ;no#led1e of this C3CI No. *,/ before /,*/L & Fes, sir. his C3CI is an invest%ent of 4ilriters re$uired b. the Insurance Co%%ission as le1al reserve of the co%pan.. J Ee1al reserve for the purpose of #hatL & Aell, .ou see, the Insurance co%panies are re$uired to put up le1al reserves under Section 6/B of the Insurance Code e$uivalent to !+ percent of the pre%iu%s receipt and further, the Insurance Co%%ission re$uires this reserve to be invested preferabl. in 1overn%ent securities or 1overn%ent binds. his is ho# this C3CI ca%e to be purchased b. the co%pan.. It cannot, therefore, be ta;en out of the said funds, #ithout violatin1 the re$uire%ents of the la#. hus, the anauthori8ed use or distribution of the sa%e b. a corporate officer of 4ilriters cannot bind the said corporation, not #ithout the approval of its 3oard of Directors, and the %aintenance of the re$uired reserve fund. Conse$uentl., the title of 4ilriters over the sub@ect certificate of indebtedness %ust be upheld over the clai%ed interest of raders Ro.al 3an;. &CCORDIN(EF, the petition is DISMISSED and the decision appealed fro% dated -anuar. 6,, /,,+ is hereb. &44IRMED. SO ORDERED. Be alado, Bo!ero and :endoza, <<., concur. ,uno, <., too' no part.

Republic of the Philippines SU"REME COURT Manila >IRD DIVISION

G.R. No. 9252 M&4 23, 1993 RAUL SESBRE>O, petitioner, vs. %ON. COURT O) A""EALS, !ELTA MOTORS COR"ORATION AN! "ILI"INAS BAN/, respondents. 6alva, Villanueva & -ssociates for Delta :otors Corporation. Beyes, 6alazar & -ssociates for ,ilipinas ;an'.

)ELICIANO, J.: On , 4ebruar. /,*/, petitioner Raul SesbreQo %ade a %one. %ar;et place%ent in the a%ount of PB++,+++.++ #ith the Philippine =nder#riters 4inance Corporation 5<Philfinance<7, Cebu 3ranchH the place%ent, #ith a ter% of thirt.'t#o 5B67 da.s, #ould %ature on /B March /,*/, Philfinance, also on , 4ebruar. /,*/, issued the follo#in1 docu%ents to petitioner2 5a7 the Certificate of Confir%ation of Sale, <#ithout recourse,< No. 6+!,) of one 5/7 Delta Motors Corporation Pro%issor. Note 5<DMC PN<7 No. 60B/ for a ter% of B6 da.s at /0.+D per annu!H 5b7 the Certificate of securities Deliver. Receipt No. /)"*0 indicatin1 the sale of DMC PN No. 60B/ to petitioner, #ith the notation that the said securit. #as in custodianship of Pilipinas 3an;, as per Deno%inated Custodian Receipt 5<DCR<7 No. /+*+" dated , 4ebruar. /,*/H and 5c7 post'dated chec;s pa.able on /B March /,*/ 5i.e., the %aturit. date of petitioner9s invest%ent7, #ith petitioner as pa.ee, Philfinance as dra#er, and Insular 3an; of &sia and &%erica as dra#ee, in the total a%ount of PB+!,"BB.BB. On /B March /,*/, petitioner sou1ht to encash the postdated chec;s issued b. Philfinance. >o#ever, the chec;s #ere dishonored for havin1 been dra#n a1ainst insufficient funds. On 6) March /,*/, Philfinance delivered to petitioner the DCR No. /+*+" issued b. private respondent Pilipinas 3an; 5<Pilipinas<7. It reads as follo#s2 PIEIPIN&S 3&NI Ma;ati Stoc; E?chan1e 3ld1., &.ala &venue, Ma;ati, Metro Manila 4ebruar. ,, /,*/ KKKKKKK V&E=E D& E O Raul SesbreQo &pril ), /,*/ KKKKKKKK M& =RI F D& E NO. /+*+"+"

DENOMIN& ED C=S ODI&N RECEIP his confir%s that as a dul. Custodian 3an;, and upon instruction of P>IEIPPINE =NDERARI ES 4IN&NCE CORPOR& ION, #e have in our custod. the follo#in1 securities to .ou MsicN the e?tent herein indicated. SERI&E M& . 4&CE ISS=ED RE(IS ERED &MO=N N=M3ER D& E V&E=E 3F >OEDER P&FEE 60B/ !')'*/ 6,B++,*BB.B! DMC P>IE. B+0,,BB.BB =NDERARI ERS 4IN&NCE CORP. Ae further certif. that these securities %a. be inspected b. .ou or .our dul. authori8ed representative at an. ti%e durin1 re1ular ban;in1 hours. =pon .our #ritten instructions #e shall underta;e ph.sical deliver. of the above securities full. assi1ned to .ou should this Deno%inated Custodianship Receipt re%ain outstandin1 in .our favor thirt. 5B+7 da.s after its %aturit.. PIEIPIN&S 3&NI 53. Eli8abeth De Villa Ille1ible Si1nature7 1 On 6 &pril /,*/, petitioner approached Ms. Eli8abeth de Villa of private respondent Pilipinas, Ma;ati 3ranch, and handed her a de%and letter infor%in1 the ban; that his place%ent #ith Philfinance in the a%ount reflected in the DCR No. /+*+" had re%ained unpaid and outstandin1, and that he in effect #as as;in1 for the ph.sical deliver. of the underl.in1 pro%issor. note. Petitioner then e?a%ined the ori1inal of the DMC PN No. 60B/ and found2 that the securit. had been issued on /+ &pril /,*+H that it #ould %ature on ) &pril /,*/H that it had a face value of P6,B++,*BB.BB, #ith the Philfinance as <pa.ee< and private respondent Delta Motors Corporation 5<Delta<7 as <%a;erH< and that on face of the pro%issor. note #as sta%ped <NON NE(O I&3EE.< Pilipinas did not deliver the Note, nor an. certificate of participation in respect thereof, to petitioner. Petitioner later %ade si%ilar de%and letters, dated B -ul. /,*/ and B &u1ust /,*/, 2 a1ain as;in1 private respondent Pilipinas for ph.sical deliver. of the ori1inal of DMC PN No. 60B/. Pilipinas alle1edl. referred all of petitioner9s de%and letters to Philfinance for #ritten instructions, as has been supposedl. a1reed upon in <Securities Custodianship &1ree%ent< bet#een Pilipinas and Philfinance. Philfinance did not provide the appropriate instructionsH Pilipinas never released DMC PN No. 60B/, nor an. other instru%ent in respect thereof, to petitioner. Petitioner also %ade a #ritten de%and on /! -ul. /,*/ 3 upon private respondent Delta for the partial satisfaction of DMC PN No. 60B/, e?plainin1 that Philfinance, as pa.ee thereof, had assi1ned to hi% said Note to the e?tent of PB+0,,BB.BB. Delta, ho#ever, denied an. liabilit. to petitioner on the pro%issor. note, and e?plained in turn that it had previousl. a1reed #ith Philfinance to offset its DMC PN No. 60B/ 5alon1 #ith DMC PN No. 60B+7 a1ainst Philfinance PN No. /!B'& issued in favor of Delta. In the %eanti%e, Philfinance, on /* -une /,*/, #as placed under the @oint %ana1e%ent of the Securities and e?chan1e co%%ission 5<SEC<7 and the Central 3an;. Pilipinas delivered to the SEC DMC PN No. 60B/, #hich to date apparentl. re%ains in the custod. of the SEC. 3 &s petitioner had failed to collect his invest%ent and interest thereon, he filed on 6* Septe%ber /,*6 an action for da%a1es #ith the Re1ional rial Court 5<R C<7 of Cebu Cit., 3ranch 6/, a1ainst private respondents Delta and Pilipinas. 5 he trial court, in a decision dated " &u1ust /,*0, dis%issed the co%plaint and counterclai%s for lac; of %erit and for lac; of cause of action, #ith costs a1ainst petitioner. Petitioner appealed to respondent Court of &ppeals in C.&.'(.R. CV No. /"/,". In a Decision dated 6/ March /,*,, the Court of &ppeals denied the appeal and held2 = 3e that as it %a., fro% the evidence on record, if there is an.one that appears liable for the travails of plaintiff'appellant, it is Philfinance. &s correctl. observed b. the trial court2 his act of Philfinance in acceptin1 the invest%ent of plaintiff and char1in1 it a1ainst DMC PN No. 60B/ #hen its entire face value #as alread. obli1ated or ear%ar;ed for set'off or co%pensation is difficult to

co%prehend and %a. have been %otivated #ith bad faith. Philfinance, therefore, is solel. and le1all. obli1ated to return the invest%ent of plaintiff, to1ether #ith its earnin1s, and to ans#er all the da%a1es plaintiff has suffered incident thereto. =nfortunatel. for plaintiff, Philfinance #as not i%pleaded as one of the defendants in this case at barH hence, this Court is #ithout @urisdiction to pronounce @ud1e%ent a1ainst it. 5p. //, Decision7 A>ERE4ORE, findin1 no reversible error in the decision appealed fro%, the sa%e is hereb. affir%ed in toto. Cost a1ainst plaintiff'appellant. Petitioner %oved for reconsideration of the above Decision, #ithout success. >ence, this Petition for Revie# on Certiorari. &fter consideration of the alle1ations contained and issues raised in the pleadin1s, the Court resolved to 1ive due course to the petition and re$uired the parties to file their respective %e%oranda. 7 Petitioner reiterates the assi1n%ent of errors he directed at the trial court decision, and contends that respondent court of &ppeals 1ravel. erred2 5i7 in concludin1 that he cannot recover fro% private respondent Delta his assi1ned portion of DMC PN No. 60B/H 5ii7 in failin1 to hold private respondent Pilipinas solidaril. liable on the DMC PN No. 60B/ in vie# of the provisions stipulated in DCR No. /+*+" issued in favor r of petitioner, and 5iii7 in refusin1 to pierce the veil of corporate entit. bet#een Philfinance, and private respondents Delta and Pilipinas, considerin1 that the three 5B7 entities belon1 to the <Silverio (roup of Co%panies< under the leadership of Mr. Ricardo Silverio, Sr. here are at least t#o 567 sets of relationships #hich #e need to address2 firstl., the relationship of petitioner vis3a3visDeltaH secondl., the relationship of petitioner in respect of Pilipinas. &ctuall., of course, there is a third relationship that is of critical i%portance2 the relationship of petitioner and Philfinance. >o#ever, since Philfinance has not been i%pleaded in this case, neither the trial court nor the Court of &ppeals ac$uired @urisdiction over the person of Philfinance. It is, conse$uentl., not necessar. for present purposes to deal #ith this third relationship, e?cept to the e?tent it necessaril. i%pin1es upon or intersects the first and second relationships. I. Ae consider first the relationship bet#een petitioner and Delta. he Court of appeals in effect held that petitioner ac$uired no ri1hts vis3a3vis Delta in respect of the Delta pro%issor. note 5DMC PN No. 60B/7 #hich Philfinance sold <#ithout recourse< to petitioner, to the e?tent of PB+!,"BB.BB. he Court of &ppeals said on this point2 Nor could plaintiff'appellant have ac$uired an. ri1ht over DMC PN No. 60B/ as the sa%e is <non'ne1otiable< as sta%ped on its face 5E?hibit <)<7, ne1otiation bein1 defined as the transfer of an instru%ent fro% one person to another so as to constitute the transferee the holder of the instru%ent 5Sec. B+, Ne1otiable Instru%ents Ea#7. & person not a holder cannot sue on the instru%ent in his o#n na%e and cannot de%and or receive pa.%ent 5Section "/, id.7 9 Petitioner ad%its that DMC PN No. 60B/ #as non'ne1otiable but contends that the Note had been validl. transferred, in part to hi% b. assi1n%ent and that as a result of such transfer, Delta as debtor'%a;er of the Note, #as obli1ated to pa. petitioner the portion of that Note assi1ned to hi% b. the pa.ee Philfinance. Delta, ho#ever, disputes petitioner9s contention and ar1ues2 5/7 that DMC PN No. 60B/ #as not intended to be ne1otiated or other#ise transferred b. Philfinance as %anifested b. the #ord <non'ne1otiable< sta%p across the face of the Note 10 and because %a;er Delta and pa.ee Philfinance intended that this Note #ould be offset a1ainst the outstandin1 obli1ation of Philfinance represented b. Philfinance PN No. /!B'& issued to Delta as pa.eeH 567 that the assi1n%ent of DMC PN No. 60B/ b. Philfinance #as #ithout Delta9s consent, if not a1ainst its instructionsH and

5B7 assu%in1 5ar uendo onl.7 that the partial assi1n%ent in favor of petitioner #as valid, petitioner too; the Note sub@ect to the defenses available to Delta, in particular, the offsettin1 of DMC PN No. 60B/ a1ainst Philfinance PN No. /!B'&. 11 Ae consider Delta9s ar1u%ents seriati!. 4irstl., it is i%portant to bear in %ind that the ne otiation of a ne1otiable instru%ent %ust be distin1uished fro% theassi n!ent or transfer of an instru%ent #hether that be ne1otiable or non'ne1otiable. Onl. an instru%ent $ualif.in1 as a ne1otiable instru%ent under the relevant statute %a. be ne otiated either b. indorse%ent thereof coupled #ith deliver., or b. deliver. alone #here the ne1otiable instru%ent is in bearer for%. & ne1otiable instru%ent %a., ho#ever, instead of bein1 ne1otiated, also be assi ned or transferred. he le1al conse$uences of ne1otiation as distin1uished fro% assi1n%ent of a ne1otiable instru%ent are, of course, different. & non'ne1otiable instru%ent %a., obviousl., not be ne1otiatedH but it %a. be assi1ned or transferred, absent an e?press prohibition a1ainst assi1n%ent or transfer #ritten in the face of the instru%ent2 he #ords 2not ne otiable,2 sta%ped on the face of the bill of ladin1, did not destroy its assi nability, but the sole effect #as to e?e%pt the bill fro% the statutor. provisions relative thereto, and a bill, thou1h not ne otiable, !ay be transferred by assi n!entH the assi1nee ta;in1 sub@ect to the e$uities bet#een the ori1inal parties. 12 5E%phasis added7 DMC PN No. 60B/, #hile %ar;ed <non'ne1otiable,< #as not at the sa%e ti%e sta%ped <non'transferable< or <non'assi1nable.< It contained no stipulation #hich prohibited Philfinance fro% assi1nin1 or transferrin1, in #hole or in part, that Note. Delta adduced the <Eetter of &1ree%ent< #hich it had entered into #ith Philfinance and #hich should be $uoted in full2 &pril /+, /,*+ Philippine =nder#riters 4inance Corp. 3enavide8 St., Ma;ati, Metro Manila. &ttention2 Mr. &lfredo O. 3anaria SVP' reasurer (EN EEMEN2 his refers to our outstandin1 place%ent of P!,)+/,))).)0 as evidenced b. .our Pro%issor. Note No. /!B'&, dated &pril /+, /,*+, to %ature on &pril ), /,*/. &s a1reed upon, #e enclose our non'ne1otiable Pro%issor. Note No. 60B+ and 60B/ for P6,+++,+++.++ each, dated &pril /+, /,*+, to be offsetted M sicN a1ainst .our PN No. /!B'& upon co'ter%inal %aturit.. Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo. Ver. rul. Fours, 5S1d.7 4lorencio 3. 3ia1an Senior Vice President 13 Ae find nothin1 in his <Eetter of &1ree%ent< #hich can be reasonabl. construed as a prohibition upon Philfinance assi1nin1 or transferrin1 all or part of DMC PN No. 60B/, before the %aturit. thereof. It is scarcel. necessar. to add that, even had this <Eetter of &1ree%ent< set forth an e?plicit prohibition of transfer upon Philfinance, such a prohibition cannot be invo;ed a1ainst an assi1nee or transferee of the Note #ho parted #ith valuable consideration in 1ood faith and #ithout notice of such prohibition. It is not disputed that petitioner #as such an assi1nee or transferee. Our conclusion on this point is reinforced b. the fact that #hat Philfinance and Delta #ere doin1 b. their e?chan1e of their pro%issor. notes #as this2 Delta invested, b. %a;in1 a %one. %ar;et place%ent #ith Philfinance, appro?i%atel. P!,)++,+++.++ on /+ &pril /,*+H but pro%ptl., on the sa%e da., borro#ed bac; the bul; of that place%ent, i.e., P!,+++,+++.++, b. issuin1 its t#o 567 pro%issor. notes2 DMC PN No. 60B+ and DMC PN No. 60B/, both

also dated /+ &pril /,*+. hus, Philfinance #as left #ith not P!,)++,+++.++ but onl. P)++,+++.++ in cash and the t#o 567 Delta pro%issor. notes. -propos Delta9s co%plaint that the partial assi1n%ent b. Philfinance of DMC PN No. 60B/ had been effected #ithout the consent of Delta, #e note that such consent #as not necessar. for the validit. and enforceabilit. of the assi1n%ent in favor of petitioner. 13 Delta9s ar1u%ent that Philfinance9s sale or assi1n%ent of part of its ri1hts to DMC PN No. 60B/ constituted conventional subro1ation, #hich re$uired its 5Delta9s7 consent, is $uite %ista;en. Conventional subro1ation, #hich in the first place is never li1htl. inferred, 15 %ust be clearl. established b. the une$uivocal ter%s of the substitutin1 obli1ation or b. the evident inco%patibilit. of the ne# and old obli1ations on ever. point. 1= Nothin1 of the sort is present in the instant case. It is in fact difficult to be i%pressed #ith Delta9s co%plaint, since it released its DMC PN No. 60B/ to Philfinance, an entit. en1a1ed in the business of bu.in1 and sellin1 debt instru%ents and other securities, and %ore 1enerall., in %one. %ar;et transactions. In ,erez v. Court of -ppeals, 17 the Court, spea;in1 throu1h M%e. -ustice >errera, %ade the follo#in1 i%portant state%ent2 here is another aspect to this case. Ahat is involved here is a %one. %ar;et transaction. &s defined b. Ea#rence S%ith <the %one. %ar;et is a %ar;et dealin1 in standardi8ed short'ter% credit instru%ents 5involvin1 lar1e a%ounts7 #here lenders and borro#ers do not deal directl. #ith each other but throu1h a %iddle %anor a dealer in the open %ar;et.< It involves <co%%ercial papers< #hich are instru%ents <evidencin1 indebtness of an. person or entit.. . ., #hich are issued, endorsed, sold or transferred or in an. %anner conve.ed to another person or entit., #ith or #ithout recourse<. he funda%ental function of the %one. %ar;et device in its operation is to %atch and brin1 to1ether in a %ost i%personal %anner both the <fund users< and the <fund suppliers.< The !oney !ar'et is an 2i!personal !ar'et2, free fro! personal considerations. 2The !ar'et !echanis! is intended to provide #uic' !obility of !oney and securities.2 he i%personal character of the %one. %ar;et device overloo;s the individuals or entities concerned. The issuer of a co!!ercial paper in the !oney !ar'et necessarily 'nows in advance that it would be e&penditiously transacted and transferred to any investorHlender without need of notice to said issuer. "n practice, no notification is iven to the borrower or issuer of co!!ercial paper of the sale or transfer to the investor. ??? ??? ??? here is need to individuate a %one. %ar;et transaction, a relativel. novel institution in the Philippine co%%ercial scene. "t has been intended to facilitate the flow and ac#uisition of capital on an i!personal basis. &nd as specificall. re$uired b. Presidential Decree No. )0*, the investin public !ust be iven ade#uate and effective protection in availin of the credit of a borrower in the co!!ercial paper !ar'et. 1 5Citations o%ittedH e%phasis supplied7 Ae turn to Delta9s ar1u%ents concernin1 alle1ed co%pensation or offsettin1 bet#een DMC PN No. 60B/ and Philfinance PN No. /!B'&. It is i%portant to note that at the ti!e ,hilfinance sold part of its ri hts under D:C ,5 5o. />1= to petitioner on C 8ebruary =CI=, no co!pensation had as yet ta'en place and indeed none could have ta'en place. he essential re$uire%ents of co%pensation are listed in the Civil Code as follo#s2 &rt. /60,. In order that co%pensation %a. be proper, it is necessar.2 5/7 hat each one of the obli ors be bound principally, and that he be at the sa!e ti!e a principal creditor of the other+ 567 hat both debts consists in a su% of %one., or if the thin1s due are consu%able, the. be of the sa%e ;ind, and also of the sa%e $ualit. if the latter has been statedH 5B7 That the two debts are due+ 5!7 hat the. be li$uidated and de%andableH 5"7 hat over neither of the% there be an. retention or controvers., co%%enced b. third persons and co%%unicated in due ti%e to the debtor. 5E%phasis supplied7

On , 4ebruar. /,*/, neither DMC PN No. 60B/ nor Philfinance PN No. /!B'& #as due. his #as e?plicitl. reco1ni8ed b. Delta in its /+ &pril /,*+ <Eetter of &1ree%ent< #ith Philfinance, #here Delta ac;no#led1ed that the relevant pro%issor. notes #ere <to be offsetted 5 sic7 a1ainst MPhilfinanceN PN No. /!B'& upon co3ter!inal !aturity.< &s noted, the assi1n%ent to petitioner #as %ade on , 4ebruar. /,*/ or fro% fort.'nine 5!,7 da.s before the <co'ter%inal %aturit.< date, that is to sa., before an. co%pensation had ta;en place. 4urther, the assi1n%ent to petitioner #ould have prevented co%pensation had ta;en place bet#een Philfinance and Delta, to the e?tent of PB+!,"BB.BB, because upon e?ecution of the assi1n%ent in favor of petitioner, Philfinance and Delta #ould have ceased to be creditors and debtors of each other in their o#n ri1ht to the e?tent of the a%ount assi1ned b. Philfinance to petitioner. hus, #e conclude that the assi1n%ent effected b. Philfinance in favor of petitioner #as a valid one and that petitioner accordin1l. beca%e o#ner of DMC PN No. 60B/ to the e?tent of the portion thereof assi1ned to hi%. he record sho#s, ho#ever, that petitioner notified Delta of the fact of the assi1n%ent to hi% onl. on /! -ul. /,*/, 19that is, after the %aturit. not onl. of the %one. %ar;et place%ent %ade b. petitioner but also of both DMC PN No. 60B/ and Philfinance PN No. /!B'&. In other #ords, petitioner notified Delta of his ri hts as assi nee after co!pensation had ta'en place by operation of law because the offsettin instru!ents had both reached !aturity. It is a fir%l. settled doctrine that the ri1hts of an assi1nee are not an. 1reater that the ri1hts of the assi1nor, since the assi1nee is %erel. substituted in the place of the assi1nor 20 and that the assi1nee ac$uires his ri1hts sub@ect to the e$uities K i.e., the defenses K #hich the debtor could have set up a1ainst the ori1inal assi1nor before notice of the assi1n%ent #as 1iven to the debtor. &rticle /6*" of the Civil Code provides that2 &rt. /6*". he debtor #ho has consented to the assi1n%ent of ri1hts %ade b. a creditor in favor of a third person, cannot set up a1ainst the assi1nee the co%pensation #hich #ould pertain to hi% a1ainst the assi1nor, unless the assi1nor #as notified b. the debtor at the ti%e he 1ave his consent, that he reserved his ri1ht to the co%pensation. If the creditor co%%unicated the cession to hi% but the debtor did not consent thereto, the latter !ay set up the co!pensation of debts previous to the cession, but not of subse$uent ones. If the assi n!ent is %ade without the 'nowled e of the debtor, he !ay set up the co!pensation of all credits prior to the sa%e and also later ones until he had 'nowled e of the assi n!ent. 5E%phasis supplied7 &rticle /)6) of the sa%e code states that2 <the debtor #ho, before havin1 ;no#led1e of the assi1n%ent, pa.s his creditor shall be released fro% the obli1ation.< In 6ison v. Eap3Tico, 21 the Court e?plained that2 MnNo %an is bound to re%ain a debtorH he %a. pa. to hi% #ith #ho% he contacted to pa.H and if he pa. before notice that his debt has been assi1ned, the la# holds hi% e?onerated, for the reason that it is the dut. of the person #ho has ac$uired a title b. transfer to de%and pa.%ent of the debt, to 1ive his debt or notice. 22 &t the ti%e that Delta #as first put to notice of the assi1n%ent in petitioner9s favor on /! -ul. /,*/, DMC PN No. 60B/ had alread. been dischar1ed b. co%pensation. Since the assi1nor Philfinance could not have then co%pelled pa.%ent ane# b. Delta of DMC PN No. 60B/, petitioner, as assi1nee of Philfinance, is si%ilarl. disabled fro% collectin1 fro% Delta the portion of the Note assi1ned to hi%. It bears so%e e%phasis that petitioner could have notified Delta of the assi1n%ent or sale #as effected on , 4ebruar. /,*/. >e could have notified Delta as soon as his %one. %ar;et place%ent %atured on /B March /,*/ #ithout pa.%ent thereof bein1 %ade b. PhilfinanceH at that ti%e, co%pensation had .et to set in and dischar1e DMC PN No. 60B/. &1ain petitioner could have notified Delta on 6) March /,*/ #hen petitioner received fro% Philfinance the Deno%inated Custodianship Receipt 5<DCR<7 No. /+*+" issued b. private respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta at an. ti%e before the %aturit. date of DMC PN No. 60B/. 3ecause petitioner failed to do so, and because the record is bare of an. indication that Philfinance had itself notified Delta of the assi1n%ent to petitioner, the Court is co%pelled to uphold the defense of co%pensation raised b. private respondent Delta. Of course, Philfinance re%ains liable to petitioner under the ter%s of the assi1n%ent %ade b. Philfinance to petitioner. II.

Ae turn no# to the relationship bet#een petitioner and private respondent Pilipinas. Petitioner contends that Pilipinas beca%e solidaril. liable #ith Philfinance and Delta #hen Pilipinas issued DCR No. /+*+" #ith the follo#in1 #ords2 =pon .our #ritten instruction, #e MPilipinasN shall underta'e ph.sical deliver. of the above securities fully assi ned to you K. 23 he Court is not persuaded. Ae find nothin1 in the DCR that establishes an obli1ation on the part of Pilipinas to pa. petitioner the a%ount of PB+0,,BB.BB nor an. assu%ption of liabilit. in solidu! #ith Philfinance and Delta under DMC PN No. 60B/. Ae read the DCR as a confir%ation on the part of Pilipinas that2 5/7 it has in its custod., as dul. constituted custodian ban;, DMC PN No. 60B/ of a certain face value, to %ature on ) &pril /,*/ and pa.able to the order of PhilfinanceH 567 ,ilipinas was, fro% and after said date of the assi1n%ent b. Philfinance to petitioner 5, 4ebruar. /,*/7, holdin that 5ote on behalf and for the benefit of petitioner, at least to the e&tent it had been assi ned to petitioner by payee ,hilfinance H 23 5B7 petitioner %a. inspect the Note either <personall. or b. authori8ed representative<, at an. ti%e durin1 re1ular ban; hoursH and 5!7 upon written instructions of petitioner, ,ilipinas would physically deliver the D:C ,5 5o. />1= )or a participation therein to the e&tent of ,10>,C11.11* <should this Deno%inated Custodianship receipt re%ain outstandin1 in Mpetitioner9sN favor thirt. 5B+7 da.s after its %aturit..< hus, #e find nothin1 #ritten in printers in; on the DCR #hich could reasonabl. be read as convertin1 Pilipinas into an obli1or under the ter%s of DMC PN No. 60B/ assi1ned to petitioner, either upon %aturit. thereof or an. other ti%e. Ae note that both in his co%plaint and in his testi%on. before the trial court, petitioner referred %erel. to the obli1ation of private respondent Pilipinas to effect the ph.sical deliver. to hi% of DMC PN No. 60B/. 25 &ccordin1l., petitioner9s theor. that Pilipinas had assu%ed a solidar. obli1ation to pa. the a%ount represented b. a portion of the Note assi1ned to hi% b. Philfinance, appears to be a ne# theor. constructed onl. after the trial court had ruled a1ainst hi%. he solidar. liabilit. that petitioner see;s to i%pute Pilipinas cannot, ho#ever, be li1htl. inferred. =nder article /6+0 of the Civil Code, <there is a solidar. liabilit. onl. #hen the la# or the nature of the obli1ation re$uires solidarit.,< he record here e?hibits no e?press assu%ption of solidar. liabilit. vis3a3vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to an. la# #hich i%posed such liabilit. upon Pilipinas nor has petitioner ar1ued that the ver. nature of the custodianship assu%ed b. private respondent Pilipinas necessaril. i%plies solidar. liabilit. under the securities, custod. of #hich #as ta;en b. Pilipinas. &ccordin1l., #e are unable to hold Pilipinas solidaril. liable #ith Philfinance and private respondent Delta under DMC PN No. 60B/. Ae do not, ho#ever, %ean to su11est that Pilipinas has no responsibilit. and liabilit. in respect of petitioner under the ter%s of the DCR. o the contrar., #e find, after prolon1ed anal.sis and deliberation, that private respondent Pilipinas had breached its underta;in1 under the DCR to petitioner SesbreQo. Ae believe and so hold that a contract of deposit #as constituted b. the act of Philfinance in desi1natin1 Pilipinas as custodian or depositar. ban;. he depositor #as initiall. PhilfinanceH the obli1ation of the depositor. #as o#ed, ho#ever, to petitioner SesbreQo as beneficiar. of the custodianship or depositor. a1ree%ent. Ae do not consider that this is a si%ple case of a stipulation pour autri. he custodianship or depositar. a1ree%ent #as established as an inte1ral part of the %one. %ar;et transaction entered into b. petitioner #ith Philfinance. Petitioner bou1ht a portion of DMC PN No. 60B/H Philfinance as assi1nor' vendor deposited that Note #ith Pilipinas in order that the thin1 sold #ould be placed outside the control of the vendor. Indeed, the constitutin1 of the depositar. or custodianship a1ree%ent #as e$uivalent to constructive deliver. of the Note 5to the e?tent it had been sold or assi1ned to petitioner7 to petitioner. It #ill be seen that custodianship a1ree%ents are desi1ned to facilitate transactions in the %one. %ar;et b. providin1 a basis for confidence on the part of the investors or placers that the instru%ents bou1ht b. the% are effectivel. ta;en out of the poc;et, as it #ere, of the vendors and placed safel. be.ond their reach, that those instru%ents #ill be there available to the placers of funds should the. have need of the%. he depositar. in a contract of deposit is obli1ed to return the securit. or the thin1 deposited upon de%and of the depositor 5or, in the presented case, of the beneficiar.7 of the contract, even thou1h a ter% for such return %a. have been established in the said contract. 2= &ccordin1l., an. stipulation in the contract of deposit or custodianship that runs counter to the funda%ental purpose of that a1ree%ent or #hich #as not brou1ht to the notice of and accepted b. the placer'beneficiar., cannot be enforced as a1ainst such beneficiar.'placer.

Ae believe that the position ta;en above is supported b. considerations of public polic.. If there is an. part. that needs the e$uali8in1 protection of the la# in %one. %ar;et transactions, it is the %e%bers of the 1eneral public #ho% place their savin1s in such %ar;et for the purpose of 1eneratin1 interest revenues. 27 he custodian ban;, if it is not related either in ter%s of e$uit. o#nership or %ana1e%ent control to the borro#er of the funds, or the co%%ercial paper dealer, is nor%all. a preferred or traditional ban;er of such borro#er or dealer 5here, Philfinance7. he custodian ban; #ould have ever. incentive to protect the interest of its client the borro#er or dealer as a1ainst the placer of funds. he providers of such funds %ust be safe1uarded fro% the i%pact of stipulations privatel. %ade bet#een the borro#ers or dealers and the custodian ban;s, and disclosed to fund'providers onl. after trouble has erupted. In the case at bar, the custodian'depositar. ban; Pilipinas refused to deliver the securit. deposited #ith it #hen petitioner first de%anded ph.sical deliver. thereof on 6 &pril /,*/. Ae %ust a1ain note, in this connection, that on 6 &pril /,*/, DMC PN No. 60B/ had not .et %atured and therefore, co%pensation or offsettin1 a1ainst Philfinance PN No. /!B'& had not .et ta;en place. Instead of co%pl.in1 #ith the de%and of the petitioner, Pilipinas purported to re$uire and a#ait the instructions of Philfinance, in obvious contravention of its underta;in1 under the DCR to effect ph.sical deliver. of the Note upon receipt of <#ritten instructions< fro% petitioner 6esbreDo. he ostensible ter% #ritten into the DCR 5i.e., <should this MDCRN re%ain outstandin1 in .our favor thirt. MB+N da.s after its %aturit.<7 #as not a defense a1ainst petitioner9s de%and for ph.sical surrender of the Note on at least three 1rounds2 firstl., such ter% #as never brou1ht to the attention of petitioner SesbreQo at the ti%e the %one. %ar;et place%ent #ith Philfinance #as %adeH secondl., such ter% runs counter to the ver. purpose of the custodianship or depositar. a1ree%ent as an inte1ral part of a %one. %ar;et transactionH and thirdl., it is inconsistent #ith the provisions of &rticle /,** of the Civil Code noted above. Indeed, in principle, petitioner beca%e entitled to de%and ph.sical deliver. of the Note held b. Pilipinas as soon as petitioner9s %one. %ar;et place%ent %atured on /B March /,*/ #ithout pa.%ent fro% Philfinance. Ae conclude, therefore, that private respondent Pilipinas %ust respond to petitioner for da%a1es sustained b. arisin1 out of its breach of dut.. 3. failin1 to deliver the Note to the petitioner as depositor' beneficiar. of the thin1 deposited, Pilipinas effectivel. and unla#full. deprived petitioner of the Note deposited #ith it. Ahether or not Pilipinas itself benefitted fro% such conversion or unla#ful deprivation inflicted upon petitioner, is of no %o%ent for present purposes. ,ri!a facie, the da%a1es suffered b. petitioner consisted of PB+!,"BB.BB, the portion of the DMC PN No. 60B/ assi1ned to petitioner but lost b. hi% b. reason of dischar1e of the Note b. co%pensation, plus le1al interest of si? percent 5)D7 per annu! containin1 fro% /! March /,*/. he conclusion #e have reached is, of course, #ithout pre@udice to such ri1ht of rei%burse%ent as Pilipinas %a. havevis3a3vis Philfinance. III. he third principal contention of petitioner K that Philfinance and private respondents Delta and Pilipinas should be treated as one corporate entit. K need not detain us for lon1. In the first place, as alread. noted, @urisdiction over the person of Philfinance #as never ac$uired either b. the trial court nor b. the respondent Court of &ppeals. Petitioner si%ilarl. did not see; to i%plead Philfinance in the Petition before us. Secondl., it is not disputed that Philfinance and private respondents Delta and Pilipinas have been or1ani8ed as separate corporate entities. Petitioner as;s us to pierce their separate corporate entities, but has been able onl. to cite the presence of a co%%on Director K Mr. Ricardo Silverio, Sr., sittin1 on the 3oard of Directors of all three 5B7 co%panies. Petitioner has neither alle1ed nor proved that one or another of the three 5B7 concededl. related co%panies used the other t#o 567 as %ere alter e os or that the corporate affairs of the other t#o 567 #ere ad%inistered and %ana1ed for the benefit of one. here is si%pl. not enou1h evidence of record to @ustif. disre1ardin1 the separate corporate personalities of delta and Pilipinas and to hold the% liable for an. assu%ed or undeter%ined liabilit. of Philfinance to petitioner. 2 A>ERE4ORE, for all the fore1oin1, the Decision and Resolution of the Court of &ppeals in C.&.'(.R. CV No. /"/," dated 6/ %arch /,*, and /0 -ul. /,*,, respectivel., are hereb. MODI4IED and SE &SIDE, to the e?tent that such Decision and Resolution had dis%issed petitioner9s co%plaint a1ainst Pilipinas 3an;. Private respondent Pilipinas ban; is hereb. ORDERED to inde%nif. petitioner for da%a1es in the a%ount of PB+!,"BB.BB, plus le1al interest thereon at the rate of si? percent 5)D7 per annu! counted fro% 6 &pril /,*/. &s so %odified, the Decision and Resolution of the Court of &ppeals are hereb. &44IRMED. No pronounce%ent as to costs. SO ORDERED. ;idin, Davide, <r., Bo!ero and :elo, <<., concur.

Republic of the Philippines SU"REME COURT Manila SECOND DIVISION G.R. No. L230 23 ),.r5&r4 23, 19 9 GO*ERNMENT SER*ICE INSURANCE S#STEM, petitioner, vs. COURT O) A""EALS &'( MR. ? MRS. ISABELO R. RAC%O, respondents. The Aovern!ent Corporate Counsel for petitioner. Lorenzo -. 6ales for private respondents.

REGALA!O , J.: Private respondents, Mr. and Mrs. Isabelo R. Racho, to1ether #ith the spouses Mr. and Mrs 4laviano Ea1asca, e?ecuted a deed of %ort1a1e, dated Nove%ber /B, /,"0, in favor of petitioner (overn%ent Service Insurance S.ste% 5hereinafter referred to as (SIS7 and subse$uentl., another deed of %ort1a1e, dated &pril /!, /,"*, in connection #ith t#o loans 1ranted b. the latter in the su%s of P //,"++.++ and P B,+++.++, respectivel.. 1 & parcel of land covered b. ransfer Certificate of itle No. B*,*, of the Re1ister of Deed of Jue8on Cit., co'o#ned b. said %ort1a1or spouses, #as 1iven as securit. under the aforesaid t#o deeds. 2 he. also e?ecuted a 9pro%issor. note< #hich states in part2 ... for value received, #e the undersi1ned ... -OIN EF, SEVER&EEF and SOEID&RIEF, pro%ise to pa. the (OVERNMEN SERVICE INS=R&NCE SFS EM the su% of . . . 5P //,"++.++7 Philippine Currenc., #ith interest at the rate of si? 5)D7 per centu% co%pounded %onthl. pa.able in . . . 5/6+7e$ual %onthl. install%ents of . . . 5P /60.)"7 each. 3 On -ul. //, /,)/, the Ea1asca spouses e?ecuted an instru%ent deno%inated <&ssu%ption of Mort1a1e< under #hich the. obli1ated the%selves to assu%e the aforesaid obli1ation to the (SIS and to secure the release of the %ort1a1e coverin1 that portion of the land belon1in1 to herein private respondents and #hich #as %ort1a1ed to the (SIS. 3 his underta;in1 #as not fulfilled. 5 =pon failure of the %ort1a1ors to co%pl. #ith the conditions of the %ort1a1e, particularl. the pa.%ent of the a%orti8ations due, (SIS e?tra@udiciall. foreclosed the %ort1a1e and caused the %ort1a1ed propert. to be sold at public auction on Dece%ber B, /,)6. = More than t#o .ears thereafter, or on &u1ust 6B, /,)", herein private respondents filed a co%plaint a1ainst the petitioner and the Ea1asca spouses in the for%er Court of 4irst Instance of Jue8on Cit., 7 pra.in1 that the e?tra@udicial foreclosure <%ade on, their propert. and all other docu%ents e?ecuted in relation thereto in favor of the (overn%ent Service Insurance S.ste%< be declared null and void. It #as further pra.ed that the. be allo#ed to recover said propert., andCor the (SIS be ordered to pa. the% the value thereof, andCor the. be allo#ed to repurchase the land. &dditionall., the. as;ed for actual and %oral da%a1es and attorne.9s fees. In their aforesaid co%plaint, private respondents alle1ed that the. si1ned the %ort1a1e contracts not as sureties or 1uarantors for the Ea1asca spouses but the. %erel. 1ave their co%%on propert. to the said co'o#ners #ho #ere solel. benefited b. the loans fro% the (SIS. he trial court rendered @ud1%ent on 4ebruar. 6", /,)* dis%issin1 the co%plaint for failure to establish a cause of action. Said decision #as reversed b. the respondent Court of &ppeals 9 #hich held that2 ... althou1h for%all. the. are co'%ort1a1ors, the. are so onl. for acco%odation 5sic7 in that the (SIS re$uired their consent to the %ort1a1e of the entire parcel of land #hich #as covered #ith onl. one certificate of title, #ith full ;no#led1e that the loans secured

thereb. #ere solel. for the benefit of the appellant 5sic7 spouses #ho alone applied for the loan. ???? 9It is, therefore, clear that as a1ainst the (SIS, appellants have a valid cause for havin1 foreclosed the %ort1a1e #ithout havin1 1iven sufficient notice to the% as re$uired either as to their delin$uenc. in the pa.%ent of a%orti8ation or as to the subse$uent foreclosure of the %ort1a1e b. reason of an. default in such pa.%ent. he notice published in the ne#spaper, 9Dail. Record 5E?h. /67 and posted pursuant to Sec B of &ct B/B" is not the notice to #hich the %ort1a1or is entitled upon the application bein1 %ade for an e?tra@udicial foreclosure. ... 10 On the fore1oin1 findin1s, the respondent court conse$uentl. decreed that' In vie# of all the fore1oin1, the @ud1%ent appealed fro% is hereb. reversed, and another one entered 5/7 declarin1 the foreclosure of the %ort1a1e void insofar as it affects the share of the appellantsH 567 directin1 the (SIS to reconve. to appellants their share of the %ort1a1ed propert., or the value thereof if alread. sold to third part., in the su% of P B",+++.++, and 5B7 orderin1 the appellees 4laviano Ea1asca and Esther Ea1asca to pa. the appellants the su% of P /+,++.++ as %oral da%a1es, P ",+++.++ as attorne.9s fees, and costs. 11 he case is no# before us in this petition for revie#. In sub%ittin1 their case to this Court, both parties relied on the provisions of Section 6, of &ct No. 6+B/, other#ise ;no#n as the Ne1otiable Instru%ents Ea#, #hich provide that an acco%%odation part. is one #ho has si1ned an instru%ent as %a;er, dra#er, acceptor of indorser #ithout receivin1 value therefor, but is held liable on the instru%ent to a holder for value althou1h the latter ;ne# hi% to be onl. an acco%%odation part.. his approach of both parties appears to be %isdirected and their reliance %isplaced. he pro%issor. note hereinbefore $uoted, as #ell as the %ort1a1e deeds sub@ect of this case, are clearl. not ne1otiable instru%ents. hese docu%ents do not co%pl. #ith the fourth re$uisite to be considered as such under Section / of &ct No. 6+B/ because the. are neither pa.able to order nor to bearer. he note is pa.able to a specified part., the (SIS. &bsent the aforesaid re$uisite, the provisions of &ct No. 6+B/ #ould not appl.H 1overnance shall be afforded, instead, b. the provisions of the Civil Code and special la#s on %ort1a1es. &s earlier indicated, the factual findin1s of respondent court are that private respondents si1ned the docu%ents <onl. to 1ive their consent to the %ort1a1e as re$uired b. (SIS<, #ith the latter havin1 full ;no#led1e that the loans secured thereb. #ere solel. for the benefit of the Ea1asca spouses. 12 his appears to be dul. supported b. sufficient evidence on record. Indeed, it #ould be unusual for the (SIS to arran1e for and deduct the %onthl. a%orti8ations on the loans fro% the salar. as an ar%. officer of 4laviano Ea1asca #ithout li;e#ise affectin1 deductions fro% the salar. of Isabelo Racho #ho #as also an ar%. ser1eant. hen there is also the undisputed fact, as alread. stated, that the Ea1asca spouses e?ecuted a so'called <&ssu%ption of Mort1a1e< pro%isin1 to e?clude private respondents and their share of the %ort1a1ed propert. fro% liabilit. to the %ort1a1ee. here is no inti%ation that the for%er e?ecuted such instru%ent for a consideration, thus confir%in1 that the. did so pursuant to their ori1inal a1ree%ent. he parol evidence rule 13 cannot be used b. petitioner as a shield in this case for it is clear that there #as no ob@ection in the court belo# re1ardin1 the ad%issibilit. of the testi%on. and docu%ents that #ere presented to prove that the private respondents si1ned the %ort1a1e papers @ust to acco%%odate their co'o#ners, the Ea1asca spouses. 3esides, the introduction of such evidence falls under the e?ception to said rule, there bein1 alle1ations in the co%plaint of private respondents in the court belo# re1ardin1 the failure of the %ort1a1e contracts to e?press the true a1ree%ent of the parties. 13 >o#ever, contrar. to the holdin1 of the respondent court, it cannot be said that private respondents are #ithout liabilit. under the aforesaid %ort1a1e contracts. he factual conte?t of this case is precisel. #hat is conte%plated in the last para1raph of &rticle 6+*" of the Civil Code to the effect that third persons #ho are not parties to the principal obli1ation %a. secure the latter b. pled1in1 or %ort1a1in1 their o#n propert. So lon1 as valid consent #as 1iven, the fact that the loans #ere solel. for the benefit of the Ea1asca spouses #ould not invalidate the %ort1a1e #ith respect to private respondents9 share in the propert.. In consentin1 thereto, even assu%in1 that private respondents %a. not be assu%in1 personal liabilit. for the

debt, their share in the propert. shall nevertheless secure and respond for the perfor%ance of the principal obli1ation. he parties to the %ort1a1e could not have intended that the sa%e #ould appl. onl. to the ali$uot portion of the Ea1asca spouses in the propert., other#ise the consent of the private respondents #ould not have been re$uired. he supposed re$uire%ent of prior de%and on the private respondents #ould not be in point here since the %ort1a1e contracts created obli1ations #ith specific ter%s for the co%pliance thereof. he facts further sho# that the private respondents e?pressl. bound the%selves as solidar. debtors in the pro%issor. note hereinbefore $uoted. Co%in1 no# to the e?tra@udicial foreclosure effected b. (SIS, Ae cannot a1ree #ith the rulin1 of respondent court that lac; of notice to the private respondents of the e?tra@udicial foreclosure sale i%pairs the validit. thereof. In;onnevie, et al. vs. Court of appeals, et al., 15 the Court ruled that &ct No. B/B", as a%ended, does not re$uire personal notice on the %ort1a1or, $uotin1 the re$uire%ent on notice in such cases as follo#s2 Section B. Notice shall be 1iven b. postin1 notices of sale for not less than t#ent. da.s in at least three public places of the %unicipalit. #here the propert. is situated, and if such propert. is #orth %ore than four hundred pesos, such notice shall also be published once a #ee; for at least three consecutive #ee;s in a ne#spaper of 1eneral circulation in the %unicipalit. or cit.. here is no sho#in1 that the fore1oin1 re$uire%ent on notice #as not co%plied #ith in the foreclosure sale co%plained of . he respondent court, therefore, erred in annullin1 the %ort1a1e insofar as it affected the share of private respondents or in directin1 reconve.ance of their propert. or the pa.%ent of the value thereof Indubitabl., #hether or not private respondents herein benefited fro% the loan, the %ort1a1e and the e?tra@udicial foreclosure proceedin1s #ere valid. A>ERE4ORE, @ud1%ent is hereb. rendered REVERSIN( the decision of the respondent Court of &ppeals and REINS & IN( the decision of the court a #uo in Civil Case No. J',!/* thereof. SO ORDERED. Melencio'>errera 5Chairperson7, Paras, Padilla and Sar%iento, --., concur.

Republic of the Philippines SU"REME COURT Manila SECOND DIVISION

G.R. No. 97753 A5@586 10, 1992 CALTE; ("%ILI""INES), INC., petitioner, vs. COURT O) A""EALS &'( SECURIT# BAN/ AN! TRUST COM"AN#, respondents. ;ito, Lozada, Orte a & Castillo for petitioners. 5epo!uceno, 4ofileDa & Auin ona for private.

REGALA!O, J.: his petition for revie# on certiorari i%pu1ns and see;s the reversal of the decision pro%ul1ated b. respondent court on March *, /,,/ in C&'(.R. CV No. 6B)/" 1 affir%in1 #ith %odifications, the earlier decision of the Re1ional rial Court of Manila, 3ranch GEII, 2 #hich dis%issed the co%plaint filed therein b. herein petitioner a1ainst respondent ban;. he undisputed bac;1round of this case, as found b. the court a #uo and adopted b. respondent court, appears of record2 /. On various dates, defendant, a co%%ercial ban;in1 institution, throu1h its Sucat 3ranch issued 6*+ certificates of ti%e deposit 5C Ds7 in favor of one &n1el dela Cru8 #ho deposited #ith herein defendant the a11re1ate a%ount of P/,/6+,+++.++, as follo#s2 5-oint Partial Stipulation of 4acts and State%ent of Issues, Ori1inal Records, p. 6+0H Defendant9s E?hibits / to 6*+7H CTD CTD Dates 6erial 5os. Fuantity -!ount 66 4eb. *6 ,+/+/ to ,+/6+ 6+ P*+,+++ 6) 4eb. *6 0!)+6 to 0!),/ ,+ B)+,+++ 6 Mar. *6 0!0+/ to 0!0!+ !+ /)+,+++ ! Mar. *6 ,+/60 to ,+/!) 6+ *+,+++ " Mar. *6 0!0,0 to ,!*++ ! /),+++ " Mar. *6 *,,)" to *,,*) 66 **,+++ " Mar. *6 0+/!0 to ,+/"+ ! /),+++ * Mar. *6 ,+++/ to ,++6+ 6+ *+,+++ , Mar. *6 ,++6B to ,++"+ 6* //6,+++ , Mar. *6 *,,,/ to ,++++ /+ !+,+++ , Mar. *6 ,+6"/ to ,+606 66 **,+++ KKK KKKK otal 6*+ P/,/6+,+++ RRRRR RRRRRRRR 6. &n1el dela Cru8 delivered the said certificates of ti%e 5C Ds7 to herein plaintiff in connection #ith his purchased of fuel products fro% the latter 5Ori1inal Record, p. 6+*7. B. So%eti%e in March /,*6, &n1el dela Cru8 infor%ed Mr. i%oteo ian1co, the Sucat 3ranch Man1er, that he lost all the certificates of ti%e deposit in dispute. Mr. ian1co advised said depositor to e?ecute and sub%it a notari8ed &ffidavit of Eoss, as re$uired b. defendant ban;9s procedure, if he desired replace%ent of said lost C Ds 5 SN, 4ebruar. ,, /,*0, pp. !*'"+7. !. On March /*, /,*6, &n1el dela Cru8 e?ecuted and delivered to defendant ban; the re$uired &ffidavit of Eoss 5Defendant9s E?hibit 6*/7. On the basis of said affidavit of loss,

6*+ replace%ent C Ds #ere issued in favor of said depositor 5Defendant9s E?hibits 6*6' ")/7. ". On March 6", /,*6, &n1el dela Cru8 ne1otiated and obtained a loan fro% defendant ban; in the a%ount of Ei1ht >undred Sevent. 4ive housand Pesos 5P*0",+++.++7. On the sa%e date, said depositor e?ecuted a notari8ed Deed of &ssi1n%ent of i%e Deposit 5E?hibit ")67 #hich stated, a%on1 others, that he 5de la Cru87 surrenders to defendant ban; <full control of the indicated ti%e deposits fro% and after date< of the assi1n%ent and further authori8es said ban; to pre'ter%inate, set'off and <appl. the said ti%e deposits to the pa.%ent of #hatever a%ount or a%ounts %a. be due< on the loan upon its %aturit. 5 SN, 4ebruar. ,, /,*0, pp. )+')67. ). So%eti%e in Nove%ber, /,*6, Mr. &ranas, Credit Mana1er of plaintiff Calte? 5Phils.7 Inc., #ent to the defendant ban;9s Sucat branch and presented for verification the C Ds declared lost b. &n1el dela Cru8 alle1in1 that the sa%e #ere delivered to herein plaintiff <as securit. for purchases %ade #ith Calte? Philippines, Inc.< b. said depositor 5 SN, 4ebruar. ,, /,*0, pp. "!')*7. 0. On Nove%ber 6), /,*6, defendant received a letter 5Defendant9s E?hibit ")B7 fro% herein plaintiff for%all. infor%in1 it of its possession of the C Ds in $uestion and of its decision to pre'ter%inate the sa%e. *. On Dece%ber *, /,*6, plaintiff #as re$uested b. herein defendant to furnish the for%er <a cop. of the docu%ent evidencin1 the 1uarantee a1ree%ent #ith Mr. &n1el dela Cru8< as #ell as <the details of Mr. &n1el dela Cru8< obli1ation a1ainst #hich plaintiff proposed to appl. the ti%e deposits 5Defendant9s E?hibit ")!7. ,. No cop. of the re$uested docu%ents #as furnished herein defendant. /+. &ccordin1l., defendant ban; re@ected the plaintiff9s de%and and clai% for pa.%ent of the value of the C Ds in a letter dated 4ebruar. 0, /,*B 5Defendant9s E?hibit "))7. //. In &pril /,*B, the loan of &n1el dela Cru8 #ith the defendant ban; %atured and fell due and on &u1ust ", /,*B, the latter set'off and applied the ti%e deposits in $uestion to the pa.%ent of the %atured loan 5 SN, 4ebruar. ,, /,*0, pp. /B+'/B/7. /6. In vie# of the fore1oin1, plaintiff filed the instant co%plaint, pra.in1 that defendant ban; be ordered to pa. it the a11re1ate value of the certificates of ti%e deposit of P/,/6+,+++.++ plus accrued interest and co%pounded interest therein at /)D per annu!, %oral and e?e%plar. da%a1es as #ell as attorne.9s fees. &fter trial, the court a #uo rendered its decision dis%issin1 the instant co%plaint.
3

On appeal, as earlier stated, respondent court affir%ed the lo#er court9s dis%issal of the co%plaint, hence this petition #herein petitioner faults respondent court in rulin1 5/7 that the sub@ect certificates of deposit are non'ne1otiable despite bein1 clearl. ne1otiable instru%entsH 567 that petitioner did not beco%e a holder in due course of the said certificates of depositH and 5B7 in disre1ardin1 the pertinent provisions of the Code of Co%%erce relatin1 to lost instru%ents pa.able to bearer. 3 he instant petition is bereft of %erit. & sa%ple te?t of the certificates of ti%e deposit is reproduced belo# to provide a better understandin1 of the issues involved in this recourse. SEC=RI F 3&NI &ND R=S COMP&NF )00* &.ala &ve., Ma;ati No. ,+/+/ Metro Manila, Philippines S=C& O44ICEP !,+++.++ CER I4IC& E O4 DEPOSI Rate /)D Date of Maturit. 4E3. 6B, /,*! 4E3 66, /,*6, /,OOOO

his is to Certif. that 3 E & R E R has deposited in this 3an; the su% of PESOS2 4O=R >O=S&ND ONEF, SEC=RI F 3&NI S=C& O44ICE P!,+++ : ++ C S Pesos, Philippine Currenc., repa.able to said depositor 0B/ da.s. after date, upon presentation and surrender of this certificate, #ith interest at the rate of /)D per cent per annu!. 5S1d. Ille1ible7 5S1d. Ille1ible7 KKKKKKKKKK KKKKKKKKKKK &= >ORIPED SI(N& =RES 5 Respondent court ruled that the C Ds in $uestion are non'ne1otiable instru%ents, nationali8in1 as follo#s2 . . . Ahile it %a. be true that the #ord <bearer< appears rather boldl. in the C Ds issued, it is i%portant to note that after the #ord <3E&RER< sta%ped on the space provided supposedl. for the na%e of the depositor, the #ords <has deposited< a certain a%ount follo#s. he docu%ent further provides that the a%ount deposited shall be <repa.able to said depositor< on the period indicated. herefore, the te?t of the instru%ent5s7 the%selves %anifest #ith clarit. that the. are pa.able, not to #hoever purports to be the <bearer< but onl. to the specified person indicated therein, the depositor. In effect, the appellee ban; ac;no#led1es its depositor &n1el dela Cru8 as the person #ho %ade the deposit and further en1a1es itself to pa. said depositor the a%ount indicated thereon at the stipulated date. = Ae disa1ree #ith these findin1s and conclusions, and hereb. hold that the C Ds in $uestion are ne1otiable instru%ents. Section / &ct No. 6+B/, other#ise ;no#n as the Ne1otiable Instru%ents Ea#, enu%erates the re$uisites for an instru%ent to beco%e ne1otiable, viz2 5a7 It %ust be in #ritin1 and si1ned b. the %a;er or dra#erH 5b7 Must contain an unconditional pro%ise or order to pa. a su% certain in %one.H 5c7 Must be pa.able on de%and, or at a fi?ed or deter%inable future ti%eH 5d7 Must be pa.able to order or to bearerH and 5e7 Ahere the instru%ent is addressed to a dra#ee, he %ust be na%ed or other#ise indicated therein #ith reasonable certaint.. he C Ds in $uestion undoubtedl. %eet the re$uire%ents of the la# for ne1otiabilit.. he parties9 bone of contention is #ith re1ard to re$uisite 5d7 set forth above. It is noted that Mr. i%oteo P. ian1co, Securit. 3an;9s 3ranch Mana1er #a. bac; in /,*6, testified in open court that the depositor reffered to in the C Ds is no other than Mr. &n1el de la Cru8. ??? ??? ??? &tt.. Calida2 $ In other #ords Mr. Aitness, .ou are sa.in1 that per boo;s of the ban;, the depositor referred 5sic7 in these certificates states that it #as &n1el dela Cru8L #itness2 a Fes, .our >onor, and #e have the record to sho# that &n1el dela Cru8 #as the one #ho cause 5sic7 the a%ount. &tt.. Calida2 $ &nd no other person or entit. or co%pan., Mr. AitnessL #itness2

a None, .our >onor. 7 ??? ??? ??? &tt.. Calida2 $ Mr. Aitness, #ho is the depositor identified in all of these certificates of ti%e deposit insofar as the ban; is concernedL #itness2 a &n1el dela Cru8 is the depositor. ??? ??? ??? On this score, the accepted rule is that the ne1otiabilit. or non'ne1otiabilit. of an instru%ent is deter%ined fro% the #ritin1, that is, fro% the face of the instru%ent itself. 9 In the construction of a bill or note, the intention of the parties is to control, if it can be le1all. ascertained. 10 Ahile the #ritin1 %a. be read in the li1ht of surroundin1 circu%stances in order to %ore perfectl. understand the intent and %eanin1 of the parties, .et as the. have constituted the #ritin1 to be the onl. out#ard and visible e?pression of their %eanin1, no other #ords are to be added to it or substituted in its stead. he dut. of the court in such case is to ascertain, not #hat the parties %a. have secretl. intended as contradistin1uished fro% #hat their #ords e?press, but #hat is the %eanin1 of the #ords the. have used. Ahat the parties %eant %ust be deter%ined b. #hat the. said. 11 Contrar. to #hat respondent court held, the C Ds are ne1otiable instru%ents. he docu%ents provide that the a%ounts deposited shall be repa.able to the depositor. &nd #ho, accordin1 to the docu%ent, is the depositorL It is the <bearer.< he docu%ents do not sa. that the depositor is &n1el de la Cru8 and that the a%ounts deposited are repa.able specificall. to hi%. Rather, the a%ounts are to be repa.able to the bearer of the docu%ents or, for that %atter, #hosoever %a. be the bearer at the ti%e of present%ent. If it #as reall. the intention of respondent ban; to pa. the a%ount to &n1el de la Cru8 onl., it could have #ith facilit. so e?pressed that fact in clear and cate1orical ter%s in the docu%ents, instead of havin1 the #ord <3E&RER< sta%ped on the space provided for the na%e of the depositor in each C D. On the #ordin1s of the docu%ents, therefore, the a%ounts deposited are repa.able to #hoever %a. be the bearer thereof. hus, petitioner9s aforesaid #itness %erel. declared that &n1el de la Cru8 is the depositor <insofar as the ban; is concerned,< but obviousl. other parties not priv. to the transaction bet#een the% #ould not be in a position to ;no# that the depositor is not the bearer stated in the C Ds. >ence, the situation #ould re$uire an. part. dealin1 #ith the C Ds to 1o behind the plain i%port of #hat is #ritten thereon to unravel the a1ree%ent of the parties thereto throu1h facts aliunde. his need for resort to e?trinsic evidence is #hat is sou1ht to be avoided b. the Ne1otiable Instru%ents Ea# and calls for the application of the ele%entar. rule that the interpretation of obscure #ords or stipulations in a contract shall not favor the part. #ho caused the obscurit.. 12 he ne?t $uer. is #hether petitioner can ri1htfull. recover on the C Ds. his ti%e, the ans#er is in the ne1ative. he records reveal that &n1el de la Cru8, #ho% petitioner chose not to i%plead in this suit for reasons of its o#n, delivered the C Ds a%ountin1 to P/,/6+,+++.++ to petitioner #ithout infor%in1 respondent ban; thereof at an. ti%e. =nfortunatel. for petitioner, althou1h the C Ds are bearer instru%ents, a valid ne1otiation thereof for the true purpose and a1ree%ent bet#een it and De la Cru8, as ulti%atel. ascertained, re$uires both deliver. and indorse%ent. 4or, althou1h petitioner see;s to deflect this fact, the C Ds #ere in realit. delivered to it as a securit. for De la Cru89 purchases of its fuel products. &n. doubt as to #hether the C Ds #ere delivered as pa.%ent for the fuel products or as a securit. has been dissipated and resolved in favor of the latter b. petitioner9s o#n authori8ed and responsible representative hi%self. In a letter dated Nove%ber 6), /,*6 addressed to respondent Securit. 3an;, -.J. &ranas, -r., Calte? Credit Mana1er, #rote2 <. . . hese certificates of deposit #ere ne1otiated to us b. Mr. &n1el dela Cru8 to uarantee his purchases of fuel products< 5E%phasis ours.7 13 his ad%ission is conclusive upon petitioner, its protestations not#ithstandin1. =nder the doctrine of estoppel, an ad%ission or representation is rendered conclusive upon the person %a;in1 it, and cannot be denied or disproved as a1ainst the person rel.in1 thereon. 13 & part. %a. not 1o bac; on his o#n acts and representations to the pre@udice of the other part. #ho relied upon the%. 15 In the la# of evidence, #henever a part. has, b. his o#n declaration, act, or o%ission, intentionall. and deliberatel. led another to believe a particular thin1 true, and to act upon such belief, he cannot, in an. liti1ation arisin1 out of such declaration, act, or o%ission, be per%itted to falsif. it. 1=

If it #ere true that the C Ds #ere delivered as pa.%ent and not as securit., petitioner9s credit %ana1er could have easil. said so, instead of usin1 the #ords <to 1uarantee< in the letter afore$uoted. 3esides, #hen respondent ban;, as defendant in the court belo#, %oved for a bill of particularit. therein 17 pra.in1, a%on1 others, that petitioner, as plaintiff, be re$uired to aver #ith sufficient definiteness or particularit. 5a7 the due date or dates ofpay!ent of the alle1ed indebtedness of &n1el de la Cru8 to plaintiff and 5b7 #hether or not it issued a receipt sho#in1 that the C Ds #ere delivered to it b. De la Cru8 as pay!ent of the latter9s alle1ed indebtedness to it, plaintiff corporation opposed the %otion. 1 >ad it produced the receipt pra.ed for, it could have proved, if such trul. #as the fact, that the C Ds #ere delivered as pa.%ent and not as securit.. >avin1 opposed the %otion, petitioner no# labors under the presu%ption that evidence #illfull. suppressed #ould be adverse if produced. 19 =nder the fore1oin1 circu%stances, this dis$uisition in "nter rated Bealty Corporation, et al. vs. ,hilippine 5ational ;an', et al. 20 is apropos2 . . . &dvertin1 a1ain to the Court9s pronounce%ents in Lopez, supra, #e $uote therefro%2 he character of the transaction bet#een the parties is to be deter%ined b. their intention, re1ardless of #hat lan1ua1e #as used or #hat the for% of the transfer #as. If it #as intended to secure the pa.%ent of %one., it %ust be construed as a pled1eH but if there #as so%e other intention, it is not a pled1e. >o#ever, even thou1h a transfer, if re1arded b. itself, appears to have been absolute, its ob@ect and character %i1ht still be $ualified and e?plained b. conte%poraneous #ritin1 declarin1 it to have been a deposit of the propert. as collateral securit.. It has been said that a transfer of propert. b. the debtor to a creditor, even if sufficient on its face to %a;e an absolute conve.ance, should be treated as a pled1e if the debt continues in ine?istence and is not dischar1ed b. the transfer, and that accordin1l. the use of the ter%s ordinaril. i%portin1 conve.ance of absolute o#nership #ill not be 1iven that effect in such a transaction if the. are also co%%onl. used in pled1es and %ort1a1es and therefore do not un$ualifiedl. indicate a transfer of absolute o#nership, in the absence of clear and una%bi1uous lan1ua1e or other circu%stances e?cludin1 an intent to pled1e. Petitioner9s insistence that the C Ds #ere ne1otiated to it be1s the $uestion. =nder the Ne1otiable Instru%ents Ea#, an instru%ent is ne1otiated #hen it is transferred fro% one person to another in such a %anner as to constitute the transferee the holder thereof, 21 and a holder %a. be the pa.ee or indorsee of a bill or note, #ho is in possession of it, or the bearer thereof. 22 In the present case, ho#ever, there #as no ne1otiation in the sense of a transfer of the le1al title to the C Ds in favor of petitioner in #hich situation, for obvious reasons, %ere deliver. of the bearer C Ds #ould have sufficed. >ere, the deliver. thereof onl. as securit. for the purchases of &n1el de la Cru8 5and #e even disre1ard the fact that the a%ount involved #as not disclosed7 could at the %ost constitute petitioner onl. as a holder for value b. reason of his lien. &ccordin1l., a ne1otiation for such purpose cannot be effected b. %ere deliver. of the instru%ent since, necessaril., the ter%s thereof and the subse$uent disposition of such securit., in the event of non'pa.%ent of the principal obli1ation, %ust be contractuall. provided for. he pertinent la# on this point is that #here the holder has a lien on the instru%ent arisin1 fro% contract, he is dee%ed a holder for value to the e?tent of his lien. 23 &s such holder of collateral securit., he #ould be a pled1ee but the re$uire%ents therefor and the effects thereof, not bein1 provided for b. the Ne1otiable Instru%ents Ea#, shall be 1overned b. the Civil Code provisions on pled1e of incorporeal ri1hts, 23 #hich inceptivel. provide2 &rt. 6+,". Incorporeal ri1hts, evidenced b. ne1otiable instru%ents, . . . %a. also be pled1ed. he instru%ent provin1 the ri1ht pled1ed shall be delivered to the creditor, and if ne1otiable, %ust be indorsed. &rt. 6+,). & pled1e shall not ta;e effect a1ainst third persons if a description of the thin1 pled1ed and the date of the pled1e do not appear in a public instru%ent. &side fro% the fact that the C Ds #ere onl. delivered but not indorsed, the factual findin1s of respondent court $uoted at the start of this opinion sho# that petitioner failed to produce an. docu%ent evidencin1 an. contract of pled1e or 1uarantee a1ree%ent bet#een it and &n1el de la Cru8. 25 Conse$uentl., the %ere deliver. of the C Ds did not le1all. vest in petitioner an. ri1ht effective a1ainst and bindin1 upon respondent ban;. he re$uire%ent under &rticle 6+,) afore%entioned is not a %ere rule of ad@ective la# prescribin1 the %ode #hereb. proof %a. be %ade of the date of a pled1e contract, but a rule of substantive la# prescribin1 a condition #ithout #hich the e?ecution of a pled1e contract cannot affect third persons adversel.. 2=

On the other hand, the assi1n%ent of the C Ds %ade b. &n1el de la Cru8 in favor of respondent ban; #as e%bodied in a public instru%ent. 27 Aith re1ard to this other %ode of transfer, the Civil Code specificall. declares2 &rt. /)6". &n assi1n%ent of credit, ri1ht or action shall produce no effect as a1ainst third persons, unless it appears in a public instru%ent, or the instru%ent is recorded in the Re1istr. of Propert. in case the assi1n%ent involves real propert.. Respondent ban; dul. co%plied #ith this statutor. re$uire%ent. Contraril., petitioner, #hether as purchaser, assi1nee or lien holder of the C Ds, neither proved the a%ount of its credit or the e?tent of its lien nor the e?ecution of an. public instru%ent #hich could affect or bind private respondent. Necessaril., therefore, as bet#een petitioner and respondent ban;, the latter has definitel. the better ri1ht over the C Ds in $uestion. 4inall., petitioner faults respondent court for refusin1 to delve into the $uestion of #hether or not private respondent observed the re$uire%ents of the la# in the case of lost ne1otiable instru%ents and the issuance of replace%ent certificates therefor, on the 1round that petitioner failed to raised that issue in the lo#er court. 2 On this %atter, #e uphold respondent court9s findin1 that the aspect of alle1ed ne1li1ence of private respondent #as not included in the stipulation of the parties and in the state%ent of issues sub%itted b. the% to the trial court.29 he issues a1reed upon b. the% for resolution in this case are2 /. Ahether or not the C Ds as #orded are ne1otiable instru%ents. 6. Ahether or not defendant could le1all. appl. the a%ount covered b. the C Ds a1ainst the depositor9s loan b. virtue of the assi1n%ent 5&nne? <C<7. B. Ahether or not there #as le1al co%pensation or set off involvin1 the a%ount covered b. the C Ds and the depositor9s outstandin1 account #ith defendant, if an.. !. Ahether or not plaintiff could co%pel defendant to preter%inate the C Ds before the %aturit. date provided therein. ". Ahether or not plaintiff is entitled to the proceeds of the C Ds. ). Ahether or not the parties can recover da%a1es, attorne.9s fees and liti1ation e?penses fro% each other. &s respondent court correctl. observed, #ith appropriate citation of so%e doctrinal authorities, the fore1oin1 enu%eration does not include the issue of ne1li1ence on the part of respondent ban;. &n issue raised for the first ti%e on appeal and not raised ti%el. in the proceedin1s in the lo#er court is barred b. estoppel. 30 Juestions raised on appeal %ust be #ithin the issues fra%ed b. the parties and, conse$uentl., issues not raised in the trial court cannot be raised for the first ti%e on appeal. 31 Pre'trial is pri%aril. intended to %a;e certain that all issues necessar. to the disposition of a case are properl. raised. hus, to obviate the ele%ent of surprise, parties are e?pected to disclose at a pre'trial conference all issues of la# and fact #hich the. intend to raise at the trial, e?cept such as %a. involve privile1ed or i%peachin1 %atters. he deter%ination of issues at a pre'trial conference bars the consideration of other $uestions on appeal.32 o accept petitioner9s su11estion that respondent ban;9s supposed ne1li1ence %a. be considered enco%passed b. the issues on its ri1ht to preter%inate and receive the proceeds of the C Ds #ould be tanta%ount to sa.in1 that petitioner could raise on appeal an. issue. Ae a1ree #ith private respondent that the broad ulti%ate issue of petitioner9s entitle%ent to the proceeds of the $uestioned certificates can be pre%ised on a %ultitude of other le1al reasons and causes of action, of #hich respondent ban;9s supposed ne1li1ence is onl. one. >ence, petitioner9s sub%ission, if accepted, #ould render a pre'trial deli%itation of issues a useless e?ercise. 33 Still, even assu%in1 ar uendo that said issue of ne1li1ence #as raised in the court belo#, petitioner still cannot have the odds in its favor. & close scrutin. of the provisions of the Code of Co%%erce la.in1 do#n the rules to be follo#ed in case of lost instru%ents pa.able to bearer, #hich it invo;es, #ill reveal that said provisions, even assu%in1 their applicabilit. to the C Ds in the case at bar, are %erel. per%issive and not %andator.. he ver. first article cited b. petitioner spea;s for itself.

&rt "!*. he dispossessed owner, no %atter for #hat cause it %a. be, !ay appl. to the @ud1e or court of co%petent @urisdiction, as;in1 that the principal, interest or dividends due or about to beco%e due, be not paid a third person, as #ell as in order to prevent the o#nership of the instru%ent that a duplicate be issued hi%. 5E%phasis ours.7 ??? ??? ??? he use of the #ord <%a.< in said provision sho#s that it is not %andator. but discretionar. on the part of the <dispossessed o#ner< to appl. to the @ud1e or court of co%petent @urisdiction for the issuance of a duplicate of the lost instru%ent. Ahere the provision reads <%a.,< this #ord sho#s that it is not %andator. but discretional. 33 he #ord <%a.< is usuall. per%issive, not %andator.. 35 It is an au?iliar. verb indicatin1 libert., opportunit., per%ission and possibilit.. 3= Moreover, as correctl. anal.8ed b. private respondent, 37 &rticles "!* to ""* of the Code of Co%%erce, on #hich petitioner see;s to anchor respondent ban;9s supposed ne1li1ence, %erel. established, on the one hand, a ri1ht of recourse in favor of a dispossessed o#ner or holder of a bearer instru%ent so that he %a. obtain a duplicate of the sa%e, and, on the other, an option in favor of the part. liable thereon #ho, for so%e valid 1round, %a. elect to refuse to issue a replace%ent of the instru%ent. Si1nificantl., none of the provisions cited b. petitioner cate1oricall. restricts or prohibits the issuance a duplicate or replace%ent instru%ent sans co%pliance #ith the procedure outlined therein, and none establishes a %andator. precedent re$uire%ent therefor. A>ERE4ORE, on the %odified pre%ises above set forth, the petition is DENIED and the appealed decision is hereb. &44IRMED. SO ORDERED. 5arvasa, C.<., ,adilla and 5ocon, <<., concur.