G.R. No.

L-17845 April 27, 1967

INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA, petitioner,
vs.
FRANCISCO SEVILLA, respondent.
SANCHEZ, J .:
On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of the Bank of
the Philippine Islands, or its order, a promissory note for P15,000.00 with interest at 8% per annum, payable on demand. The
entire, amount of P15,000.00, proceeds of the promissory note, was received from the bank by Oscar Varona alone. Victor
Sevilla and Simeon Sadaya signed the promissory note as co-makers only as a favor to Oscar Varona. Payments were
made on account. As of June 15, 1950, the outstanding balance stood P4,850.00. No payment thereafter made.
On October 6, 1952, the bank collected from Sadaya the foregoing balance which, together with interest, totalled P5,416.12.
Varona failed to reimburse Sadaya despite repeated demands.
Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal, Special Proceeding No.
1518. Francisco Sevilla was named administrator.
In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorneys fees in the
sum of P1,500.00. The administrator resisted the claim upon the averment that the deceased Victor Sevilla "did not receive
any amount as consideration for the promissory note," but signed it only "as surety for Oscar Varona".
On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya in the amount of P5,746.12, and
directing the administrator to pay the same from any available funds belonging to the estate of the deceased Victor Sevilla.
The motion to reconsider having been overruled, the administrator appealed.
1
The Court of Appeals, in a decision
promulgated on July, 15, 1960, voted to set aside the order appealed from and to disapprove and disallow "appellee's claim
of P5,746.12 against the intestate estate."
The case is now before this Court on certiorari to review the judgment of the Court of Appeals.
Sadaya's brief here seeks reversal of the appellate court's decision and prays that his claim "in the amount of 50% of
P5,746.12, or P2,873.06, against the intestate estate of the deceased Victor Sevilla," be approved.
1. That Victor Sevilla and Simeon Sadaya were joint and several accommodation makers of the 15,000.00-peso promissory
note in favor of the Bank of the Philippine Islands, need not be essayed. As such accommodation the makers, the indi vidual
obligation of each of them to the bank is no different from, and no greater and no less than, that contract by Oscar Varona.
For, while these two did not receive value on the promissory note, they executed the same with, and for the purpose of
lending their names to, Oscar Varona. Their liability to the bank upon the explicit terms of the promissory note is joint and
several.
2
Better yet, the bank could have pursued its right to collect the unpaid balance against either Sevilla or Sadaya. And
the fact is that one of the last two, Simeon Sadaya, paid that balance.
2. It is beyond debate that Simeon Sadaya could have sought reimbursement of the total amount paid from Oscar Varona.
This is but right and just. Varona received full value of the promissory note.
3
Sadaya received nothing therefrom. He paid the
bank because he was a joint and several obligor. The least that can be said is that, as between Varona and Sadaya, there is
an implied contract of indemnity. And Varona is bound by the obligation to reimburse Sadaya.
4

3. The common creditor, the Bank of the Philippine Islands, now out of the way, we first look into the relations inter se
amongst the three consigners of the promissory note. Their relations vis-a-vis the Bank, we repeat, is that of joint and several
obligors. But can the same thing be said about the relations of the three consigners, in respect to each other?
Surely enough, as amongst the three, the obligation of Varona and Sevilla to Sadaya who paid can not be joint and several.
For, indeed, had payment been made by Oscar Varona, instead of Simeon Sadaya, Varona could not have had reason to
seek reimbursement from either Sevilla or Sadaya, or both. After all, the proceeds of the loan went to Varona and the other
two received nothing therefrom.
4. On principle, a solidary accommodation maker who made payment has the right to contribution, from his co-
accommodation maker, in the absence of agreement to the contrary between them, and subject to conditions imposed by
law. This right springs from an implied promise between the accommodation makers to share equallythe burdens that may
ensue from their having consented to stamp their signatures on the promissory note.
5
For having lent their signatures to the
principal debtor, they clearly placed themselves in so far as payment made by one may create liability on the other in
the category of mere joint grantors of the former.
6
This is as it should be. Not one of them benefited by the promissory note.
They stand on the same footing. In misfortune, their burdens should be equally spread.
Manresa, commenting on Article 1844 of the Civil Code of Spain,
7
which is substantially reproduced in Article 2073
8
of our
Civil Code, on this point stated:
Otros, como Pothier, entienden que, si bien el principio es evidente enestricto concepto juridico, se han extremado
sus consecuencias hasta el punto de que estas son contrarias, no solo a la logica, sino tambien a la equidad, que
debe ser el alma del Derecho, como ha dicho Laurent.
Esa accion sostienen no nace de la fianza, pues, en efecto, el hecho de afianzar una misma deuda no crea
ningun vinculo juridico, ni ninguna razon de obligar entre los fiadores, sino que trae, por el contrario, su origen de
una acto posterior, cual es el pago de toda la deuda realizado por uno de ellos, y la equdad, no permite que los
denias fiadores, que igualmente estaban estaban obligos a dicho pago, se aprovenchen de ese acto en perjuico del
que lo realozo.
Lo cierto es que esa accion concedida al fiador nace, si, del hecho del pago, pero es consecuencia del beneficio o
del derecho de division, como tenemos ya dicho. En efecto, por virtud de esta todos los cofiadores vienen obligados
a contribuir al pago de parte que a cada uno corresponde. De ese obligacion, contraida por todos ellos, se libran los
que no han pagado por consecuencia del acto realizado por el que pago, y si bien este no hizo mas que cumplir el
deber que el contracto de fianza le imponia de responder de todo el debito cuando no limito su obligacion a parte
alguna del mismo, dicho acto redunda en beneficio de los otros cofiadores los cuales se aprovechan de el para
quedar desligados de todo compromiso con el acreedor.
9

5. And now, to the requisites before one accommodation maker can seek reimbursement from a co-accommodation maker.
By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be supplied by the provisions
of this Code". Nothing extant in the Negotiable Instruments Law would define the right of one accommodation maker to seek
reimbursement from another. Perforce, we must go to the Civil Code.1wph1.t
Because Sevilla and Sadaya, in themselves, are but co-guarantors of Varona, their case comes within the ambit of Article
2073 of the Civil Code which reads:
ART. 2073. When there are two or more guarantors of the same debtor and for the same debt, the one among them
who has paid may demand of each of the others the share which is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same
proportion.
The provisions of this article shall not be applicable, unless the payment has been made in virtue of a judicial
demand or unless the principal debtor is insolvent.
10

As Mr. Justice Street puts it: "[T]hat article deals with the situation which arises when one surety has paid the debt to the
creditor and is seeking contribution from his cosureties."
11

Not that the requirements in paragraph 3, Article 2073, just quoted, are devoid of cogent reason. Says Manresa:
12

c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la corresponsabilidad de los
cofiadores.
La tercera de las prescripciones que comprende el articulo se refiere a los requisitos que deben concurrir para
que pueda tener lugar lo dispuesto en el mismo. Ese derecho que concede al fiador para reintegrarse directamente
de los fiadores de lo que pago por ellos en vez de dirigir su reclamacion contra el deudor, es un beneficio otorgado
por la ley solo ell dos casos determinados, cuya justificacion resulta evidenciada desde luego; y esa limitacion este
debidamente aconsejada por una razon de prudencia que no puede desconocerse, cual es la de evitar que por la
mera voluntad de uno de los cofiadores pueda hacerse surgir la accion de reintegro contra los demas en prejuicio de
los mismos.
El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio, pues teniendo en primer termino el
fiador que paga por el deudor el derecho de indemnizacion contra este, sancionado por el art. 1,838, es de todo
punto indudable que ejercitando esta accion pueden quedar libres de toda responsabilidad los demas cofiadores si,
a consecuencia de ella, indemniza el fiado a aquel en los terminos establecidos en el expresado articulo. Por el
contrario de prescindir de dicho derecho el fiador, reclamando de los confiadores en primer lugar el oportuno
reintegro, estos en tendrian mas remedio que satisfacer sus ductares respectivas, repitiendo despues por ellas
contra el deudor con la imposicion de las molestias y gastos consiguientes.
No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u otro de dichos derechos, el de
indemnizacion por el deudor y el del reintegro por los cofiadores, indudablemente optaria siempre y en todo caso
por el segundo, puesto que mucha mas garantias de solvencia y mucha mas seguridad del cobro ha de encontrar
en los fiadores que en el deudor; y en la practica quedaria reducido el primero a la indemnizacion por el deudor a los
confiadores que hubieran hecho el reintegro, obligando a estos, sin excepcion alguna, a soportar siempre los gastos
y las molestias que anteriormente homos indicado. Y para evitar estos perjuicios, la ley no ha podido menos de
reducir el ejercicio de ese derecho a los casos en que absolutamente sea indispensable.
13

6. All of the foregoing postulate the following rules: (1) A joint and several accommodation maker of a negotiable promissory
note may demand from the principal debtor reimbursement for the amount that he paid to the payee; and (2) a joint and
several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-
accommodation maker without first directing his action against the principal debtor provided that (a) he made the payment by
virtue of a judicial demand, or (b) a principal debtor is insolvent.
The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily and without any judicial demand," and
that "there is an absolute absence of evidence showing that Varona is insolvent". This combination of fact and lack of fact
epitomizes the fatal distance between payment by Sadaya and Sadaya's right to demand of Sevilla "the share which is
proportionately owing from him."
For the reasons given, the judgment of the Court of Appeals under review is hereby affirmed. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Castro, JJ., concur.














G.R. No. 96160 June 17, 1992
STELCO MARKETING CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and STEELWELD CORPORATION OF THE PHILIPPINES, INC., respondent.
NARVASA, c.J .:
Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel bars.
1
On seven (7)
different occasions in September and October, 1980, it sold to RYL Construction, Inc. quantities of steels bars of various
sizes and rolls of G.I. wire. These bars and wire were delivered at different places at the indication of RYL Construction, Inc.
The aggregate price for the purchases was P126,859.61.
Although the corresponding invoices issued by STELCO stipulated that RYL pay "COD" (cash on delivery), the latter made
no payments for the construction materials thus ordered and delivered despite insistent demands for payment by the former.
On April 4, 1981, RYL gave to Armstrong, Industries described by STELCO as its "sister corporation" and "manufacturing
arm"
2
a check drawn against Metrobank in the amount of P126,129.86, numbered 765380 and dated April 4, 1981. That
check was a company check of another corporation, Steelweld Corporation of the Philippines, signed by its President, Peter
Rafael Limson, and its Vice-President, Artemio Torres.
The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL. Romeo Lim had asked
Limson, for financial assistance, and the latter had agreed to give Lim a check only by way of accommodation, "only as
guaranty but not to pay for anything."
3
Why the check was made out in the amount of P126,129.86 is not explained. Anyway,
the check was actually issued in said amount of P126, 129.86, and as already stated, was given by R.Y. Lim to Armstrong
Industries,
4
in payment of an obligation. When the latter deposited the check at its bank, it was dishonored because "drawn
against insufficient funds."
5
When so deposited, the check bore two(2) endorsements, that of "RYL Construction," followed
by that of "Armstrong Industries."
6

On account of the dishonor of Metrobank Check No. 765380, and on complaint of Armstrong Industries (through a Mr.
Young), Rafael Limson and Artemio Torres were charged in the Regional Trial Court of Manila with a violation of Batas
Pambansa Bilang 22.
7
They were acquitted in a decision rendered on June 28, 1984 "on the ground that the check in
question was not issued by the drawer "to apply on account for value," it being merely for accommodation purposes. 8 The
judgment however conditioned the acquittal with the following pronouncement:
This is not however to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable
Instruments Law for having issued it for the accommodation of Romeo Lim.
Eleven months or so later and some four (4) years after issuance of the check in question in May, 1985, STELCO filed
with the Regional Trial Court at Caloocan City a civil complaint
9
against both RYL and STEELWELD for the recovery of the
valued of the steel bars and wire sold to and delivered to RYL (as already narrated) in the amount of P126,129.86, "plus 18%
interest from August 20, 1980 . . . (and) 25% of the total amount sought to be recovered as and by way of attorney's fees . . .
."
10
Among the allegations of its complaint was that Metrobank Check No. 765380 above mentioned had been given to it in
payment of RYL's indebtedness, duly indorsed by R.Y. Lim.
11
A preliminary attachment was issued by the trial court on the
basis of the averments of the complaint but was shortly dissolved upon the filing of a counter-bond by STEELWELD.
RYL could no longer be located and could not be served with
summons.
12
It never appeared. Only STEELWELD filed an answer, under date of July 16, 1985.
13
In said pleading, it
specifically denied the facts alleged in the complaint, the truth, according to Steelweld, being basically that
1) STELCO "is a complete stranger to it;" it had "not entered into any transaction or business dealing of any kind" with
STELCO, the transactions described in the complaint having been solely and exclusively between the plaintiff and RYL
Construction;
2) the check in question was "only given to a certain R. Lim to be used as collateral for another obligation . . . (but) in breach
of his agreement (Lim) utilized and negotiated the check for another purpose. . . .;
3) nevertheless, the check "is wholly inoperative since . . . Steelweld
. . . did not issue it for any valuable consideration either to R. Lim or to the plaintiff not to mention also the fact that the said
plaintiff failed to comply with the requirements of the law to hold the said defendant (STEELWELD) liable
. . ."
Trial ensued upon these issues, after which judgment was rendered on June 26, 1986.
14
The judgment sentenced "the
defendant Steelweld Corporation to pay to . . . (Stelco Marketing Corporation) the amount of P126,129.86 with legal rate of
interest from May 9, 1985, when this case was instituted until fully paid, plus another sum equivalent to 25% of the total
amount due as and for attorney's fees . . .
15
That disposition was justified in the judgment as follows:
16

There is no question, then, that as far as any commercial transaction is concerned between plaintiff and
defendant Steelweld no such transaction ever occurred. Ordinarily, under civil law rules, there having been
no transaction between them involving the purchase of certain merchandise there would be no privity of
contract between them, and plaintiff will have no right to sue the defendant for payment of said merchandise
for the simple reason that the defendant did not order them, such less receive them.
But we have here a case where the defendant Steelweld thru its President Peter Rafael Limson admitted to
have issued a check payable to cash in favor of his friend Romeo Lim who was the President of RYL
Construction by way of accommodation. Under the Negotiable Instruments Law an accommodation party is
liable.
Sec. 29. Liability of an accommodation party. An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value notwithstanding such holder at the time of
taking the instrument knew him to be only an accommodation party.
From this adverse judgment STEELWELD appealed to the Court of Appeals
17
and there succeeded in reversing the
judgment. By Decision promulgated on May 29, 1990,
18
the Court of Appeals
19
ordered "the complaint against appellant
(STEELWELD) DISMISSED; (and the appellee, STELCO) to pay appellant the sum of P15,000.00 as attorney's fees and
cost of litigation, the suit . . . (being) a baseless one that dragged appellant in court and caused it to incur attorney's f ees and
expense of litigation.
STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated November 13, 1990.
20
The
Court stressed that
. . . as far as Steelweld is concerned, there was no commercial transaction between said appellant and
appellee. Moreover, there is no evidence that appellee Stelco Marketing became a holder for value.
Nowhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor
thereof. Finally, appellee's complaint is for the collection of the unpaid accounts for delivery of steels bars
and construction materials. It having been established that appellee had no commercial transaction with
appellant Stelco, appellee had no cause of action against said appellant.
STELCO appealed to this Court in accordance with Rule 45 of the Rules of Court. In this Court it seeks to make the following
points in connection with its plea for the overthrow of the Appellate Tribunal's aforesaid decision, viz.:
1) said decision is "not in accord with law and jurisprudence;"
2) "STELCO is a "holder" within the meaning of the Negotiable Instruments Law;"
3) "STELCO is a holder in due course of Metrobank Check No. 765380 . . . (and hence) holds the same free from personal or
equitable defense;" and
4) "Negotiation in breach of faith is a personal defense . . . (and hence) not effective as against a holder in due course."
The points are not well taken.
The crucial question is whether or not STELCO ever became a holder in due course of Check No. 765380, a bearer
instrument, within the contemplation of the Negotiable Instruments Law. It never did.
STELCO evidently places much reliance on the pronouncement of the Regional Trial Court in Criminal Case No.
66571,
21
that the acquittal of the two (2) accused (Limson and Torres) did not operate "to release Steelweld Corporation
from its liability under Sec. 29 of the Negotiable Instruments Law for having issued . . . (the check) for the accommodation of
Romeo Lim." The cited provision reads as follows:
Sec. 29. Liability of accommodation party. An accommodation party is one who has singed the instrument
as maker, drawer, acceptor, or indorser, without receiving valued therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only an accommodation party.
It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did not specify to
whom STEELWELD, as accommodation party, is supposed to be liable; and certain it is that neither said pronouncement nor
any other part of the judgment of acquittal declared it liable to STELCO.
"A holder in due course," says the law,
22
"is a holder who has taken the instrument under the following
conditions:
(a) That is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in
the title of the persons negotiating it.
To be sure, as regards an accommodation party (such as STEELWELD), the fourth condition, i.e., lack of notice of any
infirmity in the instruments or defect in title of the persons negotiating it, has no application. This is because Section 29 of the
law above quoted preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding
that "such holder, at the time of taking the instrument, knew him to be only an accommodation
party."
23

Now, STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check No. 765380 because the
record shows it to have been in "actual possession" thereof; otherwise, it "could not have presented, marked and introduced
(said check) in evidence . . . before the court a quo." "Besides," it adds, the check in question was presented by STELCO to
the drawee bank for payment through Armstrong Industries, the manufacturing arm of STELCO and its sister company."
24

The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380 ever dated back to nay
time before the instrument's presentment and dishonor. There is no evidence whatsoever that the check was ever given to it,
or indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or for any other purpose
before it was presented for payment. On the contrary, the factual finding of the Court of Appeals, which by traditional precept
is normally conclusive on this Court, is that STELCO never became a holder for value and that "(n)owhere in the check itself
does the name of Stelco Marketing appear as payee, indorsee or depositor thereof."
25

What the record shows is that: (1) the STEELWELD company check in question was given by its president to R.Y. Lim; (2) it
was given only by way of accommodation, to be "used as collateral for another obligation;" (3) in breach of the agreement,
however, R.Y. Lim indorsed the check to Armstrong in payment of obligation; (4) Armstrong deposited the check to its
account, after indorsing it; (5) the check was dishonored. The record does not show any intervention or participation by
STELCO in any manner of form whatsoever in these transactions, or any communication of any sort between STEELWELD
and STELCO, or between either of them and Armstrong Industries, at any time before the dishonor of the check.
The record does show that after the check had been deposited and dishonored, STELCO came into possession of it in some
way, and was able, several years after the dishonor of the check, to give it in evidence at the trial of the civil case it had
instituted against the drawers of the check (Limson and Torres) and RYL. But, as already pointed out, possession of a
negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor
a holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or drawer and indorsers.
It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for value. It does not meet
two of the essential requisites prescribed by the statute. It did not become "the holder of it before it was overdue, and without
notice that it had been previously dishonored," and it did not take the check "in good faith and for value."
26

Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the check accepted the
instrument and attempted to encash it in behalf, and as agent of STELCO. On the contrary, the indications are that
Armstrong was really the intended payee of the check and was the party actually injured by its dishonor; it was after all its
representative (a Mr. Young) who instituted the criminal prosecution of the drawers, Limson and Torres, albeit
unsuccessfully.
The petitioner has failed to show any sufficient cause for modification or reversal of the challenged judgment of the Court of
Appeals which, on the contrary, appears to be entirely in accord with the facts and the applicable law.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV No. 13418 is AFFIRMED in
toto. Costs against petitioner.
SO ORDERED






















G.R. No. 80599 September 15, 1989
ERNESTINA CRISOLOGO-JOSE, petitioner,
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-President for Sales of Mover
Enterprises, Inc., respondents.
REGALADO, J .:
Petitioner seeks the annulment of the decision
1
of respondent Court of Appeals, promulgated on September 8, 1987, which
reversed the decision of the trial Court
2
dismissing the complaint for consignation filed by therein plaintiff Ricardo S. Santos,
Jr.
The parties are substantially agreed on the following facts as found by both lower courts:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of
marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. On April 30,
1980, Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued Check No.
093553 drawn against Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I')
payable to defendant Ernestina Crisologo-Jose. Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of
the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, Atty.
Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate story.
Plaintiff Ricardo S. Santos, Jr. did sign the check.
It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in consideration of the
waiver or quitclaim by said defendant over a certain property which the Government Service Insurance
System (GSIS) agreed to sell to the clients of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with
the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong, the
check will be encashed accordingly. However, since the compromise agreement was not approved within the
expected period of time, the aforesaid check for P45,000.00 (Exh. '1') was replaced by Atty. Benares with
another Traders Royal Bank cheek bearing No. 379299 dated August 10, 1980, in the same amount of
P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant Jose. This replacement check was also signed
by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this
replacement check (Exhs. 'A' and '2') with her account at Family Savings Bank, Mayon Branch, it was
dishonored for insufficiency of funds. A subsequent redepositing of the said check was likewise dishonored
by the bank for the same reason. Hence, defendant through counsel was constrained to file a criminal
complaint for violation of Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office against Atty. Oscar Z.
Benares and plaintiff Ricardo S. Santos, Jr. The investigating Assistant City Fiscal, Alfonso Llamas,
accordingly filed an amended information with the court charging both Oscar Benares and Ricardo S.
Santos, Jr., for violation of Batas Pambansa Blg. 22 docketed as Criminal Case No. Q-14867 of then Court
of First Instance of Rizal, Quezon City.
Meanwhile, during the preliminary investigation of the criminal charge against Benares and the plaintiff
herein, before Assistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's
check No. CC 160152 for P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the
complainant in that criminal case. The defendant refused to receive the cashier's check in payment of the
dishonored check in the amount of P45,000.00. Hence, plaintiff encashed the aforesaid cashier's check and
subsequently deposited said amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D'
and 'E'). Incidentally, the cashier's check adverted to above was purchased by Atty. Oscar Z. Benares and
given to the plaintiff herein to be applied in payment of the dishonored check.
3

After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to in Article 1256 of the
Civil Code is applicable to this case," rendered judgment dismissing plaintiff s complaint and defendant's counterclaim.
4

As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived the complaint for
consignation, directing the trial court to give due course thereto.
Hence, the instant petition, the assignment of errors wherein are prefatorily stated and discussed seriatim.
1. Petitioner contends that respondent Court of Appeals erred in holding that private respondent, one of the
signatories of the check issued under the account of Mover Enterprises, Inc., is an accommodation party
under the Negotiable Instruments Law and a debtor of petitioner to the extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private respondent who merely
signed the check in question in a representative capacity, that is, as vice-president of said corporation, hence he is not liable
thereon under the Negotiable Instruments Law.
The pertinent provision of said law referred to provides:
Sec. 29. Liability of accommodation party an accommodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only an accommodation party.
Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker,
drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of
some other person.
Based on the foregoing requisites, it is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument. From the standpoint of contract law, he differs from the ordinary concept of
a debtor therein in the sense that he has not received any valuable consideration for the instrument he signs. Nevertheless,
he is liable to a holder for value as if the contract was not for accommodation
5
in whatever capacity such accommodation
party signed the instrument, whether primarily or secondarily. Thus, it has been held that in lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter.
6

Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this case, as petitioner suggests, the
inevitable question is whether or not it may be held liable on the accommodation instrument, that is, the check issued in favor
of herein petitioner.
We hold in the negative.
The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument
to a holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party,
does not include nor apply to corporations which are accommodation parties.
7
This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires.
8
Hence, one
who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation
where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge
the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation thereon.
9

By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the
name of the corporation for the accommodation of a third person only if specifically authorized to do so.
10
Corollarily,
corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable
instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law
and in logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their
acts in connection therewith.
The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge petitioner in her aforesaid
postulation, then she is effectively barred from recovering from Mover Enterprises, Inc. the value of the check. Be that as i t
may, petitioner is not without recourse.
The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve, but
should render personally liable, the signatories of said instrument where the facts show that the accommodation involved
was for their personal account, undertaking or purpose and the creditor was aware thereof.
Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the cheek was issued at the instance
and for the personal account of Atty. Benares who merely prevailed upon respondent Santos to act as co-signatory in
accordance with the arrangement of the corporation with its depository bank. That it was a personal undertaking of said
corporate officers was apparent to petitioner by reason of her personal involvement in the financial arrangement and the fact
that, while it was the corporation's check which was issued to her for the amount involved, she actually had no transaction
directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's claims being directed personally against Atty. Oscar Z. Benares
and respondent Ricardo S. Santos, Jr., president and vice-president, respectively, of Mover Enterprises, Inc.
2. On her second assignment of error, petitioner argues that the Court of Appeals erred in holding that the
consignation of the sum of P45,000.00, made by private respondent after his tender of payment was refused
by petitioner, was proper under Article 1256 of the Civil Code.
Petitioner's submission is that no creditor-debtor relationship exists between the parties, hence consignation is not proper.
Concomitantly, this argument was premised on the assumption that private respondent Santos is not an accommodation
party.
As previously discussed, however, respondent Santos is an accommodation party and is, therefore, liable for the value of the
check. The fact that he was only a co-signatory does not detract from his personal liability. A co-maker or co-drawer under
the circumstances in this case is as much an accommodation party as the other co-signatory or, for that matter, as a lone
signatory in an accommodation instrument. Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in
effect a co-surety for the accommodated party with whom he and his co-signatory, as the other co-surety, assume solidary
liability ex lege for the debt involved. With the dishonor of the check, there was created a debtor-creditor relationship, as
between Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other. This circumstance enables
respondent Santos to resort to an action of consignation where his tender of payment had been refused by petitioner.
We interpose the caveat, however, that by holding that the remedy of consignation is proper under the given circumstances,
we do not thereby rule that all the operative facts for consignation which would produce the effect of payment are present in
this case. Those are factual issues that are not clear in the records before us and which are for the Regional Trial Court of
Quezon City to ascertain in Civil Case No. Q-33160, for which reason it has advisedly been directed by respondent court to
give due course to the complaint for consignation, and which would be subject to such issues or claims as may be raised by
defendant and the counterclaim filed therein which is hereby ordered similarly revived.
3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the Regional Trial Court of
Quezon City filed against private respondent for violation of Batas Pambansa Blg. 22, by holding that no
criminal liability had yet attached to private respondent when he deposited with the court the amount of
P45,000.00 is the final plaint of petitioner.
We sustain petitioner on this score.
Indeed, respondent court went beyond the ratiocination called for in the appeal to it in CA-G.R. CV. No. 05464. In its own
decision therein, it declared that "(t)he lone issue dwells in the question of whether an accommodation party can validly
consign the amount of the debt due with the court after his tender of payment was refused by the creditor." Yet, from the
commercial and civil law aspects determinative of said issue, it digressed into the merits of the aforesaid Criminal Case No.
Q-14867, thus:
Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such insufficiency of funds or
credit. Thus, the making, drawing and issuance of a check, payment of which is refused by the drawee
because of insufficient funds in or credit with such bank is prima facie evidence of knowledge of insufficiency
of funds or credit, when the check is presented within 90 days from the date of the check.
It will be noted that the last part of Section 2 of B.P. 22 provides that the element of knowledge of
insufficiency of funds or credit is not present and, therefore, the crime does not exist, when the drawer pays
the holder the amount due or makes arrangements for payment in full by the drawee of such check within
five (5) banking days after receiving notice that such check has not been paid by the drawee.
Based on the foregoing consideration, this Court finds that the plaintiff-appellant acted within Ms legal rights
when he consigned the amount of P45,000.00 on August 14, 1981, between August 7, 1981, the date when
plaintiff-appellant receive (sic) the notice of non-payment, and August 14, 1981, the date when the debt due
was deposited with the Clerk of Court (a Saturday and a Sunday which are not banking days) intervened.
The fifth banking day fell on August 14, 1981. Hence, no criminal liability has yet attached to plaintiff-
appellant when he deposited the amount of P45,000.00 with the Court a quo on August 14, 1981.
11

That said observations made in the civil case at bar and the intrusion into the merits of the criminal case pending in another
court are improper do not have to be belabored. In the latter case, the criminal trial court has to grapple with such factual
issues as, for instance, whether or not the period of five banking days had expired, in the process determining whether notice
of dishonor should be reckoned from any prior notice if any has been given or from receipt by private respondents of the
subpoena therein with supporting affidavits, if any, or from the first day of actual preliminary investigation; and whether t here
was a justification for not making the requisite arrangements for payment in full of such check by the drawee bank within the
said period. These are matters alien to the present controversy on tender and consignation of payment, where no such
period and its legal effects are involved.
These are aside from the considerations that the disputed period involved in the criminal case is only a presumptive
rule, juris tantum at that, to determine whether or not there was knowledge of insufficiency of funds in or credit with the
drawee bank; that payment of civil liability is not a mode for extinguishment of criminal liability; and that the requisite quantum
of evidence in the two types of cases are not the same.
To repeat, the foregoing matters are properly addressed to the trial court in Criminal Case No. Q-14867, the resolution of
which should not be interfered with by respondent Court of Appeals at the present posture of said case, much less
preempted by the inappropriate and unnecessary holdings in the aforequoted portion of the decision of said respondent
court. Consequently, we modify the decision of respondent court in CA-G.R. CV No. 05464 by setting aside and declaring
without force and effect its pronouncements and findings insofar as the merits of Criminal Case No. Q-14867 and the liability
of the accused therein are concerned.
WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court of Appeals is AFFIRMED.
SO ORDERED.

















G.R. No. L-56169 June 26, 1992
TRAVEL-ON, INC., petitioner,
vs.
COURT OF APPEALS and ARTURO S. MIRANDA, respondents.
FELICIANO, J .:
Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on commission basis for and in behalf of
different airline companies. Private respondent Arturo S. Miranda had a revolving credit line with petitioner. He procured
tickets from petitioner on behalf of airline passengers and derived commissions therefrom.
On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6) checks issued
by private respondent with a total face amount of P115,000.00. The complaint, with a prayer for the issuance of a writ of
preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16 January 1970, petitioner sold and
delivered various airline tickets to respondent at a total price of P278,201.57; that to settle said account, private respondent
paid various amounts in cash and in kind, and thereafter issued six (6) postdated checks amounting to P115,000.00 which
were all dishonored by the drawee banks. Travel-On further alleged that in March 1972, private respondent made another
payment of P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a quo.
In his answer, private respondent admitted having had transactions with Travel-On during the period stipulated in the
complaint. Private respondent, however, claimed that he had already fully paid and even overpaid his obligations and that
refunds were in fact due to him. He argued that he had issued the postdated checks for purposes of accommodation, as he
had in the past accorded similar favors to petitioner. During the proceedings, private respondent contested several tickets
alleged to have been erroneously debited to his account. He claimed reimbursement of his alleged over payments, plus
litigation expenses, and exemplary and moral damages by reason of the allegedly improper attachment of his properties.
In support of his theory that the checks were issued for accommodation, private respondent testified that he bad issued the
checks in the name of Travel-On in order that its General Manager, Elita Montilla, could show to Travel-On's Board of
Directors that the accounts receivable of the company were still good. He further stated that Elita Montilla tried to encash the
same, but that these were dishonored and were subsequently returned to him after the accommodation purpose had been
attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the "accommodation" extended to Travel-On by private
respondent related to situations where one or more of its passengers needed money in Hongkong, and upon request of
Travel-On respondent would contact his friends in Hongkong to advance Hongkong money to the passenger. The passenger
then paid Travel-On upon his return to Manila and which payment would be credited by Travel-On to respondent's running
account with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private respondent the amount of P8,894.91
representing net overpayments by private respondent, moral damages of P10,000.00 for the wrongful issuance of the writ of
attachment and for the filing of this case, P5,000.00 for attorney's fees and the costs of the suit.
The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily established and that the
postdated checks were issued not for the purpose of encashment to pay his indebtedness but to accommodate the General
Manager of Travel-On to enable her to show to the Board of Directors that Travel-On was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the trial court, which in fact then increased the
award of moral damages to P50,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced the award of moral damages to
P20,000.00, with interest at the legal rate from the date of the filing of the Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeal's' decision, without success.
In the instant Petition for Review, it is urged that the postdated checks are per se evidence of liability on the part of private
respondent. Petitioner further argues that even assuming that the checks were for accommodation, private respondent is still
liable thereunder considering that petitioner is a holder for value.
Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the ground that the various
statements of account prepared by petitioner did not show that Private respondent had an outstanding balance of
P115,000.00 which is the total amount of the checks he issued. It was pointed out that while the various exhibits of petitioner
showed various accountabilities of private respondent, they did not satisfactorily establish the amount of the outstanding
indebtedness of private respondent. The appellate court made much of the fact that the figures representing private
respondent's unpaid accounts found in the "Schedule of Outstanding Account" dated 31 January 1970 did not tally with the
figures found in the statement which showed private respondent's transactions with petitioner for the years 1969 and 1970;
that there was no satisfactory explanation as to why the total outstanding amount of P278,432.74 was still used as basis in
the accounting of 7 April 1972 considering that according to the table of transactions for the year 1969 and 1970, the total
unpaid account of private respondent amounted to P239,794.57.
We have, however, examined the record and it shows that the 7 April 1972 Statement of Account had simply not been
updated; that if we use as basis the figure as of 31 January 1970 which is P278,432.74 and from it deduct P38,638.17 which
represents some of the payments subsequently made by private respondent, the figure P239,794.57 will be obtained.
Also, the fact alone that the various statements of account had variances in figures, simply did not mean that private
respondent had no more financial obligations to petitioner. It must be stressed that private respondent's account with
petitioner was a running or open one, which explains the varying figures in each of the statements rendered as of a given
date.
The appellate court erred in considering only the statements of account in determining whether private respondent was
indebted to petitioner under the checks. By doing so, it failed to give due importance to the most telling piece of evidence of
private respondent's indebtedness the checks themselves which he had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the checks are the all important evidence of
petitioner's case; that these checks clearly established private respondent's indebtedness to petitioner; that private
respondent was liable thereunder.
It is important to stress that a check which is regular on its face is deemed prima facie to have been issued for a valuable
consideration and every person whose signature appears thereon is deemed to have become a party thereto for
value.
1
Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to recovery.
Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient
consideration unless otherwise contradicted and overcome by other competent evidence.
2

In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden of proving the existence of
valuable consideration upon petitioner. This cannot be countenanced; it was up to private respondent to show that he had
indeed issued the checks without sufficient consideration. The Court considers that Private respondent was unable to rebut
satisfactorily this legal presumption. It must also be noted that those checks were issued immediately after a letter
demanding payment had been sent to private respondent by petitioner Travel-On.
The fact that all the checks issued by private respondent to petitioner were presented for payment by the latter would lead to
no other conclusion than that these checks were intended for encashment. There is nothing in the checks themselves (or in
any other document for that matter) that states otherwise.
We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for "accommodation"
and that accordingly private respondent maker of those checks was not liable thereon to petitioner payee of those checks.
In the first place, while the Negotiable Instruments Law does refer to accommodation transactions, no such transaction was
here shown. Section 29 of the Negotiable Instruments Law provides as follows:
Sec. 29. Liability of accommodation party. An accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only an accommodation party.
In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his
credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder
in due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or
realizes full value which the accommodated party then must repay to the accommodating party, unless of course the
accommodating party intended to make a donation to the accommodated party. But the accommodating party is
bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party.
Having issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will
pay the same according to its tenor.
3

In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee bank but
the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the checks which
bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course,
4
that the checks were
supported by valuable consideration.
5
Private respondent maker of the checks did not successfully rebut these
presumptions. The only evidence aliunde that private respondent offered was his own self-serving uncorroborated testimony.
He claimed that he had issued the checks to Travel-On as payee to "accommodate" its General Manager who allegedly
wished to show those checks to the Board of Directors of Travel-On to "prove" that Travel-On's account receivables were
somehow "still good." It will be seen that this claim was in fact a claim that the checks were merely simulated, that private
respondent did not intend to bind himself thereon. Only evidence of the clearest and most convincing kind will suffice for that
purpose;
6
no such evidence was submitted by private respondent. The latter's explanation was denied by Travel-On's
General Manager; that explanation, in any case, appears merely contrived and quite hollow to us. Upon the other hand, the
"accommodation" or assistance extended to Travel-On's passengers abroad as testified by petitioner's General Manager
involved, not the accommodation transactions recognized by the NIL, but rather the circumvention of then existing foreign
exchange regulations by passengers booked by Travel-On, which incidentally involved receipt of full consideration by private
respondent.
Thus, we believe and so hold that private respondent must be held liable on the six (6) checks here involved. Those checks
in themselves constituted evidence of indebtedness of private respondent, evidence not successfully overturned or rebutted
by private respondent.
Since the checks constitute the best evidence of private respondent's liability to petitioner Travel-On, the amount of such
liability is the face amount of the checks, reduced only by the P10,000.00 which Travel-On admitted in its complaint to have
been paid by private respondent sometime in March 1992.
The award of moral damages to Private respondent must be set aside, for the reason that Petitioner's application for the writ
of attachment rested on sufficient basis and no bad faith was shown on the part of Travel-On. If anyone was in bad faith, it
was private respondent who issued bad checks and then pretended to have "accommodated" petitioner's General Manager
by assisting her in a supposed scheme to deceive petitioner's Board of Directors and to misrepresent Travel-On's financial
condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on Certiorari and to REVERSE and
SET ASIDE the Decision dated 22 October 1980 and the Resolution of 23 January 1981 of the Court of Appeals, as well as
the Decision dated 31 January 1975 of the trial court, and to enter a new decision requiring private respondent Arturo S.
Miranda to pay to petitioner Travel-On the amount of P105,000.00 with legal interest thereon from 14 June 1972, plus ten
percent (10%) of the total amount due as attorney's fees. Costs against Private respondent.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.








[G.R. No. 112392. February 29, 2000]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
D E C I S I O N
YNARES-SANTIAGO, J .:
This is a petition for review on certiorari of the Decision
[1]
of the Court of Appeals in CA-G.R. CV No. 37392 affirming in
toto that of the Regional Trial Court of Makati, Branch 139,
[2]
which dismissed the complaint filed by petitioner Bank of the
Philippine Islands against private respondent Benjamin C. Napiza for sum of money. Sdaad
On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-
187
[3]
which he maintained in petitioner banks Buendia Avenue Extension Branch, Continental Bank Managers Check No.
00014757
[4]
dated August 17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and
duly endorsed by private respondent on its dorsal side.
[5]
It appears that the check belonged to a certain Henry Chan who
went to the office of private respondent and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a
signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would go to the bank
to withdraw the amount of the check upon private respondents presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able
to withdraw the amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows that the
amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant
manager, Teresita Lindo.
[6]

On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New York that the
said check deposited by private respondent was a counterfeit check
[7]
because it was "not of the type or style of checks
issued by Continental Bank International."
[8]
Consequently, Mr. Ariel Reyes, the manager of petitioners Buendia Avenue
Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is private respondents son, to inform his
father that the check bounced.
[9]
Reyes himself sent a telegram to private respondent regarding the dishonor of the check. In
turn, private respondents son wrote to Reyes stating that the check had been assigned "for encashment" to Ramon A. de
Guzman and/or Agnes C. de Guzman after it shall have been cleared upon instruction of Chan. He also said that upon
learning of the dishonor of the check, his father immediately tried to contact Chan but the latter was out of town.
[10]

Private respondents son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes
reminded private respondent of his sons promise and warned that should he fail to return that amount within seven (7) days,
the matter would be referred to the banks lawyers for appropriate action to protect the banks interest.
[11]
This was followed
by a letter of the banks lawyer dated April 8, 1985 demanding the return of the $2,500.00.
[12]

In reply, private respondent wrote petitioners counsel on April 20, 1985
[13]
stating that he deposited the check "for clearing
purposes" only to accommodate Chan. He added:
"Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on October
23, 1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may not be amiss
to mention here that I merely signed an authority to withdraw said deposit subject to its clearing, the reason
why the transaction is not reflected in the passbook of the account. Besides, I did not receive its proceeds as
may be gleaned from the withdrawal slip under the captioned signature of recipient.
If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still exerting
utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable under the
circumstances. Scsdaad
xxx......xxx......xxx."
On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount of $2,500.00
or the prevailing peso equivalent plus legal interest from date of demand to date of full payment, a sum equivalent to 20% of
the total amount due as attorney's fees, and litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding that the
amount deposited would be withdrawn only after the check in question has been cleared. He likewise alleged that he
instructed the party to whom he issued the signed blank withdrawal slip to return it to him after the bank drafts clearance so
that he could lend that party his passbook for the purpose of withdrawing the amount of $2,500.00. However, without his
knowledge, said party was able to withdraw the amount of $2,541.67 from his dollar savings account through collusion with
one of petitioners employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to cl ear
the bank draft in question." Petitioner should have disallowed the withdrawal because his passbook was not presented. He
claimed that petitioner had no one to blame except itself "for being grossly negligent;" in fact, it had allegedly admitted having
paid the amount in the check "by mistake" x x x "if not altogether due to collusion and/or bad faith on the part of (its)
employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of counterclaim, private
respondent prayed for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorneys fees of 30% of
whatever amount that would be awarded to him plus an honorarium of P500.00 per appearance in court.
Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem
and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without private respondents passbook.
Thus, private respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay
attorneys fees of P5,000.00 plus P300.00 honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the third party complaint, wherein it asserted that per
paragraph 2 of the Rules and Regulations governing BPI savings accounts, private respondent alone was liable "for the
value of the credit given on account of the draft or check deposited." It contended that private respondent was estopped from
disclaiming liability because he himself authorized the withdrawal of the amount by signing the withdrawal slip. Petitioner
prayed for the denial of the said motion so as not to unduly delay the disposition of the main case asserting that private
respondents claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the motion to admit
third party complaint should be granted. Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987
directing private respondent to actively participate in locating Chan. After private respondent failed to comply, the trial court,
on May 18, 1988, dismissed the third party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner could not hold
private respondent liable based on the checks face value alone. To so hold him liable "would render inutile the requirement
of clearance from the drawee bank before the value of a particular foreign check or draft can be credited to the account of a
depositor making such deposit." The lower court further held that "it was incumbent upon the petitioner to credit the value of
the check in question to the account of the private respondent only upon receipt of the notice of final payment and
should not have authorized the withdrawal from the latters account of the value or proceeds of the check." Having admitted
that it committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or
proceeds, petitioner should suffer the resultant loss. Supremax
On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court held that petitioner committed "clear
gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondents passbook
and, before the check was cleared and in crediting the amount indicated therein in private respondents account. It stressed
that the mere deposit of a check in private respondents account did not mean that the check was already private
respondents property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the banks rules and regulations. Furthermore, petitioners contention that private respondent
warranted the checks genuineness by endorsing it is untenable for it would render useless the clearance requirement.
Likewise, the requirement of presentation of a passbook to ascertain the propriety of the accounting reflected would be a
meaningless exercise. After all, these requirements are designed to protect the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,
[14]
where this Court stated that a
personal check is not legal tender or money, and held that the check deposited in this case must be cleared before its value
could be properly transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals Decision, petitioner filed this petition for review on
certiorari, raising the following issues:
1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL
INDORSER.
2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT
NAPIZA AND RUBEN GAYON.
3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE
WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the
amount stated therein in accordance with the following provision of the Negotiable Instruments Law (Act No. 2031):
"SEC. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all
subsequent holders in due course
(a)......The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
(b)......That the instrument is at the time of his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to
pay it."
Section 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by
qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title
to it, and (c) that all prior parties had capacity to contract.
[15]
In People v. Maniego,
[16]
this Court described the liabilities of an
indorser as follows: Juris
"Appellants contention that as mere indorser, she may not be liable on account of the dishonor of the checks
indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable instrument
has the right to enforce payment of the instrument for the full amount thereof against all parties liable
thereon. Among the parties liable thereon is an indorser of the instrument, i.e., a person placing his
signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he clearly indicated
by appropriate words his intention to be bound in some other capacity. Such an indorser who indorses
without qualification, inter alia engages that on due presentment, * * (the instrument) shall be accepted or
paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or any subsequent
indorser who may be compelled to pay it. Maniego may also be deemed an accommodation party in the
light of the facts, i.e., a person who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to some other person. As such,
she is under the law liable on the instrument to a holder for value, notwithstanding such holder at the time of
taking the instrument knew * * (her) to be only an accommodation party, although she has the right, after
paying the holder, to obtain reimbursement from the party accommodated, since the relation between them
is in effect that of principal and surety, the accommodation party being the surety."
It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation
party.
[17]
However, to hold private respondent liable for the amount of the check he deposited by the strict application of the
law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the
public trust in the banking system. The interest of justice thus demands looking into the events that led to the encashment of
the check.
Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the withdrawal of the
amount in question." Petitioner relied "on the genuine signature on the withdrawal slip, the personality of private respondents
son and the lapse of more than fifty (50) days from date of deposit of the Continental Bank draft, without the same being
returned yet."
[18]
We hold, however, that the propriety of the withdrawal should be gauged by compliance with the rules
thereon that both petitioner bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits appear:
"4.......Withdrawals must be made by the depositor personally but in some exceptional circumstances, the
Bank may allow withdrawal by another upon the depositors written authority duly authenticated; and neither
a deposit nor a withdrawal will be permitted except upon the presentation of the depositors savings
passbook, in which the amount deposited withdrawn shall be entered only by the Bank.
5.......Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the
request of the depositor in writing on the withdrawal slip or by authenticated cable. Such request must
indicate the name of the payee/s, amount and the place where the funds are to be paid. Any stamp,
transmission and other charges related to such withdrawals shall be for the account of the depositor and
shall be paid by him/her upon demand. Withdrawals may also be made in the form of travellers checks and
in pesos. Withdrawals in the form of notes/bills are allowed subject however, to their (availability).
6.......Deposits shall not be subject to withdrawal by check, and may be withdrawn only in the manner above
provided, upon presentation of the depositors savings passbook and with the withdrawal form supplied by
the Bank at the counter."
[19]
Scjuris
Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign currency deposit
system, two requisites must be presented to petitioner bank by the person withdrawing an amount: (a) a duly filled-up
withdrawal slip, and (b) the depositors passbook. Private respondent admits that he signed a blank withdrawal slip ostensibly
in violation of Rule No. 6 requiring that the request for withdrawal must name the payee, the amount to be withdrawn and the
place where such withdrawal should be made. That the withdrawal slip was in fact a blank one with only private respondents
two signatures affixed on the proper spaces is buttressed by petitioners allegation in the instant petition that had private
respondent indicated therein the person authorized to receive the money, then Ruben Gayon, Jr. could not have withdrawn
any amount. Petitioner contends that "(i)n failing to do so (i.e., naming his authorized agent), he practically authorized any
possessor thereof to write any amount and to collect the same."
[20]

Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the
amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners personnel should
have been duly warned that Gayon, who was also employed in petitioners Buendia Ave. Extension branch,
[21]
was not the
proper payee of the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman should have issued another
authority to Gayon for such withdrawal. Of course, at the dorsal side of the withdrawal slip is an "authority to withdraw"
naming Gayon the person who can withdraw the amount indicated in the check. Private respondent does not deny having
signed such authority. However, considering petitioners clear admission that the withdrawal slip was a blank one except for
private respondents signature, the unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was
intercalated and thereafter it was signed by Gayon or whoever was allowed by petitioner to withdraw the amount. Under
these facts, there could not have been a principal-agent relationship between private respondent and Gayon so as to render
the former liable for the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the
corresponding foreign currency savings passbook by the depositor in person. For withdrawals thru a representative,
depositor should accomplish the authority at the back." The requirement of presentation of the passbook when withdrawing
an amount cannot be given mere lip service even though the person making the withdrawal is authorized by the depositor to
do so. This is clear from Rule No. 6 set out by petitioner so that, for the protection of the banks interest and as a reminder to
the depositor, the withdrawal shall be entered in the depositors passbook. The fact that private respondents passbook was
not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with
the bank was on September 3, 1984, the date he deposited the controversial check in the amount of $2,500.00.
[22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus:
"2.......All deposits will be received as current funds and will be repaid in the same manner; provided,
however, that deposits of drafts, checks, money orders, etc. will be accepted as subject to collection only
and credited to the account only upon receipt of the notice of final payment. Collection charges by the Banks
foreign correspondent in effecting such collection shall be for the account of the depositor. If the account has
sufficient balance, the collection shall be debited by the Bank against the account. If, for any reason, the
proceeds of the deposited checks, drafts, money orders, etc., cannot be collected or if the Bank is required
to return such proceeds, the provisional entry therefor made by the Bank in the savings passbook and its
records shall be deemed automatically cancelled regardless of the time that has elapsed, and whether or not
the defective items can be returned to the depositor; and the Bank is hereby authorized to execute
immediately the necessary corrections, amendments or changes in its record, as well as on the savings
passbook at the first opportunity to reflect such cancellation." (Italics and underlining supplied.) Jurissc
As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the
outright owner of the amount stated therein. Under the above rule, by depositing the check with petitioner, private respondent
was, in a way, merely designating petitioner as the collecting bank. This is in consonance with the rule that a negotiable
instrument, such as a check, whether a managers check or ordinary check, is not legal tender.
[23]
As such, after receiving the
deposit, under its own rules, petitioner shall credit the amount in private respondents account or infuse value thereon only
after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in
accordance with ordinary banking practices and with this Courts pronouncement that "the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the
act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the endorsements."
[24]
The rule finds more meaning in this case where the check
involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even
though the check in question is a managers check.
[25]
Misjuris
In Banco Atlantico v. Auditor General,
[26]
Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts represented
in three (3) checks to Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so without
previously clearing the checks with the drawee bank, the Philippine National Bank in New York, on account of the "special
treatment" that Boncan received from the personnel of Banco Atlanticos foreign department. The Court held that the
encashment of the checks without prior clearance is "contrary to normal or ordinary banking practice specially so where the
drawee bank is a foreign bank and the amounts involved were large." Accordingly, the Court approved the Auditor Generals
denial of Banco Atlanticos claim for payment of the value of the checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its functions, a
bank is under obligation to treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary
nature of their relationship."
[27]
As such, in dealing with its depositors, a bank should exercise its functions not only with the
diligence of a good father of a family but it should do so with the highest degree of care.
[28]

In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit, failed to exercise the diligence of a
good father of a family. In total disregard of its own rules, petitioners personnel negligently handled private respondents
account to petitioners detriment. As this Court once said on this matter:
"Negligence is the omission to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith,
provides the test by which to determine the existence of negligence in a particular case which may be stated
as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which
an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.
The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the
discreet pater-familias of the Roman law. The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before him. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability
by that."
[29]

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate
amount of private respondents dollar deposits that had yet to be cleared. The banks ledger on private respondents account
shows that before he deposited $2,500.00, private respondent had a balance of only $750.00.
[30]
Upon private respondents
deposit of $2,500.00 on September 3, 1984, that amount was credited in his ledger as a deposit resulting in the
corresponding total balance of $3,250.00.
[31]
On September 10, 1984, the amount of $600.00 and the additional charges of
$10.00 were indicated therein as withdrawn thereby leaving a balance of $2,640.00. On September 30, 1984, an interest of
$11.59 was reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was entered as withdrawn with a
balance of $109.92.
[32]
On November 19, 1984 the word "hold" was written beside the balance of $109.92.
[33]
That must have
been the time when Reyes, petitioners branch manager, was informed unofficially of the fact that the check deposited was a
counterfeit, but petitioners Buendia Ave. Extension Branch received a copy of the communication thereon from Wells Fargo
Bank International in New York the following day, November 20, 1984.
[34]
According to Reyes, Wells Fargo Bank International
handled the clearing of checks drawn against U.S. banks that were deposited with petitioner.
[35]
Jjlex
From these facts on record, it is at once apparent that petitioners personnel allowed the withdrawal of an amount bigger than
the original deposit of $750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet
received notice from the clearing bank in the United States on whether or not the check was funded. Reyes contention that
after the lapse of the 35-day period the amount of a deposited check could be withdrawn even in the absence of a clearance
thereon, otherwise it could take a long time before a depositor could make a withdrawal,
[36]
is untenable. Said practice
amounts to a disregard of the clearance requirement of the banking system.
While it is true that private respondents having signed a blank withdrawal slip set in motion the events that resulted in the
withdrawal and encashment of the counterfeit check, the negligence of petitioners personnel was the proximate cause of the
loss that petitioner sustained. Proximate cause, which is determined by a mixed consideration of logic, common sense, policy
and precedent, is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred."
[37]
The proximate cause of the withdrawal and
eventual loss of the amount of $2,500.00 on petitioners part was its personnels negligence in allowing such withdrawal in
disregard of its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of
incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
37392 is AFFIRMED.
SO ORDERED. New
























G.R. No. 117660 December 18, 2000
AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners,
vs.
THE HON. COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC., respondents.
D E C I S I O N
QUISUMBING, J .:
This is a petition for review challenging the decision
1
dated October 17, 1994 of the Court of Appeals in CA-G.R. No. 32933,
which affirmed in toto the judgment of the Manila Regional Trial Court, Branch 27, in consolidated Cases Nos. 86-37374, 86-
37388, 86-37543.
This petition springs from three complaints for sums of money filed by respondent bank against herein petitioners. In the
decision of the Court of Appeals, petitioners were ordered to pay respondent bank, as follows:
Wherefore, judgment is hereby rendered in favor of plaintiff and against defendants, as follows:
1) In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered jointly and severally, to pay to plaintiff the
amount of P78,212.29, together with interest and service charge thereon, at the rates of 14% and 3% per annum,
respectively, computed from November 10, 1982, until fully paid, plus stipulated penalty on unpaid principal at the
rate of 6% per annum, computed from November 10, 1982, plus 15% as liquidated damage plus 10% of the total
amount due, as attorneys fees, plus costs;
2) In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the amount of P632,911.39, together with interest
and service charge thereon at the rate of 14% and 3% per annum, respectively, computed from January 15, 1983,
until fully paid, plus stipulated penalty on unpaid principal at the rate of 6% per annum, computed from January 15,
1983, plus liquidated damages equivalent to 15% of the total amount due, plus attorneys fees equivalent to 10% of
the total amount due, plus costs; and
3) In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the first cause of action, the amount of
P510,000.00, together with interest and service charge thereon, at the rates of 14% and 2% per annum, respectively,
computed from March 13, 1983, until fully paid, plus a penalty of 6% per annum, based on the outstanding principal
of the loan, computed from March 13, 1983, until fully paid; and on the second cause of action, the amount of
P494,936.71, together with interest and service charge thereon at the rates of 14% and 2%, per annum, respectively,
computed from March 30, 1983, until fully paid, plus a penalty charge of 6% per annum, based on the unpaid
principal, computed from March 30, 1983, until fully paid, plus (on both causes of action) an amount equal to 15% of
the total amounts due, as liquidated damages, plus attorneys fees equal to 10% of the total amounts due, plus
costs.
2

Based on the records, the following are the factual antecedents.
On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to Wonderland Food Industries,
Inc. In their Memorandum of Agreement,
3
the parties covenanted that the purchase price of Five Million (P5,000,000.00)
Pesos would be settled by the vendee, under the following terms and conditions: (1) One Million (P1,000,000.00) Pesos shall
be paid in cash upon the signing of the agreement; (2) Two Million (P2,000,000.00) Pesos worth of common shares of stock
of the Wonderland Food Industries, Inc.; and (3) The balance of P2,000,000.00 shall be paid in four equal installments, the
first installment falling due, 180 days after the signing of the agreement and every six months thereafter, with an interest rate
of 18% per annum, to be advanced by the vendee upon the signing of the agreement.
On July 19, 1982, the vendor, the vendee, and the respondent bank Regent Savings & Loan Bank (formerly Summa Savings
& Loan Association), executed an Addendum
4
to the previous Memorandum of Agreement. The new arrangement pertained
to the revision of settlement of the initial payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of
P2,000,000.00) as follows:
Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said ONE MILLION THREE
HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS.
WHEREFORE, in consideration of the mutual covenant and agreement of the parties, they do further covenant and agree as
follows:
1. That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND
(P1,360,000.00) PESOS in cash, hereby authorizes the VENDOR to obtain a loan from Summa Savings and Loan
Association with office address at Valenzuela, Metro Manila, being represented herein by its President, Mr. Jaime
Cario and referred to hereafter as Financier; in the amount of ONE MILLION THREE HUNDRED SIXTY
THOUSAND (P1,360,000.00)PESOS, plus interest thereon at such rate as the VENDEE and the Financier may
agree, which amount shall cover the ONE MILLION (P1,000,000.00) PESOS cash which was agreed to be paid
upon signing of the Memorandum of Agreement, plus 18% interest on the balance of two million pesos stipulated
upon in Item No. 1(c) of the said agreement; provided however, that said loan shall be made for and in the name of
the VENDOR.
2. The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND
(P1,360,000.00) PESOS be paid directly to the VENDOR; however, the VENDEE hereby undertakes to pay the full
amount of the said loan to the Financier on such terms and conditions agreed upon by the Financier and the
VENDOR, it being understood that while the loan will be secured from and in the name of the VENDOR, the
VENDEE will be the one liable to pay the entire proceeds thereof including interest and other charges.
5

This addendum was not notarized.
Consequently, petitioner Mario Soriano signed as maker several promissory notes,
6
payable to the respondent bank.
Thereafter, the bank released the proceeds of the loan to petitioners. However, petitioners failed to meet their obligations as
they fell due. During that time, the bank was experiencing financial turmoil and was under the supervision of the Central
Bank. Central Bank examiner and liquidator Cordula de Jesus, endorsed the subject promissory notes to the banks counsel
for collection. The bank gave petitioners opportunity to settle their account by extending payment due dates. Mario Soriano
manifested his intention to re-structure the loan, yet did not show up nor submit his formal written request.
Respondent bank filed three separate complaints before the Regional Trial Court of Manila for Collection of Sums of money.
The corresponding case histories are illustrated in the table below:
Date
of
Loan
Amount Payment
Due
Date
Payment
Extension
Dates
Civil Case 86-37374
August 12, 1982
P 78,212.29 Nov. 10, 1982 Feb. 8, 1983
May 9, 1983
Aug. 7, 1983
Civil Case 86-37388
July 19, 1982
P 632,911.39 Jan. 15, 1983 May 16, 1983
Aug. 14, 1983
Civil Case 86-37543
September 14, 1982
October 1, 1982
P 510,000.00
P 494,936.71
March 13, 1983
March 30, 1983
June 11, 1983
Sept. 9, 1983
June 28, 1983
Sept. 26, 1983
In their answer, petitioners interposed the defense of novation and insisted there was a valid substitution of debtor. They
alleged that the addendum specifically states that although the promissory notes were in their names, Wonderland shall be
responsible for the payment thereof.
The trial court held that petitioners are liable, to wit:
The evidences, however, disclose that Wonderland did not comply with its obligation under said Addendum (Exh. S) as the
agreement to turn over the farmland to it, did not materialize (57 tsn, May 29, 1990), and there was, actually no sale of the
land (58 tsn, ibid). Hence, Wonderland is not answerable. And since the loans obtained under the four promissory not es
(Exhs. A, C, G, and E) have not been paid, despite opportunities given by plaintiff to defendants to make payments, i t
stands to reason that defendants are liable to pay their obligations thereunder to plaintiff. In fact, defendants failed to file a
third-party complaint against Wonderland, which shows the weakness of its stand that Wonderland is answerable to make
said payments.
7

Petitioners appealed to the Court of Appeals. The trial courts decision was affirmed by the appellate court.
Hence, this recourse, wherein petitioners raise the sole issue of:
WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM, SIGNED BY THE
PETITIONERS, RESPONDENT BANK AND WONDERLAND INC., CONSTITUTES A NOVATION OF THE CONTRACT BY
SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY
NOTES.
Revealed by the facts on record, the conflict among the parties started from a contract of sale of a farmland between
petitioners and Wonderland Food Industries, Inc. As found by the trial court, no such sale materialized.
A contract of sale is a reciprocal transaction. The obligation or promise of each party is the cause or considerati on for the
obligation or promise by the other. The vendee is obliged to pay the price, while the vendor must deliver actual possession of
the land. In the instant case the original plan was that the initial payments would be paid in cash. Subsequently, the parties
(with the participation of respondent bank) executed an addendum providing instead, that the petitioners would secure a loan
in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the settlement of said loan would
be assumed by Wonderland. Thereafter, petitioner Soriano signed several promissory notes and received the proceeds in
behalf of petitioner-company.
By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as
maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation party. An
accommodation party is a person who has signed the instrument as maker, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person and is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party.
8
He has
the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them
has in effect become one of principal and surety, the accommodation party being the surety.
9
Suretyship is defined as the
relation which exists where one person has undertaken an obligation and another person is also under the obligation or other
duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other
should perform.
10
The suretys liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in
other words, he is directly and equally bound with the principal.
11
And the creditor may proceed against any one of the
solidary debtors.
12

We do not give credence to petitioners assertion that, as provided by the addendum, their obligation to pay the promissory
notes was novated by "substitution" of a new debtor, Wonderland. Contrary to petitioners contention, the attendant facts
herein do not make a case of novation.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of
the debtor, or by subrogating a third person in the rights of the creditor.
13
In order that a novation can take place, the
concurrence of the following requisites
14
are indispensable:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, the first requisite for a valid novation is lacking. There was no novation by "substitution" of debtor
because there was no prior obligation which was substituted by a new contract. It will be noted that the promissory notes,
which bound the petitioners to pay, were executed after the addendum. The addendum modified the contract of sale, not the
stipulations in the promissory notes which pertain to the surety contract. At this instance, Wonderland apparently assured the
payment of future debts to be incurred by the petitioners. Consequently, only a contract of surety arose. It was wrong for
petitioners to presume a novation had taken place. The well-settled rule is that novation is never presumed,
15
it must be
clearly and unequivocally shown.
16

As it turned out, the contract of surety between Wonderland and the petitioners was extinguished by the rescission of the
contract of sale of the farmland. With the rescission, there was confusion or merger in the persons of the principal obligor and
the surety, namely the petitioners herein. The addendum which was dependent thereon likewise lost its efficacy.
It is true that the basic and fundamental rule in the interpretation of contract is that, if the terms thereof are clear and leave no
doubt as to the intention of the contracting parties, the literal meaning shall control. However, in order to judge the intention
of the parties, their contemporaneous and subsequent acts should be considered.
17

The contract of sale between Wonderland and petitioners did not materialize. But it was admitted that petitioners received the
proceeds of the promissory notes obtained from respondent bank.
Sec. 22 of the Civil Code provides:
Every person who through an act of performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the same to him.
Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of private respondent. Neither could
petitioners excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract. I f
petitioners sustained damages as a result of the rescission, they should have impleaded Wonderland and asked damages.
The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered
therein shall be without prejudice to the rights of such necessary party.
18
But respondent appellate court did not err in holding
that petitioners are duty-bound under the law to pay the claims of respondent bank from whom they had obtained the loan
proceeds.
WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated October 17,
1994 is AFFIRMED. Costs against petitioners.
SO ORDERED.















G.R. No. L-15126 November 30, 1961
VICENTE R. DE OCAMPO & CO., plaintiff-appellee,
vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.
LABRADOR, J .:
Appeal from a judgment of the Court of First Instance of Manila, Hon. Conrado M. Velasquez, presiding, sentencing the
defendants to pay the plaintiff the sum of P600, with legal interest from September 10, 1953 until paid, and to pay the costs.
The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by defendant Anita C.
Gatchalian. The complaint sets forth the check and alleges that plaintiff received it in payment of the indebtedness of one
Matilde Gonzales; that upon receipt of said check, plaintiff gave Matilde Gonzales P158.25, the difference between the face
value of the check and Matilde Gonzales' indebtedness. The defendants admit the execution of the check but they allege in
their answer, as affirmative defense, that it was issued subject to a condition, which was not fulfilled, and that plaintiff was
guilty of gross negligence in not taking steps to protect itself.
At the time of the trial, the parties submitted a stipulation of facts, which reads as follows:
Plaintiff and defendants through their respective undersigned attorney's respectfully submit the following Agreed
Stipulation of Facts;
First. That on or about 8 September 1953, in the evening, defendant Anita C. Gatchalian who was then interested
in looking for a car for the use of her husband and the family, was shown and offered a car by Manuel Gonzales who
was accompanied by Emil Fajardo, the latter being personally known to defendant Anita C. Gatchalian;
Second. That Manuel Gonzales represented to defend Anita C. Gatchalian that he was duly authorized by the
owner of the car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish said sale, but
which facts were not known to plaintiff;
Third. That defendant Anita C. Gatchalian, finding the price of the car quoted by Manuel Gonzales to her
satisfaction, requested Manuel Gonzales to bring the car the day following together with the certificate of registration
of the car, so that her husband would be able to see same; that on this request of defendant Anita C. Gatchalian,
Manuel Gonzales advised her that the owner of the car will not be willing to give the certificate of registration unless
there is a showing that the party interested in the purchase of said car is ready and willing to make such purchase
and that for this purpose Manuel Gonzales requested defendant Anita C. Gatchalian to give him (Manuel Gonzales)
a check which will be shown to the owner as evidence of buyer's good faith in the intention to purchase the said car,
the said check to be for safekeeping only of Manuel Gonzales and to be returned to defendant Anita C. Gatchalian
the following day when Manuel Gonzales brings the car and the certificate of registration, but which facts were not
known to plaintiff;
Fourth. That relying on these representations of Manuel Gonzales and with his assurance that said check will be
only for safekeeping and which will be returned to said defendant the following day when the car and its certificate of
registration will be brought by Manuel Gonzales to defendants, but which facts were not known to plaintiff, defendant
Anita C. Gatchalian drew and issued a check, Exh. "B"; that Manuel Gonzales executed and issued a receipt for said
check, Exh. "1";
Fifth. That on the failure of Manuel Gonzales to appear the day following and on his failure to bring the car and its
certificate of registration and to return the check, Exh. "B", on the following day as previously agreed upon, defendant
Anita C. Gatchalian issued a "Stop Payment Order" on the check, Exh. "3", with the drawee bank. Said "Stop
Payment Order" was issued without previous notice on plaintiff not being know to defendant, Anita C. Gatchalian and
who furthermore had no reason to know check was given to plaintiff;
Sixth. That defendants, both or either of them, did not know personally Manuel Gonzales or any member of his
family at any time prior to September 1953, but that defendant Hipolito Gatchalian is personally acquainted with V. R.
de Ocampo;
Seventh. That defendants, both or either of them, had no arrangements or agreement with the Ocampo Clinic at
any time prior to, on or after 9 September 1953 for the hospitalization of the wife of Manuel Gonzales and neither or
both of said defendants had assumed, expressly or impliedly, with the Ocampo Clinic, the obligation of Manuel
Gonzales or his wife for the hospitalization of the latter;
Eight. That defendants, both or either of them, had no obligation or liability, directly or indirectly with the Ocampo
Clinic before, or on 9 September 1953;
Ninth. That Manuel Gonzales having received the check Exh. "B" from defendant Anita C. Gatchalian under the
representations and conditions herein above specified, delivered the same to the Ocampo Clinic, in payment of the
fees and expenses arising from the hospitalization of his wife;
Tenth. That plaintiff for and in consideration of fees and expenses of hospitalization and the release of the wife of
Manuel Gonzales from its hospital, accepted said check, applying P441.75 (Exhibit "A") thereof to payment of said
fees and expenses and delivering to Manuel Gonzales the amount of P158.25 (as per receipt, Exhibit "D")
representing the balance on the amount of the said check, Exh. "B";
Eleventh. That the acts of acceptance of the check and application of its proceeds in the manner specified above
were made without previous inquiry by plaintiff from defendants:
Twelfth. That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila, a complaint for estafa
against Manuel Gonzales based on and arising from the acts of said Manuel Gonzales in paying his obligations with
plaintiff and receiving the cash balance of the check, Exh. "B" and that said complaint was subsequently dropped;
Thirteenth. That the exhibits mentioned in this stipulation and the other exhibits submitted previously, be
considered as parts of this stipulation, without necessity of formally offering them in evidence;
WHEREFORE, it is most respectfully prayed that this agreed stipulation of facts be admitted and that the parties
hereto be given fifteen days from today within which to submit simultaneously their memorandum to discuss the
issues of law arising from the facts, reserving to either party the right to submit reply memorandum, if necessary,
within ten days from receipt of their main memoranda. (pp. 21-25, Defendant's Record on Appeal).
No other evidence was submitted and upon said stipulation the court rendered the judgment already alluded above.
In their appeal defendants-appellants contend that the check is not a negotiable instrument, under the facts and
circumstances stated in the stipulation of facts, and that plaintiff is not a holder in due course. In support of the first
contention, it is argued that defendant Gatchalian had no intention to transfer her property in the instrument as it was for
safekeeping merely and, therefore, there was no delivery required by law (Section 16, Negotiable Instruments Law); that
assuming for the sake of argument that delivery was not for safekeeping merely, delivery was conditional and the condition
was not fulfilled.
In support of the contention that plaintiff-appellee is not a holder in due course, the appellant argues that plaintiff-appellee
cannot be a holder in due course because there was no negotiation prior to plaintiff-appellee's acquiring the possession of
the check; that a holder in due course presupposes a prior party from whose hands negotiation proceeded, and in the case
at bar, plaintiff-appellee is the payee, the maker and the payee being original parties. It is also claimed that the plaintiff-
appellee is not a holder in due course because it acquired the check with notice of defect in the title of the holder, Manuel
Gonzales, and because under the circumstances stated in the stipulation of facts there were circumstances that brought
suspicion about Gonzales' possession and negotiation, which circumstances should have placed the plaintiff-appellee under
the duty, to inquire into the title of the holder. The circumstances are as follows:
The check is not a personal check of Manuel Gonzales. (Paragraph Ninth, Stipulation of Facts). Plaintiff could have
inquired why a person would use the check of another to pay his own debt. Furthermore, plaintiff had the "means of
knowledge" inasmuch as defendant Hipolito Gatchalian is personally acquainted with V. R. de Ocampo (Paragraph
Sixth, Stipulation of Facts.).
The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales and Dr. V. R. de Ocampo (Paragraph
Sixth, Stipulation of Facts).
The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. (Par. 7, Stipulation of Facts.)
The check could not have been intended to pay the hospital fees which amounted only to P441.75. The check is in
the amount of P600.00, which is in excess of the amount due plaintiff. (Par. 10, Stipulation of Facts).
It was necessary for plaintiff to give Manuel Gonzales change in the sum P158.25 (Par. 10, Stipulation of Facts).
Since Manuel Gonzales is the party obliged to pay, plaintiff should have been more cautious and wary in accepting a
piece of paper and disbursing cold cash.
The check is payable to bearer. Hence, any person who holds it should have been subjected to inquiries. EVEN IN A
BANK, CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM THE BEARER. The same inquiries should have
been made by plaintiff. (Defendants-appellants' brief, pp. 52-53)
Answering the first contention of appellant, counsel for plaintiff-appellee argues that in accordance with the best authority on
the Negotiable Instruments Law, plaintiff-appellee may be considered as a holder in due course, citing Brannan's Negotiable
Instruments Law, 6th edition, page 252. On this issue Brannan holds that a payee may be a holder in due course and says
that to this effect is the greater weight of authority, thus:
Whether the payee may be a holder in due course under the N. I. L., as he was at common law, is a question upon
which the courts are in serious conflict. There can be no doubt that a proper interpretation of the act read as a whole
leads to the conclusion that a payee may be a holder in due course under any circumstance in which he meets the
requirements of Sec. 52.
The argument of Professor Brannan in an earlier edition of this work has never been successfully answered and is
here repeated.
Section 191 defines "holder" as the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof. Sec. 52 defendants defines a holder in due course as "a holder who has taken the instrument under the
following conditions: 1. That it is complete and regular on its face. 2. That he became the holder of it before it was
overdue, and without notice that it had been previously dishonored, if such was the fact. 3. That he took it in good
faith and for value. 4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it."
Since "holder", as defined in sec. 191, includes a payee who is in possession the word holder in the first clause of
sec. 52 and in the second subsection may be replaced by the definition in sec. 191 so as to read "a holder in due
course is a payee or indorsee who is in possession," etc. (Brannan's on Negotiable Instruments Law, 6th ed., p.
543).
The first argument of the defendants-appellants, therefore, depends upon whether or not the plaintiff-appellee is a holder in
due course. If it is such a holder in due course, it is immaterial that it was the payee and an immediate party to the
instrument.
The other contention of the plaintiff is that there has been no negotiation of the instrument, because the drawer did not
deliver the instrument to Manuel Gonzales with the intention of negotiating the same, or for the purpose of giving effect
thereto, for as the stipulation of facts declares the check was to remain in the possession Manuel Gonzales, and was not to
be negotiated, but was to serve merely as evidence of good faith of defendants in their desire to purchase the car being sold
to them. Admitting that such was the intention of the drawer of the check when she delivered it to Manuel Gonzales, it was no
fault of the plaintiff-appellee drawee if Manuel Gonzales delivered the check or negotiated it. As the check was payable to the
plaintiff-appellee, and was entrusted to Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales was a delivery by
the drawer to his own agent; in other words, Manuel Gonzales was the agent of the drawer Anita Gatchalian insofar as the
possession of the check is concerned. So, when the agent of drawer Manuel Gonzales negotiated the check with the
intention of getting its value from plaintiff-appellee, negotiation took place through no fault of the plaintiff-appellee, unless it
can be shown that the plaintiff-appellee should be considered as having notice of the defect in the possession of the holder
Manuel Gonzales. Our resolution of this issue leads us to a consideration of the last question presented by the appellants,
i.e., whether the plaintiff-appellee may be considered as a holder in due course.
Section 52, Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored,
if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.
The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check
was delivered to Manuel Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them in
their briefs, such as the fact that appellants had no obligation or liability to the Ocampo Clinic; that the amount of the check
did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two
parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be
converted into cash all these circumstances should have put the plaintiff-appellee to inquiry as to the why and wherefore
of the possession of the check by Manuel Gonzales, and why he used it to pay Matilde's account. It was payee's duty to
ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his
possession. Having failed in this respect, we must declare that plaintiff-appellee was guilty of gross neglect in not finding out
the nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith, and it may not be
considered as a holder of the check in good faith. To such effect is the consensus of authority.
In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to
bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff
by the defendant's assignor, it being sufficient to show that the defendant had notice that there was something wrong
about his assignor's acquisition of title, although he did not have notice of the particular wrong that was committed.
Paika v. Perry, 225 Mass. 563, 114 N.E. 830.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is
not necessary that he should know the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad faith. Ozark Motor Co. v. Horton (Mo. App.),
196 S.W. 395. Accord. Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.
Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen years old, less than five feet tall,
immature in appearance and bearing on his face the stamp a degenerate, to the defendants' clerk for sale. The boy
stated that they belonged to his mother. The defendants paid the boy for the bonds without any further inquiry. Held,
the plaintiff could recover the value of the bonds. The term 'bad faith' does not necessarily involve furtive motives, but
means bad faith in a commercial sense. The manner in which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked."
Although gross negligence does not of itself constitute bad faith, it is evidence from which bad faith may be inferred.
The circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut their
eyes deliberately to obvious facts. Morris v. Muir, 111 Misc. Rep. 739, 181 N.Y. Supp. 913, affd. in memo., 191 App.
Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's Negotiable Instruments Law, 6th ed.).
The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not be allowed to recover
the value of the check. Let us now examine the express provisions of the Negotiable Instruments Law pertinent to the matter
to find if our ruling conforms thereto. Section 52 (c) provides that a holder in due course is one who takes the instrument "in
good faith and for value;" Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52
(d), that in order that one may be a holder in due course it is necessary that "at the time the instrument was negotiated to him
"he had no notice of any . . . defect in the title of the person negotiating it;" and lastly Section 59, that every holder is
deemed prima facieto be a holder in due course.
In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course does not apply because
there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On
the other hand, the stipulation of facts indicated by the appellants in their brief, like the fact that the drawer had no account
with the payee; that the holder did not show or tell the payee why he had the check in his possession and why he was using
it for the payment of his own personal account show that holder's title was defective or suspicious, to say the least. As
holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said
defect in holder's title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in
good faith does not exist. And having presented no evidence that it acquired the check in good faith, it (payee) cannot be
considered as a holder in due course. In other words, under the circumstances of the case, instead of the presumption that
payee was a holder in good faith, the fact is that it acquired possession of the instrument under circumstances that should
have put it to inquiry as to the title of the holder who negotiated the check to it. The burden was, therefore, placed upon i t to
show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith.
The rule applicable to the case at bar is that described in the case of Howard National Bank v. Wilson, et al., 96 Vt. 438, 120
At. 889, 894, where the Supreme Court of Vermont made the following disquisition:
Prior to the Negotiable Instruments Act, two distinct lines of cases had developed in this country. The first had its
origin in Gill v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule was distinctly laid down by the court of King's
Bench that the purchaser of negotiable paper must exercise reasonable prudence and caution, and that, if the
circumstances were such as ought to have excited the suspicion of a prudent and careful man, and he made no
inquiry, he did not stand in the legal position of a bona fide holder. The rule was adopted by the courts of this country
generally and seem to have become a fixed rule in the law of negotiable paper. Later in Goodman v. Harvey, 4 A. &
E. 870, 31 E. C. L. 381, the English court abandoned its former position and adopted the rule that nothing short of
actual bad faith or fraud in the purchaser would deprive him of the character of a bona fide purchaser and let in
defenses existing between prior parties, that no circumstances of suspicion merely, or want of proper caution in the
purchaser, would have this effect, and that even gross negligence would have no effect, except as evidence tending
to establish bad faith or fraud. Some of the American courts adhered to the earlier rule, while others followed the
change inaugurated in Goodman v. Harvey. The question was before this court in Roth v. Colvin, 32 Vt. 125, and, on
full consideration of the question, a rule was adopted in harmony with that announced in Gill v. Cubitt, which has
been adhered to in subsequent cases, including those cited above. Stated briefly, one line of cases including our
own had adopted the test of the reasonably prudent man and the other that of actual good faith. It would seem that it
was the intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the latter test. That
such is the view generally accepted by the courts appears from a recent review of the cases concerning what
constitutes notice of defect. Brannan on Neg. Ins. Law, 187-201. To effectuate the general purpose of the act to
make uniform the Negotiable Instruments Law of those states which should enact it, we are constrained to hold
(contrary to the rule adopted in our former decisions) that negligence on the part of the plaintiff, or suspicious
circumstances sufficient to put a prudent man on inquiry, will not of themselves prevent a recovery, but are to be
considered merely as evidence bearing on the question of bad faith. See G. L. 3113, 3172, where such a course is
required in construing other uniform acts.
It comes to this then: When the case has taken such shape that the plaintiff is called upon to prove himself a holder
in due course to be entitled to recover, he is required to establish the conditions entitling him to standing as such,
including good faith in taking the instrument. It devolves upon him to disclose the facts and circumstances attending
the transfer, from which good or bad faith in the transaction may be inferred.
In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder
had the check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it
actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith, hence we are
forced to the conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a
holder in due course thereof.
For the foregoing considerations, the decision appealed from should be, as it is hereby, reversed, and the defendants are
absolved from the complaint. With costs against plaintiff-appellee.
Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon, JJ., concur.
Bengzon, C.J., concurs in the result.








G.R. No. 70145 November 13, 1986
MARCELO A. MESINA, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in his capacity as Judge of
Regional Trial Court Manila (Branch VIII), JOSE GO, and ALBERT UY, respondents.

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