[G.R. No. 112392.
February 29, 2000] In reply, private respondent wrote petitioners counsel on April 20, 1985[13] stating
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and
BENJAMIN C. NAPIZA, respondents.
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in
CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial Court of Makati,
Branch 139,[2] which dismissed the complaint filed by petitioner Bank of the Philippine
Islands against private respondent Benjamin C. Napiza for sum of money. Sdaad
On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit
(FCDU) Savings Account No. 028-187[3] which he maintained in petitioner banks
Buendia Avenue Extension Branch, Continental Bank Managers Check No. 00014757[4]
dated August 17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred
Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side.[5] It
appears that the check belonged to a certain Henry Chan who went to the office of
private respondent and requested him to deposit the check in his dollar account by
way of accommodation and for the purpose of clearing the same. Private respondent
acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the
understanding that as soon as the check is cleared, both of them would go to the bank
to withdraw the amount of the check upon private respondents presentation to the
bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on October 23,
1984, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU
Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was
payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by
the branch assistant manager, Teresita Lindo.[6]
On November 20, 1984, petitioner received communication from the Wells Fargo Bank
International of New York that the said check deposited by private respondent was a
counterfeit check[7] because it was "not of the type or style of checks issued by
Continental Bank International."[8] Consequently, Mr. Ariel Reyes, the manager of
petitioners Buendia Avenue Extension Branch, instructed one of its employees,
Benjamin D. Napiza IV, who is private respondents son, to inform his father that the
check bounced.[9] Reyes himself sent a telegram to private respondent regarding the
dishonor of the check. In turn, private respondents son wrote to Reyes stating that the
check had been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C.
de Guzman after it shall have been cleared upon instruction of Chan. He also said that
upon learning of the dishonor of the check, his father immediately tried to contact
Chan but the latter was out of town.[10]
Private respondents son undertook to return the amount of $2,500.00 to petitioner
bank. On December 18, 1984, Reyes reminded private respondent of his sons promise
and warned that should he fail to return that amount within seven (7) days, the matter
would be referred to the banks lawyers for appropriate action to protect the banks
interest.[11] This was followed by a letter of the banks lawyer dated April 8, 1985
demanding the return of the $2,500.00.[12]
that he deposited the check "for clearing purposes" only to accommodate Chan. He
added:
"Further, please take notice that said check was deposited on September 3, 1984 and
withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed at the
time of withdrawal. Also, it may not be amiss to mention here that I merely signed an
authority to withdraw said deposit subject to its clearing, the reason why the
transaction is not reflected in the passbook of the account. Besides, I did not receive its
proceeds as may be gleaned from the withdrawal slip under the captioned signature of
recipient.
If at all, my obligation on the transaction is moral in nature, which (sic) I have been and
is (sic) still exerting utmost and maximum efforts to collect from Mr. Henry Chan who is
directly liable under the circumstances. Scsdaad
xxx......xxx......xxx."
On August 12, 1986, petitioner filed a complaint against private respondent, praying
for the return of the amount of $2,500.00 or the prevailing peso equivalent plus legal
interest from date of demand to date of full payment, a sum equivalent to 20% of the
total amount due as attorney's fees, and litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank"
withdrawal slip with the understanding that the amount deposited would be withdrawn
only after the check in question has been cleared. He likewise alleged that he
instructed the party to whom he issued the signed blank withdrawal slip to return it to
him after the bank drafts clearance so that he could lend that party his passbook for
the purpose of withdrawing the amount of $2,500.00. However, without his knowledge,
said party was able to withdraw the amount of $2,541.67 from his dollar savings
account through collusion with one of petitioners employees. Private respondent added
that he had "given the Plaintiff fifty one (51) days with which to clear the bank draft in
question." Petitioner should have disallowed the withdrawal because his passbook was
not presented. He claimed that petitioner had no one to blame except itself "for being
grossly negligent;" in fact, it had allegedly admitted having paid the amount in the
check "by mistake" x x x "if not altogether due to collusion and/or bad faith on the part
of (its) employees." Charging petitioner with "apparent ignorance of routine bank
procedures," by way of counterclaim, private respondent prayed for moral damages of
P100,000.00, exemplary damages of P50,000.00 and attorneys fees of 30% of
whatever amount that would be awarded to him plus an honorarium of P500.00 per
appearance in court.
Private respondent also filed a motion for admission of a third party complaint against
Chan. He alleged that "thru strategem and/or manipulation," Chan was able to
withdraw the amount of $2,500.00 even without private respondents passbook. Thus,
private respondent prayed that third party defendant Chan be made to refund to him
the amount withdrawn and to pay attorneys fees of P5,000.00 plus P300.00
honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the third party
complaint, wherein it asserted that per paragraph 2 of the Rules and Regulations
1 | Page
governing BPI savings accounts, private respondent alone was liable "for the value of
the credit given on account of the draft or check deposited." It contended that private
respondent was estopped from disclaiming liability because he himself authorized the
withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for the
denial of the said motion so as not to unduly delay the disposition of the main case
asserting that private respondents claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to avoid
multiplicity of suits, the motion to admit third party complaint should be granted.
Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987
directing private respondent to actively participate in locating Chan. After private
respondent failed to comply, the trial court, on May 18, 1988, dismissed the third party
complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint. The lower
court held that petitioner could not hold private respondent liable based on the checks
face value alone. To so hold him liable "would render inutile the requirement of
clearance from the drawee bank before the value of a particular foreign check or draft
can be credited to the account of a depositor making such deposit." The lower court
further held that "it was incumbent upon the petitioner to credit the value of the check
in question to the account of the private respondent only upon receipt of the notice of
final payment and should not have authorized the withdrawal from the latters account
of the value or proceeds of the check." Having admitted that it committed a "mistake"
in not waiting for the clearance of the check before authorizing the withdrawal of its
value or proceeds, petitioner should suffer the resultant loss. Supremax
On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court
held that petitioner committed "clear gross negligence" in allowing Ruben Gayon, Jr. to
withdraw the money without presenting private respondents passbook and, before the
check was cleared and in crediting the amount indicated therein in private respondents
account. It stressed that the mere deposit of a check in private respondents account
did not mean that the check was already private respondents property. The check still
had to be cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the banks rules and regulations. Furthermore, petitioners
contention that private respondent warranted the checks genuineness by endorsing it
is untenable for it would render useless the clearance requirement. Likewise, the
requirement of presentation of a passbook to ascertain the propriety of the accounting
reflected would be a meaningless exercise. After all, these requirements are designed
to protect the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,
[14] where this Court stated that a personal check is not legal tender or money, and
held that the check deposited in this case must be cleared before its value could be
properly transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals Decision,
petitioner filed this petition for review on certiorari, raising the following issues:
1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A
GENERAL INDORSER.
2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN
RESPONDENT NAPIZA AND RUBEN GAYON.
3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE
WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the dorsal
side of the check, should be liable for the amount stated therein in accordance with the
following provision of the Negotiable Instruments Law (Act No. 2031):
"SEC. 66. Liability of general indorser. Every indorser who indorses without
qualification, warrants to all subsequent holders in due course
(a)......The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
(b)......That the instrument is at the time of his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or
both, as the case may be, according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder, or to any subsequent indorser who may be compelled to pay it."
Section 65, on the other hand, provides for the following warranties of a person
negotiating an instrument by delivery or by qualified indorsement: (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has a good
title to it, and (c) that all prior parties had capacity to contract.[15] In People v.
Maniego,[16] this Court described the liabilities of an indorser as follows: Juris
"Appellants contention that as mere indorser, she may not be liable on account of the
dishonor of the checks indorsed by her, is likewise untenable. Under the law, the
holder or last indorsee of a negotiable instrument has the right to enforce payment of
the instrument for the full amount thereof against all parties liable thereon. Among the
parties liable thereon is an indorser of the instrument, i.e., a person placing his
signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless
he clearly indicated by appropriate words his intention to be bound in some other
capacity. Such an indorser who indorses without qualification, inter alia engages that
on due presentment, * * (the instrument) shall be accepted or paid, or both, as the
case may be, according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or
any subsequent indorser who may be compelled to pay it. Maniego may also be
deemed an accommodation party in the light of the facts, i.e., a person who has signed
the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. As such, she is
under the law liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew * * (her) to be only an
accommodation party, although she has the right, after paying the holder, to obtain
reimbursement from the party accommodated, since the relation between them is in
effect that of principal and surety, the accommodation party being the surety."
2 | Page
It is thus clear that ordinarily private respondent may be held liable as an indorser of
the check or even as an accommodation party.[17] However, to hold private
respondent liable for the amount of the check he deposited by the strict application of
the law and without considering the attending circumstances in the case would result
in an injustice and in the erosion of the public trust in the banking system. The interest
of justice thus demands looking into the events that led to the encashment of the
check.
Petitioner asserts that by signing the withdrawal slip, private respondent "presented
the opportunity for the withdrawal of the amount in question." Petitioner relied "on the
genuine signature on the withdrawal slip, the personality of private respondents son
and the lapse of more than fifty (50) days from date of deposit of the Continental Bank
draft, without the same being returned yet."[18] We hold, however, that the propriety
of the withdrawal should be gauged by compliance with the rules thereon that both
petitioner bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following rules on
withdrawal of deposits appear:
"4.......Withdrawals must be made by the depositor personally but in some exceptional
circumstances, the Bank may allow withdrawal by another upon the depositors written
authority duly authenticated; and neither a deposit nor a withdrawal will be permitted
except upon the presentation of the depositors savings passbook, in which the amount
deposited withdrawn shall be entered only by the Bank.
5.......Withdrawals may be made by draft, mail or telegraphic transfer in currency of the
account at the request of the depositor in writing on the withdrawal slip or by
authenticated cable. Such request must indicate the name of the payee/s, amount and
the place where the funds are to be paid. Any stamp, transmission and other charges
related to such withdrawals shall be for the account of the depositor and shall be paid
by him/her upon demand. Withdrawals may also be made in the form of travellers
checks and in pesos. Withdrawals in the form of notes/bills are allowed subject
however, to their (availability).
6.......Deposits shall not be subject to withdrawal by check, and may be withdrawn only
in the manner above provided, upon presentation of the depositors savings passbook
and with the withdrawal form supplied by the Bank at the counter."[19] Scjuris
Under these rules, to be able to withdraw from the savings account deposit under the
Philippine foreign currency deposit system, two requisites must be presented to
petitioner bank by the person withdrawing an amount: (a) a duly filled-up withdrawal
slip, and (b) the depositors passbook. Private respondent admits that he signed a blank
withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request for
withdrawal must name the payee, the amount to be withdrawn and the place where
such withdrawal should be made. That the withdrawal slip was in fact a blank one with
only private respondents two signatures affixed on the proper spaces is buttressed by
petitioners allegation in the instant petition that had private respondent indicated
therein the person authorized to receive the money, then Ruben Gayon, Jr. could not
have withdrawn any amount. Petitioner contends that "(i)n failing to do so (i.e., naming
his authorized agent), he practically authorized any possessor thereof to write any
amount and to collect the same."[20]
Such contention would have been valid if not for the fact that the withdrawal slip itself
indicates a special instruction that the amount is payable to "Ramon A. de Guzman
&/or Agnes C. de Guzman." Such being the case, petitioners personnel should have
been duly warned that Gayon, who was also employed in petitioners Buendia Ave.
Extension branch,[21] was not the proper payee of the proceeds of the check.
Otherwise, either Ramon or Agnes de Guzman should have issued another authority to
Gayon for such withdrawal. Of course, at the dorsal side of the withdrawal slip is an
"authority to withdraw" naming Gayon the person who can withdraw the amount
indicated in the check. Private respondent does not deny having signed such authority.
However, considering petitioners clear admission that the withdrawal slip was a blank
one except for private respondents signature, the unavoidable conclusion is that the
typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was
signed by Gayon or whoever was allowed by petitioner to withdraw the amount. Under
these facts, there could not have been a principal-agent relationship between private
respondent and Gayon so as to render the former liable for the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must
be signed and presented with the corresponding foreign currency savings passbook by
the depositor in person. For withdrawals thru a representative, depositor should
accomplish the authority at the back." The requirement of presentation of the
passbook when withdrawing an amount cannot be given mere lip service even though
the person making the withdrawal is authorized by the depositor to do so. This is clear
from Rule No. 6 set out by petitioner so that, for the protection of the banks interest
and as a reminder to the depositor, the withdrawal shall be entered in the depositors
passbook. The fact that private respondents passbook was not presented during the
withdrawal is evidenced by the entries therein showing that the last transaction that
he made with the bank was on September 3, 1984, the date he deposited the
controversial check in the amount of $2,500.00.[22]
In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in
the passbook. Thus:
"2.......All deposits will be received as current funds and will be repaid in the same
manner; provided, however, that deposits of drafts, checks, money orders, etc. will be
accepted as subject to collection only and credited to the account only upon receipt of
the notice of final payment. Collection charges by the Banks foreign correspondent in
effecting such collection shall be for the account of the depositor. If the account has
sufficient balance, the collection shall be debited by the Bank against the account. If,
for any reason, the proceeds of the deposited checks, drafts, money orders, etc.,
cannot be collected or if the Bank is required to return such proceeds, the provisional
entry therefor made by the Bank in the savings passbook and its records shall be
deemed automatically cancelled regardless of the time that has elapsed, and whether
or not the defective items can be returned to the depositor; and the Bank is hereby
authorized to execute immediately the necessary corrections, amendments or changes
in its record, as well as on the savings passbook at the first opportunity to reflect such
cancellation." (Italics and underlining supplied.) Jurissc
As correctly held by the Court of Appeals, in depositing the check in his name, private
respondent did not become the outright owner of the amount stated therein. Under the
above rule, by depositing the check with petitioner, private respondent was, in a way,
3 | Page
merely designating petitioner as the collecting bank. This is in consonance with the
rule that a negotiable instrument, such as a check, whether a managers check or
ordinary check, is not legal tender.[23] As such, after receiving the deposit, under its
own rules, petitioner shall credit the amount in private respondents account or infuse
value thereon only after the drawee bank shall have paid the amount of the check or
the check has been cleared for deposit. Again, this is in accordance with ordinary
banking practices and with this Courts pronouncement that "the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check
for payment to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements."[24] The rule finds
more meaning in this case where the check involved is drawn on a foreign bank and
therefore collection is more difficult than when the drawee bank is a local one even
though the check in question is a managers check.[25] Misjuris
In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a commercial bank in
Madrid, Spain, paid the amounts represented in three (3) checks to Virginia Boncan,
the finance officer of the Philippine Embassy in Madrid. The bank did so without
previously clearing the checks with the drawee bank, the Philippine National Bank in
New York, on account of the "special treatment" that Boncan received from the
personnel of Banco Atlanticos foreign department. The Court held that the encashment
of the checks without prior clearance is "contrary to normal or ordinary banking
practice specially so where the drawee bank is a foreign bank and the amounts
involved were large." Accordingly, the Court approved the Auditor Generals denial of
Banco Atlanticos claim for payment of the value of the checks that was withdrawn by
Boncan.
Said ruling brings to light the fact that the banking business is affected with public
interest. By the nature of its functions, a bank is under obligation to treat the accounts
of its depositors "with meticulous care, always having in mind the fiduciary nature of
their relationship."[27] As such, in dealing with its depositors, a bank should exercise
its functions not only with the diligence of a good father of a family but it should do so
with the highest degree of care.[28]
In the case at bar, petitioner, in allowing the withdrawal of private respondents
deposit, failed to exercise the diligence of a good father of a family. In total disregard of
its own rules, petitioners personnel negligently handled private respondents account to
petitioners detriment. As this Court once said on this matter:
"Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the
doing of something which a prudent and reasonable man would do. The seventy-eight
(78)-year-old, yet still relevant, case of Picart v. Smith, provides the test by which to
determine the existence of negligence in a particular case which may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care
and caution which an ordinarily prudent person would have used in the same situation?
If not, then he is guilty of negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of the discreet pater-familias of the
Roman law. The existence of negligence in a given case is not determined by reference
to the personal judgment of the actor in the situation before him. The law considers
what would be reckless, blameworthy, or negligent in the man of ordinary intelligence
and prudence and determines liability by that."[29]
Petitioner violated its own rules by allowing the withdrawal of an amount that is
definitely over and above the aggregate amount of private respondents dollar deposits
that had yet to be cleared. The banks ledger on private respondents account shows
that before he deposited $2,500.00, private respondent had a balance of only $750.00.
[30] Upon private respondents deposit of $2,500.00 on September 3, 1984, that
amount was credited in his ledger as a deposit resulting in the corresponding total
balance of $3,250.00.[31] On September 10, 1984, the amount of $600.00 and the
additional charges of $10.00 were indicated therein as withdrawn thereby leaving a
balance of $2,640.00. On September 30, 1984, an interest of $11.59 was reflected in
the ledger and on October 23, 1984, the amount of $2,541.67 was entered as
withdrawn with a balance of $109.92.[32] On November 19, 1984 the word "hold" was
written beside the balance of $109.92.[33] That must have been the time when Reyes,
petitioners branch manager, was informed unofficially of the fact that the check
deposited was a counterfeit, but petitioners Buendia Ave. Extension Branch received a
copy of the communication thereon from Wells Fargo Bank International in New York
the following day, November 20, 1984.[34] According to Reyes, Wells Fargo Bank
International handled the clearing of checks drawn against U.S. banks that were
deposited with petitioner.[35] Jjlex
From these facts on record, it is at once apparent that petitioners personnel allowed
the withdrawal of an amount bigger than the original deposit of $750.00 and the value
of the check deposited in the amount of $2,500.00 although they had not yet received
notice from the clearing bank in the United States on whether or not the check was
funded. Reyes contention that after the lapse of the 35-day period the amount of a
deposited check could be withdrawn even in the absence of a clearance thereon,
otherwise it could take a long time before a depositor could make a withdrawal,[36] is
untenable. Said practice amounts to a disregard of the clearance requirement of the
banking system.
While it is true that private respondents having signed a blank withdrawal slip set in
motion the events that resulted in the withdrawal and encashment of the counterfeit
check, the negligence of petitioners personnel was the proximate cause of the loss that
petitioner sustained. Proximate cause, which is determined by a mixed consideration of
logic, common sense, policy and precedent, is "that cause, which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the injury,
and without which the result would not have occurred."[37] The proximate cause of the
withdrawal and eventual loss of the amount of $2,500.00 on petitioners part was its
personnels negligence in allowing such withdrawal in disregard of its own rules and the
clearing requirement in the banking system. In so doing, petitioner assumed the risk of
incurring a loss on account of a forged or counterfeit foreign check and hence, it should
suffer the resulting damage.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court
of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.
SO ORDERED.
4 | Page

G.R. No. 80599 September 15, 1989
ERNESTINA CRISOLOGO-JOSE, petitioner, vs. COURT OF APPEALS and
RICARDO S. SANTOS, JR. in his own behalf and as Vice-President for Sales of
Mover Enterprises, Inc., respondents.
REGALADO, J.:
Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals,
promulgated on September 8, 1987, which reversed the decision of the trial Court 2
dismissing the complaint for consignation filed by therein plaintiff Ricardo S. Santos, Jr.
The parties are substantially agreed on the following facts as found by both lower
courts:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc.
in-charge of marketing and sales; and the president of the said corporation was Atty.
Oscar Z. Benares. On April 30, 1980, Atty. Benares, in accommodation of his clients,
the spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against Traders
Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I') payable to
defendant Ernestina Crisologo-Jose. Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares,
and the treasurer of the said corporation. However, since at that time, the treasurer of
Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo
S. Santos, Jr., to sign the aforesaid chEck as an alternate story. Plaintiff Ricardo S.
Santos, Jr. did sign the check.
It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in
consideration of the waiver or quitclaim by said defendant over a certain property
which the Government Service Insurance System (GSIS) agreed to sell to the clients of
Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the understanding that
upon approval by the GSIS of the compromise agreement with the spouses Ong, the
check will be encashed accordingly. However, since the compromise agreement was
not approved within the expected period of time, the aforesaid check for P45,000.00
(Exh. '1') was replaced by Atty. Benares with another Traders Royal Bank cheek bearing
No. 379299 dated August 10, 1980, in the same amount of P45,000.00 (Exhs. 'A' and
'2'), also payable to the defendant Jose. This replacement check was also signed by
Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant
deposited this replacement check (Exhs. 'A' and '2') with her account at Family Savings
Bank, Mayon Branch, it was dishonored for insufficiency of funds. A subsequent
redepositing of the said check was likewise dishonored by the bank for the same
reason. Hence, defendant through counsel was constrained to file a criminal complaint
for violation of Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office against
Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The investigating Assistant
City Fiscal, Alfonso Llamas, accordingly filed an amended information with the court
charging both Oscar Benares and Ricardo S. Santos, Jr., for violation of Batas Pambansa
Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of First Instance of Rizal,
Quezon City.
Meanwhile, during the preliminary investigation of the criminal charge against Benares
and the plaintiff herein, before Assistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo
S. Santos, Jr. tendered cashier's check No. CC 160152 for P45,000.00 dated April 10,
1981 to the defendant Ernestina Crisologo-Jose, the complainant in that criminal case.
The defendant refused to receive the cashier's check in payment of the dishonored
check in the amount of P45,000.00. Hence, plaintiff encashed the aforesaid cashier's
check and subsequently deposited said amount of P45,000.00 with the Clerk of Court
on August 14, 1981 (Exhs. 'D' and 'E'). Incidentally, the cashier's check adverted to
above was purchased by Atty. Oscar Z. Benares and given to the plaintiff herein to be
applied in payment of the dishonored check. 3
After trial, the court a quo, holding that it was "not persuaded to believe that
consignation referred to in Article 1256 of the Civil Code is applicable to this case,"
rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. 4
As earlier stated, respondent court reversed and set aside said judgment of dismissal
and revived the complaint for consignation, directing the trial court to give due course
thereto.
Hence, the instant petition, the assignment of errors wherein are prefatorily stated and
discussed seriatim.
1. Petitioner contends that respondent Court of Appeals erred in holding that
private respondent, one of the signatories of the check issued under the account of
Mover Enterprises, Inc., is an accommodation party under the Negotiable Instruments
Law and a debtor of petitioner to the extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc.
and not private respondent who merely signed the check in question in a
representative capacity, that is, as vice-president of said corporation, hence he is not
liable thereon under the Negotiable Instruments Law.
The pertinent provision of said law referred to provides:
Sec. 29. Liability of accommodation party an accommodation party is one who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding such holder, at
the time of taking the instrument, knew him to be only an accommodation party.
Consequently, to be considered an accommodation party, a person must (1) be a party
to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not receive
value therefor, and (3) sign for the purpose of lending his name for the credit of some
other person.
Based on the foregoing requisites, it is not a valid defense that the accommodation
party did not receive any valuable consideration when he executed the instrument.
From the standpoint of contract law, he differs from the ordinary concept of a debtor
therein in the sense that he has not received any valuable consideration for the
instrument he signs. Nevertheless, he is liable to a holder for value as if the contract
was not for accommodation 5 in whatever capacity such accommodation party signed
5 | Page
the instrument, whether primarily or secondarily. Thus, it has been held that in lending
his name to the accommodated party, the accommodation party is in effect a surety
for the latter. 6
Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this
case, as petitioner suggests, the inevitable question is whether or not it may be held
liable on the accommodation instrument, that is, the check issued in favor of herein
petitioner.
We hold in the negative.
The aforequoted provision of the Negotiable Instruments Law which holds an
accommodation party liable on the instrument to a holder for value, although such
holder at the time of taking the instrument knew him to be only an accommodation
party, does not include nor apply to corporations which are accommodation parties. 7
This is because the issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires. 8 Hence, one who
has taken the instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation party. If the form of
the instrument, or the nature of the transaction, is such as to charge the indorsee with
knowledge that the issue or indorsement of the instrument by the corporation is for the
accommodation of another, he cannot recover against the corporation thereon. 9
By way of exception, an officer or agent of a corporation shall have the power to
execute or indorse a negotiable paper in the name of the corporation for the
accommodation of a third person only if specifically authorized to do so. 10 Corollarily,
corporate officers, such as the president and vice-president, have no power to execute
for mere accommodation a negotiable instrument of the corporation for their individual
debts or transactions arising from or in relation to matters in which the corporation has
no legitimate concern. Since such accommodation paper cannot thus be enforced
against the corporation, especially since it is not involved in any aspect of the
corporate business or operations, the inescapable conclusion in law and in logic is that
the signatories thereof shall be personally liable therefor, as well as the consequences
arising from their acts in connection therewith.
The instant case falls squarely within the purview of the aforesaid decisional rules. If
we indulge petitioner in her aforesaid postulation, then she is effectively barred from
recovering from Mover Enterprises, Inc. the value of the check. Be that as it may,
petitioner is not without recourse.
The fact that for lack of capacity the corporation is not bound by an accommodation
paper does not thereby absolve, but should render personally liable, the signatories of
said instrument where the facts show that the accommodation involved was for their
personal account, undertaking or purpose and the creditor was aware thereof.
Petitioner, as hereinbefore explained, was evidently charged with the knowledge that
the cheek was issued at the instance and for the personal account of Atty. Benares who
merely prevailed upon respondent Santos to act as co-signatory in accordance with the
arrangement of the corporation with its depository bank. That it was a personal
undertaking of said corporate officers was apparent to petitioner by reason of her
personal involvement in the financial arrangement and the fact that, while it was the
corporation's check which was issued to her for the amount involved, she actually had
no transaction directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's claims being directed
personally against Atty. Oscar Z. Benares and respondent Ricardo S. Santos, Jr.,
president and vice-president, respectively, of Mover Enterprises, Inc.
2. On her second assignment of error, petitioner argues that the Court of Appeals
erred in holding that the consignation of the sum of P45,000.00, made by private
respondent after his tender of payment was refused by petitioner, was proper under
Article 1256 of the Civil Code.
Petitioner's submission is that no creditor-debtor relationship exists between the
parties, hence consignation is not proper. Concomitantly, this argument was premised
on the assumption that private respondent Santos is not an accommodation party.
As previously discussed, however, respondent Santos is an accommodation party and
is, therefore, liable for the value of the check. The fact that he was only a co-signatory
does not detract from his personal liability. A co-maker or co-drawer under the
circumstances in this case is as much an accommodation party as the other co-
signatory or, for that matter, as a lone signatory in an accommodation instrument.
Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect a
co-surety for the accommodated party with whom he and his co-signatory, as the other
co-surety, assume solidary liability ex lege for the debt involved. With the dishonor of
the check, there was created a debtor-creditor relationship, as between Atty. Benares
and respondent Santos, on the one hand, and petitioner, on the other. This
circumstance enables respondent Santos to resort to an action of consignation where
his tender of payment had been refused by petitioner.
We interpose the caveat, however, that by holding that the remedy of consignation is
proper under the given circumstances, we do not thereby rule that all the operative
facts for consignation which would produce the effect of payment are present in this
case. Those are factual issues that are not clear in the records before us and which are
for the Regional Trial Court of Quezon City to ascertain in Civil Case No. Q-33160, for
which reason it has advisedly been directed by respondent court to give due course to
the complaint for consignation, and which would be subject to such issues or claims as
may be raised by defendant and the counterclaim filed therein which is hereby ordered
similarly revived.
3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the
Regional Trial Court of Quezon City filed against private respondent for violation of
Batas Pambansa Blg. 22, by holding that no criminal liability had yet attached to
private respondent when he deposited with the court the amount of P45,000.00 is the
final plaint of petitioner.
We sustain petitioner on this score.
Indeed, respondent court went beyond the ratiocination called for in the appeal to it in
CA-G.R. CV. No. 05464. In its own decision therein, it declared that "(t)he lone issue
dwells in the question of whether an accommodation party can validly consign the
amount of the debt due with the court after his tender of payment was refused by the
6 | Page
creditor." Yet, from the commercial and civil law aspects determinative of said issue, it
digressed into the merits of the aforesaid Criminal Case No. Q-14867, thus:
Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such
insufficiency of funds or credit. Thus, the making, drawing and issuance of a check,
payment of which is refused by the drawee because of insufficient funds in or credit
with such bank is prima facie evidence of knowledge of insufficiency of funds or credit,
when the check is presented within 90 days from the date of the check.
It will be noted that the last part of Section 2 of B.P. 22 provides that the element of
knowledge of insufficiency of funds or credit is not present and, therefore, the crime
does not exist, when the drawer pays the holder the amount due or makes
arrangements for payment in full by the drawee of such check within five (5) banking
days after receiving notice that such check has not been paid by the drawee.
Based on the foregoing consideration, this Court finds that the plaintiff-appellant acted
within Ms legal rights when he consigned the amount of P45,000.00 on August 14,
1981, between August 7, 1981, the date when plaintiff-appellant receive (sic) the
notice of non-payment, and August 14, 1981, the date when the debt due was
deposited with the Clerk of Court (a Saturday and a Sunday which are not banking
days) intervened. The fifth banking day fell on August 14, 1981. Hence, no criminal
liability has yet attached to plaintiff-appellant when he deposited the amount of
P45,000.00 with the Court a quo on August 14, 1981. 11
That said observations made in the civil case at bar and the intrusion into the merits of
the criminal case pending in another court are improper do not have to be belabored.
In the latter case, the criminal trial court has to grapple with such factual issues as, for
instance, whether or not the period of five banking days had expired, in the process
determining whether notice of dishonor should be reckoned from any prior notice if any
has been given or from receipt by private respondents of the subpoena therein with
supporting affidavits, if any, or from the first day of actual preliminary investigation;
and whether there was a justification for not making the requisite arrangements for
payment in full of such check by the drawee bank within the said period. These are
matters alien to the present controversy on tender and consignation of payment,
where no such period and its legal effects are involved.
These are aside from the considerations that the disputed period involved in the
criminal case is only a presumptive rule, juris tantum at that, to determine whether or
not there was knowledge of insufficiency of funds in or credit with the drawee bank;
that payment of civil liability is not a mode for extinguishment of criminal liability; and
that the requisite quantum of evidence in the two types of cases are not the same.
To repeat, the foregoing matters are properly addressed to the trial court in Criminal
Case No. Q-14867, the resolution of which should not be interfered with by respondent
Court of Appeals at the present posture of said case, much less preempted by the
inappropriate and unnecessary holdings in the aforequoted portion of the decision of
said respondent court. Consequently, we modify the decision of respondent court in
CA-G.R. CV No. 05464 by setting aside and declaring without force and effect its
pronouncements and findings insofar as the merits of Criminal Case No. Q-14867 and
the liability of the accused therein are concerned.
WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court
of Appeals is AFFIRMED.
SO ORDERED.
FAR EAST BANK & TRUST COMPANY, Petitioner, - versus - GOLD PALACE
JEWELLERY CO., as represented by Judy L. Yang, Julie Yang-Go and Kho Soon
Huat, Respondent.
G.R. No. 168274
August 20, 2008
NACHURA, J.:
For the review of the Court through a Rule 45 petition are the following issuances of
the Court of Appeals (CA) in CA-G.R. CV No. 71858: (1) the March 15, 2005 Decision[1]
which reversed the trial courts ruling, and (2) the May 26, 2005 Resolution[2] which
denied the motion for reconsideration of the said CA decision.
The instant controversy traces its roots to a transaction consummated sometime in
June 1998, when a foreigner, identified as Samuel Tagoe, purchased from the
respondent Gold Palace Jewellery Co.s (Gold Palaces) store at SM-North EDSA several
pieces of jewelry valued at P258,000.00.[3] In payment of the same, he offered Foreign
Draft No. M-069670 issued by the United Overseas Bank (Malaysia) BHD Medan Pasar,
Kuala Lumpur Branch (UOB), addressed to the Land Bank of the Philippines, Manila
(LBP), and payable to the respondent company for P380,000.00.[4]
Before receiving the draft, respondent Judy Yang, the assistant general manager of
Gold Palace, inquired from petitioner Far East Bank & Trust Companys (Far Easts) SM
North EDSA Branch, its neighbor mall tenant, the nature of the draft. The teller
informed her that the same was similar to a managers check, but advised her not to
release the pieces of jewelry until the draft had been cleared.[5] Following the banks
advice, Yang issued Cash Invoice No. 1609[6] to the foreigner, asked him to come
back, and informed him that the pieces of jewelry would be released when the draft
had already been cleared.[7] Respondent Julie Yang-Go, the manager of Gold Palace,
consequently deposited the draft in the companys account with the aforementioned
Far East branch on June 2, 1998.[8]
When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee
bank, the latter cleared the same[9]UOBs account with LBP was debited,[10] and Gold
Palaces account with Far East was credited with the amount stated in the draft.[11]
7 | Page
The foreigner eventually returned to respondents store on June 6, 1998 to claim the
purchased goods. After ascertaining that the draft had been cleared, respondent Yang
released the pieces of jewelry to Samuel Tagoe; and because the amount in the draft
was more than the value of the goods purchased, she issued, as his change, Far East
Check No. 1730881[12] for P122,000.00.[13] This check was later presented for
encashment and was, in fact, paid by the said bank.[14]
On June 26, 1998, or after around three weeks, LBP informed Far East that the amount
in Foreign Draft No. M-069670 had been materially altered from P300.00 to
P380,000.00 and that it was returning the same. Attached to its official correspondence
were Special Clearing Receipt No. 002593 and the duly notarized and consul-
authenticated affidavit of a corporate officer of the drawer, UOB.[15] It is noted at this
point that the material alteration was discovered by UOB after LBP had informed it that
its funds were being depleted following the encashment of the subject draft.[16]
Intending to debit the amount from respondents account, Far East subsequently
refunded the P380,000.00 earlier paid by LBP.
Gold Palace, in the meantime, had already utilized portions of the amount. Thus, on
July 20, 1998, as the outstanding balance of its account was already inadequate, Far
East was able to debit only P168,053.36,[17] but this was done without a prior written
notice to the account holder.[18] Far East only notified by phone the representatives of
the respondent company.[19]
On August 12, 1998, petitioner demanded from respondents the payment of
P211,946.64 or the difference between the amount in the materially altered draft and
the amount debited from the respondent companys account.[20] Because Gold Palace
did not heed the demand, Far East consequently instituted Civil Case No. 99-296 for
sum of money and damages before the Regional Trial Court (RTC), Branch 64 of Makati
City.[21]
In their Answer, respondents specifically denied the material allegations in the
complaint and interposed as a defense that the complaint states no cause of actionthe
subject foreign draft having been cleared and the respondent not being the party who
made the material alteration. Respondents further counterclaimed for actual damages,
moral and exemplary damages, and attorneys fees considering, among others, that the
petitioner had confiscated without basis Gold Palaces balance in its account resulting in
operational loss, and had maliciously imputed to the latter the act of alteration.[22]
After trial on the merits, the RTC rendered its July 30, 2001 Decision[23] in favor of Far
East, ordering Gold Palace to pay the former P211,946.64 as actual damages and
P50,000.00 as attorneys fees.[24] The trial court ruled that, on the basis of its
warranties as a general indorser, Gold Palace was liable to Far East.[25]
On appeal, the CA, in the assailed March 15, 2005 Decision,[26] reversed the ruling of
the trial court and awarded respondents counterclaim. It ruled in the main that Far East
failed to undergo the proceedings on the protest of the foreign draft or to notify Gold
Palace of the drafts dishonor; thus, Far East could not charge Gold Palace on its
secondary liability as an indorser.[27] The appellate court further ruled that the drawee
bank had cleared the check, and its remedy should be against the party responsible for
the alteration. Considering that, in this case, Gold Palace neither altered the draft nor
knew of the alteration, it could not be held liable.[28] The dispositive portion of the CA
decision reads:
WHEREFORE, premises considered, the appeal is GRANTED; the assailed Decision
dated 30 July 2001 of the Regional Trial Court of Makati City, Branch 64 is hereby
REVERSED and SET ASIDE; the Complaint dated January 1999 is DISMISSED; and
appellee Far East Bank and Trust Company is hereby ordered to pay appellant Gold
Palace Jewellery Company the amount of Php168,053.36 for actual damages plus legal
interest of 12% per annum from 20 July 1998, Php50,000.00 for exemplary damages,
and Php50,000.00 for attorneys fees. Costs against appellee Far East Bank and Trust
Company.[29]
The appellate court, in the further challenged May 26, 2005 Resolution,[30] denied
petitioners Motion for Reconsideration,[31] which prompted the petitioner to institute
before the Court the instant Petition for Review on Certiorari.[32]
We deny the petition.
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the
acceptor, by accepting the instrument, engages that he will pay it according to the
tenor of his acceptance.[33] This provision applies with equal force in case the drawee
pays a bill without having previously accepted it. His actual payment of the amount in
the check implies not only his assent to the order of the drawer and a recognition of his
corresponding obligation to pay the aforementioned sum, but also, his clear
compliance with that obligation.[34] Actual payment by the drawee is greater than his
acceptance, which is merely a promise in writing to pay. The payment of a check
includes its acceptance.[35]
Unmistakable herein is the fact that the drawee bank cleared and paid the subject
foreign draft and forwarded the amount thereof to the collecting bank. The latter then
credited to Gold Palaces account the payment it received. Following the plain language
of the law, the drawee, by the said payment, recognized and complied with its
obligation to pay in accordance with the tenor of his acceptance. The tenor of the
acceptance is determined by the terms of the bill as it is when the drawee accepts.[36]
Stated simply, LBP was liable on its payment of the check according to the tenor of the
check at the time of payment, which was the raised amount.
Because of that engagement, LBP could no longer repudiate the payment it
erroneously made to a due course holder. We note at this point that Gold Palace was
not a participant in the alteration of the draft, was not negligent, and was a holder in
due courseit received the draft complete and regular on its face, before it became
overdue and without notice of any dishonor, in good faith and for value, and absent
any knowledge of any infirmity in the instrument or defect in the title of the person
negotiating it.[37] Having relied on the drawee banks clearance and payment of the
draft and not being negligent (it delivered the purchased jewelry only when the draft
was cleared and paid), respondent is amply protected by the said Section 62.
Commercial policy favors the protection of any one who, in due course, changes his
8 | Page
position on the faith of the drawee banks clearance and payment of a check or draft.
[38]
This construction and application of the law gives effect to the plain language of the
NIL[39] and is in line with the sound principle that where one of two innocent parties
must suffer a loss, the law will leave the loss where it finds it.[40] It further reasserts
the usefulness, stability and currency of negotiable paper without seriously
endangering accepted banking practices. Indeed, banking institutions can readily
protect themselves against liability on altered instruments either by qualifying their
acceptance or certification, or by relying on forgery insurance and special paper which
will make alterations obvious.[41] This is not to mention, but we state nevertheless for
emphasis, that the drawee bank, in most cases, is in a better position, compared to the
holder, to verify with the drawer the matters stated in the instrument. As we have
observed in this case, were it not for LBPs communication with the drawer that its
account in the Philippines was being depleted after the subject foreign draft had been
encashed, then, the alteration would not have been discovered. What we cannot
understand is why LBP, having the most convenient means to correspond with UOB,
did not first verify the amount of the draft before it cleared and paid the same. Gold
Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia,
the true amount in the draft. It was left with no option but to rely on the
representations of LBP that the draft was good.
In arriving at this conclusion, the Court is not closing its eyes to the other view
espoused in common law jurisdictions that a drawee bank, having paid to an innocent
holder the amount of an uncertified, altered check in good faith and without
negligence which contributed to the loss, could recover from the person to whom
payment was made as for money paid by mistake.[42] However, given the foregoing
discussion, we find no compelling reason to apply the principle to the instant case.
The Court is also aware that under the Uniform Commercial Code in the United States
of America, if an unaccepted draft is presented to a drawee for payment or acceptance
and the drawee pays or accepts the draft, the person obtaining payment or
acceptance, at the time of presentment, and a previous transferor of the draft, at the
time of transfer, warrant to the drawee making payment or accepting the draft in good
faith that the draft has not been altered.[43] Nonetheless, absent any similar provision
in our law, we cannot extend the same preferential treatment to the paying bank.
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL,
its collecting agent, Far East, should not have debited the money paid by the drawee
bank from respondent companys account. When Gold Palace deposited the check with
Far East, the latter, under the terms of the deposit and the provisions of the NIL,
became an agent of the former for the collection of the amount in the draft.[44] The
subsequent payment by the drawee bank and the collection of the amount by the
collecting bank closed the transaction insofar as the drawee and the holder of the
check or his agent are concerned, converted the check into a mere voucher,[45] and,
as already discussed, foreclosed the recovery by the drawee of the amount paid. This
closure of the transaction is a matter of course; otherwise, uncertainty in commercial
transactions, delay and annoyance will arise if a bank at some future time will call on
the payee for the return of the money paid to him on the check.[46]
As the transaction in this case had been closed and the principal-agent relationship
between the payee and the collecting bank had already ceased, the latter in returning
the amount to the drawee bank was already acting on its own and should now be
responsible for its own actions. Neither can petitioner be considered to have acted as
the representative of the drawee bank when it debited respondents account, because,
as already explained, the drawee bank had no right to recover what it paid. Likewise,
Far East cannot invoke the warranty of the payee/depositor who indorsed the
instrument for collection to shift the burden it brought upon itself. This is precisely
because the said indorsement is only for purposes of collection which, under Section
36 of the NIL, is a restrictive indorsement.[47] It did not in any way transfer the title of
the instrument to the collecting bank. Far East did not own the draft, it merely
presented it for payment. Considering that the warranties of a general indorser as
provided in Section 66 of the NIL are based upon a transfer of title and are available
only to holders in due course,[48] these warranties did not attach to the indorsement
for deposit and collection made by Gold Palace to Far East. Without any legal right to
do so, the collecting bank, therefore, could not debit respondents account for the
amount it refunded to the drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the extent that
Far East could not debit the account of Gold Palace, and for doing so, it must return
what it had erroneously taken. Far Easts remedy under the law is not against Gold
Palace but against the drawee-bank or the person responsible for the alteration. That,
however, is another issue which we do not find necessary to discuss in this case.
However, we delete the exemplary damages awarded by the appellate court.
Respondents have not shown that they are entitled to moral, temperate or
compensatory damages.[49] Neither was petitioner impelled by malice or bad faith in
debiting the account of the respondent company and in pursuing its cause.[50] On the
contrary, petitioner was honestly convinced of the propriety of the debit. We also
delete the award of attorneys fees for, in a plethora of cases, we have ruled that it is
not a sound public policy to place a premium on the right to litigate. No damages can
be charged to those who exercise such precious right in good faith, even if done
erroneously.[51]
WHEREFORE, premises considered, the March 15, 2005 Decision and the May 26, 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 71858 are AFFIRMED WITH THE
MODIFICATION that the award of exemplary damages and attorneys fees is DELETED.
SO ORDERED.
[G.R. No. 154127. December 8, 2003]
ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent.
DECISION
PANGANIBAN, J.:
Novation cannot be presumed. It must be clearly shown either by the express assent of
the parties or by the complete incompatibility between the old and the new
9 | Page
agreements. Petitioner herein fails to show either requirement convincingly; hence, the
summary judgment holding him liable as a joint and solidary debtor stands.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to
nullify the November 26, 2001 Decision[2] and the June 26, 2002 Resolution[3] of the
Court of Appeals (CA) in CA-GR CV No. 60521. The appellate court disposed as follows:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as
it pertains to [Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to
the modification that the award for attorneys fees and cost of suit is DELETED. The
portion of the judgment that pertains to x x x Eduardo de Jesus is SET ASIDE and
VACATED. Accordingly, the case against x x x Eduardo de Jesus is REMANDED to the
court of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas
evidence against x x x Eduardo de Jesus.[4]
The challenged Resolution, on the other hand, denied petitioners Motion for
Reconsideration.
The Antecedents
The antecedents of the case are narrated by the CA as follows:
This case started out as a complaint for sum of money and damages by x x x
[Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and Eduardo de
Jesus. Docketed as Civil Case No. Q97-32-873, the complaint alleged that on 23
December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from [respondent];
that, on the same day, [they] executed a promissory note wherein they bound
themselves jointly and severally to pay the loan on or before 23 January 1997 with a
5% interest per month; that the loan has long been overdue and, despite repeated
demands, [petitioner and de Jesus] have failed and refused to pay it; and that, by
reason of the[ir] unjustified refusal, [respondent] was compelled to engage the
services of counsel to whom he agreed to pay 25% of the sum to be recovered from
[petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to the
complaint were the promissory note above-mentioned and a demand letter, dated 02
May 1997, by [respondent] addressed to [petitioner and de Jesus].
Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed
no liability under the promissory note because he signed it merely as an
accommodation party for x x x de Jesus; and, alternatively, that he is relieved from any
liability arising from the note inasmuch as the loan had been paid by x x x de Jesus by
means of a check dated 17 April 1997; and that, in any event, the issuance of the
check and [respondents] acceptance thereof novated or superseded the note.
[Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting
that the loan remained unpaid for the reason that the check issued by x x x de Jesus
bounced, and that [Petitioner] Garcias answer was not even accompanied by a
certificate of non-forum shopping. Annexed to the reply were the face of the check and
the reverse side thereof.
For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the
supposed P400,000.00 loan, he received only P360,000.00, the P40,000.00 having
been advance interest thereon for two months, that is, for January and February 1997;
that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was
made when [respondents] daughter, one Nits Llamas-Quijencio, received from the
Central Police District Command at Bicutan, Taguig, Metro Manila (where x x x de Jesus
worked), the sum of P40,000.00, representing the peso equivalent of his accumulated
leave credits, another P40,000.00 as advance interest, and still another P40,000.00 as
interest for the months of March and April 1997; that he had difficulty in paying the
loan and had asked [respondent] for an extension of time; that [respondent] acted in
bad faith in instituting the case, [respondent] having agreed to accept the benefits he
(de Jesus) would receive for his retirement, but [respondent] nonetheless filed the
instant case while his retirement was being processed; and that, in defense of his
rights, he agreed to pay his counsel P20,000.00 [as] attorneys fees, plus P1,000.00 for
every court appearance.
During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did
they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his
counsel even manifested that he would no [longer] present evidence. Given this
development, the trial court gave [respondent] permission to present his evidence ex
parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial court directed
[respondent] to file a motion for judgment on the pleadings, and for [Petitioner] Garcia
to file his comment or opposition thereto.
Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to
allow him to present his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a
[M]anifestation submitting his defense to a judgment on the pleadings. Subsequently,
[respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the
pleadings, withdrawing in the process his previous motion. Thereunder, he asserted
that [petitioners and de Jesus] solidary liability under the promissory note cannot be
any clearer, and that the check issued by de Jesus did not discharge the loan since the
check bounced.[5]
On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of
the case as follows:
WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in
favor of [respondent] and against [petitioner and De Jesus], who are hereby ordered to
pay, jointly and severally, the [respondent] the following sums, to wit:
1) P400,000.00 representing the principal amount plus 5% interest thereon per month
from January 23, 1997 until the same shall have been fully paid, less the amount of
P120,000.00 representing interests already paid by x x x de Jesus;
2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of
[c]ourt appearance, and;
3) Cost of this suit.[6]
Ruling of the Court of Appeals
10 | P a g e
The CA ruled that the trial court had erred when it rendered a judgment on the
pleadings against De Jesus. According to the appellate court, his Answer raised
genuinely contentious issues. Moreover, he was still required to present his evidence
ex parte. Thus, respondent was not ipso facto entitled to the RTC judgment, even
though De Jesus had been declared in default. The case against the latter was
therefore remanded by the CA to the trial court for the ex parte reception of the
formers evidence.
As to petitioner, the CA treated his case as a summary judgment, because his Answer
had failed to raise even a single genuine issue regarding any material fact.
The appellate court ruled that no novation -- express or implied -- had taken place
when respondent accepted the check from De Jesus. According to the CA, the check
was issued precisely to pay for the loan that was covered by the promissory note
jointly and severally undertaken by petitioner and De Jesus. Respondents acceptance
of the check did not serve to make De Jesus the sole debtor because, first, the
obligation incurred by him and petitioner was joint and several; and, second, the check
-- which had been intended to extinguish the obligation -- bounced upon its
presentment.
Hence, this Petition.[7]
Issues
Petitioner submits the following issues for our consideration:
I debtor or the replacement of the promissory note by the check. Alternatively, the
Whether or not the Honorable Court of Appeals gravely erred in not holding that
novation applies in the instant case as x x x Eduardo de Jesus had expressly assumed
sole and exclusive liability for the loan obligation he obtained from x x x Respondent
Dionisio Llamas, as clearly evidenced by:
a) Issuance by x x x de Jesus of a check in payment of the full amount of the loan of
P400,000.00 in favor of Respondent Llamas, although the check subsequently
bounced[;]
b) Acceptance of the check by the x x x respondent x x x which resulted in [the]
substitution by x x x de Jesus or [the superseding of] the promissory note;
c) x x x de Jesus having paid interests on the loan in the total amount of P120,000.00;
d) The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to
financial difficulties, he be given an extension of time to pay his loan obligation and
that his retirement benefits from the Philippine National Police will answer for said
obligation.
II
Whether or not the Honorable Court of Appeals seriously erred in not holding that the
defense of petitioner that he was merely an accommodation party, despite the fact
that the promissory note provided for a joint and solidary liability, should have been
given weight and credence considering that subsequent events showed that the
principal obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing
circumstances showing his assumption of sole liability over the loan obligation.
III
Whether or not judgment on the pleadings or summary judgment was properly availed
of by Respondent Llamas, despite the fact that there are genuine issues of fact, which
the Honorable Court of Appeals itself admitted in its Decision, which call for the
presentation of evidence in a full-blown trial.[8]
Simply put, the issues are the following: 1) whether there was novation of the
obligation; 2) whether the defense that petitioner was only an accommodation party
had any basis; and 3) whether the judgment against him -- be it a judgment on the
pleadings or a summary judgment -- was proper.
The Courts Ruling
The Petition has no merit.
First Issue:
Novation
Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by
insisting that novation took place, either through the substitution of De Jesus as sole
former argues that the original obligation was extinguished when the latter, who was
his co-obligor, paid the loan with the check.
The fallacy of the second (alternative) argument is all too apparent. The check could
not have extinguished the obligation, because it bounced upon presentment. By law,
[9] the delivery of a check produces the effect of payment only when it is encashed.
We now come to the main issue of whether novation took place.
Novation is a mode of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by subrogating a
third person to the rights of the creditor.[10] Article 1293 of the Civil Code defines
novation as follows:
Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter,
but not without the consent of the creditor. Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237.
In general, there are two modes of substituting the person of the debtor: (1)
expromision and (2) delegacion. In expromision, the initiative for the change does not
come from -- and may even be made without the knowledge of -- the debtor, since it
consists of a third persons assumption of the obligation. As such, it logically requires
the consent of the third person and the creditor. In delegacion, the debtor offers, and
11 | P a g e
the creditor accepts, a third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are necessary.[11] Both modes of
substitution by the debtor require the consent of the creditor.[12]
Novation may also be extinctive or modificatory. It is extinctive when an old obligation
is terminated by the creation of a new one that takes the place of the former. It is
merely modificatory when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement.[13] Whether extinctive or modificatory,
novation is made either by changing the object or the principal conditions, referred to
as objective or real novation; or by substituting the person of the debtor or subrogating
a third person to the rights of the creditor, an act known as subjective or personal
novation.[14] For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.[15]
Novation may also be express or implied. It is express when the new obligation
declares in unequivocal terms that the old obligation is extinguished. It is implied when
the new obligation is incompatible with the old one on every point.[16] The test of
incompatibility is whether the two obligations can stand together, each one with its
own independent existence.[17]
Applying the foregoing to the instant case, we hold that no novation took place.
The parties did not unequivocally declare that the old obligation had been extinguished
by the issuance and the acceptance of the check, or that the check would take the
place of the note. There is no incompatibility between the promissory note and the
check. As the CA correctly observed, the check had been issued precisely to answer for
the obligation. On the one hand, the note evidences the loan obligation; and on the
other, the check answers for it. Verily, the two can stand together.
Neither could the payment of interests -- which, in petitioners view, also constitutes
novation[18] -- change the terms and conditions of the obligation. Such payment was
already provided for in the promissory note and, like the check, was totally in accord
with the terms thereof.
Also unmeritorious is petitioners argument that the obligation was novated by the
substitution of debtors. In order to change the person of the debtor, the old one must
be expressly released from the obligation, and the third person or new debtor must
assume the formers place in the relation.[19] Well-settled is the rule that novation is
never presumed.[20] Consequently, that which arises from a purported change in the
person of the debtor must be clear and express.[21] It is thus incumbent on petitioner
to show clearly and unequivocally that novation has indeed taken place.
In the present case, petitioner has not shown that he was expressly released from the
obligation, that a third person was substituted in his place, or that the joint and
solidary obligation was cancelled and substituted by the solitary undertaking of De
Jesus. The CA aptly held:
x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus
either, the nature of the obligation being solidary due to the fact that the promissory
note expressly declared that the liability of appellants thereunder is joint and [solidary.]
Reason: under the law, a creditor may demand payment or performance from one of
the solidary debtors or some or all of them simultaneously, and payment made by one
of them extinguishes the obligation. It therefore follows that in case the creditor fails to
collect from one of the solidary debtors, he may still proceed against the other or
others. x x x [22]
Moreover, it must be noted that for novation to be valid and legal, the law requires that
the creditor expressly consent to the substitution of a new debtor.[23] Since novation
implies a waiver of the right the creditor had before the novation, such waiver must be
express.[24] It cannot be supposed, without clear proof, that the present respondent
has done away with his right to exact fulfillment from either of the solidary debtors.
[25]
More important, De Jesus was not a third person to the obligation. From the beginning,
he was a joint and solidary obligor of the P400,000 loan; thus, he can be released from
it only upon its extinguishment. Respondents acceptance of his check did not change
the person of the debtor, because a joint and solidary obligor is required to pay the
entirety of the obligation.
It must be noted that in a solidary obligation, the creditor is entitled to demand the
satisfaction of the whole obligation from any or all of the debtors.[26] It is up to the
former to determine against whom to enforce collection.[27] Having made himself
jointly and severally liable with De Jesus, petitioner is therefore liable[28] for the entire
obligation.[29]
Second Issue:
Accommodation Party
Petitioner avers that he signed the promissory note merely as an accommodation
party; and that, as such, he was released as obligor when respondent agreed to extend
the term of the obligation.
This reasoning is misplaced, because the note herein is not a negotiable instrument.
The note reads:
PROMISSORY NOTE
P400,000.00
RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND
PESOS, Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St.
Kamias, Quezon City, with interest at the rate of 5% per month or fraction thereof.
It is understood that our liability under this loan is jointly and severally [sic].
12 | P a g e
Done at Quezon City, Metro Manila this 23rd day of December, 1996.[30]
By its terms, the note was made payable to a specific person rather than to bearer or
to order[31] -- a requisite for negotiability under Act 2031, the Negotiable Instruments
Law (NIL). Hence, petitioner cannot avail himself of the NILs provisions on the liabilities
and defenses of an accommodation party. Besides, a non-negotiable note is merely a
simple contract in writing and is evidence of such intangible rights as may have been
created by the assent of the parties.[32] The promissory note is thus covered by the
general provisions of the Civil Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for
the promissory note. Under Article 29 of Act 2031, an accommodation party is liable for
the instrument to a holder for value even if, at the time of its taking, the latter knew
the former to be only an accommodation party. The relation between an
accommodation party and the party accommodated is, in effect, one of principal and
surety -- the accommodation party being the surety.[33] It is a settled rule that a
surety is bound equally and absolutely with the principal and is deemed an original
promissor and debtor from the beginning. The liability is immediate and direct.[34]
Third Issue:
Propriety of Summary Judgment
or Judgment on the Pleadings
The next issue illustrates the usual confusion between a judgment on the pleadings
and a summary judgment. Under Section 3 of Rule 35 of the Rules of Court, a summary
judgment may be rendered after a summary hearing if the pleadings, supporting
affidavits, depositions and admissions on file show that (1) except as to the amount of
damages, there is no genuine issue regarding any material fact; and (2) the moving
party is entitled to a judgment as a matter of law.
A summary judgment is a procedural device designed for the prompt disposition of
actions in which the pleadings raise only a legal, not a genuine, issue regarding any
material fact.[35] Consequently, facts are asserted in the complaint regarding which
there is yet no admission, disavowal or qualification; or specific denials or affirmative
defenses are set forth in the answer, but the issues are fictitious as shown by the
pleadings, depositions or admissions.[36] A summary judgment may be applied for by
either a claimant or a defending party.[37]
On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the
pleadings is proper when an answer fails to render an issue or otherwise admits the
material allegations of the adverse partys pleading. The essential question is whether
there are issues generated by the pleadings.[38] A judgment on the pleadings may be
sought only by a claimant, who is the party seeking to recover upon a claim,
counterclaim or cross-claim; or to obtain a declaratory relief. [39]
Apropos thereto, it must be stressed that the trial courts judgment against petitioner
was correctly treated by the appellate court as a summary judgment, rather than as a
judgment on the pleadings. His Answer[40] apparently raised several issues -- that he
signed the promissory note allegedly as a mere accommodation party, and that the
obligation was extinguished by either payment or novation. However, these are not
factual issues requiring trial. We quote with approval the CAs observations:
Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the
documents submitted by [respondent] nevertheless clearly showed that the issues so
tendered were not valid issues. Firstly, Garcias claim that he was merely an
accommodation party is belied by the promissory note that he signed. Nothing in the
note indicates that he was only an accommodation party as he claimed to be. Quite
the contrary, the promissory note bears the statement: It is understood that our
liability under this loan is jointly and severally [sic]. Secondly, his claim that his co-
defendant de Jesus already paid the loan by means of a check collapses in view of the
dishonor thereof as shown at the dorsal side of said check.[41]
From the records, it also appears that petitioner himself moved to submit the case for
judgment on the basis of the pleadings and documents. In a written Manifestation,[42]
he stated that judgment on the pleadings may now be rendered without further
evidence, considering the allegations and admissions of the parties.[43]
In view of the foregoing, the CA correctly considered as a summary judgment that
which the trial court had issued against petitioner.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
G.R. No. 156294 November 29, 2006
MELVA THERESA ALVIAR GONZALES, Petitioner, vs. RIZAL COMMERCIAL
BANKING CORPORATION, Respondent.
GARCIA, J.:
An action for a sum of money originating from the Regional Trial Court (RTC) of Makati
City, Branch 61, thereat docketed as Civil Case No. 88-1502, was decided in favor of
therein plaintiff, now respondent Rizal Commercial Banking Corporation (RCBC). On
appeal to the Court of Appeals (CA) in CA-G.R. CV No. 48596, that court, in a decision1
dated August 30, 2002, affirmed the RTC minus the award of attorneys fees. Upon the
instance of herein petitioner Melva Theresa Alviar Gonzales, the case is now before this
Court via this petition for review on certiorari, based on the following undisputed facts
as unanimously found by the RTC and the CA, which the latter summarized as follows:
Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New
Accounts Clerk in the Retail Banking Department at its Head Office.
A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade
Medical Group with address at 569 Western Avenue, Los Angeles, California, against
the drawee bank Wilshire Center Bank, N.A., of Los Angeles, California, U.S.A., and
payable to Gonzales mother, defendant Eva Alviar (or Alviar). Alviar then endorsed
this check. Since RCBC gives special accommodations to its employees to receive the
checks value without awaiting the clearing period, Gonzales presented the foreign
13 | P a g e
check to Olivia Gomez, the RCBCs Head of Retail Banking. After examining this, Olivia
Gomez requested Gonzales to endorse it which she did. Olivia Gomez then acquiesced
to the early encashment of the check and signed the check but indicated thereon her
authority of "up to P17,500.00 only". Afterwards, Olivia Gomez directed Gonzales to
present the check to RCBC employee Carlos Ramos and procure his signature. After
inspecting the check, Carlos Ramos also signed it with an "ok" annotation. After getting
the said signatures Gonzales presented the check to Rolando Zornosa, Supervisor of
the Remittance section of the Foreign Department of the RCBC Head Office, who after
scrutinizing the entries and signatures therein authorized its encashment. Gonzales
then received its peso equivalent of P155,270.85.
RCBC then tried to collect the amount of the check with the drawee bank by the latter
through its correspondent bank, the First Interstate Bank of California, on two
occasions dishonored the check because of "END. IRREG" or irregular indorsement.
Insisting, RCBC again sent the check to the drawee bank, but this time the check was
returned due to "account closed". Unable to collect, RCBC demanded from Gonzales
the payment of the peso equivalent of the check that she received. Gonzales settled
the matter by agreeing that payment be made thru salary deduction. This temporary
arrangement for salary deductions was communicated by Gonzales to RCBC through a
letter dated November 27, 1987 xxx
xxx xxx xxx
The deductions was implemented starting October 1987. On March 7, 1988 RCBC sent
a demand letter to Alviar for the payment of her obligation but this fell on deaf ears as
RCBC did not receive any response from Alviar. Taking further action to collect, RCBC
then conveyed the matter to its counsel and on June 16, 1988, a letter was sent to
Gonzales reminding her of her liability as an indorser of the subject check and that for
her to avoid litigation she has to fulfill her commitment to settle her obligation as
assured in her said letter. On July 1988 Gonzales resigned from RCBC. What had been
deducted from her salary was only P12,822.20 covering ten months.
It was against the foregoing factual backdrop that RCBC filed a complaint for a sum of
money against Eva Alviar, Melva Theresa Alviar-Gonzales and the latters husband
Gino Gonzales. The spouses Gonzales filed an Answer with Counterclaim praying for
the dismissal of the complaint as well as payment of P10,822.20 as actual damages,
P20,000.00 as moral damages, P20,000.00 as exemplary damages, and P20,000.00 as
attorneys fees and litigation expenses. Defendant Eva Alviar, on the other hand, was
declared in default for having filed her Answer out of time.
After trial, the RTC, in its three-page decision,2 held two of the three defendants liable
as follows:
WHEREFORE, premises above considered and plaintiff having established its case
against the defendants as above stated, judgment is hereby rendered for plaintiff and
as against defendant EVA. P. ALVIAR as principal debtor and defendants MELVA
THERESA ALVIAR GONZLAES as guarantor as follows:
1. To pay plaintiff the amount of P142,648.65 (P155,270.85 less the amount of
P12,622.20, as salary deduction of [Gonzales]), representing the outstanding obligation
of the defendants with interest of 12% per annum starting February 1987 until fully
paid;
2. To pay the amount of P40,000.00 as and for attorneys fees; and to
3. Pay the costs of this suit.
SO ORDERED.
On appeal, the CA, except for the award of attorneys fees, affirmed the RTC judgment.
Hence, this recourse by the petitioner on her submission that the CA erred
XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK
SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO RCBC AS GUARANTOR;
XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC EMPLOYEE, DOES NOT
CONSTITUTE AS AN ENDORSEMENT BUT ONLY AN INTER-BANK APPROVAL OF
SIGNATURE NECESSARY FOR THE ENCASHMENT OF THE CHECK;
XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF [THE PETITIONER].
The recourse is impressed with merit.
The dollar-check3 in question in the amount of $7,500.00 drawn by Don Zapanta of
Ade Medical Group (U.S.A.) against a Los Angeles, California bank, Wilshire Center
Bank N.A., was dishonored because of "End. Irregular," i.e., an irregular endorsement.
While the foreign drawee bank did not specifically state which among the four
signatures found on the dorsal portion of the check made the check irregularly
endorsed, it is absolutely undeniable that only the signature of Olivia Gomez, an RCBC
employee, was a qualified endorsement because of the phrase "up to P17,500.00 only."
There can be no other acceptable explanation for the dishonor of the foreign check
than this signature of Olivia Gomez with the phrase "up to P17,500.00 only"
accompanying it. This Court definitely agrees with the petitioner that the foreign
drawee bank would not have dishonored the check had it not been for this signature of
Gomez with the same phrase written by her.
The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this
dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through
its employee, Olivia Gomez. It is, therefore, a useless piece of paper if returned in that
state to its original payee, Eva Alviar.
There is no doubt in the mind of the Court that a subsequent party which caused the
defect in the instrument cannot have any recourse against any of the prior endorsers
in good faith. Eva Alviars and the petitioners liability to subsequent holders of the
foreign check is governed by the Negotiable Instruments Law as follows:
Sec. 66. Liability of general indorser. - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course;
14 | P a g e
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or
both, as the case may be, according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder, or to any subsequent indorser who may be compelled to pay it.
The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the
following:
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
Under Section 66, the warranties for which Alviar and Gonzales are liable as general
endorsers in favor of subsequent endorsers extend only to the state of the instrument
at the time of their endorsements, specifically, that the instrument is genuine and in all
respects what it purports to be; that they have good title thereto; that all prior parties
had capacity to contract; and that the instrument, at the time of their endorsements, is
valid and subsisting. This provision, however, cannot be used by the party which
introduced a defect on the instrument, such as respondent RCBC in this case, which
qualifiedly endorsed the same, to hold prior endorsers liable on the instrument
because it results in the absurd situation whereby a subsequent party may render an
instrument useless and inutile and let innocent parties bear the loss while he himself
gets away scot-free. It cannot be over-stressed that had it not been for the qualified
endorsement ("up to P17,500.00 only") of Olivia Gomez, who is the employee of RCBC,
there would have been no reason for the dishonor of the check, and full payment by
drawee bank therefor would have taken place as a matter of course.
Section 66 of the Negotiable Instruments Law which further states that the general
endorser additionally engages that, on due presentment, the instrument shall be
accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or to any subsequent endorser who may be compelled to
pay it, must be read in the light of the rule in equity requiring that those who come to
court should come with clean hands. The holder or subsequent endorser who tries to
claim under the instrument which had been dishonored for "irregular endorsement"
must not be the irregular endorser himself who gave cause for the dishonor. Otherwise,
a clear injustice results when any subsequent party to the instrument may simply
make the instrument defective and later claim from prior endorsers who have no
knowledge or participation in causing or introducing said defect to the instrument,
which thereby caused its dishonor.
Courts in this jurisdiction are not only courts of law but also of equity, and therefore
cannot unqualifiedly apply a provision of law so as to cause clear injustice which the
framers of the law could not have intended to so deliberately cause. In Carceller v.
Court of Appeals,4 this Court had occasion to stress:
Courts of law, being also courts of equity, may not countenance such grossly unfair
results without doing violence to its solemn obligation to administer fair and equal
justice for all.
RCBC, which caused the dishonor of the check upon presentment to the drawee bank,
through the qualified endorsement of its employee, Olivia Gomez, cannot hold prior
endorsers, Alviar and Gonzales in this case, liable on the instrument.
Moreover, it is a well-established principle in law that as between two parties, he who,
by his acts, caused the loss shall bear the same.5 RCBC, in this instance, should
therefore bear the loss.
Relative to the petitioners counterclaim against RCBC for the amount of P12,822.20
which it admittedly deducted from petitioners salary, the Court must order the return
thereof to the petitioner, with legal interest of 12% per annum, notwithstanding the
petitioners apparent acquiescence to such an arrangement. It must be noted that
petitioner is not any ordinary client or depositor with whom RCBC had this isolated
transaction. Petitioner was a rank-and-file employee of RCBC, being a new accounts
clerk thereat. It is easy to understand how a vulnerable Gonzales, who is financially
dependent upon RCBC, would rather bite the bullet, so to speak, and expectedly opt for
salary deduction rather than lose her job and her entire salary altogether. In this sense,
we cannot take petitioners apparent acquiescence to the salary deduction as being an
entirely free and voluntary act on her part. Additionally, under the obtaining facts and
circumstances surrounding the present complaint for collection of sum of money by
RCBC against its employee, which may be deemed tantamount to harassment, and the
fact that RCBC itself was the one, acting through its employee, Olivia Gomez, which
gave reason for the dishonor of the dollar-check in question, RCBC may likewise be
held liable for moral and exemplary damages and attorneys fees by way of damages,
in the amount of P20,000.00 for each.
WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED and SET
ASIDE and the Complaint in this case DISMISSED for lack of merit. Petitioners
counterclaim is GRANTED, ordering the respondent RCBC to reimburse petitioner the
amount P12,822.20, with legal interest computed from the time of salary deduction up
to actual payment, and to pay petitioner the total amount of P60,000.00 as moral and
exemplary damages, and attorneys fees.
Costs against the respondent.
SO ORDERED.
[G.R. No. 159590. October 18, 2004]
HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, petitioner, vs.
CECILIA DIEZ CATALAN, respondent.
[G.R. No. 159591. October 18, 2004]
15 | P a g e
HSBC INTERNATIONAL TRUSTEE LIMITED, petitioner, vs. CECILIA DIEZ
CATALAN, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us are two petitions for review on certiorari under Rule 45 of the Rules of Court
separately filed by the Hongkong and Shanghai Banking Corporation Limited (HSBANK)
and HSBC International Trustee Limited (HSBC TRUSTEE). They seek the reversal of the
consolidated Decision,[1] dated August 14, 2003, of the Court of Appeals (CA) in CA-
G.R. SP Nos. 75756 and 75757, which dismissed the petitions for certiorari of herein
petitioners assailing the Order, dated May 15, 2002, of the Regional Trial Court, Branch
44, Bacolod City (RTC) in Civil Case No. 01-11372 that denied their respective motions
to dismiss the amended complaint of respondent Cecilia Diez Catalan.
The factual antecedents are as follows:
On January 29, 2001, respondent filed before the RTC, a complaint for a sum of money
with damages against petitioner HSBANK, docketed as Civil Case No. 01-11372, due to
HSBANKs alleged wanton refusal to pay her the value of five HSBANK checks issued by
Frederick Arthur Thomson (Thomson) amounting to HK$3,200,000.00.[2]
On February 7, 2001, summons was served on HSBANK at the Enterprise Center, Tower
I, Ayala Avenue corner Paseo de Roxas St., Makati City.[3] HSBANK filed a Motion for
Extension of Time to File Answer or Motion to Dismiss dated February 21, 2001.[4]
Then, it filed a Motion to Dismiss, dated March 8, 2001, on the grounds that (a) the RTC
has no jurisdiction over the subject matter of the complaint; (b) the RTC has not
acquired jurisdiction for failure of the plaintiff to pay the correct filing or docket fees;
(c) the RTC has no jurisdiction over the person of HSBANK; (d) the complaint does not
state a cause of action against HSBANK; and (e) plaintiff engages in forum-shopping.
[5]
On September 10, 2001, Catalan filed an Amended Complaint impleading petitioner
HSBC TRUSTEE as co-defendant and invoking Article 19 of the Civil Code as basis for
her cause of action.[6]
The Amended Complaint alleges:
Defendants HSBANK and HSBC TRUSTEE, doing business in the Philippines, are
corporations duly organized under the laws of the British Virgin Islands with head office
at 1 Grenville Street, St. Helier Jersey, Channel Islands and with branch offices at Level
12, 1 Queens Road Central, Hongkong and may be served with summons and other
court processes through their main office in Manila with address at HSBC, the
Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas Street, Makati City.
Sometime in March 1997, Thomson issued five HSBANK checks payable to Catalan, to
wit:
CHECK NO. DATE AMOUNT
807852 Mar. 15, 1997 $600,000.00
807853 Mar. 17, 1997 800,000.00
807854 Mar. 17, 1997 600,000.00
807855 Mar. 22, 1997 600,000.00
807856 Mar. 23, 1997 600,000.00
TOTAL $3,200,000.00
The checks when deposited were returned by HSBANK purportedly for reason of
payment stopped pending confirmation, despite the fact that the checks were duly
funded. On March 18, 1997, Thomson wrote a letter to a certain Ricky Sousa[7] of
HSBANK confirming the checks he issued to Catalan and requesting that all his checks
be cleared. On March 20, 1997, Thomson wrote another letter to Sousa of HSBANK
requesting an advice in writing to be sent to the Philippine National Bank, through the
fastest means, that the checks he previously issued to Catalan were already cleared.
Thereafter, Catalan demanded that HSBANK make good the checks issued by
Thomson. On May 16, 1997, Marilou A. Lozada, personal secretary and attorney-in-fact
of Thomson, wrote a letter to Sousa of HSBANK informing him that HSBANKs failure to
clear all the checks had saddened Thomson and requesting that the clearing of the
checks be facilitated. Subsequently, Thomson died and Catalan forwarded her demand
to HSBC TRUSTEE. Catalan sent photocopies of the returned checks to HSBC TRUSTEE.
Not satisfied, HSBC TRUSTEE through deceit and trickery, required Catalan, as a
condition for the acceptance of the checks, to submit the original copies of the
returned checks, purportedly, to hasten payment of her claim. HSBC TRUSTEE
succeeded in its calculated deception because on April 21, 1999, Catalan and her
former counsel went to Hongkong at their own expense to personally deliver the
originals of the returned checks to the officers of HSBC TRUSTEE, anxious of receiving
the money value of the checks but HSBC TRUSTEE despite receipt of the original
checks, refused to pay Catalans claim. Having seen and received the original of the
checks, upon its request, HSBC TRUSTEE is deemed to have impliedly accepted the
checks. Moreover, the refusal of HSBANK and HSBC TRUSTEE to pay the checks is
equivalent to illegal freezing of ones deposit. On the assurance of HSBC TRUSTEE that
her claim will soon be paid, as she was made to believe that payments of the checks
shall be made by HSBC TRUSTEE upon sight, the unsuspecting Catalan left the
originals of the checks with HSBC TRUSTEE and was given only an acknowledgment
receipt. Catalan made several demands and after several more follow ups, on August
16, 1999, Phoenix Lam, Senior Vice President of HSBC TRUSTEE, in obvious disregard
of her valid claim, informed Catalan that her claim is disapproved. No reason or
explanation whatsoever was made why her claim was disapproved, neither were the
checks returned to her. Catalan appealed for fairness and understanding, in the hope
that HSBC TRUSTEE would act fairly and justly on her claim but these demands were
met by a stonewall of silence. On June 9, 2000, Catalan through counsel sent a last and
final demand to HSBC TRUSTEE to remit the amount covered by the checks but despite
receipt of said letter, no payment was made. Clearly, the act of the HSBANK and HSBC
TRUSTEE in refusing to honor and pay the checks validly issued by Thomson violates
the abuse of rights principle under Article 19 of the Civil Code which requires that
everyone must act with justice, give everyone his due and observe honesty and good
faith. The refusal of HSBANK and HSBC TRUSTEE to pay the checks without any valid
reason is intended solely to prejudice and injure Catalan. When they declined payment
of the checks despite instructions of the drawer, Thomson, to honor them, coupled with
the fact that the checks were duly funded, they acted in bad faith, thus causing
damage to Catalan. A person may not exercise his right unjustly or in a manner that is
not in keeping with honesty or good faith, otherwise he opens himself to liability for
abuse of right.[8]
16 | P a g e
Catalan prays that HSBANK and HSBC TRUSTEE be ordered to pay P20,864,000.00
representing the value of the five checks at the rate of P6.52 per HK$1 as of January
29, 2001 for the acts of HSBANK and HSBC TRUSTEE in refusing to pay the amount
justly due her, in addition to moral and exemplary damages, attorneys fees and
litigation expenses.[9]
On October 2, 2001, HSBANK filed a Motion to Dismiss Amended Complaint on the
grounds that: (a) the RTC has no jurisdiction over the subject matter of the complaint
since the action is a money claim for a debt contracted by Thomson before his death
which should have been filed in the estate or intestate proceedings of Thomson; (b)
Catalan engages in forum shopping by filing the suit and at the same time filing a
claim in the probate proceeding filed with another branch of the RTC; (c) the amended
complaint states no cause of action against HSBANK since it has no obligation to pay
the checks as it has not accepted the checks and Catalan did not re-deposit the checks
or make a formal protest; (d) the RTC has not acquired jurisdiction over the person of
HSBANK for improper service of summons; and, (e) it did not submit to the jurisdiction
of the RTC by filing a motion for extension of time to file a motion to dismiss.[10]
Meanwhile, on October 17, 2001, summons for HSBC TRUSTEE was tendered to the In
House Counsel of HSBANK (Makati Branch) at the Enterprise Center, Tower 1, Ayala
Avenue corner Paseo de Roxas, Makati. Without submitting itself to the jurisdiction of
the RTC, HSBC TRUSTEE filed a Special Appearance for Motion to Dismiss Amended
Complaint, dated October 29, 2001, questioning the jurisdiction of the RTC over it.[11]
HSBC TRUSTEE alleges that tender of summons through HSBANK Makati did not confer
upon the RTC jurisdiction over it because: (a) it is a corporation separate and distinct
from HSBANK; (b) it does not hold office at the HSBANK Makati or in any other place in
the Philippines; (c) it has not authorized HSBANK Makati to receive summons for it;
and, (d) it has no resident agent upon whom summons may be served because it does
not transact business in the Philippines.
Subsequently, HSBC TRUSTEE filed a Submission, dated November 15, 2001, attaching
the Affidavit executed in Hongkong by Phoenix Lam, Senior Vice-President of HSBC
TRUSTEE, attesting to the fact that: 1) HSBC TRUSTEE has not done nor is it doing
business in the Philippines; 2) it does not maintain any office in Makati or anywhere in
the Philippines; 3) it has not appointed any agent in Philippines; and 4) HSBANK Makati
has no authority to receive any summons or court processes for HSBC TRUSTEE.[12]
On May 15, 2002, the RTC issued an Order denying the two motions to dismiss.[13] The
RTC held that it has jurisdiction over the subject matter of the action because it is an
action for damages under Article 19 of the Civil Code for the acts of unjustly refusing to
honor the checks issued by Thomson and not a money claim against the estate of
Thomson; that Catalan did not engage in forum-shopping because the elements
thereof are not attendant in the case; that the question of cause of action should be
threshed out or ventilated during the proceedings in the main action and after the
plaintiff and defendants have adduced evidence in their favor; that it acquired
jurisdiction over the person of defendants because the question of whether a foreign
corporation is doing business or not in the Philippines cannot be a subject of a Motion
to Dismiss but should be ventilated in the trial on the merits; and defendants
voluntarily submitted to the jurisdiction of the RTC setting up in their Motions to
Dismiss other grounds aside from lack of jurisdiction.
HSBANK and HSBC TRUSTEE filed separate motions for reconsideration[14] but both
proved futile as they were denied by the RTC in an Order dated December 20, 2002.
[15]
On February 21, 2003, Catalan moved to declare HSBANK and HSBC TRUSTEE in
default for failure to file their answer to the amended complaint.
On March 5, 2003, HSBANK and HSBC TRUSTEE filed separate petitions for certiorari
and/or prohibition with the CA, docketed as CA-G.R. SP Nos. 75756[16] and 75757,[17]
respectively.
Subsequently, HSBANK and HSBC TRUSTEE filed before the RTC separate Answers ad
cautelam, both dated March 18, 2003, as a precaution against being declared in
default and without prejudice to the separate petitions for certiorari and/or prohibition
then pending with the CA.[18]
Meanwhile, the two petitions for certiorari before the CA were consolidated and after
responsive pleadings were filed, the cases were deemed submitted for decision.
In a consolidated Decision dated August 14, 2003, the CA dismissed the two petitions
for certiorari.[19] The CA held that the filing of petitioners answers before the RTC
rendered moot and academic the issue of the RTCs lack of jurisdiction over the person
of the petitioners; that the RTC has jurisdiction over the subject matter since it is one
for damages under Article 19 of the Civil Code for the alleged unjust acts of petitioners
and not a money claim against the estate of Thomson; and, that the amended
complaint states a cause of action under Article 19 of the Civil Code which could merit
a favorable judgment if found to be true. The CA noted that Catalan may have prayed
for payment of the value of the checks but ratiocinated that she merely used the value
as basis for the computation of the damages.
Hence, the present petitions.
In G.R. No. 159590, HSBANK submits the following assigned errors:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE COURT A
QUO, ACTING AS AN (SIC) REGULAR COURT, HAS JURISDICTION OVER THE AMENDED
COMPLAINT SEEKING TO ORDER HSBC TRUSTEE, THE EXECUTOR OF THE DECEASED
FREDERICK ARTHUR THOMSON, TO PAY SUBJECT CHECKS ISSUED BY THE LATE
FREDERICK ARTHUR THOMSON, ADMITTEDLY IN PAYMENT OF HIS INDEBTEDNESS TO
CATALAN.
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE
AMENDED COMPLAINT DOES NOT SEEK TO ORDER HSBANK AND HSBC INTERNATIONAL
TRUSTEE LIMITED TO PAY THE OBLIGATION OF THE (SIC) FREDERICK ARTHUR
THOMSON AS EVIDENCED BY THE CHECKS, BUT PRAYS FOR DAMAGES EQUIVALENT OR
17 | P a g e
COMPUTED ON THE BASIS OF THE VALUE OF THE CHECKS BECAUSE THE DEFENDANTS
FAILED TO COMPLY WITH THE MANDATES OF ARTICLE 19 OF THE NEW CIVIL CODE.
III.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT ALLEGATIONS
IN THE AMENDED COMPLAINT MAKE OUT A CAUSE OF ACTION WHICH COULD MERIT A
FAVORABLE JUDGMENT IF FOUND TO BE TRUE, OR IN NOT HOLDING THAT THE
AMENDED COMPLAINT STATES NO CAUSE OF ACTION AGAINST HSBANK, AS DRAWEE
BANK.
IV.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DISREGARDING THE FACT
THAT CATALAN ENGAGED IN FORUM SHOPPING BY FILING THE AMENDED COMPLAINT
WHILE HER PETITION FOR THE PROBATE OF THE SUPPOSED WILL OF THE DECEASED
FREDERICK ARTHUR THOMSON IS PENDING WITH ANOTHER BRANCH OF THE COURT A
QUO.
V.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT HSBANK HAD
SUBMITTED TO THE JURISDICTION OF THE COURT A QUO BY SUBMITTING AN ANSWER
TO THE AMENDED COMPLAINT.[20]
In G.R. No. 159591, HSBC TRUSTEE also assigns the foregoing first, second and fifth
errors as its own.[21] In addition, it claims that:
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT ORDERING THE
DISMISSAL OF THE AMENDED COMPLAINT AGAINST HSBC TRUSTEE DESPITE THE FACT
IT HAS NOT BEEN DULY SERVED WITH SUMMONS. [22]
HSBANK and HSBC TRUSTEE contend in common that Catalan has no cause of action
for abuse of rights under Article 19 of the Civil Code; that her complaint, under the
guise of a claim for damages, is actually a money claim against the estate of Thomson
arising from checks issued by the latter in her favor in payment of indebtedness.
HSBANK claims that the money claim should be dismissed on the ground of forum-
shopping since Catalan also filed a petition for probate of the alleged last will of
Thomson before RTC, Branch 48, Bacolod City, docketed as Spec. Proc No. 00-892. In
addition, HSBANK imputes error upon the CA in holding that by filing an answer to the
amended complaint, petitioners are estopped from questioning the jurisdiction of the
RTC.
HSBC TRUSTEE maintains that the RTC did not acquire jurisdiction over it for improper
service of summons.
In her Comment, Catalan insists that her complaint is one for damages under Article 19
of the Civil Code for the wanton refusal to honor and pay the value of five checks
issued by the Thomson amounting to HK$3,200,000.00. She argues that the issue of
jurisdiction has been rendered moot by petitioners participation in the proceedings
before the RTC.
Succinctly, the issues boil down to the following:
1) Does the complaint state a cause of action?
2) Did Catalan engage in forum-shopping by filing the complaint for damages when
she also filed a petition for probate of the alleged last will of Thomson with another
branch of the RTC? and,
3) Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE? Corollary thereto,
did the filing of the answer before the RTC render the issue of lack of jurisdiction moot
and academic?
We shall resolve the issue in seriatim.
Does the complaint state a cause of action against HSBANK and HSBC TRUSTEE?
The elementary test for failure to state a cause of action is whether the complaint
alleges facts which if true would justify the relief demanded. Stated otherwise, may the
court render a valid judgment upon the facts alleged therein?[23] The inquiry is into
the sufficiency, not the veracity of the material allegations.[24] If the allegations in the
complaint furnish sufficient basis on which it can be maintained, it should not be
dismissed regardless of the defense that may be presented by the defendants.[25]
Catalan anchors her complaint for damages on Article 19 of the Civil Code. It speaks of
the fundamental principle of law and human conduct that a person "must, in the
exercise of his rights and in the performance of his duties, act with justice, give every
one his due, and observe honesty and good faith." It sets the standards which may be
observed not only in the exercise of ones rights but also in the performance of ones
duties. When a right is exercised in a manner which does not conform with the norms
enshrined in Article 19 and results in damage to another, a legal wrong is thereby
committed for which the wrongdoer must be held responsible.[26] But a right, though
by itself legal because recognized or granted by law as such, may nevertheless
become the source of some illegality. A person should be protected only when he acts
in the legitimate exercise of his right, that is, when he acts with prudence and in good
faith; but not when he acts with negligence or abuse.[27] There is an abuse of right
when it is exercised for the only purpose of prejudicing or injuring another. The
exercise of a right must be in accordance with the purpose for which it was
established, and must not be excessive or unduly harsh; there must be no intention to
injure another.[28]
Thus, in order to be liable under the abuse of rights principle, three elements must
concur, to wit: (a) that there is a legal right or duty; (b) which is exercised in bad faith;
and (c) for the sole intent of prejudicing or injuring another.[29]
In this instance, after carefully examining the amended complaint, we are convinced
that the allegations therein are in the nature of an action based on tort under Article 19
18 | P a g e
of the Civil Code. It is evident that Catalan is suing HSBANK and HSBC TRUSTEE for
unjustified and willful refusal to pay the value of the checks.
HSBANK is being sued for unwarranted failure to pay the checks notwithstanding the
repeated assurance of the drawer Thomson as to the authenticity of the checks and
frequent directives to pay the value thereof to Catalan. Her allegations in the
complaint that the gross inaction of HSBANK on Thomsons instructions, as well as its
evident failure to inform Catalan of the reason for its continued inaction and non-
payment of the checks, smack of insouciance on its part, are sufficient statements of
clear abuse of right for which it may be held liable to Catalan for any damages she
incurred resulting therefrom. HSBANKs actions, or lack thereof, prevented Catalan from
seeking further redress with Thomson for the recovery of her claim while the latter was
alive.
HSBANK claims that Catalan has no cause of action because under Section 189 of the
Negotiable Instruments Law, a check of itself does not operate as an assignment of
any part of the funds to the credit of the drawer with the bank, and the bank is not
liable to the holder unless and until it accepts or certifies it. However, HSBANK is not
being sued on the value of the check itself but for how it acted in relation to Catalans
claim for payment despite the repeated directives of the drawer Thomson to recognize
the check the latter issued. Catalan may have prayed that she be paid the value of the
checks but it is axiomatic that what determines the nature of an action, as well as
which court has jurisdiction over it, are the allegations of the complaint, irrespective of
whether or not the plaintiff is entitled to recover upon all or some of the claims
asserted therein.[30]
Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalans claim.
When Catalan parted with the checks as a requirement for the processing of her claim,
even going to the extent of traveling to Hongkong to deliver personally the checks,
HSBC TRUSTEE summarily disapproved her claim with nary a reason. HSBC TRUSTEE
gave no heed to Catalans incessant appeals for an explanation. Her pleas fell on deaf
and uncaring corporate ears. Clearly, HSBC TRUSTEEs acts are anathema to the
prescription for human conduct enshrined in Article 19 of the Civil Code.
Did Catalan engage in forum-shopping?
It has been held that forum-shopping exists where a litigant sues the same party
against whom another action or actions for the alleged violation of the same right and
the enforcement of the same relief is/are still pending, the defense of litis pendentia in
one case is a bar to the others; and, a final judgment in one would constitute res
judicata and thus would cause the dismissal of the rest.[31]
Thus, there is forum-shopping when there exist: a) identity of parties, or at least such
parties as represent the same interests in both actions, b) identity of rights asserted
and relief prayed for, the relief being founded on the same facts, and c) the identity of
the two preceding particulars is such that any judgment rendered in the pending case,
regardless of which party is successful would amount to res judicata in the other.[32]
Applying the foregoing requisites to the case before us in relation to Spec. Proc No. 00-
892, the probate proceeding brought by Catalan before RTC, Branch 48, Bacolod City, it
is obvious that forum-shopping does not exist.
There is no identity of parties. HSBANK is not a party in the probate proceeding. HSBC
TRUSTEE is only a party in the probate proceeding because it is the executor and
trustee named in the Hongkong will of Thomson. HSBC TRUSTEE is representing the
interest of the estate of Thomson and not its own corporate interest.
With respect to the second and third requisites, a scrutiny of the entirety of the
allegations of the amended complaint in this case reveals that the rights asserted and
reliefs prayed for therein are different from those pleaded in the probate proceeding,
such that a judgment in one case would not bar the prosecution of the other case.
Verily, there can be no forum-shopping where in one proceeding a party raises a claim
for damages based on tort and, in another proceeding a party seeks the allowance of
an alleged last will based on ones claim as an heir. After all, the merits of the action for
damages is not to be determined in the probate proceeding and vice versa.
Undeniably, the facts or evidence as would support and establish the two causes of
action are not the same.[33] Consequently, HSBANKs reliance on the principle of
forum-shopping is clearly misplaced.
Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE?
The Rules of Court provides that a court generally acquires jurisdiction over a person
through either a valid service of summons in the manner required by law or the
persons voluntary appearance in court.[34]
In holding that it acquired jurisdiction over HSBANK and HSBC TRUSTEE, the RTC held
that both voluntarily submitted to the jurisdiction of the court by setting up in their
Motions to Dismiss other grounds aside from lack of jurisdiction. On the other hand, the
CA ruled that HSBANK and HSBC TRUSTEE are estopped from challenging the
jurisdiction of the RTC because they filed their respective answers before the RTC.
We find that both lower courts overlooked Section 20 of Rule 14 of the 1997 Rules of
Civil Procedure which provides that the inclusion in a motion to dismiss of other
grounds aside from lack of jurisdiction over the person of the defendant shall not be
deemed a voluntary appearance. Nonetheless, such omission does not aid HSBANKs
case.
It must be noted that HSBANK initially filed a Motion for Extension of Time to File
Answer or Motion to Dismiss.[35] HSBANK already invoked the RTCs jurisdiction over it
by praying that its motion for extension of time to file answer or a motion to dismiss be
granted. The Court has held that the filing of motions seeking affirmative relief, such
as, to admit answer, for additional time to file answer, for reconsideration of a default
judgment, and to lift order of default with motion for reconsideration, are considered
voluntary submission to the jurisdiction of the court.[36] Consequently, HSBANKs
expressed reservation in its Answer ad cautelam that it filed the same as a mere
precaution against being declared in default, and without prejudice to the Petition for
Certiorari and/or Prohibition xxx now pending before the Court of Appeals[37] to assail
the jurisdiction of the RTC over it is of no moment. Having earlier invoked the
jurisdiction of the RTC to secure affirmative relief in its motion for additional time to file
answer or motion to dismiss, HSBANK, effectively submitted voluntarily to the
jurisdiction of the RTC and is thereby estopped from asserting otherwise, even before
this Court.
19 | P a g e

In contrast, the filing by HSBC TRUSTEE of a motion to dismiss cannot be considered a
voluntary submission to the jurisdiction of the RTC. It was a conditional appearance,
entered precisely to question the regularity of the service of summons. It is settled that
a party who makes a special appearance in court challenging the jurisdiction of said
court, e.g., invalidity of the service of summons, cannot be considered to have
submitted himself to the jurisdiction of the court.[38] HSBC TRUSTEE has been
consistent in all its pleadings in assailing the service of summons and the jurisdiction
of the RTC over it. Thus, HSBC TRUSTEE cannot be declared in estoppel when it filed an
Answer ad cautelam before the RTC while its petition for certiorari was pending before
the CA. Such answer did not render the petition for certiorari before the CA moot and
academic. The Answer of HSBC TRUSTEE was only filed to prevent any declaration that
it had by its inaction waived the right to file responsive pleadings.
Admittedly, HSBC TRUSTEE is a foreign corporation, organized and existing under the
laws of the British Virgin Islands. For proper service of summons on foreign
corporations, Section 12 of Rule 14 of the Revised Rules of Court provides:
by the RTC is therefore null and void.[42] Accordingly, the complaint against HSBC
TRUSTEE should have been dismissed for lack of jurisdiction over it.
WHEREFORE, the petition in G.R. No. 159590 is DENIED. The Decision of the Court of
Appeals, dated August 14, 2003, in CA-G.R. SP No. 75757 dismissing the petition for
certiorari of the Hongkong and Shanghai Banking Corporation Limited is AFFIRMED.
The petition in G.R. No. 159591 is GRANTED. The Decision of the Court of Appeals,
dated August 14, 2003, in CA-G.R. SP No. 75756 dismissing the petition for certiorari of
the HSBC International Trustee Limited is REVERSED and SET ASIDE. The Regional Trial
Court, Branch 44, Bacolod City is declared without jurisdiction to take cognizance of
Civil Case No. 01-11372 against the HSBC International Trustee Limited, and all its
orders and issuances with respect to the latter are hereby ANNULLED and SET ASIDE.
The said Regional Trial Court is hereby ORDERED to DESIST from maintaining further
proceedings against the HSBC International Trustee Limited in the case aforestated.
SO ORDERED.

SEC. 12. Service upon foreign private juridical entity. When the defendant is a foreign
private juridical entity which has transacted business in the Philippines, service may be
made on its resident agent designated in accordance with law for that purpose, or if
there be no such agent, on the government official designated by law to that effect, or JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK OF THE
on any of its officers or agents within the Philippines. PHILIPPINE ISLAND, Respondent.

In French Oil Mill Machinery Co., Inc. vs. Court of Appeals,[39] we had occasion to rule
that it is not enough to merely allege in the complaint that a defendant foreign
corporation is doing business. For purposes of the rule on summons, the fact of doing
business must first be "established by appropriate allegations in the complaint" and
the court in determining such fact need not go beyond the allegations therein.[40]
The allegations in the amended complaint subject of the present cases did not
sufficiently show the fact of HSBC TRUSTEEs doing business in the Philippines. It does
not appear at all that HSBC TRUSTEE had performed any act which would give the
general public the impression that it had been engaging, or intends to engage in its
ordinary and usual business undertakings in the country. Absent from the amended
complaint is an allegation that HSBC TRUSTEE had performed any act in the country
that would place it within the sphere of the courts jurisdiction.
CASTRO, J.:
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to as
the petitioner) for review of the decision of the Court of Appeals in C.A.-G.R. 34042-R
dated June 25, 1968 in favor of the Bank of the Philippine Islands (hereinafter referred
to as the respondent).
From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58
were deposited by the petitioner in its current account with the respondent bank. The
particulars of these checks are as follows:
1. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation
and payable to the Inter-Island Gas Service Inc. or order:

We have held that a general allegation, standing alone, that a party is doing business Date Check Exhibit
in the Philippines does not make it so; a conclusion of fact or law cannot be derived
from the unsubstantiated assertions of parties notwithstanding the demands of Deposited Number Amount Number
convenience or dispatch in legal actions, otherwise, the Court would be guilty of
sorcery; extracting substance out of nothingness.[41] 4/2/59 B-352680 P500.00 18

Besides, there is no allegation in the amended complaint that HSBANK is the domestic 4/20/59 A-156907 372.32 19
agent of HSBC TRUSTEE to warrant service of summons upon it. Thus, the summons
tendered to the In House Counsel of HSBANK (Makati Branch) for HSBC TRUSTEE was 4/24/59 A-156924 397.82 20
clearly improper.
5/4/59 B-364764 250.00 23
There being no proper service of summons, the RTC cannot take cognizance of the
case against HSBC TRUSTEE for lack of jurisdiction over it. Any proceeding undertaken 5/6/59 B-364775 250.00 24
20 | P a g e

2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and
payable to the Inter-Island Gas Service, Inc. or bearer:
4/13/59 B-335063 P 2108.70 21
4/27/59 B-335072 P2210.94 22
3. Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation
and payable to the Inter-Island Gas Service, Inc. or bearer:
5/18/59 VN430188 P940.80 25
4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank and
payable to the Inter-Island Gas Service, Inc. order:
5/14/59 1860160 P 500.00 26
5/18/59 1860660 P 500.00 27
All the foregoing checks, which were acquired by the petitioner from one Antonio J.
Ramirez, a sales agent of the Inter-Island Gas and a regular bettor at jai-alai games,
were, upon deposit, temporarily credited to the petitioner's account in accordance with
the clause printed on the deposit slips issued by the respondent and which reads:
"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby
received for deposit, is provisional only, until such time as the proceeds thereof, in
current funds or solvent credits, shall have been actually received by the Bank and the
latter reserves to itself the right to charge back the item to the account of its
depositor, at any time before that event, regardless of whether or not the item itself
can be returned."
About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas
and after the checks had been submitted to inter-bank clearing, the Inter-Island Gas
discovered that all the indorsements made on the checks purportedly by its cashiers,
Santiago Amplayo and Vicenta Mucor (who were merely authorized to deposit checks
issued payable to the said company) as well as the rubber stamp impression thereon
reading "Inter-Island Gas Service, Inc.," were forgeries. In due time, the Inter-Island Gas
advised the petitioner, the respondent, the drawers and the drawee-banks of the said
checks about the forgeries, and filed a criminal complaint against Ramirez with the
Office of the City Fiscal of Manila. 1
The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas
dated August 31, 1959, called up the petitioner's cashier, Manuel Garcia, and advised
the latter that in view of the circumstances he would debit the value of the checks
against the petitioner's account as soon as they were returned by the respective
drawee-banks.
Meanwhile, the drawers of the checks, having been notified of the forgeries, demanded
reimbursement to their respective accounts from the drawee-banks, which in turn
demanded from the respondent, as collecting bank, the return of the amounts they had
paid on account thereof. When the drawee-banks returned the checks to the
respondent, the latter paid their value which the former in turn paid to the Inter-Island
Gas. The respondent, for its part, debited the petitioner's current account and
forwarded to the latter the checks containing the forged indorsements, which the
petitioner, however, refused to accept.
On October 8, 1959 the petitioner drew against its current account with the respondent
a check for P135,000 payable to the order of the Mariano Olondriz y Cia. in payment of
certain shares of stock. The check was, however, dishonored by the respondent as its
records showed that as of October 8, 1959 the current account of the petitioner, after
netting out the value of the checks P8,030.58) with the forged indorsements, had a
balance of only P128,257.65.
The petitioner then filed a complaint against the respondent with the Court of First
Instance of Manila, which was however dismissed by the trial court after due trial, and
as well by the Court of Appeals, on appeal.
Hence, the present recourse.
The issues posed by the petitioner in the instant petition may be briefly stated as
follows:
(a) Whether the respondent had the right to debit the petitioner's current account in
the amount corresponding to the total value of the checks in question after more than
three months had elapsed from the date their value was credited to the petitioner's
account:(b) Whether the respondent is estopped from claiming that the amount of
P8,030.58, representing the total value of the checks with the forged indorsements,
had not been properly credited to the petitioner's account, since the same had already
been paid by the drawee-banks and received in due course by the respondent; and(c)
On the assumption that the respondent had improperly debited the petitioner's current
account, whether the latter is entitled to damages.
These three issues interlock and will be resolved jointly.
In our opinion, the respondent acted within legal bounds when it debited the
petitioner's account. When the petitioner deposited the checks with the respondent,
the nature of the relationship created at that stage was one of agency, that is, the
bank was to collect from the drawees of the checks the corresponding proceeds. It is
true that the respondent had already collected the proceeds of the checks when it
debited the petitioner's account, so that following the rule in Gullas vs. Philippine
National Bank 2 it might be argued that the relationship between the parties had
become that of creditor and debtor as to preclude the respondent from using the
petitioner's funds to make payments not authorized by the latter. It is our view
nonetheless that no creditor-debtor relationship was created between the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3
"When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party
21 | P a g e
against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority."
Since under the foregoing provision, a forged signature in a negotiable instrument is
wholly inoperative and no right to discharge it or enforce its payment can be acquired
through or under the forged signature except against a party who cannot invoke the
forgery, it stands to reason, upon the facts of record, that the respondent, as a
collecting bank which indorsed the checks to the drawee-banks for clearing, should be
liable to the latter for reimbursement, for, as found by the court a quo and by the
appellate court, the indorsements on the checks had been forged prior to their delivery
to the petitioner. In legal contemplation, therefore, the payments made by the drawee-
banks to the respondent on account of the said checks were ineffective; and, such
being the case, the relationship of creditor and debtor between the petitioner and the
respondent had not been validly effected, the checks not having been properly and
legitimately converted into cash. 4
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court ruled that it is
the obligation of the collecting bank to reimburse the drawee-bank the value of the
checks subsequently found to contain the forged indorsement of the payee. The reason
is that the bank with which the check was deposited has no right to pay the sum stated
therein to the forger "or anyone else upon a forged signature." "It was its duty to
know," said the Court, "that [the payee's] endorsement was genuine before cashing
the check." The petitioner must in turn shoulder the loss of the amounts which the
respondent; as its collecting agent, had to reimburse to the drawee-banks.
We do not consider material for the purposes of the case at bar that more than three
months had elapsed since the proceeds of the checks in question were collected by the
respondent. The record shows that the respondent had acted promptly after being
informed that the indorsements on the checks were forged. Moreover, having received
the checks merely for collection and deposit, the respondent cannot he expected to
know or ascertain the genuineness of all prior indorsements on the said checks.
Indeed, having itself indorsed them to the respondent in accordance with the rules and
practices of commercial banks, of which the Court takes due cognizance, the petitioner
is deemed to have given the warranty prescribed in Section 66 of the Negotiable
Instruments Law that every single one of those checks "is genuine and in all respects
what it purports to be.".
The petitioner was, moreover, grossly recreant in accepting the checks in question
from Ramirez. It could not have escaped the attention of the petitioner that the payee
of all the checks was a corporation the Inter-Island Gas Service, Inc. Yet, the
petitioner cashed these checks to a mere individual who was admittedly a habitue at
its jai-alai games without making any inquiry as to his authority to exchange checks
belonging to the payee-corporation. In Insular Drug Co. vs. National 6 the Court made
the pronouncement that.
". . . The right of an agent to indorse commercial paper is a very responsible power and
will not be lightly inferred. A salesman with authority to collect money belonging to his
principal does not have the implied authority to indorse checks received in payment.
Any person taking checks made payable to a corporation, which can act only by
agents, does so at his peril, and must abide by the consequences if the agent who
indorses the same is without authority." (underscoring supplied)
It must be noted further that three of the checks in question are crossed checks,
namely, exhs. 21, 25 and 27, which may only be deposited, but not encashed; yet, the
petitioner negligently accepted them for cash. That two of the crossed checks, namely,
exhs. 21 and 25, are bearer instruments would not, in our view, exculpate the
petitioner from liability with respect to them. The fact that they are bearer checks and
at the same time crossed checks should have aroused the petitioner's suspicion as to
the title of Ramirez over them and his authority to cash them (apparently to purchase
jai-alai tickets from the petitioner), it appearing on their face that a corporate entity
the Inter Island Gas Service, Inc. was the payee thereof and Ramirez delivered the
said checks to the petitioner ostensibly on the strength of the payee's cashiers'
indorsements.
At all events, under Section 67 of the Negotiable Instruments Law, "Where a person
places his indorsement on an instrument negotiable by delivery he incurs all the
liability of an indorser," and under Section 66 of the same statute a general indorser
warrants that the instrument "is genuine and in all respects what it purports to be."
Considering that the petitioner indorsed the said checks when it deposited them with
the respondent, the petitioner as an indorser guaranteed the genuineness of all prior
indorsements thereon. The respondent which relied upon the petitioner's warranty
should not be held liable for the resulting loss. This conclusion applied similarly to exh.
22 which is an uncrossed bearer instrument, for under Section 65 of the Negotiable
Instrument Law. "Every person negotiating an instrument by delivery . . . warrants (a)
That the instrument is genuine and in all respects what it purports to be." Under that
same section this warranty "extends in favor of no holder other than the immediate
transferee," which, in the case at bar, would be the respondent.
The provision in the deposit slip issued by the respondent which stipulates that it
"reserves to itself the right to charge back the item to the account of its depositor," at
any time before "current funds or solvent credits shall have been actually received by
the Bank," would not materially affect the conclusion we have reached. That stipulation
prescribes that there must be an actual receipt by the bank of current funds or solvent
credits; but as we have earlier indicated the transfer by the drawee-banks of funds to
the respondent on account of the checks in question was ineffectual because made
under the mistaken and valid assumption that the indorsements of the payee thereon
were genuine. Under article 2154 of the New Civil Code "If something is received when
there is no right to demand it and it was unduly delivered through mistake, the
obligation to return it arises." There was, therefore, in contemplation of law, no valid
payment of money made by the drawee-banks to the respondent on account of the
questioned checks.
ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's cost.
[G.R. No. 130756. January 21, 1999]
ESTER B. MARALIT, petitioner, vs. JESUSA CORAZON L. IMPERIAL, respondent.
DECISION
MENDOZA, J.:
22 | P a g e

This is a petition for review on certiorari of the decision, dated August 26, 1997, and
the resolution, dated September 29, 1997, of the Regional Trial Court of Naga City
(Branch 21) in Special Civil Case No. RTC 97-3744.
The facts are as follows:
Petitioner Ester B. Maralit filed three complaints for estafa through falsification of
commercial documents through reckless imprudence against respondent Jesusa
Corazon L. Imperial.[1] Maralit alleged that she was assistant manager of the Naga City
branch of the Philippine National Bank (PNB); that on May 20, 1992, June 1, 1992, and
July 1, 1992 respondent Imperial separately deposited in her savings account at the
PNB three United States treasury warrants bearing USTW Nos. 2034-91254963, 2034-
91180047, and 2034-33330760 and on the same days withdrew their peso equivalent
of P59,216.86, P130,743.60, and P130,326.00, respectively; and that the treasury
warrants were subsequently returned one after the other by the United States
Treasury, through the Makati branch of the Citibank, on the ground that the amounts
thereof had been altered. Maralit claimed that, as a consequence, she was held
personally liable by the PNB for the total amount of P320,287.30.
In her counter-affidavit, respondent claimed that she merely helped a relative, Aida
Abengoza, encash the treasury warrants; that she deposited the treasury warrants in
her savings account and then withdrew their peso equivalent with the approval of
petitioner; that she gave the money to Aida Abengoza; that she did not know that the
amounts on the treasury warrants had been altered nor did she represent to petitioner
that the treasury warrants were genuine; and that upon being informed of the dishonor
of the warrants she immediately contacted Aida Abengoza and signed an
acknowledgment of debt promising to pay the total amount of the treasury warrants.
After preliminary investigation, the City Prosecutor of Naga City filed three informations
against respondent in the Municipal Trial Court of Naga City (Branch 3).
On September 26, 1996, judgment was rendered as follows:
WHEREFORE, in view of the foregoing considerations, the Court finds no ground to hold
the accused criminally liable for which she is charged, hence Corazon Jesusa L.
Imperial is ACQUITTED of all the charges against her. The accused however is civilly
liable as indorser of the checks which is (sic) the subject matter of the criminal action.
[2]
The decision having become final and executory, the MTC, on November 11, 1996,
ordered the enforcement of the civil liability against the accused arising from the
criminal action.[3] The writ of execution, dated December 9, 1996, directed the sheriff
as follows:[4]
NOW, THEREFORE, you are hereby commanded to cause the execution of the aforesaid
judgment in the amount of THREE HUNDRED TWENTY THOUSAND TWO HUNDRED
EIGHTY SIX & 46/100 (P320,286.46) ONLY, equivalent to the amount of the 3 three US$
checks amounting to $12,621.13, and to levy the goods and chattels of the
defendant/s, except those which are exempt from execution and to make the sale
thereat in accordance with the procedure outlined by Rule 39, Revised Rules of Court
and such cases made and provided, together with all your lawful fees for the services
of this writ.
Accordingly, the sheriff served a notice of garnishment on the PNB.
Respondent at first moved to declare her savings account exempt from execution on
the ground that the same represented her salary as an employee of the Commission
on Audit, which was not even sufficient for her expenses and that of her family. Later,
she moved to quash the writ of execution on the ground that the judgment did not
order the accused to pay [a] specific amount of money to a particular person as it
merely adjudicated the criminal aspect but not the civil aspect hence there was no
judgment rendered which can be the subject of execution.
Both motions of respondent were denied by the MTC for lack of merit in its order, dated
February 24, 1997.[5] Accordingly, an alias writ of execution was issued.
On April 14, 1997, respondent filed a petition for certiorari and prohibition in the
Regional Trial Court of Naga City, contending that the writ of execution issued by the
MTC was at variance with the judgment in the criminal cases.
The RTC issued a writ of preliminary injunction enjoining enforcement of the writ of
execution issued by the MTC. On August 26, 1997, it rendered a decision, which,
among other things, made permanent the injunction. The RTC held that the decision of
the MTC did not really find respondent liable for P320,286.46 because in fact it was
petitioner who was found responsible for making the defraudation possible.
Petitioner moved for reconsideration alleging that respondent filed her petition for
certiorari and prohibition more than three months after the MTC had ordered execution
of its decision on November 11, 1996. However, her motion was denied on September
28, 1997.[6] The RTC held that the three-month period should be counted from April 1,
1997, when the alias writ of execution was issued, or from April 7, 1997, when the MTC
denied private respondents motion for reconsideration of the order denying her motion
to quash the writ of execution. The RTC likewise found the second ground of petitioners
motion for reconsideration, i.e., that its decision was contrary to law and jurisprudence,
devoid of merit.
Hence, this petition. Petitioner raises the following issues:[7]
1. Whether respondents Petition for Certiorari and Prohibition under Rule 65 of the
Rules of Court was filed out of time;
2. Whether this case warrants the relaxation of the rule that Certiorari is not a
substitute for a lost or lapsed appeal.
3. Whether or not the MTC committed grave abuse of discretion amounting to lack or
excess of jurisdiction, when it issued the Order of Execution, Writ of Execution and
Alias Writ of Execution to implement its final and executory civil judgment in Criminal
Cases No. 68697, 68698 and 68699, which reads: . . . The accused however is civilly
liable as indorser of the checks subject matter of the criminal action.
23 | P a g e
4. Whether or not the MTC merely adjudicated the criminal aspect but not the civil
aspect of Criminal Cases 68697, 68698 and 68699.
5. Whether there was substantial variance as between the dispositive portion of the
civil judgment and the writ of execution issued thereunder.
6. Whether or not a court exercising certiorari jurisdiction has the authority to modify
or alter the final and executory decision of the lower court even by way of an obiter
dictum.
Petitioner contends that the phrase civilly liable in the judgment part of the MTCs
decision also connotes an order to pay on respondents part.
It may fairly be assumed that the decision of the MTC was an adjudication of both the
criminal and civil liability of respondent inasmuch as it does not appear that petitioner
instituted a separate civil action or reserved or waived the right to bring such action.
The question is whether the decision of the MTC finds respondent civilly liable and, in
the affirmative, for how much. As already stated, the RTC held that the MTC did not
really find respondent liable. In reaching that conclusion, the RTC said:
A mere reading of the dispositive portion of the judgment and the writ of execution will
readily show that there is variance between the two. Whereas, the judgment
pronounced [respondent herein] to be civilly liable as indorser of the checks which is
the subject matter of the criminal action, the writ of execution commanded the Sheriff
to cause the execution of the aforesaid judgment in the amount of THREE HUNDRED
TWENTY THOUSAND TWO HUNDRED EIGHTY SIX & 46/100 (P320,286.46) ONLY,
equivalent to the amount of the 3 three US$ checks amounting to $12,621.13, . . . . In
the judgment, nothing is mentioned about the amount for which [respondent herein] is
liable as indorser, but in the writ of execution, the civil liability of the [respondent
herein] has already been fixed at P320,286.46. The variance, therefore, between the
judgment and the writ of execution is substantial because it consists of the addition of
the amount of the civil liability of the [respondent herein].
....
. . . The [MTCs] findings of facts and conclusions of law as expressed in the body of the
decision do not support the dispositive portion of the judgment that [respondent
herein] is civilly liable. On the contrary a reading of the body of the judgment in
question will show that [respondent] is not civilly liable. For three (3) times, the Court
stated in the body of its decision that it is [petitioner] Maralit herself who should be
faulted and be held responsible for the payment of the dishonored US Dollar checks.
Hereunder quoted are portions of the body of the decision in question showing that
[respondent] herein should not be held civilly liable and that it was [petitioner] Maralit
who should be blamed and be held responsible:
. . . The Court however is quite intrigue[d] on why the accused was allowed to encash
the peso equivalent despite the fact that the check was deposited for collection and
clearing. It is the established procedure of banks that out of town checks and US
Treasury Warrants should first be cleared before the same is to be paid. More so if the
holder is a second indorser. The private complainant in this regard explained that [as
assistant branch manager] she has the discretion and that there is no hold order
appearing in the savings account of the accused. She likewise explained that she
trusted the accused whom she knew is working in the same building and a depositor. In
short she took the risk of approving the withdrawal of the peso equivalent, without the
check being cleared and if the same is dishonored she should be responsible. (page 5,
judgment).
The information accuses the accused for disregarding the banking laws and procedure
of the PNB. This is a generous statement. In the first place the accused is not an
employee of the bank. She has no control nor supervision over its employees. If there
is anyone who has disregarded banking laws, it is the private complainant for
approving withdrawals before the check were cleared. Mrs. Maralit is more
knowledgeable of the banking procedures of the bank of which she is the assistant
manager. She knows the risk of approving encashment before clearing. She took the
risk therefore she should be responsible for the outcome of the risk she has taken.
(page 6, Judgment).
The Court is of the opinion that there was negligence on both the complainant and the
accused but greater responsibility should be borne by the private complainant. The
accused could not have encashed and deposited the checks without her approval. If
the complainant was not remiss in her duty in imposing the banking rules strictly, then
these things could not have happened. (page 7, Judgment).[8]
This portion of the decision of the MTC actually refers to respondents criminal liability
and not her civil liability. More specifically, the portion in question refers to the
allegations in the three informations that respondent committed falsification of
commercial documents through reckless imprudence by 1) taking advantage of [her]
position as state auditor of the Commission on Audit assigned at the PNB, Naga
Branch, 2) disregard[ing] existing procedure, banking laws, policies, and circulars of
the PNB, 3) . . . not tak[ing] the necessary precaution to determine the genuineness of
the Treasury Warrants and the alteration of the amount[s] therein deposited and [in]
encash[ing] the checks, and 4) . . . [her] negligence, carelessness, and imprudence
[which] caused damage and loss to [petitioner].[9] Nevertheless, the MTC held that
respondent was civilly liable as the penultimate paragraph of its decision makes clear:
The Court symphatizes with the complainant that there was indeed damage and loss,
but said loss is chargeable to the accused who upon her indorsements warrant that the
instrument is genuine in all respect what it purports to be and that she will pay the
amount thereof in case of dishonor. (Sec. 66 Negotiable Instrument Law) [10]
Thus, while the MTC found petitioner partly responsible for the encashment of the
altered checks, it found respondent civilly liable because of her indorsements of the
treasury warrants, in addition to the fact that respondent executed a notarized
acknowledgment of debt promising to pay the total amount of said warrants.
In this case, to affirm the RTCs decision would be to hold that respondent was absolved
from both criminal and civil liability by the MTC. Such reading of the MTC decision will
not, however, bear analysis. For one, the dispositive portion of the decision of the MTC
expressly declares respondent to be civilly liable as indorser of the checks which is
[sic] the subject matter of the criminal action. To find therefore that there is no
24 | P a g e
declaration of civil liability of respondent would be to disregard the judgment of the
MTC. Worse, it would be to amend a final and executory decision of a court.
It is argued that the decision of the MTC did not order respondent, as accused in the
case, to pay a specific amount of money to any particular person such that it could not
be an adjudication of respondents civil liability. However, the ambiguity can easily be
clarified by a resort to the text of the decision or, what is properly called, the opinion
part. Doing so, it is clear that it can only be to petitioner that respondent was made
liable as the former was the offended party in the case. As for what amount
respondent is liable, it can only be for the total amount of the treasury warrants
subject of the case, determined according to their peso equivalent, in the decision of
the MTC.
For another, that respondent should pay petitioner the amounts of the altered treasury
warrants is the logical consequence of the MTCs holding that private respondent is
civilly liable for the treasury warrants subject of the case.[11]
WHEREFORE, the decision of the Regional Trial Court of Naga City (Branch 21) is
REVERSED.
METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK
CORPORATION),
Petitioner, - versus -BA FINANCE CORPORATION and MALAYAN INSURANCE
CO., INC.,
Respondents.
G.R. No. 179952
Promulgated:
December 4, 2009
x-------------------------------------------------x
DECISION
CARPIO MORALES, J.:
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA
Finance) a P329,280[1] loan to secure which, he mortgaged his car to respondent BA
Finance.[2] The mortgage contained the following stipulation:
The MORTGAGOR covenants and agrees that he/it will cause the property(ies)
hereinabove mortgaged to be insured against loss or damage by accident, theft and
fire for a period of one year from date hereof with an insurance company or companies
acceptable to the MORTGAGEE in an amount not less than the outstanding balance of
mortgage obligations and that he/it will make all loss, if any, under such policy or
policies, payable to the MORTGAGEE or its assigns as its interest may appear x x x.[3]
(emphasis and underscoring supplied)
Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc.
(Malayan Insurance)[4] which issued a policy stipulating that, inter alia,
Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is
hereby expressly understood that this policy or any renewal thereof, shall not be
cancelled without prior notification and conformity by BA FINANCE CORPORATION.[5]
(emphasis and underscoring supplied)
The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to
the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500, drawn
against China Banking Corporation (China Bank). The check was crossed with the
notation For Deposit Payees Account Only.[6]
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited
the check to his account with the Asianbank Corporation (Asianbank), now merged
with herein petitioner Metropolitan Bank and Trust Company (Metrobank). Bitanga
subsequently withdrew the entire proceeds of the check.
In the meantime, Bitangas loan became past due, but despite demands, he failed to
settle it.
BA Finance eventually learned of the loss of the car and of Malayan Insurances
issuance of a crossed check payable to it and Bitanga, and of Bitangas depositing it in
his account at Asianbank and withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value of the check from
Asianbank[7] but to no avail, prompting it to file a complaint before the Regional Trial
Court (RTC) of Makati for sum of money and damages against Asianbank and Bitanga,
[8] alleging that, inter alia, it is entitled to the entire proceeds of the check.
In its Answer with Counterclaim,[9] Asianbank alleged that BA Finance instituted [the]
complaint in bad faith to coerce [it] into paying the whole amount of the CHECK
knowing fully well that its rightful claim, if any, is against Malayan [Insurance].[10]
Asianbank thereafter filed a cross-claim against Bitanga,[11] alleging that he
fraudulently induced its personnel to release to him the full amount of the check; and
that on being later informed that the entire amount of the check did not belong to
Bitanga, it took steps to get in touch with him but he had changed residence without
leaving any forwarding address.[12]
And Asianbank filed a third-party complaint against Malayan Insurance,[13] alleging
that Malayan Insurance was grossly negligent in issuing the check payable to both
Bitanga and BA Finance and delivering it to Bitanga without the consent of BA Finance.
[14]
25 | P a g e

Bitanga was declared in default in Asianbanks cross-claim.[15]
Branch 137 of the Makati RTC, finding that Malayan Insurance was not privy to the
contract between BA Finance and Bitanga, and noting the claim of Malayan Insurance
that it is its policy to issue checks to both the insured and the financing company, held
that Malayan Insurance cannot be faulted for negligence for issuing the check payable
to both BA Finance and Bitanga.
The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the
check to his account and to withdraw the proceeds thereof, without his co-payee BA
Finance having either indorsed it or authorized him to indorse it in its behalf,[16] found
Asianbank and Bitanga jointly and severally liable to BA Finance following Section 41 of
the Negotiable Instruments Law and Associated Bank v. Court of Appeals.[17]
Thus the trial court disposed:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendants
Asian Bank Corporation and Lamberto Bitanga:
1) To pay plaintiff jointly and severally the sum of P224,500.00 with
interest thereon at the rate of 12% from September 25, 1992 until fully paid;
2) To pay plaintiff the sum of P50,000.00 as exemplary damages;
P20,000.00 as actual damages; P30,000.00 as attorneys fee; and
3) To pay the costs of suit.
Asianbanks and Bitangas [sic] counterclaims are dismissed.
The third party complaint of defendant/third party plaintiff against third-party
defendant Malayan Insurance, Co., Inc. is hereby dismissed. Asianbank is ordered to
pay Malayan attorneys fee of P50,000.00 and a per appearance fee of P500.00.
On the cross-claim of defendant Asianbank, co-defendant Lamberto Bitanga is ordered
to pay the former the amounts the latter is ordered to pay the plaintiff in Nos. 1, 2 and
3 above-mentioned.
SO ORDERED.[18] (emphasis and underscoring supplied)
Before the Court of Appeals, Asianbank, in its Appellants Brief, submitted the following
issues for consideration:
3.01.1.1 Whether BA Finance has a cause of action against Asianbank.
3.01.1.2 Assuming that BA Finance has a valid cause of action, may it claim from
Asianbank more than one-half of the value of the check considering that it is a mere
co-payee or joint payee of the check?
3.01.1.3 Whether BA Finance is liable to Asianbank for actual and exemplary
damages for wrongfully bringing the case to court.
3.01.1.4 Whether Malayan is liable to Asianbank for reimbursement of any sum of
money which this Honorable Court may award to BA Finance in this case.[19]
(underscoring supplied)
And it proffered the following arguments:
A. BA Finance has no cause of action against Asianbank as it has no legal right and title
to the check considering that the check was not delivered to BA Finance. Hence, BA
Finance is not a holder thereof under the Negotiable Instruments Law.
B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of
contract between them.
C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the
intermediary between the payee and the drawee Chinabank, it merely acted on the
instructions of drawee Chinabank to pay the amount of the check to Bitanga, hence,
the consequent damage to BA Finance was due to the negligence of Chinabank.
D. Malayans act of issuing and delivering the check solely to Bitanga in violation of the
loss payee clause in the Policy, is the proximate cause of the alleged damage to BA
Finance.
E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest
on the check as it is a joint payee thereof.
F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust
enrichment or solutio indebiti.
G. BA Finance is liable to pay Asianbank actual and exemplary damages.[20]
(underscoring supplied)
The appellate court, summarizing the errors attributed to the trial court by Asianbank
to be whetherBA Finance has a cause of action against [it] even if the subject check
had not been delivered toBA Finance by the issuer itself, held in the affirmative and
accordingly affirmed the trial courts decision but deleted the award of P20,000 as
actual damages.[21]
Hence, the present Petition for Review on Certiorari[22] filed by Metrobank (hereafter
petitioner) to which Asianbank was, as earlier stated, merged, faulting the appellate
court
I. x x x in applying the case of Associated Bank v. Court of Appeals, in
the absence of factual similarity and of the legal relationships necessary for the
application of the desirable shortcut rule. x x x
II. x x x in not finding that x x x the general rule that the payee has no
cause of action against the collecting bank absent delivery to him must be applied.
26 | P a g e
III. x x x in finding that all the elements of a cause of action by BA
Finance Corporation against Asianbank Corporation are present.
IV. x x x in finding that Article 1208 of the Civil Code is not applicable.
V. x x x in awarding of exemplary damages even in the absence of
moral, temperate, liquidated or compensatory damages and a finding of fact that
Asianbank acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
xxxx
VII. x x x in dismissing Asianbanks counterclaim and Third Party complaint
[against Malayan Insurance].[23] (italics in the original; underscoring supplied)
Petitioner proffers the following arguments against the application of Associated Bank
v. CA to the case:
x x x [T]he rule established in the Associated Bank case has provided a speedier
remedy for the payee to recover from erring collecting banks despite the absence of
delivery of the negotiable instrument. However, the application of the rule demands
careful consideration of the factual settings and issues raised in the case x x x.
One of the relevant circumstances raised in Associated Bank is the existence of forgery
or unauthorized indorsement. x x x
xxxx
In the case at bar, Bitanga is authorized to indorse the check as the drawer names him
as one of the payees. Moreover, his signature is not a forgery nor has he or anyone
forged the signature of the representative of BA Finance Corporation. No unauthorized
indorsement appears on the check.
xxxx
Absent the indispensable fact of forgery or unauthorized indorsement, the desirable
shortcut rule cannot be applied,[24] (underscoring supplied)
The petition fails.
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees who
are not partners, all must indorse unless the one indorsing has authority to indorse for
the others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and
release of the proceeds thereof, despite the absence of authority of Bitangas co-payee
BA Finance to endorse it on its behalf.[25]
Denying any irregularity in accepting the check, petitioner maintains that it followed
normal banking procedure. The testimony of Imelda Cruz, Asianbanks then accounting
head, shows otherwise, however, viz:
Q Now, could you be familiar with a particular policy of the bank with respect to checks
with joined (sic) payees?
A Yes, sir.
Q And what would be the particular policy of the bank regarding this transaction?
A The bank policy and procedure regarding the joint checks. Once it is deposited to a
single account, we are not accepting joint checks for single account, depositing to a
single account (sic).
Q What happened to the bank employee who allowed this particular transaction to
occur?
A Once the branch personnel, the bank personnel (sic) accepted it, he is liable.
Q What do you mean by the branch personnel being held liable?
A Because since (sic) the bank policy, we are not supposed to accept joint checks to a
[single] account, so we mean that personnel would be held liable in the sense that (sic)
once it is withdrawn or encashed, it will not be allowed.
Q In your experience, have you encountered any bank employee who was subjected to
disciplinary action by not following bank policies?
A The one that happened in that case, since I really dont know who that personnel is,
he is no longer connected with the bank.
Q What about in general, do you know of any disciplinary action, Madam witness?
A Since theres a negligence on the part of the bank personnel, it will be a ground for
his separation [from] the bank.[26] (emphasis, italics and underscoring supplied)
Admittedly, petitioner dismissed the employee who allowed the deposit of the check in
Bitangas account.
Petitioners argument that since there was neither forgery, nor unauthorized
indorsement because Bitanga was a co-payee in the subject check, the dictum in
Associated Bank v. CA does not apply in the present case fails. The payment of an
instrument over a missing indorsement is the equivalent of payment on a forged
indorsement[27] or an unauthorized indorsement in itself in the case of joint payees.
[28]
Clearly, petitioner, through its employee, was negligent when it allowed the deposit of
the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the
fact that the check did not, it bears repeating, carry the indorsement of BA Finance.
[29]
As has been repeatedly emphasized, the banking business is imbued with public
interest such that the highest degree of diligence and highest standards of integrity
and performance are expected of banks in order to maintain the trust and confidence
of the public in general in the banking sector.[30] Undoubtedly, BA Finance has a cause
of action against petitioner.
27 | P a g e
Is petitioner liable to BA Finance for the full value of the check?
Petitioner, at all events, argue that its liability to BA Finance should only be one-half of
the amount covered by the check as there is no indication in the check that Bitanga
and BA Finance are solidary creditors to thus make them presumptively joint creditors
under Articles 1207 and 1208 of the Civil Code which respectively provide:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or wording of the obligations to which the
preceding article refers to the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or debtors,
the debts or credits being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits.
Petitioners argument is flawed.
The provisions of the Negotiable Instruments Law and underlying jurisprudential
teachings on the black-letter law provide definitive justification for petitioners full
liability on the value of the check.
To be sure, a collecting bank, Asianbank in this case, where a check is deposited and
which indorses the check upon presentment with the drawee bank, is an indorser.[31]
This is because in indorsing a check to the drawee bank, a collecting bank stamps the
back of the check with the phrase all prior endorsements and/or lack of endorsement
guaranteed[32] and, for all intents and purposes, treats the check as a negotiable
instrument, hence, assumes the warranty of an indorser.[33] Without Asianbanks
warranty, the drawee bank (China Bank in this case) would not have paid the value of
the subject check.
Petitioner, as the collecting bank or last indorser, generally suffers the loss because it
has the duty to ascertain the genuineness of all prior indorsements considering that
the act of presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the genuineness of prior
indorsements.[34]
Accordingly, one who credits the proceeds of a check to the account of the indorsing
payee is liable in conversion to the non-indorsing payee for the entire amount of the
check.[35]
It bears noting that in petitioners cross-claim against Bitanga, the trial court ordered
Bitanga to return to petitioner the entire value of the check P224,500.00 with
interest as well as damages and cost of suit. Petitioner never questioned this aspect of
the trial courts disposition, yet it now prays for the modification of its liability to BA
Finance to only one-half of said amount. To pander to petitioners supplication would
certainly amount to unjust enrichment at BA Finances expense. Petitioners
remedywhich is the reimbursement for the full amount of the check from the
perpetrator of the irregularity lies with Bitanga.
Articles 1207 and 1208 of the Civil Code cannot be applied to the present case as
these are completely irrelevant. The drawer, Malayan Insurance in this case, issued the
check to answer for an underlying contractual obligation (payment of insurance
proceeds). The obligation is merely reflected in the instrument and whether the payees
would jointly share in the proceeds or not is beside the point.
Moreover, granting petitioners appeal for partial liability would run counter to the
existing principles on the liabilities of parties on negotiable instruments, particularly on
Section 68 of the Negotiable Instruments Law which instructs that joint payees who
indorse are deemed to indorse jointly and severally.[36] Recall that when the maker
dishonors the instrument, the holder thereof can turn to those secondarily liable the
indorser for recovery.[37] And since the law explicitly mandates a solidary liability on
the part of the joint payees who indorse the instrument, the holder thereof (assuming
the check was further negotiated) can turn to either Bitanga or BA Finance for full
recompense.
Respecting petitioners challenge to the award by the appellate court of exemplary
damages to BA Finance, the same fails. Contrary to petitioners claim that no moral,
temperate, liquidated or compensatory damages were awarded by the trial court,[38]
the RTC did in fact award compensatory or actual damages of P224,500, the value of
the check, plus interest thereon.
Petitioner argues, however, that assuming arguendo that compensatory damages had
been awarded, the same contravened Article 2232 of the Civil Code which provides
that in contracts or quasi-contracts, the court may award exemplary damages only if
the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner. Since, so petitioner concludes, there was no finding that it acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner,[39] it is not liable for
exemplary damages.
The argument fails. To reiterate, petitioners liability is based not on contract or quasi-
contract but on quasi-delict since there is no pre-existing contractual relation between
the parties.[40] Article 2231 of the Civil Code, which provides that in quasi-delict,
exemplary damages may be granted if the defendant acted with gross negligence,
thus applies. For gross negligence implies a want or absence of or failure to exercise
even slight care or diligence, or the entire absence of care,[41] evincing a thoughtless
disregard of consequences without exerting any effort to avoid them.[42]
x x x The law allows the grant of exemplary damages to set an example for the public
good. The business of a bank is affected with public interest; thus it makes a sworn
profession of diligence and meticulousness in giving irreproachable service. For this
reason, the bank should guard against in injury attributable to negligence or bad faith
on its part. The award of exemplary damages is proper as a warning to [the petitioner]
and all concerned not to recklessly disregard their obligation to exercise the highest
28 | P a g e
and strictest diligence in serving their depositors.[43] (Italics and underscoring
supplied)
As for the dismissal by the appellate court of petitioners third-party complaint against
Malayan Insurance, the same is well-taken. Petitioner based its third-party complaint
on Malayan Insurances alleged gross negligence in issuing the check payable to both
BA Finance and Bitanga, despite the stipulation in the mortgage and in the insurance
policy that liability for loss shall be payable to BA Finance.[44] Malayan Insurance
countered, however, that it
x x x paid the amount of P224,500 to BA Finance Corporation and Lamberto Bitanga in
compliance with the decision in the case of Lamberto Bitanga versus Malayan
Insurance Co., Inc., Civil Case No. 88-2802, RTC-Makati Br. 132, and affirmed on appeal
by the Supreme Court [3rd Division], G.R. no. 101964, April 8, 1992 x x x.[45]
(underscoring supplied)
It is noted that Malayan Insurance, which stated that it was a matter of company policy
to issue checks in the name of the insured and the financing company, presented a
witness to rebut its supposed negligence. [46] Perforce, it thus wrote a crossed check
with joint payees so as to serve warning that the check was issued for a definite
purpose.[47] Petitioner never ever disputed these assertions.
The Court takes exception, however, to the appellate courts affirmance of the trial
courts grant of legal interest of 12% per annum on the value of the check. For the
obligation in this case did not arise out of a loan or forbearance of money, goods or
credit. While Article 1980 of the Civil Code provides that:
Fixed savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan,
said provision does not find application in this case since the nature of the relationship
between BA Finance and petitioner is one of agency whereby petitioner, as collecting
bank, is to collect for BA Finance the corresponding proceeds from the check.[48] Not
being a loan or forbearance of money, the interest should be 6% per annum computed
from the date of extrajudicial demand on September 25, 1992 until finality of
judgment; and 12% per annum from finality of judgment until payment, conformably
with Eastern Shipping Lines, Inc. v. Court of Appeals.[49]
WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007 is AFFIRMED
with MODIFICATION in that the rate of interest on the judgment obligation of P224,500
should be 6% per annum, computed from the time of extrajudicial demand on
September 25, 1992 until its full payment before finality of judgment; thereafter, if the
amount adjudged remains unpaid, the interest rate shall be 12% per annum computed
from the time the judgment becomes final and executory until fully satisfied.
Costs against petitioner.
SO ORDERED.
G.R. No. L-39641 February 28, 1983
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-
appellee,
vs. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD.,
defendants-appellants.
DE CASTRO, J.:
The former Court of Appeals, by its resolution dated October 16, 1974 certified this
case to this Court the issue issued therein being one purely of law.
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok
Sons Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal
monthly installments, beginning May 18, 1969, with interest at the rate of one percent
per month. It is further provided that in case on non-payment of any of the
installments, the total principal sum then remaining unpaid shall become due and
payable with an additional interest equal to twenty-five percent of the total amount
due.
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a
sister company of Ng Sambok Sons Motors Co., Ltd., and under the same management
as the former, negotiated and indorsed the note in favor of plaintiff Metropol Financing
& Investment Corporation with the following indorsement:
Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO Asst. General Manager
The maker, Dr. Villaruel defaulted in the payment of his installments when they
became due, so on October 30, 1969 plaintiff formally presented the promissory note
for payment to the maker. Dr. Villaruel failed to pay the promissory note as demanded,
hence plaintiff notified Sambok as indorsee of said note of the fact that the same has
been dishonored and demanded payment.
29 | P a g e
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection
of a sum of money before the Court of First Instance of Iloilo, Branch I. Sambok did not
deny its liability but contended that it could not be obliged to pay until after its co-
defendant Dr. Villaruel has been declared insolvent.
During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence,
on October 24, 1972 the lower court, on motion, dismissed the case against Dr.
Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. 1
On plaintiff's motion for summary judgment, the trial court rendered its decision dated
September 12, 1973, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered:
(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of
P15,939.00 plus the legal rate of interest from October 30, 1969;
(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of
P15,939.00 plus interest thereon until fully paid; and
(c) To pay the cost of suit.
Not satisfied with the decision, the present appeal was instituted, appellant Sambok
raising a lone assignment of error as follows:
The trial court erred in not dismissing the complaint by finding defendant appellant
Sambok Motors Company as assignor and a qualified indorsee of the subject
promissory note and in not holding it as only secondarily liable thereof.
Appellant Sambok argues that by adding the words "with recourse" in the indorsement
of the note, it becomes a qualified indorser that being a qualified indorser, it does not
warrant that if said note is dishonored by the maker on presentment, it will pay the
amount to the holder; that it only warrants the following pursuant to Section 65 of the
Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what
it purports to be; (b) that he has a good title to it; (c) that all prior parties had capacity
to contract; (d) that he has no knowledge of any fact which would impair the validity of
the instrument or render it valueless.
The appeal is without merit.
A qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's signature the words "without
recourse" or any words of similar import. 2 Such an indorsement relieves the indorser
of the general obligation to pay if the instrument is dishonored but not of the liability
arising from warranties on the instrument as provided in Section 65 of the Negotiable
Instruments Law already mentioned herein. However, appellant Sambok indorsed the
note "with recourse" and even waived the notice of demand, dishonor, protest and
presentment.
"Recourse" means resort to a person who is secondarily liable after the default of the
person who is primarily liable. 3 Appellant, by indorsing the note "with recourse" does
not make itself a qualified indorser but a general indorser who is secondarily liable,
because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note,
plaintiff-appellee can go after said appellant. The effect of such indorsement is that the
note was indorsed without qualification. A person who indorses without qualification
engages that on due presentment, the note shall be accepted or paid, or both as the
case may be, and that if it be dishonored, he will pay the amount thereof to the holder.
4 Appellant Sambok's intention of indorsing the note without qualification is made
even more apparent by the fact that the notice of demand, dishonor, protest and
presentment were an waived. The words added by said appellant do not limit his
liability, but rather confirm his obligation as a general indorser.
Lastly, the lower court did not err in not declaring appellant as only secondarily liable
because after an instrument is dishonored by non-payment, the person secondarily
liable thereon ceases to be such and becomes a principal debtor. 5 His liabiliy becomes
the same as that of the original obligor. 6 Consequently, the holder need not even
proceed against the maker before suing the indorser.
WHEREFORE, the decision of the lower court is hereby affirmed. No costs.
SO ORDERED.
G.R. No. 105188 January 23, 1998
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte,
petitioner,
vs. A.U. VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES
& AMANDA SANTOS, and DELFIN JAO, respondents.
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Myron C. Papa seeks to reverse and set aside 1) the Decision dated 27 January 1992 of
the Court of Appeals which affirmed with modification the decision of the trial court;
and 2) the Resolution dated 22 April 1992 of the same court, which denied petitioner's
motion for reconsideration of the above decision.
The antecedent facts of this case are as follows:
Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc.
(hereinafter referred to as respondent Valencia, for brevity) and Felix Pearroyo
(hereinafter called respondent Pearroyo), filed with the Regional Trial Court of Pasig,
Branch 151, a complaint for specific performance against herein petitioner Myron C.
Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as
attorney-in-fact of Angela M. Butte, sold to respondent Pearroyo, through respondent
Valencia, a parcel of land, consisting of 286.60 square meters, located at corner Retiro
and Cadiz Streets, La Loma, Quezon City, and covered by Transfer Certificate of Title
No. 28993 of the Register of Deeds of Quezon City; that prior to the alleged sale, the
said property, together with several other parcels of land likewise owned by Angela M.
30 | P a g e
Butte, had been mortgaged by her to the Associated Banking Corporation (now
Associated Citizens Bank); that after the alleged sale, but before the title to the subject
property had been released, Angela M. Butte passed away; that despite
representations made by herein respondents to the bank to release the title to the
property sold to respondent Pearroyo, the bank refused to release it unless and until
all the mortgaged properties of the late Angela M. Butte were also redeemed; that in
order to protect his rights and interests over the property, respondent Pearroyo
caused the annotation on the title of an adverse claim as evidenced by Entry No. P.E.-
6118/T-28993, inscribed on 18 January 1997.
The complaint further alleged that it was only upon the release of the title to the
property, sometime in April 1977, that respondents Valencia and Pearroyo discovered
that the mortgage rights of the bank had been assigned to one Tomas L. Parpana (now
deceased), as special administrator of the Estate of Ramon Papa, Jr., on 12 April 1977;
that since then, herein petitioner had been collecting monthly rentals in the amount of
P800.00 from the tenants of the property, knowing that said property had already been
sold to private respondents on 15 June 1973; that despite repeated demands from said
respondents, petitioner refused and failed to deliver the title to the property.
Thereupon, respondents Valencia and Pearroyo filed a complaint for specific
performance, praying that petitioner be ordered to deliver to respondent Pearroyo the
title to the subject property (TCT 28993); to turn over to the latter the sum of
P72,000.00 as accrued rentals as of April 1982, and the monthly rental of P800.00 until
the property is delivered to respondent Pearroyo; to pay respondents the sum of
P20,000.00 as attorney's fees; and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated
Banking Corporation (now Associated Citizens Bank). He contended, however, that the
complaint did not state a cause of action; that the real property in interest was the
Testate Estate of Angela M. Butte, which should have been joined as a party defendant;
that the case amounted to a claim against the Estate of Angela M. Butte and should
have been filed in Special Proceedings No. A-17910 before the Probate Court in Quezon
City; and that, if as alleged in the complaint, the property had been assigned to Tomas
L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said estate should
be impleaded. Petitioner, likewise, claimed that he could not recall in detail the
transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in
his possession; that he could not be held personally liable as he signed the deed
merely as attorney-in-fact of said Angela M. Butte. Finally, petitioner asseverated that
as a result of the filing of the case, he was compelled to hire the services of counsel for
a fee of P20,000.00 for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the
case. Making common cause with respondents Valencia and Pearroyo, respondent Jao
alleged that the subject lot which had been sold to respondent Pearroyo through
respondent Valencia was in turn sold to him on 20 August 1973 for the sum of
P71,500.00, upon his paying earnest money in the amount of P5,000.00. He, therefore,
prayed that judgment be rendered in favor of respondents, the latter in turn be ordered
to execute in his favor the appropriate deed of conveyance covering the property in
question and to turn over to him the rentals which aforesaid respondents sought to
collect from petitioner Myron V. Papa.
Respondent Jao, likewise, averred that as a result of petitioner's refusal to deliver the
title to the property to respondents Valencia and Pearroyo, who in turn failed to
deliver the said title to him, he suffered mental anguish and serious anxiety for which
he sought payment of moral damages; and, additionally, the payment of attorney's
fees and costs.
For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a
third-party complaint against herein private respondents, spouses Arsenio B. Reyes
and Amanda Santos (respondent Reyes spouses, for short). He averred, among other's
that the late Angela M. Butte was the owner of the subject property; that due to non-
payment of real estate tax said property was sold at public auction the City Treasurer
of Quezon City to the respondent Reyes spouses on 21 January 1980 for the sum of
P14,000.00; that the one-year period of redemption had expired; that respondents
Valencia and Pearroyo had sued petitioner Papa as administrator of the estate of
Angela M. Butte, for the delivery of the title to the property; that the same aforenamed
respondents had acknowledged that the price paid by them was insufficient, and that
they were willing to add a reasonable amount or a minimum of P55,000.00 to the price
upon delivery of the property, considering that the same was estimated to be worth
P143,000.00; that petitioner was willing to reimburse respondents Reyes spouses
whatever amount they might have paid for taxes and other charges, since the subject
property was still registered in the name of the late Angela M. Butte; that it was
inequitable to allow respondent Reyes spouses to acquire property estimated to be
worth P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment
be rendered canceling the tax sale to respondent Reyes spouses; restoring the subject
property to him upon payment by him to said respondent Reyes spouses of the amount
of P14,000.00, plus legal interest; and, ordering respondents Valencia and Pearroyo to
pay him at least P55,000.00 plus everything they might have to pay the Reyes spouses
in recovering the property.
Respondent Reyes spouses in their Answer raised the defense of prescription of
petitioner's right to redeem the property.
At the trial, only respondent Pearroyo testified. All the other parties only submitted
documentary proof.
On 29 June 1987, the trial court rendered a decision, the dispositive portion of which
reads:
WHEREUPON, judgment is hereby rendered as follows:
1) Allowing defendant to redeem from third-party defendants and ordering the
latter to allow the former to redeem the property in question, by paying the sum of
P14,000.00 plus legal interest of 12% thereon from January 21, 1980;
2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix
Pearroyo covering the property in question and to deliver peaceful possession and
enjoyment of the said property to the said plaintiff, free from any liens and
encumbrances;
31 | P a g e
Should this not be possible, for any reason not attributable to defendant, said
defendant is ordered to pay to plaintiff Felix Pearroyo the sum of P45,000.00 plus
legal interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of
absolute sale over the same property, upon the latter's payment to the former of the
balance of the purchase price of P71,500.00;
Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the
sum of P5,000.00 plus legal interest of 12% from August 23, 1973; and
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as
attorney's fees and litigation expenses.
SO ORDERED. 1
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals,
alleging among others that the sale was never "consummated" as he did not encash
the check (in the amount of P40,000.00) given by respondents Valencia and Pearroyo
in payment of the full purchase price of the subject lot. He maintained that what said
respondent had actually paid was only the amount of P5,000.00 (in cash) as earnest
money.
Respondent Reyes spouses, likewise, appealed the above decision. However, their
appeal was dismissed because of failure to file their appellant's brief.
On 27 January 1992, the Court of Appeals rendered a decision, affirming with
modification the trial court's decision, thus:
WHEREFORE, the second paragraph of the dispositive portion of the appealed decision
is MODIFIED, by ordering the defendant-appellant to deliver to plaintiff-appellees the
owner's duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession
and enjoyment of the lot in question or, if the owner's duplicate certificate cannot be
produced, to authorize the Register of Deeds to cancel it and issue a certificate of title
in the name of Felix Pearroyo. In all other respects, the decision appealed from is
AFFIRMED. Costs against defendant-appellant Myron C. Papa.
SO ORDERED. 2
In affirming the trial court's decision, respondent court held that contrary to
petitioner's claim that he did not encash the aforesaid check, and therefore, the sale
was not consummated, there was no evidence at all that petitioner did not, in fact,
encash said check. On the other hand, respondent Pearroyo testified in court that
petitioner Papa had received the amount of P45,000.00 and issued receipts therefor.
According to respondent court, the presumption is that the check was encashed,
especially since the payment by check was not denied by defendant-appellant (herein
petitioner) who, in his Answer, merely alleged that he "can no longer recall the
transaction which is supposed to have happened 10 years ago." 3
On petitioner's claim that he cannot be held personally liable as he had acted merely
as attorney-in-fact of the owner, Angela M. Butte, respondent court held that such
contention is without merit. This action was not brought against him in his personal
capacity, but in his capacity as the administrator of the Testate Estate of Angela M.
Butte. 4
On petitioner's contention that the estate of Angela M. Butte should have been joined
in the action as the real party in interest, respondent court held that pursuant to Rule
3, Section 3 of the Rules of Court, the estate of Angela M. Butte does not have to be
joined in the action. Likewise, the estate of Ramon Papa, Jr., is not an indispensable
party under Rule 3, Section 7 of the same Rules. For the fact is that Ramon Papa, Jr., or
his estate, was not a party to the Deed of Absolute Sale, and it is basic law that
contracts bind only those who are parties thereto. 5
Respondent court observed that the conditions under which the mortgage rights of the
bank were assigned are not clear. In any case, any obligation which the estate of
Angela M. Butte might have to the estate of Ramon Papa, Jr. is strictly between them.
Respondents Valencia and Pearroyo are not bound by any such obligation.
Petitioner filed a motion for reconsideration of the above decision, which motion was
denied by respondent Court of Appeals.
Hence, this petition wherein petitioner raises the following issues:
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN
QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE,
AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE.
II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT,
ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE
SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON PAPA, JR. WHICH IS NOT A
PARTY IN THIS CASE.
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF
ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES
IN THIS
CASE. 6
Petitioner argues that respondent Court of Appeals erred in concluding that alleged
sale of the subject property had been consummated. He contends that such a
conclusion is based on the erroneous presumption that the check (in the amount of
P40,000.00) had been cashed, citing Art. 1249 of the Civil Code, which provides, in
part, that payment by checks shall produce the effect of payment only when they have
been cashed or when through the fault of the creditor they have been impaired. 7
Petitioner insists that he never cashed said check; and, such being the case, its
delivery never produced the effect of payment. Petitioner, while admitting that he had
issued receipts for the payments, asserts that said receipts, particularly the receipt of
PCIB Check No. 761025 in the amount of P40,000.00, do not prove payment. He avers
that there must be a showing that said check had been encashed. If, according to
petitioner, the check had been encashed, respondent Pearroyo should have presented
PCIB Check No. 761025 duly stamped received by the payee, or at least its microfilm
copy.
32 | P a g e
Petitioner finally avers that, in fact, the consideration for the sale was still in the hands
of respondents Valencia and Pearroyo, as evidenced by a letter addressed to him in
which said respondents wrote, in part:
. . . Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs.
Angela M. Butte to pay you the aforementioned amount of P75,000.00 for the release
and cancellation of subject property's mortgage. The money is with me and if it is
alright with you, I would like to tender the payment as soon as possible. . . . 8
We find no merit in petitioner's arguments.
It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner
Myron C. Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May
1973, and Forty Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of
the purchase price of the subject lot. Petitioner himself admits having received said
amounts, 9 and having issued receipts therefor. 10 Petitioner's assertion that he never
encashed the aforesaid check is not substantiated and is at odds with his statement in
his answer that "he can no longer recall the transaction which is supposed to have
happened 10 years ago." After more than ten (10) years from the payment in party by
cash and in part by check, the presumption is that the check had been encashed. As
already stated, he even waived the presentation of oral evidence.
Granting that petitioner had never encashed the check, his failure to do so for more
than ten (10) years undoubtedly resulted in the impairment of the check through his
unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it
is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is
prejudiced by the creditor's unreasonable delay in presentment. The acceptance of a
check implies an undertaking of due diligence in presenting it for payment, and if he
from whom it is received sustains loss by want of such diligence, it will be held to
operate as actual payment of the debt or obligation for which it was given. 11 It has,
likewise, been held that if no presentment is made at all, the drawer cannot be held
liable irrespective of loss or injury 12 unless presentment is otherwise excused. This is
in harmony with Article 1249 of the Civil Code under which payment by way of check
or other negotiable instrument is conditioned on its being cashed, except when
through the fault of the creditor, the instrument is impaired. The payee of a check
would be a creditor under this provision and if its no-payment is caused by his
negligence, payment will be deemed effected and the obligation for which the check
was given as conditional payment will be discharged. 13
Considering that respondents Valencia and Pearroyo had fulfilled their part of the
contract of sale by delivering the payment of the purchase price, said respondents,
therefore, had the right to compel petitioner to deliver to them the owner's duplicate of
TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of the
lot in question.
With regard to the alleged assignment of mortgage rights, respondent Court of Appeals
has found that the conditions under which said mortgage rights of the bank were
assigned are not clear. Indeed, a perusal of the original records of the case would show
that there is nothing there that could shed light on the transactions leading to the said
assignment of rights; nor is there any evidence on record of the conditions under which
said mortgage rights were assigned. What is certain is that despite the said
assignment of mortgage rights, the title to the subject property has remained in the
name of the late Angela M. Butte. 14 This much is admitted by petitioner himself in his
answer to respondent's complaint as well as in the third-party complaint that petitioner
filed against respondent-spouses Arsenio B. Reyes and Amanda Santos. 15 Assuming
arquendo that the mortgage rights of the Associated Citizens Bank had been assigned
to the estate of Ramon Papa, Jr., and granting that the assigned mortgage rights validly
exists and constitute a lien on the property, the estate may file the appropriate action
to enforce such lien. The cause of action for specific performance which respondents
Valencia and Pearroyo have against petitioner is different from the cause of action
which the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it has
on the property by reason of its being an alleged assignee of the bank's rights of
mortgage.
Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of
Rule 3 of the Rules of Court, an executor or administrator may sue or be sued without
joining the party for whose benefit the action is presented or defended, thus:
Sec. 3. Representative parties. A trustee of an express trust, a guardian, executor or
administrator, or a party authorized by statute, may sue or be sued without joining the
party for whose benefit the action is presented or defended; but the court may, at any
stage of the proceedings, order such beneficiary to be made a party. An agent acting in
his own name and for the benefit of an undisclosed principal may sue or be sued
without joining the principal except when the contract involves things belonging to the
principal. 16
Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final
determination of the action can be had. Whatever prior and subsisting mortgage rights
the estate of Ramon Papa, Jr. has over the property may still be enforced regardless of
the change in ownership thereof.
WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of
Appeals, dated 27 January 1992 is AFFIRMED.
SO ORDERED.
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner, vs. NAPOLEON GUTIERREZ and OCTAVIO
MARASIGAN III, Respondents.
33 | P a g e
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of
Court is the decision2 dated September 24, 2008 and the resolution3 dated April 30,
2009 of the Court of Appeals (CA) in CA-G.R. CV No. 82301. The appellate court
affirmed the decision of the Regional Trial Court (RTC) of Quezon City, Branch 77,
dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin
Patrimonio and ordering him to pay respondent Octavio Marasigan III (Marasigan) the
sum of P200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a
business venture under the name of Slam Dunk Corporation (Slum Dunk), a production
outfit that produced mini-concerts and shows related to basketball. Petitioner was
already then a decorated professional basketball player while Gutierrez was a well-
known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for
the expenses of Slam Dunk. Although signed, these checks had no payees name, date
or amount. The blank checks were entrusted to Gutierrez with the specific instruction
not to fill them out without previous notification to and approval by the petitioner.
According to petitioner, the arrangement was made so that he could verify the validity
of the payment and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioners knowledge and consent, Gutierrez went
to Marasigan (the petitioners former teammate), to secure a loan in the amount of
P200,000.00 on the excuse that the petitioner needed the money for the construction
of his house. In addition to the payment of the principal, Gutierrez assured Marasigan
that he would be paid an interest of 5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the petitioner
and Gutierrez, Marasigan acceded to Gutierrez request and gave him P200,000.00
sometime in February 1994. Gutierrez simultaneously delivered to Marasigan one of
the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch,
Check No. 21001764 with the blank portions filled out with the words "Cash" "Two
Hundred Thousand Pesos Only", and the amount of "P200,000.00". The upper right
portion of the check corresponding to the date was also filled out with the words "May
23, 1994" but the petitioner contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
"ACCOUNT CLOSED." It was later revealed that petitioners account with the bank had
been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several
demand letters to the petitioner asking for the payment of P200,000.00, but his
demands likewise went unheeded. Consequently, he filed a criminal case for violation
of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a
Complaint for Declaration of Nullity of Loan and Recovery of Damages against
Gutierrez and co-respondent Marasigan. He completely denied authorizing the loan or
the checks negotiation, and asserted that he was not privy to the parties loan
agreement.
Only Marasigan filed his answer to the complaint. In the RTCs order dated December
22, 1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner,
in issuing the pre-signed blank checks, had the intention of issuing a negotiable
instrument, albeit with specific instructions to Gutierrez not to negotiate or issue the
check without his approval. While under Section 14 of the Negotiable Instruments Law
Gutierrez had the prima facie authority to complete the checks by filling up the blanks
therein, the RTC ruled that he deliberately violated petitioners specific instructions and
took advantage of the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly
dismissed the petitioners complaint for declaration of nullity of the loan. It ordered the
petitioner to pay Marasigan the face value of the check with a right to claim
reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan
is not a holder in due course. He contended that when Marasigan received the check,
he knew that the same was without a date, and hence, incomplete. He also alleged
that the loan was actually between Marasigan and Gutierrez with his check being used
only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on
different factual findings. After careful analysis, the CA agreed with the petitioner that
Marasigan is not a holder in due course as he did not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in
accordance with the petitioners authority. It held that the loan may not be nullified
since it is grounded on an obligation arising from law and ruled that the petitioner is
still liable to pay Marasigan the sum of P200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the
petitioner filed the present petition for review on certiorari under Rule 45 of the
Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he
never authorized the borrowing of money nor the checks negotiation to the latter; (2)
under Article 1878 of the Civil Code, a special power of attorney is necessary for an
individual to make a loan or borrow money in behalf of another; (3) the loan
transaction was between Gutierrez and Marasigan, with his check being used only as a
security; (4) the check had not been completely and strictly filled out in accordance
34 | P a g e
with his authority since the condition that the subject check can only be used provided
there is prior approval from him, was not complied with; (5) even if the check was
strictly filled up as instructed by the petitioner, Marasigan is still not entitled to claim
the checks value as he was not a holder in due course; and (6) by reason of the bad
faith in the dealings between the respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of P200,000.00 granted by respondent
Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of the
P200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the subject check strictly
under the authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Courts Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in
nature. The main point of inquiry of whether the contract of loan may be nullified,
hinges on the very existence of the contract of loan a question that, as presented, is
essentially, one of fact. Whether the petitioner authorized the borrowing; whether
Gutierrez completely filled out the subject check strictly under the petitioners
authority; and whether Marasigan is a holder in due course are also questions of fact,
that, as a general rule, are beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as
a petition for review under Rule 45 is limited only to questions of law, is not an
absolute rule that admits of no exceptions. One notable exception is when the findings
off act of both the trial court and the CA are conflicting, making their review
necessary.5 In the present case, the tribunals below arrived at two conflicting factual
findings, albeit with the same conclusion, i.e., dismissal of the complaint for nullity of
the loan. Accordingly, we will examine the parties evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never
authorized the borrowing of money. He points to Article 1878, paragraph 7 of the Civil
Code, which explicitly requires a written authority when the loan is contracted through
an agent. The petitioner contends that absent such authority in writing, he should not
be held liable for the face value of the check because he was not a party or privy to
the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract whereby 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." Agency may be
express, or implied from the acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written
when the law requires a specific form, for example, in a sale of a piece of land or any
interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of
authority before an agent can loan or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the
preservation of the things which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is
express, such authority may be either oral or written. We unequivocably declared in
Lim Pin v. Liao Tian, et al.,7 that the requirement under Article 1878 of the Civil Code
refers to the nature of the authorization and not to its form. Be that as it may, the
authority must be duly established by competent and convincing evidence other than
the self serving assertion of the party claiming that such authority was verbally given,
thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of
a special authority in Rule 138 of the Rules of Court refer to the nature of the
authorization and not its form. The requirements are met if there is a clear mandate
from the principal specifically authorizing the performance of the act. As early as 1906,
this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may
be either oral or written, the one vital thing being that it shall be express. And more
recently, We stated that, if the special authority is not written, then it must be duly
established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a
special authority. And while the same does not state that the special authority be in
writing the Court has every reason to expect that, if not in writing, the same be duly
established by evidence other than the self-serving assertion of counsel himself that
such authority was verbally given him.(Home Insurance Company vs. United States
lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225).
(emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be
Nullified for Being Void; Petitioner is Not Bound by the Contract of Loan.
35 | P a g e
A review of the records reveals that Gutierrez did not have any authority to borrow
money in behalf of the petitioner.1wphi1 Records do not show that the petitioner
executed any special power of attorney (SPA) in favor of Gutierrez. In fact, the
petitioners testimony confirmed that he never authorized Gutierrez (or anyone for that
matter), whether verbally or in writing, to borrow money in his behalf, nor was he
aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing
authorizing him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioners acts of pre-signing the blank checks
and releasing them to Gutierrez suffice to establish that the petitioner had authorized
Gutierrez to fill them out and contract the loan in his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in
behalf of the petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan
contracted by de Villa secured by real estate mortgages in the name of East Cordillera
Mining Corporation, in the absence of an SPA conferring authority on de Villa, there is
no basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as agents of
the corporation need a special power of attorney. In the case at bar, no special power
of attorney conferring authority on de Villa was ever presented. x x x There was no
showing that respondent corporation ever authorized de Villa to obtain the loans on its
behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to
hold the corporation liable since there was no authority, express, implied or apparent,
given to de Villa to borrow money from petitioner. Neither was there any subsequent
ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate
after his death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court
held:
Petitioner submits that his following testimony suffices to establish that respondent
had authorized Lilian to obtain a loan from him.
xxxx
Petitioners testimony failed to categorically state, however, whether the loan was
made on behalf of respondent or of his wife. While petitioner claims that Lilian was
authorized by respondent, the statement of account marked as Exhibit "A" states that
the amount was received by Lilian "in behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating
therein that she was acting for and in behalf of respondent. She thus bound herself in
her personal capacity and not as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its face purport to be
made, signed and sealed in the name of the principal, otherwise, it will bind the agent
only. It is not enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for
and in behalf of the petitioner, the loan agreement Gutierrez entered into with
Marasigan is null and void. Thus, the petitioner is not bound by the parties loan
agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is
not legally sufficient because the authority to enter into a loan can never be presumed.
The contract of agency and the special fiduciary relationship inherent in this contract
must exist as a matter of fact. The person alleging it has the burden of proof to show,
not only the fact of agency, but also its nature and extent.11 As we held in People v.
Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano
Yabut, Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges, be
licitly taken as delivery of the checks to the complainant Alicia P. Andan at Caloocan
City to fix the venue there. He did not take delivery of the checks as holder, i.e., as
"payee" or "indorsee." And there appears to beno contract of agency between Yambao
and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in
that sworn testimony before the investigating fiscal that Yambao is but her
"messenger" or "part-time employee." There was no special fiduciary relationship that
permeated their dealings. For a contract of agency to exist, the consent of both parties
is essential, the principal consents that the other party, the agent, shall act on his
behalf, and the agent consents so to act. It must exist as a fact. The law makes no
presumption thereof. The person alleging it has the burden of proof to show, not only
the fact of its existence, but also its nature and extent. This is more imperative when it
is considered that the transaction dealt with involves checks, which are not legal
tender, and the creditor may validly refuse the same as payment of obligation.(at p.
630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without
securing a copy of the SPA in favor of the latter and without verifying from the
petitioner whether he had authorized the borrowing of money or release of the check.
36 | P a g e
He was thus bound by the risk accompanying his trust on the mere assurances of
Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latters
Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of
loan, like any other contract, is subject to the rules governing the requisites and
validity of contracts in general.13 Article 1318 of the Civil Code14 enumerates the
essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the
essential element of consent. We agree with the petitioner. As we explained above,
Gutierrez did not have the petitioners written/verbal authority to enter into a contract
of loan. While there may be a meeting of the minds between Gutierrez and Marasigan,
such agreement cannot bind the petitioner whose consent was not obtained and who
was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of
loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell
into the hands of Marasigan. This act, however, does not constitute sufficient authority
to borrow money in his behalf and neither should it be construed as petitioners grant
of consent to the parties loan agreement. Without any evidence to prove Gutierrez
authority, the petitioners signature in the check cannot be taken, even remotely, as
sufficient authorization, much less, consent to the contract of loan. Without the
consent given by one party in a purported contract, such contract could not have been
perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the
petitioner can be made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the
Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it
by filling up the blanks therein. And a signature on a blank paper delivered by the
person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is negotiated to a holder
in due course, it is valid and effectual for all purposes in his hands, and he may enforce
it as if it had been filled up strictly in accordance with the authority given and within a
reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the
maker or drawer delivers a pre-signed blank paper to another person for the purpose
of converting it into a negotiable instrument, that person is deemed to have prima
facie authority to fill it up. It merely requires that the instrument be in the possession
of a person other than the drawer or maker and from such possession, together with
the fact that the instrument is wanting in a material particular, the law presumes
agency to fill up the blanks.16
In order however that one who is not a holder in due course can enforce the instrument
against a party prior to the instruments completion, two requisites must exist: (1) that
the blank must be filled strictly in accordance with the authority given; and (2) it must
be filled up within a reasonable time. If it was proven that the instrument had not been
filled up strictly in accordance with the authority given and within a reasonable time,
the maker can set this up as a personal defense and avoid liability. However, if the
holder is a holder in due course, there is a conclusive presumption that authority to fill
it up had been given and that the same was not in excess of authority.17
In the present case, the petitioner contends that there is no legal basis to hold him
liable both under the contract and loan and under the check because: first, the subject
check was not completely filled out strictly under the authority he has given and
second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the
instrument "in good faith and for value." It also provides in Section 52(d) that in order
that one may be a holder in due course, it is necessary that at the time it was
negotiated to him he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any
sort which could beset up against a prior holder of the instrument.18 It means that he
37 | P a g e
does not have any knowledge of fact which would render it dishonest for him to take a
negotiable paper. The absence of the defense, when the instrument was taken, is the
essential element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his action in
taking the instrument amounted to bad faith," it is not necessary to prove that the
defendant knew the exact fraud that was practiced upon the plaintiff by the
defendant's assignor, it being sufficient to show that the defendant had notice that
there was something wrong about his assignor's acquisition of title, although he did not
have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in
some way tainted with fraud. It is not necessary that he should know the particulars or
even the nature of the fraud, since all that is required is knowledge of such facts that
his action in taking the note amounted bad faith.
The term bad faith does not necessarily involve furtive motives, but means bad faith
in a commercial sense. The manner in which the defendants conducted their Liberty
Loan department provided an easy way for thieves to dispose of their plunder. It was a
case of "no questions asked." Although gross negligence does not of itself constitute
bad faith, it is evidence from which bad faith may be inferred. The circumstances
thrust the duty upon the defendants to make further inquiries and they had no right to
shut their eyes deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigans knowledge that the petitioner is not a party or a privy
to the contract of loan, and correspondingly had no obligation or liability to him,
renders him dishonest, hence, in bad faith. The following exchange is significant on this
point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the
other crew, there were several visitors that included Danny Espiritu. So a week after
my birthday, Bong Marasigan called me up again and he was fuming mad. Nagmumura
na siya. Hinahanap niya si hinahanap niya si Nap, dahil pinagtataguan na siya at
sinabi na niya na kailangan I-settle na niya yung utang ni Nap, dahil
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan
ang tsekeng tumalbog (He told me that we have to fix it up before it) mauwi pa
kung saan
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvins check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from you or
what you want to appear
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.
(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the
rule that a possessor of the instrument is prima facie a holder in due course is
inapplicable. As correctly noted by the CA, his inaction and failure to verify, despite
knowledge of that the petitioner was not a party to the loan, may be construed as
gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan
is already totally barred from recovery. The NIL does not provide that a holder who is
not a holder in due course may not in any case recover on the instrument.22 The only
disadvantage of a holder who is not in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable.23 Among such defenses is the filling
up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on
the basis of the authority he gave. He points to his instruction not to use the check
without his prior approval and argues that the check was filled up in violation of said
instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority
to fill up the blanks and use the check.1wphi1 To repeat, petitioner gave Gutierrez
pre-signed checks to be used in their business provided that he could only use them
upon his approval. His instruction could not be any clearer as Gutierrez authority was
limited to the use of the checks for the operation of their business, and on the
condition that the petitioners prior approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such
prima facie authority does not extend to its use (i.e., subsequent transfer or
negotiation)once the check is completed. In other words, only the authority to
complete the check is presumed. Further, the law used the term "prima facie" to
38 | P a g e
underscore the fact that the authority which the law accords to a holder is a
presumption juris tantumonly; hence, subject to subject to contrary proof. Thus,
evidence that there was no authority or that the authority granted has been exceeded
may be presented by the maker in order to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior
approval from the petitioner to fill up the blank or to use the check. In his testimony,
petitioner asserted that he never authorized nor approved the filling up of the blank
checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date,
May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the
check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure P200,000 in
this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words
P200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus,
he exceeded the authority when he used the check to pay the loan he supposedly
contracted for the construction of petitioner's house. This is a clear violation of the
petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot
therefore be validly concluded that the check was completed strictly in accordance
with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set
up the personal defense that the blanks were not filled up in accordance with the
authority he gave. Consequently, Marasigan has no right to enforce payment against
the petitioner and the latter cannot be obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the
petitioner Alvin Patrimonio's petition for review on certiorari. The appealed Decision
dated September 24, 2008 and the Resolution dated April 30, 2009 of the Court of
Appeals are consequently ANNULLED AND SET ASIDE. Costs against the respondents.
SO ORDERED.
G.R. No. L-30910 February 27, 1987
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. JULIA MANIEGO, accused-
appellant.
NARVASA, J.:
Application of the established rule in this jurisdiction, that the acquittal of an accused
on reasonable doubt is not generally an impediment to the imposition, in the same
criminal action, of civil liability for damages on said accused, is what is essentially
called into question by the appellant in this case.
The information which initiated the instant criminal proceedings in the Court of First
Instance of Rizal indicted three (3) persons Lt. Rizalino M. Ubay, Mrs. Milagros
Pamintuan, and Mrs. Julia T. Maniego for the crime of MALVERSATION committed as
follows:
That on or about the period covering the month of May, 1957 up to and including the
month of August, 1957, in Quezon City, Philippines, the above-named accused,
conspiring together, confederating with and helping one another, with intent of gain
and without authority of law, did, then and there, willfully, unlawfully and feloniously
malverse, misappropriate and misapply public funds in the amount of P 66,434.50
belonging to the Republic of the Philippines, in the following manner, to wit: the
accused, Lt. RIZALINO M. Ubay, a duly appointed officer in the Armed Forces of the
Philippines in active duty, who, during the period specified above, was designated as
Disbursing Officer in the Office of the Chief of Finance, GHQ, Camp Murphy, Quezon
City, and as such was entrusted with and had under his custody and control public
funds, conspiring and confederating with co-accused, MILAGROS T. PAMINTUAN and
JULIA T. MANIEGO, did then and there, unlawfully, willfully and feloniously, with intent
of gain and without authority of law, and in pursuance of their conspiracy, take,
receive, and accept from his said co-accused several personal checks drawn against
the Philippine National Bank and the Bank of the Philippine Islands, of which the
accused, MILAGROS T. PAMINTUAN is the drawer and the accused, JULIA T. MANIEGO, is
the indorser, in the total amount of P66,434.50, cashing said checks and using for this
purpose the public funds entrusted to and placed under the custody and control of the
said Lt. Rizalino M. Ubay, all the said accused knowing fully well that the said checks
are worthless and are not covered by funds in the aforementioned banks, for which
reason the same were dishonored and rejected by the said banks when presented for
encashment, to the damage and prejudice of the Republic of the Philippines, in the
amount of P66,434.50, Philippine currency. 1
Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having apparently fled
to the United States in August, 1962. 2 Both Ubay and Maniego entered a plea of not
guilty. 3
After trial judgment was rendered by the Court of First Instance, 4 the dispositive part
whereof reads:
There being sufficient evidence beyond reasonable doubt against the accused, Rizalino
M. Ubay, the Court hereby convicts him of the crime of malversation and sentences
him to suffer the penalty of reclusion temporal of TWELVE (12) YEARS, ONE (1) DAY to
39 | P a g e
FOURTEEN (14) YEARS, EIGHT (8) MONTHS, and a fine of P57,434.50 which is the
amount malversed, and to suffer perpetual special disqualification.
In the absence of evidence against accused Julia T. Maniego, the Court hereby acquits
her, but both she and Rizal T. Ubay are hereby ordered to pay jointly and severally the
amount of P57,434.50 to the government. 5
Maniego sought reconsideration of the judgment, praying that she be absolved from
civil liability or, at the very least, that her liability be reduced to P46,934.50. 6 The
Court declined to negate her civil liability, but did reduce the amount thereof to P
46,934.50. 7 She appealed to the Court of Appeals 8 as Ubay had earlier done. 9
Ubay's appeal was subsequently dismissed by the Appellate Court because of his
failure to file brief. 10 On the other hand, Maniego submitted her brief in due course,
and ascribed three (3) errors to the Court a quo, to wit:
1) The Lower Court erred in holding her civilly liable to indemnify the Government
for the value of the cheeks after she had been found not guilty of the crime out of
which the civil liability arises.
2) Even assuming arguendo that she could properly be held civilly liable after her
acquittal, it was error for the lower Court to adjudge her liable as an indorser to
indemnify the government for the amount of the cheeks.
3) The Lower Court erred in declaring her civilly liable jointly and severally with
her co-defendant Ubay, instead of absolving her altogether. 11
Because, in the Appellate Court's view, Maniego's brief raised only questions of law,
her appeal was later certified to this Court pursuant to Section 17, in relation to
Section 31, of the Judiciary Act, as amended, and Section 3, Rule 50 of the Rules of
Court. 12
The verdict must go against the appellant.
Well known is the principle that "any person criminally hable for felony is also civilly
liable." 13 But a person adjudged not criminally responsible may still be held to be
civilly liable. A person's acquittal of a crime on the ground that his guilt has not been
proven beyond reasonable doubt 14 does not bar a civil action for damages founded
on the same acts involved in the offense. 15 Extinction of the penal action does not
carry with it extinction of the civil unless the extinction proceeds from a declaration in
a final judgment that the fact from which the civil might arise did not exist. 16
Rule III SEC. 3(b) Extinction of the penal action does not carry with it extinction of
the civil, unless the extinction proceeds from a declaration in a final judgment that the
fact from which the civil might arise did not exist. In other cases, the person entitled to
the civil action may institute it in the jurisdiction and in the manner provided by law
against the person who may be liable for restitution of the thing and reparation of
indemnity for the damage suffered. (1985 Rules on Criminal Procedure).
Hence, contrary to her submission, 17 Maniego's acquittal on reasonable doubt of the
crime of Malversation imputed to her and her two (2) co-accused did not operate to
absolve her from civil liability for reimbursement of the amount rightfully due to the
Government as owner thereof. Her liability therefor could properly be adjudged, as it
was so adjudged, by the Trial Court on the basis of the evidence before it, which
adequately establishes that she was an indorser of several checks drawn by her sister,
which were dishonored after they had been exchanged with cash belonging to the
Government, then in the official custody of Lt. Ubay.
Appellant's contention that as mere indorser, she may not be made liable on account
of the dishonor of the checks indorsed by her, is likewise untenable. Under the law, the
holder or last indorsee of a negotiable instrument has the right to "enforce payment of
the instrument for the full amount thereof against all parties liable thereon." 18 Among
the "parties liable thereon" is an indorser of the instrument i.e., "a person placing his
signature upon an instrument otherwise than as maker, drawer, or acceptor ** unless
he clearly indicates by appropriate words his intention to be bound in some other
capacity. " 19 Such an indorser "who indorses without qualification," inter alia
"engages that on due presentment, ** (the instrument) shall be accepted or paid, or
both, as the case may be, according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder, or to any subsequent indorser who may be compelled to pay it." 20
Maniego may also be deemed an "accommodation party" in the light of the facts, i.e., a
person "who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to some
other person." 21 As such, she is under the law "liable on the instrument to a holder for
value, notwithstanding such holder at the time of taking the instrument knew ** (her)
to be only an accommodation party," 22 although she has the right, after paying the
holder, to obtain reimbursement from the party accommodated, "since the relation
between them is in effect that of principal and surety, the accommodation party being
the surety." 23
One last word. The Trial Court acted correctly in adjudging Maniego to be civilly liable
in the same criminal action in which she had been acquitted of the felony of
Malversation ascribed to her, dispensing with the necessity of having a separate civil
action subsequently instituted against her for the purpose. 24
WHEREFORE, the judgment of the Trial Court, being entirely in accord with the facts
and the law, is hereby affirmed in toto, with costs against the appellant.
SO ORDERED.
G.R. No. L-26001 October 29, 1968
PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS and
PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, respondents.
CONCEPCION, C.J.:
40 | P a g e
The Philippine National Bank hereinafter referred to as the PNB seeks the review
by certiorari of a decision of the Court of Appeals, which affirmed that of the Court of
First Instance of Manila, dismissing plaintiff's complaint against the Philippine
Commercial and Industrial Bank hereinafter referred to as the PCIB for the
recovery of P57,415.00.
A partial stipulation of facts entered into by the parties and the decision of the Court of
Appeals show that, on about January 15, 1962, one Augusto Lim deposited in his
current account with the PCIB branch at Padre Faura, Manila, GSIS Check No. 645915-
B, in the sum of P57,415.00, drawn against the PNB; that, following an established
banking practice in the Philippines, the check was, on the same date, forwarded, for
clearing, through the Central Bank, to the PNB, which did not return said check the
next day, or at any other time, but retained it and paid its amount to the PCIB, as well
as debited it against the account of the GSIS in the PNB; that, subsequently, or on
January 31, 1962, upon demand from the GSIS, said sum of P57,415.00 was re-credited
to the latter's account, for the reason that the signatures of its officers on the check
were forged; and that, thereupon, or on February 2, 1962, the PNB demanded from the
PCIB the refund of said sum, which the PCIB refused to do. Hence, the present action
against the PCIB, which was dismissed by the Court of First Instance of Manila, whose
decision was, in turn, affirmed by the Court of Appeals.
It is not disputed that the signatures of the General Manager and the Auditor of the
GSIS on the check, as drawer thereof, are forged; that the person named in the check
as its payee was one Mariano D. Pulido, who purportedly indorsed it to one Manuel Go;
that the check purports to have been indorsed by Manuel Go to Augusto Lim, who, in
turn, deposited it with the PCIB, on January 15, 1962; that, thereupon, the PCIB
stamped the following on the back of the check: "All prior indorsements and/or Lack of
Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura
Branch, Manila; that, on the same date, the PCIB sent the check to the PNB, for
clearance, through the Central Bank; and that, over two (2) months before, or on
November 13, 1961, the GSIS had notified the PNB, which acknowledged receipt of the
notice, that said check had been lost, and, accordingly, requested that its payment be
stopped.
In its brief, the PNB maintains that the lower court erred: (1) in not finding the PCIB
guilty of negligence; (2) in not finding that the indorsements at the back of the check
are forged; (3) in not finding the PCIB liable to the PNB by virtue of the former's
warranty on the back of the check; (4) in not holding that "clearing" is not
"acceptance", in contemplation of the Negotiable Instruments law; (5) in not finding
that, since the check had not been accepted by the PNB, the latter is entitled to
reimbursement therefor; and (6) in denying the PNB's right to recover from the PCIB.
The first assignment of error will be discussed later, together with the last,with which it
is interrelated.
As regards the second assignment of error, the PNB argues that, since the signatures
of the drawer are forged, so must the signatures of the supposed indorsers be; but this
conclusion does not necessarily follow from said premise. Besides, there is absolutely
no evidence, and the PNB has not even tried to prove that the aforementioned
indorsements are spurious. Again, the PNB refunded the amount of the check to the
GSIS, on account of the forgery in the signatures, not of the indorsers or supposed
indorsers, but of the officers of the GSIS as drawer of the instrument. In other words,
the question whether or not the indorsements have been falsified is immaterial to the
PNB's liability as a drawee, or to its right to recover from the PCIB,1 for, as against the
drawee, the indorsement of an intermediate bank does not guarantee the signature of
the drawer,2 since the forgery of the indorsement is not the cause of the loss.3
With respect to the warranty on the back of the check, to which the third assignment of
error refers, it should be noted that the PCIB thereby guaranteed "all prior
indorsements," not the authenticity of the signatures of the officers of the GSIS who
signed on its behalf, because the GSIS is not an indorser of the check, but its drawer.4
Said warranty is irrelevant, therefore, to the PNB's alleged right to recover from the
PCIB. It could have been availed of by a subsequent indorsee5 or a holder in due
course6 subsequent to the PCIB, but, the PNB is neither.7 Indeed, upon payment by the
PNB, as drawee, the check ceased to be a negotiable instrument, and became a mere
voucher or proof of payment.8
Referring to the fourth and fifth assignments of error, we must bear in mind that, in
general, "acceptance", in the sense in which this term is used in the Negotiable
Instruments Law9 is not required for checks, for the same are payable on demand.10
Indeed, "acceptance" and "payment" are, within the purview of said Law, essentially
different things, for the former is "a promise to perform an act," whereas the latter is
the "actual performance" thereof.11 In the words of the Law,12 "the acceptance of a
bill is the signification by the drawee of his assent to the order of the drawer," which, in
the case of checks, is the payment, on demand, of a given sum of money. Upon the
other hand, actual payment of the amount of a check implies not only an assent to
said order of the drawer and a recognition of the drawer's obligation to pay the
aforementioned sum, but, also, a compliance with such obligation.
Let us now consider the first and the last assignments of error. The PNB maintains that
the lower court erred in not finding that the PCIB had been guilty of negligence in not
discovering that the check was forged. Assuming that there had been such negligence
on the part of the PCIB, it is undeniable, however, that the PNB has, also, been
negligent, with the particularity that the PNB had been guilty of a greater degree of
negligence, because it had a previous and formal notice from the GSIS that the check
had been lost, with the request that payment thereof be stopped. Just as important, if
not more important and decisive, is the fact that the PNB's negligence was the main or
proximate cause for the corresponding loss.
In this connection, it will be recalled that the PCIB did not cash the check upon its
presentation by Augusto Lim; that the latter had merely deposited it in his current
account with the PCIB; that, on the same day, the PCIB sent it, through the Central
Bank, to the PNB, for clearing; that the PNB did not return the check to the PCIB the
next day or at any other time; that said failure to return the check to the PCIB implied,
under the current banking practice, that the PNB considered the check good and would
honor it; that, in fact, the PNB honored the check and paid its amount to the PCIB; and
that only then did the PCIB allow Augusto Lim to draw said amount from his
aforementioned current account.
Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had
found nothing wrong with the check and would honor the same, and by actually paying
its amount to the PCIB, the PNB induced the latter, not only to believe that the check
41 | P a g e
was genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In
other words, the PNB was the primary or proximate cause of the loss, and, hence, may
not recover from the PCIB.13
It is a well-settled maxim of law and equity that when one of two (2) innocent persons
must suffer by the wrongful act of a third person, the loss must be borne by the one
whose negligence was the proximate cause of the loss or who put it into the power of
the third person to perpetrate the wrong.14
Then, again, it has, likewise, been held that, where the collecting (PCIB) and the
drawee (PNB) banks are equally at fault, the court will leave the parties where it finds
them.15
Lastly, Section 62 of Act No. 2031 provides:
The acceptor by accepting the instrument engages that he will pay it according to the
tenor of his acceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity
and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
The prevailing view is that the same rule applies in the case of a drawee who pays a
bill without having previously accepted it.16
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the
Philippine National Bank. It is so ordered.
G.R. No. L-18751 September 26, 1922
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BARTOLOME
PICORNELL, ET AL., defendants.
BARTOLOME PICORNELL, appellant.
G.R. No. L-18915 September 26, 1922
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BARTOLOME
PICORNELL, ET AL., defendants.
JOAQUIN PARDO DE TAVERA, appellant.
ROMUALDEZ, J.:
In a decision rendered January 9, 1922, and amended by an order of February 18th
next, the Court of First Instance of Manila sentenced the defendants to pay solidarily to
the plaintiff bank of the sum of P28,790.72 with interest at the rate of 9 per centum
per annum from May 3, 1921, and costs; and the defendant Bartolome Picornell, to pay
said plaintiff the sum of P10,739.11 with interest at 9 per centum per annum, all as
aforesaid, deducting the sum of P6,708.82 from such amounts to be paid be the
defendants.
This total sum which the defendants are required to pay represents the value of a bill
of exchange drawn by Bartolome Picornell in favor of the National Bank, plaintiff,
against the firm of Hyndman, Tavera & Ventura, now dissolved, its only successor being
the defendant Joaquin Pardo de Tavera. The sum of P6,708.82, which the trial court
ordered deducted from the value of the bill of exchange, is the proceeds received by
the bank from the sale of a part of a certain quality of tobacco shipped by Picornell at
Cebu to the Hyndman, Tavera & Ventura company at Manila, the price of which,
together with his commission, was received by him from the branch of the plaintiff
bank in Cebu, and in consideration whereof he drew the bill from the central office of
said bank in Manila and against the said Hyndman, Tavera & Ventura company, the
consignee of the tobacco.
The P28,790.72, which the defendants are sentenced to pay solidarily to the plaintiff
bank, constitutes the value of the tobacco at the date when the bill fell due, as
appraised for the purpose.
The reasoning of the trial court for fixing the respective responsibilities of the
defendants is given in its decision and is as follows:
. . . The defendant Pardo de Tavera, successor to Hyndman, Tavera & Ventura, by his
having accepted the bill and denied payment thereof, notwithstanding the existence of
a consideration which is the real value of the tobacco, and the defendant Picornell by
his having drawn such bill and received its value from the branch of the plaintiff bank
in Cebu, became liable upon the same bill, the defendant Picornell to its full value, and
the defendant Pardo de Tavera to the extent of the value of the tobacco.
From this judgment the defendants appealed.
Joaquin Pardo de Tavera alleged that the bill in question was without consideration and
that judgment should not have been rendered against him. The appellant Picornell
contended that it should have been taken into account that he merely acted as an
agent of Hyndman, Tavera & Ventura in all these transactions; that the tobacco was
not of inferior quality, as alleged by the said company; that the condition "D/P"
attached to the transaction was not modified; that he had the right to complain
because the bank consented to the said company taking possession of the tobacco
before the payment of the bill; that the bank held the tobacco as a deposit; that the
bank was not authorized to sell the tobacco, said sale not being allowed either by law
or by the circumstances that he should not have been ordered to pay the value of the
bill without proof that he was notified of its dishonor, as required by section 89 of the
Negotiable Instruments Law.
The appellee bank maintains that the appellants have no right to discuss issues of fact
in this instance for not having complied with the requirements enumerated in
paragraph (a) of Rule 16 of the Rules of the Courts of First Instance. The rule cited
refers to special proceedings. Moreover, we believe, we believe that the necessary
requirements in order that this court may pass upon questions of fact have been
complied with by the appellants.
42 | P a g e
The following facts are proved: That Bartolome Picornell, following instruction of
Hyndman, Tavera & Ventura, bought in Cebu 1,735 bales of tobacco; that Picornell
obtained from the branch of the National Bank in Cebu the sum of P39,529.83, the
value of the tobacco, together with his commission of 1 real per quintal (according to
stipulation Exhibit 4), having, in turn, drawn the following bill of exchange, Exhibit A:
No. 2-A.Cebu, 28 febrero, 1920. For P39,529.83
At treinta (30) days sight please pay this first of exchange (second unpaid) to the order
of Philippine National Bank treinta y nueve mil quinientos veintinueve pesos con
83/100. Value received.
To Sres. HYNDMAN, TAVERA Y VENTURA
Calle Soler 26 y 28.
(Sgd.) B. PICORNELL
This instrument was delivered to the branch of the National Bank in Cebu, together
with the invoice and bill of lading of the tobacco, which was shipped in the boat Don
Ildefonso, on February 27, 1920, consigned to Hyndman, Tavera & Ventura at Manila.
The invoice and bill of lading were delivered to the National Bank with the
understanding that the bank should not delivered them to Hyndman, Tavera & Ventura
except upon payment of the bill; which condition was expressed by the well-known
formula "D/P" (documents for [against] payment).
The central office of the National Bank in Manila received the bill and the aforesaid
documents annexed thereto; and on March 3, 1920, presented the bill to Hyndman,
Tavera & Ventura, who accepted it stating on the face thereof the following:
Accepted, 3d March, 1920. Due, 2d April, 1920. Hyndman, Tavera & Ventura, by (Sgd.)
J. Pardo de Tavera, member of the firm.
The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don
Ildefonso, that brought the shipment, requested Hyndman, Tavera & Ventura to send
for the goods, which was done by the company without the knowledge of the National
Bank which retained and always had in its possession the invoice and bill of lading of
the tobacco, until it presented them as evidence at the trial.
Hyndman, Tavera & Ventura proceeded to the examination of the tobacco, which was
deposited in their warehouses, and wrote and cable to Bartolome Picornell, notifying
him that of the tobacco received, there was a certain portion which was no use and
was damaged. To these communications, Picornell answered, sending the following
letter:
Cebu, March 13, 1920.
Messrs. HYNDMAN, TAVERA & VENTURA,
Manila.
TABACO
DEAR SIRS: Your letters of the 3d and 9th, and your telegram of the 5th, inst, received
and the sample of tobacco sent through the captain of the boat Don Ildefonso.
I wired to the seller asking him to come over and I hope he will do so at the first
opportunity.
It would be well that you should inform me of the exact number of bales deteriorated
and useless, and if possible that said information should be furnished by the Bureau of
Internal Revenue. Moreover, it would be well also that you should not sell any bale of
said shipment until the matter is settled.
Yours very truly,
(Sgd.) B. PICORNELL
Through these communications, therefore, Picornell learned that Hyndman, Tavera &
Ventura had in their possession the tobacco aforementioned.
In view of the question raised by the said company as to the quality of the aforesaid
tobacco, more correspondence was exchange between the company and Picornell,
who, upon the suggestion of the former, wrote on March 26, 1920, this letter:
Messrs. Philippine National Bank,
Cebu.
DEAR SIRS: I would be obliged to you if you would wire your central office at Manila to
extend thirty days the time for payment of the bill for P39,529.83 against Messrs.
Hyndman, Tavera & Ventura of Manila.
Awaiting your favor, I remain,
Yours very truly,
(Sgd.) B. PICORNELL
The bank granted this request of the defendants; wherefore Hyndman, Tavera &
Ventura reaccepted the bill in the following terms:
Accepted for thirty days. Due May 2d, 1920. Hyndman, Tavera & Ventura, By (Sgd.) J
Pardo de Tavera, member of the firm.
May 2, 1920, arrived and the bill was not paid. On the 4th of the same month,
Hyndman, Tavera & Ventura sent a letter to the plaintiff bank as follows:
DEAR SIRS: We very much regret to have to inform you that we absolutely refuse to
pay draft No. 2 for thirty-nine thousand five hundred and twenty-nine pesos and
eighty-three cents (P39,529.83), referring to 1,871,235 quintals of Leaf Tobacco Barili,
owing to noncompliance of the contract by the drawer.
We, therefore, beg to notify you that the said Lead Tobacco is at the disposal of your
goodselves at our go-down No. 26-36 Calle Soler.
43 | P a g e
The bank protested the bill, tool possession of the tobacco, and had it appraised on the
12th of the same month, its value having been fixed at P28,790.72. That this valuation
was just, reasonable and exact is not questioned by the parties.
The bank brought this action, and about September, 1921, sold the tobacco, obtaining
from the sale P6,708.82.
This action is for the recovery of the value of the bill of exchange above-mentioned.
The Hyndman, Tavera & Ventura company accepted it unconditionally, but did not pay
it at its maturity; wherefore its responsibility, or that of its successor, J. Pardo de
Tavera, to pay the same, is clear. (Sec. 62, Negotiable Instruments Law.)
The question whether or not the tobacco was worth the value of the bill, does not
concern the plaintiff bank. Such partial want of consideration, if it was, does not exist
with respect to the bank which paid to Picornell the full value of said bill of exchange.
The bank was a holder in due course, and was such for value full and complete. The
Hyndman, Tavera & Ventura company cannot escape liability in view of section 28 of
the Negotiable Instruments Law.
. . . The drawee by acceptance becomes liable to the payee or his indorsee, and also to
the drawer himself. But the drawer and acceptor are the immediate parties to the
consideration, and if the acceptance be without consideration, the drawer cannot
recover of the acceptor. The payee holds a different relation; he is a stranger to the
transaction between the drawer and the acceptor, and is, therefore, in a legal sense a
remote party. In a suit by him against the acceptor, the question as to the
consideration between the drawer and the acceptor cannot be inquired into. The payee
or holder gives value to the drawer, and if he is ignorant of the equities between the
drawer and the acceptor, he is in the position on a bona fide indorsee. Hence, it is no
defense to a suit against the acceptor of a draft which has been discounted, and upon
which money has been advance by the plaintiff, that the draft was accepted or the
accommodation of the drawer. . . . (3 R. C. L., pp. 1143, 1144, par, 358.)
As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted
upon proper presentment and paid in due course, and as it was not paid, he became
liable to the payment of its value to the holder thereof, which is the plaintiff bank. (Sec.
61, Negotiable Instruments Law.)
The fact that Picornell was a commission agent of Hyndman, Tavera & Ventura, in the
purchase of the tobacco, does not necessarily make him an agent of the company in its
obligations arising from the drawing of the bill by him. His acts in negotiating the bill
constitute a different contract from that made by his having purchased the tobacco on
behalf of Hyndman, Tavera & Ventura. Furthermore, he cannot exempt himself from
responsibility by the fact of his having been a mere agent of this company, because
nothing to this effect was indicated or added to his signature on signing the bill. (Sec.
20, Negotiable Instruments Law.)
The fact that the tobacco was or was not of inferior quality does not affect the
responsibility of Picornell, because while it may an effect upon the contract between
him and the firm of Hyndman, Tavera & Ventura, yet it cannot have upon the
responsibility of both to the bank, upon the bill drawn and accepted as above stated.
As to the instruction "D/P" appearing on the instrument, it was not violated by the
bank, which, as above stated, kept possession of the invoice and the bill of lading of
the tobacco. By virtue of this circumstance, the bank had the right to deal with that
tobacco as a security in case of non-payment of the bill, and this was admitted by
Hyndman, Tavera & Ventura when, upon their refusal to pay the bill, they placed the
tobacco at the disposal of the bank.
Neither does the fact of Hyndman, Tavera & Ventura having been given possession of
the tobacco before the payment of the bill affect the liability of the defendants to the
bank thereon.
The title of the bank to the tobacco in question by reason of the condition "D/P" was
that a pledgee, and its possession after its delivery to it by Hyndman, Tavera & Ventura
was of the same nature -- a discount security, which it was authorized to accept and
retail. (Act No. 2938.)
The appellants question the power of the bank to sell, as it did, the tobacco in
question. Taking into account the circumstances of the case, we fold that the bank did
not violate the law in making such sale without notice. We hold that it is one of those
cases provided for by law (sec. 33, Act. No. 2938), wherein a previous notice of the
sale is not indispensable. Besides, as to the price obtained in the sale, no question is
made that it was the best obtainable.
Concerning the notice to Picornell of the dishonor of the bill, it appears from Exhibit C,
which is to protest for the non-payment thereof, that a copy of such protest was sent
by mail in good season addressed to Bartolome Picornell, the presumption, now
conclusive, that the latter received it (secs. 105, 106, Negotiable Instruments Law), not
having been rebutted, or at least, contradicted.
Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of
recourse, which it exercised, against the drawer. (Sec. 84, Negotiable Instruments
Law.)
The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de
Tavera, accepted the bill and is primarily liable for the value of the negotiable
instrument, while the drawer, Bartolome Picornell, is secondarily liable. (3. R. C. L., pp.
1144, 1145.) However, no question has been raised about this aspect of the
responsibility of the defendants.
We are of the opinion that the appellants are liable to the National Bank for the value
of the bill of exchange Exhibit A, deducting therefrom P6,708.82 the proceeds of the
sale of the tobacco. But the bank, not having appealed from the judgment of the lower
court, we cannot alter it in favor of said party, which, by its omission to appeal, has
shown full conformity with the judgment rendered.
For the foregoing, the judgment appealed from is affirmed, with costs against the
defendants. So ordered.
44 | P a g e
G.R. No. 93073 December 21, 1992
REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN
CANLAS, respondents.
CAMPOS, JR., J.:
This is an appeal by way of a Petition for Review on Certiorari from the decision * of the
Court of Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-
Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas,
Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except
that it completely absolved Fermin Canlas from liability under the promissory notes
and reduced the award for damages and attorney's fees. The RTC decision, rendered
on June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation
(formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo Yamaguchi
and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums
with interest thereon at 16% per annum from the dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from
January 29, 1981 until fully paid; under promissory note (Exhibit "B"), the sum of
P40,000.00 with interest from November 27, 1980; under the promissory note (Exhibit
"C"), the sum of P166,466.00 which interest from January 29, 1981; under the
promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January 29,
1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest
from November 27, 1980; under the promissory note (Exhibit "H"), the sum of
P281,875.91 with interest from January 29, 1981; and under the promissory note
(Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation
(formerly named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are
ordered to pay jointly and severally, the plaintiff bank the sum of P367,000.00 with
interest of 16% per annum from January 29, 1980 until fully paid
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly
Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with interest at
16% per annum from November 27, 1980 until fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of
P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid and the
sum of P331,870.97 with interest from March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of
P100,000.00 as and for reasonable attorney's fee and the further sum equivalent to 3%
per annum of the respective principal sums from the dates above stated as penalty
charge until fully paid, plus one percent (1%) of the principal sums as service charge.
With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then
Intermediate Court (now the Court Appeals). His contention was that inasmuch as he
signed the promissory notes in his capacity as officer of the defunct Worldwide
Garment Manufacturing, Inc, he should not be held personally liable for such
authorized corporate acts that he performed. It is now the contention of the petitioner
Republic Planters Bank that having unconditionally signed the nine (9) promissory
notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is
solidarity liable with Shozo Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private
respondent Fermin Canlas were President/Chief Operating Officer and Treasurer
respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution
No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent
Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic
Planters Bank in the forms of export advances and letters of credit/trust receipts
accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A
to I inclusive, each of which were uniformly worded in the following manner:
___________, after date, for value received, I/we, jointly and severaIly promise to pay to
the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the
sum of ___________ PESOS(....) Philippine Currency...
On the right bottom margin of the promissory notes appeared the signatures of Shozo
Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his
personal capacity" typewritten below. At the bottom of the promissory notes appeared:
"Please credit proceeds of this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran
horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment
Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant
and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its
corporate name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of
money covered among others, by the nine promissory notes with interest thereon, plus
attorney's fees and penalty charges. The complainant was originally brought against
45 | P a g e
Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop
Worldwide Manufacturing, Inc. as defendant and substitute Pinch Manufacturing
Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo
Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-
trial conference despite due notice. Only private respondent Fermin Canlas filed an
Amended Answer wherein he, denied having issued the promissory notes in question
since according to him, he was not an officer of Pinch Manufacturing Corporation, but
instead of Worldwide Garment Manufacturing, Inc., and that when he issued said
promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were
in blank, the typewritten entries not appearing therein prior to the time he affixed his
signature.
In the mind of this Court, the only issue material to the resolution of this appeal is
whether private respondent Fermin Canlas is solidarily liable with the other defendants,
namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory
notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the
promissory notes bearing his signature for the following reasons:
The promissory motes are negotiable instruments and must be governed by the
Negotiable Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of
promissory notes are makers and are liable as such. 3 By signing the notes, the maker
promises to pay to the order of the payee or any holder 4 according to the tenor
thereof. 5 Based on the above provisions of law, there is no denying that private
respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he
cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon. 6 An instrument
which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or
more persons, makes them solidarily liable. 7 The fact that the singular pronoun is
used indicates that the promise is individual as to each other; meaning that each of
the co-signers is deemed to have made an independent singular promise to pay the
notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made
clearer and certain, without reason for ambiguity, by the presence of the phrase "joint
and several" as describing the unconditional promise to pay to the order of Republic
Planters Bank. A joint and several note is one in which the makers bind themselves
both jointly and individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the suit. 8 A joint
and several obligation in common law corresponds to a civil law solidary obligation;
that is, one of several debtors bound in such wise that each is liable for the entire
amount, and not merely for his proportionate share. 9 By making a joint and several
promise to pay to the order of Republic Planters Bank, private respondent Fermin
Canlas assumed the solidary liability of a debtor and the payee may choose to enforce
the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing
Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the
signatures of the makers in the notes will affect the liability of the makers, We do not
find it necessary to resolve and decide, because it is immaterial and will not affect to
the liability of private respondent Fermin Canlas as a joint and several debtor of the
notes. With or without the presence of said phrase, private respondent Fermin Canlas
is primarily liable as a co-maker of each of the notes and his liability is that of a
solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a
corporation's Articles of Incorporation effecting a change of corporate name, in this
case from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation
extinguished the personality of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor
the successor of the original corporation. It is the same corporation with a different
name, and its character is in no respect changed. 10
A change in the corporate name does not make a new corporation, and whether
effected by special act or under a general law, has no affect on the identity of the
corporation, or on its property, rights, or liabilities. 11
The corporation continues, as before, responsible in its new name for all debts or other
liabilities which it had previously contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal
liability for acts done or contracts entered into by officers of the corporation, if duly
authorized. Inasmuch as such officers acted in their capacity as agent of the old
corporation and the change of name meant only the continuation of the old juridical
entity, the corporation bearing the same name is still bound by the acts of its agents if
authorized by the Board. Under the Negotiable Instruments Law, the liability of a
person signing as an agent is specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the
instrument contains or a person adds to his signature words indicating that he signs for
or on behalf of a principal , or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing him as
an agent, or as filling a representative character, without disclosing his principal, does
not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the
fact that he is acting in a representative capacity or the name of the third party for
whom he might have acted as agent, the agent is personally liable to take holder of
the instrument and cannot be permitted to prove that he was merely acting as agent
of another and parol or extrinsic evidence is not admissible to avoid the agent's
personal liability. 13
On the private respondent's contention that the promissory notes were delivered to
him in blank for his signature, we rule otherwise. A careful examination of the notes in
question shows that they are the stereotype printed form of promissory notes
generally used by commercial banking institutions to be signed by their clients in
46 | P a g e
obtaining loans. Such printed notes are incomplete because there are blank spaces to
be filled up on material particulars such as payee's name, amount of the loan, rate of
interest, date of issue and the maturity date. The terms and conditions of the loan are
printed on the note for the borrower-debtor 's perusal. An incomplete instrument which
has been delivered to the borrower for his signature is governed by Section 14 of the
Negotiable Instruments Law which provides, in so far as relevant to this case, thus:
Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any
material particular, the person in possesion thereof has a prima facie authority to
complete it by filling up the blanks therein. ... In order, however, that any such
instrument when completed may be enforced against any person who became a party
thereto prior to its completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time...
Proof that the notes were signed in blank was only the self-serving testimony of private
respondent Fermin Canlas, as determined by the trial court, so that the trial court
''doubts the defendant (Canlas) signed in blank the promissory notes". We chose to
believe the bank's testimony that the notes were filled up before they were given to
private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures
as joint and several promissors. For signing the notes above their typewritten names,
they bound themselves as unconditional makers. We take judicial notice of the
customary procedure of commercial banks of requiring their clientele to sign
promissory notes prepared by the banks in printed form with blank spaces already
filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing
but read the terms and conditions therein printed and to sign as makers or co-makers.
When the notes were given to private respondent Fermin Canlas for his signature, the
notes were complete in the sense that the spaces for the material particular had been
filled up by the bank as per agreement. The notes were not incomplete instruments;
neither were they given to private respondent Fermin Canlas in blank as he claims.
Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing
the interest rate on the promissory notes from 16% to 12% per annum does not
squarely apply to the instant petition. In the abovecited case, the rate of 12% was
applied to forebearances of money, goods or credit and court judgemets thereon, only
in the absence of any stipulation between the parties.
In the case at bar however , it was found by the trial court that the rate of interest is
9% per annum, which interest rate the plaintiff may at any time without notice, raise
within the limits allowed law. And so, as of February 16, 1984 , the plaintiff had fixed
the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential
Decree No. 116, are applicable only to interests by way of compensation for the use or
forebearance of money. Article 2209 of the Civil Code, on the other hand, governs
interests by way of damages. 15 This fine distinction was not taken into consideration
by the appellate court, which instead made a general statement that the interest rate
be at 12% per annum.
Inasmuch as this Court had declared that increases in interest rates are not subject to
any ceiling prescribed by the Usury Law, the appellate court erred in limiting the
interest rates at 12% per annum. Central Bank Circular No. 905, Series of 1982
removed the Usury Law ceiling on interest rates. 16
In the 1ight of the foregoing analysis and under the plain language of the statute and
jurisprudence on the matter, the decision of the respondent: Court of Appeals
absolving private respondent Fermin Canlas is REVERSED and SET ASIDE. Judgement is
hereby rendered declaring private respondent Fermin Canlas jointly and severally liable
on all the nine promissory notes with the following sums and at 16% interest per
annum from the dates indicated, to wit:
Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest
from January 29, 1981 until fully paid; under promissory note marked as Exhibit B, the
sum of P40,000.00 with interest from November 27, 1980: under the promissory note
denominated as Exhibit C, the amount of P166,466.00 with interest from January 29,
1981; under the promissory note denominated as Exhibit D, the amount of
P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory
note marked as Exhibit E, the amount of P86,130.31 with interest from January 29,
1981; under the promissory note marked as Exhibit F, the sum of P140,000.00 with
interest from November 27, 1980 until fully paid; under the promissory note marked as
Exhibit G, the amount of P12,703.70 with interest from November 27, 1980; the
promissory note marked as Exhibit H, the sum of P281,875.91 with interest from
January 29, 1981; and the promissory note marked as Exhibit I, the sum of
P200,000.00 with interest on January 29, 1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide
Garment Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the
decision of the trial court, shall be adjudged in accordance with the judgment rendered
by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private
respondent Fermin Canlas is hereby held jointly and solidarity liable with defendants
for the amounts found, by the Court a quo. With costs against private respondent.
. G.R. No. L-17845 April 27, 1967
INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA, petitioner, vs.
FRANCISCO SEVILLA, respondent.
SANCHEZ, J.:
On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly
and severally, in favor of the Bank of the Philippine Islands, or its order, a promissory
47 | P a g e
note for P15,000.00 with interest at 8% per annum, payable on demand. The entire,
amount of P15,000.00, proceeds of the promissory note, was received from the bank
by Oscar Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory note
as co-makers only as a favor to Oscar Varona. Payments were made on account. As of
June 15, 1950, the outstanding balance stood P4,850.00. No payment thereafter made.
On October 6, 1952, the bank collected from Sadaya the foregoing balance which,
together with interest, totalled P5,416.12. Varona failed to reimburse Sadaya despite
repeated demands.
Victor Sevilla died. Intestate estate proceedings were started in the Court of First
Instance of Rizal, Special Proceeding No. 1518. Francisco Sevilla was named
administrator.
In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above sum of
P5,746.12, plus attorneys fees in the sum of P1,500.00. The administrator resisted the
claim upon the averment that the deceased Victor Sevilla "did not receive any amount
as consideration for the promissory note," but signed it only "as surety for Oscar
Varona".
On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya
in the amount of P5,746.12, and directing the administrator to pay the same from any
available funds belonging to the estate of the deceased Victor Sevilla.
The motion to reconsider having been overruled, the administrator appealed.1 The
Court of Appeals, in a decision promulgated on July, 15, 1960, voted to set aside the
order appealed from and to disapprove and disallow "appellee's claim of P5,746.12
against the intestate estate."
The case is now before this Court on certiorari to review the judgment of the Court of
Appeals.
Sadaya's brief here seeks reversal of the appellate court's decision and prays that his
claim "in the amount of 50% of P5,746.12, or P2,873.06, against the intestate estate of
the deceased Victor Sevilla," be approved.
1. That Victor Sevilla and Simeon Sadaya were joint and several accommodation
makers of the 15,000.00-peso promissory note in favor of the Bank of the Philippine
Islands, need not be essayed. As such accommodation the makers, the individual
obligation of each of them to the bank is no different from, and no greater and no less
than, that contract by Oscar Varona. For, while these two did not receive value on the
promissory note, they executed the same with, and for the purpose of lending their
names to, Oscar Varona. Their liability to the bank upon the explicit terms of the
promissory note is joint and several.2 Better yet, the bank could have pursued its right
to collect the unpaid balance against either Sevilla or Sadaya. And the fact is that one
of the last two, Simeon Sadaya, paid that balance.
2. It is beyond debate that Simeon Sadaya could have sought reimbursement of the
total amount paid from Oscar Varona. This is but right and just. Varona received full
value of the promissory note.3 Sadaya received nothing therefrom. He paid the bank
because he was a joint and several obligor. The least that can be said is that, as
between Varona and Sadaya, there is an implied contract of indemnity. And Varona is
bound by the obligation to reimburse Sadaya.4
3. The common creditor, the Bank of the Philippine Islands, now out of the way, we first
look into the relations inter se amongst the three consigners of the promissory note.
Their relations vis-a-vis the Bank, we repeat, is that of joint and several obligors. But
can the same thing be said about the relations of the three consigners, in respect to
each other?
Surely enough, as amongst the three, the obligation of Varona and Sevilla to Sadaya
who paid can not be joint and several. For, indeed, had payment been made by Oscar
Varona, instead of Simeon Sadaya, Varona could not have had reason to seek
reimbursement from either Sevilla or Sadaya, or both. After all, the proceeds of the
loan went to Varona and the other two received nothing therefrom.
4. On principle, a solidary accommodation maker who made payment has the
right to contribution, from his co-accommodation maker, in the absence of agreement
to the contrary between them, and subject to conditions imposed by law. This right
springs from an implied promise between the accommodation makers to share equally
the burdens that may ensue from their having consented to stamp their signatures on
the promissory note.5 For having lent their signatures to the principal debtor, they
clearly placed themselves in so far as payment made by one may create liability on
the other in the category of mere joint grantors of the former.6 This is as it should
be. Not one of them benefited by the promissory note. They stand on the same footing.
In misfortune, their burdens should be equally spread.
Manresa, commenting on Article 1844 of the Civil Code of Spain,7 which is
substantially reproduced in Article 20738 of our Civil Code, on this point stated:
Otros, como Pothier, entienden que, si bien el principio es evidente enestricto concepto
juridico, se han extremado sus consecuencias hasta el punto de que estas son
contrarias, no solo a la logica, sino tambien a la equidad, que debe ser el alma del
Derecho, como ha dicho Laurent.
Esa accion sostienen no nace de la fianza, pues, en efecto, el hecho de afianzar
una misma deuda no crea ningun vinculo juridico, ni ninguna razon de obligar entre los
fiadores, sino que trae, por el contrario, su origen de una acto posterior, cual es el
pago de toda la deuda realizado por uno de ellos, y la equdad, no permite que los
denias fiadores, que igualmente estaban estaban obligos a dicho pago, se
aprovenchen de ese acto en perjuico del que lo realozo.
Lo cierto es que esa accion concedida al fiador nace, si, del hecho del pago, pero es
consecuencia del beneficio o del derecho de division, como tenemos ya dicho. En
efecto, por virtud de esta todos los cofiadores vienen obligados a contribuir al pago de
parte que a cada uno corresponde. De ese obligacion, contraida por todos ellos, se
libran los que no han pagado por consecuencia del acto realizado por el que pago, y si
bien este no hizo mas que cumplir el deber que el contracto de fianza le imponia de
responder de todo el debito cuando no limito su obligacion a parte alguna del mismo,
dicho acto redunda en beneficio de los otros cofiadores los cuales se aprovechan de el
para quedar desligados de todo compromiso con el acreedor.9
48 | P a g e
5. And now, to the requisites before one accommodation maker can seek
reimbursement from a co-accommodation maker.
By Article 18 of the Civil Code in matters not covered by the special laws, "their
deficiency shall be supplied by the provisions of this Code". Nothing extant in the
Negotiable Instruments Law would define the right of one accommodation maker to
seek reimbursement from another. Perforce, we must go to the Civil Code.1wph1.t obligando a estos, sin excepcion alguna, a soportar siempre los gastos y las molestias
Because Sevilla and Sadaya, in themselves, are but co-guarantors of Varona, their case
comes within the ambit of Article 2073 of the Civil Code which reads:
ART. 2073. When there are two or more guarantors of the same debtor and for the
same debt, the one among them who has paid may demand of each of the others the
share which is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be borne by the others,
including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the payment has been
made in virtue of a judicial demand or unless the principal debtor is insolvent.10
As Mr. Justice Street puts it: "[T]hat article deals with the situation which arises when
one surety has paid the debt to the creditor and is seeking contribution from his
cosureties."11
Not that the requirements in paragraph 3, Article 2073, just quoted, are devoid of
cogent reason. Says Manresa:12
c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la
corresponsabilidad de los cofiadores.
La tercera de las prescripciones que comprende el articulo se refiere a los requisitos
que deben concurrir para que pueda tener lugar lo dispuesto en el mismo. Ese derecho
que concede al fiador para reintegrarse directamente de los fiadores de lo que pago
por ellos en vez de dirigir su reclamacion contra el deudor, es un beneficio otorgado
por la ley solo ell dos casos determinados, cuya justificacion resulta evidenciada desde
luego; y esa limitacion este debidamente aconsejada por una razon de prudencia que
no puede desconocerse, cual es la de evitar que por la mera voluntad de uno de los
cofiadores pueda hacerse surgir la accion de reintegro contra los demas en prejuicio de
los mismos.
El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio, pues
teniendo en primer termino el fiador que paga por el deudor el derecho de
indemnizacion contra este, sancionado por el art. 1,838, es de todo punto indudable
que ejercitando esta accion pueden quedar libres de toda responsabilidad los demas
cofiadores si, a consecuencia de ella, indemniza el fiado a aquel en los terminos
establecidos en el expresado articulo. Por el contrario de prescindir de dicho derecho el
fiador, reclamando de los confiadores en primer lugar el oportuno reintegro, estos en
tendrian mas remedio que satisfacer sus ductares respectivas, repitiendo despues por
ellas contra el deudor con la imposicion de las molestias y gastos consiguientes.
No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u
otro de dichos derechos, el de indemnizacion por el deudor y el del reintegro por los
cofiadores, indudablemente optaria siempre y en todo caso por el segundo, puesto que
mucha mas garantias de solvencia y mucha mas seguridad del cobro ha de encontrar
en los fiadores que en el deudor; y en la practica quedaria reducido el primero a la
indemnizacion por el deudor a los confiadores que hubieran hecho el reintegro,
que anteriormente homos indicado. Y para evitar estos perjuicios, la ley no ha podido
menos de reducir el ejercicio de ese derecho a los casos en que absolutamente sea
indispensable.13
6. All of the foregoing postulate the following rules: (1) A joint and several
accommodation maker of a negotiable promissory note may demand from the principal
debtor reimbursement for the amount that he paid to the payee; and (2) a joint and
several accommodation maker who pays on the said promissory note may directly
demand reimbursement from his co-accommodation maker without first directing his
action against the principal debtor provided that (a) he made the payment by virtue of
a judicial demand, or (b) a principal debtor is insolvent.
The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily
and without any judicial demand," and that "there is an absolute absence of evidence
showing that Varona is insolvent". This combination of fact and lack of fact epitomizes
the fatal distance between payment by Sadaya and Sadaya's right to demand of
Sevilla "the share which is proportionately owing from him."
For the reasons given, the judgment of the Court of Appeals under review is hereby
affirmed. No costs. So ordered.
[G.R. No. 129015. August 13, 2004]
SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR
EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.
DECISION
TINGA, J.:
Called to fore in the present petition is a classic textbook question if a bank pays out
on a forged check, is it liable to reimburse the drawer from whose account the funds
were paid out? The Court of Appeals, in reversing a trial court decision adverse to the
bank, invoked tenuous reasoning to acquit the bank of liability. We reverse, applying
time-honored principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. (Samsung Construction),
while based in Bian, Laguna, maintained a current account with defendant Far East
Bank and Trust Company[1] (FEBTC) at the latters Bel-Air, Makati branch.[2] The sole
signatory to Samsung Constructions account was Jong Kyu Lee (Jong), its Project
49 | P a g e
Manager,[3] while the checks remained in the custody of the companys accountant,
Kyu Yong Lee (Kyu).[4]
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No.
432100 to the banks branch in Bel-Air, Makati. The check, payable to cash and drawn
against Samsung Constructions current account, was in the amount of Nine Hundred
Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe
Justiani, first checked the balance of Samsung Constructions account. After
ascertaining there were enough funds to cover the check,[5] she compared the
signature appearing on the check with the specimen signature of Jong as contained in
the specimen signature card with the bank. After comparing the two signatures,
Justiani was satisfied as to the authenticity of the signature appearing on the check.
She then asked Gonzaga to submit proof of his identity, and the latter presented three
(3) identification cards.[6]
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier
Gemma Velez, as it was bank policy that two bank branch officers approve checks
exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise
counterchecked the signature on the check as against that on the signature card. He
too concluded that the check was indeed signed by Jong. Velez then forwarded the
check and signature card to Shirley Syfu, another bank officer, for approval. Syfu then
noticed that Jose Sempio III (Sempio), the assistant accountant of Samsung
Construction, was also in the bank. Sempio was well-known to Syfu and the other bank
officers, he being the assistant accountant of Samsung Construction. Syfu showed the
check to Sempio, who vouched for the genuineness of Jongs signature. Confirming the
identity of Gonzaga, Sempio said that the check was for the purchase of equipment for
Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu
authorized the banks encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the
balance of the bank account and discovered that a check in the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been encashed.
Aware that he had not prepared such a check for Jongs signature, Kyu perused the
checkbook and found that the last blank check was missing.[7] He reported the matter
to Jong, who then proceeded to the bank. Jong learned of the encashment of the check,
and realized that his signature had been forged. The Bank Manager reputedly told Jong
that he would be reimbursed for the amount of the check.[8] Jong proceeded to the
police station and consulted with his lawyers.[9] Subsequently, a criminal case for
qualified theft was filed against Sempio before the Laguna court.[10]
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that
FEBTC credit to it the amount of Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (P999,500.00), with interest.[11] In response, FEBTC said that it was still
conducting an investigation on the matter. Unsatisfied, Samsung Construction filed a
Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments
Law, and prayed for the payment of the amount debited as a result of the questioned
check plus interest, and attorneys fees.[12] The case was docketed as Civil Case No.
92-61506 before the Regional Trial Court (RTC) of Manila, Branch 9.[13]
During the trial, both sides presented their respective expert witnesses to testify on
the claim that Jongs signature was forged. Samsung Corporation, which had referred
the check for investigation to the NBI, presented Senior NBI Document Examiner Roda
B. Flores. She testified that based on her examination, she concluded that Jongs
signature had been forged on the check. On the other hand, FEBTC, which had sought
the assistance of the Philippine National Police (PNP),[14] presented Rosario C. Perez, a
document examiner from the PNP Crime Laboratory. She testified that her findings
showed that Jongs signature on the check was genuine.[15]
Confronted with conflicting expert testimony, the RTC chose to believe the findings of
the NBI expert. In a Decision dated 25 April 1994, the RTC held that Jongs signature on
the check was forged and accordingly directed the bank to pay or credit back to
Samsung Constructions account the amount of Nine Hundred Ninety Nine Thousand
Five Hundred Pesos (P999,500.00), together with interest tolled from the time the
complaint was filed, and attorneys fees in the amount of Fifteen Thousand Pesos
(P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special
Fourteenth Division of the Court of Appeals rendered a Decision,[16] reversing the RTC
Decision and absolving FEBTC from any liability. The Court of Appeals held that the
contradictory findings of the NBI and the PNP created doubt as to whether there was
forgery.[17] Moreover, the appellate court also held that assuming there was forgery, it
occurred due to the negligence of Samsung Construction, imputing blame on the
accountant Kyu for lack of care and prudence in keeping the checks, which if observed
would have prevented Sempio from gaining access thereto.[18] The Court of Appeals
invoked the ruling in PNB v. National City Bank of New York[19] that, if a loss, which
must be borne by one or two innocent persons, can be traced to the neglect or fault of
either, such loss would be borne by the negligent party, even if innocent of intentional
fraud.[20]
Samsung Construction now argues that the Court of Appeals had seriously
misapprehended the facts when it overturned the RTCs finding of forgery. It also
contends that the appellate court erred in finding that it had been negligent in
safekeeping the check, and in applying the equity principle enunciated in PNB v.
National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings on questions
of fact, the Court is obliged to examine the record to draw out the correct conclusions.
Upon examination of the record, and based on the applicable laws and jurisprudence,
we reverse the Court of Appeals.
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority. (Emphasis supplied)
The general rule is to the effect that a forged signature is wholly inoperative, and
payment made through or under such signature is ineffectual or does not discharge
the instrument.[21] If payment is made, the drawee cannot charge it to the drawers
50 | P a g e
account. The traditional justification for the result is that the drawee is in a superior
position to detect a forgery because he has the makers signature and is expected to
know and compare it.[22] The rule has a healthy cautionary effect on banks by
encouraging care in the comparison of the signatures against those on the signature
cards they have on file. Moreover, the very opportunity of the drawee to insure and to
distribute the cost among its customers who use checks makes the drawee an ideal
party to spread the risk to insurance.[23]
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has
the privilege of drawing checks in the ordinary course of business, the relationship
between the bank and the depositor is that of debtor and creditor. So far as the legal
relationship between the two is concerned, the situation is the same as though the
bank had borrowed money from the depositor, agreeing to repay it on demand, or had
bought goods from the depositor, agreeing to pay for them on demand. The bank owes
the depositor money in the same sense that any debtor owes money to his creditor.
Added to this, in the case of bank and depositor, there is, of course, the banks
obligation to pay checks drawn by the depositor in proper form and presented in due
course. When the bank receives the deposit, it impliedly agrees to pay only upon the
depositors order. When the bank pays a check, on which the depositors signature is a
forgery, it has failed to comply with its contract in this respect. Therefore, the bank is
held liable.
The fact that the forgery is a clever one is immaterial. The forged signature may so
closely resemble the genuine as to defy detection by the depositor himself. And yet, if
a bank pays the check, it is paying out its own money and not the depositors.
The forgery may be committed by a trusted employee or confidential agent. The bank
still must bear the loss. Even in a case where the forged check was drawn by the
depositors partner, the loss was placed upon the bank. The case referred to is
Robinson v. Security Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought
suit against the defendant bank for money which had been deposited to the plaintiffs
credit and which the bank had paid out on checks bearing forgeries of the plaintiffs
signature.
xxx
It was held that the bank was liable. It was further held that the fact that the plaintiff
waited eight or nine months after discovering the forgery, before notifying the bank,
did not, as a matter of law, constitute a ratification of the payment, so as to preclude
the plaintiff from holding the bank liable. xxx
This rule of liability can be stated briefly in these words: A bank is bound to know its
depositors signature. The rule is variously expressed in the many decisions in which
the question has been considered. But they all sum up to the proposition that a bank
must know the signatures of those whose general deposits it carries.[24]
By no means is the principle rendered obsolete with the advent of modern commercial
transactions. Contemporary texts still affirm this well-entrenched standard. Nickles, in
his book Negotiable Instruments and Other Related Commercial Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who can draw
against the customers account by specifying whose signature is necessary on checks
that are chargeable against the customers account. Therefore, a check drawn against
the account of an individual customer that is signed by someone other than the
customer, and without authority from her, is not properly payable and is not
chargeable to the customers account, inasmuch as any unauthorized signature on an
instrument is ineffective as the signature of the person whose name is signed.[25]
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute
defense by the party whose signature is forged.[26] On the premise that Jongs
signature was indeed forged, FEBTC is liable for the loss since it authorized the
discharge of the forged check. Such liability attaches even if the bank exerts due
diligence and care in preventing such faulty discharge. Forgeries often deceive the eye
of the most cautious experts; and when a bank has been so deceived, it is a harsh rule
which compels it to suffer although no one has suffered by its being deceived.[27] The
forgery may be so near like the genuine as to defy detection by the depositor himself,
and yet the bank is liable to the depositor if it pays the check.[28]
Thus, the first matter of inquiry is into whether the check was indeed forged. A
document formally presented is presumed to be genuine until it is proved to be
fraudulent. In a forgery trial, this presumption must be overcome but this can only be
done by convincing testimony and effective illustrations.[29]
In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the alleged forgery
in view of the conflicting conclusions made by handwriting experts from the NBI and
the PNP, both agencies of the government.
xxx
These contradictory findings create doubt on whether there was indeed a forgery. In
the case of Tenio-Obsequio v. Court of Appeals, 230 SCRA 550, the Supreme Court held
that forgery cannot be presumed; it must be proved by clear, positive and convincing
evidence.
This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an
opponents expert witness to stand uncontradicted, thus the spectacle of competing
expert witnesses is not unusual. The trier of fact will have to decide which version to
believe, and explain why or why not such version is more credible than the other.
Reliance therefore cannot be placed merely on the fact that there are colliding opinions
of two experts, both clothed with the presumption of official duty, in order to draw a
conclusion, especially one which is extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate tier in the
judicial hierarchy. This Court has long deferred to the appellate court as to its findings
51 | P a g e
of fact in the understanding that it has the appropriate skill and competence to plough
through the minutiae that scatters the factual field. In failing to thoroughly evaluate
the evidence before it, and relying instead on presumptions haphazardly drawn, the
Court of Appeals was sadly remiss. Of course, courts, like humans, are fallible, and not
every error deserves a stern rebuke. Yet, the appellate courts error in this case
warrants special attention, as it is absurd and even dangerous as a precedent. If this
rationale were adopted as a governing standard by every court in the land, barely any
actionable claim would prosper, defeated as it would be by the mere invocation of the
existence of a contrary expert opinion.
On the other hand, the RTC did adjudge the testimony of the NBI expert as more
credible than that of the PNP, and explained its reason behind the conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the court arrived
at the conclusion that the testimony of the NBI document examiner is more credible
because the testimony of the PNP Crime Laboratory Services document examiner
reveals that there are a lot of differences in the questioned signature as compared to
the standard specimen signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI
expert, the manner of execution of the standard signatures used reveals that it is a
free rapid continuous execution or stroke as shown by the tampering terminal stroke of
the signatures whereas the questioned signature is a hesitating slow drawn execution
stroke. Clearly, the person who executed the questioned signature was hesitant when
the signature was made.[30]
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that
apparently, there [are] differences on that questioned signature and the standard
signatures.[31] This Court, in examining the signatures, makes a similar finding. The
PNP expert excused the noted differences by asserting that they were mere variations,
which are normal deviations found in writing.[32] Yet the RTC, which had the
opportunity to examine the relevant documents and to personally observe the expert
witness, clearly disbelieved the PNP expert. The Court similarly finds the testimony of
the PNP expert as unconvincing. During the trial, she was confronted several times
with apparent differences between strokes in the questioned signature and the
genuine samples. Each time, she would just blandly assert that these differences were
just variations,[33] as if the mere conjuration of the word would sufficiently disquiet
whatever doubts about the deviations. Such conclusion, standing alone, would be of
little or no value unless supported by sufficiently cogent reasons which might amount
almost to a demonstration.[34]
The most telling difference between the questioned and genuine signatures examined
by the PNP is in the final upward stroke in the signature, or the point to the short stroke
of the terminal in the capital letter L, as referred to by the PNP examiner who had
marked it in her comparison chart as point no. 6. To the plain eye, such upward final
stroke consists of a vertical line which forms a ninety degree (90) angle with the
previous stroke. Of the twenty one (21) other genuine samples examined by the PNP,
at least nine (9) ended with an upward stroke.[35] However, unlike the questioned
signature, the upward strokes of eight (8) of these signatures are looped, while the
upward stroke of the seventh[36] forms a severe forty-five degree (45) with the
previous stroke. The difference is glaring, and indeed, the PNP examiner was
confronted with the inconsistency in point no. 6.
Q: Now, in this questioned document point no. 6, the s stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated
or the last stroke s is pointing directly upwards?
A: There is none in the standard signature, sir.[37]
Again, the PNP examiner downplayed the uniqueness of the final stroke in the
questioned signature as a mere variation,[38] the same excuse she proffered for the
other marked differences noted by the Court and the counsel for petitioner.[39]
There is no reason to doubt why the RTC gave credence to the testimony of the NBI
examiner, and not the PNP experts. The NBI expert, Rhoda Flores, clearly qualifies as
an expert witness. A document examiner for fifteen years, she had been promoted to
the rank of Senior Document Examiner with the NBI, and had held that rank for twelve
years prior to her testimony. She had placed among the top five examinees in the
Competitive Seminar in Question Document Examination, conducted by the NBI
Academy, which qualified her as a document examiner.[40] She had trained with the
Royal Hongkong Police Laboratory and is a member of the International Association for
Identification.[41] As of the time she testified, she had examined more than fifty to
fifty-five thousand questioned documents, on an average of fifteen to twenty
documents a day.[42] In comparison, PNP document examiner Perez admitted to
having examined only around five hundred documents as of her testimony.[43]
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative
examination method consisting of analysis, recognition, comparison and evaluation of
the writing habits with the use of instruments such as a magnifying lense, a
stereoscopic microscope, and varied lighting substances. She also prepared enlarged
photographs of the signatures in order to facilitate the necessary comparisons.[44] She
compared the questioned signature as against ten (10) other sample signatures of
Jong. Five of these signatures were executed on checks previously issued by Jong,
while the other five contained in business letters Jong had signed.[45] The NBI found
that there were significant differences in the handwriting characteristics existing
between the questioned and the sample signatures, as to manner of execution,
link/connecting strokes, proportion characteristics, and other identifying details.[46]
The RTC was sufficiently convinced by the NBI examiners testimony, and explained her
reasons in its Decisions. While the Court of Appeals disagreed and upheld the findings
of the PNP, it failed to convincingly demonstrate why such findings were more credible
than those of the NBI expert. As a throwaway, the assailed Decision noted that the
PNP, not the NBI, had the opportunity to examine the specimen signature card signed
by Jong, which was relied upon by the employees of FEBTC in authenticating Jongs
signature. The distinction is irrelevant in establishing forgery. Forgery can be
established comparing the contested signatures as against those of any sample
signature duly established as that of the persons whose signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the
questioned signature against the bank signature cards. The crucial fact in question is
whether or not the check was forged, not whether the bank could have detected the
52 | P a g e
forgery. The latter issue becomes relevant only if there is need to weigh the
comparative negligence between the bank and the party whose signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jongs testimony
that the signature on the check was not his.[47] The assertion may seem self-serving
at first blush, yet it cannot be ignored that Jong was in the best position to know
whether or not the signature on the check was his. While his claim should not be taken
at face value, any averments he would have on the matter, if adjudged as truthful,
deserve primacy in consideration. Jongs testimony is supported by the findings of the
NBI examiner. They are also backed by factual circumstances that support the
conclusion that the assailed check was indeed forged. Judicial notice can be taken that
is highly unusual in practice for a business establishment to draw a check for close to a
million pesos and make it payable to cash or bearer, and not to order. Jong
immediately reported the forgery upon its discovery. He filed the appropriate criminal
charges against Sempio, the putative forger.[48]
Now for determination is whether Samsung Construction was precluded from setting
up the defense of forgery under Section 23 of the Negotiable Instruments Law. The
Court of Appeals concluded that Samsung Construction was negligent, and invoked the
doctrines that where a loss must be borne by one of two innocent person, can be
traced to the neglect or fault of either, it is reasonable that it would be borne by him,
even if innocent of any intentional fraud, through whose means it has succeeded[49]
or who put into the power of the third person to perpetuate the wrong.[50] Applying
these rules, the Court of Appeals determined that it was the negligence of Samsung
Construction that allowed the encashment of the forged check.
In the case at bar, the forgery appears to have been made possible through the acts of
one Jose Sempio III, an assistant accountant employed by the plaintiff Samsung
[Construction] Co. Philippines, Inc. who supposedly stole the blank check and who
presumably is responsible for its encashment through a forged signature of Jong Kyu
Lee. Sempio was assistant to the Korean accountant who was in possession of the
blank checks and who through negligence, enabled Sempio to have access to the
same. Had the Korean accountant been more careful and prudent in keeping the blank
checks Sempio would not have had the chance to steal a page thereof and to effect the
forgery. Besides, Sempio was an employee who appears to have had dealings with the
defendant Bank in behalf of the plaintiff corporation and on the date the check was
encashed, he was there to certify that it was a genuine check issued to purchase
equipment for the company.[51]
We recognize that Section 23 of the Negotiable Instruments Law bars a party from
setting up the defense of forgery if it is guilty of negligence.[52] Yet, we are unable to
conclude that Samsung Construction was guilty of negligence in this case. The
appellate court failed to explain precisely how the Korean accountant was negligent or
how more care and prudence on his part would have prevented the forgery. We cannot
sustain this tar and feathering resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party whose
signature was forged cannot necessarily imply that such partys negligence was the
cause for the forgery. Employers do not possess the preternatural gift of cognition as to
the evil that may lurk within the hearts and minds of their employees. The Courts
pronouncement in PCI Bank v. Court of Appeals[53] applies in this case, to wit:
[T]he mere fact that the forgery was committed by a drawer-payors confidential
employee or agent, who by virtue of his position had unusual facilities for perpetrating
the fraud and imposing the forged paper upon the bank, does not entitle the bank to
shift the loss to the drawer-payor, in the absence of some circumstance raising
estoppel against the drawer.[54]
Admittedly, the record does not clearly establish what measures Samsung Construction
employed to safeguard its blank checks. Jong did testify that his accountant, Kyu, kept
the checks inside a safety box,[55] and no contrary version was presented by FEBTC.
However, such testimony cannot prove that the checks were indeed kept in a safety
box, as Jongs testimony on that point is hearsay, since Kyu, and not Jong, would have
the personal knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was no
negligence on Samsung Constructions part. The presumption remains that every
person takes ordinary care of his concerns,[56] and that the ordinary course of
business has been followed.[57] Negligence is not presumed, but must be proven by
him who alleges it.[58] While the complaint was lodged at the instance of Samsung
Construction, the matter it had to prove was the claim it had alleged - whether the
check was forged. It cannot be required as well to prove that it was not negligent,
because the legal presumption remains that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that
Samsung Construction was negligent. While the payee, as in this case, may not have
the personal knowledge as to the standard procedures observed by the drawer, it well
has the means of disputing the presumption of regularity. Proving a negative fact may
be a difficult office,[59] but necessarily so, as it seeks to overcome a presumption in
law. FEBTC was unable to dispute the presumption of ordinary care exercised by
Samsung Construction, hence we cannot agree with the Court of Appeals finding of
negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to
establish that there was no negligence on the part of the bank in its acceptance and
payment of the forged check. However, the degree of diligence exercised by the bank
would be irrelevant if the drawer is not precluded from setting up the defense of
forgery under Section 23 by his own negligence. The rule of equity enunciated in PNB
v. National City Bank of New York, [60] as relied upon by the Court of Appeals,
deserves careful examination.
The point in issue has sometimes been said to be that of negligence. The drawee who
has paid upon the forged signature is held to bear the loss, because he has been
negligent in failing to recognize that the handwriting is not that of his customer. But it
follows obviously that if the payee, holder, or presenter of the forged paper has himself
been in default, if he has himself been guilty of a negligence prior to that of the
banker, or if by any act of his own he has at all contributed to induce the banker's
negligence, then he may lose his right to cast the loss upon the banker.[61] (Emphasis
supplied)
Quite palpably, the general rule remains that the drawee who has paid upon the forged
signature bears the loss. The exception to this rule arises only when negligence can be
53 | P a g e
traced on the part of the drawer whose signature was forged, and the need arises to
weigh the comparative negligence between the drawer and the drawee to determine
who should bear the burden of loss. The Court finds no basis to conclude that Samsung
Construction was negligent in the safekeeping of its checks. For one, the settled rule is
that the mere fact that the depositor leaves his check book lying around does not
constitute such negligence as will free the bank from liability to him, where a clerk of
the depositor or other persons, taking advantage of the opportunity, abstract some of
the check blanks, forges the depositors signature and collect on the checks from the
bank.[62] And for another, in point of fact Samsung Construction was not negligent at
all since it reported the forgery almost immediately upon discovery.[63]
It is also worth noting that the forged signatures in PNB v. National City Bank of New
York were not of the drawer, but of indorsers. The same circumstance attends PNB v.
Court of Appeals,[64] which was also cited by the Court of Appeals. It is accepted that
a forged signature of the drawer differs in treatment than a forged signature of the
indorser.
The justification for the distinction between forgery of the signature of the drawer and
forgery of an indorsement is that the drawee is in a position to verify the drawers
signature by comparison with one in his hands, but has ordinarily no opportunity to
verify an indorsement.[65]
Thus, a drawee bank is generally liable to its depositor in paying a check which bears
either a forgery of the drawers signature or a forged indorsement. But the bank may,
as a general rule, recover back the money which it has paid on a check bearing a
forged indorsement, whereas it has not this right to the same extent with reference to
a check bearing a forgery of the drawers signature.[66]
The general rule imputing liability on the drawee who paid out on the forgery holds in
this case.
Since FEBTC puts into issue the degree of care it exercised before paying out on the
forged check, we might as well comment on the banks performance of its duty. It might
be so that the bank complied with its own internal rules prior to paying out on the
questionable check. Yet, there are several troubling circumstances that lead us to
believe that the bank itself was remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos is
unusual enough to require a higher degree of caution on the part of the bank. Indeed,
FEBTC confirms this through its own internal procedures. Checks below twenty-five
thousand pesos require only the approval of the teller; those between twenty-five
thousand to one hundred thousand pesos necessitate the approval of one bank officer;
and should the amount exceed one hundred thousand pesos, the concurrence of two
bank officers is required.[67]
In this case, not only did the amount in the check nearly total one million pesos, it was
also payable to cash. That latter circumstance should have aroused the suspicion of
the bank, as it is not ordinary business practice for a check for such large amount to be
made payable to cash or to bearer, instead of to the order of a specified person.[68]
Moreover, the check was presented for payment by one Roberto Gonzaga, who was not
designated as the payee of the check, and who did not carry with him any written
proof that he was authorized by Samsung Construction to encash the check. Gonzaga,
a stranger to FEBTC, was not even an employee of Samsung Construction.[69] These
circumstances are already suspicious if taken independently, much more so if they are
evaluated in concurrence. Given the shadiness attending Gonzagas presentment of the
check, it was not sufficient for FEBTC to have merely complied with its internal
procedures, but mandatory that all earnest efforts be undertaken to ensure the validity
of the check, and of the authority of Gonzaga to collect payment therefor.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed,
to contact Jong over the phone to verify the check.[70] She added that calling the
issuer or drawer of the check to verify the same was not part of the standard
procedure of the bank, but an extra effort.[71] Even assuming that such personal
verification is tantamount to extraordinary diligence, it cannot be denied that FEBTC
still paid out the check despite the absence of any proof of verification from the
drawer. Instead, the bank seems to have relied heavily on the say-so of Sempio, who
was present at the bank at the time the check was presented.
FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly
transacted with the bank in behalf of Samsung Construction. It was even claimed that
everytime FEBTC would contact Jong about problems with his account, Jong would
hand the phone over to Sempio.[72] However, the only proof of such allegations is the
testimony of Gemma Velez, who also testified that she did not know Sempio
personally,[73] and had met Sempio for the first time only on the day the check was
encashed.[74] In fact, Velez had to inquire with the other officers of the bank as to
whether Sempio was actually known to the employees of the bank.[75] Obviously,
Velez had no personal knowledge as to the past relationship between FEBTC and
Sempio, and any averments of her to that effect should be deemed hearsay evidence.
Interestingly, FEBTC did not present as a witness any other employee of their Bel-Air
branch, including those who supposedly had transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in
behalf of Samsung Construction, the irregular circumstances attending the
presentment of the forged check should have put the bank on the highest degree of
alert. The Court recently emphasized that the highest degree of care and diligence is
required of banks.
Banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them.
They have the obligation to treat their clients account meticulously and with the
highest degree of care, considering the fiduciary nature of their relationship. The
diligence required of banks, therefore, is more than that of a good father of a family.
[76]
Given the circumstances, extraordinary diligence dictates that FEBTC should have
ascertained from Jong personally that the signature in the questionable check was his.
Still, even if the bank performed with utmost diligence, the drawer whose signature
was forged may still recover from the bank as long as he or she is not precluded from
setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments
Law plainly states that no right to enforce the payment of a check can arise out of a
forged signature. Since the drawer, Samsung Construction, is not precluded by
54 | P a g e
negligence from setting up the forgery, the general rule should apply. Consequently, if
a bank pays a forged check, it must be considered as paying out of its funds and
cannot charge the amount so paid to the account of the depositor.[77] A bank is liable,
irrespective of its good faith, in paying a forged check.[78]
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28
November 1996 is REVERSED, and the Decision of the Regional Trial Court of Manila,
Branch 9, dated 25 April 1994 is REINSTATED. Costs against respondent.
SO ORDERED.
[G.R. No. 128927. September 14, 1999]
REMEDIOS NOTA SAPIERA, petitioner, vs. COURT OF APPEALS and RAMON
SUA, respondents.
DECISION
BELLOSILLO, J.:
REMEDIOS NOTA SAPIERA appeals to us through this petition for review the Decision of
the Court of Appeals[1] which acquitted her of the crime of estafa but held her liable
nonetheless for the value of the checks she indorsed in favor of private respondent
Ramon Sua.
On several occasions petitioner Remedios Nota Sapiera, a sari-sari store owner,
purchased from Monrico Mart certain grocery items, mostly cigarettes, and paid for
them with checks issued by one Arturo de Guzman: (a) PCIB Check No. 157059 dated
26 February 1987 for P140,000.00; (b) PCIB Check No. 157073 dated 26 February 1987
for P28,000.00; (c) PCIB Check No. 157057 dated 27 February 1987 for P42,150.00;
and, d) Metrobank Check No. DAG - 045104758 PA dated 2 March 1987 for
P125,000.00. These checks were signed at the back by petitioner. When presented for
payment the checks were dishonored because the drawers account was already
closed. Private respondent Ramon Sua informed Arturo de Guzman and petitioner
about the dishonor but both failed to pay the value of the checks. Hence, four (4)
charges of estafa were filed against petitioner with the Regional Trial Court of Dagupan
City, docketed as Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731. Arturo de
Guzman was charged with two (2) counts of violation of B.P. Blg. 22, docketed as Crim.
Cases Nos. D-8733 and D-8734. These cases against petitioner and de Guzman were
consolidated and tried jointly.
On 27 December 1989 the court a quo[2] acquitted petitioner of all the charges of
estafa but did not rule on whether she could be held civilly liable for the checks she
indorsed to private respondent. The trial court found Arturo de Guzman guilty of
Violation of B.P. Blg. 22 on two (2) counts and sentenced him to suffer imprisonment of
six (6) months and one (1) day in each of the cases, and to pay private respondent
P167,150.00 as civil indemnity.
Private respondent filed a notice of appeal with the trial court with regard to the civil
aspect but the court refused to give due course to the appeal on the ground that the
acquittal of petitioner was absolute. Private respondent then filed a petition for
mandamus with the Court of Appeals, docketed as CA-GR SP No. 24626, praying that
the court a quo be ordered to give due course to the appeal on the civil aspect of the
decision. The Court of Appeals granted the petition and ruled that private respondent
could appeal with respect to the civil aspect the judgment of acquittal by the trial
court.
On 22 January 1996, the Court of Appeals in CA-GR CV No. 36376 rendered the
assailed Decision insofar as it sustained the appeal of private respondent on the civil
aspect and ordering petitioner to pay private respondent P335,000.00 representing the
aggregate face value of the four (4) checks indorsed by petitioner plus legal interest
from the notice of dishonor.
Petitioner filed a motion for reconsideration of the Decision. On 19 March 1997 the
Court of Appeals issued a Resolution noting the admission of both parties that private
respondent had already collected the amount of P125,000.00 from Arturo de Guzman
with regard to his civil liability in Crim. Cases Nos. 8733 and 8734. The appellate court
noted that private respondent was the same offended party in the criminal cases
against petitioner and against de Guzman. Criminal Cases Nos. 8733 and 8734 against
De Guzman, and Crim. Cases Nos. 8730 and 8729 against petitioner, involved the
same checks, to wit: PCIB Checks Nos. 157057 for P42,150.00 and Metrobank Check
No. DAG-045104758 PA for P125,000.00.
Thus, the Court of Appeals ruled that private respondent could not recover twice on the
same checks. Since he had collected P125,000.00 as civil indemnity in Crim. Cases
Nos. 8733 and 8734, this amount should be deducted from the sum total of the civil
indemnity due him arising from the estafa cases against petitioner. The appellate court
then corrected its previous award, which was erroneously placed at P335,000.00, to
P335,150.00 as the sum total of the amounts of the four (4) checks involved.
Deducting the amount of P125,000.00 already collected by private respondent,
petitioner was adjudged to pay P210,150.00 as civil liability to private respondent.
Hence, this petition alleging that respondent Court of Appeals erred in holding
petitioner civilly liable to private respondent because her acquittal by the trial court
from charges of estafa in Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731 was
absolute, the trial court having declared in its decision that the fact from which the civil
liability might have arisen did not exist.
We cannot sustain petitioner. The issue is whether respondent Court of Appeals
committed reversible error in requiring petitioner to pay civil indemnity to private
respondent after the trial court had acquitted her of the criminal charges. Section 2,
par. (b), of Rule 111 of the Rules of Court, as amended, specifically provides:
"Extinction of the penal action does not carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final judgment that the fact from which the
civil might arise did not exist.
The judgment of acquittal extinguishes the liability of the accused for damages only
when it includes a declaration that the fact from which the civil liability might arise did
not exist. Thus, the civil liability is not extinguished by acquittal where: (a) the
acquittal is based on reasonable doubt; (b) where the court expressly declares that the
liability of the accused is not criminal but only civil in nature; and, (c) where the civil
liability is not derived from or based on the criminal act of which the accused is
acquitted.[3] Thus, under Art. 29 of the Civil Code -
55 | P a g e
When the accused in a criminal prosecution is acquitted on the ground that his guilt
has not been proved beyond reasonable doubt, a civil action for damages for the same
act or omission may be instituted. Such action requires only a preponderance of
evidence. Upon motion of the defendant, the court may require the plaintiff to file a
bond to answer for damages in case the complaint should be found to be malicious.
In a criminal case where the judgment of acquittal is based upon reasonable doubt, the
court shall so declare. In the absence of any declaration to that effect, it may be
inferred from the text of the decision whether or not acquittal is due to that ground.
An examination of the decision in the criminal cases reveals these findings of the trial
court -
Evidence for the prosecution tends to show that on various occasions, Remedios Nota
Sapiera purchased from Monrico Mart grocery items (mostly cigarettes) which
purchases were paid with checks issued by Arturo de Guzman; that those purchases
and payments with checks were as follows:
(a) Sales Invoice No. 20104 dated February 26, 1987 in the amount of P28,000.00; that
said items purchased were paid with PCIBank Check No. 157073 dated February 26,
1987;
(b) Sales Invoice No. 20108 dated February 26, 1987 in the amount of P140,000.00;
that said items purchased were paid with PCIBank No. 157059 dated February 26,
1987;
(c) Sales Invoice No. 20120 dated February 27, 1987 in the amount of P42,150.00; that
said items were paid with PCIBank Check No. 157057 dated February 27, 1987;
(d) Sales Invoice No. 20148 and 20149 both dated March 2, 1987 in the amount of
P120,103.75; said items were paid with Metrobank Check No. 045104758 dated March
2, 1987 in the amount of P125,000.00.
That all these checks were deposited with the Consolidated Bank and Trust Company,
Dagupan Branch, for collection from the drawee bank;
That when presented for payment by the collecting bank to the drawee bank, said
checks were dishonored due to account closed, as evidenced by check return slips; x x
x x.
From the evidence, the Court finds that accused Remedios Nota Sapiera is the owner of
a sari-sari store inside the public market; that she sells can(ned) goods, candies and
assorted grocery items; that she knows accused Arturo De Guzman, a customer since
February 1987; that de Guzman purchases from her grocery items including cigarettes;
that she knows Ramon Sua; that she has business dealings with him for 5 years; that
her purchase orders were in clean sheets of paper; that she never pays in check; that
Ramon Sua asked her to sign subject checks as identification of the signature of Arturo
de Guzman; that she pays in cash; sometimes delayed by several days; that she
signed the four (4) checks on the reverse side; that she did not know the subject
invoices; that de Guzman made the purchases and he issued the checks; that the
goods were delivered to de Guzman; that she was not informed of dishonored checks;
and that counsel for Ramon Sua informed de Guzman and told him to pay x x x x
In the case of accused Remedios Nota Sapiera, the prosecution failed to prove
conspiracy.
Based on the above findings of the trial court, the exoneration of petitioner of the
charges of estafa was based on the failure of the prosecution to present sufficient
evidence showing conspiracy between her and the other accused Arturo de Guzman in
defrauding private respondent. However, by her own testimony, petitioner admitted
having signed the four (4) checks in question on the reverse side. The evidence of the
prosecution shows that petitioner purchased goods from the grocery store of private
respondent as shown by the sales invoices issued by private respondent; that these
purchases were paid with the four (4) subject checks issued by de Guzman; that
petitioner signed the same checks on the reverse side; and when presented for
payment, the checks were dishonored by the drawee bank due to the closure of the
drawers account; and, petitioner was informed of the dishonor.
We affirm the findings of the Court of Appeals that despite the conflicting versions of
the parties, it is undisputed that the four (4) checks issued by de Guzman were signed
by petitioner at the back without any indication as to how she should be bound thereby
and, therefore, she is deemed to be an indorser thereof. The Negotiable Instruments
Law clearly provides -
Sec. 17. Construction where instrument is ambiguous. - Where the language of the
instrument is ambiguous, or there are admissions therein, the following rules of
construction apply: x x x x (f) Where a signature is so placed upon the instrument that
it is not clear in what capacity the person making the same intended to sign, he is
deemed an indorser. x x x x
Sec. 63. When person deemed indorser. - A person placing his signature upon an
instrument otherwise than as maker, drawer or acceptor, is deemed to be an indorser
unless he clearly indicates by appropriate words his intention to be bound in some
other capacity.
Sec. 66. Liability of general indorser. - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course: (a) The matters and
things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and (b)
That the instrument is, at the time of the indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid or
both, as the case may be, according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder or to any subsequent indorser who may be compelled to pay it.
The dismissal of the criminal cases against petitioner did not erase her civil liability
since the dismissal was due to insufficiency of evidence and not from a declaration
from the court that the fact from which the civil action might arise did not exist.[4] An
accused acquitted of estafa may nevertheless be held civilly liable where the facts
established by the evidence so warrant. The accused should be adjudged liable for the
unpaid value of the checks signed by her in favor of the complainant.[5]
56 | P a g e

The rationale behind the award of civil indemnity despite a judgment of acquittal when
evidence is sufficient to sustain the award was explained by the Code Commission in
connection with Art. 29 of the Civil Code, to wit:
The old rule that the acquittal of the accused in a criminal case also releases him from
civil liability is one of the most serious flaws in the Philippine legal system. It has given
rise to numberless instances of miscarriage of justice, where the acquittal was due to a
reasonable doubt in the mind of the court as to the guilt of the accused. The reasoning
followed is that inasmuch as the civil responsibility is derived from the criminal offense,
when the latter is not proved, civil liability cannot be demanded.
This is one of those cases where confused thinking leads to unfortunate and deplorable
consequences. Such reasoning fails to draw a clear line of demarcation between
criminal liability and civil responsibility, and to determine the logical result of the
distinction. The two liabilities are separate and distinct from each other. One affects
the social order and the other private rights. One is for punishment or correction of the
offender while the other is for reparation of damages suffered by the aggrieved party x
x x x It is just and proper that for the purposes of imprisonment of or fine upon the
accused, the offense should be proved beyond reasonable doubt. But for the purpose
of indemnifying the complaining party, why should the offense also be proved beyond
reasonable doubt? Is not the invasion or violation of every private right to be proved
only by preponderance of evidence? Is the right of the aggrieved person any less
private because the wrongful act is also punishable by the criminal law?[6]
Finally, with regard to the computation of the civil liability of petitioner, the finding of
the Court of Appeals that petitioner is civilly liable for the aggregate value of the
unpaid four (4) checks subject of the criminal cases in the sum of P335,150.00, less the
amount of P125,000.00 already collected by private respondent pending appeal,
resulting in the amount of P210,150.00 still due private respondent, is a factual matter
which is binding and conclusive upon this Court.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 22
January 1996 as amended by its Resolution dated 19 March 1997 ordering petitioner
Remedios Nota Sapiera to pay private respondent Ramon Sua the remaining amount of
P210,150.00 as civil liability, is AFFIRMED. Costs against petitioners.
[G.R. No. 153535. July 28, 2005]
SOLIDBANK CORPORATION, petitioner, vs. MINDANAO FERROALLOY
CORPORATION, Spouses JONG-WON HONG and SOO-OK KIM HONG,* TERESITA
CU, and RICARDO P. GUEVARA and Spouse,** respondents.
DECISION
PANGANIBAN, J.:
To justify an award for moral and exemplary damages under Articles 19 to 21 of the
Civil Code (on human relations), the claimants must establish the other partys malice
or bad faith by clear and convincing evidence.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the
December 21, 2001 Decision[2] and the May 15, 2002 Resolution[3] of the Court of
Appeals (CA) in CA-GR CV No. 67482. The CA disposed as follows:
IN THE LIGHT OF ALL THE FOREGOING, the appeal is DISMISSED. The Decision
appealed from is AFFIRMED.[4]
The assailed Resolution, on the other hand, denied petitioners Motion for
Reconsideration.
The Facts
The CA narrated the antecedents as follows:
The Maria Cristina Chemical Industries (MCCI) and three (3) Korean corporations,
namely, the Ssangyong Corporation, the Pohang Iron and Steel Company and the
Dongil Industries Company, Ltd., decided to forge a joint venture and establish a
corporation, under the name of the Mindanao Ferroalloy Corporation (Corporation for
brevity) with principal offices in Iligan City. Ricardo P. Guevara was the President and
Chairman of the Board of Directors of the Corporation. Jong-Won Hong, the General
Manager of Ssangyong Corporation, was the Vice-President of the Corporation for
Finance, Marketing and Administration. So was Teresita R. Cu. On November 26, 1990,
the Board of Directors of the Corporation approved a Resolution authorizing its
President and Chairman of the Board of Directors or Teresita R. Cu, acting together with
Jong-Won Hong, to secure an omnibus line in the aggregate amount of P30,000,000.00
from the Solidbank x x x.
xxxxxxxxx
In the meantime, the Corporation started its operations sometime in April, 1991. Its
indebtedness ballooned to P200,453,686.69 compared to its assets of only
P65,476,000.00. On May 21, 1991, the Corporation secured an ordinary time loan from
the Solidbank in the amount of P3,200,000.00. Another ordinary time loan was granted
by the Bank to the Corporation on May 28, 1991, in the amount of P1,800,000.00 or in
the total amount of P5,000,000.00, due on July 15 and 26, 1991, respectively.
However, the Corporation and the Bank agreed to consolidate and, at the same time,
restructure the two (2) loan availments, the same payable on September 20, 1991. The
Corporation executed Promissory Note No. 96-91-00865-6 in favor of the Bank
evidencing its loan in the amount of P5,160,000.00, payable on September 20, 1991.
Teresita Cu and Jong-Won Hong affixed their signatures on the note. To secure the
payment of the said loan, the Corporation, through Jong-Won Hong and Teresita Cu,
executed a Deed of Assignment in favor of the Bank covering its rights, title and
interest to the following:
The entire proceeds of drafts drawn under Irrevocable Letter of Credit No. M-S-041-
2002080 opened with The Mitsubishi Bank Ltd. Tokyo dated June 13, 1991 for the
account of Ssangyong Japan Corporation, 7F. Matsuoka-Tamura-Cho Bldg., 22-10, 5-
Chome, Shimbashi, Minato-Ku, Tokyo, Japan up to the extent of US$197,679.00
57 | P a g e
The Corporation likewise executed a Quedan, by way of additional security, under
which the Corporation bound and obliged to keep and hold, in trust for the Bank or its
Order, Ferrosilicon for US$197,679.00. Jong-Won Hong and Teresita Cu affixed their
signatures thereon for the Corporation. The Corporation, also, through Jong-Won Hong
and Teresita Cu, executed a Trust Receipt Agreement, by way of additional security for
said loan, the Corporation undertaking to hold in trust, for the Bank, as its property,
the following:
1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-041-2002080 for account of
Ssangyong Japan Corporation, Tokyo, Japan for US$197,679.00 Ferrosilicon to expire
September 20, 1991.
2. SEC QUEDAN NO. 91-476 dated June 26, 1991 covering the following:
Ferrosilicon for US$197,679.00
However, shortly after the execution of the said deeds, the Corporation stopped its
operations. The Corporation failed to pay its loan availments from the Bank inclusive of
accrued interest. On February 11, 1992, the Bank sent a letter to the Corporation
demanding payment of its loan availments inclusive of interests due. The Corporation
failed to comply with the demand of the Bank. On November 23, 1992, the Bank sent
another letter to the [Corporation] demanding payment of its account which, by
November 23, 1992, had amounted to P7,283,913.33. The Corporation again failed to
comply with the demand of the Bank.
On January 6, 1993, the Bank filed a complaint against the Corporation with the
Regional Trial Court of Makati City, entitled and docketed as Solidbank Corporation vs.
Mindanao Ferroalloy Corporation, Sps. Jong-Won Hong and the Sps. Teresita R. Cu, Civil
Case No. 93-038 for Sum of Money with a plea for the issuance of a writ of preliminary
attachment. x x x
xxxxxxxxx
Under its Amended Complaint, the Plaintiff alleged that it impleaded Ricardo Guevara
and his wife as Defendants because, [among others]:
Defendants JONG-WON HONG and TERESITA CU, are the Vice-Presidents of defendant
corporation, and also members of the companys Board of Directors. They are
impleaded as joint and solidary debtors of [petitioner] bank having signed the
Promissory Note, Quedan, and Trust Receipt agreements with [petitioner], in this case.
xxxxxxxxx
[Petitioner] likewise filed a criminal complaint x x x entitled and docketed as Solidbank
Corporation vs. Ricardo Guevara, Teresita R. Cu and Jong Won Hong x x x for Violation
of P.D. 115. On April 14, 1993, the investigating Prosecutor issued a Resolution finding
no probable cause for violation of P.D. 115 against the Respondents as the goods
covered by the quedan were nonexistent:
xxxxxxxxx
In their Answer to the complaint [in the civil case], the Spouses Jong-Won Hong and
Soo-ok Kim Hong alleged, inter alia, that [petitioner] had no cause of action against
them as:
x x x the clean loan of P5.1 M obtained was a corporate undertaking of defendant
MINFACO executed through its duly authorized representatives, Ms. Teresita R. Cu and
Mr. Jong-Won Hong, both Vice Presidents then of MINFACO. x x x.
xxxxxxxxx
[On their part, respondents] Teresita Cu and Ricardo Guevara alleged that [petitioner]
had no cause of action against them because: (a) Ricardo Guevara did not sign any of
the documents in favor of [petitioner]; (b) Teresita Cu signed the Promissory Note,
Deed of Assignment, Trust Receipt and Quedan in blank and merely as representative
and, hence, for and in behalf of the Defendant Corporation and, hence, was not
personally liable to [petitioner].
In the interim, the Corporation filed, on June 20, 1994, a Petition, with the Regional Trial
Court of Iligan City, for Voluntary Insolvency x x x.
xxxxxxxxx
Appended to the Petition was a list of its creditors, including [petitioner], for the
amount of P8,144,916.05. The Court issued an Order, on July 12, 1994, finding the
Petition sufficient in form and substance x x x.
xxxxxxxxx
In view of said development, the Court issued an Order, in Civil Case No. 93-038,
suspending the proceedings as against the Defendant Corporation but ordering the
proceedings to proceed as against the individual defendants x x x.
xxxxxxxxx
On December 10, 1999, the Court rendered a Decision dismissing the complaint for
lack of cause of action of [petitioner] against the Spouses Jong-Won Hong, Teresita Cu
and the Spouses Ricardo Guevara, x x x.
xxxxxxxxx
In dismissing the complaint against the individual [respondents], the Court a quo found
and declared that [petitioner] failed to adduce a morsel of evidence to prove the
personal liability of the said [respondents] for the claims of [petitioner] and that the
latter impleaded the [respondents], in its complaint and amended complaint, solely to
put more pressure on the Defendant Corporation to pay its obligations to [petitioner].
[Petitioner] x x x interposed an appeal, from the Decision of the Court a quo and
posed, for x x x resolution, the issue of whether or not the individual [respondents], are
jointly and severally liable to [petitioner] for the loan availments of the [respondent]
Corporation, inclusive of accrued interests and penalties.
58 | P a g e
In the meantime, on motion of [petitioner], the Court set aside its Order, dated
February 2, 1995, suspending the proceedings as against the [respondent]
Corporation. [Petitioner] filed a Motion for Summary Judgment against the [respondent]
Corporation. On February 28, 2000, the Court rendered a Summary Judgment against
the [respondent] Corporation, the decretal portion of which reads as follows:
WHEREFORE, premises considered, this Court hereby resolves to give due course to
the motion for summary judgment filed by herein [petitioner]. Consequently, judgment
is hereby rendered in favor of [Petitioner] SOLIDBANK CORPORATION and against
[Respondent] MINDANAO FERROALLOY CORPORATION, ordering the latter to pay the
former the amount of P7,086,686.70, representing the outstanding balance of the
subject loan as of 24 September 1994, plus stipulated interest at the rate of 16% per
annum to be computed from the aforesaid date until fully paid together with an
amount equivalent to 12% of the total amount due each year from 24 September 1994
until fully paid. Lastly, said [respondent] is hereby ordered to pay [petitioner] the
amount of P25,000.00 to [petitioner] as reasonable attorneys fees as well as cost of
litigation.[5]
In its appeal, petitioner argued that (1) it had adduced the requisite evidence to prove
the solidary liability of the individual respondents, and (2) it was not liable for their
counterclaims for damages and attorneys fees.
Ruling of the Court of Appeals
Affirming the RTC, the appellate court ruled that the individual respondents were not
solidarily liable with the Mindanao Ferroalloy Corporation, because they had acted
merely as officers of the corporation, which was the real party in interest. Respondent
Guevara was not even a signatory to the Promissory Note, the Trust Receipt
Agreement, the Deed of Assignment or the Quedan; he was merely authorized to
represent Minfaco to negotiate with and secure the loans from the bank. On the other
hand, the CA noted that Respondents Cu and Hong had not signed the above
documents as comakers, but as signatories in their representative capacities as
officers of Minfaco.
Likewise, the CA held that the individual respondents were not liable to petitioner for
damages, simply because (1) they had not received the proceeds of the irrevocable
Letter of Credit, which was the subject of the Deed of Assignment; and (2) the goods
subject of the Trust Receipt Agreement had been found to be nonexistent. The
appellate court took judicial notice of the practice of banks and financing institutions to
investigate, examine and assess all properties offered by borrowers as collaterals, in
order to determine the feasibility and advisability of granting loans. Before agreeing to
the consolidation of Minfacos loans, it presumed that petitioner had done its
homework.
As to the award of damages to the individual respondents, the CA upheld the trial
courts findings that it was clearly unfair on petitioners part to have impleaded the
wives of Guevara and Hong, because the women were not privy to any of the
transactions between petitioner and Minfaco. Under Articles 19, 20 and 2229 of the
Civil Code, such reckless and wanton act of pressuring individual respondents to settle
the corporations obligations is a ground to award moral and exemplary damages, as
well as attorneys fees.
Hence this Petition.[6]
Issues
In its Memorandum, petitioner raises the following issues:
A. Whether or not there is ample evidence on record to support the joint and solidary
liability of individual respondents with Mindanao Ferroalloy Corporation.
B. In the absence of joint and solidary liability[,] will the provision of Article 1208 in
relation to Article 1207 of the New Civil Code providing for joint liability be applicable
to the case at bar.
C. May bank practices be the proper subject of judicial notice under Sec. 1 [of] Rule
129 of the Rules of Court.
D. Whether or not there is evidence to sustain the claim that respondents were
impleaded to apply pressure upon them to pay the obligations in lieu of MINFACO that
is declared insolvent.
E. Whether or not there are sufficient bases for the award of various kinds of and
substantial amounts in damages including payment for attorneys fees.
F. Whether or not respondents committed fraud and misrepresentations and acted in
bad faith.
G. Whether or not the inclusion of respondents spouses is proper under certain
circumstances and supported by prevailing jurisprudence.[7]
In sum, there are two main questions: (1) whether the individual respondents are
liable, either jointly or solidarily, with the Mindanao Ferroalloy Corporation; and (2)
whether the award of damages to the individual respondents is valid and legal.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability of Individual Respondents
Petitioner argues that the individual respondents were jointly or solidarily liable with
Minfaco, either because their participation in the loan contract and the loan documents
made them comakers; or because they committed fraud and deception, which justifies
the piercing of the corporate veil.
The first contention hinges on certain factual determinations made by the trial and the
appellate courts. These tribunals found that, although he had not signed any document
in connection with the subject transaction, Respondent Guevara was authorized to
represent Minfaco in negotiating for a P30 million loan from petitioner. As to Cu and
Hong, it was determined, among others, that their signatures on the loan documents
59 | P a g e
other than the Deed of Assignment were not prefaced with the word by, and that there
were no other signatures to indicate who had signed for and on behalf of Minfaco, the
principal borrower. In the Promissory Note, they signed above the printed name of the
corporation -- on the space provided for Maker/Borrower, not on that provided for Co-
maker.
Petitioner has not shown any exceptional circumstance that sanctions the disregard of
these findings of fact, which are thus deemed final and conclusive upon this Court and
may not be reviewed on appeal.[8]
No Personal Liability
for Corporate Deeds
Basic is the principle that a corporation is vested by law with a personality separate
and distinct from that of each person composing[9] or representing it.[10] Equally
fundamental is the general rule that corporate officers cannot be held personally liable
for the consequences of their acts, for as long as these are for and on behalf of the
corporation, within the scope of their authority and in good faith.[11] The separate
corporate personality is a shield against the personal liability of corporate officers,
whose acts are properly attributed to the corporation.[12]
Tramat Mercantile v. Court of Appeals[13] held thus:
Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or
gross negligence in directing its affairs, or (c) for conflict of interest, resulting in
damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate
action.
Consistent with the foregoing principles, we sustain the CAs ruling that Respondent
Guevara was not personally liable for the contracts. First, it is beyond cavil that he was
duly authorized to act on behalf of the corporation; and that in negotiating the loans
with petitioner, he did so in his official capacity. Second, no sufficient and specific
evidence was presented to show that he had acted in bad faith or gross negligence in
that negotiation. Third, he did not hold himself personally and solidarily liable with the
corporation. Neither is there any specific provision of law making him personally
answerable for the subject corporate acts.
On the other hand, Respondents Cu and Hong signed the Promissory Note without the
word by preceding their signatures, atop the designation Maker/Borrower and the
printed name of the corporation, as follows:
__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without qualification, the inference that they signed in
their individual capacities is negated by the following facts: 1) the name and the
address of the corporation appeared on the space provided for Maker/Borrower; 2)
Respondents Cu and Hong had only one set of signatures on the instrument, when
there should have been two, if indeed they had intended to be bound solidarily -- the
first as representatives of the corporation, and the second as themselves in their
individual capacities; 3) they did not sign under the spaces provided for Co-maker, and
neither were their addresses reflected there; and 4) at the back of the Promissory Note,
they signed above the words Authorized Representative.
Solidary Liability
Not Lightly Inferred
Moreover, it is axiomatic that solidary liability cannot be lightly inferred.[14] Under
Article 1207 of the Civil Code, there is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity.
Since solidary liability is not clearly expressed in the Promissory Note and is not
required by law or the nature of the obligation in this case, no conclusion of solidary
liability can be made.
Furthermore, nothing supports the alleged joint liability of the individual petitioners
because, as correctly pointed out by the two lower courts, the evidence shows that
there is only one debtor: the corporation. In a joint obligation, there must be at least
two debtors, each of whom is liable only for a proportionate part of the debt; and the
creditor is entitled only to a proportionate part of the credit.[15]
Moreover, it is rather late in the day to raise the alleged joint liability, as this matter
has not been pleaded before the trial and the appellate courts. Before the lower courts,
petitioner anchored its claim solely on the alleged joint and several (or solidary)
liability of the individual respondents. Petitioner must be reminded that an issue
cannot be raised for the first time on appeal, but seasonably in the proceedings before
the trial court.[16]
So too, the Promissory Note in question is a negotiable instrument. Under Section 19 of
the Negotiable Instruments Law, agents or representatives may sign for the principal.
Their authority may be established, as in other cases of agency. Section 20 of the law
provides that a person signing for and on behalf of a [disclosed] principal or in a
representative capacity x x x is not liable on the instrument if he was duly authorized.
The authority of Respondents Cu and Hong to sign for and on behalf of the corporation
has been amply established by the Resolution of Minfacos Board of Directors, stating
that Atty. Ricardo P. Guevara (President and Chairman), or Ms. Teresita R. Cu (Vice
President), acting together with Mr. Jong Won Hong (Vice President), be as they are
hereby authorized for and in behalf of the Corporation to: 1. Negotiate with and obtain
from (petitioner) the extension of an omnibus line in the aggregate of P30 million x x x;
and 2. Execute and deliver all documentation necessary to implement all of the
foregoing.[17]
60 | P a g e

Further, the agreement involved here is a contract of adhesion, which was prepared
entirely by one party and offered to the other on a take it or leave it basis. Following
the general rule, the contract must be read against petitioner, because it was the party
that prepared it,[18] more so because a bank is held to high standards of care in the
conduct of its business.[19]
In the totality of the circumstances, we hold that Respondents Cu and Hong clearly
signed the Note merely as representatives of Minfaco.
No Reason to Pierce
the Corporate Veil
Under certain circumstances, courts may treat a corporation as a mere aggroupment
of persons, to whom liability will directly attach. The distinct and separate corporate
personality may be disregarded, inter alia, when the corporate identity is used to
defeat public convenience, justify a wrong, protect a fraud, or defend a crime.
Likewise, the corporate veil may be pierced when the corporation acts as a mere alter
ego or business conduit of a person, or when it is so organized and controlled and its
affairs so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.[20] But to disregard the separate juridical personality
of a corporation, the wrongdoing must be clearly and convincingly established; it
cannot be presumed.[21]
Petitioner contends that the corporation was used to protect the fraud foisted upon it
by the individual respondents. It argues that the CA failed to consider the following
badges of fraud and evident bad faith: 1) the individual respondents misrepresented
the corporation as solvent and financially capable of paying its loan; 2) they knew that
prices of ferrosilicon were declining in the world market when they secured the loan in
June 1991; 3) not a single centavo was paid for the loan; and 4) the corporation
suspended its operations shortly after the loan was granted.[22]
Fraud refers to all kinds of deception -- whether through insidious machination,
manipulation, concealment or misrepresentation -- that would lead an ordinarily
prudent person into error after taking the circumstances into account.[23] In contracts,
a fraud known as dolo causante or causal fraud[24] is basically a deception used by
one party prior to or simultaneous with the contract, in order to secure the consent of
the other.[25] Needless to say, the deceit employed must be serious. In
contradistinction, only some particular or accident of the obligation is referred to by
incidental fraud or dolo incidente,[26] or that which is not serious in character and
without which the other party would have entered into the contract anyway.[27]
Fraud must be established by clear and convincing evidence; mere preponderance of
evidence is not adequate.[28] Bad faith, on the other hand, imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong, not simply bad
judgment or negligence.[29] It is synonymous with fraud, in that it involves a design to
mislead or deceive another.[30]
Unfortunately, petitioner was unable to establish clearly and precisely how the alleged
fraud was committed. It failed to establish that it was deceived into granting the loans
because of respondents misrepresentations and/or insidious actions. Quite the
contrary, circumstances indicate the weakness of its submission.
First, petitioner does not deny that the P5 million loan represented the consolidation of
two loans,[31] granted long before the bank required the individual respondents to
execute the Promissory Note, Trust Receipt Agreement, Quedan or Deed of
Assignment. Hence, no words, acts or machinations arising from any of those
instruments could have been used by them prior to or simultaneous with the execution
of the contract, or even as some accident or particular of the obligation.
Second, petitioner bank was in a position to verify for itself the solvency and
trustworthiness of respondent corporation. In fact, ordinary business prudence required
it to do so before granting the multimillion loans. It is of common knowledge that, as a
matter of practice, banks conduct exhaustive investigations of the financial standing of
an applicant debtor, as well as appraisals of collaterals offered as securities for loans to
ensure their prompt and satisfactory payment. To uphold petitioners cry of fraud when
it failed to verify the existence of the goods covered by the Trust Receipt Agreement
and the Quedan is to condone its negligence.
Judicial Notice
of Bank Practices
This point brings us to the alleged error of the appellate court in taking judicial notice
of the practice of banks in conducting background checks on borrowers and sureties.
While a court is not mandated to take judicial notice of this practice under Section 1 of
Rule 129 of the Rules of Court, it nevertheless may do so under Section 2 of the same
Rule. The latter Rule provides that a court, in its discretion, may take judicial notice of
matters which are of public knowledge, or ought to be known to judges because of
their judicial functions.
Thus, the Court has taken judicial notice of the practices of banks and other financial
institutions. Precisely, it has noted that it is their uniform practice, before approving a
loan, to investigate, examine and assess would-be borrowers credit standing or real
estate[32] offered as security for the loan applied for.
Second Issue:
Award of Damages
The individual respondents were awarded moral and exemplary damages as well as
attorneys fees under Articles 19 to 21 of the Civil Code, on the basic premise that the
suit was clearly malicious and intended merely to harass.
Article 19 of the Civil Code expresses the fundamental principle of law on human
conduct that a person must, in the exercise of his rights and in the performance of his
duties, act with justice, give every one his due, and observe honesty and good faith.
Under this basic postulate, the exercise of a right, though legal by itself, must
nonetheless be done in accordance with the proper norm. When the right is exercised
arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is
committed for which the wrongdoer must be held responsible.[33]
61 | P a g e
To be liable under the abuse-of-rights principle, three elements must concur: a) a legal
right or duty, b) its exercise in bad faith, and c) the sole intent of prejudicing or injuring
another.[34] Needless to say, absence of good faith[35] must be sufficiently
established.
Article 20 makes [e]very person who, contrary to law, willfully or negligently causes
damage to another liable for damages. Upon the other hand, held liable for damages
under Article 21 is one who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy.
For damages to be properly awarded under the above provisions, it is necessary to
demonstrate by clear and convincing evidence[36] that the action instituted by
petitioner was clearly so unfounded and untenable as to amount to gross and evident
bad faith.[37] To justify an award of damages for malicious prosecution, one must
prove two elements: malice or sinister design to vex or humiliate and want of probable
cause.[38]
Petitioner was proven wrong in impleading Spouses Guevara and Hong. Beyond that
fact, however, respondents have not established that the suit was so patently
malicious as to warrant the award of damages under the Civil Codes Articles 19 to 21,
which are grounded on malice or bad faith.[39] With the presumption of law on the
side of good faith, and in the absence of adequate proof of malice, we find that
petitioner impleaded the spouses because it honestly believed that the conjugal
partnerships had benefited from the proceeds of the loan, as stated in their Complaint
and subsequent pleadings. Its act does not amount to evident bad faith or malice;
hence, an award for damages is not proper. The adverse result of an act per se neither
makes the act wrongful nor subjects the actor to the payment of damages, because
the law could not have meant to impose a penalty on the right to litigate.[40]
For the same reason, attorneys fees cannot be granted. Article 2208 of the Civil Code
states that in the absence of a stipulation, attorneys fees cannot be recovered, except
in any of the following circumstances:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmens compensation and employers liability
laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees
and expenses of litigation should be recovered.
In the instant case, none of the enumerated grounds for recovery of attorneys fees are
present.
WHEREFORE, this Petition is PARTIALLY GRANTED. The assailed Decision is AFFIRMED,
but the award of moral and exemplary damages as well as attorneys fees is DELETED.
No costs.
SO ORDERED.
G.R. No. L-56169 June 26, 1992
TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO S.
MIRANDA, respondents.
FELICIANO, J.:
Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on
commission basis for and in behalf of different airline companies. Private respondent
Arturo S. Miranda had a revolving credit line with petitioner. He procured tickets from
petitioner on behalf of airline passengers and derived commissions therefrom.
On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila
to collect on six (6) checks issued by private respondent with a total face amount of
P115,000.00. The complaint, with a prayer for the issuance of a writ of preliminary
attachment and attorney's fees, averred that from 5 August 1969 to 16 January 1970,
petitioner sold and delivered various airline tickets to respondent at a total price of
P278,201.57; that to settle said account, private respondent paid various amounts in
cash and in kind, and thereafter issued six (6) postdated checks amounting to
P115,000.00 which were all dishonored by the drawee banks. Travel-On further alleged
that in March 1972, private respondent made another payment of P10,000.00 reducing
his indebtedness to P105,000.00. The writ of attachment was granted by the court a
quo.
62 | P a g e
In his answer, private respondent admitted having had transactions with Travel-On
during the period stipulated in the complaint. Private respondent, however, claimed
that he had already fully paid and even overpaid his obligations and that refunds were
in fact due to him. He argued that he had issued the postdated checks for purposes of
accommodation, as he had in the past accorded similar favors to petitioner. During the
proceedings, private respondent contested several tickets alleged to have been
erroneously debited to his account. He claimed reimbursement of his alleged over
payments, plus litigation expenses, and exemplary and moral damages by reason of
the allegedly improper attachment of his properties.
In support of his theory that the checks were issued for accommodation, private
respondent testified that he bad issued the checks in the name of Travel-On in order
that its General Manager, Elita Montilla, could show to Travel-On's Board of Directors
that the accounts receivable of the company were still good. He further stated that
Elita Montilla tried to encash the same, but that these were dishonored and were
subsequently returned to him after the accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the
"accommodation" extended to Travel-On by private respondent related to situations
where one or more of its passengers needed money in Hongkong, and upon request of
Travel-On respondent would contact his friends in Hongkong to advance Hongkong
money to the passenger. The passenger then paid Travel-On upon his return to Manila
and which payment would be credited by Travel-On to respondent's running account
with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private
respondent the amount of P8,894.91 representing net overpayments by private
respondent, moral damages of P10,000.00 for the wrongful issuance of the writ of
attachment and for the filing of this case, P5,000.00 for attorney's fees and the costs of
the suit.
The trial court ruled that private respondent's indebtedness to petitioner was not
satisfactorily established and that the postdated checks were issued not for the
purpose of encashment to pay his indebtedness but to accommodate the General
Manager of Travel-On to enable her to show to the Board of Directors that Travel-On
was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the trial
court, which in fact then increased the award of moral damages to P50,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced
the award of moral damages to P20,000.00, with interest at the legal rate from the
date of the filing of the Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeal's' decision, without
success.
In the instant Petition for Review, it is urged that the postdated checks are per se
evidence of liability on the part of private respondent. Petitioner further argues that
even assuming that the checks were for accommodation, private respondent is still
liable thereunder considering that petitioner is a holder for value.
Both the trial and appellate courts had rejected the checks as evidence of
indebtedness on the ground that the various statements of account prepared by
petitioner did not show that Private respondent had an outstanding balance of
P115,000.00 which is the total amount of the checks he issued. It was pointed out that
while the various exhibits of petitioner showed various accountabilities of private
respondent, they did not satisfactorily establish the amount of the outstanding
indebtedness of private respondent. The appellate court made much of the fact that
the figures representing private respondent's unpaid accounts found in the "Schedule
of Outstanding Account" dated 31 January 1970 did not tally with the figures found in
the statement which showed private respondent's transactions with petitioner for the
years 1969 and 1970; that there was no satisfactory explanation as to why the total
outstanding amount of P278,432.74 was still used as basis in the accounting of 7 April
1972 considering that according to the table of transactions for the year 1969 and
1970, the total unpaid account of private respondent amounted to P239,794.57.
We have, however, examined the record and it shows that the 7 April 1972 Statement
of Account had simply not been updated; that if we use as basis the figure as of 31
January 1970 which is P278,432.74 and from it deduct P38,638.17 which represents
some of the payments subsequently made by private respondent, the figure
P239,794.57 will be obtained.
Also, the fact alone that the various statements of account had variances in figures,
simply did not mean that private respondent had no more financial obligations to
petitioner. It must be stressed that private respondent's account with petitioner was a
running or open one, which explains the varying figures in each of the statements
rendered as of a given date.
The appellate court erred in considering only the statements of account in determining
whether private respondent was indebted to petitioner under the checks. By doing so,
it failed to give due importance to the most telling piece of evidence of private
respondent's indebtedness the checks themselves which he had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the checks are
the all important evidence of petitioner's case; that these checks clearly established
private respondent's indebtedness to petitioner; that private respondent was liable
thereunder.
It is important to stress that a check which is regular on its face is deemed prima facie
to have been issued for a valuable consideration and every person whose signature
appears thereon is deemed to have become a party thereto for value. 1 Thus, the mere
introduction of the instrument sued on in evidence prima facie entitles the plaintiff to
recovery. Further, the rule is quite settled that a negotiable instrument is presumed to
have been given or indorsed for a sufficient consideration unless otherwise
contradicted and overcome by other competent evidence. 2
In the case at bar, the Court of Appeals, contrary to these established rules, placed the
burden of proving the existence of valuable consideration upon petitioner. This cannot
be countenanced; it was up to private respondent to show that he had indeed issued
the checks without sufficient consideration. The Court considers that Private
respondent was unable to rebut satisfactorily this legal presumption. It must also be
63 | P a g e
noted that those checks were issued immediately after a letter demanding payment
had been sent to private respondent by petitioner Travel-On.
The fact that all the checks issued by private respondent to petitioner were presented
for payment by the latter would lead to no other conclusion than that these checks
were intended for encashment. There is nothing in the checks themselves (or in any
other document for that matter) that states otherwise.
We are unable to accept the Court of Appeals' conclusion that the checks here involved
were issued for "accommodation" and that accordingly private respondent maker of
those checks was not liable thereon to petitioner payee of those checks.
In the first place, while the Negotiable Instruments Law does refer to accommodation
transactions, no such transaction was here shown. Section 29 of the Negotiable
Instruments Law provides as follows:
Sec. 29. Liability of accommodation party. An accommodation party is one
who has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only an
accommodation party.
In accommodation transactions recognized by the Negotiable Instruments Law, an
accommodating party lends his credit to the accommodated party, by issuing or
indorsing a check which is held by a payee or indorsee as a holder in due course, who
gave full value therefor to the accommodated party. The latter, in other words,
receives or realizes full value which the accommodated party then must repay to the
accommodating party, unless of course the accommodating party intended to make a
donation to the accommodated party. But the accommodating party is bound on the
check to the holder in due course who is necessarily a third party and is not the
accommodated party. Having issued or indorsed the check, the accommodating party
has warranted to the holder in due course that he will pay the same according to its
tenor. 3
In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks
for payment at the drawee bank but the checks bounced. Travel-On obviously was not
an accommodated party; it realized no value on the checks which bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was a holder
in due course, 4 that the checks were supported by valuable consideration. 5 Private
respondent maker of the checks did not successfully rebut these presumptions. The
only evidence aliunde that private respondent offered was his own self-serving
uncorroborated testimony. He claimed that he had issued the checks to Travel-On as
payee to "accommodate" its General Manager who allegedly wished to show those
checks to the Board of Directors of Travel-On to "prove" that Travel-On's account
receivables were somehow "still good." It will be seen that this claim was in fact a
claim that the checks were merely simulated, that private respondent did not intend to
bind himself thereon. Only evidence of the clearest and most convincing kind will
suffice for that purpose; 6 no such evidence was submitted by private respondent. The
latter's explanation was denied by Travel-On's General Manager; that explanation, in
any case, appears merely contrived and quite hollow to us. Upon the other hand, the
"accommodation" or assistance extended to Travel-On's passengers abroad as testified
by petitioner's General Manager involved, not the accommodation transactions
recognized by the NIL, but rather the circumvention of then existing foreign exchange
regulations by passengers booked by Travel-On, which incidentally involved receipt of
full consideration by private respondent.
Thus, we believe and so hold that private respondent must be held liable on the six (6)
checks here involved. Those checks in themselves constituted evidence of
indebtedness of private respondent, evidence not successfully overturned or rebutted
by private respondent.
Since the checks constitute the best evidence of private respondent's liability to
petitioner Travel-On, the amount of such liability is the face amount of the checks,
reduced only by the P10,000.00 which Travel-On admitted in its complaint to have
been paid by private respondent sometime in March 1992.
The award of moral damages to Private respondent must be set aside, for the reason
that Petitioner's application for the writ of attachment rested on sufficient basis and no
bad faith was shown on the part of Travel-On. If anyone was in bad faith, it was private
respondent who issued bad checks and then pretended to have "accommodated"
petitioner's General Manager by assisting her in a supposed scheme to deceive
petitioner's Board of Directors and to misrepresent Travel-On's financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on
Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980 and the
Resolution of 23 January 1981 of the Court of Appeals, as well as the Decision dated 31
January 1975 of the trial court, and to enter a new decision requiring private
respondent Arturo S. Miranda to pay to petitioner Travel-On the amount of P105,000.00
with legal interest thereon from 14 June 1972, plus ten percent (10%) of the total
amount due as attorney's fees. Costs against Private respondent.
[G.R. No. 132560. January 30, 2002]
WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner, vs.
EUGENE ONG, respondent.
DECISION
QUISUMBING, J.:
64 | P a g e
This is a petition for review of the decision[1] dated January 13, 1998, of the Court of
Appeals in CA-G.R. CV No. 28304 ordering the petitioner to pay respondent
P1,754,787.50 plus twelve percent (12%) interest per annum computed from October
7, 1977, the date of the first extrajudicial demand, plus damages.
The facts of this case are undisputed.
Respondent Eugene Ong maintained a current account with petitioner, formerly the
Associated Banking Corporation, but now known as Westmont Bank. Sometime in May
1976, he sold certain shares of stocks through Island Securities Corporation. To pay
Ong, Island Securities purchased two (2) Pacific Banking Corporation managers checks,
[2] both dated May 4, 1976, issued in the name of Eugene Ong as payee. Before Ong
could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ongs
signature and deposited these with petitioner, where Tanlimco was also a depositor.
Even though Ongs specimen signature was on file, petitioner accepted and credited
both checks to the account of Tanlimco, without verifying the signature indorsements
appearing at the back thereof. Tanlimco then immediately withdrew the money and
absconded.
Instead of going straight to the bank to stop or question the payment, Ong first sought
the help of Tanlimcos family to recover the amount. Later, he reported the incident to
the Central Bank, which like the first effort, unfortunately proved futile.
It was only on October 7, 1977, about five (5) months from discovery of the fraud, did
Ong cry foul and demanded in his complaint that petitioner pay the value of the two
checks from the bank on whose gross negligence he imputed his loss. In his suit, he
insisted that he did not deliver, negotiate, endorse or transfer to any person or entity
the subject checks issued to him and asserted that the signatures on the back were
spurious.[3]
The bank did not present evidence to the contrary, but simply contended that since
plaintiff Ong claimed to have never received the originals of the two (2) checks in
question from Island Securities, much less to have authorized Tanlimco to receive the
same, he never acquired ownership of these checks. Thus, he had no legal personality
to sue as he is not a real party in interest. The bank then filed a demurrer to evidence
which was denied.
On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch
38, rendered a decision, thus:
IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and
against the defendant, and orders the defendant to pay the plaintiff:
1. The sum of P1,754,787.50 representing the total face value of the two checks in
question, exhibits A and B, respectively, with interest thereon at the legal rate of
twelve percent (12%) per annum computed from October 7, 1977 (the date of the first
extrajudicial demand) up to and until the same shall have been paid in full;
2. Moral damages in the amount of P250,000.00;
3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or
correction for the public good;
4. Attorneys fees of P50,000.00 and costs of suit.
Defendants counterclaims are dismissed for lack of merit.
SO ORDERED.[4]
Petitioner elevated the case to the Court of Appeals without success. In its decision,
the appellate court held:
WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto.[5]
Petitioner now comes before this Court on a petition for review, alleging that the Court
of Appeals erred:
I
... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT RESPONDENT HAS A CAUSE OF
ACTION AGAINST THE PETITIONER.
II
... IN AFFIRMING THE TRIAL COURTS DECISION FINDING PETITIONER LIABLE TO
RESPONDENT AND DECLARING THAT THE LATTER MAY RECOVER DIRECTLY FROM THE
FORMER; AND
III
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING
PETITIONER FROM LIABILITY.
Essentially the issues in this case are: (1) whether or not respondent Ong has a cause
of action against petitioner Westmont Bank; and (2) whether or not Ong is barred to
recover the money from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of the two (2)
checks of the Island Securities nor did he authorize Tanlimco or any of the latters
representative to demand, accept and receive the same. For this reason, petitioner
argues, respondent cannot sue petitioner because under Section 51 of the Negotiable
Instruments Law[6] it is only when a person becomes a holder of a negotiable
instrument can he sue in his own name. Conversely, prior to his becoming a holder, he
had no right or cause of action under such negotiable instrument. Petitioner further
argues that since Section 191[7] of the Negotiable Instruments Law defines a holder as
the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof,
in order to be a holder, it is a requirement that he be in possession of the instrument or
the bearer thereof. Simply stated, since Ong never had possession of the checks nor
did he authorize anybody, he did not become a holder thereof hence he cannot sue in
his own name.[8]
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Petitioner also cites Article 1249[9] of the Civil Code explaining that a check, even if it
is a managers check, is not legal tender. Hence, the creditor cannot be compelled to
accept payment thru this means.[10] It is petitioners position that for all intents and
purposes, Island Securities has not yet tendered payment to respondent Ong, thus,
any action by Ong should be directed towards collecting the amount from Island
Securities. Petitioner claims that Ongs cause of action against it has not ripened as of
yet. It may be that petitioner would be liable to the drawee bank - - but that is a matter
between petitioner and drawee-bank, Pacific Banking Corporation.[11]
For its part, respondent Ong leans on the ruling of the trial court and the Court of
Appeals which held that the suit of Ong against the petitioner bank is a desirable
shortcut to reach the party who ought in any event to be ultimately liable.[12] It
likewise cites the ruling of the courts a quo which held that according to the general
rule, a bank who has obtained possession of a check upon an unauthorized or forged
indorsement of the payees signature and who collects the amount of the check from
the drawee is liable for the proceeds thereof to the payee. The theory of said rule is
that the collecting banks possession of such check is wrongful.[13]
Respondent also cites Associated Bank vs. Court of Appeals[14] which held that the
collecting bank or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements. The collecting bank is also made
liable because it is privy to the depositor who negotiated the check. The bank knows
him, his address and history because he is a client. Hence, it is in a better position to
detect forgery, fraud or irregularity in the indorsement.[15]
Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically
governed by the Negotiable Instruments Law which is a special law and only in the
absence of specific provisions or deficiency in the special law may the Civil Code be
invoked.[16]
Considering the contentions of the parties and the evidence on record, we find no
reversible error in the assailed decisions of the appellate and trial courts, hence there
is no justifiable reason to grant the petition.
Petitioners claim that respondent has no cause of action against the bank is clearly
misplaced. As defined, a cause of action is the act or omission by which a party
violates a right of another.[17] The essential elements of a cause of action are: (a) a
legal right or rights of the plaintiff, (b) a correlative obligation of the defendant, and (c)
an act or omission of the defendant in violation of said legal right.[18]
The complaint filed before the trial court expressly alleged respondents right as payee
of the managers checks to receive the amount involved, petitioners correlative duty as
collecting bank to ensure that the amount gets to the rightful payee or his order, and a
breach of that duty because of a blatant act of negligence on the part of petitioner
which violated respondents rights.[19]
Under Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority.
Since the signature of the payee, in the case at bar, was forged to make it appear that
he had made an indorsement in favor of the forger, such signature should be deemed
as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in
making payment by virtue of said forged signature. The payee, herein respondent,
should therefore be allowed to recover from the collecting bank.
The collecting bank is liable to the payee and must bear the loss because it is its legal
duty to ascertain that the payees endorsement was genuine before cashing the check.
[20] As a general rule, a bank or corporation who has obtained possession of a check
upon an unauthorized or forged indorsement of the payees signature and who collects
the amount of the check from the drawee, is liable for the proceeds thereof to the
payee or other owner, notwithstanding that the amount has been paid to the person
from whom the check was obtained.[21]
The theory of the rule is that the possession of the check on the forged or unauthorized
indorsement is wrongful, and when the money had been collected on the check, the
bank or other person or corporation can be held as for moneys had and received, and
the proceeds are held for the rightful owners who may recover them. The position of
the bank taking the check on the forged or unauthorized indorsement is the same as if
it had taken the check and collected the money without indorsement at all and the act
of the bank amounts to conversion of the check.[22]
Petitioners claim that since there was no delivery yet and respondent has never
acquired possession of the checks, respondents remedy is with the drawer and not
with petitioner bank. Petitioner relies on the view to the effect that where there is no
delivery to the payee and no title vests in him, he ought not to be allowed to recover
on the ground that he lost nothing because he never became the owner of the check
and still retained his claim of debt against the drawer.[23] However, another view in
certain cases holds that even if the absence of delivery is considered, such
consideration is not material. The rationale for this view is that in said cases the
plaintiff uses one action to reach, by a desirable short cut, the person who ought in any
event to be ultimately liable as among the innocent persons involved in the
transaction. In other words, the payee ought to be allowed to recover directly from the
collecting bank, regardless of whether the check was delivered to the payee or not.[24]
Considering the circumstances in this case, in our view, petitioner could not escape
liability for its negligent acts. Admittedly, respondent Eugene Ong at the time the
fraudulent transaction took place was a depositor of petitioner bank. Banks are
engaged in a business impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with them.[25] They
have the obligation to treat their clients account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family.[26] In the
present case, petitioner was held to be grossly negligent in performing its duties. As
found by the trial court:
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xxx (A)t the time the questioned checks were accepted for deposit to Paciano
Tanlimcos account by defendant bank, defendant bank, admittedly had in its files
specimen signatures of plaintiff who maintained a current account with them (Exhibits
L-1 and M-1; testimony of Emmanuel Torio). Given the substantial face value of the two
checks, totalling P1,754,787.50, and the fact that they were being deposited by a
person not the payee, the very least defendant bank should have done, as any
reasonable prudent man would have done, was to verify the genuineness of the
indorsements thereon. The Court cannot help but note that had defendant conducted
even the most cursory comparison with plaintiffs specimen signatures in its files
(Exhibit L-1 and M-1) it would have at once seen that the alleged indorsements were
falsified and were not those of the plaintiff-payee. However, defendant apparently
failed to make such a verification or, what is worse did so but, chose to disregard the
obvious dissimilarity of the signatures. The first omission makes it guilty of gross
negligence; the second of bad faith. In either case, defendant is liable to plaintiff for
the proceeds of the checks in question.[27]
These findings are binding and conclusive on the appellate and the reviewing courts.
On the second issue, petitioner avers that respondent Ong is barred by laches for
failing to assert his right for recovery from the bank as soon as he discovered the
scam. The lapse of five months before he went to seek relief from the bank, according
to petitioner, constitutes laches.
In turn, respondent contends that petitioner presented no evidence to support its claim
of laches. On the contrary, the established facts of the case as found by the trial court
and affirmed by the Court of Appeals are that respondent left no stone unturned to
obtain relief from his predicament.
On the matter of delay in reporting the loss, respondent calls attention to the fact that
the checks were issued on May 4, 1976, and on the very next day, May 5, 1976, these
were already credited to the account of Paciano Tanlimco and presented for payment
to Pacific Banking Corporation. So even if the theft of the checks were discovered and
reported earlier, respondent argues, it would not have altered the situation as the
encashment of the checks was consummated within twenty four hours and facilitated
by the gross negligence of the petitioner bank.[28]
Laches may be defined as the failure or neglect for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have
been done earlier. It is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled thereto has either abandoned or
declined to assert it.[29] It concerns itself with whether or not by reason of long
inaction or inexcusable neglect, a person claiming a right should be barred from
asserting the same, because to allow him to do so would be unjust to the person
against whom such right is sought to be enforced.[30]
In the case at bar, it cannot be said that respondent sat on his rights. He immediately
acted after knowing of the forgery by proceeding to seek help from the Tanlimco family
and later the Central Bank, to remedy the situation and recover his money from the
forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the
matter amicably with the family of Tanlimco and through the CB, about five months
after the unlawful transaction took place, did he resort to making the demand upon the
petitioner and eventually before the court for recovery of the money value of the two
checks. These acts cannot be construed as undue delay in or abandonment of the
assertion of his rights.
Moreover, the claim of petitioner that respondent should be barred by laches is clearly
a vain attempt to deflect responsibility for its negligent act. As explained by the
appellate court, it is petitioner which had the last clear chance to stop the fraudulent
encashment of the subject checks had it exercised due diligence and followed the
proper and regular banking procedures in clearing checks.[31] As we had earlier ruled,
the one who had the last clear opportunity to avoid the impending harm but failed to
do so is chargeable with the consequences thereof.[32]
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of
the Court of Appeals, sustaining the judgment of the Regional Trial Court of Manila, is
AFFIRMED.
Costs against petitioner.
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