1

Republic of the Philippines

SUPREME COURT
Manila
G.R. Nos. L-25836-37 January 31, 1981
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from
the order of the Court of First Instance of Manila, Branch XIII, in Civil
Case No. 42066 denying his motion to set aside the order declaring
him in default, 1and from the order of said court in the same case
denying his motion to set aside the judgment rendered after he was
declared in default. 2 These two appeals of the defendant were
docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R,
respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by
the Court of Appeals to file one consolidated record on appeal of CAG.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals,
First Division, certified the consolidated appeal to the Supreme Court
on the ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted
against Jose M. Aruego Civil Case No. 42066 for the recovery of the
total sum of about P35,000.00 with daily interest thereon from
November 17, 1959 until fully paid and commission equivalent to 3/8%
for every thirty (30) days or fraction thereof plus attorney's fees
equivalent to 10% of the total amount due and costs. 6 The complaint
filed by the Philippine Bank of Commerce contains twenty-two (22)
causes of action referring to twenty-two (22) transactions entered into
by the said Bank and Aruego on different dates covering the period
from August 28, 1950 to March 14, 1951. 7 The sum sought to be
recovered represents the cost of the printing of "World Current
Events," a periodical published by the defendant. To facilitate the
payment of the printing the defendant obtained a credit
accommodation from the plaintiff. Thus, for every printing of the "World
Current Events," the printer, Encal Press and Photo Engraving,
collected the cost of printing by drawing a draft against the plaintiff,
said draft being sent later to the defendant for acceptance. As an
added security for the payment of the amounts advanced to Encal
Press and Photo-Engraving, the plaintiff bank also required defendant
Aruego to execute a trust receipt in favor of said bank wherein said
defendant undertook to hold in trust for plaintiff the periodicals and to
sell the same with the promise to turn over to the plaintiff the proceeds
of the sale of said publication to answer for the payment of all
obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons
on December 2, 1959. 9 On December 14, 1959 defendant filed an
urgent motion for extension of time to plead, and set the hearing on
December 16, 1959. 10 At the hearing, the court denied defendant's
motion for extension. Whereupon, the defendant filed a motion to
dismiss the complaint on December 17, 1959 on the ground that the
complaint states no cause of action because:
a) When the various bills of exchange were presented to the defendant
as drawee for acceptance, the amounts thereof had already been paid
by the plaintiff to the drawer (Encal Press and Photo Engraving),
without knowledge or consent of the defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at

bar, the defendant drawee is an accommodating party only for the
drawer (Encal Press and Photo-Engraving) and win be liable in the
event that the accommodating party (drawer) fails to pay its obligation
to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959,
copy of which was received by the defendant on December 24,
1959. 12
On January 13, 1960, the plaintiff filed a motion for
reconsideration. 13 On March 7, 1960, acting upon the motion for
reconsideration filed by the plaintiff, the trial court set aside its order
dismissing the complaint and set the case for hearing on March 15,
1960 at 8:00 in the morning. 14 A copy of the order setting aside the
order of dismissal was received by the defendant on March 11, 1960 at
5:00 o'clock in the afternoon according to the affidavit of the deputy
sheriff of Manila, Mamerto de la Cruz. On the following day, March 12,
1960, the defendant filed a motion to postpone the trial of the case on
the ground that there having been no answer as yet, the issues had
not yet been joined. 15 On the same date, the defendant filed his
answer to the complaint interposing the following defenses: That he
signed the document upon which the plaintiff sues in his capacity as
President of the Philippine Education Foundation; that his liability is
only secondary; and that he believed that he was signing only as an
accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the
defendant in default on the ground that the defendant should have filed
his answer on March 11, 1960. He contends that by filing his answer
on March 12, 1960, defendant was one day late. 17 On March 19, 1960
the trial court declared the defendant in default. 18 The defendant
learned of the order declaring him in default on March 21, 1960. On
March 22, 1960 the defendant filed a motion to set aside the order of
default alleging that although the order of the court dated March 7,
1960 was received on March 11, 1960 at 5:00 in the afternoon, it could
not have been reasonably expected of the defendant to file his answer
on the last day of the reglementary period, March 11, 1960, within
office hours, especially because the order of the court dated March 7,
1960 was brought to the attention of counsel only in the early hours of
March 12, 1960. The defendant also alleged that he has a good and
substantial defense. Attached to the motion are the affidavits of deputy
sheriff Mamerto de la Cruz that he served the order of the court dated
March 7, 1960 on March 11, 1960, at 5:00 o'clock in the afternoon and
the affidavit of the defendant Aruego that he has a good and
substantial defense. 19 The trial court denied the defendant's motion on
March 25, 1960. 20 On May 6, 1960, the trial court rendered judgment
sentencing the defendant to pay to the plaintiff the sum of P35,444.35
representing the total amount of his obligation to the said plaintiff under
the twenty-two (22) causes of action alleged in the complaint as of
November 15, 1957 and the sum of P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order
dated March 25, 1961 denying his motion to set aside the order
declaring him in default, an appeal bond in the amount of P60.00, and
his record on appeal. The plaintiff filed his opposition to the approval of
defendant's record on appeal on May 13, 1960. The following day, May
14, 1960, the lower court dismissed defendant's appeal from the order
dated March 25, 1960 denying his motion to set aside the order of
default. 22 On May 19, 1960, the defendant filed a motion for
reconsideration of the trial court's order dismissing his appeal. 23 The
plaintiff, on May 20, 1960, opposed the defendant's motion for
reconsideration of the order dismissing appeal. 24 On May 21, 1960,
the trial court reconsidered its previous order dismissing the appeal
and approved the defendant's record on appeal. 25 On May 30, 1960,
the defendant received a copy of a notice from the Clerk of Court dated
May 26, 1960, informing the defendant that the record on appeal filed
ed by the defendant was forwarded to the Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment
rendered after he was declared in default reiterating the same ground
previously advanced by him in his motion for relief from the order of

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default. 27 Upon opposition of the plaintiff filed on June 3, 1960, 28 the
trial court denied the defendant's motion to set aside the judgment by
default in an order of June 11, 1960. 29 On June 20, 1960, the
defendant filed his notice of appeal from the order of the court denying
his motion to set aside the judgment by default, his appeal bond, and
his record on appeal. The defendant's record on appeal was approved
by the trial court on June 25, 1960. 30 Thus, the defendant had two
appeals with the Court of Appeals: (1) Appeal from the order of the
lower court denying his motion to set aside the order of default
docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying
his motion to set aside the judgment by default docketed as CA-G.R.
NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
THE LOWER COURT ERRED IN HOLDING
THAT THE DEFENDANT WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN
ENTERTAINING THE MOTION TO DECLARE
DEFENDANT IN DEFAULT ALTHOUGH AT THE
TIME THERE WAS ALREADY ON FILE AN
ANSWER BY HIM WITHOUT FIRST DISPOSING
OF SAID ANSWER IN AN APPROPRIATE
ACTION.

Defendant Aruego's defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the
plaintiff's complaint in a representative capacity, as the then President
of the Philippine Education Foundation Company, publisher of "World
Current Events and Decision Law Journal," printed by Encal Press and
Photo-Engraving, drawer of the said bills of exchange in favor of the
plaintiff bank;
b) The defendant signed these bills of exchange not as principal
obligor, but as accommodation or additional party obligor, to add to the
security of said plaintiff bank. The reason for this statement is that
unlike real bills of exchange, where payment of the face value is
advanced to the drawer only upon acceptance of the same by the
drawee, in the case in question, payment for the supposed bills of
exchange were made before acceptance; so that in effect, although
these documents are labelled bills of exchange, legally they are not
bills of exchange but mere instruments evidencing indebtedness of the
drawee who received the face value thereof, with the defendant as
only additional security of the same. 33
The first defense of the defendant is that he signed the supposed bills
of exchange as an agent of the Philippine Education Foundation
Company where he is president. Section 20 of the Negotiable
Instruments Law provides that "Where the instrument contains or a
person adds to his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of
words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him from
personal liability."

III
THE LOWER COURT ERRED IN DENYING
DEFENDANT'S PETITION FOR RELIEF OF
ORDER OF DEFAULT AND FROM JUDGMENT
BY DEFAULT AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken
against him through his mistake, inadvertence, surprise or excusable
neglect, he must show to the court that he has a meritorious
defense. 32 In other words, in order to set aside the order of default, the
defendant must not only show that his failure to answer was due to
fraud, accident, mistake or excusable negligence but also that he has a
meritorious defense.
The record discloses that Aruego received a copy of the complaint
together with the summons on December 2, 1960; that on December
17, 1960, the last day for filing his answer, Aruego filed a motion to
dismiss; that on December 22, 1960 the lower court dismissed the
complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for
reconsideration, the trial court issued an order setting aside the order
of dismissal; that a copy of the order was received by the defendant on
March 11, 1960 at 5:00 o'clock in the afternoon as shown in the
affidavit of the deputy sheriff; and that on the following day, March 12,
1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for
pleading is excusable. The order setting aside the dismissal of the
complaint was received at 5:00 o'clock in the afternoon. It was
therefore impossible for him to have filed his answer on that same day
because the courts then held office only up to 5:00 o'clock in the
afternoon. Moreover, the defendant immediately filed his answer on
the following day.
However, while the defendant successfully proved that his failure to
answer was due to excusable negligence, he has failed to show that
he has a meritorious defense. The defendant does not have a good
and substantial defense.

An inspection of the drafts accepted by the defendant shows that

nowhere has he disclosed that he was signing as a representative of
the Philippine Education Foundation Company. 34 He merely signed as
follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For
failure to disclose his principal, Aruego is personally liable for the drafts
he accepted.
The defendant also contends that he signed the drafts only as an
accommodation party and as such, should be made liable only after a
showing that the drawer is incapable of paying. This contention is also
without merit.
An accommodation party is one who has signed the instrument as
maker, drawer, indorser, without receiving value therefor and for the
purpose of lending his name to some other person. Such person is
liable on the instrument to a holder for value, notwithstanding such
holder, at the time of the taking of the instrument knew him to be only
an accommodation party. 35 In lending his name to the accommodated
party, the accommodation party is in effect a surety for the latter. He
lends his name to enable the accommodated party to obtain credit or
to raise money. He receives no part of the consideration for the
instrument but assumes liability to the other parties thereto because he
wants to accommodate another. In the instant case, the defendant
signed as a drawee/acceptor. Under the Negotiable Instrument Law, a
drawee is primarily liable. Thus, if the defendant who is a lawyer, he
should not have signed as an acceptor/drawee. In doing so, he
became primarily and personally liable for the drafts.
The defendant also contends that the drafts signed by him were not
really bills of exchange but mere pieces of evidence of indebtedness
because payments were made before acceptance. This is also without
merit. Under the Negotiable Instruments Law, a bill of exchange is an
unconditional order in writting addressed by one person to another,
signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time
a sum certain in money to order or to bearer. 36 As long as a
commercial paper conforms with the definition of a bill of exchange,
that paper is considered a bill of exchange. The nature of acceptance
is important only in the determination of the kind of liabilities of the

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parties involved, but not in the determination of whether a commercial
paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant
the defendant's prayer will result in a new trial which will serve no
purpose and will just waste the time of the courts as well as of the
parties because the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the
Court of First Instance of Manila denying the petition for relief from the
judgment rendered in said case is hereby affirmed, without
pronouncement as to costs.

"Used" Allis Crawler Tractors which were being offered were fit for the
job, and gave the corresponding warranty of ninety (90) days
performance of the machines and availability of parts. (t.s.n., May 28,
1980, pp. 59-66).
With said assurance and warranty, and relying on the seller-assignor's
skill and judgment, petitioner-corporation through petitioners Wee and
Vergara, president and vice- president, respectively, agreed to
purchase on installment said two (2) units of "Used" Allis Crawler
Tractors. It also paid the down payment of Two Hundred Ten
Thousand Pesos (P210,000.00).
On April 5, 1978, the seller-assignor issued the sales invoice for the
two 2) units of tractors (Exh. "3-A"). At the same time, the deed of sale
with chattel mortgage with promissory note was executed (Exh. "2").

SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera JJ.,
concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

Simultaneously with the execution of the deed of sale with chattel

mortgage with promissory note, the seller-assignor, by means of a
deed of assignment (E exh. " 1 "), assigned its rights and interest in the
chattel mortgage in favor of the respondent.
Immediately thereafter, the seller-assignor delivered said two (2) units
of "Used" tractors to the petitioner-corporation's job site and as agreed,
the seller-assignor stationed its own mechanics to supervise the
operations of the machines.

G.R. No. 72593 April 30, 1987

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and
RODOLFO T. VERGARA, petitioners,
vs.
IFC LEASING AND ACCEPTANCE CORPORATION, respondent.
Carpio, Villaraza & Cruz Law Offices for petitioners.
Europa, Dacanay & Tolentino for respondent.

GUTIERREZ, JR., J.:

This is a petition for certiorari under Rule 45 of the Rules of Court
which assails on questions of law a decision of the Intermediate
Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well
as its resolution dated October 17, 1985, denying the motion for
reconsideration.

Barely fourteen (14) days had elapsed after their delivery when one of
the tractors broke down and after another nine (9) days, the other
tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69).
On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the
seller-assignor of the fact that the tractors broke down and requested
for the seller-assignor's usual prompt attention under the warranty (E
exh. " 5 ").
In response to the formal advice by petitioner Rodolfo T. Vergara,
Exhibit "5," the seller-assignor sent to the job site its mechanics to
conduct the necessary repairs (Exhs. "6," "6-A," "6-B," 16 C," "16-C-1,"
"6-D," and "6-E"), but the tractors did not come out to be what they
should be after the repairs were undertaken because the units were no
longer serviceable (t. s. n., May 28, 1980, p. 78).
Because of the breaking down of the tractors, the road building and
simultaneous logging operations of petitioner-corporation were delayed
and petitioner Vergara advised the seller-assignor that the payments of
the installments as listed in the promissory note would likewise be
delayed until the seller-assignor completely fulfills its obligation under
its warranty (t.s.n, May 28, 1980, p. 79).

The antecedent facts culled from the petition are as follows:

The petitioner is a corporation engaged in the logging business. It had
for its program of logging activities for the year 1978 the opening of
additional roads, and simultaneous logging operations along the route
of said roads, in its logging concession area at Baganga, Manay, and
Caraga, Davao Oriental. For this purpose, it needed two (2) additional
units of tractors.
Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf &
Pacific Company of Manila, through its sister company and marketing
arm, Industrial Products Marketing (the "seller-assignor"), a corporation
dealing in tractors and other heavy equipment business, offered to sell
to petitioner-corporation two (2) "Used" Allis Crawler Tractors, one (1)
an HDD-21-B and the other an HDD-16-B.
In order to ascertain the extent of work to which the tractors were to be
exposed, (t.s.n., May 28, 1980, p. 44) and to determine the capability
of the "Used" tractors being offered, petitioner-corporation requested
the seller-assignor to inspect the job site. After conducting said
inspection, the seller-assignor assured petitioner-corporation that the

Since the tractors were no longer serviceable, on April 7, 1979,

petitioner Wee asked the seller-assignor to pull out the units and have
them reconditioned, and thereafter to offer them for sale. The proceeds
were to be given to the respondent and the excess, if any, to be
divided between the seller-assignor and petitioner-corporation which
offered to bear one-half (1/2) of the reconditioning cost (E exh. " 7 ").
No response to this letter, Exhibit "7," was received by the petitionercorporation and despite several follow-up calls, the seller-assignor did
nothing with regard to the request, until the complaint in this case was
filed by the respondent against the petitioners, the corporation, Wee,
and Vergara.
The complaint was filed by the respondent against the petitioners for
the recovery of the principal sum of One Million Ninety Three
Thousand Seven Hundred Eighty Nine Pesos & 71/100
(P1,093,789.71), accrued interest of One Hundred Fifty One Thousand
Six Hundred Eighteen Pesos & 86/100 (P151,618.86) as of August 15,
1979, accruing interest thereafter at the rate of twelve (12%) percent

4
per annum, attorney's fees of Two Hundred Forty Nine Thousand
Eighty One Pesos & 71/100 (P249,081.7 1) and costs of suit.
The petitioners filed their amended answer praying for the dismissal of
the complaint and asking the trial court to order the respondent to pay
the petitioners damages in an amount at the sound discretion of the
court, Twenty Thousand Pesos (P20,000.00) as and for attorney's
fees, and Five Thousand Pesos (P5,000.00) for expenses of litigation.
The petitioners likewise prayed for such other and further relief as
would be just under the premises.

case, does not lie in favor of the appellants and

against the plaintiff-appellee who is the assignee
of the promissory note and a holder of the same in
due course. Warranty lies in this case only
between Industrial Products Marketing and
Consolidated Plywood Industries, Inc. The plaintiffappellant herein upon application by appellant
corporation granted financing for the purchase of
the questioned units of Fiat-Allis Crawler,Tractors.
xxx xxx xxx

In a decision dated April 20, 1981, the trial court rendered the following
judgment:
WHEREFORE, judgment is hereby rendered:
1. ordering defendants to pay jointly and severally
in their official and personal capacities the
principal sum of ONE MILLION NINETY THREE
THOUSAND SEVEN HUNDRED NINETY EIGHT
PESOS & 71/100 (P1,093,798.71) with accrued
interest of ONE HUNDRED FIFTY ONE
THOUSAND SIX HUNDRED EIGHTEEN PESOS
& 86/100 (P151,618.,86) as of August 15, 1979
and accruing interest thereafter at the rate of 12%
per annum;
2. ordering defendants to pay jointly and severally
attorney's fees equivalent to ten percent (10%) of
the principal and to pay the costs of the suit.
Defendants' counterclaim is disallowed. (pp. 4546, Rollo)
On June 8, 1981, the trial court issued an order denying the motion for
reconsideration filed by the petitioners.
Thus, the petitioners appealed to the Intermediate Appellate Court and
assigned therein the following errors:
I
THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER
ATLANTIC GULF AND PACIFIC COMPANY OF MANILA DID NOT
APPROVE DEFENDANTS-APPELLANTS CLAIM OF WARRANTY.
II
THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFFAPPELLEE IS A HOLDER IN DUE COURSE OF THE PROMISSORY
NOTE AND SUED UNDER SAID NOTE AS HOLDER THEREOF IN
DUE COURSE.
On July 17, 1985, the Intermediate Appellate Court issued the
challenged decision affirming in toto the decision of the trial court. The
pertinent portions of the decision are as follows:
xxx xxx xxx
From the evidence presented by the parties on the
issue of warranty, We are of the considered
opinion that aside from the fact that no provision of
warranty appears or is provided in the Deed of
Sale of the tractors and even admitting that in a
contract of sale unless a contrary intention
appears, there is an implied warranty, the defense
of breach of warranty, if there is any, as in this

Holding that breach of warranty if any, is not a

defense available to appellants either to withdraw
from the contract and/or demand a proportionate
reduction of the price with damages in either case
(Art. 1567, New Civil Code). We now come to the
issue as to whether the plaintiff-appellee is a
holder in due course of the promissory note.
To begin with, it is beyond arguments that the
plaintiff-appellee is a financing corporation
engaged in financing and receivable discounting
extending credit facilities to consumers and
industrial, commercial or agricultural enterprises
by discounting or factoring commercial papers or
accounts receivable duly authorized pursuant to
R.A. 5980 otherwise known as the Financing Act.
A study of the questioned promissory note reveals
that it is a negotiable instrument which was
discounted or sold to the IFC Leasing and
Acceptance Corporation for P800,000.00 (Exh.
"A") considering the following. it is in writing and
signed by the maker; it contains an unconditional
promise to pay a certain sum of money payable at
a fixed or determinable future time; it is payable to
order (Sec. 1, NIL); the promissory note was
negotiated when it was transferred and delivered
by IPM to the appellee and duly endorsed to the
latter (Sec. 30, NIL); it was taken in the conditions
that the note was complete and regular upon its
face before the same was overdue and without
notice, that it had been previously dishonored and
that the note is in good faith and for value without
notice of any infirmity or defect in the title of IPM
(Sec. 52, NIL); that IFC Leasing and Acceptance
Corporation held the instrument free from any
defect of title of prior parties and free from
defenses available to prior parties among
themselves and may enforce payment of the
instrument for the full amount thereof against all
parties liable thereon (Sec. 57, NIL); the
appellants engaged that they would pay the note
according to its tenor, and admit the existence of
the payee IPM and its capacity to endorse (Sec.
60, NIL).
In view of the essential elements found in the
questioned promissory note, We opine that the
same is legally and conclusively enforceable
against the defendants-appellants.
WHEREFORE, finding the decision appealed from
according to law and evidence, We find the appeal
without merit and thus affirm the decision in toto.
With costs against the appellants. (pp. 50-55,
Rollo)
The petitioners' motion for reconsideration of the decision of July 17,
1985 was denied by the Intermediate Appellate Court in its resolution

5
dated October 17, 1985, a copy of which was received by the
petitioners on October 21, 1985.
Hence, this petition was filed on the following grounds:
I.
ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A
NEGOTIABLE INSTRUMENT AS DEFINED UNDER THE LAW SINCE
IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER.
II
THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST,
IT IS A MERE ASSIGNEE OF THE SUBJECT PROMISSORY NOTE.
III.
SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE
INSTRUMENT AND THE TRANSFER OF RIGHTS WAS THROUGH A
MERE ASSIGNMENT, THE PETITIONERS MAY RAISE AGAINST
THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT
AS AGAINST THE SELLER- ASSIGNOR, INDUSTRIAL PRODUCTS
MARKETING.
IV.
THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE
PROMISSORY NOTE BECAUSE:
A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF
WARRANTY UNDER THE LAW;
B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM
THE SELLER-ASSIGNOR OF THE PROMISSORY NOTE.
V.
THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE
SELLER- ASSIGNOR IN FAVOR OF THE RESPONDENT DOES NOT
CHANGE THE NATURE OF THE TRANSACTION FROM BEING A
SALE ON INSTALLMENTS TO A PURE LOAN.
VI.
THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN
EVIDENCE IN ANY COURT BECAUSE THE REQUISITE
DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON
OR CANCELLED.
The petitioners prayed that judgment be rendered setting aside the
decision dated July 17, 1985, as well as the resolution dated October
17, 1985 and dismissing the complaint but granting petitioners'
counterclaims before the court of origin.
On the other hand, the respondent corporation in its comment to the
petition filed on February 20, 1986, contended that the petition was
filed out of time; that the promissory note is a negotiable instrument
and respondent a holder in due course; that respondent is not liable for
any breach of warranty; and finally, that the promissory note is
admissible in evidence.
The core issue herein is whether or not the promissory note in question
is a negotiable instrument so as to bar completely all the available
defenses of the petitioner against the respondent-assignee.

Preliminarily, it must be established at the outset that we consider the

instant petition to have been filed on time because the petitioners'
motion for reconsideration actually raised new issues. It cannot,
therefore, be considered pro- formal.
The petition is impressed with merit.
First, there is no question that the seller-assignor breached its express
90-day warranty because the findings of the trial court, adopted by the
respondent appellate court, that "14 days after delivery, the first tractor
broke down and 9 days, thereafter, the second tractor became
inoperable" are sustained by the records. The petitioner was clearly a
victim of a warranty not honored by the maker.
The Civil Code provides that:
ART. 1561. The vendor shall be responsible for
warranty against the hidden defects which the
thing sold may have, should they render it unfit for
the use for which it is intended, or should they
diminish its fitness for such use to such an extent
that, had the vendee been aware thereof, he
would not have acquired it or would have given a
lower price for it; but said vendor shall not be
answerable for patent defects or those which may
be visible, or for those which are not visible if the
vendee is an expert who, by reason of his trade or
profession, should have known them.
ART. 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness of
the goods, as follows:
(1) Where the buyer, expressly or by implication
makes known to the seller the particular purpose
for which the goods are acquired, and it appears
that the buyer relies on the sellers skill or judge
judgment (whether he be the grower or
manufacturer or not), there is an implied warranty
that the goods shall be reasonably fit for such
purpose;
xxx xxx xxx
ART. 1564. An implied warranty or condition as to
the quality or fitness for a particular purpose may
be annexed by the usage of trade.
xxx xxx xxx
ART. 1566. The vendor is responsible to the
vendee for any hidden faults or defects in the thing
sold even though he was not aware thereof.
This provision shall not apply if the contrary has
been stipulated, and the vendor was not aware of
the hidden faults or defects in the thing sold.
(Emphasis supplied).
It is patent then, that the seller-assignor is liable for its breach of
warranty against the petitioner. This liability as a general rule, extends
to the corporation to whom it assigned its rights and interests unless
the assignee is a holder in due course of the promissory note in
question, assuming the note is negotiable, in which case the latter's
rights are based on the negotiable instrument and assuming further
that the petitioner's defenses may not prevail against it.

6
Secondly, it likewise cannot be denied that as soon as the tractors
broke down, the petitioner-corporation notified the seller-assignor's
sister company, AG & P, about the breakdown based on the sellerassignor's express 90-day warranty, with which the latter complied by
sending its mechanics. However, due to the seller-assignor's delay and
its failure to comply with its warranty, the tractors became totally
unserviceable and useless for the purpose for which they were
purchased.
Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its
contract with the seller-assignor.
Articles 1191 and 1567 of the Civil Code provide that:
ART. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
xxx xxx xxx
ART. 1567. In the cases of articles 1561, 1562,
1564, 1565 and 1566, the vendee may elect
between withdrawing from the contract and
demanding a proportionate reduction of the price,
with damages in either case. (Emphasis supplied)
Petitioner, having unilaterally and extrajudicially rescinded its contract
with the seller-assignor, necessarily can no longer sue the sellerassignor except by way of counterclaim if the seller-assignor sues it
because of the rescission.
In the case of the University of the Philippines v. De los Angeles (35
SCRA 102) we held:
In other words, the party who deems the contract
violated may consider it resolved or rescinded,
and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the
final judgment of the corresponding court that will
conclusively and finally settle whether the action
taken was or was not correct in law. But the law
definitely does not require that the contracting
party who believes itself injured must first file suit
and wait for adjudgement before taking
extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach
will have to passively sit and watch its damages
accumulate during the pendency of the suit until
the final judgment of rescission is rendered when
the law itself requires that he should exercise due
diligence to minimize its own damages (Civil
Code, Article 2203). (Emphasis supplied)
Going back to the core issue, we rule that the promissory note in
question is not a negotiable instrument.
The pertinent portion of the note is as follows:
FOR VALUE RECEIVED, I/we jointly and severally
promise to pay to the INDUSTRIAL PRODUCTS
MARKETING, the sum of ONE MILLION NINETY
THREE THOUSAND SEVEN HUNDRED EIGHTY

NINE PESOS & 71/100 only (P 1,093,789.71),

Philippine Currency, the said principal sum, to be
payable in 24 monthly installments starting July
15, 1978 and every 15th of the month thereafter
until fully paid. ...
Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note "must be payable to
order or bearer, " it cannot be denied that the promissory note in
question is not a negotiable instrument.
The instrument in order to be considered
negotiablility-i.e. must contain the so-called 'words
of negotiable, must be payable to 'order' or
'bearer'. These words serve as an expression of
consent that the instrument may be transferred.
This consent is indispensable since a maker
assumes greater risk under a negotiable
instrument than under a non-negotiable one. ...
xxx xxx xxx
When instrument is payable to order.
SEC. 8. WHEN PAYABLE TO ORDER. The
instrument is payable to order where it is drawn
payable to the order of a specified person or to
him or his order. . . .
xxx xxx xxx
These are the only two ways by which an
instrument may be made payable to order. There
must always be a specified person named in the
instrument. It means that the bill or note is to be
paid to the person designated in the instrument or
to any person to whom he has indorsed and
delivered the same. Without the words "or order"
or"to the order of, "the instrument is payable only
to the person designated therein and is therefore
non-negotiable. Any subsequent purchaser thereof
will not enjoy the advantages of being a holder of
a negotiable instrument but will merely "step into
the shoes" of the person designated in the
instrument and will thus be open to all defenses
available against the latter." (Campos and
Campos, Notes and Selected Cases on
Negotiable Instruments Law, Third Edition, page
38). (Emphasis supplied)
Therefore, considering that the subject promissory note is not a
negotiable instrument, it follows that the respondent can never be a
holder in due course but remains a mere assignee of the note in
question. Thus, the petitioner may raise against the respondent all
defenses available to it as against the seller-assignor Industrial
Products Marketing.
This being so, there was no need for the petitioner to implied the sellerassignor when it was sued by the respondent-assignee because the
petitioner's defenses apply to both or either of either of them. Actually,
the records show that even the respondent itself admitted to being a
mere assignee of the promissory note in question, to wit:
ATTY. PALACA:
Did we get it right from the
counsel that what is being
assigned is the Deed of Sale
with Chattel Mortgage with the

7
promissory note which is as
testified to by the witness was
indorsed? (Counsel for
Plaintiff nodding his head.)
Then we have no further
questions on cross,
COURT:
You confirm his
manifestation? You are
nodding your head? Do you
confirm that?
ATTY. ILAGAN:
The Deed of Sale cannot be
assigned. A deed of sale is a
transaction between two
persons; what is assigned are
rights, the rights of the
mortgagee were assigned to
the IFC Leasing &
Acceptance Corporation.
COURT:
He puts it in a simple way as
one-deed of sale and chattel
mortgage were assigned; . . .
you want to make a
distinction, one is an
assignment of mortgage right
and the other one is
indorsement of the promissory
note. What counsel for
defendants wants is that you
stipulate that it is contained in
one single transaction?
ATTY. ILAGAN:
We stipulate it is one single
transaction. (pp. 27-29, TSN.,
February 13, 1980).
Secondly, even conceding for purposes of discussion that the
promissory note in question is a negotiable instrument, the respondent
cannot be a holder in due course for a more significant reason.
The evidence presented in the instant case shows that prior to the sale
on installment of the tractors, there was an arrangement between the
seller-assignor, Industrial Products Marketing, and the respondent
whereby the latter would pay the seller-assignor the entire purchase
price and the seller-assignor, in turn, would assign its rights to the
respondent which acquired the right to collect the price from the buyer,
herein petitioner Consolidated Plywood Industries, Inc.
A mere perusal of the Deed of Sale with Chattel Mortgage with
Promissory Note, the Deed of Assignment and the Disclosure of
Loan/Credit Transaction shows that said documents evidencing the
sale on installment of the tractors were all executed on the same day
by and among the buyer, which is herein petitioner Consolidated
Plywood Industries, Inc.; the seller-assignor which is the Industrial
Products Marketing; and the assignee-financing company, which is the
respondent. Therefore, the respondent had actual knowledge of the
fact that the seller-assignor's right to collect the purchase price was not
unconditional, and that it was subject to the condition that the tractors sold were not defective. The respondent knew that when the tractors

turned out to be defective, it would be subject to the defense of failure

of consideration and cannot recover the purchase price from the
petitioners. Even assuming for the sake of argument that the
promissory note is negotiable, the respondent, which took the same
with actual knowledge of the foregoing facts so that its action in taking
the instrument amounted to bad faith, is not a holder in due course. As
such, the respondent is subject to all defenses which the petitioners
may raise against the seller-assignor. Any other interpretation would
be most inequitous to the unfortunate buyer who is not only saddled
with two useless tractors but must also face a lawsuit from the
assignee for the entire purchase price and all its incidents without
being able to raise valid defenses available as against the assignor.
Lastly, the respondent failed to present any evidence to prove that it
had no knowledge of any fact, which would justify its act of taking the
promissory note as not amounting to bad faith.
Sections 52 and 56 of the Negotiable Instruments Law provide that:
negotiating it.
xxx xxx xxx
SEC. 52. WHAT CONSTITUTES A HOLDER IN
DUE COURSE. A holder in due course is a
holder who has taken the instrument under the
following conditions:
xxx xxx xxx
xxx xxx xxx
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had
no notice of any infirmity in the instrument of
deffect in the title of the person negotiating it
xxx xxx xxx
SEC. 56. WHAT CONSTITUTES NOTICE OF
DEFFECT. To constitute notice of an infirmity in
the instrument or defect in the title of the person
negotiating the same, the person to whom it is
negotiated must have had actual knowledge of the
infirmity or defect, or knowledge of such facts that
his action in taking the instrument amounts to bad
faith. (Emphasis supplied)
We subscribe to the view of Campos and Campos that a financing
company is not a holder in good faith as to the buyer, to wit:
In installment sales, the buyer usually issues a
note payable to the seller to cover the purchase
price. Many times, in pursuance of a previous
arrangement with the seller, a finance company
pays the full price and the note is indorsed to it,
subrogating it to the right to collect the price from
the buyer, with interest. With the increasing
frequency of installment buying in this country, it is
most probable that the tendency of the courts in
the United States to protect the buyer against the
finance company will , the finance company will be
subject to the defense of failure of consideration
and cannot recover the purchase price from the
buyer. As against the argument that such a rule
would seriously affect "a certain mode of
transacting business adopted throughout the
State," a court in one case stated:

8
It may be that our holding
here will require some
changes in business methods
and will impose a greater
burden on the finance
companies. We think the
buyer-Mr. & Mrs. General
Public-should have some
protection somewhere along
the line. We believe the
finance company is better
able to bear the risk of the
dealer's insolvency than the
buyer and in a far better
position to protect his
interests against
unscrupulous and insolvent
dealers. . . .
If this opinion imposes great
burdens on finance
companies it is a potent
argument in favor of a rule
which win afford public
protection to the general
buying public against
unscrupulous dealers in
personal property. . . . (Mutual
Finance Co. v. Martin, 63 So.
2d 649, 44 ALR 2d 1 [1953])
(Campos and Campos, Notes
and Selected Cases on
Negotiable Instruments Law,
Third Edition, p. 128).
In the case of Commercial Credit Corporation v. Orange Country
Machine Works (34 Cal. 2d 766) involving similar facts, it was held that
in a very real sense, the finance company was a moving force in the
transaction from its very inception and acted as a party to it. When a
finance company actively participates in a transaction of this type from
its inception, it cannot be regarded as a holder in due course of the
note given in the transaction.
In like manner, therefore, even assuming that the subject promissory
note is negotiable, the respondent, a financing company which actively
participated in the sale on installment of the subject two Allis Crawler
tractors, cannot be regarded as a holder in due course of said note. It
follows that the respondent's rights under the promissory note involved
in this case are subject to all defenses that the petitioners have against
the seller-assignor, Industrial Products Marketing. For Section 58 of
the Negotiable Instruments Law provides that "in the hands of any
holder other than a holder in due course, a negotiable instrument is
subject to the same defenses as if it were non-negotiable. ... "
Prescinding from the foregoing and setting aside other peripheral
issues, we find that both the trial and respondent appellate court erred
in holding the promissory note in question to be negotiable. Such a
ruling does not only violate the law and applicable jurisprudence, but
would result in unjust enrichment on the part of both the assignerassignor and respondent assignee at the expense of the petitionercorporation which rightfully rescinded an inequitable contract. We note,
however, that since the seller-assignor has not been impleaded herein,
there is no obstacle for the respondent to file a civil Suit and litigate its
claims against the seller- assignor in the rather unlikely possibility that
it so desires,
WHEREFORE, in view of the foregoing, the decision of the respondent
appellate court dated July 17, 1985, as well as its resolution dated
October 17, 1986, are hereby ANNULLED and SET ASIDE. The
complaint against the petitioner before the trial court is DISMISSED.
SO ORDERED.

Fernan, Paras, Padilla, Bidin and Cortes, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of
the decision promulgated by respondent court on March 8, 1991 in CAG.R. CV No. 23615 1 affirming with modifications, the earlier decision
of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed
the complaint filed therein by herein petitioner against respondent
bank.
The undisputed background of this case, as found by the court a
quo and adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial
banking institution, through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in
favor of one Angel dela Cruz who deposited with
herein defendant the aggregate amount of
P1,120,000.00, as follows: (Joint Partial
Stipulation of Facts and Statement of Issues,
Original Records, p. 207; Defendant's Exhibits 1 to
280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates
of time (CTDs) to herein plaintiff in connection with
his purchased of fuel products from the latter
(Original Record, p. 208).

9
3. Sometime in March 1982, Angel dela Cruz
informed Mr. Timoteo Tiangco, the Sucat Branch
Manger, that he lost all the certificates of time
deposit in dispute. Mr. Tiangco advised said
depositor to execute and submit a notarized
Affidavit of Loss, as required by defendant bank's
procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed
and delivered to defendant bank the required
Affidavit of Loss (Defendant's Exhibit 281). On the
basis of said affidavit of loss, 280 replacement
CTDs were issued in favor of said depositor
(Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated
and obtained a loan from defendant bank in the
amount of Eight Hundred Seventy Five Thousand
Pesos (P875,000.00). On the same date, said
depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which
stated, among others, that he (de la Cruz)
surrenders to defendant bank "full control of the
indicated time deposits from and after date" of the
assignment and further authorizes said bank to
pre-terminate, set-off and "apply the said time
deposits to the payment of whatever amount or
amounts may be due" on the loan upon its
maturity (TSN, February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas,
Credit Manager of plaintiff Caltex (Phils.) Inc.,
went to the defendant bank's Sucat branch and
presented for verification the CTDs declared lost
by Angel dela Cruz alleging that the same were
delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by
said depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a
letter (Defendant's Exhibit 563) from herein plaintiff
formally informing it of its possession of the CTDs
in question and of its decision to pre-terminate the
same.
8. On December 8, 1982, plaintiff was requested
by herein defendant to furnish the former "a copy
of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" as well as
"the details of Mr. Angel dela Cruz" obligation
against which plaintiff proposed to apply the time
deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was
furnished herein defendant.

12. In view of the foregoing, plaintiff filed the

instant complaint, praying that defendant bank be
ordered to pay it the aggregate value of the
certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein
at 16% per annum, moral and exemplary damages
as well as attorney's fees.
After trial, the court a quo rendered its decision
dismissing the instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower
court's dismissal of the complaint, hence this petition wherein petitioner
faults respondent court in ruling (1) that the subject certificates of
deposit are non-negotiable despite being clearly negotiable
instruments; (2) that petitioner did not become a holder in due course
of the said certificates of deposit; and (3) in disregarding the pertinent
provisions of the Code of Commerce relating to lost instruments
payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to
provide a better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22,
1982, 19____
This is to Certify that B E A R
E R has deposited in this
Bank the sum of PESOS:
FOUR THOUSAND ONLY,
SECURITY BANK SUCAT
OFFICE P4,000 & 00
CTS Pesos, Philippine
Currency, repayable to said
depositor 731 days. after
date, upon presentation and
surrender of this certificate,
with interest at the rate
of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES 5

10. Accordingly, defendant bank rejected the

plaintiff's demand and claim for payment of the
value of the CTDs in a letter dated February 7,
1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with
the defendant bank matured and fell due and on
August 5, 1983, the latter set-off and applied the
time deposits in question to the payment of the
matured loan (TSN, February 9, 1987, pp. 130131).

Respondent court ruled that the CTDs in question are non-negotiable

instruments, nationalizing as follows:
. . . While it may be true that the word "bearer"
appears rather boldly in the CTDs issued, it is
important to note that after the word "BEARER"
stamped on the space provided supposedly for the
name of the depositor, the words "has deposited"
a certain amount follows. The document further
provides that the amount deposited shall be
"repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s)
themselves manifest with clarity that they are

10
payable, not to whoever purports to be the
"bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank
acknowledges its depositor Angel dela Cruz as the
person who made the deposit and further engages
itself to pay said depositor the amount indicated
thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that
the CTDs in question are negotiable instruments. Section 1 Act No.
2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker
or drawer;
(b) Must contain an unconditional promise or order
to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise indicated
therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law
for negotiability. The parties' bone of contention is with regard to
requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco,
Security Bank's Branch Manager way back in 1982, testified in open
court that the depositor reffered to in the CTDs is no other than Mr.
Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness,
you are saying that per books
of the bank, the depositor
referred (sic) in these
certificates states that it was
Angel dela Cruz?
witness:
a Yes, your Honor, and we
have the record to show that
Angel dela Cruz was the one
who cause (sic) the amount.
Atty. Calida:
q And no other person or
entity or company, Mr.
Witness?
witness:
a None, your Honor. 7
xxx xxx xxx

Atty. Calida:
q Mr. Witness, who is the
depositor identified in all of
these certificates of time
deposit insofar as the bank is
concerned?
witness:
a Angel dela Cruz is the
depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or nonnegotiability of an instrument is determined from the writing, that is,
from the face of the instrument itself. 9 In the construction of a bill or
note, the intention of the parties is to control, if it can be legally
ascertained. 10 While the writing may be read in the light of surrounding
circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be
the only outward and visible expression of their meaning, no other
words are to be added to it or substituted in its stead. The duty of the
court in such case is to ascertain, not what the parties may have
secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What
the parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable
instruments. The documents provide that the amounts deposited shall
be repayable to the depositor. And who, according to the document, is
the depositor? It is the "bearer." The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be
the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to
Angel de la Cruz only, it could have with facility so expressed that fact
in clear and categorical terms in the documents, instead of having the
word "BEARER" stamped on the space provided for the name of the
depositor in each CTD. On the wordings of the documents, therefore,
the amounts deposited are repayable to whoever may be the bearer
thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but
obviously other parties not privy to the transaction between them would
not be in a position to know that the depositor is not the bearer stated
in the CTDs. Hence, the situation would require any party dealing with
the CTDs to go behind the plain import of what is written thereon to
unravel the agreement of the parties thereto through facts aliunde. This
need for resort to extrinsic evidence is what is sought to be avoided by
the Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the
CTDs. This time, the answer is in the negative. The records reveal that
Angel de la Cruz, whom petitioner chose not to implead in this suit for
reasons of its own, delivered the CTDs amounting to P1,120,000.00 to
petitioner without informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are bearer instruments,
a valid negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires both
delivery and indorsement. For, although petitioner seeks to deflect this
fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs
were delivered as payment for the fuel products or as a security has
been dissipated and resolved in favor of the latter by petitioner's own
authorized and responsible representative himself.

11
In a letter dated November 26, 1982 addressed to respondent Security
Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
guarantee his purchases of fuel products" (Emphasis ours.) 13 This
admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying
thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon
them. 15 In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led another
to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as
security, petitioner's credit manager could have easily said so, instead
of using the words "to guarantee" in the letter aforequoted. Besides,
when respondent bank, as defendant in the court below, moved for a
bill of particularity therein 17 praying, among others, that petitioner, as
plaintiff, be required to aver with sufficient definiteness or particularity
(a) the due date or dates ofpayment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt
showing that the CTDs were delivered to it by De la Cruz
as payment of the latter's alleged indebtedness to it, plaintiff
corporation opposed the motion. 18 Had it produced the receipt prayed
for, it could have proved, if such truly was the fact, that the CTDs were
delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully
suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated
Realty Corporation, et al. vs. Philippine National Bank, et al. 20 is
apropos:
. . . Adverting again to the Court's
pronouncements in Lopez, supra, we quote
therefrom:
The character of the
transaction between the
parties is to be determined by
their intention, regardless of
what language was used or
what the form of the transfer
was. If it was intended to
secure the payment of money,
it must be construed as a
pledge; but if there was some
other intention, it is not a
pledge. However, even
though a transfer, if regarded
by itself, appears to have
been absolute, its object and
character might still be
qualified and explained by
contemporaneous writing
declaring it to have been a
deposit of the property as
collateral security. It has been
said that a transfer of property
by the debtor to a creditor,
even if sufficient on its face to
make an absolute
conveyance, should be
treated as a pledge if the debt
continues in inexistence and
is not discharged by the
transfer, and that accordingly
the use of the terms ordinarily
importing conveyance of
absolute ownership will not be

given that effect in such a

transaction if they are also
commonly used in pledges
and mortgages and therefore
do not unqualifiedly indicate a
transfer of absolute
ownership, in the absence of
clear and unambiguous
language or other
circumstances excluding an
intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the
question. Under the Negotiable Instruments Law, an instrument is
negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof, 21 and a
holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof. 22 In the present case, however,
there was no negotiation in the sense of a transfer of the legal title to
the CTDs in favor of petitioner in which situation, for obvious reasons,
mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz
(and we even disregard the fact that the amount involved was not
disclosed) could at the most constitute petitioner only as a holder for
value by reason of his lien. Accordingly, a negotiation for such purpose
cannot be effected by mere delivery of the instrument since,
necessarily, the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation, must
be contractually provided for.
The pertinent law on this point is that where the holder has a lien on
the instrument arising from contract, he is deemed a holder for value to
the extent of his lien. 23 As such holder of collateral security, he would
be a pledgee but the requirements therefor and the effects thereof, not
being provided for by the Negotiable Instruments Law, shall be
governed by the Civil Code provisions on pledge of incorporeal
rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by
negotiable instruments, . . . may also be pledged.
The instrument proving the right pledged shall be
delivered to the creditor, and if negotiable, must be
indorsed.
Art. 2096. A pledge shall not take effect against
third persons if a description of the thing pledged
and the date of the pledge do not appear in a
public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed,
the factual findings of respondent court quoted at the start of this
opinion show that petitioner failed to produce any document evidencing
any contract of pledge or guarantee agreement between it and Angel
de la Cruz. 25 Consequently, the mere delivery of the CTDs did not
legally vest in petitioner any right effective against and binding upon
respondent bank. The requirement under Article 2096 aforementioned
is not a mere rule of adjective law prescribing the mode whereby proof
may be made of the date of a pledge contract, but a rule of substantive
law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la
Cruz in favor of respondent bank was embodied in a public
instrument. 27 With regard to this other mode of transfer, the Civil Code
specifically declares:
Art. 1625. An assignment of credit, right or action
shall produce no effect as against third persons,
unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property
in case the assignment involves real property.

12
Respondent bank duly complied with this statutory requirement.
Contrarily, petitioner, whether as purchaser, assignee or lien holder of
the CTDs, neither proved the amount of its credit or the extent of its
lien nor the execution of any public instrument which could affect or
bind private respondent. Necessarily, therefore, as between petitioner
and respondent bank, the latter has definitely the better right over the
CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the
question of whether or not private respondent observed the
requirements of the law in the case of lost negotiable instruments and
the issuance of replacement certificates therefor, on the ground that
petitioner failed to raised that issue in the lower court. 28

Hence, petitioner's submission, if accepted, would render a pre-trial

delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised
in the court below, petitioner still cannot have the odds in its favor. A
close scrutiny of the provisions of the Code of Commerce laying down
the rules to be followed in case of lost instruments payable to bearer,
which it invokes, will reveal that said provisions, even assuming their
applicability to the CTDs in the case at bar, are merely permissive and
not mandatory. The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for
what cause it may be, may apply to the judge or
court of competent jurisdiction, asking that the
principal, interest or dividends due or about to
become due, be not paid a third person, as well as
in order to prevent the ownership of the instrument
that a duplicate be issued him. (Emphasis ours.)

On this matter, we uphold respondent court's finding that the aspect of

alleged negligence of private respondent was not included in the
stipulation of the parties and in the statement of issues submitted by
them to the trial court. 29 The issues agreed upon by them for
resolution in this case are:

xxx xxx xxx

1. Whether or not the CTDs as worded are
negotiable instruments.
2. Whether or not defendant could legally apply
the amount covered by the CTDs against the
depositor's loan by virtue of the assignment
(Annex "C").
3. Whether or not there was legal compensation or
set off involving the amount covered by the CTDs
and the depositor's outstanding account with
defendant, if any.
4. Whether or not plaintiff could compel defendant
to preterminate the CTDs before the maturity date
provided therein.
5. Whether or not plaintiff is entitled to the
proceeds of the CTDs.
6. Whether or not the parties can recover
damages, attorney's fees and litigation expenses
from each other.
As respondent court correctly observed, with appropriate citation of
some doctrinal authorities, the foregoing enumeration does not include
the issue of negligence on the part of respondent bank. An issue
raised for the first time on appeal and not raised timely in the
proceedings in the lower court is barred by estoppel. 30 Questions
raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for
the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary
to the disposition of a case are properly raised. Thus, to obviate the
element of surprise, parties are expected to disclose at a pre-trial
conference all issues of law and fact which they intend to raise at the
trial, except such as may involve privileged or impeaching matters. The
determination of issues at a pre-trial conference bars the consideration
of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed
negligence may be considered encompassed by the issues on its right
to preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue.
We agree with private respondent that the broad ultimate issue of
petitioner's entitlement to the proceeds of the questioned certificates
can be premised on a multitude of other legal reasons and causes of
action, of which respondent bank's supposed negligence is only one.

The use of the word "may" in said provision shows that it is not
mandatory but discretionary on the part of the "dispossessed owner" to
apply to the judge or court of competent jurisdiction for the issuance of
a duplicate of the lost instrument. Where the provision reads "may,"
this word shows that it is not mandatory but discretional. 34 The word
"may" is usually permissive, not mandatory. 35 It is an auxiliary verb
indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548
to 558 of the Code of Commerce, on which petitioner seeks to anchor
respondent bank's supposed negligence, merely established, on the
one hand, a right of recourse in favor of a dispossessed owner or
holder of a bearer instrument so that he may obtain a duplicate of the
same, and, on the other, an option in favor of the party liable thereon
who, for some valid ground, may elect to refuse to issue a replacement
of the instrument. Significantly, none of the provisions cited by
petitioner categorically restricts or prohibits the issuance a duplicate or
replacement instrument sans compliance with the procedure outlined
therein, and none establishes a mandatory precedent requirement
therefor.
WHEREFORE, on the modified premises above set forth, the petition
is DENIED and the appealed decision is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 89252 May 24, 1993

RAUL SESBREO, petitioner,
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION
AND PILIPINAS BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.

13

FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreo made a money market
placement in the amount of P300,000.00 with the Philippine
Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature on 13
March 1981, Philfinance, also on 9 February 1981, issued the following
documents to petitioner:

TO Raul Sesbreo

(a) the Certificate of Confirmation of Sale, "without

recourse," No. 20496 of one (1) Delta Motors
Corporation Promissory Note ("DMC PN") No.
2731 for a term of 32 days at 17.0% per annum;
(b) the Certificate of securities Delivery Receipt
No. 16587 indicating the sale of DMC PN No.
2731 to petitioner, with the notation that the said
security was in custodianship of Pilipinas Bank, as
per Denominated Custodian Receipt ("DCR") No.
10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981
(i.e., the maturity date of petitioner's investment),
with petitioner as payee, Philfinance as drawer,
and Insular Bank of Asia and America as drawee,
in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks
issued by Philfinance. However, the checks were dishonored for
having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No.
10805 issued by private respondent Pilipinas Bank ("Pilipinas"). It
reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila

DENOMINATED CUSTODIAN RECEIPT

This confirms that as a duly Custodian Bank, and
upon instruction of PHILIPPINE UNDERWRITES
FINANCE CORPORATION, we have in our
custody the following securities to you [sic] the
extent herein indicated.
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT
NUMBER DATE VALUE BY HOLDER PAYEE
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
UNDERWRITERS
FINANCE CORP.

14
We further certify that these securities may be
inspected by you or your duly authorized
representative at any time during regular banking
hours.
Upon your written instructions we shall undertake
physical delivery of the above securities fully
assigned to you should this Denominated
Custodianship Receipt remain outstanding in your
favor thirty (30) days after its maturity.

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private

respondent Pilipinas, Makati Branch, and handed her a demand letter
informing the bank that his placement with Philfinance in the amount
reflected in the DCR No. 10805 had remained unpaid and outstanding,
and that he in effect was asking for the physical delivery of the
underlying promissory note. Petitioner then examined the original of
the DMC PN No. 2731 and found: that the security had been issued on
10 April 1980; that it would mature on 6 April 1981; that it had a face
value of P2,300,833.33, with the Philfinance as "payee" and private
respondent Delta Motors Corporation ("Delta") as "maker;" and that on
face of the promissory note was stamped "NON NEGOTIABLE."
Pilipinas did not deliver the Note, nor any certificate of participation in
respect thereof, to petitioner.
P
I
L
Petitioner later made similar demand letters, dated 3 July 1981 and 3
I
2
August 1981, again asking private respondent Pilipinas for physical
P
delivery of the original of DMC PN No. 2731. Pilipinas allegedly
I
referred all of petitioner's demand letters to Philfinance for written
N
instructions, as has been supposedly agreed upon in "Securities
A
Custodianship Agreement" between Pilipinas and Philfinance.
S
Philfinance did not provide the appropriate instructions; Pilipinas never
released DMC PN No. 2731, nor any other instrument in respect
B
thereof, to petitioner.
A
N
Petitioner also made a written demand on 14 July 1981 3 uponK private
respondent Delta for the partial satisfaction of DMC PN No. 2731,
explaining that Philfinance, as payee thereof, had assigned to( him said
Note to the extent of P307,933.33. Delta, however, denied any
B liability
to petitioner on the promissory note, and explained in turn thaty it had
previously agreed with Philfinance to offset its DMC PN No. 2731
(along with DMC PN No. 2730) against Philfinance PN No. 143-A
E
issued in favor of Delta.
l
i
z
In the meantime, Philfinance, on 18 June 1981, was placed under the
a
joint management of the Securities and exchange commission ("SEC")
b
and the Central Bank. Pilipinas delivered to the SEC DMC PN No.
e
2731, which to date apparently remains in the custody of the SEC. 4
t
h
As petitioner had failed to collect his investment and interest thereon,
D
he filed on 28 September 1982 an action for damages with the
Regional Trial Court ("RTC") of Cebu City, Branch 21, againsteprivate
respondents Delta and Pilipinas. 5 The trial court, in a decision dated 5
V of
August 1987, dismissed the complaint and counterclaims for lack
i
merit and for lack of cause of action, with costs against petitioner.
l
l
Petitioner appealed to respondent Court of Appeals in C.A.-G.R.
a CV
No. 15195. In a Decision dated 21 March 1989, the Court of Appeals
6
denied the appeal and held:
I
l
l
Be that as it may, from the evidence on record,
if
there is anyone that appears liable for thee travails
g
of plaintiff-appellant, it is Philfinance. As correctly
i
observed by the trial court:
b
l
This act of Philfinance
e in
accepting the investment of
plaintiff and chargingSit
against DMC PN No.i 2731
when its entire face value
was
g
already obligated or n
earmarked for set-offaor
compensation is difficult
to
t
comprehend and may
u have
been motivated with rbad faith.
Philfinance, therefore,
e is
solely and legally obligated
to
)
return the investment of
plaintiff, together with1 its
earnings, and to answer all
the damages plaintiff has
suffered incident thereto.

15
Unfortunately for plaintiff,
Philfinance was not
impleaded as one of the
defendants in this case at bar;
hence, this Court is without
jurisdiction to pronounce
judgement against it. (p. 11,
Decision)
WHEREFORE, finding no reversible error in the
decision appealed from, the same is hereby
affirmed in toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without
success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in
the pleadings, the Court resolved to give due course to the petition and
required the parties to file their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial
court decision, and contends that respondent court of Appeals gravely
erred: (i) in concluding that he cannot recover from private respondent
Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold
private respondent Pilipinas solidarily liable on the DMC PN No. 2731
in view of the provisions stipulated in DCR No. 10805 issued in favor r
of petitioner, and (iii) in refusing to pierce the veil of corporate entity
between Philfinance, and private respondents Delta and Pilipinas,
considering that the three (3) entities belong to the "Silverio Group of
Companies" under the leadership of Mr. Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to
address: firstly, the relationship of petitioner vis-a-visDelta; secondly,
the relationship of petitioner in respect of Pilipinas. Actually, of course,
there is a third relationship that is of critical importance: the relationship
of petitioner and Philfinance. However, since Philfinance has not been
impleaded in this case, neither the trial court nor the Court of Appeals
acquired jurisdiction over the person of Philfinance. It is, consequently,
not necessary for present purposes to deal with this third relationship,
except to the extent it necessarily impinges upon or intersects the first
and second relationships.
I.
We consider first the relationship between petitioner and Delta.

Delta, however, disputes petitioner's contention and argues:

(1) that DMC PN No. 2731 was not intended to be
negotiated or otherwise transferred by Philfinance
as manifested by the word "non-negotiable" stamp
across the face of the Note 10 and because maker
Delta and payee Philfinance intended that this
Note would be offset against the outstanding
obligation of Philfinance represented by
Philfinance PN No. 143-A issued to Delta as
payee;
(2) that the assignment of DMC PN No. 2731 by
Philfinance was without Delta's consent, if not
against its instructions; and
(3) assuming (arguendo only) that the partial
assignment in favor of petitioner was valid,
petitioner took the Note subject to the defenses
available to Delta, in particular, the offsetting of
DMC PN No. 2731 against Philfinance PN No.
143-A. 11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a
negotiable instrument must be distinguished from
theassignment or transfer of an instrument whether that be negotiable
or non-negotiable. Only an instrument qualifying as a negotiable
instrument under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone where
the negotiable instrument is in bearer form. A negotiable instrument
may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of
course, different. A non-negotiable instrument may, obviously, not be
negotiated; but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the
instrument:
The words "not negotiable," stamped on the face
of the bill of lading, did not destroy its assignability,
but the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill,
though not negotiable, may be transferred by
assignment; the assignee taking subject to the
equities between the original parties. 12 (Emphasis
added)

The Court of appeals in effect held that petitioner acquired no

rights vis-a-vis Delta in respect of the Delta promissory note (DMC PN
No. 2731) which Philfinance sold "without recourse" to petitioner, to the
extent of P304,533.33. The Court of Appeals said on this point:

DMC PN No. 2731, while marked "non-negotiable," was not at the

same time stamped "non-transferable" or "non-assignable." It
contained no stipulation which prohibited Philfinance from assigning or
transferring, in whole or in part, that Note.

Nor could plaintiff-appellant have acquired any

right over DMC PN No. 2731 as the same is "nonnegotiable" as stamped on its face (Exhibit "6"),
negotiation being defined as the transfer of an
instrument from one person to another so as to
constitute the transferee the holder of the
instrument (Sec. 30, Negotiable Instruments Law).
A person not a holder cannot sue on the
instrument in his own name and cannot demand or
receive payment (Section 51, id.) 9

Delta adduced the "Letter of Agreement" which it had entered into with
Philfinance and which should be quoted in full:

Petitioner admits that DMC PN No. 2731 was non-negotiable but

contends that the Note had been validly transferred, in part to him by
assignment and that as a result of such transfer, Delta as debtormaker of the Note, was obligated to pay petitioner the portion of that
Note assigned to him by the payee Philfinance.

16
8
0
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
A
t
t
e
n
t
i
o
n
:
M
r
.
A
l
f
r
e
d
o
O
.
B
a
n
a
r
i
a
S
V
P
T
r
e
a
s
u
r
e
r
GENTLEMEN:
This refers to our outstanding placement of
P4,601,666.67 as evidenced by your Promissory
Note No. 143-A, dated April 10, 1980, to mature
on April 6, 1981.
As agreed upon, we enclose our non-negotiable
Promissory Note No. 2730 and 2731 for
P2,000,000.00 each, dated April 10, 1980, to be
offsetted [sic] against your PN No. 143-A upon coterminal maturity.
Please deliver the proceeds of our PNs to our
representative, Mr. Eric Castillo.

We find nothing in his "Letter of Agreement" which can be reasonably

construed as a prohibition upon Philfinance assigning or transferring all
or part of DMC PN No. 2731, before the maturity thereof. It is scarcely
necessary to add that, even had this "Letter of Agreement" set forth an

17
explicit prohibition of transfer upon Philfinance, such a prohibition
cannot be invoked against an assignee or transferee of the Note who
parted with valuable consideration in good faith and without notice of
such prohibition. It is not disputed that petitioner was such an assignee
or transferee. Our conclusion on this point is reinforced by the fact that
what Philfinance and Delta were doing by their exchange of their
promissory notes was this: Delta invested, by making a money market
placement with Philfinance, approximately P4,600,000.00 on 10 April
1980; but promptly, on the same day, borrowed back the bulk of that
placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes:
DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April
1980. Thus, Philfinance was left with not P4,600,000.00 but only
P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of
DMC PN No. 2731 had been effected without the consent of Delta, we
note that such consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner. 14 Delta's
argument that Philfinance's sale or assignment of part of its rights to
DMC PN No. 2731 constituted conventional subrogation, which
required its (Delta's) consent, is quite mistaken. Conventional
subrogation, which in the first place is never lightly inferred, 15 must be
clearly established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and old
obligations on every point. 16 Nothing of the sort is present in the instant
case.
It is in fact difficult to be impressed with Delta's complaint, since it
released its DMC PN No. 2731 to Philfinance, an entity engaged in the
business of buying and selling debt instruments and other securities,
and more generally, in money market transactions. In Perez v. Court of
Appeals, 17 the Court, speaking through Mme. Justice Herrera, made
the following important statement:
There is another aspect to this case. What is
involved here is a money market transaction. As
defined by Lawrence Smith "the money market is
a market dealing in standardized short-term credit
instruments (involving large amounts) where
lenders and borrowers do not deal directly with
each other but through a middle manor a dealer in
the open market." It involves "commercial papers"
which are instruments "evidencing indebtness of
any person or entity. . ., which are issued,
endorsed, sold or transferred or in any manner
conveyed to another person or entity, with or
without recourse". The fundamental function of the
money market device in its operation is to match
and bring together in a most impersonal manner
both the "fund users" and the "fund suppliers." The
money market is an "impersonal market", free from
personal considerations. "The market mechanism
is intended to provide quick mobility of money and
securities."
The impersonal character of the money market
device overlooks the individuals or entities
concerned. The issuer of a commercial paper in
the money market necessarily knows in advance
that it would be expenditiously transacted and
transferred to any investor/lender without need of
notice to said issuer. In practice, no notification is
given to the borrower or issuer of commercial
paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market
transaction, a relatively novel institution in the
Philippine commercial scene. It has been intended
to facilitate the flow and acquisition of capital on
an impersonal basis. And as specifically required

by Presidential Decree No. 678, the investing

public must be given adequate and effective
protection in availing of the credit of a borrower in
the commercial paper market.18 (Citations omitted;
emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or
offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It
is important to note that at the time Philfinance sold part of its rights
under DMC PN No. 2731 to petitioner on 9 February 1981, no
compensation had as yet taken place and indeed none could have
taken place. The essential requirements of compensation are listed in
the Civil Code as follows:
Art. 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consists in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN
No. 143-A was due. This was explicitly recognized by Delta in its 10
April 1980 "Letter of Agreement" with Philfinance, where Delta
acknowledged that the relevant promissory notes were "to be offsetted
(sic) against [Philfinance] PN No. 143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981
or from forty-nine (49) days before the "co-terminal maturity" date, that
is to say, before any compensation had taken place. Further, the
assignment to petitioner would have prevented compensation had
taken place between Philfinance and Delta, to the extent of
P304,533.33, because upon execution of the assignment in favor of
petitioner, Philfinance and Delta would have ceased to be creditors
and debtors of each other in their own right to the extent of the amount
assigned by Philfinance to petitioner. Thus, we conclude that the
assignment effected by Philfinance in favor of petitioner was a valid
one and that petitioner accordingly became owner of DMC PN No.
2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of
the assignment to him only on 14 July 1981, 19that is, after the maturity
not only of the money market placement made by petitioner but also of
both DMC PN No. 2731 and Philfinance PN No. 143-A. In other
words, petitioner notified Delta of his rights as assignee after
compensation had taken place by operation of law because the
offsetting instruments had both reached maturity. It is a firmly settled
doctrine that the rights of an assignee are not any greater that the
rights of the assignor, since the assignee is merely substituted in the
place of the assignor 20 and that the assignee acquires his rights
subject to the equities i.e., the defenses which the debtor could
have set up against the original assignor before notice of the
assignment was given to the debtor. Article 1285 of the Civil Code
provides that:

18
Art. 1285. The debtor who has consented to the
assignment of rights made by a creditor in favor of
a third person, cannot set up against the assignee
the compensation which would pertain to him
against the assignor, unless the assignor was
notified by the debtor at the time he gave his
consent, that he reserved his right to the
compensation.
If the creditor communicated the cession to him
but the debtor did not consent thereto, the
latter may set up the compensation of
debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge
of the debtor, he may set up the compensation of
all credits prior to the same and also later ones
until he had knowledge of the assignment.
(Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before
having knowledge of the assignment, pays his creditor shall be
released from the obligation." In Sison v. Yap-Tico, 21 the Court
explained that:
[n]o man is bound to remain a debtor; he may pay
to him with whom he contacted to pay; and if he
pay before notice that his debt has been assigned,
the law holds him exonerated, for the reason that it
is the duty of the person who has acquired a title
by transfer to demand payment of the debt, to give
his debt or notice. 22
At the time that Delta was first put to notice of the assignment in
petitioner's favor on 14 July 1981, DMC PN No. 2731 had already been
discharged by compensation. Since the assignor Philfinance could not
have then compelled payment anew by Delta of DMC PN No. 2731,
petitioner, as assignee of Philfinance, is similarly disabled from
collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the
assignment or sale was effected on 9 February 1981. He could have
notified Delta as soon as his money market placement matured on 13
March 1981 without payment thereof being made by Philfinance; at
that time, compensation had yet to set in and discharge DMC PN No.
2731. Again petitioner could have notified Delta on 26 March 1981
when petitioner received from Philfinance the Denominated
Custodianship Receipt ("DCR") No. 10805 issued by private
respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have
notified Delta at any time before the maturity date of DMC PN No.
2731. Because petitioner failed to do so, and because the record is
bare of any indication that Philfinance had itself notified Delta of the
assignment to petitioner, the Court is compelled to uphold the defense
of compensation raised by private respondent Delta. Of course,
Philfinance remains liable to petitioner under the terms of the
assignment made by Philfinance to petitioner.

The Court is not persuaded. We find nothing in the DCR that

establishes an obligation on the part of Pilipinas to pay petitioner the
amount of P307,933.33 nor any assumption of liability in solidum with
Philfinance and Delta under DMC PN No. 2731. We read the DCR as a
confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted
custodian bank, DMC PN No. 2731 of a certain
face value, to mature on 6 April 1981 and payable
to the order of Philfinance;
(2) Pilipinas was, from and after said date of the
assignment by Philfinance to petitioner (9
February 1981), holding that Note on behalf and
for the benefit of petitioner, at least to the extent it
had been assigned to petitioner by payee
Philfinance; 24
(3) petitioner may inspect the Note either
"personally or by authorized representative", at
any time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas
would physically deliver the DMC PN No. 2731 (or
a participation therein to the extent of
P307,933.33) "should this Denominated
Custodianship receipt remain outstanding in
[petitioner's] favor thirty (30) days after its
maturity."
Thus, we find nothing written in printers ink on the DCR which could
reasonably be read as converting Pilipinas into an obligor under the
terms of DMC PN No. 2731 assigned to petitioner, either upon maturity
thereof or any other time. We note that both in his complaint and in his
testimony before the trial court, petitioner referred merely to the
obligation of private respondent Pilipinas to effect the physical delivery
to him of DMC PN No. 2731. 25 Accordingly, petitioner's theory that
Pilipinas had assumed a solidary obligation to pay the amount
represented by a portion of the Note assigned to him by Philfinance,
appears to be a new theory constructed only after the trial court had
ruled against him. The solidary liability that petitioner seeks to impute
Pilipinas cannot, however, be lightly inferred. Under article 1207 of the
Civil Code, "there is a solidary liability only when the law or the nature
of the obligation requires solidarity," The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner, on the part
of Pilipinas. Petitioner has not pointed to us to any law which imposed
such liability upon Pilipinas nor has petitioner argued that the very
nature of the custodianship assumed by private respondent Pilipinas
necessarily implies solidary liability under the securities, custody of
which was taken by Pilipinas. Accordingly, we are unable to hold
Pilipinas solidarily liable with Philfinance and private respondent Delta
under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no
responsibility and liability in respect of petitioner under the terms of the
DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its
undertaking under the DCR to petitioner Sesbreo.

II.
We turn now to the relationship between petitioner and private
respondent Pilipinas. Petitioner contends that Pilipinas became
solidarily liable with Philfinance and Delta when Pilipinas issued DCR
No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall
undertake physical delivery of the above
securities fully assigned to you . 23

We believe and so hold that a contract of deposit was constituted by

the act of Philfinance in designating Pilipinas as custodian or
depositary bank. The depositor was initially Philfinance; the obligation
of the depository was owed, however, to petitioner Sesbreo as
beneficiary of the custodianship or depository agreement. We do not
consider that this is a simple case of a stipulation pour autri. The
custodianship or depositary agreement was established as an integral
part of the money market transaction entered into by petitioner with
Philfinance. Petitioner bought a portion of DMC PN No. 2731;
Philfinance as assignor-vendor deposited that Note with Pilipinas in
order that the thing sold would be placed outside the control of the
vendor. Indeed, the constituting of the depositary or custodianship

19
agreement was equivalent to constructive delivery of the Note (to the
extent it had been sold or assigned to petitioner) to petitioner. It will be
seen that custodianship agreements are designed to facilitate
transactions in the money market by providing a basis for confidence
on the part of the investors or placers that the instruments bought by
them are effectively taken out of the pocket, as it were, of the vendors
and placed safely beyond their reach, that those instruments will be
there available to the placers of funds should they have need of them.
The depositary in a contract of deposit is obliged to return the security
or the thing deposited upon demand of the depositor (or, in the
presented case, of the beneficiary) of the contract, even though a term
for such return may have been established in the said
contract. 26 Accordingly, any stipulation in the contract of deposit or
custodianship that runs counter to the fundamental purpose of that
agreement or which was not brought to the notice of and accepted by
the placer-beneficiary, cannot be enforced as against such beneficiaryplacer.
We believe that the position taken above is supported by
considerations of public policy. If there is any party that needs the
equalizing protection of the law in money market transactions, it is the
members of the general public whom place their savings in such
market for the purpose of generating interest revenues. 27 The
custodian bank, if it is not related either in terms of equity ownership or
management control to the borrower of the funds, or the commercial
paper dealer, is normally a preferred or traditional banker of such
borrower or dealer (here, Philfinance). The custodian bank would have
every incentive to protect the interest of its client the borrower or dealer
as against the placer of funds. The providers of such funds must be
safeguarded from the impact of stipulations privately made between
the borrowers or dealers and the custodian banks, and disclosed to
fund-providers only after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to
deliver the security deposited with it when petitioner first demanded
physical delivery thereof on 2 April 1981. We must again note, in this
connection, that on 2 April 1981, DMC PN No. 2731 had not yet
matured and therefore, compensation or offsetting against Philfinance
PN No. 143-A had not yet taken place. Instead of complying with the
demand of the petitioner, Pilipinas purported to require and await the
instructions of Philfinance, in obvious contravention of its undertaking
under the DCR to effect physical delivery of the Note upon receipt of
"written instructions" from petitioner Sesbreo. The ostensible term
written into the DCR (i.e., "should this [DCR] remain outstanding in
your favor thirty [30] days after its maturity") was not a defense against
petitioner's demand for physical surrender of the Note on at least three
grounds: firstly, such term was never brought to the attention of
petitioner Sesbreo at the time the money market placement with
Philfinance was made; secondly, such term runs counter to the very
purpose of the custodianship or depositary agreement as an integral
part of a money market transaction; and thirdly, it is inconsistent with
the provisions of Article 1988 of the Civil Code noted above. Indeed, in
principle, petitioner became entitled to demand physical delivery of the
Note held by Pilipinas as soon as petitioner's money market placement
matured on 13 March 1981 without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond
to petitioner for damages sustained by arising out of its breach of duty.
By failing to deliver the Note to the petitioner as depositor-beneficiary
of the thing deposited, Pilipinas effectively and unlawfully deprived
petitioner of the Note deposited with it. Whether or not Pilipinas itself
benefitted from such conversion or unlawful deprivation inflicted upon
petitioner, is of no moment for present purposes.Prima facie, the
damages suffered by petitioner consisted of P304,533.33, the portion
of the DMC PN No. 2731 assigned to petitioner but lost by him by
reason of discharge of the Note by compensation, plus legal interest of
six percent (6%) per annum containing from 14 March 1981.
The conclusion we have reached is, of course, without prejudice to
such right of reimbursement as Pilipinas may havevis-a-vis Philfinance.

The third principal contention of petitioner that Philfinance and

private respondents Delta and Pilipinas should be treated as one
corporate entity need not detain us for long.
In the first place, as already noted, jurisdiction over the person of
Philfinance was never acquired either by the trial court nor by the
respondent Court of Appeals. Petitioner similarly did not seek to
implead Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents
Delta and Pilipinas have been organized as separate corporate
entities. Petitioner asks us to pierce their separate corporate entities,
but has been able only to cite the presence of a common Director
Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of all three
(3) companies. Petitioner has neither alleged nor proved that one or
another of the three (3) concededly related companies used the other
two (2) as mere alter egos or that the corporate affairs of the other two
(2) were administered and managed for the benefit of one. There is
simply not enough evidence of record to justify disregarding the
separate corporate personalities of delta and Pilipinas and to hold
them liable for any assumed or undetermined liability of Philfinance to
petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the
Court of Appeals in C.A.-G.R. CV No. 15195 dated 21 march 1989 and
17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to
the extent that such Decision and Resolution had dismissed
petitioner's complaint against Pilipinas Bank. Private respondent
Pilipinas bank is hereby ORDERED to indemnify petitioner for
damages in the amount of P304,533.33, plus legal interest thereon at
the rate of six percent (6%) per annum counted from 2 April 1981. As
so modified, the Decision and Resolution of the Court of Appeals are
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 100290 June 4, 1993

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and EDEN
TAN, respondents.

PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are
before this Court assailing the decision * of respondent appellate court
dated 24 April 1991 in CA-G.R. SP No. 24164 denying their petition
for certiorariprohibition, and injunction which sought to annul the order
of Judge Eutropio Migrio of the Regional Trial Court, Branch 151,
Pasig, Metro Manila in Civil Case No. 54863 entitled "Eden Tan vs.
Sps. Norberto and Carmen Tibajia."
Stated briefly, the relevant facts are as follows:

III.

20
Case No. 54863 was a suit for collection of a sum of money filed by
Eden Tan against the Tibajia spouses. A writ of attachment was issued
by the trial court on 17 August 1987 and on 17 September 1987, the
Deputy Sheriff filed a return stating that a deposit made by the Tibajia
spouses in the Regional Trial Court of Kalookan City in the amount of
Four Hundred Forty Two Thousand Seven Hundred and Fifty Pesos
(P442,750.00) in another case, had been garnished by him. On 10
March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro
Manila rendered its decision in Civil Case No. 54863 in favor of the
plaintiff Eden Tan, ordering the Tibajia spouses to pay her an amount
in excess of Three Hundred Thousand Pesos (P300,000.00). On
appeal, the Court of Appeals modified the decision by reducing the
award of moral and exemplary damages. The decision having become
final, Eden Tan filed the corresponding motion for execution and
thereafter, the garnished funds which by then were on deposit with the
cashier of the Regional Trial Court of Pasig, Metro Manila, were levied
upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff
Eduardo Bolima the total money judgment in the following form:
Cashier's Check P262,750.00
Cash 135,733.70

Total P398,483.70

contention, cite the case of New Pacific Timber and Supply Co., Inc. v.
Seeris 3 where this Court held through Mr. Justice Hermogenes
Concepcion, Jr. that "It is a well-known and accepted practice in the
business sector that a cashier's check is deemed as cash".
The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be
made in the currency stipulated, and if it is not
possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order,
or bills of exchange or other mercantile documents
shall produce the effect of payment only when
they have been cashed, or when through the fault
of the creditor they have been impaired.
In the meantime, the action derived from the
original obligation shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:

Private respondent, Eden Tan, refused to accept the payment made by

the Tibajia spouses and instead insisted that the garnished funds
deposited with the cashier of the Regional Trial Court of Pasig, Metro
Manila be withdrawn to satisfy the judgment obligation. On 15 January
1991, defendant spouses (petitioners) filed a motion to lift the writ of
execution on the ground that the judgment debt had already been paid.
On 29 January 1991, the motion was denied by the trial court on the
ground that payment in cashier's check is not payment in legal tender
and that payment was made by a third party other than the defendant.
A motion for reconsideration was denied on 8 February 1991.
Thereafter, the spouses Tibajia filed a petition for certiorari, prohibition
and injunction in the Court of Appeals. The appellate court dismissed
the petition on 24 April 1991 holding that payment by cashier's check is
not payment in legal tender as required by Republic Act No. 529. The
motion for reconsideration was denied on 27 May 1991.
In this petition for review, the Tibajia spouses raise the following
issues:
I WHETHER OR NOT THE BPI CASHIER'S
CHECK NO. 014021 IN THE AMOUNT OF
P262,750.00 TENDERED BY PETITIONERS FOR
PAYMENT OF THE JUDGMENT DEBT, IS
"LEGAL TENDER".
II WHETHER OR NOT THE PRIVATE
RESPONDENT MAY VALIDLY REFUSE THE
TENDER OF PAYMENT PARTLY IN CHECK
AND PARTLY IN CASH MADE BY
PETITIONERS, THRU AURORA VITO AND
COUNSEL, FOR THE SATISFACTION OF THE
MONETARY OBLIGATION OF PETITIONERSSPOUSES. 1
The only issue to be resolved in this case is whether or not payment by
means of check (even by cashier's check) is considered payment in
legal tender as required by the Civil Code, Republic Act No. 529, and
the Central Bank Act.
It is contended by the petitioners that the check, which was a cashier's
check of the Bank of the Philippine Islands, undoubtedly a bank of
good standing and reputation, and which was a crossed check marked
"For Payee's Account Only" and payable to private respondent Eden
Tan, is considered legal tender, payment with which operates to
discharge their monetary obligation. 2 Petitioners, to support their

Sec. 1. Every provision contained in, or made with

respect to, any obligation which purports to give
the obligee the right to require payment in gold or
in any particular kind of coin or currency other than
Philippine currency or in an amount of money of
the Philippines measured thereby, shall be as it is
hereby declared against public policy null and
void, and of no effect, and no such provision shall
be contained in, or made with respect to, any
obligation thereafter incurred. Every obligation
heretofore and hereafter incurred, whether or not
any such provision as to payment is contained
therein or made with respect thereto, shall be
discharged upon payment in any coin or currency
which at the time of payment is legal tender for
public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act)
which provides:
Sec. 63. Legal character Checks representing
deposit money do not have legal tender power and
their acceptance in the payment of debts, both
public and private, is at the option of the creditor:
Provided, however, that a check which has been
cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of
cash in an amount equal to the amount credited to
his account.
From the aforequoted provisions of law, it is clear that this petition
must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of
Appeals 4 and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate
Appellate Court, 5 this Court held that
A check, whether a manager's check or ordinary
check, is not legal tender, and an offer of a check
in payment of a debt is not a valid tender of
payment and may be refused receipt by the
obligee or creditor.

21
The ruling in these two (2) cases merely applies the statutory
provisions which lay down the rule that a check is not legal tender and
that a creditor may validly refuse payment by check, whether it be a
manager's, cashier's or personal check.
Petitioners erroneously rely on one of the dissenting opinions in
the Philippine Airlines case 6 to support their cause. The dissenting
opinion however does not in any way support the contention that a
check is legal tender but, on the contrary, states that "If the PAL
checks in question had not been encashed by Sheriff Reyes, there
would be no payment by PAL and, consequently, no discharge or
satisfaction of its judgment obligation." 7 Moreover, the circumstances
in the Philippine Airlines case are quite different from those in the case
at bar for in that case the checks issued by the judgment debtor were
made payable to the sheriff, Emilio Z. Reyes, who encashed the
checks but failed to deliver the proceeds of said encashment to the
judgment creditor.
In the more recent case of Fortunado vs. Court of Appeals, 8 this Court
stressed that, "We are not, by this decision, sanctioning the use of a
check for the payment of obligations over the objection of the creditor."
WHEREFORE, the petition is DENIED. The appealed decision is
hereby AFFIRMED, with costs against the petitioners.
SO ORDERED.
Narvasa, C.J., Regalado and Nocon, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

3. On November 27, 1979, Filriters Guaranty

Assurance Corporation (Filriters) executed a
"Detached Assignment" . . ., whereby Filriters, as
registered owner, sold, transferred, assigned and
delivered unto Philippine Underwriters Finance
Corporation (Philfinance) all its rights and title to
Central Bank Certificates of Indebtedness of
PESOS: FIVE HUNDRED THOUSAND
(P500,000) and having an aggregate value of
PESOS: THREE MILLION FIVE HUNDRED
THOUSAND (P3,500,000.00);
4. The aforesaid Detached Assignment (Annex
"A") contains an express authorization executed
by the transferor intended to complete the
assignment through the registration of the transfer
in the name of PhilFinance, which authorization is
specifically phrased as follows: '(Filriters) hereby
irrevocably authorized the said issuer (Central
Bank) to transfer the said bond/certificates on the
books of its fiscal agent;
5. On February 4, 1981, petitioner entered into a
Repurchase Agreement with PhilFinance . . .,
whereby, for and in consideration of the sum of
PESOS: FIVE HUNDRED THOUSAND
(P500,000.00), PhilFinance sold, transferred and
delivered to petitioner CBCI 4-year, 8th series,
Serial No. D891 with a face value of P500,000.00 .
. ., which CBCI was among those previously
acquired by PhilFinance from Filriters as averred
in paragraph 3 of the Petition;
6. Pursuant to the aforesaid Repurchase
Agreement (Annex "B"), Philfinance agreed to
repurchase CBCI Serial No. D891 (Annex "C"), at
the stipulated price of PESOS: FIVE HUNDRED
NINETEEN THOUSAND THREE HUNDRED
SIXTY-ONE & 11/100 (P519,361.11) on April 27,
1981;

G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,
vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE
CORPORATION and CENTRAL BANK of the
PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the
respondent Court of Appeals dated January 29, 1990, 1 affirming the
nullity of the transfer of Central Bank Certificate of Indebtedness
(CBCI) No. D891, 2 with a face value of P500,000.00, from the
Philippine Underwriters Finance Corporation (Philfinance) to the
petitioner Trader's Royal Bank (TRB), under a Repurchase
Agreement 3 dated February 4, 1981, and a Detached
Assignment 4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of
Manila, Branch 32, the action was originally filed as a Petition
for Mandamus 5 under Rule 65 of the Rules of Court, to compel the
Central Bank of the Philippines to register the transfer of the subject
CBCI to petitioner Traders Royal Bank (TRB).
In the said petition, TRB stated that:

7. PhilFinance failed to repurchase the CBCI on

the agreed date of maturity, April 27, 1981, when
the checks it issued in favor of petitioner were
dishonored for insufficient funds;
8. Owing to the default of PhilFinance, it executed
a Detached Assignment in favor of the Petitioner
to enable the latter to have its title completed and
registered in the books of the respondent. And by
means of said Detachment, Philfinance transferred
and assigned all, its rights and title in the said
CBCI (Annex "C") to petitioner and, furthermore, it
did thereby "irrevocably authorize the said issuer
(respondent herein) to transfer the said
bond/certificate on the books of its fiscal agent." . .
.
9. Petitioner presented the CBCI (Annex "C"),
together with the two (2) aforementioned
Detached Assignments (Annexes "B" and "D"), to
the Securities Servicing Department of the
respondent, and requested the latter to effect the
transfer of the CBCI on its books and to issue a
new certificate in the name of petitioner as
absolute owner thereof;
10. Respondent failed and refused to register the
transfer as requested, and continues to do so
notwithstanding petitioner's valid and just title over
the same and despite repeated demands in

22
writing, the latest of which is hereto attached as
Annex "E" and made an integral part hereof;
11. The express provisions governing the transfer
of the CBCI were substantially complied with the
petitioner's request for registration, to wit:
"No transfer thereof shall be
valid unless made at said
office (where the Certificate
has been registered) by the
registered owner hereof, in
person or by his attorney duly
authorized in writing, and
similarly noted hereon, and
upon payment of a nominal
transfer fee which may be
required, a new Certificate
shall be issued to the
transferee of the registered
holder thereof."
and, without a doubt, the Detached Assignments
presented to respondent were sufficient
authorizations in writing executed by the
registered owner, Filriters, and its transferee,
PhilFinance, as required by the above-quoted
provision;
12. Upon such compliance with the aforesaid
requirements, the ministerial duties of registering a
transfer of ownership over the CBCI and issuing a
new certificate to the transferee devolves upon the
respondent;
Upon these assertions, TRB prayed for the registration by the Central
Bank of the subject CBCI in its name.
On December 4, 1984, the Regional Trial Court the case took
cognizance of the defendant Central Bank of the Philippines' Motion for
Admission of Amended Answer with Counter Claim for
Interpleader 6 thereby calling to fore the respondent Filriters Guaranty
Assurance Corporation (Filriters), the registered owner of the subject
CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI
No. 891;
12. The CBCI constitutes part of the reserve
investment against liabilities required of
respondent as an insurance company under the
Insurance Code;
13. Without any consideration or benefit
whatsoever to Filriters, in violation of law and the
trust fund doctrine and to the prejudice of
policyholders and to all who have present or future
claim against policies issued by Filriters, Alfredo
Banaria, then Senior Vice-President-Treasury of
Filriters, without any board resolution, knowledge
or consent of the board of directors of Filriters, and
without any clearance or authorization from the
Insurance Commissioner, executed a detached
assignment purportedly assigning CBCI No. 891 to
Philfinance;
xxx xxx xxx

14. Subsequently, Alberto Fabella, Senior VicePresident-Comptroller are Pilar Jacobe, VicePresident-Treasury of Filriters (both of whom were
holding the same positions in Philfinance), without
any consideration or benefit redounding to Filriters
and to the grave prejudice of Filriters, its policy
holders and all who have present or future claims
against its policies, executed similar detached
assignment forms transferring the CBCI to plaintiff;
xxx xxx xxx
15. The detached assignment is patently void and
inoperative because the assignment is without the
knowledge and consent of directors of Filriters,
and not duly authorized in writing by the Board, as
requiring by Article V, Section 3 of CB Circular No.
769;
16. The assignment of the CBCI to Philfinance is a
personal act of Alfredo Banaria and not the
corporate act of Filriters and such null and void;
a) The assignment was executed without
consideration and for that reason, the assignment
is void from the beginning (Article 1409, Civil
Code);
b) The assignment was executed without any
knowledge and consent of the board of directors of
Filriters;
c) The CBCI constitutes reserve investment of
Filriters against liabilities, which is a requirement
under the Insurance Code for its existence as an
insurance company and the pursuit of its business
operations. The assignment of the CBCI is illegal
act in the sense of malum in se or malum
prohibitum, for anyone to make, either as
corporate or personal act;
d) The transfer of dimunition of reserve
investments of Filriters is expressly prohibited by
law, is immoral and against public policy;
e) The assignment of the CBCI has resulted in the
capital impairment and in the solvency deficiency
of Filriters (and has in fact helped in placing
Filriters under conservatorship), an inevitable
result known to the officer who executed
assignment.
17. Plaintiff had acted in bad faith and with
knowledge of the illegality and invalidity of the
assignment.
a) The CBCI No. 891 is not a negotiable
instrument and as a certificate of indebtedness is
not payable to bearer but is a registered in the
name of Filriters;
b) The provision on transfer of the CBCIs provides
that the Central Bank shall treat the registered
owner as the absolute owner and that the value of
the registered certificates shall be payable only to
the registered owner; a sufficient notice to plaintiff
that the assignments do not give them the
registered owner's right as absolute owner of the
CBCI's;

23
c) CB Circular 769, Series of 1980 (Rules and
Regulations Governing CBCIs) provides that the
registered certificates are payable only to the
registered owner (Article II, Section 1).

D891, which was still registered in the name of

Filriters, to appellant Traders Royal Bank (TRB).
The transfer was made under a repurchase
agreement dated February 4, 1981, granting
Philfinance the right to repurchase the instrument
on or before April 27, 1981. When Philfinance
failed to buy back the note on maturity date, it
executed a deed of assignment, dated April 27,
1981, conveying to appellant TRB all its right and
the title to CBCI No. D891.

18. Plaintiff knew full well that the assignment by

Philfinance of CBCI No. 891 by Filriters is not a
regular transaction made in the usual of ordinary
course of business;
a) The CBCI constitutes part of the reserve
investments of Filriters against liabilities requires
by the Insurance Code and its assignment or
transfer is expressly prohibited by law. There was
no attempt to get any clearance or authorization
from the Insurance Commissioner;

Armed with the deed of assignment, TRB then

sought the transfer and registration of CBCI No.
D891 in its name before the Security and
Servicing Department of the Central Bank (CB).
Central Bank, however, refused to effect the
transfer and registration in view of an adverse
claim filed by defendant Filriters.

b) The assignment by Filriters of the CBCI is

clearly not a transaction in the usual or regular
course of its business;

Left with no other recourse, TRB filed a special

civil action for mandamus against the Central
Bank in the Regional Trial Court of Manila. The
suit, however, was subsequently treated by the
lower court as a case of interpleader when CB
prayed in its amended answer that Filriters be
impleaded as a respondent and the court adjudge
which of them is entitled to the ownership of CBCI
No. D891. Failing to get a favorable judgment.
TRB now comes to this Court on appeal. 11

c) The CBCI involved substantial amount and its

assignment clearly constitutes disposition of "all or
substantially all" of the assets of Filriters, which
requires the affirmative action of the stockholders
(Section 40, Corporation [sic] Code. 7
In its Decision 8 dated April 29, 1988, the Regional Trial Court of
Manila, Branch XXXIII found the assignment of CBCI No. D891 in favor
of Philfinance, and the subsequent assignment of the same CBCI by
Philfinance in favor of Traders Royal Bank null and void and of no
force and effect. The dispositive portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in
favor of the respondent Filriters Guaranty
Assurance Corporation and against the plaintiff
Traders Royal Bank:
(a) Declaring the assignment of CBCI No. 891 in
favor of PhilFinance, and the subsequent
assignment of CBCI by PhilFinance in favor of the
plaintiff Traders Royal Bank as null and void and
of no force and effect;
(b) Ordering the respondent Central Bank of the
Philippines to disregard the said assignment and
to pay the value of the proceeds of the CBCI No.
D891 to the Filriters Guaranty Assurance
Corporation;
(c) Ordering the plaintiff Traders Royal Bank to
pay respondent Filriters Guaranty Assurance
Corp. The sum of P10,000 as attorney's fees; and
(d) to pay the costs.

In the appellate court, petitioner argued that the subject CBCI was a
negotiable instrument, and having acquired the said certificate from
Philfinance as a holder in due course, its possession of the same is
thus free fro any defect of title of prior parties and from any defense
available to prior parties among themselves, and it may thus, enforce
payment of the instrument for the full amount thereof against all parties
liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a
negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, the registered owner, whose name was inscribed
thereon, and that the certificate lacked the words of negotiability which
serve as an expression of consent that the instrument may be
transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance
was fictitious, having made without consideration, and did not conform
to Central Bank Circular No. 769, series of 1980, better known as the
"Rules and Regulations Governing Central Bank Certificates of
Indebtedness", which provided that any "assignment of registered
certificates shall not be valid unless made . . . by the registered owner
thereof in person or by his representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from
Philfinance whose interest was inexistent, having acquired the
certificate through simulation. What happened was Philfinance merely
borrowed CBCI No. D891 from Filriters, a sister corporation, to
guarantee its financing operations.

SO ORDERED. 9
Said the Court:
The petitioner assailed the decision of the trial court in the Court of
Appeals 10, but their appeals likewise failed. The findings of the fact of
the said court are hereby reproduced:
The records reveal that defendant Filriters is the
registered owner of CBCI No. D891. Under a deed
of assignment dated November 27, 1971, Filriters
transferred CBCI No. D891 to Philippine
Underwriters Finance Corporation (Philfinance).
Subsequently, Philfinance transferred CBCI No.

In the case at bar, Alfredo O. Banaria, who signed

the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary
written authorization from the Board of Directors of
Filriters to act for the latter. For lack of such
authority, the assignment did not therefore bind
Filriters and violated as the same time Central
Bank Circular No. 769 which has the force and
effect of a law, resulting in the nullity of the
transfer (People v. Que Po Lay, 94 Phil. 640; 3M

24
Philippines, Inc. vs. Commissioner of Internal
Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights
under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the
latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is
AFFIRMED, with costs against plaintiff-appellant.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that
Philfinance owns 90% of Filriters equity and the two corporations have
identical corporate officers, thus demanding the application of the
doctrine or piercing the veil of corporate fiction, as to give validity to the
transfer of the CBCI from registered owner to petitioner TRB. 14 This
renders the payment by TRB to Philfinance of CBCI, as actual
payment to Filriters. Thus, there is no merit to the lower court's ruling
that the transfer of the CBCI from Filriters to Philfinance was null and
void for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the
absence of words of negotiability within the meaning of the negotiable
instruments law (Act 2031).

The language of negotiability which characterize a negotiable paper as

a credit instrument is its freedom to circulate as a substitute for money.
Hence, freedom of negotiability is the touchtone relating to the
protection of holders in due course, and the freedom of negotiability is
the foundation for the protection which the law throws around a holder
in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is
totally absent in a certificate indebtedness as it merely to pay a sum of
money to a specified person or entity for a period of time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:
The accepted rule is that the negotiability or nonnegotiability of an instrument is determined from
the writing, that is, from the face of the instrument
itself. In the construction of a bill or note, the
intention of the parties is to control, if it can be
legally ascertained. While the writing may be read
in the light of surrounding circumstance in order to
more perfectly understand the intent and meaning
of the parties, yet as they have constituted the
writing to be the only outward and visible
expression of their meaning, no other words are to
be added to it or substituted in its stead. The duty
of the court in such case is to ascertain, not what
the parties may have secretly intended as
contradistinguished from what their words
express, but what is the meaning of the words
they have used. What the parties meant must be
determined by what they said.

The pertinent portions of the subject CBCI read:

xxx xxx xxx
The Central Bank of the Philippines (the Bank) for
value received, hereby promises to pay bearer, of
if this Certificate of indebtedness be registered, to
FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the
principal sum of FIVE HUNDRED THOUSAND
PESOS.
xxx xxx xxx
Properly understood, a certificate of indebtedness pertains to
certificates for the creation and maintenance of a permanent
improvement revolving fund, is similar to a "bond," (82 Minn. 202).
Being equivalent to a bond, it is properly understood as
acknowledgment of an obligation to pay a fixed sum of money. It is
usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable
instrument, stating that:
As worded, the instrument provides a promise "to
pay Filriters Guaranty Assurance Corporation, the
registered owner hereof." Very clearly, the
instrument is payable only to Filriters, the
registered owner, whose name is inscribed
thereon. It lacks the words of negotiability which
should have served as an expression of consent
that the instrument may be transferred by
negotiation. 15
A reading of the subject CBCI indicates that the same is payable to
FILRITERS GUARANTY ASSURANCE CORPORATION, and to no
one else, thus, discounting the petitioner's submission that the same is
a negotiable instrument, and that it is a holder in due course of the
certificate.

Thus, the transfer of the instrument from Philfinance to TRB was

merely an assignment, and is not governed by the negotiable
instruments law. The pertinent question then is, was the transfer of the
CBCI from Filriters to Philfinance and subsequently from Philfinance to
TRB, in accord with existing law, so as to entitle TRB to have the CBCI
registered in its name with the Central Bank?
The following are the appellate court's pronouncements on the matter:
Clearly shown in the record is the fact that
Philfinance's title over CBCI No. D891 is defective
since it acquired the instrument from Filriters
fictitiously. Although the deed of assignment
stated that the transfer was for "value received",
there was really no consideration involved. What
happened was Philfinance merely borrowed CBCI
No. D891 from Filriters, a sister corporation. Thus,
for lack of any consideration, the assignment
made is a complete nullity.
What is more, We find that the transfer made by
Filriters to Philfinance did not conform to Central
Bank Circular No. 769, series of 1980, otherwise
known as the "Rules and Regulations Governing
Central Bank Certificates of Indebtedness", under
which the note was issued. Published in the
Official Gazette on November 19, 1980, Section 3
thereof provides that any assignment of registered
certificates shall not be valid unless made . . . by
the registered owner thereof in person or by his
representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed
the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary
written authorization from the Board of Directors of
Filriters to act for the latter. For lack of such
authority, the assignment did not therefore bind
Filriters and violated at the same time Central
Bank Circular No. 769 which has the force and
effect of a law, resulting in the nullity of the

25
transfer (People vs. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal
Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights
under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the
latter can register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB
must upheld, as the respondent Filriters and Philfinance, though
separate corporate entities on paper, have used their corporate fiction
to defraud TRB into purchasing the subject CBCI, which purchase now
is refused registration by the Central Bank.
Says the petitioner;
Since Philfinance own about 90% of Filriters and
the two companies have the same corporate
officers, if the principle of piercing the veil of
corporate entity were to be applied in this case,
then TRB's payment to Philfinance for the CBCI
purchased by it could just as well be considered a
payment to Filriters, the registered owner of the
CBCI as to bar the latter from claiming, as it has,
that it never received any payment for that CBCI
sold and that said CBCI was sold without its
authority.
xxx xxx xxx
We respectfully submit that, considering that the
Court of Appeals has held that the CBCI was
merely borrowed by Philfinance from Filriters, a
sister corporation, to guarantee its (Philfinance's)
financing operations, if it were to be consistent
therewith, on the issued raised by TRB that there
was a piercing a veil of corporate entity, the Court
of Appeals should have ruled that such veil of
corporate entity was, in fact, pierced, and the
payment by TRB to Philfinance should be
construed as payment to Filriters. 17
We disagree with Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate
entity, as this merely an equitable remedy, and may be awarded only
in cases when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person. 18
Peiercing the veil of corporate entity requires the court to see through
the protective shroud which exempts its stockholders from liabilities
that ordinarily, they could be subject to, or distinguished one
corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the
corporate fiction was misused, to such an extent that injustice, fraud, or
crime was committed upon another, disregarding, thus, his, her, or its
rights. It is the protection of the interests of innocent third persons
dealing with the corporate entity which the law aims to protect by this
doctrine.
The corporate separateness between Filriters and Philfinance remains,
despite the petitioners insistence on the contrary. For one, other than
the allegation that Filriters is 90% owned by Philfinance, and the
identity of one shall be maintained as to the other, there is nothing else
which could lead the court under circumstance to disregard their
corporate personalities.

Though it is true that when valid reasons exist, the legal fiction that a
corporation is an entity with a juridical personality separate from its
stockholders and from other corporations may be disregarded, 19 in the
absence of such grounds, the general rule must upheld. The fact that
Filfinance owns majority shares in Filriters is not by itself a ground to
disregard the independent corporate status of Filriters. In Liddel &
Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness
from Philfinance.
On its face the subject certificates states that it is registered in the
name of Filriters. This should have put the petitioner on notice, and
prompted it to inquire from Filriters as to Philfinance's title over the
same or its authority to assign the certificate. As it is, there is no
showing to the effect that petitioner had any dealings whatsoever with
Filriters, nor did it make inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its
TRANSFER. Thus:
TRANSFER. This Certificate shall pass by delivery
unless it is registered in the owner's name at any
office of the Bank or any agency duly authorized
by the Bank, and such registration is noted
hereon. After such registration no transfer thereof
shall be valid unless made at said office (where
the Certificates has been registered) by the
registered owner hereof, in person, or by his
attorney, duly authorized in writing and similarly
noted hereon and upon payment of a nominal
transfer fee which may be required, a new
Certificate shall be issued to the transferee of the
registered owner thereof. The bank or any agency
duly authorized by the Bank may deem and treat
the bearer of this Certificate, or if this Certificate is
registered as herein authorized, the person in
whose name the same is registered as the
absolute owner of this Certificate, for the purpose
of receiving payment hereof, or on account hereof,
and for all other purpose whether or not this
Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written
authorization for the transfer or to require Philfinance to submit such an
authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI
No. D891. The fact that a non-owner was disposing of the registered
CBCI owned by another entity was a good reason for petitioner to
verify of inquire as to the title Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series
of 1990 21, known as the Rules and Regulations Governing Central
Bank Certificates of Indebtedness, Section 3, Article V of which
provides that:
Sec. 3. Assignment of Registered Certificates.
Assignment of registered certificates shall not be
valid unless made at the office where the same
have been issued and registered or at the
Securities Servicing Department, Central Bank of
the Philippines, and by the registered owner
thereof, in person or by his representative, duly
authorized in writing. For this purpose, the
transferee may be designated as the
representative of the registered owner.

26
Petitioner, being a commercial bank, cannot feign ignorance of Central
Bank Circular 769, and its requirements. An entity which deals with
corporate agents within circumstances showing that the agents are
acting in excess of corporate authority, may not hold the corporation
liable. 22 This is only fair, as everyone must, in the exercise of his rights
and in the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith. 23
The transfer made by Filriters to Philfinance did not conform to the
said. Central Bank Circular, which for all intents, is considered part of
the law. As found by the courts a quo, Alfredo O. Banaria, who had
signed the deed of assignment from Filriters to Philfinance, purportedly
for and in favor of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act for the latter.
As it is, the sale from Filriters to Philfinance was fictitious, and
therefore void and inexistent, as there was no consideration for the
same. This is fatal to the petitioner's cause, for then, Philfinance had
no title over the subject certificate to convey the Traders Royal
Bank. Nemo potest nisi quod de jure potest no man can do anything
except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of
its legal and capital reserves, which are required by law 24 to be
maintained at a mandated level. This was pointed out by Elias Garcia,
Manager-in-Charge of respondent Filriters, in his testimony given
before the court on May 30, 1986.

government securities or
government binds. This is
how this CBCI came to be
purchased by the company.
It cannot, therefore, be taken out of the said funds, without violating the
requirements of the law. Thus, the anauthorized use or distribution of
the same by a corporate officer of Filriters cannot bind the said
corporation, not without the approval of its Board of Directors, and the
maintenance of the required reserve fund.
Consequently, the title of Filriters over the subject certificate of
indebtedness must be upheld over the claimed interest of Traders
Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision
appealed from dated January 29, 1990 is hereby AFFIRMED.
SO ORDERED.
Regalado, Romero and Mendoza, JJ., concur.
Puno, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila

Q Do you know this Central

Bank Certificate of
Indebtedness, in short, CBCI
No. D891 in the face value of
P5000,000.00 subject of this
case?

THIRD DIVISION
G.R. No. 138588

August 23, 2001

A Yes, sir.
Q Why do you know this?
A Well, this was CBCI of the
company sought to be
examined by the Insurance
Commission sometime in
early 1981 and this CBCI No.
891 was among the CBCI's
that were found to be missing.
Q Let me take you back
further before 1981. Did you
have the knowledge of this
CBCI No. 891 before 1981?

FAR EAST BANK & TRUST COMPANY, petitioner,

vs.
DIAZ REALTY INC., respondents.
PANGANIBAN, J.:
For a valid tender of payment, it is necessary that there be a fusion
of intent, ability and capability to make good such offer, which must be
absolute and must cover the amount due. Though a check is not legal
tender, and a creditor may validly refuse to accept it if tendered as
payment, one who in fact accepted a fully' funded check after the
debtor's manifestation that it had been given to settle an obligation is
estopped from later on denouncing the efficacy of such tender of
payment.
The Case

A Yes, sir. This CBCI is an

investment of Filriters required
by the Insurance Commission
as legal reserve of the
company.
Q Legal reserve for the
purpose of what?
A Well, you see, the
Insurance companies are
required to put up legal
reserves under Section 213 of
the Insurance Code
equivalent to 40 percent of the
premiums receipt and further,
the Insurance Commission
requires this reserve to be
invested preferably in

The foregoing principle is used by this Court in resolving the Petition

for Review1 on Certiorari before us, challenging the January 26, 1999
Decision2 of the Court of Appeals3 (CA) in CA-GR CV No. 45349. The
dispositive portion of the assailed Decision reads as follows:
"WHEREFORE, the judgment appealed from is
hereby MODIFIED, to read as follows:
'WHEREFORE, JUDGMENT IS HEREBY
RENDERED, ORDERING:
'1. The plaintiffs to pay Far East Bank & Trust
Company the principal sum of P1,067,000.00 plus
interests thereon computed at 12% per annum
from July 9, 1988 until fully paid; .

27
'2. The parties to negotiate for a new lease over
the subject premises; and
'3. The defendant to pay the plaintiff the sum of
fifteen thousand (P15,000.00) pesos as and for
attorney's fees plus the costs of litigation.
"All other claims of the parties against each other are
DENIED."4
Likewise assailed is the May 4, 1999 CA Resolution, 5 which denied
petitioner's Motion for Reconsideration.
The Facts

therefore not FEBTC which collected the interest rates

mentioned in the complaint, but PaBC; that it is not true that
FEBTC was trying to impose [exorbitant] rates of interest;
that as a matter of fact, after the transfer of plaintiff's
account, it sought to negotiate with the plaintiffs, and in fact,
negotiations were made for a settlement and possible
reduction of charges; that FEBTC has no knowledge of the
rates of interest imposed and collected by PaBC prior to the
purchase of the account from the latter, hence it could not be
held responsible for those transactions which transpired prior
to the purchase; and that the defendant acted at the
opportune time for the settlement of the account, albeit
exercising prudence in the handling of such account. The
rest of the 'affirmative defenses' are bare denials.
"After trial, the court a quo rendered judgment on August 6,
1993, the dispositive portion of which reads as follows:

The court a quo summarized the antecedents of the case as follows:

"Sometime in August 1973, Diaz and Company got a loan
from the former PaBC [Pacific Banking Corporation] in the
amount of P720,000.00, with interest at 12% per annum,
later increased to 14%, 16%, 18% and 20%. The loan was
secured by a real estate mortgage over two parcels of land
owned by the plaintiff Diaz Realty, both located in Davao
City. In 1981, Allied Banking Corporation rented an office
space in the building constructed on the properties covered
by the mortgage contract, with the conformity of mortgagee
PaBC, whereby the parties agreed that the monthly rentals
shall be paid directly to the mortgagee for the lessor's
account, either to partly or fully pay off the aforesaid
mortgage indebtedness. Pursuant to such contract, Allied
Bank paid the monthly rentals to PaBC instead of to the
plaintiffs. On July 5, 1985, the Central Bank closed PaBC,
placed it under receivership, and appointed Renan Santos
as its liquidator. Sometime in December 1986, appellant
FEBTC purchased the credit of Diaz & Company in favor of
PaBC, but it was not until March 23, 1988 that Diaz was
informed about it.
"According to the plaintiff as alleged in the complaint and
testified to by Antonio Diaz (President of Diaz & Company
and Vice-President of Diaz Realty), on March 23, 1988, he
went to office of PaBC which by then housed FEBTC and
was told that the latter had acquired PaBC; that Cashier
Ramon Lim told him that as of such date, his loan was
P1,447,142.03; that he (Diaz) asked the defendant to make
an accounting of the monthly rental payments made by
Allied Bank; that on December 14, 1988,6 Diaz tendered to
FEBTC the amount of P1,450,000.00 through an Interbank
check, in order to prevent the imposition of additional
interests, penalties and surcharges on its loan; that FEBTC
did not accept it as payment; that instead, Diaz was asked to
deposit the amount with the defendant's Davao City Branch
Office, allegedly pending the approval of Central Bank
Liquidator Renan Santos; that in the meantime, Diaz wrote
the defendant, asking that the interest rate be reduced from
20% to 12% per annum, but no reply was ever made; that
subsequently, the defendant told him to change the
P1,450,000.00 deposit into a money market placement,
which he did; that the money market placement expired on
April 14, 1989; that when there was still no news from the
defendant whether or not it [would] accept his tender of
payment, he filed this case at the Regional Trial Court of
Davao City.
"In its responsive pleading, the defendant set up the
following special/affirmative defenses: that sometime in
December 1986, FEBTC purchased from the PaBC the
account of the plaintiffs for a total consideration of
P1,828,875.00; that despite such purchase, PaBC Davao
Branch continued to collect interests and penalty charges on
the loan from January 6, 1987 to July 8, 1988; that it was

'WHEREFORE, judgment is hereby rendered as

follows:
'1. The plaintiff and defendant shall jointly compute
the interest due on the P1,057,000.00 loan from
April 18, 1985 until November 14, 1988 at 12% per
annum (IBAA Salazar Case Supra).
'2. That the parties shall then add the result of the
joint computation mentioned in paragraph one of
the dispositive portion to the P1,057,000.00
principal.
'3. The result of the addition of the P1,057,000.00
principal and the interests arrived at shall then be
compared with the P1,450,000.00 deposit and if
P1,450,000.00 is not enough, then the plaintiff
shall pay the difference/deficiency between the
P1,450,000.00 deposit and what the parties jointly
computed[;] conversely, if the P1,450,000.00 is
more than what the parties have arrived [at] after
the computation, the defendant shall return the
difference or the excess to the plaintiffs.
'4. The defendant shall cancel the mortgage.
'5. Paragraph eight of the Lease Contract between
Allied Bank and the plaintiffs in which the
defendant's predecessor, Pacific Banking gave its
conformity (Exh. 'H') is hereby cancelled, so that
the rental should now be paid to the plaintiffs.
'6. The defendant shall pay the plaintiffs the sums:
'6-A. Fifteen thousand pesos as attorney's fees.
'6-B. Three [h]undred [t]housand [p]esos
(P300,000.00) as exemplary damages.
'6-C. The cost of suit.
'SO ORDERED."
"Upon a motion for reconsideration filed by defendant
FEBTC and after due notice and hearing, the court a quo
issued an order on October 12, 1993, modifying the
aforequoted decision, such that its dispositive portion as
amended would now read as follows:

28
'IN VIEW WHEREOF, the decision rendered last
August 6, is modified, accordingly, to wit:
'1. The plaintiff and defendant shall jointly compute
the interest due on the P1,167,000.00 loan from
April 18, 1985 until November 14, 1988 at 12% per
annum.
'2. That the parties shall then add the result of the
joint computation mentioned in paragraph one
above to the P1,067,000.00 principal.
'3. The result of the addition of the
P1,067,000.00 principal and the interests arrived
at shall then be compared with the
P1,450,000.00 money market placement put up by
the plaintiff with the defendant bank if the same is
still existing or has not yet matured.
'4. The defendant shall cancel the mortgage.
'5. Paragraph eight of the lease contract between
Allied Bank and the plaintiff in which the
defendant['s predecessor], Pacific Banking gave
its conformity (Exh. 'H') is hereby cancelled and
deleted, so that the rental should now be paid to
the plaintiff.

"A.
"'Whether or not the Court of Appeals correctly ruled that the
validity of the tender of payment was not properly raised in
the trial court and could not thus be raised in the appeal.
"B.
"'Whether or not the Court of Appeals erred in failing to apply
settled jurisprudential principles militating against the private
respondent's contention that a valid tender of payment had
been made by it.
"C.
"Whether or not the Court of Appeals correctly found that the
transaction between petitioner and PaBC was an 'ineffective
novation' and that the consent of private respondent was
necessary therefor.
"D.
"Whether or not the Court of Appeals erred in refusing to
apply the rate of interest freely stipulated upon by the parties
to the respondent's obligation.
"E.

'6. The defendant shall pay the plaintiff the sums:

'6. A Fifteen [t]housand [p]esos as attorney's fees;
'6. B Cost of suit."7

"Whether or not the Court of Appeals committed an

irreconcilable error in ordering the parties to re-negotiate the
terms of the contract while finding at the same time that the
mortgage contract containing the lease was valid.
"F.

The CA Ruling
The CA sustained the trial court's finding that there was a valid tender
of payment in the sum of P1,450,000, made by Diaz Realty Inc. in
favor of Far East Bank and Trust Company. The appellate court
reasoned that petitioner failed to effectively rebut respondent's
evidence that it so tendered the check to liquidate its indebtedness,
and that petitioner had unilaterally treated the same as a deposit
instead.
The CA further ruled that in the computation of interest charges, the
legal rate of 12 percent per annum should apply, reckoned from July 9,
1988, until full and final payment of the whole indebtedness. It
explained that while petitioner's purchase of respondent's account from
Pacific Banking Corporation (PaBC) was valid, the 20 percent interest
stipulated in the Promissory Note should not apply, because the
account transfer was without the knowledge and the' consent of
respondent -obligor.

"Whether or not the petition, as argued by private

respondent, raises questions of fact not reviewable by
certiorari."8
In the main, the Court will determine (1) the efficacy of the alleged
tender of payment made by respondent, (2) the effect of the transfer to
petitioner of respondent's account with PaBC, (3) the interest rate
applicable, and (4) the status of the Real Estate Mortgage.
The Court's Ruling
The Petition9 is not meritorious.
First Issue:
Tender of Payment

The appellate colin, however, sustained petitioner's assertion that the

trial court should not have cancelled the real estate mortgage,'
inasmuch as the principal obligation upon which it was anchored was
yet to be extinguished. Further, the CA held that the lease contract was
subject to renegotiation by the parties.
Lastly, the court a quo upheld the trial court's award of attorney's fees,
pointing to petitioner's negligence in not immediately informing
respondent of the purchase and transfer of its credit, and in failing to
negotiate in order to avoid litigation.
Issues
Petitioner submits for our resolution the following issues:

Petitioner resolutely argues that the CA erred in upholding the validity

of the tender of payment made by respondent. What the latter had
tendered to settle its outstanding obligation, it points out, was a check
which could not be considered legal tender.
We disagree. The records show that petitioner bank purchased
respondent's account from PaBC in December 1986, and that the latter
was notified of the transaction only on March 23, 1988. Thereafter,
Antonio Diaz, president of respondent corporation, inquired from
petitioner on the status and the amount of its obligation. He was
informed that the obligation summed up to P1,447,142.03. On
November 14, 1988, petitioner; received from respondent Interbank
Check No. 81399841 dated November 13, 1988, bearing the amount

29
of P1,450,000, with the notation "Re: Full Payment of Pacific Bank
Account now turn[ed] over to Far East Bank."10 The check was
subsequently cleared and honored by Interbank, as shown by the
Certification it issued on January 20, 1992.11
True, jurisprudence holds that, in general, a check does not constitute
legal tender, and that a creditor may validly refuse it.12 It must be
emphasized, however, that this dictum does not prevent a creditor from
accepting a check as payment. In other words, the creditor has
the option and the discretion of refusing or accepting it.
"In the present case, petitioner bank did not refuse respondent's check.
On the contrary, it accepted the check which, it insisted, was a deposit.
As earlier stated, the check proved to be fully funded and was in fact
honored by the drawee bank. Moreover, petitioner was in possession
of the money for several months.
In further contending that there was no valid tender of payment,
petitioner emphasizes our pronouncement inRoman Catholic Bishop of
Malolos, Inc. v. Intermediate Appellate Court,13 as follows:
"Tender of payment involves a positive and unconditional act
by the obligor of offering legal tender currency as payment to
the obligee for the former's obligation and demanding that
the latter accept the same.
xxx

xxx

xxx

"Thus, tender of payment cannot be presumed by a mere

inference from surrounding circumstances. At most,
sufficiency of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part of the
bargain. But whether or not the obligor avails himself of such
funds to settle his outstanding account remains to be proven
by independent and credible evidence. Tender of payment
presupposes not only that the obligor is able, ready, and
willing, but more so, in the act of performing his
obligation. Ab posse ad actu non vale illatio. 'A proof that an
act could have been done is no proof that it was actually
done."'
In other words, tender of pament is the definitive act of offering the
creditor what is due him or her, together with the demand that the
creditor accept the same. More important, there must be a fusion
of intent, ability andcapability to make good such offer, which must be
absolute and must cover the amount due.14
That respondent intended to settle its obligation with petitioner is
evident from the records of the case. After learning that its loan
balance was P1,447,142.03, it presented to petitioner a check in the
amount of P1,450,000, with the specific notation that it was for full
payment of its Pacific Bank account that had been purchased by
petitioner. The latter accepted the check, even if it now insists that it
considered the same as a mere deposit. The check was sufficiently
funded, as in fact it was honored by the drawee bank. When petitioner
refused to release the mortgage, respondent instituted the present
case to compel the bank to acknowledge the tender of payment,
accept payment and cancel the mortgage. These acts demonstrate
respondent's intent, ability and capability to fully settle and extinguish
its obligation to petitioner.
That respondent subsequently withdrew the money from petitionerbank is of no moment, because such withdrawal would not affect the
efficacy or the legal ramifications of the tender of payment made on
November 14, 1988. As already discussed, the tender of payment to
settle respondent's obligation as computed by petitioner was accepted,
the check given in payment thereof converted into money, and the
money kept in petitioner's possession for several months.

Finally, petitioner points out that, in any case, tender of payment

extinguishes the obligation only after proper consignation, which
respondent did not do.
The argument does not persuade. For a consignation to be necessary,
the creditor must have refused, without just cause, to accept the
debtor's payment.15 However, as pointed out earlier,
petitioner accepted respondent's check.
T o iterate, the tender was made by respondent for the purpose of
settling its obligation. It was incumbent upon petitioner to refuse, or
accept it as payment. The latter did not have the right or the option to
accept and treat it as a deposit. Thus, by accepting the tendered
check and converting it into money, petitioner is presumed to have
accepted it as payment. To hold otherwise would be inequitable and
unfair to the obligor.
Second Issue:
Nature of the Transfer of Respondent's Account
Petitioner bewails the CA's characterization of the transfer of
respondent's account from Pacific Banking Corporation to petitioner as
an "ineffective novation." Petitioner contends that the transfer was an
assignment of credit.
Indeed, the transfer of respondent's credit from PaBC to petitioner was
an assignment of credit. Petitioner's acquisition of respondent's credit
did not involve any changes in the original agreement between PaBC
and respondent; neither did it vary the rights and the obligations of the
parties. Thus, no novation by conventional subrogation could have
taken place.
An assignment of credit is an agreement by virtue of which the owner
of a credit (known as the assignor), by a legal cause -- such as sale,
dation in payment, exchange or donation - and without the need of the
debtor's consent, transfers that credit and its accessory rights to
another (known as the assignee), who acquires the power to enforce it,
to the same extent as the assignor could have enforced it against the
debtor.16
In the present case, it is undisputed that petitioner purchased
respondent's loan from PaBC. In doing so, the former acquired all of
the latter's rights against respondent. Thus, petitioner had the right to
collect the full value of the credit from respondent, subject to the terms
as originally agreed upon in the Promissory Note.
Third Issue:
Applicable Interest Rate
Petitioner bank, as assignee of respondent's credit, is entitled to the
interest rate of 20 percent in the computation of the debt of private
respondent, as stipulated in the August 26, 1983 Promissory Note
executed by the latter in favor of PaBC.17
However, because there was a valid tender of payment made on
November 14, 1988, the accrual of interest based on the stipulated
rate should stop on that date. Thus, respondent should pay petitionerbank its principal obligation in the amount of P1,067,000 plus accrued
interest thereon at 20 percent per annum until November 14, 1988,
less interest payments given to PaBC from December 1986 to July 8,
1988.18
Thereafter, the interest shall be computed at 12 percent per annum
until full payment.
Fourth Issue:

30
Status of Mortgage Contract
The Real Estate Mortgage executed between respondent and PaBC to
secure the former's principal obligation, as well as the provision in the
Contract of Lease between respondent and Allied Bank with regard to
the application of rent payment to the former's indebtedness, should
subsist until full and final settlement of such obligation pursuant to the
guidelines set forth in this Decision. Thereafter, the parties are free to
negotiate a renewal of either or both contracts, or to end any and all of
their contractual relations.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision
of the Court of Appeals is AFFIRMED with the following modifications:
Respondent Diaz Realty Inc. is ORDERED to pay Far East Bank and
Trust Co. its principal loan obligation in the amount of P1,067,000, with
interest thereon computed at 20 percent per annum until November 14,
1988, less any interest payments made to PaBC, petitioner's assignor.
Thereafter, interest shall be computed at 12 percent per annum until
fully paid.1wphi1.nt
SO ORDERED.
Melo, Vitug, Gonzaga-Reyes, Sandoval-Gutierrez., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 141278

March 23, 2004

MICHAEL A. OSMEA, petitioner,

vs.
CITIBANK, N.A., ASSOCIATED BANK and FRANK
TAN, respondents.

clear violation of the respondents obligations under the Negotiable

Instruments Law and standard banking practice; considering that the
petitioners intended payee for the check, the respondent Frank Tan,
did not receive the value thereof, the petitioner demanded from the
respondents Citibank and the Associated Bank the payment or
reimbursement of the value of the check; the respondents, however,
obstinately refused to heed his repeated demands for payment and/or
reimbursement of the amount of the check; hence, the petitioner was
compelled to file this complaint praying for the restitution of the amount
of the check, and for moral damages and attorneys fees.
On June 17, 1991, the petitioner, with leave of court, filed an Amended
Complaint4 impleading Frank Tan as an additional defendant. The
petitioner averred therein that the check was purchased by him as a
demand loan to respondent Frank Tan. Since apparently respondent
Frank Tan did not receive the proceeds of the check, the petitioner
might have no right to collect from respondent Frank Tan and is
consequently left with no recourse but to seek payment or
reimbursement from either or both respondents Citibank and/or
Associated Bank.
In its answer to the amended complaint,5 the respondent Associated
Bank alleged that the petitioner was not the real party-in-interest but
respondent Frank Tan who was the payee of the check. The
respondent also maintained that the check was deposited to the
account of respondent Frank Tan, a.k.a. Julius Dizon, through its Ayala
Head Office and was credited to the savings account of Julius Dizon;
the Ayala office confirmed with the Rosario Branch that the account of
Julius Dizon is also in reality that of respondent Frank Tan; it never
committed any violation of its duties and responsibilities as the
proceeds of the check went and was credited to respondent Frank
Tan, a.k.a. Julius Dizon; the petitioners affirmative allegation of nonpayment to the payee is self-serving; as such, the petitioners claim for
damages is baseless, unfounded and without legal basis.

CALLEJO, SR., J.:

On the other hand, the respondent Citibank, in answer to the amended

complaint,6 alleged that the payment of the check was made by it in
due course and in the exercise of its regular banking function. Since a
managers check is normally purchased in favor of a third party, the
identity of whom in most cases is unknown to the issuing bank, its only
responsibility when paying the check was to examine the genuineness
of the check. It had no way of ascertaining the genuineness of the
signature of the payee respondent Frank Tan who was a total stranger
to it. If at all, the petitioner had a cause of action only against the
respondent Associated Bank which, as depository or collecting bank,
was obliged to make sure that the check in question was properly
endorsed by the payee. It is not expected of the respondent Citibank to
ascertain the genuineness of the indorsement of the payee or even the
lack of indorsement by him, most especially when the check was
presented for payment with the respondent Associated Banks
guaranteeing all prior indorsements or lack thereof.

This is a petition for review on certiorari under Rule 45 of the Rules of

Court, as amended, of the Decision1 of the Court of Appeals in CAG.R. CV No. 49529 which affirmed in toto the Decision2 of the Regional
Trial Court of Makati City, Branch 38, in Civil Case No. 91-538.

On March 16, 1992, the trial court declared Frank Tan in default for
failure to file his answer.7 On June 10, 1992, the pre-trial conference
was concluded without the parties reaching an amicable
settlement.8 Hence, trial on the merits ensued.

As culled from the records, the appeal at bench stemmed from the
following factual backdrop:

After evaluating the evidence adduced by the parties, the trial court
resolved that the preponderance of evidence supports the claim of the
petitioner as against respondent Frank Tan only but not against
respondents Banks. Hence, on February 21, 1995, the trial court
rendered judgment in favor of the petitioner and against respondent
Frank Tan. The complaints against the respondents Banks were
dismissed. The dispositive portion of the decision reads:

DECISION

On February 22, 1991, the petitioner filed with the Regional Trial Court
of Makati an action for damages against the respondents Citibank,
N.A. and Associated Bank.3 The case was docketed as Civil Case No.
91-538. The complaint materially alleged that, on or about August 25,
1989, the petitioner purchased from the Citibank Managers Check No.
20-015301 (the check for brevity) in the amount of P1,545,000 payable
to respondent Frank Tan; the petitioner later received information that
the aforesaid managers check was deposited with the respondent
Associated Bank, Rosario Branch, to the account of a certain Julius
Dizon under Savings Account No. 19877; the clearing and/or payment
by the respondents of the check to an improper party and the absence
of any indorsement by the payee thereof, respondent Frank Tan, is a

WHEREFORE, judgment is hereby rendered as follows :

1. Ordering defendant Frank Tan to pay plaintiff Michael
Osmea the amount of One Million Five Hundred Forty-Five
Thousand (P1,545,000.00) Pesos, Philippine Currency, with

31
interest thereon at 12% per annum from January 1990, date
of extra-judicial demand until the full amount is paid;
2. Dismissing the complaint against defendants Citibank and
Associated Bank;
3. Dismissing the counter-claims and the cross-claim of
Citibank against Associated Bank for lack of merit.
With costs against defendant Frank Tan.9
The petitioner appealed the decision,10 while respondent Frank Tan did
not. On November 26, 1999, the appellate court rendered judgment
affirming in toto the decision of the trial court. Aggrieved, the petitioner
assailed the decision in his petition at bar.
The petitioner contends that:
I. RESPONDENT COURT ERRED IN NOT HOLDING
CITIBANK AND ASSOCIATED BANK LIABLE TO
PETITIONER FOR THE ENCASHMENT OF CITIBANK
MANAGERS CHECK NO. 20015301 BY JULIUS DIZON.
II. RESPONDENT COURT ERRED IN HOLDING THAT
FRANK TAN AND JULIUS DIZON ARE ONE AND THE
SAME PERSON.
III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON
WAS KNOWN ONLY TO ASSOCIATED BANK AND WAS
NOT BINDING ON PETITIONER.11
The petition is denied.
The petitioner asserts that the check was payable to the order of
respondent Tan. However, the respondent Associated Bank ordered
the check to be deposited to the account of one Julius Dizon, although
the check was not endorsed by respondent Tan. As Julius Dizon was
not a holder of the check in due course, he could not validly negotiate
the check. The latter was not even a transferee in due course because
respondent Tan, the payee, did not endorse the said check. The
position of the respondent Bank is akin to that of a bank accepting a
check for deposit wherein the signature of the payee or endorsee has
been forged.
The contention of the petitioner does not hold water.
The fact of the matter is that the check was endorsed by "Julius Dizon"
and was deposited and credited to Savings Account No. 19877 with
the respondent Associated Bank. But the evidence on record shows
that the said account was in the name of Frank Tan Guan Leng, which
is the Chinese name of the respondent Frank Tan, who also uses the
alias "Julius Dizon." As correctly ruled by the Court of Appeals:
On the other hand, Associated satisfactorily proved that Tan
is using and is also known by his alias of Julius Dizon. He
signed the Agreement On Bills Purchased (Exh. "1")
and Continuing Suretyship Agreement (Exh. "2) both
acknowledged on January 16, 1989, where his full name is
stated to be "FRANK Tan Guan Leng (aka JULIUS DIZON)."
Exh. "1" also refers to his "Account No. SA#19877," the very
same account to which the P1,545,000.00 from the
managers check was deposited. Osmea countered that
such use of an alias is illegal. That is but an irrelevant
casuistry that does not detract from the fact that the payee
Tan as Julius Dizon has encashed and deposited the
P1,545,000.00.12

The respondent Associated Bank presented preponderant evidence to

support its assertion that respondent Tan, the payee of the check, did
receive the proceeds of the check. It adduced evidence that "Julius
Dizon" and "Frank Tan" are one and the same person. Respondent
Tan was a regular and trusted client or depositor of the respondent
Associated Bank in its branch at Rosario, Binondo, Manila. As such,
respondent Tan was allowed to maintain two (2) savings accounts
therein.13 The first is Savings Account No. 20161-3 under his name
"Frank Tan."14 The other is Savings Account No. 19877 under his
assumed Filipino name "Julius Dizon,"15 to which account the check
was deposited in the instant case. Both witnesses for the respondent
Associated Bank, Oscar Luna (signature verifier) and Luz Lagrimas
(new accounts clerk), testified that respondent Tan was using the alias
"Julius Dizon," and that both names referred to one and the same
person, as Frank Tan himself regularly transacted business at the bank
under both names.16 This is also evidenced by the "Agreement on Bills
Purchased"17 and the "Continuing Suretyship Agreement"18 executed
between Frank Tan and the respondent Associated Bank on January
16, 1989. Frank Tans name appears in said document as "FRANK
TAN GUAN LENG (a.k.a. JULIUS DIZON).19 The same documentary
evidence also made reference to Savings Account No. 19877,20 the
very same account to which the check was deposited and the entire
P1,545,000 was credited. Additionally, Citibank Check No.
07571321 which was presented by the petitioner to prove one of the
loans previously extended to respondent Tan showed that the
endorsement of respondent Tan at the dorsal side thereof22 is strikingly
similar to the signatures of "Frank Tan" appearing in said agreements.
By seeking to recover the loan from respondent Tan, the petitioner
admitted that respondent Tan received the amount of the check. This
apprehension was not without any basis at all, for after the petitioner
attempted to communicate with respondent Tan on January or
February 1990, demanding payment for the loan, respondent Tan
became elusive of the petitioner.23 As a matter of fact, respondent Tan
did not file his answer to the amended complaint and was never seen
or heard of by the petitioner.24 Besides, if it were really a fact that
respondent Tan did not receive the proceeds of the check, he could
himself have initiated the instant complaint against respondents Banks,
or in the remotest possibility, joined the petitioner in pursuing the
instant claim.
The petitioner initially sought to recover from the respondents Banks
the amount of P1,545,000 corresponding to the loan obtained by
respondent Tan from him, obviously because respondent Tan had no
intent to pay the amount. The petitioner alleges that the respondents
Banks were negligent in paying the amount to a certain Julius Dizon, in
relation to the pertinent provisions of the Negotiable Instruments Law,
without the proper indorsement of the payee, Frank Tan. The petitioner
cites the ruling of the Court in Associated Bank v. Court of
Appeals,25 in which we outlined the respective responsibilities and
liabilities of a drawee bank, such as the respondent Citibank, and a
collecting bank, such as the defendant Associated Bank, in the event
that payment of a check to a person not designated as the payee, or
who is not a holder in due course, had been made. However, the ruling
of the Court therein does not apply to the present case for, as has
been amply demonstrated, the petitioner failed to establish that the
proceeds of the check was indeed wrongfully paid by the respondents
Banks to a person other than the intended payee. In addition, the
Negotiable Instruments Law was enacted for the purpose of facilitating,
not hindering or hampering transactions in commercial paper. Thus,
the said statute should not be tampered with haphazardly or lightly.
Nor should it be brushed aside in order to meet the necessities in a
single case.26
Moreover, the chain of events following the purported delivery of the
check to respondent Tan renders even more dubious the petitioners
claim that respondent Tan had not received the proceeds of the check.
Thus, the petitioner never bothered to find out from the said
respondent whether the latter received the check from his messenger.
And if it were to be supposed that respondent Tan did not receive the
check, given that his need for the money was urgent, it strains credulity
that respondent Tan never even made an effort to get in touch with the
petitioner to inform the latter that he did not receive the check as

32
agreed upon, and to inquire why the check had not been delivered to
him. The petitioner and respondent Tan saw each other during social
gatherings but they never took the chance to discuss details on the
loan or the check.27 Their actuations are not those to be usually
expected of friends of 15 years who, as the petitioner would want to
impress upon this Court, were transacting business on the basis of
confidence.28 In fact, the first time that the petitioner attempted to
communicate with respondent Tan was on January or February 1990,
almost five or six months after the expected delivery of the check, for
the purpose of demanding payment for the loan. And it was only on
that occasion that respondent Tan, as the petitioner insinuates,
informed him that he (Frank Tan) had not received the proceeds of the
check and refused to pay his loan.29 All told, the petitioners allegation
that respondent Tan did not receive the proceeds of the check30 is
belied by the evidence on record and attendant circumstances.

This is a petition for review under Rule 45 of the Rules of Court

seeking to reverse and set aside the November 26, 2007 Decision [1] of the
Court

of

Appeals,

Cagayan

de

Oro (CA-CDO), in

CA

G.R.

CV

[2]

No.73726, which reversed the August 9, 2001 Decision of the Regional

Trial Court, Branch 23, General Santos City (RTC), in Civil Case No. 6287, in
favor of petitioner Vitarich Corporation (Vitarich).

Conversely, the records would disclose that even the petitioner himself
had misgivings about the truthfulness of his allegation that respondent
Tan did not receive the amount of the check. This is made implicit by
respondent Tans being made a party-defendant to the case when the
petitioner filed his amended complaint. In his memorandum in the case
below, the petitioner averred inter alia that:

THE FACTS:

The amount of P1,545,000.00 is sought to be recovered from:

Respondent Chona Losin (Losin) was in the fastfood and catering
1. Frank Tan for his failure to pay the loan extended by
plaintiff; and

services business named Glamours Chicken House, with address at Parang

Road, Cotabato City. Since 1993, Vitarich, particularly its Davao Branch, had

2. Associated Bank and Citibank for having accepted for

deposit and/or paid the Citibank managers check despite
the absence of any signature/endorsement by the named
payee, Frank Tan.

been her supplier of poultry meat.[3] In 1995, however, her account was
transferred to the newly opened Vitarich branch inGeneral Santos City.

The claim of the petitioner that respondent Tans use of an alias is

illegal does not detract a whit from the fact that respondent Tan had
been credited by the respondent Associated Bank for the amount of
the check. Respondent Tan did not appeal the decision of the RTC.

In the months of July to November 1996, Losins orders of dressed

chicken and other meat products allegedly amounted to P921,083.10. During
this said period, Losins poultry meat needs for her business were serviced by

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The

Decision dated November 26, 1999 of the Court of Appeals in CA-G.R.
CV No. 49529 is hereby AFFIRMED. Costs against the petitioner.

Rodrigo Directo (Directo) and Allan Rosa (Rosa), both salesmen and
authorized collectors of Vitarich, and Arnold Baybay(Baybay), a supervisor of

SO ORDERED.

said corporation. Unfortunately, it was also during the same period that her
Quisumbing, (Acting Chairman), Austria-Martinez, and Tinga,
JJ., concur.
Puno, (Chairman), J., on leave.

account started to experience problems because of the fact that Directo

delivered stocks to her even without prior booking which is the customary
process of doing business with her.[4]

SECOND DIVISION
VITARICH CORPORATION,
Petitioner,

G.R. No. 181560

Present:

- versus -

On August 24, 1996, Directos services were terminated by

CARPIO J., Chairperson,
Vitarich without Losins knowledge. He left without turning over some
NACHURA,
PERALTA,
ABAD, supporting invoices covering the orders of Losin. Rosa and Baybay, on the
MENDOZA, JJ.
other hand, resigned on November 30, 1996 and December 30, 1996,

CHONA LOSIN,
Respondent.
x ----------------------------------------------------------------------------------------x
DECISION
MENDOZA, J.:

respectively. Just like Directo, they did not also turn over pertinent invoices
Promulgated:
November 15, 2010
covering Losins account.[5]

33
On February 12, 1997, demand letters were sent to Losin covering
her alleged unpaid account amounting to P921,083.10. Because of said

Not satisfied with the RTC decision, Losin appealed to the CA

presenting the following:

demands, she checked her records and discovered that she had an
overpayment to Vitarich in the amount of P500,000.00. She relayed this fact
to Vitarich and further informed the latter that checks were issued and the
ASSIGNMENT

same were collected by Directo.[6]

OF

ERRORS:
It appears that Losin had issued three (3) checks amounting
to P288,463.30 which were dishonored either for reasons - Drawn Against

I.

THE LOWER COURT ERRED IN NOT

APPRECIATING THE OVERPAYMENT
MADE BY DEFENDANT-APPELLANT TO
VITARICH CORPORATION;

II.

THE LOWER
COURT ERRED
IN
ORDERING THE PAYMENT OF THE
THREE (3) CHECKS WITH STOP
PAYMENT ORDERS AND WITHOUT
ANY ANTECEDENT DOCUMENTARY
EVIDENCES FOR THE TWO (2) CHECKS,
NAMELY: RCBC CHECK NO. CX 046324
AND RCBC CHECK NO. CX 046327 ; AND

Insufficient Funds (DAIF) or Stop Payment.[7]

On March 2, 1998, Vitarich filed a complaint for Sum of Money

against Losin, Directo, Rosa, and Baybay before the RTC.

On August 9, 2001, the RTC rendered its Decision [8] in favor of

Vitarich, the dispositive portion of which reads:
WHEREFORE, judgment is hereby
rendered in favor of plaintiff, ordering defendant
Chona Losin to pay plaintiff the following:
1.

2.

P297,462.50 representing
the three checks which
had
been
stopped
payment with interest at
12% per annum from the
date of this Decision until
the whole amount is fully
paid;
P101,450.20 representing
the unpaid sales (Exhibits
L and M) with interest
at 12% from date of this
Decision until the whole
amount is fully paid;

3.

P20,000.00 in concept of
attorneys fees; and

4.

The cost of suit.

As to the complaint against defendant

Allan Rosa and Arnold Baybay, the same is
dismissed. The complaint against Rodrigo Directo
still remains and is hereby ordered archived until
he could be served with summons.
SO ORDERED.[9]

III. THE LOWER COURT ERRED IN NOT

FINDING VITARICH CORPORATION
NEGLIGENT IN THE SELECTION OF ITS
EMPLOYEES AND NEITHER FINDING
THE CORPORATION LIABLE FOR
DAMAGES A CLEAR VIOLATION OF
ARTICLE 2180 OF THE CIVIL CODE.[10]

On November 26, 2007, the CA rendered the assailed decision in

favor of Losin. Pertinently, the said decision reads:
It is axiomatic that we should not interfere
with the judgment of the trial court in determining
the credibility of witnesses, unless there appears in
the record some fact or circumstances of weight
and influence which has been overlooked or the
significance
of
which
has
been
misinterpreted. The reason is that the trial court is
in a better position to determine questions
involving credibility having heard the witnesses
and having observed their deportment and
manner of testifying during the trial unless there is
showing that the findings of the lower court are
totally devoid of support or glaringly erroneous as
to constitute palpable error or grave abuse of
discretion. This is such an instance.
By the contract of agency, a person binds
himself to render some service or to do something
in representation or on behalf of another, with the
consent or authority of the latter. Thus, the
elements of agency are (i) consent, express or
implied, of the parties to establish the
relationship; (ii) the object is the execution of a
juridical act in relation to a third person; (iii) the
agent acts as a representative and not for himself;

34
and (iv) the agent acts within the scope of his
authority.
The Civil Code defines a contract of agency
as follows:
Art. 1868. By the
contract of agency, a person
binds himself to render some
service or to do something in
representation or on behalf of
another, with the consent or
authority of the latter.
As far as Losin is concerned, Directo was
a
duly
authorized
agent
of
Vitarich
Corporation. As such, it fell upon Directo to place
her orders of dressed chicken and other related
products to their General Santos City branch. All
such orders were taken from the Vitarich bodega
by Directo as testified by Alona Calinawan, then
bookkeeper of Vitarich from March 1995 to
September 1998, who was responsible for all the
customers accounts, receivables and withdrawals
of dressed chicken from their bodega.
A perusal of the records would show that
Vitarich included in their list of collectibles from
Losin several amounts that were not supported by
their
Charge
Sales
Invoices
such
as P44,987.70, P3,300.00; P28,855.40; P98,166.2
0; P73,806.00; and P93,888.80 and which form
part
of
their
total
claim
of P912,083.10. Furthermore,
Vitarich
also
submitted Charge Sales Invoices showing the
amount of P70,000.00, P41,792.40, P104,137.40
and P158,522.80 as part of their exhibits but
which amounts are not included in its summary
statement of collectibles against Losin.
It is noted that the dressed chicken and
other related products as manifested by the Charge
Sales Invoices, were taken out of the bodega and
received by Directo, who is now at large. There
was no evidence presented by Vitarich to prove
that aforesaid stocks were delivered to
Losin. Contrary to what Vitarich claimed that
Directo resigned onAugust 24, 1996, exhibit X
shows that he was terminated. The fact can not
be put aside that Directo was the salesman and
authorized collector and by law, the agent of
Vitarich. Criminal acts committed by Directo by
his non-remittance of the proceeds of the checks
given by Losin, is his separate accountability with
Vitarich and should not be imputed to their client,
Losin. In fact, defendant Directo absconded when
plaintiff-appellee started to question his
collectibles. The totality of Directos acts clearly
indicated a deliberate attempt to escape liability.
The Civil Code provides:
Art. 1921. If the
agency has been entrusted for
the purpose of contracting
with specified persons, its
revocation shall not prejudice
the latter if they were not given
notice thereof.

Art. 1922. If the

agent had general powers,
revocation of the agency does
not prejudice third persons
who acted in good faith and
without knowledge of the
revocation. Notice of the
revocation in a newspaper of
general circulation is a
sufficient warning to third
persons. (Emphasis Ours)
The reason for the law is obvious. Since
the third persons have been made to believe by the
principal that the agent is authorized to deal with
them, they have the right to presume that the
representation continues to exist in the absence of
notification by the principal.
Nowhere in the records can it be found
that Losin was notified of the fact that Directo was
no longer representing the interest of Vitarich and
that the latter has terminated Directos
services. There is also an absence of any proof to
show that Directos termination has been
published in a newspaper of general circulation.
It is well settled that a question of fact is
to be determined by the evidence offered to
support the particular contention. In defendantappellants Statement of Payments Made to
Vitarich, prepared and signed by Losins
bookkeeper, Imelda S. Cinco, all the checks
enumerated therein coincides with the bank
statements
submitted
by
RCBC,
thus
corroborating Losins claim that she has paid
Vitarich. Vitarichs contention that defendant
Baybay tried very hard to hide his accountabilities
to the plaintiff x x x but failed to explain why the
account remained unpaid, confirms its belief that
their own agents as such, are accountable for
transactions made with third persons. As a Sales
Supervisor, he is principally liable for the behavior
of his subordinates (Directo & Rosa) and for the
enforcement of company rules which may have
gone beyond their authority to do such acts.
Anent the third assigned error that the
lower court erred in not finding Vitarich negligent
in the selection of its employees thereby making
the former liable for damages under Article 2180
of the Civil Code, We find the same to be without
basis as said article explicitly holds that:
ART.
2180. The
obligation imposed by Article
2176 is demandable not only
for ones own acts or
omissions, but also for those
of persons for whom one is
responsible.
Xxx

xxx

Xxx

xxx

xxx

Xxx

xxx

xxx

xxx

35
and the burden of proof in civil cases, as explained
by the Supreme Court inJison v. Court of Appeals:

Employers shall be
liable for the damages caused
by
their
employees and
household
helpers acting
within the scope of their
assigned tasks, even though
the former are not engaged in
any business or industry.
Xxx

xxx

xxx.

Pursuant to Article 2180 of the Civil

Code, that vicarious liability attaches only to an
employer when the tortuous conduct of the
employee relates to, or is in the course of, his
employment. The question to ask should be
whether at the time of the damage or injury, the
employee is engaged in the affairs or concerns of
the employer or, independently, in that of his
own? Vitarich incurred no liability when Directos
conduct, act or omission went beyond the range of
his employment.
Section 1, Rule 133 of the Rules of Court
provides:
SECTION
1.
Preponderance
of
evidence, how determined. In civil cases, the party
having the burden of proof
must establish his case by a
preponderance
of
evidence. In
determining
where the preponderance or
superior weight of evidence on
the issues involved lies, the
court may consider all the
facts and circumstances of the
case, the witnesses manner of
testifying, their intelligence,
their means and opportunity
of knowing the facts to which
they are testifying, the nature
of the facts to which they
testify, the probability or
improbability
of
their
testimony, their interest or
want of interest, and also their
personal credibility so far as
the same may legitimately
appear upon the trial. The
court may also consider the
number of witnesses, though
the preponderance is not
necessarily with the greater
number.

Hence, Vitarich who has the burden of

proof must produce such quantum of evidence,
with the former having to rely on the strength of
its own evidence and not on the weakness of the
defendant-appellant Losins.
In this light, we have meticulously
perused the records of this case and [found] that
the court a quo had erred in appreciating the
evidence presented.
In deciding this appeal, the Court relies
on the rule that a party who has the burden of
proof in a civil case must establish his cause of
action by a preponderance of evidence. When the
evidence of the parties is in equipoise, or when
there is a doubt as to where the preponderance of
evidence lies, the party with the burden of proof
fails and the petition/complaint must thus be
denied. We find that plaintiff-appellee Vitarich
failed to prove that the goods were ever delivered
and received by Losin, said charge sales invoices
being undated and unsigned by Losin being the
consignee of the goods.

Preponderance of evidence is the weight,

credit, and value of the aggregate evidence on
either side and is usually considered to be
synonymous with the term greater weight of the
evidence or greater weight of the credible
evidence. It is evidence which is more convincing
to the court as worthy of belief than that which is
offered in opposition thereto.
xxx

xxx

xxx Simply put, he

who alleges the affirmative of
the issue has the burden of
proof, and upon the plaintiff
in a civil case, the burden of
proof never parts. However, in
the course of trial in a civil
case, once plaintiff makes out
a prima facie case in his
favour, the duty or the burden
of evidence shifts to defendant
to controvert plaintiffs prima
facie case, otherwise, a verdict
must be returned in favour of
plaintiff. Moreover, in civil
cases, the party having the
burden of proof must produce
a preponderance of evidence
thereon, with plaintiff having
to rely on the strength of his
own evidence and not upon
the
weakness
of
the
defendants. The concept of
preponderance of evidence
refers to evidence which is of
greater weight, or more
convincing, that which is
offered in opposition to it; at
bottom, it means probability
of truth.

xxx

We reviewed the factual and legal issues of

this case in light of the general rules of evidence

On the other hand, Losin could not also

prove that she has overpaid Vitarich. Hence, her
contention that she has overpaid Vitarich and her
prayer for refund of the alleged overpaid amount,
must necessarily fail.

ACCORDINGLY, the instant appeal is

hereby GRANTED and the appealed judgment is
hereby SET
ASIDE and VACATED.
No
pronouncement as to cost.

36
boil down to whether or not Losin is liable to Vitarich and, if so, to what
SO ORDERED.[11]

extent.

Hence, this petition for review alleging that--The Court resolves the issues partly in favor of Vitarich.
AS THE FINDINGS OF FACTS OF THE
COURT OF APPEALS SQUARELY CONTRADICTS
THAT OF THE TRIAL COURT, PETITIONER
HUMBLY REQUESTS THE SUPREME COURT TO
INQUIRE INTO THE ERRONEOUS CONCLUSIONS
OF FACTS MADE BY THE COURT OF APPEALS.[12]

Initially, Vitarich claims a total of P921,083.10 from respondent

Losin, Directo, Rosa and Baybay (defendants in Civil Case No. 6287 for Sum
of Money). According to Vitarich, [t]he successive and sudden resignations

As a general rule, a petition for review under Rule 45 of the Rules

of Court covers questions of law only. Questions of fact are not
reviewable and passed upon by this Court in its exercise of judicial
review. The distinction between questions of law and questions of fact has

of defendants Directo, Baybay and Rosa and the sudden change of mind of
defendant Losin after previously acknowledging her accounts are part of an
elaborate and sinister scheme of defendants, acting singly or collectively, in
conspiracy or not, in defrauding plaintiff corporation xxx.[15]

been well defined. A question of law exists when the doubt or difference
centers on what the law is on a certain state of facts. A question of fact, on
The RTC ruled in favor of Vitarich, ordering Losin to pay the
the other hand, exists if the doubt centers on the truth or falsity of the alleged
following: (1) P297,462.50 representing the three (3) checks, the payment for
facts.[13]
which was stopped, with corresponding interest at 12% per annum from the
The rule, however, admits of exceptions, namely: (1) when the

date of the RTC decision until fully paid; (2) P101,450.20 for the unpaid sales

(2)

also with interest at 12% per annum from the date of the RTC decision until

when the inference made is manifestly mistaken, absurd, or impossible; (3)

fully paid; (3) P20,000.00 for attorneys fees; and (4) cost of suit.[16] It appears

when there is a grave abuse of discretion; (4) when the judgment is based on

that Vitarich did not challenge this part of the RTC decision anymore.[17]

findings are grounded entirely on speculations, surmises, or conjectures;

misappreciation of facts; (5) when the findings of fact are conflicting; (6)
when in making its findings, the same are contrary to the admissions of both
After Losin obtained a favorable RTC decision, Vitarich now seeks
appellant and appellee; (7) when the findings are contrary to those of the
trial court; (8) when the findings are conclusions without citation of specific

relief from this Court through this petition for review.

evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioners main and reply briefs are not disputed by the

After an assessment of the evidentiary records, the Court opines

respondent; and (10) when the findings of fact are premised on the supposed

and so holds that the CA erred in reversing the RTC decision. Losin is clearly

absence of evidence and contradicted by the evidence on

record.[14]

The aforementioned exceptions, particularly the seventh exception,

liable to Vitarich.

Records

bear

out

that

Losin

transacted

with

Vitarichs

finds relevance in the case at bench since the findings of the CA are clearly in
representative

Directo.[18] Vitarich

presented

several

charge

sales

conflict with that of the trial court. For this reason, the Court is constrained to
reevaluate the evidence adduced by both parties to resolve the issues which

invoices[19] and statement of account[20] to support Losins accountability for

the products delivered to her. A total of P921,083.10 was initially charged to

37
Article 1249, paragraph 2 of the Civil Code provides:

her. Losin, on the other hand, presented a copy of the list of checks allegedly
issued to Vitarich through its agent Directo,[21] and a Statement of Payments

The delivery of promissory notes

payable to order, or bills of exchange or other
mercantile documents shall produce the effect of
payment only when they have been cashed, or when
through the fault of the creditor they have been
impaired. [Emphasis supplied]

Made to Vitarich[22] to support her allegation of payment.

It is worth noting that both Vitarich and Losin failed to make a

proper recording and documentation of their transactions making it difficult to

In the case at bar, no cash payment was proved. It was neither

reconcile the evidence presented by the parties to establish their respective

confirmed that the checks issued by Losin were actually encashed by Vitarich.
Thus, the Court cannot consider that payment, much less overpayment, made

claims.

by Losin.

As a general rule, one who pleads payment has the burden of

Now, the Court ascertains the extent of Losins liability. A

proving it. In Jimenez v. NLRC,[23] the Court ruled that the burden rests on the

perusal of the records shows that Vitarich included in its list of

debtor to prove payment, rather than on the creditor to prove non-payment.

collectibles,[29] several amounts that were not properly supported by Charge

The debtor has the burden of showing with legal certainty that the obligation

Sales

has been discharged by payment.

wit, (1) P44,987.70; (2) P3,300.00; (3) P28,855.40; (4) P98,166.20; (5) P73,8

Invoice,

to

06.00; and (6) P93,888.80.[30] It bears noting that the Charge Sales Invoices
presented for the amounts listed as collectibles were undated and unsigned by
True, the law requires in civil cases that the party who alleges a
Losin, the supposed consignee of the goods (except Exh. L). Of the six
fact has the burden of proving it. Section 1, Rule 131 of the Rules of
Court[24] provides that the burden of proof is the duty of a party to prove the

amounts, the Court particularly considered the P93,888.80 as it was the

amount of one of the checks issued by Losin. Indeed, the Court cannot

truth of his claim or defense, or any fact in issue by the amount of evidence
disregard the fact that Losin issued a corresponding check for the following
required by law. In this case, however, the burden of proof is on Losin
amounts: (1) P93,888.96 (dated August

27,

because she alleges an affirmative defense, namely, payment. Losin failed to

1996);[31] (2) P50,265.00 (dated August

30,

discharge that burden.

1996);

[32]

and (3) P144,309.50 (datedAugust 31, 1996).

[33]

The Court believes

that Losin would not have issued those checks had she not received the goods
After examination of the evidence presented, this Court is of the
opinion that Losin failed to present a single official receipt to prove
payment.[25] This is contrary to the well-settled rule that a receipt, which is a
written and signed acknowledgment that money and goods have been
delivered, is the best evidence of the fact of payment although not
exclusive.[26] All she presented were copies of the list of checks allegedly
issued to Vitarich through its agent Directo,[27] a Statement of Payments Made
to Vitarich,[28] and apparently copies of the pertinent history of her checking

so delivered to her. The first two (2) checks were apparently received by the
Vitarich but were not encashed because of Losins instruction to
RCBC. Thus, Losin is liable to Vitarich but not for the total amount of the
three (3) mentioned checks but only for the amount of P93,888.96
and P50,265.00 corresponding to the first two (2) checks. Losin cannot be
held liable for the amount of the third checkP144,309.50 because Vitarich did
not claim for this amount. The amount of P144,309.50 for some reason, was
not among those listed in the list of collectibles of Vitarich.[34]

account with Rizal Commercial Banking Corporation (RCBC). At best, these

may only serve as documentary records of her business dealings with Vitarich
to keep track of the payments made but these are not enough to prove
payment.

Aside from the earlier mentioned liabilitiesthe Court also holds Losin
liable for the amount of P78,281.00 which was also among those listed as
collectible by Vitarich. Although the Charge Sales Invoice[35] bearing this

38
amount was undated, it nevertheless, appears that the goods corresponding to

WHEREFORE, the November 26, 2007 Decision of the Court of

this amount were actually received by Losins mother. This was even testified

Appeals is REVERSED and SET ASIDE. The August 9, 2001 Decision of

to by Rosa

[36]

and confirmed by Losin herself.

[37]

With the exception of the

the

Regional

Trial

Court

amounts corresponding to the two (2) checks discussed above and the amount

is REINSTATED subject

of P18,281.00 as appearing in Exh. L, the other amounts appearing on the rest

portion should read as follows:

of

General

Santos

City,

to MODIFICATIONS. Thus,

Branch

the dispositive

of the Charge Sales Invoice and on the Statement of Account presented by

Vitarich cannot be charged on Losin for failure of Vitarich to prove that these
amounts are chargeable to her. Vitarich even failed to prove that the rest of the
goods as appearing on the other Charge Sales Invoices were actually delivered
and received by her or her representative since these Charge Sales Invoices
were undated and unsigned. Thus, Losin is liable to pay Vitarich the amounts
of P93,888.96, P50,265.00 and P78,281.00 or a total of P222,434.96 only.

WHEREFORE,

judgment

is

hereby

rendered ordering Chona Losin to pay Vitarich

Corporation the following:

Inasmuch as the case at bar involves an obligation not arising from a

loan or forbearance of money, but consists in the payment of a sum of money,
the legal rate of interest is 6% per annum of the amount demanded.[38] Interest
shall continue to run from February 12, 1997, the date when Vitarich
demanded payment of the sum amounting toP921,083.10 from Losin (and not
from the time of the filing of the Complaint) until finality of the Decision (not
until fully paid). The rate of interest shall increase to 12% per annum only
from such finality until its satisfaction, the interim period being deemed to be
equivalent to a forbearance of credit.[39]

Regarding the grant of attorneys fees, the Court agrees with the RTC
that said award is justified. Losin refused to pay Vitarich despite the latters

(1) P222,434.96 representing the two

checks, with Check Nos. CX
046324 dated August 27, 1996
and CX 046325 dated August
30, 1996 which had been
stopped payment and the
amount as appearing in Charge
Sales Invoice marked as
Exhibit L subject to an
interest rate of 6% per
annum from February 12,
1997, the date when Vitarich
demanded payment of the sum
amounting
to P921,083.10
from Losin until finality of the
Decision. The rate of interest
shall increase to 12% per
annum only from such finality
until its satisfaction, the
interim period being deemed to
be equivalent to a forbearance
of credit;

repeated demands. It was left with no recourse but to litigate and protect its
(2)

P10,000.00
representing
attorneys fees; and

(3)

Cost of suit.

interest. We, however, opt to reduce the same to P10,000.00 from P20,000.00.

The claims against Rosa and Baybay who allegedly did not fully
account for their sales transactions have not been substantially proven by
evidence. In fact, it appears thatRosa and Baybay resigned. Resignation would

The complaint against Allan Rosa and

not have been possible unless accountabilities with Vitarich had been settled

Arnold Baybay is dismissed. The complaint against

first. It was only the services of Directo that was apparently terminated by

Rodrigo Directo is ordered archived until he could be

Vitarich.

[40]

Summons, however, was not served on him, so he could not be

served with summons.

made to account for the shortages of collection.

SO ORDERED.

23,