San Miguel Corp. vs.
Bartolome Puzon ownership of the checks as it was duty bound to return the same
Del Mundo
G.R. NO. 167567 Sept. 22, 2010
Secs. 12 and 16
DECISION
DEL CASTILLO, J.:
This petition for review assails the December 21, 2004 Decision[1]and
March 28, 2005 Resolution[2]of the Court of Appeals (CA) in CA-G.R.
SP No. 83905, which dismissed the petition before it and denied
reconsideration, respectively.
Factual Antecedents
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk
Enterprises, was a dealer of beer products of petitioner San Miguel
Corporation (SMC) for Paraaque City. Puzon purchased SMC
products on credit. To ensure payment and as a business practice,
SMC required him to issue postdated checks equivalent to the value
of the products purchased on credit before the same were released to
him. Said checks were returned to Puzon when the transactions
covered by these checks were paid or settled in full.
On December 31, 2000, Puzon purchased products on credit
amounting to P11,820,327 for which he issued, and gave to SMC,
Bank of the Philippine Islands (BPI) Check Nos. 27904
(for P309,500.00) and 27903 (for P11,510,827.00) to cover the said
transaction.
On January 23, 2001, Puzon, together with his accountant, visited the
SMC Sales Office in Paraaque City to reconcile his account with
SMC. During that visit Puzon allegedly requested to see BPI Check No.
17657. However, when he got hold of BPI Check No. 27903 which was
attached to a bond paper together with BPI Check No. 17657 he
allegedly immediately left the office with his accountant, bringing the
checks with them.
SMC sent a letter to Puzon on March 6, 2001 demanding the return of
the said checks. Puzon ignored the demand hence SMC filed a
complaint against him for theft with the City Prosecutors Office of
Paraaque City.
Rulings of the Prosecutor and the Secretary of Department of Justice
(DOJ)
The investigating prosecutor, Elizabeth Yu Guray found that the
relationship between [SMC] and [Puzon] appears to be one of credit
or creditor-debtor relationship. The problem lies in the
reconciliation of accounts and the non-payment of beer empties
which cannot give rise to a criminal prosecution for theft.[3] Thus, in
her July 31, 2001 Resolution,[4] she recommended the dismissal of
the case for lack of evidence. SMC appealed.
On June 4, 2003, the DOJ issued its resolution[5]affirming the
prosecutors Resolution dismissing the case. Its motion for
reconsideration having been denied in the April 23, 2004 DOJ
Resolution,[6]SMC filed a petition for certiorari with the CA.
Ruling of the Court of Appeals
The CA found that the postdated checks were issued by Puzon merely
as a security for the payment of his purchases and that these were not
intended to be encashed. It thus concluded that SMC did not acquire
checks to Puzon after the transactions covering them were
settled. The CA agreed with the prosecutor that there was no theft,
considering that a person cannot be charged with theft for taking
personal property that belongs to himself. It disposed of the appeal
as follows:
WHEREFORE, finding no grave abuse of discretion committed by
public respondent, the instant petition is hereby DISMISSED. The
assailed Resolutions of public respondent, dated 04 June 2003 and 23
April 2004, are AFFIRMED. No costs at this instance.
SO ORDERED.[7]
The motion for reconsideration of SMC was denied. Hence, the
present petition.
Issues
Petitioner now raises the following issues:
I
WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23,
2001, AMONG OTHERS BPI CHECK NO. 27903 DATED MARCH 30,
2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED
TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN
(Php11,510,827.00)
II
WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON,
PARTICULARLY BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN
THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN
THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00),
WERE ISSUED IN PAYMENT OF HIS BEER PURCHASES OR WERE
USED MERELY AS SECURITY TO ENSURE PAYMENT OF PUZONS
OBLIGATION.
III
WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE
POSTDATED CHECKS ISSUED IN PAYMENT OF BEER PRODUCTS
PURCHASED ON CREDIT SHOULD THE TRANSACTIONS COVERED BY
THESE CHECKS [BE] SETTLED ON [THE] MATURITY DATES
THEREOF COULD BE LIKENED TO A CONTRACT OF PLEDGE.
IV
WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO
JUSTIFY THE INDICTMENT OF PUZON FOR THE CRIME OF THEFT
PURSUANT TO ART. 308 OF THE REVISED PENAL CODE.[8]
Petitioner's Arguments
SMC contends that Puzon was positively identified by its employees
to have taken the subject postdated checks. It also contends that
ownership of the checks was transferred to it because these were
issued, not merely as security but were, in payment of Puzons
purchases.SMC points out that it has established more than sufficient
probable cause to justify the indictment of Puzon for the crime of
Theft.
Respondents Arguments
On the other hand, Puzon contends that SMC raises questions of fact
that are beyond the province of an appeal on certiorari. He also
insists that there is no probable cause to charge him with theft
because the subject checks were issued only as security and he
therefore retained ownership of the same.
Our Ruling
The petition has no merit.
Preliminary Matters
At the outset we find that as pointed out by Puzon, SMC raises
questions of fact. The resolution of the first issue raised by SMC of
whether respondent stole the subject check, which calls for the Court
to determine whether respondent is guilty of a felony, first requires
that the facts be duly established in the proper forum and in accord
with the proper procedure. This issue cannot be resolved based on
mere allegations of facts and affidavits. The same is true with the
second issue raised by petitioner, to wit: whether the checks issued
by Puzon were payments for his purchases or were intended merely
as security to ensure payment. These issues cannot be properly
resolved in the present petition for review on certiorari which is
rooted merely on the resolution of the prosecutor finding no
probable cause for the filing of an information for theft.
The third issue raised by petitioner, on the other hand, would entail
venturing into constitutional matters for a complete resolution. This
route is unnecessary in the present case considering that the main
matter for resolution here only concerns grave abuse of discretion
and the existence of probable cause for theft, which at this point is
more properly resolved through another more clear cut route.
Probable Cause for Theft
Probable cause is defined as such facts and circumstances that will
engender a well-founded belief that a crime has been committed and
that the respondent is probably guilty thereof and should be held for
trial.[9] On the fine points of the determination of probable
cause, Reyes v. Pearlbank Securities, Inc.[10] comprehensively
elaborated that:
The determination of [the existence or absence of probable cause]
lies within the discretion of the prosecuting officers after conducting
a preliminary investigation upon complaint of an offended party.
Thus, the decision whether to dismiss a complaint or not is
dependent upon the sound discretion of the prosecuting fiscal. He
may dismiss the complaint forthwith, if he finds the charge
insufficient in form or substance or without any ground. Or he may
proceed with the investigation if the complaint in his view is
sufficient and in proper form. To emphasize, the determination of
probable cause for the filing of information in court is an executive
function, one that properly pertains at the first instance to the public
prosecutor and, ultimately, to the Secretary of Justice, who may direct
the filing of the corresponding information or move for the dismissal
of the case. Ultimately, whether or not a complaint will be dismissed
is dependent on the sound discretion of the Secretary of Justice. And
unless made with grave abuse of discretion, findings of the Secretary
of Justice are not subject to review.
For this reason, the Court considers it sound judicial policy to refrain
from interfering in the conduct of preliminary investigations and to
leave the Department of Justice ample latitude of discretion in the
determination of what constitutes sufficient evidence to establish
probable cause for the prosecution of supposed offenders. Consistent
with this policy, courts do not reverse the Secretary of Justice's
findings and conclusions on the matter of probable cause except in
clear cases of grave abuse of discretion.
In the present case, we are also not sufficiently convinced to deviate
from the general rule of non-interference. Indeed the CA did not err
in dismissing the petition for certiorari before it, absent grave abuse
of discretion on the part of the DOJ Secretary in not finding probable
cause against Puzon for theft.
The Revised Penal Code provides:
Art. 308. Who are liable for theft. - Theft is committed by any person
who, with intent to gain but without violence against, or intimidation
of persons nor force upon things, shall take personal property of
another without the latters consent.
xxxx
[T]he essential elements of the crime of theft are the following: (1)
that there be a taking of personal property; (2) that said property
belongs to another; (3) that the taking be done with intent to gain; (4)
that the taking be done without the consent of the owner; and (5) that
the taking be accomplished without the use of violence or
intimidation against persons or force upon things.[11]
Considering that the second element is that the thing taken belongs
to another, it is relevant to determine whether ownership of the
subject check was transferred to petitioner. On this point the
Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated The instrument is not invalid for the
reason only that it is antedated or postdated, provided this is not
done for an illegal or fraudulent purpose. The person to whom an
instrument so dated is delivered acquires the title thereto as of the
date of delivery. (Underscoring supplied.)
Note however that delivery as the term is used in the aforementioned
provision means that the party delivering did so for the purpose of
giving effect thereto.[12] Otherwise, it cannot be said that there has
been delivery of the negotiable instrument. Once there is delivery, the
person to whom the instrument is delivered gets the title to the
instrument completely and irrevocably.
If the subject check was given by Puzon to SMC in payment of the
obligation, the purpose of giving effect to the instrument is evident
thus title to or ownership of the check was transferred upon
delivery. However, if the check was not given as payment, there being
no intent to give effect to the instrument, then ownership of the check
was not transferred to SMC.
The evidence of SMC failed to establish that the check was given in
payment of the obligation of Puzon. There was no provisional receipt
or official receipt issued for the amount of the check. What was issued
was a receipt for the document, a POSTDATED CHECK SLIP.[13]
Furthermore, the petitioner's demand letter sent to respondent
states As per company policies on receivables, all issuances are to be
covered by post-dated checks. However, you have deviated from this
policy by forcibly taking away the check you have issued to us to
cover the December issuance.[14] Notably, the term payment was not
used instead the terms covered and cover were used.
Although the petitioner's witness, Gregorio L. Joven III, states in
paragraph 6 of his affidavit that the check was given in payment of
the obligation of Puzon, the same is contradicted by his statements in
paragraph 4, where he states that As a standard company operating
procedure, all beer purchases by dealers on credit shall be covered by
postdated checks equivalent to the value of the beer products
purchased; in paragraph 9 where he states that the
transaction covered by the said check had not yet been paid for, and
in paragraph 8 which clearly shows that partial payment is expected
to be made by the return of beer empties, and not by the deposit or
encashment of the check. Clearly the term cover was not meant to be
used interchangeably with payment.
When taken in conjunction with the counter-affidavit of Puzon where
he states that As the [liquid beer] contents are paid for, SMC return[s]
to me the corresponding PDCs or request[s] me to replace them with
whatever was the unpaid balance.[15] it becomes clear that both
parties did not intend for the check to pay for the beer products. The
evidence proves that the check was accepted, not as payment, but in
accordance with the long-standing policy of SMC to require its
dealers to issue postdated checks to cover its receivables. The check
was only meant to cover the transaction and in the meantime Puzon
was to pay for the transaction by some other means other than the
check. This being so, title to the check did not transfer to SMC; it
remained with Puzon. The second element of the felony of theft was
therefore not established. Petitioner was not able to show that Puzon
took a check that belonged to another. Hence, the prosecutor and the
DOJ were correct in finding no probable cause for theft.
Consequently, the CA did not err in finding no grave abuse of
discretion committed by the DOJ in sustaining the dismissal of the
case for theft for lack of probable cause.
WHEREFORE, the petition is DENIED. The December 21, 2004
Decision and March 28, 2005 Resolution of the Court of Appeals in
CA-G.R. SP. No. 83905 are AFFIRMED.
John Dy vs. People, et. Al. Galita
G.R. NO. 15312 November 14, 2008
Sec. 14
DECISION
QUISUMBING, Acting C.J.:
This appeal prays for the reversal of the Decision1 dated January 23,
2003 and the Resolution2 dated May 14, 2003 of the Court of Appeals
in CA-G.R. CR No. 23802. The appellate court affirmed with
modification the Decision3 dated November 17, 1999 of the Regional
Trial Court (RTC), Branch 82 of Quezon City, which had convicted
petitioner John Dy of two counts of estafa in Criminal Cases Nos. Q-
93-46711 and Q-93-46713, and two counts of violation of Batas
Pambansa Bilang 224 (B.P. Blg. 22) in Criminal Cases Nos. Q-93-
46712 and Q-93-46714.
The facts are undisputed:
Since 1990, John Dy has been the distributor of W.L. Food Products
(W.L. Foods) in Naga City, Bicol, under the business name Dyna
Marketing. Dy would pay W.L. Foods in either cash or check upon pick
up of stocks of snack foods at the latter's branch or main office in
Quezon City. At times, he would entrust the payment to one of his
drivers.
On June 24, 1992, Dy's driver went to the branch office of W.L. Foods
to pick up stocks of snack foods. He introduced himself to the checker,
Mary Jane D. Maraca, who upon confirming Dy's credit with the main
office, gave him merchandise worth P106,579.60. In return, the
driver handed her a blank Far East Bank and Trust Company (FEBTC)
Check with Check No. 553602 postdated July 22, 1992. The check was
signed by Dy though it did not indicate a specific amount.
Yet again, on July 1, 1992, the same driver obtained snack foods from
Maraca in the amount of P226,794.36 in exchange for a blank FEBTC
Check with Check No. 553615 postdated July 31, 1992.
In both instances, the driver was issued an unsigned delivery receipt.
The amounts for the purchases were filled in later by Evelyn Ong,
accountant of W.L. Foods, based on the value of the goods delivered.
When presented for payment, FEBTC dishonored the checks for
insufficiency of funds. Raul D. Gonzales, manager of FEBTC-Naga
Branch, notified Atty. Rita Linda Jimeno, counsel of W.L. Foods, of the
dishonor. Apparently, Dy only had an available balance of P2,000 as
of July 22, 1992 and July 31, 1992.
Later, Gonzales sent Atty. Jimeno another letter5 advising her that
FEBTC Check No. 553602 for P106,579.60 was returned to the
drawee bank for the reasons stop payment order and drawn against
uncollected deposit (DAUD), and not because it was drawn against
insufficient funds as stated in the first letter. Dy's savings deposit
account ledger reflected a balance of P160,659.39 as of July 22, 1992.
This, however, included a regional clearing check for P55,000 which
he deposited on July 20, 1992, and which took five (5) banking days
to clear. Hence, the inward check was drawn against the yet
uncollected deposit.
When William Lim, owner of W.L. Foods, phoned Dy about the matter,
the latter explained that he could not pay since he had no funds yet.
This prompted the former to send petitioner a demand letter, which
the latter ignored.
On July 16, 1993, Lim charged Dy with two counts of estafa under
Article 315, paragraph 2(d)6 of the Revised Penal Code in two
Informations, which except for the dates and amounts involved,
similarly read as follows:
That on or about the 24th day of June, 1992, in Quezon City,
Philippines, the said accused, did then and there [willfully] and
feloniously defraud W.L. PRODUCTS, a corporation duly organized
and existing under the laws of the Republic of the Philippines with
business address at No. 531 Gen. Luis St., Novaliches, this City, in the
following manner, to wit: the said accused, by means of false
manifestations and fraudulent representation which he made to
complainant to the effect that Far East Bank and Trust Co. check No.
553602 dated July 22, 1992 in the amount of P106,579.60, payable to
W.L. Products is a good check and will be honored by the bank on its
maturity date, and by means of other deceit of similar import,
induced and succeeded in inducing the said complainant to receive
and accept the aforesaid check in payment of snack foods, the said
accused knowing fully well that all his manifestations and
representations were false and untrue and were made solely for the
purpose of obtaining, as in fact he did obtain the aforesaid snack
foods valued at P106,579.60 from said complainant as upon
presentation of said check to the bank for payment, the same was
dishonored and payment thereof refused for the reason stop
payment and the said accused, once in possession of the aforesaid
snack foods, with intent to defraud, [willfully], unlawfully and
feloniously misapplied, misappropriated and converted the same or
the value thereof to his own personal use and benefit, to the damage
and prejudice of said W.L. Products, herein represented by RODOLFO
BORJAL, in the aforementioned amount of P106,579.60, Philippine
Currency.

Contrary to law.7
On even date, Lim also charged Dy with two counts of violation of B.P.
Blg. 22 in two Informations which likewise save for the dates and
amounts involved similarly read as follows:
That on or about the 24th day of June, 1992, the said accused, did then
and there [willfully], unlawfully and feloniously make or draw and
issue to W.L. FOOD PRODUCTS to apply on account or for value a Far
East Bank and Trust Co. Check no. 553602 dated July 22, 1992
payable to W.L. FOOD PRODUCTS in the amount of P106,579.60
Philippine Currency, said accused knowing fully well that at the time
of issue he/she/they did not have sufficient funds in or credit with
the drawee bank for payment of such check in full upon its
presentment, which check when presented 90 days from the date
thereof was subsequently dishonored by the drawee bank for the
reason "Payment stopped" but the same would have been dishonored
for insufficient funds had not the accused without any valid reason,
ordered the bank to stop payment, the said accused despite receipt of
notice of such dishonor, failed to pay said W.L. Food Products the
amount of said check or to make arrangement for payment in full of
the same within five (5) banking days after receiving said notice.
CONTRARY TO LAW.8
On November 23, 1994, Dy was arrested in Naga City. On
arraignment, he pleaded not guilty to all charges. Thereafter, the
cases against him were tried jointly.
On November 17, 1999 the RTC convicted Dy on two counts each of
estafa and violation of B.P. Blg. 22. The trial court disposed of the case
as follows:
WHEREFORE, accused JOHN JERRY DY ALDEN (JOHN DY) is hereby
found GUILTY beyond reasonable doubt of swindling (ESTAFA) as
charged in the Informations in Criminal Case No. 93-46711 and in
Criminal Case No. Q-93-46713, respectively. Accordingly, after
applying the provisions of the Indeterminate Sentence Law and P.D.
No. 818, said accused is hereby sentenced to suffer the indeterminate
penalty of ten (10) years and one (1) day to twelve (12) years of
prision mayor, as minimum, to twenty (20) years of reclusion
temporal, as maximum, in Criminal Case No. Q-93-46711 and of ten
(10) years and one (1) day to twelve (12) years of prision mayor, as
minimum, to thirty (30) years of reclusion perpetua, as maximum, in
Criminal Case No. Q-93-46713.
Likewise, said accused is hereby found GUILTY beyond reasonable
doubt of Violation of B.P. 22 as charged in the Informations in
Criminal Case No. Q-93-46712 and in Criminal Case No. Q-93-46714
and is accordingly sentenced to imprisonment of one (1) year for
each of the said offense and to pay a fine in the total amount of
P333,373.96, with subsidiary imprisonment in case of insolvency.
FINALLY, judgment is hereby rendered in favor of private
complainant, W. L. Food Products, herein represented by Rodolfo
Borjal, and against herein accused JOHN JERRY DY ALDEN (JOHN DY),
ordering the latter to pay to the former the total sum of P333,373.96
plus interest thereon at the rate of 12% per annum from September
28, 1992 until fully paid; and, (2) the costs of this suit.
SO ORDERED.9
Dy brought the case to the Court of Appeals. In the assailed Decision
of January 23, 2003, the appellate court affirmed the RTC. It, however,
modified the sentence and deleted the payment of interests in this
wise:
WHEREFORE, in view of the foregoing, the decision appealed from is
hereby AFFIRMED with MODIFICATION. In Criminal Case No. Q-93-
46711 (for estafa), the accused-appellant JOHN JERRY DY ALDEN
(JOHN DY) is hereby sentenced to suffer an indeterminate penalty of
imprisonment ranging from six (6) years and one (1) day of prision
mayor as minimum to twenty (20) years of reclusion temporal as
maximum plus eight (8) years in excess of [P]22,000.00. In Criminal
Case No. Q-93-46712 (for violation of BP 22), accused-appellant is
sentenced to suffer an imprisonment of one (1) year and to indemnify
W.L. Food Products, represented by Rodolfo Borjal, the amount of
ONE HUNDRED SIX THOUSAND FIVE HUNDRED SEVENTY NINE
PESOS and 60/100 ([P]106,579.60). In Criminal Case No. Q-93-46713
(for estafa), accused-appellant is hereby sentenced to suffer an
indeterminate penalty of imprisonment ranging from eight (8) years
and one (1) day of prision mayor as minimum to thirty (30) years as
maximum. Finally, in Criminal Case No. Q-93-46714 (for violation of
BP 22), accused-appellant is sentenced to suffer an imprisonment of
one (1) year and to indemnify W.L. Food Products, represented by
Rodolfo Borjal, the amount of TWO HUNDRED TWENTY SIX
THOUSAND SEVEN HUNDRED NINETY FOUR PESOS AND 36/100
([P]226,794.36).
SO ORDERED.10
Dy moved for reconsideration, but his motion was denied in the
Resolution dated May 14, 2003.
Hence, this petition which raises the following issues:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT THE PROSECUTION HAS PROVEN THE
GUILT OF ACCUSED BEYOND REASONABLE DOUBT OF ESTAFA ON
TWO (2) COUNTS?
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT THE PROSECUTION HAS PROVEN THE
GUILT OF ACCUSED BEYOND REASONABLE DOUBT OF VIOLATION
OF BP 22 ON TWO (2) COUNTS?
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN AWARDING DAMAGES TO PRIVATE COMPLAINANT, W.L.
FOOD PRODUCTS, THE TOTAL SUM OF [P]333,373.96?11
Essentially, the issue is whether John Dy is liable for estafa and for
violation of B.P. Blg. 22.
First, is petitioner guilty of estafa?
Mainly, petitioner contends that the checks were ineffectively issued.
He stresses that not only were the checks blank, but also that W.L.
Foods' accountant had no authority to fill the amounts. Dy also claims
failure of consideration to negate any obligation to W.L. Foods.
Ultimately, petitioner denies having deceived Lim inasmuch as only
the two checks bounced since he began dealing with him. He
maintains that it was his long established business relationship with
Lim that enabled him to obtain the goods, and not the checks issued
in payment for them. Petitioner renounces personal liability on the
checks since he was absent when the goods were delivered.
The Office of the Solicitor General (OSG), for the State, avers that the
delivery of the checks by Dy's driver to Maraca, constituted valid
issuance. The OSG sustains Ong's prima facie authority to fill the
checks based on the value of goods taken. It observes that nothing in
the records showed that W.L. Foods' accountant filled up the checks
in violation of Dy's instructions or their previous agreement. Finally,
the OSG challenges the present petition as an inappropriate remedy
to review the factual findings of the trial court.
We find that the petition is partly meritorious.
Before an accused can be held liable for estafa under Article 315,
paragraph 2(d) of the Revised Penal Code, as amended by Republic
Act No. 4885,12 the following elements must concur: (1) postdating
or issuance of a check in payment of an obligation contracted at the
time the check was issued; (2) insufficiency of funds to cover the
check; and (3) damage to the payee thereof.13 These elements are
present in the instant case.
Section 191 of the Negotiable Instruments Law14 defines "issue" as
the first delivery of an instrument, complete in form, to a person who
takes it as a holder. Significantly, delivery is the final act essential to
the negotiability of an instrument. Delivery denotes physical transfer
of the instrument by the maker or drawer coupled with an intention
to convey title to the payee and recognize him as a holder.15 It means
more than handing over to another; it imports such transfer of the
instrument to another as to enable the latter to hold it for himself.16
In this case, even if the checks were given to W.L. Foods in blank, this
alone did not make its issuance invalid. When the checks were
delivered to Lim, through his employee, he became a holder with
prima facieauthority to fill the blanks. This was, in fact, accomplished
by Lim's accountant.
The pertinent provisions of Section 14 of the Negotiable Instruments
Law are instructive:
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. '. (Emphasis supplied.)
Hence, the law merely requires that the instrument be in the
possession of a person other than the drawer or maker. 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.17
Because of this, the burden of proving want of authority or that the
authority granted was exceeded, is placed on the person questioning
such authority.18 Petitioner failed to fulfill this requirement.
Next, petitioner claims failure of consideration. Nevertheless, in a
letter19 dated November 10, 1992, he expressed willingness to pay
W.L. Foods, or to replace the dishonored checks. This was a clear
acknowledgment of receipt of the goods, which gave rise to his duty
to maintain or deposit sufficient funds to cover the amount of the
checks.
More significantly, we are not swayed by petitioner's arguments that
the single incident of dishonor and his absence when the checks were
delivered belie fraud. Indeed damage and deceit are essential
elements of the offense and must be established with satisfactory
proof to warrant conviction.20 Deceit as an element of estafa is a
specie of fraud. It is actual fraud which consists in any
misrepresentation or contrivance where a person deludes another,
to his hurt. There is deceit when one is misled - - by guile, trickery or
by other means - - to believe as true what is really false.21
Prima facie evidence of deceit was established against petitioner with
regard to FEBTC Check No. 553615 which was dishonored for
insufficiency of funds. The letter22 of petitioner's counsel dated
November 10, 1992 shows beyond reasonable doubt that petitioner
received notice of the dishonor of the said check for insufficiency of
funds. Petitioner, however, failed to deposit the amounts necessary
to cover his check within three banking days from receipt of the
notice of dishonor. Hence, as provided for by law,23 the presence of
deceit was sufficiently proven.
Petitioner failed to overcome the said proof of deceit. The trial court
found no pre-existing obligation between the parties. The existence
of prior transactions between Lim and Dy alone did not rule out
deceit because each transaction was separate, and had a different
consideration from the others. Even as petitioner was absent when
the goods were delivered, by the principle of agency, delivery of the
checks by his driver was deemed as his act as the employer. The
evidence shows that as a matter of course, Dy, or his employee, would
pay W.L. Foods in either cash or check upon pick up of the stocks of
snack foods at the latter's branch or main office. Despite their two-
year standing business relations prior to the issuance of the subject
check, W.L Foods employees would not have parted with the stocks
were it not for the simultaneous delivery of the check issued by
petitioner.24 Aside from the existing business relations between
petitioner and W.L. Foods, the primary inducement for the latter to
part with its stocks of snack foods was the issuance of the check in
payment of the value of the said stocks.
In a number of cases,25 the Court has considered good faith as a
defense to a charge of estafa by postdating a check. This good faith
may be manifested by making arrangements for payment with the
creditor and exerting best efforts to make good the value of the
checks. In the instant case petitioner presented no proof of good faith.
Noticeably absent from the records is sufficient proof of sincere and
best efforts on the part of petitioner for the payment of the value of
the check that would constitute good faith and negate deceit.
With the foregoing circumstances established, we find petitioner
guilty of estafa with regard to FEBTC Check No. 553615 for
P226,794.36.
The same, however, does not hold true with respect to FEBTC Check
No. 553602 for P106,579.60. This check was dishonored for the
reason that it was drawn against uncollected deposit. Petitioner had
P160,659.39 in his savings deposit account ledger as of July 22, 1992.
We disagree with the conclusion of the RTC that since the balance
included a regional clearing check worth P55,000 deposited on July
20, 1992, which cleared only five (5) days later, then petitioner had
inadequate funds in this instance. Since petitioner technically and
retroactively had sufficient funds at the time Check No. 553602 was
presented for payment then the second element (insufficiency of
funds to cover the check) of the crime is absent. Also there is no prima
facie evidence of deceit in this instance because the check was not
dishonored for lack or insufficiency of funds. Uncollected deposits are
not the same as insufficient funds. The prima facie presumption of
deceit arises only when a check has been dishonored for lack or
insufficiency of funds. Notably, the law speaks of insufficiency of
funds but not of uncollected deposits. Jurisprudence teaches that
criminal laws are strictly construed against the Government and
liberally in favor of the accused.26 Hence, in the instant case, the law
cannot be interpreted or applied in such a way as to expand its
provision to encompass the situation of uncollected deposits because
it would make the law more onerous on the part of the accused.
Clearly, the estafa punished under Article 315, paragraph 2(d) of the
Revised Penal Code is committed when a check is dishonored for
being drawn against insufficient funds or closed account, and not
against uncollected deposit.27 Corollarily, the issuer of the check is
not liable for estafa if the remaining balance and the uncollected
deposit, which was duly collected, could satisfy the amount of the
check when presented for payment.
Second, did petitioner violate B.P. Blg. 22?cralawred
Petitioner argues that the blank checks were not valid orders for the
bank to pay the holder of such checks. He reiterates lack of knowledge
of the insufficiency of funds and reasons that the checks could not
have been issued to apply on account or for value as he did not obtain
delivery of the goods.
The OSG maintains that the guilt of petitioner has been proven
beyond reasonable doubt. It cites pieces of evidence that point to Dy's
culpability: Maraca's acknowledgment that the checks were issued to
W.L. Foods as consideration for the snacks; Lim's testimony proving
that Dy received a copy of the demand letter; the bank manager's
confirmation that petitioner had insufficient balance to cover the
checks; and Dy's failure to settle his obligation within five (5) days
from dishonor of the checks.
Once again, we find the petition to be meritorious in part.
The elements of the offense penalized under B.P. Blg. 22 are as
follows: (1) the making, drawing and issuance of any check to apply
to account or for value; (2) the knowledge of the maker, drawer or
issuer that at the time of issue he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full
upon its presentment; and (3) subsequent dishonor of the check by
the drawee bank for insufficiency of funds or credit or dishonor for
the same reason had not the drawer, without any valid cause, ordered
the bank to stop payment.28 The case at bar satisfies all these
elements.
During the joint pre-trial conference of this case, Dy admitted that he
issued the checks, and that the signatures appearing on them were
his.29 The facts reveal that the checks were issued in blank because
of the uncertainty of the volume of products to be retrieved, the
discount that can be availed of, and the deduction for bad orders.
Nevertheless, we must stress that what the law punishes is simply the
issuance of a bouncing check and not the purpose for which it was
issued nor the terms and conditions relating thereto.30 If inquiry into
the reason for which the checks are issued, or the terms and
conditions of their issuance is required, the public's faith in the
stability and commercial value of checks as currency substitutes will
certainly erode.31
Moreover, the gravamen of the offense under B.P. Blg. 22 is the act of
making or issuing a worthless check or a check that is dishonored
upon presentment for payment. The act effectively declares the
offense to be one of malum prohibitum. The only valid query, then, is
whether the law has been breached, i.e., by the mere act of issuing a
bad check, without so much regard as to the criminal intent of the
issuer.32 Indeed, non-fulfillment of the obligation is immaterial.
Thus, petitioner's defense of failure of consideration must likewise
fall. This is especially so since as stated above, Dy has acknowledged
receipt of the goods.
On the second element, petitioner disputes notice of insufficiency of
funds on the basis of the check being issued in blank. He relies on
Dingle v. Intermediate Appellate Court33 and Lao v. Court of
Appeals34 as his authorities. In both actions, however, the accused
were co-signatories, who were neither apprised of the particular
transactions on which the blank checks were issued, nor given notice
of their dishonor. In the latter case, Lao signed the checks without
knowledge of the insufficiency of funds, knowledge she was not
expected or obliged to possess under the organizational structure of
the corporation.35 Lao was only a minor employee who had nothing
to do with the issuance, funding and delivery of checks.36 In contrast,
petitioner was the proprietor of Dyna Marketing and the sole
signatory of the checks who received notice of their dishonor.
Significantly, under Section 237 of B.P. Blg. 22, petitioner was prima
facie presumed to know of the inadequacy of his funds with the bank
when he did not pay the value of the goods or make arrangements for
their payment in full within five (5) banking days upon notice. His
letter dated November 10, 1992 to Lim fortified such presumption.
Undoubtedly, Dy violated B.P. Blg. 22 for issuing FEBTC Check No.
553615. When said check was dishonored for insufficient funds and
stop payment order, petitioner did not pay or make arrangements
with the bank for its payment in full within five (5) banking days.
Petitioner should be exonerated, however, for issuing FEBTC Check
No. 553602, which was dishonored for the reason DAUD or drawn
against uncollected deposit. When the check was presented for
payment, it was dishonored by the bank because the check deposit
made by petitioner, which would make petitioner's bank account
balance more than enough to cover the face value of the subject
check, had not been collected by the bank.
In Tan v. People,38 this Court acquitted the petitioner therein who
was indicted under B.P. Blg. 22, upon a check which was dishonored
for the reason DAUD, among others. We observed that:
In the second place, even without relying on the credit line,
petitioner's bank account covered the check she issued because even
though there were some deposits that were still uncollected the
deposits became "good" and the bank certified that the check was
"funded."39
To be liable under Section 140 of B.P. Blg. 22, the check must be
dishonored by the drawee bank for insufficiency of funds or credit or
dishonored for the same reason had not the drawer, without any
valid cause, ordered the bank to stop payment.
In the instant case, even though the check which petitioner deposited
on July 20, 1992 became good only five (5) days later, he was
considered by the bank to retroactively have had P160,659.39 in his
account on July 22, 1992. This was more than enough to cover the
check he issued to respondent in the amount of P106,579.60. Under
the circumstance obtaining in this case, we find the petitioner had
issued the check, with full ability to abide by his commitment41 to
pay his purchases.
Significantly, like Article 315 of the Revised Penal Code, B.P. Blg. 22
also speaks only of insufficiency of funds and does not treat of
uncollected deposits. To repeat, we cannot interpret the law in such
a way as to expand its provision to encompass the situation of
uncollected deposits because it would make the law more onerous on
the part of the accused. Again, criminal statutes are strictly construed
against the Government and liberally in favor of the accused.42
As regards petitioner's civil liability, this Court has previously ruled
that an accused may be held civilly liable where the facts established
by the evidence so warrant.43 The rationale for this is simple. The
criminal and civil liabilities of an accused are separate and distinct
from each other. One is meant to punish the offender while the other
is intended to repair the damage suffered by the aggrieved party. So,
for the purpose of indemnifying the latter, the offense need not be
proved beyond reasonable doubt but only by preponderance of
evidence.44
We therefore sustain the appellate court's award of damages to W.L.
Foods in the total amount of P333,373.96, representing the sum of
the checks petitioner issued for goods admittedly delivered to his
company.
As to the appropriate penalty, petitioner was charged with estafa
under Article 315, paragraph 2(d) of the Revised Penal Code, as
amended by Presidential Decree No. 81845 (P.D. No. 818).
Under Section 146 of P.D. No. 818, if the amount of the fraud exceeds
P22,000, the penalty of reclusión temporal is imposed in its
maximum period, adding one year for each additional P10,000 but
the total penalty shall not exceed thirty (30) years, which shall be
termed reclusión perpetua.47 Reclusión perpetua is not the
prescribed penalty for the offense, but merely describes the penalty
actually imposed on account of the amount of the fraud involved.
WHEREFORE, the petition is PARTLY GRANTED. John Dy is hereby
ACQUITTED in Criminal Case No. Q-93-46711 for estafa, and Criminal
Case No. Q-93-46712 for violation of B.P. Blg. 22, but he is ORDERED
to pay W.L. Foods the amount of P106,579.60 for goods delivered to
his company.
In Criminal Case No. Q-93-46713 for estafa, the Decision of the Court
of Appeals is AFFIRMED with MODIFICATION. Petitioner is sentenced
to suffer an indeterminate penalty of twelve (12) years of prisión
mayor, as minimum, to thirty (30) years of reclusión perpetua, as
maximum.
In Criminal Case No. Q-93-46714 for violation of B.P. Blg. 22, the
Decision of the Court of Appeals is AFFIRMED, and John Dy is hereby
sentenced to one (1) year imprisonment and ordered to indemnify
W.L. Foods in the amount of P226,794.36.
SO ORDERED.
Rafael P. Lunaria vs. people
Grande
G.R. NO. 160127 November 11, 2008
Sec. 14
DECISION
PUNO, C.J.:
This is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, to reverse and set aside the Decision of the
Court of Appeals (CA),1 and the Resolution which denied petitioner's
motion for reconsideration. The CA affirmed the decision of the
Regional Trial Court (RTC) of Valenzuela City, Branch 75,2 finding
petitioner Rafael Lunaria guilty of one (1) count violation of Batas
Pambansa (B.P.) Blg. 22.
The Case
Records3 show that sometime in October 1988, petitioner entered
into a partnership agreement with private complainant Nemesio
Artaiz, in the conduct of a money-lending business, with the former
as industrial partner and the latter the financer. Petitioner, who was
then a cashier of Far East Bank and Trust Company in Meycauayan,
Bulacan, would offer loans to prospective borrowers which his
branch was unable to accommodate. At the start of the business,
petitioner would first inform Artaiz of the amount of the proposed
loan, then the latter would issue a check charged against his account
in the bank (proceeds of which will go to a borrower), while
petitioner would in turn issue a check to Artaiz corresponding to the
amount lent plus the agreed share of interest.
The lending business progressed satisfactorily between the parties
and sufficient trust was established between the parties that they
both agreed to issue pre-signed checks to each other, for their mutual
convenience. The checks were signed but had no payee's name, date
or amount, and each was given the authority to fill these blanks based
on each other's advice.
The arrangement ended on November 1989, when Artaiz was no
longer willing to continue the partnership.4 One of the checks issued
by petitioner to Artaiz was dishonored for insufficient funds.5 When
Artaiz went to petitioner to ask why the latter's check had bounced,
petitioner told Artaiz that he had been implicated in a murder case
and therefore could not raise the money to fund the check.6
Petitioner requested Artaiz not to deposit the other checks that
would become due as he still had a case.7
Petitioner was charged with murder in December 1989 and detained
until May 1990, when he was released on bail. He was eventually
acquitted in December 1990. According to Artaiz, he went to
petitioner in May 1990, after petitioner had been released on bail,
and demanded payment for the money owed Artaiz. Petitioner again
requested more time to prepare the money and collect on the loans.
Artaiz agreed.8 In June 1990, petitioner allegedly went to Artaiz's
residence where both had an accounting. It was supposedly agreed
that petitioner owed Artaiz P844,000.00 and petitioner issued a
check in that amount, post-dated to December 1990.9
When the check became due and demandable, Artaiz deposited it.
The check was dishonored as the account had been closed. A demand
letter was subsequently sent to petitioner, informing him of the
dishonor of his check, with a demand that he pay the obligation.10
Artaiz also went to petitioner's house to get a settlement. According
to Artaiz, petitioner proposed that his house and lot be given as
security. But after Artaiz's lawyer had prepared the document,
petitioner refused to sign. At this point, Artaiz filed the instant case.11
The RTC found petitioner guilty as charged and sentenced him to
suffer the penalty of imprisonment of one (1) year, and to pay Artaiz
the amount of P844,000.00, and the cost of suit.12
On appeal, the CA found no error and affirmed the decision in toto.13
The Issues
In the petition before us, petitioner alleges that the CA gravely erred
in:
I. Not reversing the RTC decision convicting petitioner for violation
of B.P. Bilang 22;
II. Not holding that the prosecution failed to establish the elements of
the crime of the violation of B.P. Bilang 22:
1. the prosecution failed to establish that the subject check was duly
"made" or "drawn" and "issued" by petitioner;
2. the subject check was received by the private complainant without
giving any consideration therefore;
3. the oral testimony of private complainant is full of serious
inconsistencies and contradictions and should have been
disregarded by the trial court;
4. private complainant's testimony should have been stricken off the
records for being hearsay in nature;
5. the prosecution dismally failed to overcome the presumption of
innocence of the accused in criminal cases;
6. to hold petitioner liable for violation of B.P. Blg. 22 in this case
would result in a terrible injustice;
III. In the alternative,' in not applying in petitioner's favor the rule of
preference in the imposition of penalties in B.P. Blg. 22 cases, i.e., the
[CA] erred gravely in not deleting the penalty of imprisonment and
imposing in lieu thereof a fine upon petitioner.
The Ruling
We affirm the conviction but with modification on the penalty.
At the outset, the first and second grounds raised by petitioner are
essentially factual in nature, impugning the finding of guilt by both
the CA and the RTC. Petitioner would have this court re-evaluate and
re-assess the facts, when it is beyond cavil that in an appeal by
certiorari, the jurisdiction of this Court is confined to reviews of
errors of law ascribed to the CA. This Court is not a trier of facts, and
the findings of fact by the CA are conclusive, more so when it concurs
with the factual findings of the RTC. Absent any showing that such
findings are devoid of any substantiation on record, the finding of
guilt is conclusive on us.14
Moreover, we have gone over the records and find no error in the
decision of the appellate court holding that the elements of the crime
have been established by the prosecution, i.e., (1) the making,
drawing, and issuance of any check to apply for account or for value;
(2) the knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee
bank for the payment of the check in full upon its presentment; and
(3) the subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop
payment.15
Petitioner makes much of the argument that the check was not
"made" or "drawn" within the contemplation of the law, nor was it for
a consideration. The evidence on record belies these assertions. As
correctly held by the CA:
Under the first element, [petitioner] wants Us to believe that he did
not draw and issue the check. Citing the Negotiable Instruments Law,
he said the he could not have "drawn" and "issued" the subject check
because "it was not complete in form at the time it was given to
[Artaiz]."
At the outset, it should be borne in mind that the exchange of the pre-
signed checks without date and amount between the parties had been
their practice for almost a year by virtue of their money-lending
business. They had authority to fill up blanks upon information that
a check can then be issued.
Thus, under the Negotiable Instruments Law, Section 14 of which
reads:
"Blanks, when may be filled. - Where the instrument is wanting in any
material particular, the person in possession thereof has prima facie
authority to complete it by filling up the blanks therein. xxx"
[T]his practice is allowed.
Because of the presumption of authority, the burden of proof that
there was no authority or that authority granted was exceeded is
carried by the person who questions such authority.
Records show that [petitioner] had not proven lack of authority on
the part of Artaiz to fill up such blanks. Having failed to prove lack of
authority, it can be presumed that Artaiz was within his rights to fill
up blanks on the check.
xxx xxx xxx
Under the second element, [petitioner] states that the making and
issuing of the check was devoid of consideration. He claimed that the
transaction for which the check was issued did not materialize.
However, it should be noted that when lack of consideration is
claimed, it pertains to total lack of consideration. In this case, records
show that [petitioner] recognized that there was an amount due to
Artaiz, such that he had his own version of computation with respect
to the amount he owed to Artaiz.16
We also note that with respect to the second element of the crime,
consideration was duly established in Artaiz's testimony.17
It bears repeating that the lack of criminal intent on the part of the
accused is irrelevant.18 The law has made the mere act of issuing a
worthless check a malum prohibitum, an act proscribed by
legislature for being deemed pernicious and inimical to public
welfare.19 In fact, even in cases where there had been payment,
through compensation or some other means, there could still be
prosecution for violation of B.P. 22. The gravamen of the offense
under this law is the act of issuing a worthless check or a check that
is dishonored upon its presentment for payment, not the
nonpayment of the obligation.20
We now come to the penalty imposed. On this ground, we rule for
petitioner.
Since 1998,21 this Court has held that it would best serve the ends of
criminal justice if, in fixing the penalty to be imposed for violation of
B.P. 22, the same philosophy underlying the Indeterminate Sentence
Law be observed, i.e., that of redeeming valuable human material and
preventing unnecessary deprivation of personal liberty and
economic usefulness with due regard to the protection of the social
order.22 This policy was embodied in Supreme Court Administrative
Circular No. 12-2000,23 authorizing the non-imposition of the
penalty of imprisonment in B.P. 22 cases. We also clarified in
Administrative Circular No. 13-2001, as explained in Tan v.
Mendez,24 that we are not decriminalizing B.P. 22 violations, nor
have we removed imprisonment as an alternative penalty. Needless
to say, the determination of whether the circumstances warrant the
imposition of a fine alone rests solely upon the judge. Should the
judge decide that imprisonment is the more appropriate penalty,
Administrative Circular No. 12-2000 ought not to be deemed a
hindrance.

Nevertheless, we note that ultimately, this case was a derivative of
the breakdown of petitioner and Artaiz's partnership, which was
precipitated by petitioner being implicated and detained for a
murder charge, from which he was subsequently acquitted. Under
the circumstances of the case, and bearing in mind the guidelines set
in Administrative Circular No. 13-2004, we deem the imposition of a
fine alone would best serve the interests of justice, pegged at the
maximum amount provided for by law, which is two hundred
thousand pesos (P200,000.00),25 with the proviso that subsidiary
imprisonment will be meted out which shall not exceed six months in
case of insolvency or nonpayment. Petitioner should also pay Artaiz
the amount of P844,000.00, and the cost of suit.
IN VIEW WHEREOF, the petition is DENIED and the Decision of the
Court of Appeals in CA-G.R. CR No. 20343 is AFFIRMED with
MODIFICATION. Petitioner is ordered to indemnify Nemesio Artaiz in
the amount of P844,000.00 and the cost of suit, with legal interest
from date of judicial demand. The sentence of imprisonment of one
(1) year is SET ASIDE and, in lieu thereof, a FINE in the amount of
P200,000.00 is imposed upon petitioner, with subsidiary
imprisonment not to exceed six months in case of insolvency or
nonpayment.
SO ORDERED.
Alvin Patrimonio vs. Napoleon Gutierez et. Al.
Guilalas
G.R. NO. 187769 June 4, 2014
Secs. 16 and 52
BRION, J.:
Assailed in this petition for review on certiorari[1] under Rule 45 of
the Revised Rules of Court is the decision[2] dated September 24,
2008 and the resolution[3] 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 1arasigan 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 payee's 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 petitioner's knowledge and
consent, Gutierrez went to Marasigan (the petitioner's 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 petitioner's 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 check's
negotiation, and asserted that he was not privy to the parties' loan
agreement.
Only Marasigan filed his answer to the complaint. In the RTC's 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 petitioner's 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 petitioner's 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 petitioner's 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
check's 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 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 check's 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:
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;
Whether there is basis to hold the petitioner liable for the payment of
the P200,000.00 loan;
Whether respondent Gutierrez has completely filled out the subject
check strictly under the authority given by the petitioner; and
Whether Marasigan is a holder in due course.
The Court's 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
petitioner's 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 of fact 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.
A review of the records reveals that Gutierrez did not have any
authority to borrow money in behalf of the petitioner. Records do not
show that the petitioner executed any special power of attorney
(SPA) in favor of Gutierrez. In fact, the petitioner's 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 petitioner's 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.
Marasigan's 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
Petitioner's 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 be no 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. 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 Latter's
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 Code[14] 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
petitioner's 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 petitioner's grant of
consent to the parties' loan agreement. Without any evidence to
prove Gutierrez' authority, the petitioner's 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 instrument's
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 be set up against a prior holder of
the instrument.[18] It means that he 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, Marasigan's 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 Alvin's 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. 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 petitioner's 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
underscore the fact that the authority which the law accords to a
holder is a presumption juris tantum only; 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.
Ching vs. Nicdao Jangcan
G.R. NO. 141181 April 27, 2007
Secs. 14, 15, 16
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari filed by Samson
Ching of the Decision[1] dated November 22, 1999 of the Court of
Appeals (CA) in CA-G.R. CR No. 23055. The assailed decision
acquitted respondent Clarita Nicdao of eleven (11) counts of
violation of Batas Pambansa Bilang (BP) 22, otherwise known as The
Bouncing Checks Law. The instant petition pertains and is limited to
the civil aspect of the case as it submits that notwithstanding
respondent Nicdaos acquittal, she should be held liable to pay
petitioner Ching the amounts of the dishonored checks in the
aggregate sum of P20,950,000.00.
Factual and Procedural Antecedents
On October 21, 1997, petitioner Ching, a Chinese national, instituted
criminal complaints for eleven (11) counts of violation of BP 22
against respondent Nicdao. Consequently, eleven (11) Informations
were filed with the First Municipal Circuit Trial Court (MCTC) of
Dinalupihan-Hermosa, Province of Bataan, which, except as to the
amounts and check numbers, uniformly read as follows:
The undersigned accuses Clarita S. Nicdao of a VIOLATION OF BATAS
PAMBANSA BILANG 22, committed as follows:
That on or about October 06, 1997, at Dinalupihan, Bataan,
Philippines, and within the jurisdiction of this Honorable Court, the
said accused did then and there willfully and unlawfully make or
draw and issue Hermosa Savings & Loan Bank, Inc. Check No.
[002524] dated October 06, 1997 in the amount of [P20,000,000.00]
in payment of her obligation with complainant Samson T.Y. Ching, the
said accused knowing fully well that at the time she issued the said
check she did not have sufficient funds in or credit with the drawee
bank for the payment in full of the said check upon presentment,
which check when presented for payment within ninety (90) days
from the date thereof, was dishonored by the drawee bank for the
reason that it was drawn against insufficient funds and
notwithstanding receipt of notice of such dishonor the said accused
failed and refused and still fails and refuses to pay the value of the
said check in the amount of [P20,000,000.00] or to make
arrangement with the drawee bank for the payment in full of the
same within five (5) banking days after receiving the said notice, to
the damage and prejudice of the said Samson T.Y. Ching in the
aforementioned amount of [P20,000,000.00], Philippine Currency.
CONTRARY TO LAW.
Dinalupihan, Bataan, October 21, 1997.
(Sgd.) SAMSON T.Y. CHING
Complainant
The cases were docketed as Criminal Cases Nos. 9433 up to 9443
involving the following details:
Check No. Amount Date Private Reason for
Complainant the Dishonor
002524[2] P 20,000,000 Oct. 6, 1997 Samson T.Y. Ching DAIF*
008856[3] 150,000 Oct. 6, 1997 " "
012142[4] 100,000 Oct. 6, 1997 " "
004531[5] 50,000 Oct. 6, 1997 " "
002254[6] 100,000 Oct. 6, 1997 " "
008875[7] 100,000 Oct. 6, 1997 " "
008936[8] 50,000 Oct. 6, 1997 " "
002273[9] 50,000 Oct. 6, 1997 " "
008948[10] 150,000 Oct. 6, 1997 " "
008935[11] 100,000 Oct. 6, 1997 " "
010377[12] 100,000 Oct. 6, 1997 " "
At about the same time, fourteen (14) other criminal complaints, also
for violation of BP 22, were filed against respondent Nicdao by Emma
Nuguid, said to be the common law spouse of petitioner Ching.
Allegedly fourteen (14) checks, amounting to P1,150,000.00, were
issued by respondent Nicdao to Nuguid but were dishonored for lack
of sufficient funds. The Informations were filed with the same MCTC
and docketed as Criminal Cases Nos. 9458 up to 9471.
At her arraignment, respondent Nicdao entered the plea of not guilty
to all the charges. A joint trial was then conducted for Criminal Cases
Nos. 9433-9443 and 9458-9471.
For the prosecution in Criminal Cases Nos. 9433-9443, petitioner
Ching and Imelda Yandoc, an employee of the Hermosa Savings &
Loan Bank, Inc., were presented to prove the charges against
respondent Nicdao. On direct-examination,[13] petitioner Ching
preliminarily identified each of the eleven (11) Hermosa Savings &
Loan Bank (HSLB) checks that were allegedly issued to him by
respondent Nicdao amounting to P20,950,000.00. He identified the
signatures appearing on the checks as those of respondent Nicdao. He
recognized her signatures because respondent Nicdao allegedly
signed the checks in his presence. When petitioner Ching presented
these checks for payment, they were dishonored by the bank, HSLB,
for being DAIF or drawn against insufficient funds.

Petitioner Ching averred that the checks were issued to him by
respondent Nicdao as security for the loans that she obtained from
him. Their transaction began sometime in October 1995 when
respondent Nicdao, proprietor/manager of Vignette Superstore,
together with her husband, approached him to borrow money in
order for them to settle their financial obligations. They agreed that
respondent Nicdao would leave the checks undated and that she
would pay the loans within one year. However, when petitioner Ching
went to see her after the lapse of one year to ask for payment,
respondent Nicdao allegedly said that she had no cash.
Petitioner Ching claimed that he went back to respondent Nicdao
several times more but every time, she would tell him that she had no
money. Then in September 1997, respondent Nicdao allegedly got
mad at him for being insistent and challenged him about seeing each
other in court. Because of respondent Nicdao's alleged refusal to pay
her obligations, on October 6, 1997, petitioner Ching deposited the
checks that she issued to him. As he earlier stated, the checks were
dishonored by the bank for being DAIF. Shortly thereafter, petitioner
Ching, together with Emma Nuguid, wrote a demand letter to
respondent Nicdao which, however, went unheeded. Accordingly,
they separately filed the criminal complaints against the latter.
On cross-examination,[14] petitioner Ching claimed that he had been
a salesman of the La Suerte Cigar and Cigarette Manufacturing for
almost ten (10) years already. As such, he delivered the goods and
had a warehouse. He received salary and commissions. He could not,
however, state his exact gross income. According to him, it increased
every year because of his business. He asserted that aside from being
a salesman, he was also in the business of extending loans to other
people at an interest, which varied depending on the person he was
dealing with.
Petitioner Ching confirmed the truthfulness of the allegations
contained in the eleven (11) Informations that he filed against
respondent Nicdao. He reiterated that, upon their agreement, the
checks were all signed by respondent Nicdao but she left them
undated. Petitioner Ching admitted that he was the one who wrote
the date, October 6, 1997, on those checks when respondent Nicdao
refused to pay him.
With respect to the P20,000,000.00 check (Check No. 002524),
petitioner Ching explained that he wrote the date and amount
thereon when, upon his estimation, the money that he regularly lent
to respondent Nicdao beginning October 1995 reached the said sum.
He likewise intimated that prior to 1995, they had another
transaction amounting to P1,200,000.00 and, as security therefor,
respondent Nicdao similarly issued in his favor checks in varying
amounts of P100,000.00 and P50,000.00. When the said amount was
fully paid, petitioner Ching returned the checks to respondent
Nicdao.
Petitioner Ching maintained that the eleven (11) checks subject of
Criminal Cases Nos. 9433-9443 pertained to respondent Nicdaos
loan transactions with him beginning October 1995. He also
mentioned an instance when respondent Nicdaos husband and
daughter approached him at a casino to borrow money from him. He
lent them P300,000.00. According to petitioner Ching, since this
amount was also unpaid, he included it in the other amounts that
respondent Nicdao owed to him which totaled P20,000,000.00 and
wrote the said amount on one of respondent Nicdaos blank checks
that she delivered to him.
Petitioner Ching explained that from October 1995 up to 1997, he
regularly delivered money to respondent Nicdao, in the amount of
P1,000,000.00 until the total amount reached P20,000,000.00. He did
not ask respondent Nicdao to acknowledge receiving these amounts.
Petitioner Ching claimed that he was confident that he would be paid
by respondent Nicdao because he had in his possession her blank
checks. On the other hand, the latter allegedly had no cause to fear
that he would fill up the checks with just any amount because they
had trust and confidence in each other. When asked to produce the
piece of paper on which he allegedly wrote the amounts that he lent
to respondent Nicdao, petitioner Ching could not present it; he
reasoned that it was not with him at that time.
It was also averred by petitioner Ching that respondent Nicdao
confided to him that she told her daughter Janette, who was married
to a foreigner, that her debt to him was only between P3,000,000.00
and P5,000,000.00. Petitioner Ching claimed that he offered to
accompany respondent Nicdao to her daughter in order that they
could apprise her of the amount that she owed him. Respondent
Nicdao refused for fear that it would cause disharmony in the family.
She assured petitioner Ching, however, that he would be paid by her
daughter.
Petitioner Ching reiterated that after the lapse of one (1) year from
the time respondent Nicdao issued the checks to him, he went to her
several times to collect payment. In all these instances, she said that
she had no cash. Finally, in September 1997, respondent Nicdao
allegedly went to his house and told him that Janette was only willing
to pay him between P3,000,000.00 and P5,000,000.00 because, as far
as her daughter was concerned, that was the only amount borrowed
from petitioner Ching. On hearing this, petitioner Ching angrily told
respondent Nicdao that she should not have allowed her debt to
reach P20,000,000.00 knowing that she would not be able to pay the
full amount.
Petitioner Ching identified the demand letter that he and Nuguid sent
to respondent Nicdao. He explained that he no longer informed her
about depositing her checks on his account because she already made
that statement about seeing him in court. Again, he admitted writing
the date, October 6, 1997, on all these checks.
Another witness presented by the prosecution was Imelda Yandoc,
an employee of HSLB. On direct-examination,[15] she testified that
she worked as a checking account bookkeeper/teller of the bank. As
such, she received the checks that were drawn against the bank and
verified if they were funded. On October 6, 1997, she received several
checks issued by respondent Nicdao. She knew respondent Nicdao
because the latter maintained a savings and checking account with
them. Yandoc identified the checks subject of Criminal Cases Nos.
9433-9443 and affirmed that stamped at the back of each was the
annotation DAIF. Further, per the banks records, as of October 8,
1997, only a balance of P300.00 was left in respondent Nicdaos
checking account and P645.83 in her savings account. On even date,
her account with the bank was considered inactive.
On cross-examination,[16] Yandoc stated anew that respondent
Nicdaos checks bounced on October 7, 1997 for being DAIF and her
account was closed the following day, on October 8, 1997. She
informed the trial court that there were actually twenty-five (25)
checks of respondent Nicdao that were dishonored at about the same
time. The eleven (11) checks were purportedly issued in favor of
petitioner Ching while the other fourteen (14) were purportedly
issued in favor of Nuguid. Yandoc explained that respondent Nicdao
or her employee would usually call the bank to inquire if there was
an incoming check to be funded.
For its part, the defense proffered the testimonies of respondent
Nicdao, Melanie Tolentino and Jocelyn Nicdao. On direct-
examination,[17] respondent Nicdao stated that she only dealt with
Nuguid. She vehemently denied the allegation that she had borrowed
money from both petitioner Ching and Nuguid in the total amount of
P22,950,000.00. Respondent Nicdao admitted, however, that she had
obtained a loan from Nuguid but only for P2,100,000.00 and the same
was already fully paid. As proof of such payment, she presented a
Planters Bank demand draft dated August 13, 1996 in the amount of
P1,200,000.00. The annotation at the back of the said demand draft
showed that it was endorsed and negotiated to the account of
petitioner Ching.
In addition, respondent Nicdao also presented and identified several
cigarette wrappers[18] at the back of which appeared computations.
She explained that Nuguid went to the grocery store everyday to
collect interest payments. The principal loan was P2,100,000.00 with
12% interest per day. Nuguid allegedly wrote the payments for the
daily interests at the back of the cigarette wrappers that she gave to
respondent Nicdao.
The principal loan amount of P2,100,000.00 was allegedly delivered
by Nuguid to respondent Nicdao in varying amounts of P100,000.00
and P150,000.00. Respondent Nicdao refuted the averment of
petitioner Ching that prior to 1995, they had another transaction.
With respect to the P20,000,000.00 check, respondent Nicdao
admitted that the signature thereon was hers but denied that she
issued the same to petitioner Ching. Anent the other ten (10) checks,
she likewise admitted that the signatures thereon were hers while
the amounts and payee thereon were written by either Jocelyn
Nicdao or Melanie Tolentino, who were employees of Vignette
Superstore and authorized by her to do so.
Respondent Nicdao clarified that, except for the P20,000,000.00
check, the other ten (10) checks were handed to Nuguid on different
occasions. Nuguid came to the grocery store everyday to collect the
interest payments. Respondent Nicdao said that she purposely left
the checks undated because she would still have to notify Nuguid if
she already had the money to fund the checks.
Respondent Nicdao denied ever confiding to petitioner Ching that she
was afraid that her daughter would get mad if she found out about
the amount that she owed him. What allegedly transpired was that
when she already had the money to pay them (presumably referring
to petitioner Ching and Nuguid), she went to them to retrieve her
checks. However, petitioner Ching and Nuguid refused to return the
checks claiming that she (respondent Nicdao) still owed them money.
She demanded that they show her the checks in order that she would
know the exact amount of her debt, but they refused. It was at this
point that she got angry and dared them to go to court.
After the said incident, respondent Nicdao was surprised to be
notified by HSLB that her check in the amount of P20,000,000.00 was
just presented to the bank for payment. She claimed that it was only
then that she remembered that sometime in 1995, she was informed
by her employee that one of her checks was missing. At that time, she
did not let it bother her thinking that it would eventually surface
when presented to the bank.
Respondent Nicdao could not explain how the said check came into
petitioner Chings possession. She explained that she kept her checks
in an ordinary cash box together with a stapler and the cigarette
wrappers that contained Nuguids computations. Her saleslady had
access to this box. Respondent Nicdao averred that it was Nuguid
who offered to give her a loan as she would allegedly need money to
manage Vignette Superstore. Nuguid used to run the said store before
respondent Nicdaos daughter bought it from Nuguids family, its
previous owner. According to respondent Nicdao, it was Nuguid who
regularly delivered the cash to respondent Nicdao or, if she was not
at the grocery store, to her saleslady. Respondent Nicdao denied any
knowledge that the money loaned to her by Nuguid belonged to
petitioner Ching.
At the continuation of her direct-examination,[19] respondent
Nicdao said that she never dealt with petitioner Ching because it was
Nuguid who went to the grocery store everyday to collect the interest
payments. When shown the P20,000,000.00 check, respondent
Nicdao admitted that the signature thereon was hers but she denied
issuing it as a blank check to petitioner Ching. On the other hand, with
respect to the other ten (10) checks, she also admitted that the
signatures thereon were hers and that the amounts thereon were
written by either Josie Nicdao or Melanie Tolentino, her employees
whom she authorized to do so. With respect to the payee, it was
purposely left blank allegedly upon instruction of Nuguid who said
that she would use the checks to pay someone else.
On cross-examination,[20] respondent Nicdao explained that Josie
Nicdao and Melanie Tolentino were caretakers of the grocery store
and that they manned it when she was not there. She likewise
confirmed that she authorized them to write the amounts on the
checks after she had affixed her signature thereon. She stressed,
however, that the P20,000,000.00 check was the one that was
reported to her as lost or missing by her saleslady sometime in 1995.
She never reported the matter to the bank because she was confident
that it would just surface when it would be presented for payment.
Again, respondent Nicdao identified the cigarette wrappers which
indicated the daily payments she had made to Nuguid. The latter
allegedly went to the grocery store everyday to collect the interest
payments. Further, the figures at the back of the cigarette wrappers
were written by Nuguid. Respondent Nicdao asserted that she
recognized her handwriting because Nuguid sometimes wrote them
in her presence. Respondent Nicdao maintained that she had already
paid Nuguid the amount of P1,200,000.00 as evidenced by the
Planters Bank demand draft which she gave to the latter and which
was subsequently negotiated and deposited in petitioner Chings
account. In connection thereto, respondent Nicdao refuted the
prosecutions allegation that the demand draft was payment for a
previous transaction that she had with petitioner Ching. She clarified
that the payments that Nuguid collected from her everyday were only
for the interests due. She did not ask Nuguid to make written
acknowledgements of her payments.
Melanie Tolentino was presented to corroborate the testimony of
respondent Nicdao. On direct-examination,[21] Tolentino stated that
she worked at the Vignette Superstore and she knew Nuguid because
her employer, respondent Nicdao, used to borrow money from her.
She knew petitioner Ching only by name and that he was the husband
of Nuguid.
As an employee of the grocery store, Tolentino stated that she acted
as its caretaker and was entrusted with the custody of respondent
Nicdaos personal checks. Tolentino identified her own handwriting
on some of the checks especially with respect to the amounts and
figures written thereon. She said that Nuguid instructed her to leave
the space for the payee blank as she would use the checks to pay
someone else. Tolentino added that she could not recall respondent
Nicdao issuing a check to petitioner Ching in the amount of
P20,000,000.00. She confirmed that they lost a check sometime in
1995. When informed about it, respondent Nicdao told her that the
check could have been issued to someone else, and that it would just
surface when presented to the bank.
Tolentino recounted that Nuguid came to the grocery store everyday
to collect the interest payments of the loan. In some instances, upon
respondent Nicdaos instruction, Tolentino handed to Nuguid checks
that were already signed by respondent Nicdao. Sometimes,
Tolentino would be the one to write the amount on the checks.
Nuguid, in turn, wrote the amounts on pieces of paper which were
kept by respondent Nicdao.
On cross-examination,[22] Tolentino confirmed that she was
authorized by respondent Nicdao to fill up the checks and hand them
to Nuguid. The latter came to the grocery store everyday to collect the
interest payments. Tolentino claimed that in 1995, in the course of
chronologically arranging respondent Nicdaos check booklets, she
noticed that a check was missing. Respondent Nicdao told her that
perhaps she issued it to someone and that it would just turn up in the
bank. Tolentino was certain that the missing check was the same one
that petitioner Ching presented to the bank for payment in the
amount of P20,000,000.00.
Tolentino stated that she left the employ of respondent Nicdao
sometime in 1996. After the checks were dishonored in October
1997, Tolentino got a call from respondent Nicdao. After she was
shown a fax copy thereof, Tolentino confirmed that the
P20,000,000.00 check was the same one that she reported as missing
in 1995.
Jocelyn Nicdao also took the witness stand to corroborate the
testimony of the other defense witnesses. On direct-examination,[23]
she averred that she was a saleslady at the Vignette Superstore from
August 1994 up to April 1998. She knew Nuguid as well as petitioner
Ching.
Jocelyn Nicdao further testified that respondent Nicdao was indebted
to Nuguid. Jocelyn Nicdao used to fill up the checks of respondent
Nicdao that had already been signed by her and give them to Nuguid.
The latter came to the grocery store everyday to pick up the interest
payments. Jocelyn Nicdao identified the checks on which she wrote
the amounts and, in some instances, the name of Nuguid as payee.
However, most of the time, Nuguid allegedly instructed her to leave
as blank the space for the payee.
Jocelyn Nicdao identified the cigarette wrappers as the documents on
which Nuguid acknowledged receipt of the interest payments. She
explained that she was the one who wrote the minus entries and they
represented the daily interest payments received by Nuguid.
On cross-examination,[24] Jocelyn Nicdao stated that she was a
distant cousin of respondent Nicdao. She stopped working for her in
1998 because she wanted to take a rest. Jocelyn Nicdao reiterated
that she handed the checks to Nuguid at the grocery store.
After due trial, on December 8, 1998, the MCTC rendered judgment
in Criminal Cases Nos. 9433-9443 convicting respondent Nicdao of
eleven (11) counts of violation of BP 22. The MCTC gave credence to
petitioner Chings testimony that respondent Nicdao borrowed
money from him in the total amount of P20,950,000.00. Petitioner
Ching delivered P1,000,000.00 every month to respondent Nicdao
from 1995 up to 1997 until the sum reached P20,000,000.00. The
MCTC also found that subsequent thereto, respondent Nicdao still
borrowed money from petitioner Ching. As security for these loans,
respondent Nicdao issued checks to petitioner Ching. When the latter
deposited the checks (eleven in all) on October 6, 1997, they were
dishonored by the bank for being DAIF.
The MCTC explained that the crime of violation of BP 22 has the
following elements: (a) the making, drawing and issuance of any
check to apply to account or for value; (b) the knowledge of the
maker, drawer or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of
such check in full upon its presentment; and (c) subsequent dishonor
of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid
cause, ordered the bank to stop payment.[25]
According to the MCTC, all the foregoing elements are present in the
case of respondent Nicdaos issuance of the checks subject of Criminal
Cases Nos. 9433-9443. On the first element, respondent Nicdao was
found by the MCTC to have made, drawn and issued the checks. The
fact that she did not personally write the payee and date on the
checks was not material considering that under Section 14 of the
Negotiable Instruments Law, 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 x x x. Respondent Nicdao admitted that she authorized
her employees to provide the details on the checks after she had
signed them.
The MCTC disbelieved respondent Nicdaos claim that the
P20,000,000.00 check was the same one that she lost in 1995. It
observed that ordinary prudence would dictate that a lost check
would at least be immediately reported to the bank to prevent its
unauthorized endorsement or negotiation. Respondent Nicdao made
no such report to the bank. Even if the said check was indeed lost, the
MCTC faulted respondent Nicdao for being negligent in keeping the
checks that she had already signed in an unsecured box.
The MCTC further ruled that there was no evidence to show that
petitioner Ching was not a holder in due course as to cause it (the
MCTC) to believe that the said check was not issued to him.
Respondent Nicdaos admission of indebtedness was sufficient to
prove that there was consideration for the issuance of the checks.

The second element was also found by the MCTC to be present as it
held that respondent Nicdao, as maker, drawer or issuer, had
knowledge that at the time of issue she did not have sufficient funds
in or credit with the drawee bank for the payment in full of the checks
upon their presentment.
As to the third element, the MCTC established that the checks were
subsequently dishonored by the drawee bank for being DAIF or
drawn against insufficient funds. Stamped at the back of each check
was the annotation DAIF. The bank representative likewise testified
to the fact of dishonor.
Under the foregoing circumstances, the MCTC declared that the
conviction of respondent Nicdao was warranted. It stressed that the
mere act of issuing a worthless check was malum prohibitum; hence,
even if the checks were issued in the form of deposit or guarantee,
once dishonored, the same gave rise to the prosecution for and
conviction of BP 22.[26] The decretal portion of the MCTC decision
reads:
WHEREFORE, in view of the foregoing, the accused is found guilty of
violating Batas Pambansa Blg. 22 in 11 counts, and is hereby ordered
to pay the private complainant the amount of P20,950,000.00 plus
12% interest per annum from date of filing of the complaint until the
total amount had been paid. The prayer for moral damages is denied
for lack of evidence to prove the same. She is likewise ordered to
suffer imprisonment equivalent to 1 year for every check issued and
which penalty shall be served successively.
SO ORDERED.[27]
Incidentally, on January 11, 1999, the MCTC likewise rendered its
judgment in Criminal Cases Nos. 9458-9471 and convicted
respondent Nicdao of the fourteen (14) counts of violation of BP 22
filed against her by Nuguid.
On appeal, the Regional Trial Court (RTC) of Dinalupihan, Bataan,
Branch 5, in separate Decisions both dated May 10, 1999, affirmed in
toto the decisions of the MCTC convicting respondent Nicdao of
eleven (11) and fourteen (14) counts of violation of BP 22 in Criminal
Cases Nos. 9433-9443 and 9458-9471, respectively.
Respondent Nicdao forthwith filed with the CA separate petitions for
review of the two decisions of the RTC. The petition involving the
eleven (11) checks purportedly issued to petitioner Ching was
docketed as CA-G.R. CR No. 23055 (assigned to the 13th Division). On
the other hand, the petition involving the fourteen (14) checks
purportedly issued to Nuguid was docketed as CA-G.R. CR No. 23054
(originally assigned to the 7th Division but transferred to the 6th
Division). The Office of the Solicitor General (OSG) filed its respective
comments on the said petitions. Subsequently, the OSG filed in CA-
G.R. CR No. 23055 a motion for its consolidation with CA-G.R. CR No.
23054. The OSG prayed that CA-G.R. CR No. 23055 pending before the
13th Division be transferred and consolidated with CA-G.R. CR No.
23054 in accordance with the Revised Internal Rules of the Court of
Appeals (RIRCA).
Acting on the motion for consolidation, the CA in CA-G.R. CR No.
23055 issued a Resolution dated October 19, 1999 advising the OSG
to file the motion in CA-G.R. CR No. 23054 as it bore the lowest
number. Respondent Nicdao opposed the consolidation of the two
cases. She likewise filed her reply to the comment of the OSG in CA-
G.R. CR No. 23055.
On November 22, 1999, the CA (13th Division) rendered the assailed
Decision in CA-G.R. CR No. 23055 acquitting respondent Nicdao of the
eleven (11) counts of violation of BP 22 filed against her by petitioner
Ching. The decretal portion of the assailed CA Decision reads:
WHEREFORE, being meritorious, the petition for review is hereby
GRANTED. Accordingly, the decision dated May 10, 1999, of the
Regional Trial Court, 3rd Judicial Region, Branch 5, Bataan, affirming
the decision dated December 8, 1998, of the First Municipal Circuit
Trial Court of Dinalupihan-Hermosa, Bataan, convicting petitioner
Clarita S. Nicdao in Criminal Cases No. 9433 to 9443 of violation of
B.P. Blg. 22 is REVERSED and SET ASIDE and another judgment
rendered ACQUITTING her in all these cases, with costs de oficio.
SO ORDERED.[28]
On even date, the CA issued an Entry of Judgment declaring that the
above decision has become final and executory and is recorded in the
Book of Judgments.
In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the CA
made the following factual findings:
Petitioner [respondent herein] Clarita S. Nicdao, a middle-aged
mother and housekeeper who only finished high school, has a
daughter, Janette Boyd, who is married to a wealthy expatriate.
Complainant [petitioner herein] Samson Ching is a Chinese national,
who claimed he is a salesman of La Suerte Cigar and Cigarette
Factory.
Emma Nuguid, complainants live-in partner, is a CPA and formerly
connected with Sycip, Gorres and Velayo. Nuguid used to own a
grocery store now known as the Vignette Superstore. She sold this
grocery store, which was about to be foreclosed, to petitioners
daughter, Janette Boyd. Since then, petitioner began managing said
store. However, since petitioner could not always be at the Vignette
Superstore to keep shop, she entrusted to her salesladies, Melanie
Tolentino and Jocelyn Nicdao, pre-signed checks, which were left
blank as to amount and the payee, to cover for any delivery of
merchandise sold at the store. The blank and personal checks were
placed in a cash box at Vignette Superstore and were filled up by said
salesladies upon instruction of petitioner as to amount, payee and
date.
Soon thereafter, Emma Nuguid befriended petitioner and offered to
lend money to the latter which could be used in running her newly
acquired store. Nuguid represented to petitioner that as former
manager of the Vignette Superstore, she knew that petitioner would
be in need of credit to meet the daily expenses of running the
business, particularly in the daily purchases of merchandise to be
sold at the store. After Emma Nuguid succeeded in befriending
petitioner, Nuguid was able to gain access to the Vignette Superstore
where petitioners blank and pre-signed checks were kept.[29]
In addition, the CA also made the finding that respondent Nicdao
borrowed money from Nuguid in the total amount of P2,100,000.00
secured by twenty-four (24) checks drawn against respondent
Nicdaos account with HSLB. Upon Nuguids instruction, the checks
given by respondent Nicdao as security for the loans were left blank
as to the payee and the date. The loans consisted of (a) P950,000.00
covered by ten (10) checks subject of the criminal complaints filed by
petitioner Ching (CA-G.R. CR No. 23055); and (b) P1,150,000.00
covered by fourteen (14) checks subject of the criminal complaints
filed by Nuguid (CA-G.R. CR No. 23054). The loans totaled
P2,100,000.00 and they were transacted between respondent Nicdao
and Nuguid only. Respondent Nicdao never dealt with petitioner
Ching.
Against the foregoing factual findings, the CA declared that, based on
the evidence, respondent Nicdao had already fully paid the loans. In
particular, the CA referred to the Planters Bank demand draft in the
amount of P1,200,000.00 which, by his own admission, petitioner
Ching had received. The appellate court debunked petitioner Chings
allegation that the said demand draft was payment for a previous
transaction. According to the CA, petitioner Ching failed to adduce
evidence to prove the existence of a previous transaction between
him and respondent Nicdao.
Apart from the demand draft, the CA also stated that respondent
Nicdao made interest payments on a daily basis to Nuguid as
evidenced by the computations written at the back of the cigarette
wrappers. Based on these computations, as of July 21, 1997,
respondent Nicdao had made a total of P5,780,000.00 payments to
Nuguid for the interests alone. Adding up this amount and that of the
Planters Bank demand draft, the CA placed the payments made by
respondent Nicdao to Nuguid as already amounting to P6,980,000.00
for the principal loan amount of only P2,100,000.00.
The CA negated petitioner Chings contention that the payments as
reflected at the back of the cigarette wrappers could be applied only
to the interests due. Since the transactions were not evidenced by any
document or writing, the CA ratiocinated that no interests could be
collected because, under Article 1956 of the Civil Code, no interest
shall be due unless it has been expressly stipulated in writing.
The CA gave credence to the testimony of respondent Nicdao that
when she had fully paid her loans to Nuguid, she tried to retrieve her
checks. Nuguid, however, refused to return the checks to respondent
Nicdao. Instead, Nuguid and petitioner Ching filled up the said checks
to make it appear that: (a) petitioner Ching was the payee in five
checks; (b) the six checks were payable to cash; (c) Nuguid was the
payee in fourteen (14) checks. Petitioner Ching and Nuguid then put
the date October 6, 1997 on all these checks and deposited them the
following day. On October 8, 1997, through a joint demand letter, they
informed respondent Nicdao that her checks were dishonored by
HSLB and gave her three days to settle her indebtedness or else face
prosecution for violation of BP 22.
With the finding that respondent Nicdao had fully paid her loan
obligations to Nuguid, the CA declared that she could no longer be
held liable for violation of BP 22. It was explained that to be held
liable under BP 22, it must be established, inter alia, that the check
was made or drawn and issued to apply on account or for value.
According to the CA, the word account refers to a pre-existing
obligation, while for value means an obligation incurred
simultaneously with the issuance of the check. In the case of
respondent Nicdaos checks, the pre-existing obligations secured by
them were already extinguished after full payment had been made by
respondent Nicdao to Nuguid. Obligations are extinguished by,
among others, payment.[30] The CA believed that when petitioner
Ching and Nuguid refused to return respondent Nicdaos checks
despite her total payment of P6,980,000.00 for the loans secured by
the checks, petitioner Ching and Nuguid were using BP 22 to coerce
respondent Nicdao to pay a debt which she no longer owed them.
With respect to the P20,000,000.00 check, the CA was not convinced
by petitioner Chings claim that he delivered P1,000,000.00 every
month to respondent Nicdao until the amount reached
P20,000,000.00 and, when she refused to pay the same, he filled up
the check, which she earlier delivered to him as security for the loans,
by writing thereon the said amount. In disbelieving petitioner Ching,
the CA pointed out that, contrary to his assertion, he was never
employed by the La Suerte Cigar and Cigarette Manufacturing per the
letter of Susan Resurreccion, Vice-President and Legal Counsel of the
said company. Moreover, as admitted by petitioner Ching, he did not
own the house where he and Nuguid lived.
Moreover, the CA characterized as incredible and contrary to human
experience that petitioner Ching would, as he claimed, deliver a total
sum of P20,000,000.00 to respondent Nicdao without any
documentary proof thereof, e.g., written acknowledgment that she
received the same. On the other hand, it found plausible respondent
Nicdaos version of the story that the P20,000,000.00 check was the
same one that was missing way back in 1995. The CA opined that this
missing check surfaced in the hands of petitioner Ching who, in
cahoots with Nuguid, wrote the amount P20,000,000.00 thereon and
deposited it in his account. To the mind of the CA, the inference that
the check was stolen was anchored on competent circumstantial
evidence. Specifically, Nuguid, as previous manager/owner of the
grocery store, had access thereto. Likewise applicable, according to
the CA, was the presumption that the person in possession of the
stolen article was presumed to be guilty of taking the stolen
article.[31]
The CA emphasized that the P20,000,000.00 check was never
delivered by respondent Nicdao to petitioner Ching. As such, the said
check without the details as to the date, amount and payee, was an
incomplete and undelivered instrument when it was stolen and
ended up in petitioner Chings hands. On this point, the CA applied
Sections 15 and 16 of the Negotiable Instruments Law:
SEC. 15. Incomplete instrument not delivered. Where an incomplete
instrument has not been delivered, it will not, if completed and
negotiated without authority, be a valid contract in the hands of any
holder, as against any person whose signature was placed thereon
before delivery.
SEC. 16. Delivery; when effectual; when presumed. Every contract on
a negotiable instrument is incomplete and revocable until delivery of
the instrument for the purpose of giving effect thereto. As between
immediate parties and as regards a remote party other than a holder
in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing,
accepting or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the property.
But where the instrument is in the hands of a holder in due course, a
valid delivery thereof by all parties prior to him so as to make them
liable to him is conclusively presumed. And where the instrument is
no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.

The CA held that the P20,000,000.00 check was filled up by petitioner
Ching without respondent Nicdaos authority. Further, it was
incomplete and undelivered. Hence, petitioner Ching did not acquire
any right or interest therein and could not assert any cause of action
founded on the
stolen checks.[32] Under these circumstances, the CA concluded that
respondent could not be held liable for violation of BP 22.
The Petitioners Case
As mentioned earlier, the instant petition pertains and is limited
solely to the civil aspect of the case as petitioner Ching argues that
notwithstanding respondent Nicdaos acquittal of the eleven (11)
counts of violation of BP 22, she should be held liable to pay
petitioner Ching the amounts of the dishonored checks in the
aggregate sum of P20,950,000.00.
He urges the Court to review the findings of facts made by the CA as
they are allegedly based on a misapprehension of facts and manifestly
erroneous and contradicted by the evidence. Further, the CAs factual
findings are in conflict with those of the RTC and MCTC.
Petitioner Ching vigorously argues that notwithstanding respondent
Nicdaos acquittal by the CA, the Supreme Court has the jurisdiction
and authority to resolve and rule on her civil liability. He invokes
Section 1, Rule 111 of the Revised Rules of Court which, prior to its
amendment, provided, in part
SEC. 1. Institution of criminal and civil actions. When a criminal action
is instituted, the civil action for the recovery of civil liability is
impliedly instituted with the criminal action, unless the offended
party waives the civil action, reserves his right to institute it
separately, or institutes the civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the
Revised Penal Code, and damages under Articles 32, 33, 34 and 2176
of the Civil Code of the Philippines arising from the same act or
omission of the accused. x x x
Supreme Court Circular No. 57-97[33] dated September 16, 1997 is
also cited as it provides in part:
1. The criminal action for violation of Batas Pambansa Blg. 22 shall
be deemed to necessarily include the corresponding civil action, and
no reservation to file such civil action separately shall be allowed or
recognized. x x x
Petitioner Ching theorizes that, under Section 1, Rule 111 of the
Revised Rules of Court, the civil action for the recovery of damages
under Articles 32, 33, 34, and 2176 arising from the same act or
omission of the accused is impliedly instituted with the criminal
action. Moreover, under the above-quoted Circular, the criminal
action for violation of BP 22 necessarily includes the corresponding
civil action, which is the recovery of the amount of the dishonored
check representing the civil obligation of the drawer to the payee.
In seeking to enforce the alleged civil liability of respondent Nicdao,
petitioner Ching maintains that she had loan obligations to him
totaling P20,950,000.00. The existence of the same is allegedly
established by his testimony before the MCTC. Also, he asks the Court
to take judicial notice that for a monetary loan secured by a check, the
check itself is the evidence of indebtedness.
He insists that, contrary to her protestation, respondent Nicdao also
transacted with him, not only with Nuguid. Petitioner Ching pointed
out that during respondent Nicdaos testimony, she referred to her
creditors in plural form, e.g. [I] told them, most checks that I issued I
will inform them if I have money. Even respondent Nicdaos
employees allegedly knew him; they testified that Nuguid instructed
them at times to leave as blank the payee on the checks as they would
be paid to someone else, who turned out to be petitioner Ching.
It was allegedly erroneous for the CA to hold that he had no capacity
to lend P20,950,000.00 to respondent Nicdao. Petitioner Ching
clarified that what he meant when he testified before the MCTC was
that he was engaged in dealership with La Suerte Cigar and Cigarette
Manufacturing, and not merely its sales agent. He stresses that he
owns a warehouse and is also in the business of lending money.
Further, the CAs reasoning that he could not possibly have lent
P20,950,000.00 to respondent Nicdao since petitioner Ching and
Nuguid did not own the house where they live, is allegedly non
sequitur.
Petitioner Ching maintains that, contrary to the CAs finding, the
Planters Bank demand draft for P1,200,000.00 was in payment for
respondent Nicdaos previous loan transaction with him. Apart from
the P20,000,000.00 check, the other ten (10) checks (totaling
P950,000.00) were allegedly issued by respondent Nicdao to
petitioner Ching as security for the loans that she obtained from him
from 1995 to 1997. The existence of another loan obligation prior to
the said period was allegedly established by the testimony of
respondent Nicdaos own witness, Jocelyn Nicdao, who testified that
when she started working in Vignette Superstore in 1994, she noticed
that respondent Nicdao was already indebted to Nuguid.
Petitioner Ching also takes exception to the CAs ruling that the
payments made by respondent Nicdao as reflected on the
computations at the back of the cigarette wrappers were for both the
principal loan and interests. He insists that they were for the interests
alone. Even respondent Nicdaos testimony allegedly showed that
they were daily interest payments. Petitioner Ching further avers that
the interest payments totaling P5,780,000.00 can only mean that,
contrary to respondent Nicdaos claim, her loan obligations amounted
to much more than P2,100,000.00. Further, she is allegedly estopped
from questioning the interests because she willingly paid the same.
Petitioner Ching also harps on respondent Nicdaos silence when she
received his and Nuguids demand letter to her. Through the said
letter, they notified her that the twenty-five (25) checks valued at
P22,100,000.00 were dishonored by the HSLB, and that she had three
days to settle her ndebtedness with them, otherwise, face
prosecution. Respondent Nicdaos silence, i.e., her failure to deny or
protest the same by way of reply, vis--vis the demand letter, allegedly
constitutes an admission of the statements contained therein.
On the other hand, the MCTCs decision, as affirmed by the RTC, is
allegedly based on the evidence on record; it has been established
that the checks were respondent Nicdaos personal checks, that the
signatures thereon were hers and that she had issued them to
petitioner Ching. With respect to the P20,000,000.00 check,
petitioner Ching assails the CAs ruling that it was stolen and was
never delivered or issued by respondent Nicdao to him. The issue of
the said check being stolen was allegedly not raised during trial.
Further, her failure to report the alleged theft to the bank to stop
payment of the said lost or missing check is allegedly contrary to
human experience. Petitioner Ching describes respondent Nicdaos
defense of stolen or lost check as incredible and, therefore, false.
Aside from the foregoing substantive issues that he raised, petitioner
Ching also faults the CA for not acting and ordering the consolidation
of CA-G.R. CR No. 23055 with CA-G.R. CR No. 23054. He informs the
Court that latter case is still pending with the CA.
In fine, it is petitioner Chings view that the CA gravely erred in
disregarding the findings of the MCTC, as affirmed by the RTC, and
submits that there is more than sufficient preponderant evidence to
hold respondent Nicdao civilly liable to him in the amount of
P20,950,000.00. He thus prays that the Court direct respondent
Nicdao to pay him the said amount plus 12% interest per annum
computed from the date of written demand until the total amount is
fully paid.
The Respondents Counter-Arguments
Respondent Nicdao urges the Court to deny the petition. She posits
preliminarily that it is barred under Section 2(b), Rule 111 of the
Revised Rules of Court which states:
SEC. 2. Institution of separate of civil action. - Except in the cases
provided for in Section 3 hereof, after the criminal action has been
commenced, the civil action which has been reserved cannot be
instituted until final judgment in the criminal action.
xxxx
(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.
According to respondent Nicdao, the assailed CA decision has already
made a finding to the effect that the fact upon which her civil liability
might arise did not exist. She refers to the ruling of the CA that the
P20,000,000.00 check was stolen; hence, petitioner Ching did not
acquire any right or interest over the said check and could not assert
any cause of action founded on the said check. Consequently, the CA
held that respondent Nicdao had no obligation to make good the
stolen check and cannot be held liable for violation of BP 22. She also
refers to the CAs pronouncement relative to the ten (10) other checks
that they were not issued to apply on account or for value,
considering that the loan obligations secured by these checks had
already been extinguished by her full payment thereof.
To respondent Nicdaos mind, these pronouncements are equivalent
to a finding that the facts upon which her civil liability may arise do
not exist. The instant petition, which seeks to enforce her civil liability
based on the eleven (11) checks, is thus allegedly already barred by
the final and executory decision acquitting her.
In any case, respondent Nicdao contends that the CA did not commit
serious misapprehension of facts when it found that the
P20,000,000.00 check was a stolen check and that she never made
any transaction with petitioner Ching. Moreover, the other ten (10)
checks were not issued to apply on account or for value. These
findings are allegedly supported by the evidence on record which
consisted of the respective testimonies of the defense witnesses to
the effect that: respondent Nicdao had the practice of leaving pre-
signed checks placed inside an unsecured cash box in the Vignette
Superstore; the salesladies were given the authority to fill up the said
checks as to the amount, payee and date; Nuguid beguiled respondent
Nicdao to obtain loans from her; as security for the loans, respondent
Nicdao issued checks to Nuguid; when the salesladies gave the checks
to Nuguid, she instructed them to leave blank the payee and date;
Nuguid had access to the grocery store; in 1995, one of the salesladies
reported that a check was missing; in 1997, when she had fully paid
her loans to Nuguid, respondent Nicdao tried to retrieve her checks
but Nuguid and petitioner Ching falsely told her that she still owed
them money; they then maliciously filled up the checks making it
appear that petitioner Ching was the payee in the five checks and the
six others were payable to cash; and knowing fully well that these
checks were not funded because respondent Nicdao already fully
paid her loans, petitioner Ching and Nuguid deposited the checks and
caused them to be dishonored by HSLB.
It is pointed out by respondent Nicdao that her testimony (that the
P20,000,000.00 check was the same one that she lost sometime in
1995) was corroborated by the respective testimonies of her
employees. Another indication that it was stolen was the fact that
among all the checks which ended up in the hands of petitioner Ching
and Nuguid, only the P20,000,000.00 check was fully typewritten; the
rest were invariably handwritten as to the amounts, payee and date.
Respondent Nicdao defends the CAs conclusion that the
P20,000,000.00 check was stolen on the ground that an appeal in a
criminal case throws open the whole case to the appellate courts
scrutiny. In any event, she maintains that she had been consistent in
her theory of defense and merely relied on the disputable
presumption that the person in possession of a stolen article is
presumed to be the author of the theft.
Considering that it was stolen, respondent Nicdao argues, the
P20,000,000.00 check was an incomplete and undelivered
instrument in the hands of petitioner Ching and he did not acquire
any right or interest therein. Further, he cannot assert any cause of
action founded on the said stolen check. Accordingly, petitioner
Chings attempt to collect payment on the said check through the
instant petition must fail.
Respondent Nicdao describes as downright incredible petitioner
Chings testimony that she owed him a total sum of P20,950,000.00
without any documentary proof of the loan transactions. She submits
that it is contrary to human experience for loan transactions
involving such huge amounts of money to be devoid of any
documentary proof. In relation thereto, respondent Nicdao
underscores that petitioner Ching lied about being employed as a
salesman of La Suerte Cigar and Cigarette Manufacturing. It is
underscored that he has not adequately shown that he possessed the
financial capacity to lend such a huge amount to respondent Nicdao
as he so claimed.
Neither could she be held liable for the ten (10) other checks (in the
total amount of P950,000,000.00) because as respondent Nicdao
asseverates, she merely issued them to Nuguid as security for her
loans obtained from the latter beginning October 1995 up to 1997. As
evidenced by the Planters Bank demand draft in the amount of
P1,200,000.00, she already made payment in 1996. The said demand
draft was negotiated to petitioner Chings account and he admitted
receipt thereof. Respondent Nicdao belies his claim that the demand
draft was payment for a prior existing obligation. She asserts that
petitioner Ching was unable to present evidence of such a previous
transaction.
In addition to the Planters Bank demand draft, respondent Nicdao
insists that petitioner Ching received, through Nuguid, cash
payments as evidenced by the computations written at the back of
the cigarette wrappers. Nuguid went to the Vignette Superstore
everyday to collect these payments. The other defense witnesses
corroborated this fact. Petitioner Ching allegedly never disputed the
accuracy of the accounts appearing on these cigarette wrappers; nor
did he dispute their authenticity and accuracy.
Based on the foregoing evidence, the CA allegedly correctly held that,
computing the amount of the Planters Bank demand draft
(P1,200,000.00) and those reflected at the back of the cigarette
wrappers (P5,780,000.00), respondent Nicdao had already paid
petitioner Ching and Nuguid a total sum of P6,980,000.00 for her loan
obligations totaling only P950,000.00, as secured by the ten (10)
HSLB checks excluding the stolen P20,000,000.00 check.
Respondent Nicdao rebuts petitioner Chings argument (that the daily
payments were applied to the interests), and claims that this is illegal.
Petitioner Ching cannot insist that the daily payments she made
applied only to the interests on the loan obligations, considering that
there is admittedly no document evidencing these loans, hence, no
written stipulation for the payment of interests thereon. On this
point, she invokes Article 1956 of the Civil Code, which proscribes the
collection of interest payments unless expressly stipulated in writing.
Respondent Nicdao emphasizes that the ten (10) other checks that
she issued to Nuguid as security for her loans had already been
discharged upon her full payment thereof. It is her belief that these
checks can no longer be used to coerce her to pay a debt that she does
not owe.
On the CAs failure to consolidate CA-G.R. CR No. 23055 and CA-G.R.
CR No. 23054, respondent Nicdao proffers the explanation that under
the RIRCA, consolidation of the cases is not mandatory. In fine,
respondent
Nicdao urges the Court to deny the petition as it failed to discharge
the burden of proving her civil liability with the required
preponderance of evidence. Moreover, the CAs acquittal of
respondent Nicdao is premised on the finding that, apart from the
stolen check, the ten (10) other checks were not made to apply to a
valid, due and demandable obligation. This, in effect, is a categorical
ruling that the fact from which the civil liability of respondent Nicdao
may arise does not exist.
The Courts Rulings
The petition is denied for lack of merit.
Notwithstanding respondent Nicdaos acquittal, petitioner Ching is
entitled to appeal the civil aspect of the case within the reglementary
period
It is axiomatic that every person criminally liable for a felony is also
civilly liable.[34] Under the pertinent provision of the Revised Rules
of Court, the civil action is generally impliedly instituted with the
criminal action. At the time of petitioner Chings filing of the
Informations against respondent Nicdao, Section 1,[35] Rule 111 of
the Revised Rules of Court, quoted earlier, provided in part:
SEC. 1. Institution of criminal and civil actions. When a criminal action
is instituted, the civil action for the recovery of civil liability is
impliedly instituted with the criminal action, unless the offended
party waives the civil action, reserves his right to institute it
separately, or institutes the civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the
Revised Penal Code, and damages under Articles 32, 33, 34 and 2176
of the Civil Code of the Philippines arising from the same act or
omission of the accused.
xxxx
As a corollary to the above rule, an acquittal does not necessarily
carry with it the extinguishment of the civil liability of the accused.
Section 2(b)[36] of the same Rule, also quoted earlier, provided in
part:
(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.
It is also relevant to mention that judgments of acquittal are required
to state whether the evidence of the prosecution absolutely failed to
prove the guilt of the accused or merely failed to prove his guilt
beyond reasonable doubt. In either case, the judgment shall
determine if the act or omission from which the civil liability might
arise did not exist.[37]
In Sapiera v. Court of Appeals,[38] the Court enunciated that the civil
liability is not extinguished by acquittal: (a) where 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. Thus, under Article 29
of the Civil Code
ART. 29. 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.
If in a criminal case 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 the acquittal is due to that ground.
The Court likewise expounded in Salazar v. People[39] the
consequences of an acquittal on the civil aspect in this wise:
The acquittal of the accused does not prevent a judgment against him
on the civil aspect of the criminal case where: (a) the acquittal is
based on reasonable doubt as only preponderance of evidence is
required; (b) the court declared that the liability of the accused is only
civil; (c) the civil liability of the accused does not arise from or is not
based upon the crime of which the accused is acquitted. Moreover,
the civil action based on the delict is extinguished if there is a finding
in the final judgment in the criminal action that the act or omission
from which the civil liability may arise did not exist or where the
accused did not commit the act or omission imputed to him.
If the accused is acquitted on reasonable doubt but the court renders
judgment on the civil aspect of the criminal case, the prosecution
cannot appeal from the judgment of acquittal as it would place the
accused in double jeopardy. However, the aggrieved party, the
offended party or the accused or both may appeal from the judgment
on the civil aspect of the case within the period therefor.
From the foregoing, petitioner Ching correctly argued that he, as the
offended party, may appeal the civil aspect of the case
notwithstanding respondent Nicdaos acquittal by the CA. The civil
action was impliedly instituted with the criminal action since he did
not reserve his right to institute it separately nor did he institute the
civil action prior to the criminal action.
Following the long recognized rule that the appeal period accorded
to the accused should also be available to the offended party who
seeks redress of the civil aspect of the decision, the period to appeal
granted to petitioner Ching is the same as that granted to the
accused.[40] With petitioner Chings timely filing of the instant
petition for review of the civil aspect of the CAs decision, the Court
thus has the jurisdiction and authority to determine the civil liability
of respondent Nicdao notwithstanding her acquittal.
In order for the petition to prosper, however, it must establish that
the judgment of the CA acquitting respondent Nicdao falls under any
of the three categories enumerated in Salazar and Sapiera, to wit:
(a) where the acquittal is based on reasonable doubt as only
preponderance of evidence is required;
(b) where the court declared that the liability of the accused is only
civil; and
(c) where the civil liability of the accused does not arise from or is not
based upon the crime of which the accused is acquitted.
Salazar also enunciated that the civil action based on the delict is
extinguished if there is a finding in the final judgment in the criminal
action that the act or omission from which the civil liability may arise
did not exist or where the accused did not commit the act or omission
imputed to him.
For reasons that will be discussed shortly, the Court holds that
respondent Nicdao cannot be held civilly liable to petitioner Ching.
The acquittal of respondent Nicdao likewise effectively extinguished
her civil liability
A painstaking review of the case leads to the conclusion that
respondent Nicdaos acquittal likewise carried with it the extinction
of the action to enforce her civil liability. There is simply no basis to
hold respondent Nicdao civilly liable to petitioner Ching.
First, the CAs acquittal of respondent Nicdao is not merely based on
reasonable doubt. Rather, it is based on the finding that she did not
commit the act penalized under BP 22. In particular, the CA found that
the P20,000,000.00 check was a stolen check which was never issued
nor delivered by respondent Nicdao to petitioner Ching. As such,
according to the CA, petitioner Ching did not acquire any right or
interest over Check No. 002524 and cannot assert any cause of action
founded on said check,[41] and that respondent Nicdao has no
obligation to make good the stolen check and cannot, therefore, be
held liable for violation of B.P. Blg. 22.[42]
With respect to the ten (10) other checks, the CA established that the
loans secured by these checks had already been extinguished after
full payment had been made by respondent Nicdao. In this
connection, the second element for the crime under BP 22, i.e., that
the check is made or drawn and issued to apply on account or for
value, is not present.
Second, in acquitting respondent Nicdao, the CA did not adjudge her
to be civilly liable to petitioner Ching. In fact, the CA explicitly stated
that she had already fully paid her obligations. The CA computed the
payments made by respondent Nicdao vis--vis her loan obligations in
this manner:
Clearly, adding the payments recorded at the back of the cigarette
cartons by Emma Nuguid in her own handwriting totaling
P5,780,000.00 and the P1,200,000.00 demand draft received by
Emma Nuguid, it would appear that petitioner [respondent herein]
had already made payments in the total amount of P6,980,000.00 for
her loan obligation of only P2,100,000.00 (P950,000.00 in the case at
bar and P1,150,000.00 in CA-G.R. CR No. 23054).[43]
On the other hand, its finding relative to the P20,000,000.00 check
that it was a stolen check necessarily absolved respondent Nicdao of
any civil liability thereon as well.
Third, while petitioner Ching attempts to show that respondent
Nicdaos liability did not arise from or was not based upon the
criminal act of which she was acquitted (ex delicto) but from her loan
obligations to him (ex contractu), however, petitioner Ching
miserably failed to prove by preponderant evidence the existence of
these unpaid loan obligations. Significantly, it can be inferred from
the following findings of the CA in its decision acquitting respondent
Nicdao that the act or omission from which her civil liability may
arise did not exist. On the P20,000,000.00 check, the CA found as
follows:
True, indeed, the missing pre-signed and undated check no. 002524
surfaced in the possession of complainant Ching who, in cahoots with
his paramour Emma Nuguid, filled up the blank check with his name
as payee and in the fantastic amount of P20,000,000.00, dated it
October 6, 1997, and presented it to the bank on October 7, 1997,
along with the other checks, for payment. Therefore, the inference
that the check was stolen is anchored on competent circumstantial
evidence. The fact already established is that Emma Nuguid , previous
owner of the store, had access to said store. Moreover, the possession
of a thing that was stolen , absent a credible reason, as in this case,
gives rise to the presumption that the person in possession of the
stolen article is presumed to be guilty of taking the stolen article
(People v. Zafra, 237 SCRA 664).
As previously shown, at the time check no. 002524 was stolen, the
said check was blank in its material aspect (as to the name of payee,
the amount of the check, and the date of the check), but was already
pre-signed by petitioner. In fact, complainant Ching himself admitted
that check no. 002524 in his possession was a blank check (TSN, Jan.
7, 1998, pp. 24-27, Annex J, Petition).
Moreover, since it has been established that check no. 002524 had
been missing since 1995 (TSN, Sept. 9, 1998, pp. 14-15, Annex DD,
Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE, Petition), it is
abundantly clear that said check was never delivered to complainant
Ching. Check no. 002524 was an incomplete and undelivered
instrument when it was stolen and ended up in the hands of
complainant Ching. Sections 15 and 16 of the Negotiable Instruments
Law provide:
In the case of check no. 002524, it is admitted by complainant Ching
that said check in his possession was a blank check and was
subsequently completed by him alone without authority from
petitioner. Inasmuch as check no. 002524 was incomplete and
undelivered in the hands of complainant Ching, he did not acquire any
right or interest therein and cannot, therefore, assert any cause of
action founded on said stolen check (Development Bank of the
Philippines v. Sima We, 219 SCRA 736, 740).
It goes without saying that since complainant Ching did not acquire
any right or interest over check no. 002524 and cannot assert any
cause of action founded on said check, petitioner has no obligation to
make good the stolen check and cannot, therefore, be held liable for
violation of B.P. Blg. 22.[44]
Anent the other ten (10) checks, the CA made the following findings:
Evidence sufficiently shows that the loans secured by the ten (10)
checks involved in the cases subject of this petition had already been
paid. It is not controverted that petitioner gave Emma Nuguid a
demand draft valued at P1,200,000 to pay for the loans guaranteed
by said checks and other checks issued to her. Samson Ching
admitted having received the demand draft which he deposited in his
bank account. However, complainant Samson Ching claimed that the
said demand draft represents payment for a previous obligation
incurred by petitioner. However, complainant Ching failed to adduce
any evidence to prove the existence of the alleged obligation of the
petitioner prior to those secured by the subject checks.
Apart from the payment to Emma Nuguid through said demand draft,
it is also not disputed that petitioner made cash payments to Emma
Nuguid who collected the payments almost daily at the Vignette
Superstore. As of July 21, 1997, Emma Nuguid collected cash
payments amounting to approximately P5,780,000.00. All of these
cash payments were recorded at the back of cigarette cartons by
Emma Nuguid in her own handwriting, the authenticity and accuracy
of which were never denied by either complainant Ching or Emma
Nuguid.
Clearly, adding the payments recorded at the back of the cigarette
cartons by Emma Nuguid in her own handwriting totaling
P5,780,000.00 and the P1,200,000.00 demand draft received by
Emma Nuguid, it would appear that petitioner had already made
payments in the total amount of P6,980,000.00 for her loan in the
total amount of P6,980,000.00 for her loan obligation of only
P2,100,000.00 (P950,000.00 in the case at bar and P1,150,000.00 in
CA-G.R. CR No. 23054).[45]
Generally checks may constitute evidence of indebtedness.[46]
However, in view of the CAs findings relating to the eleven (11)
checks - that the P20,000,000.00 was a stolen check and the
obligations secured by the other ten (10) checks had already been
fully paid by respondent Nicdao they can no longer be given credence
to establish respondent Nicdaos civil liability to petitioner Ching.
Such civil liability, therefore, must be established by preponderant
evidence other than the discredited checks.
After a careful examination of the records of the case,[47] the Court
holds that the existence of respondent Nicdaos civil liability to
petitioner Ching in the amount of P20,950,000.00 representing her
unpaid obligations to the latter has not been sufficiently established
by preponderant evidence. Petitioner Ching mainly relies on his
testimony before the MCTC to establish the existence of these unpaid
obligations. In gist, he testified that from October 1995 up to 1997,
respondent Nicdao obtained loans from him in the total amount of
P20,950,000.00. As security for her obligations, she issued eleven
(11) checks which were invariably blank as to the date, amounts and
payee. When respondent Nicdao allegedly refused to pay her
obligations despite his due demand, petitioner filled up the checks in
his possession with the corresponding amounts and date and
deposited them in his account. They were subsequently dishonored
by the HSLB for being DAIF and petitioner Ching accordingly filed the
criminal complaints against respondent Nicdao for violation of BP 22.
It is a basic rule in evidence that the burden of proof lies on the party
who makes the allegations Et incumbit probatio, qui dicit, non qui
negat; cum per rerum naturam factum negantis probatio nulla sit
(The proof lies upon him who affirms, not upon him who denies;
since, by the nature of things, he who denies a fact cannot produce
any proof).[48] In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence.
Preponderance of evidence is the weight, credit, and value of the
aggregate evidence on either side and is usually considered to be
synonymous with the term greater weight of evidence or greater
weight of the credible evidence. Preponderance of evidence is a
phrase which, in the last analysis, means probability of the truth. It is
evidence which is more convincing to the court as worthy of belief
than that which is offered in opposition thereto.[49] Section 1, Rule
133 of the Revised Rules of Court offers the guidelines in determining
preponderance of evidence:
SEC. 1. Preponderance of evidence, how determined. In civil cases,
the party having the burden of proof must establish his case by a
preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved
lies, the court may consider all the facts and circumstances of the
case, the witnesses manner of testifying, their intelligence, their
means and opportunity of knowing the facts to which they are
testifying, the nature of the facts to which they testify, the probability
or improbability of their testimony, their interest or want of interest,
and also their personal credibility so far as the same may legitimately
appear upon the trial. The court may also consider the number of
witnesses, though the preponderance is not necessarily with the
greater number.
Unfortunately, petitioner Chings testimony alone does not constitute
preponderant evidence to establish respondent Nicdaos civil liability
to him amounting to P20,950,000.00. Apart from the discredited
checks, he failed to adduce any other documentary evidence to prove
that respondent Nicdao still has unpaid obligations to him in the said
amount. Bare allegations, unsubstantiated by evidence, are not
equivalent to proof under our Rules.[50]
In contrast, respondent Nicdaos defense consisted in, among others,
her allegation that she had already paid her obligations to petitioner
Ching through Nuguid. In support thereof, she presented the Planters
Bank demand draft for P1,200,000.00. The said demand draft was
negotiated to petitioner Chings account and he admitted receipt of
the value thereof. Petitioner Ching tried to controvert this by claiming
that it was payment for a previous transaction between him and
respondent Nicdao. However, other than his self-serving claim,
petitioner Ching did not proffer any documentary evidence to prove
the existence of the said previous transaction. Considering that the
Planters Bank demand draft was dated August 13, 1996, it is logical
to conclude that, absent any evidence to the contrary, it formed part
of respondent Nicdaos payment to petitioner Ching on account of the
loan obligations that she obtained from him since October 1995.
Additionally, respondent Nicdao submitted as evidence the cigarette
wrappers at the back of which were written the computations of the
daily payments that she had made to Nuguid. The fact of the daily
payments was corroborated by the other witnesses for the defense,
namely, Jocelyn Nicdao and Tolentino. As found by the CA, based on
these computations, respondent Nicdao had made a total payment of
P5,780,000.00 to Nuguid as of July 21, 1997.[51] Again, the payments
made, as reflected at the back of these cigarette wrappers, were not
disputed by petitioner Ching. Hence, these payments as well as the
amount of the Planters Bank demand draft establish that respondent
Nicdao already paid the total amount of P6,980,000.00 to Nuguid and
petitioner Ching.
The Court agrees with the CA that the daily payments made by
respondent Nicdao amounting to P5,780,000.00 cannot be
considered as interest payments only. Even respondent Nicdao
testified that the daily payments that she made to Nuguid were for
the interests due. However, as correctly ruled by the CA, no interests
could be properly collected in the loan transactions between
petitioner Ching and respondent Nicdao because there was no
stipulation therefor in writing. To reiterate, under Article 1956 of the
Civil Code, no interest shall be due unless it has been expressly
stipulated in writing.
Neither could respondent Nicdao be considered to be estopped from
denying the validity of these interests. Estoppel cannot give validity
to an act that is prohibited by law or one that is against public
policy.[52] Clearly, the collection of interests without any stipulation
therefor in writing is prohibited by law. Consequently, the daily
payments made by respondent Nicdao amounting to P5,780,000.00
were properly considered by the CA as applying to the principal
amount of her loan obligations.
With respect to the P20,000,000.00 check, the defense of respondent
Nicdao that it was stolen and that she never issued or delivered the
same to petitioner Ching was corroborated by the other defense
witnesses, namely, Tolentino and Jocelyn Nicdao.
All told, as between petitioner Ching and respondent Nicdao, the
requisite quantum of evidence - preponderance of evidence -
indubitably lies with respondent Nicdao. As earlier intimated, she
cannot be held civilly liable to petitioner Ching for her acquittal;
under the circumstances which have just been discussed lengthily,
such acquittal carried with it the extinction of her civil liability as
well.
The CA committed no reversible error
in not consolidating CA-G.R. CR No.
23055 and CA-G.R. CR No. 23054
During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR No.
23054 in the CA, the pertinent provision of the RIRCA on
consolidation of cases provided:
SEC. 7. Consolidation of Cases. Whenever two or more allied cases are
assigned to different Justices, they may be consolidated for study and
report to a single Justice.
(a) At the instance of any party or Justice to whom the case is assigned
for study and report, and with the conformity of all the Justices
concerned, the consolidation may be allowed when the cases to be
consolidated involve the same parties and/or related questions of
fact and/or law.[53]
The use of the word may denotes the permissive, not mandatory,
nature of the above provision, Thus, no grave error could be imputed
to the CA when it proceeded to render its decision in CA-G.R. CR No.
23055, without consolidating it with CA-G.R. CR No. 23054.
WHEREFORE, premises considered, the Petition is DENIED for lack of
merit.
SO ORDERED. The two (2) checks had similar entries with similar infirmities and
irregularities. On the space where the name of the payee should be
Bank of America vs. Phil Club indicated (Pay To The Order Of) the following 2-line entries were
Javaluyas instead typewritten: on the upper line was the word CASH while the
G.R. No. 150228 July 30, 2009 lower line had the following typewritten words, viz: ONE HUNDRED
Secs. 14, 15, 16 TEN THOUSAND PESOS ONLY. Despite the highly irregular entries on
the face of the checks, defendant-appellant bank, without as much as
DECISION verifying and/or confirming the legitimacy of the checks considering
the substantial amount involved and the obvious infirmity/defect of
the checks on their faces, encashed said checks. A verification
LEONARDO-DE CASTRO, J.: process, even by was of a telephone call to PRCI office, would have
taken less than ten (10) minutes. But this was not done by BA.
Investigation conducted by plaintiff-appellee corporation yielded the
fact that there was no transaction involving PRCI that call for the
This is a petition for review on certiorari under Rule 45 of the Rules payment of P220,000.00 to anyone. The checks appeared to have
of Court from the Decision[1] promulgated on July 16, 2001 by the come into the hands of an employee of PRCI (one Clarita Mesina who
former Second Division of the Court of Appeals (CA), in CA-G.R. CV was subsequently criminally charged for qualified theft) who
No. 45371 entitled Philippine Racing Club, Inc. v. Bank of America NT eventually completed without authority the entries on the pre-signed
& SA, affirming the Decision[2] dated March 17, 1994 of the Regional checks. PRCIs demand for defendant-appellant to pay fell on deaf
Trial Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in ears. Hence, the complaint.[4]
favor of the respondent. Likewise, the present petition assails the
Resolution[3] promulgated on September 28, 2001, denying the
Motion for Reconsideration of the CA Decision.
After due proceedings, the trial court rendered a Decision in favor of
respondent, the dispositive portion of which reads:

The facts of this case as narrated in the assailed CA Decision are as

follows:
PREMISES CONSIDERED, judgment is hereby rendered in favor of
plaintiff and against the defendant, and the latter is ordered to pay
plaintiff:
Plaintiff-appellee PRCI is a domestic corporation which maintains
several accounts with different banks in the Metro Manila area. (1) The sum of Two Hundred Twenty Thousand (P220,000.00)
Among the accounts maintained was Current Account No. 58891-012 Pesos, with legal interest to be computed from date of the filing of the
with defendant-appellant BA (Paseo de Roxas Branch). The herein complaint;
authorized joint signatories with respect to said Current Account
were plaintiff-appellees President (Antonia Reyes) and Vice (2) The sum of Twenty Thousand (P20,000.00) Pesos by way
President for Finance (Gregorio Reyes). of attorneys fees;

(3) The sum of Ten Thousand (P10,000.00) Pesos for litigation

expenses, and
On or about the 2nd week of December 1988, the President and Vice
President of plaintiff-appellee corporation were scheduled to go out (4) To pay the costs of suit.
of the country in connection with the corporations business. In order
not to disrupt operations in their absence, they pre-signed several
checks relating to Current Account No. 58891-012. The intention was
to insure continuity of plaintiff-appellees operations by making SO ORDERED.[5]
available cash/money especially to settle obligations that might
become due. These checks were entrusted to the accountant with Petitioner appealed the aforesaid trial court Decision to the CA
instruction to make use of the same as the need arose. The internal which, however, affirmed said decision in toto in its July 16, 2001
arrangement was, in the event there was need to make use of the Decision. Petitioners Motion for Reconsideration of the CA Decision
checks, the accountant would prepare the corresponding voucher was subsequently denied on September 28, 2001.
and thereafter complete the entries on the pre-signed checks.

Petitioner now comes before this Court arguing that:

It turned out that on December 16, 1988, a John Doe presented to
defendant-appellant bank for encashment a couple of plaintiff-
appellee corporations checks (Nos. 401116 and 401117) with the
indicated value of P110,000.00 each. It is admitted that these 2 checks I. The Court of Appeals gravely erred in holding that the
were among those presigned by plaintiff-appellee corporations proximate cause of respondents loss was petitioners encashment of
authorized signatories. the checks.
A. The Court of Appeals gravely erred in holding that petitioner was
liable for the amount of the checks despite the fact that petitioner was
merely fulfilling its obligation under law and contract.
B. The Court of Appeals gravely erred in holding that petitioner had
a duty to verify the encashment, despite the absence of any obligation
to do so.
C. The Court of Appeals gravely erred in not applying Section 14 of
the Negotiable Instruments Law, despite its clear applicability to this
case;
II. The Court of Appeals gravely erred in not holding that the
proximate cause of respondents loss was its own grossly negligent
practice of pre-signing checks without payees and amounts and
delivering these pre-signed checks to its employees (other than their
signatories).
III. The Court of Appeals gravely erred in affirming the trial
courts award of attorneys fees despite the absence of any applicable
ground under Article 2208 of the Civil Code.
IV. The Court of Appeals gravely erred in not awarding attorneys
fees, moral and exemplary damages, and costs of suit in favor of
petitioner, who clearly deserves them.[6]
From the discussions of both parties in their pleadings, the key issue
to be resolved in the present case is whether the proximate cause of
the wrongful encashment of the checks in question was due to (a)
petitioners failure to make a verification regarding the said checks
with the respondent in view of the misplacement of entries on the
face of the checks or (b) the practice of the respondent of pre-signing
blank checks and leaving the same with its employees.
Petitioner insists that it merely fulfilled its obligation under law and
contract when it encashed the aforesaid checks. Invoking Sections
126[7] and 185[8] of the Negotiable Instruments Law (NIL),
petitioner claims that its duty as a drawee bank to a drawer-client
maintaining a checking account with it is to pay orders for checks
bearing the drawer-clients genuine signatures. The genuine
signatures of the clients duly authorized signatories affixed on the
checks signify the order for payment. Thus, pursuant to the said
obligation, the drawee bank has the duty to determine whether the
signatures appearing on the check are the drawer-clients or its duly
authorized signatories. If the signatures are genuine, the bank has the
unavoidable legal and contractual duty to pay. If the signatures are
forged and falsified, the drawee bank has the corollary, but equally
unavoidable legal and contractual, duty not to pay.[9]
Furthermore, petitioner maintains that there exists a duty on the
drawee bank to inquire from the drawer before encashing a check
only when the check bears a material alteration. A material alteration
is defined in Section 125 of the NIL to be one which changes the date,
the sum payable, the time or place of payment, the number or
relations of the parties, the currency in which payment is to be made
or one which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of
the instrument in any respect. With respect to the checks at issue,
petitioner points out that they do not contain any material
alteration.[10] This is a fact which was affirmed by the trial court
itself.[11]
There is no dispute that the signatures appearing on the subject
checks were genuine signatures of the respondents authorized joint
signatories; namely, Antonia Reyes and Gregorio Reyes who were
respondents President and Vice-President for Finance, respectively.
Both pre-signed the said checks since they were both scheduled to go
abroad and it was apparently their practice to leave with the
company accountant checks signed in black to answer for company
obligations that might fall due during the signatories absence. It is
likewise admitted that neither of the subject checks contains any
material alteration or erasure.
However, on the blank space of each check reserved for the payee, the
following typewritten words appear: ONE HUNDRED TEN
THOUSAND PESOS ONLY. Above the same is the typewritten word,
CASH. On the blank reserved for the amount, the same amount of One
Hundred Ten Thousand Pesos was indicated with the use of a check
writer. The presence of these irregularities in each check should have
alerted the petitioner to be cautious before proceeding to encash
them which it did not do.
It is well-settled that 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.[12]
Petitioner asserts that it was not duty-bound to verify with the
respondent since the amount below the typewritten word CASH,
expressed in words, is the very same amount indicated in figures by
means of a check writer on the amount portion of the check. The
amount stated in words is, therefore, a mere reiteration of the
amount stated in figures. Petitioner emphasizes that a reiteration of
the amount in words is merely a repetition and that a repetition is not
an alteration which if present and material would have enjoined it to
commence verification with respondent.[13]
We do not agree with petitioners myopic view and carefully crafted
defense. Although not in the strict sense material alterations, the
misplacement of the typewritten entries for the payee and the
amount on the same blank and the repetition of the amount using a
check writer were glaringly obvious irregularities on the face of the
check. Clearly, someone made a mistake in filling up the checks and
the repetition of the entries was possibly an attempt to rectify the
mistake. Also, if the check had been filled up by the person who
customarily accomplishes the checks of respondent, it should have
occurred to petitioners employees that it would be unlikely such
mistakes would be made. All these circumstances should have alerted
the bank to the possibility that the holder or the person who is
attempting to encash the checks did not have proper title to the
checks or did not have authority to fill up and encash the same. As
noted by the CA, petitioner could have made a simple phone call to its
client to clarify the irregularities and the loss to respondent due to
the encashment of the stolen checks would have been prevented.
In the case at bar, extraordinary diligence demands that petitioner
should have ascertained from respondent the authenticity of the
subject checks or the accuracy of the entries therein not only because
of the presence of highly irregular entries on the face of the checks
but also of the decidedly unusual circumstances surrounding their
encashment. Respondents witness testified that for checks in
amounts greater than Twenty Thousand Pesos (P20,000.00) it is the
companys practice to ensure that the payee is indicated by name in
the check.[14] This was not rebutted by petitioner. Indeed, it is highly
uncommon for a corporation to make out checks payable to CASH for
substantial amounts such as in this case. If each irregular
circumstance in this case were taken singly or isolated, the banks
employees might have been justified in ignoring them. However, the
confluence of the irregularities on the face of the checks and
circumstances that depart from the usual banking practice of
respondent should have put petitioners employees on guard that the
checks were possibly not issued by the respondent in due course of
its business. Petitioners subtle sophistry cannot exculpate it from
behavior that fell extremely short of the highest degree of care and
diligence required of it as a banking institution.
Indeed, taking this with the testimony of petitioners operations
manager that in case of an irregularity on the face of the check (such
as when blanks were not properly filled out) the bank may or may
not call the client depending on how busy the bank is on a particular
day,[15] we are even more convinced that petitioners safeguards to
protect clients from check fraud are arbitrary and subjective. Every
client should be treated equally by a banking institution regardless of
the amount of his deposits and each client has the right to expect that
every centavo he entrusts to a bank would be handled with the same
degree of care as the accounts of other clients. Perforce, we find that
petitioner plainly failed to adhere to the high standard of diligence
expected of it as a banking institution.
In defense of its cashier/tellers questionable action, petitioner insists
that pursuant to Sections 14[16] and 16[17] of the NIL, it could
validly presume, upon presentation of the checks, that the party who
filled up the blanks had authority and that a valid and intentional
delivery to the party presenting the checks had taken place. Thus, in
petitioners view, the sole blame for this debacle should be shifted to
respondent for having its signatories pre-sign and deliver the subject
checks.[18] Petitioner argues that there was indeed delivery in this
case because, following American jurisprudence, the gross
negligence of respondents accountant in safekeeping the subject
checks which resulted in their theft should be treated as a voluntary
delivery by the maker who is estopped from claiming non-delivery of
the instrument.[19]
Petitioners contention would have been correct if the subject checks
were correctly and properly filled out by the thief and presented to
the bank in good order. In that instance, there would be nothing to
give notice to the bank of any infirmity in the title of the holder of the
checks and it could validly presume that there was proper delivery to
the holder. The bank could not be faulted if it encashed the checks
under those circumstances. However, the undisputed facts plainly
show that there were circumstances that should have alerted the
bank to the likelihood that the checks were not properly delivered to
the person who encashed the same. In all, we see no reason to depart
from the finding in the assailed CA Decision that the subject checks
are properly characterized as incomplete and undelivered
instruments thus making Section 15[20] of the NIL applicable in this
case.
However, we do agree with petitioner that respondents officers
practice of pre-signing of blank checks should be deemed seriously
negligent behavior and a highly risky means of purportedly ensuring
the efficient operation of businesses. It should have occurred to
respondents officers and managers that the pre-signed blank checks
could fall into the wrong hands as they did in this case where the said
checks were stolen from the company accountant to whom the
checks were entrusted.
Nevertheless, even if we assume that both parties were guilty of
negligent acts that led to the loss, petitioner will still emerge as the
party foremost liable in this case. In instances where both parties are
at fault, this Court has consistently applied the doctrine of last clear
chance in order to assign liability.
In Westmont Bank v. Ong,[21] we ruled:
[I]t is petitioner [bank] 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. As we had earlier ruled, the one who had a last clear
opportunity to avoid the impending harm but failed to do so is
chargeable with the consequences thereof.[22] (emphasis ours)
In the case at bar, petitioner cannot evade responsibility for the loss
by attributing negligence on the part of respondent because, even if
we concur that the latter was indeed negligent in pre-signing blank
checks, the former had the last clear chance to avoid the loss. To
reiterate, petitioners own operations manager admitted that they
could have called up the client for verification or confirmation before
honoring the dubious checks. Verily, petitioner had the final
opportunity to avert the injury that befell the respondent. Failing to
make the necessary verification due to the volume of banking
transactions on that particular day is a flimsy and unacceptable
excuse, considering that the banking business is so impressed with
public interest where the trust and confidence of the public in general
is of paramount importance such that the appropriate standard of
diligence must be a high degree of diligence, if not the utmost
diligence.[23] Petitioners negligence has been undoubtedly
established and, thus, pursuant to Art. 1170 of the NCC,[24] it must
suffer the consequence of said negligence.
In the interest of fairness, however, we believe it is proper to consider
respondents own negligence to mitigate petitioners liability. Article
2179 of the Civil Code provides:
Art. 2179. When the plaintiffs own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate
cause of the injury being the defendants lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the damages to be
awarded.
Explaining this provision in Lambert v. Heirs of Ray Castillon,[25] the
Court held:
The underlying precept on contributory negligence is that a plaintiff
who is partly responsible for his own injury should not be entitled to
recover damages in full but must bear the consequences of his own
negligence. The defendant must thus be held liable only for the
damages actually caused by his negligence. xxx xxx xxx
As we previously stated, respondents practice of signing checks in
blank whenever its authorized bank signatories would travel abroad
was a dangerous policy, especially considering the lack of evidence
on record that respondent had appropriate safeguards or internal
controls to prevent the pre-signed blank checks from falling into the
hands of unscrupulous individuals and being used to commit a fraud
against the company. We cannot believe that there was no other
secure and reasonable way to guarantee the non-disruption of
respondents business. As testified to by petitioners expert witness,
other corporations would ordinarily have another set of authorized
bank signatories who would be able to sign checks in the absence of
the preferred signatories.[26] Indeed, if not for the fortunate
happenstance that the thief failed to properly fill up the subject
checks, respondent would expectedly take the blame for the entire
loss since the defense of forgery of a drawers signature(s) would be
unavailable to it. Considering that respondent knowingly took the
risk that the pre-signed blank checks might fall into the hands of
wrongdoers, it is but just that respondent shares in the responsibility
for the loss.
We also cannot ignore the fact that the person who stole the pre-
signed checks subject of this case from respondents accountant
turned out to be another employee, purportedly a clerk in
respondents accounting department. As the employer of the thief,
respondent supposedly had control and supervision over its own
employee. This gives the Court more reason to allocate part of the loss
to respondent.
Following established jurisprudential precedents,[27] we believe the
allocation of sixty percent (60%) of the actual damages involved in
this case (represented by the amount of the checks with legal
interest) to petitioner is proper under the premises. Respondent
should, in light of its contributory negligence, bear forty percent
(40%) of its own loss.
Finally, we find that the awards of attorneys fees and litigation
expenses in favor of respondent are not justified under the
circumstances and, thus, must be deleted. The power of the court to
award attorneys fees and litigation expenses under Article 2208 of
the NCC[28] demands factual, legal, and equitable justification.
An adverse decision does not ipso facto justify an award of attorneys
fees to the winning party.[29] Even when a claimant is compelled to
litigate with third persons or to incur expenses to protect his rights,
still attorneys fees may not be awarded where no sufficient showing
of bad faith could be reflected in a partys persistence in a case other
than an erroneous conviction of the righteousness of his cause.[30]
WHEREFORE, the Decision of the Court of Appeals dated July 16,
2001 and its Resolution dated September 28, 2001 are AFFIRMED
with the following MODIFICATIONS: (a) petitioner Bank of America
NT & SA shall pay to respondent Philippine Racing Club sixty percent
(60%) of the sum of Two Hundred Twenty Thousand Pesos
(P220,000.00) with legal interest as awarded by the trial court and
(b) the awards of attorneys fees and litigation expenses in favor of
respondent are deleted.
Proportionate costs.
SO ORDERED.
Rizal banking corp. vs. Hi-Tri Dev corp.
Narido
G.R. NO. 192413 June 13, 2002
Sec. 16
DECISION
SERENO, J.:
Before the Court is a Rule 45 Petition for Review on Certiorari filed
by petitioner Rizal Commercial Banking Corporation (RCBC) against
respondents Hi-Tri Development Corporation (Hi-Tri) and Luz R.
Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26
November 2009 Decision and 27 May 2010 Resolution of the Court of
Appeals (CA),[1] which reversed and set aside the 19 May 2008
Decision and 3 November 2008 Order of the Makati City Regional
Trial Court (RTC) in Civil Case No. 06-244.[2] The case before the RTC
involved the Complaint for Escheat filed by the Republic of the
Philippines (Republic) pursuant to Act No. 3936, as amended by
Presidential Decree No. 679 (P.D. 679), against certain deposits,
credits, and unclaimed balances held by the branches of various
banks in the Philippines. The trial court declared the amounts,
subject of the special proceedings, escheated to the Republic and
ordered them deposited with the Treasurer of the Philippines
(Treasurer) and credited in favor of the Republic.[3] The assailed RTC
judgments included an unclaimed balance in the amount of
₱1,019,514.29, maintained by RCBC in its Ermita Business Center
branch.
We quote the narration of facts of the CA[4] as follows:
x x x Luz [R.] Bakunawa and her husband Manuel, now deceased
(Spouses Bakunawa) are registered owners of six (6) parcels of land
covered by TCT Nos. 324985 and 324986 of the Quezon City Register
of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the
Marikina Register of Deeds. These lots were sequestered by the
Presidential Commission on Good Government [(PCGG)].
Sometime in 1990, a certain Teresita Millan (Millan), through her
representative, Jerry Montemayor, offered to buy said lots for
₱6,724,085.71, with the promise that she will take care of clearing
whatever preliminary obstacles there may[]be to effect a completion
of the sale. The Spouses Bakunawa gave to Millan the Owners Copies
of said TCTs and in turn, Millan made a down[]payment of
₱1,019,514.29 for the intended purchase. However, for one reason or
another, Millan was not able to clear said obstacles. As a result, the
Spouses Bakunawa rescinded the sale and offered to return to Millan
her down[]payment of ₱1,019,514.29. However, Millan refused to
accept back the ₱1,019,514.29 down[]payment. Consequently, the
Spouses Bakunawa, through their company, the Hi-Tri Development
Corporation (Hi-Tri) took out on October 28, 1991, a Managers Check
from RCBC-Ermita in the amount of ₱1,019,514.29, payable to
Millans company Rosmil Realty and Development Corporation
(Rosmil) c/o Teresita Millan and used this as one of their basis for a
complaint against Millan and Montemayor which they filed with the
Regional Trial Court of Quezon City, Branch 99, docketed as Civil Case
No. Q-91-10719 [in 1991], praying that:
1. That the defendants Teresita Mil[l]an and Jerry Montemayor may
be ordered to return to plaintiffs spouses the Owners Copies of
Transfer Certificates of Title Nos. 324985, 324986, 103724, 98827,
98828 and 98829;
2. That the defendant Teresita Mil[l]an be correspondingly ordered
to receive the amount of One Million Nineteen Thousand Five
Hundred Fourteen Pesos and Twenty Nine Centavos
(₱1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs spouses moral
damages in the amount of ₱2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs attorneys fees
in the amount of ₱50,000.00.
Being part and parcel of said complaint, and consistent with their
prayer in Civil Case No. Q-91-10719 that Teresita Mil[l]an be
correspondingly ordered to receive the amount of One Million
Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine
[Centavos] (₱1,019,514.29)[], the Spouses Bakunawa, upon advice of
their counsel, retained custody of RCBC Managers Check No. ER
034469 and refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719,
especially during negotiations for a possible settlement of the case,
Millan was informed that the Managers Check was available for her
withdrawal, she being the payee.
On January 31, 2003, during the pendency of the abovementioned
case and without the knowledge of [Hi-Tri and Spouses Bakunawa], x
x x RCBC reported the ₱1,019,514.29-credit existing in favor of
Rosmil to the Bureau of Treasury as among its unclaimed balances as
of January 31, 2003. Allegedly, a copy of the Sworn Statement
executed by Florentino N. Mendoza, Manager and Head of RCBCs
Asset Management, Disbursement & Sundry Department (AMDSD)
was posted within the premises of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the [Office of the
Solicitor General (OSG)], filed with the RTC the action below for
Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their
dispute with Rosmil and Millan. Instead of only the amount of
₱1,019,514.29, [Spouses Bakunawa] agreed to pay Rosmil and Millan
the amount of ₱3,000,000.00, [which is] inclusive [of] the amount of
[]₱1,019,514.29. But during negotiations and evidently prior to said
settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-
Ermita the availability of the ₱1,019,514.29 under RCBC Managers
Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however
dismayed when they were informed that the amount was already
subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x
RCBC, viz:
We understand that the deposit corresponding to the amount of Php
1,019,514.29 stated in the Managers Check is currently the subject of
escheat proceedings pending before Branch 150 of the Makati
Regional Trial Court.
Please note that it was our impression that the deposit would be
taken from [Hi-Tris] RCBC bank account once an order to debit is
issued upon the payees presentation of the Managers Check. Since the
payee rejected the negotiated Managers Check, presentation of the
Managers Check was never made.
Consequently, the deposit that was supposed to be allocated for the
payment of the Managers Check was supposed to remain part of the
Corporation[s] RCBC bank account, which, thereafter, continued to
be actively maintained and operated. For this reason, We hereby
demand your confirmation that the amount of Php 1,019,514.29
continues to form part of the funds in the Corporations RCBC bank
account, since pay-out of said amount was never ordered. We wish to
point out that if there was any attempt on the part of RCBC to
consider the amount indicated in the Managers Check separate from
the Corporations bank account, RCBC would have issued a statement
to that effect, and repeatedly reminded the Corporation that the
deposit would be considered dormant absent any fund movement.
Since the Corporation never received any statements of account from
RCBC to that effect, and more importantly, never received any single
letter from RCBC noting the absence of fund movement and advising
the Corporation that the deposit would be treated as dormant.
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x
RCBC reiterating their position as above-quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-
Tri and Spouses Bakunawa] that:
The Banks Ermita BC informed Hi-Tri and/or its principals regarding
the inclusion of Managers Check No. ER034469 in the escheat
proceedings docketed as Civil Case No. 06-244, as well as the status
thereof, between 28 January 2008 and 1 February 2008.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Managers
Check No. ER034469 does not form part of the Banks own account.
By simple operation of law, the funds covered by the managers check
in issue became a deposit/credit susceptible for inclusion in the
escheat case initiated by the OSG and/or Bureau of Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-bound to make good the
check, the Banks obligation to do so prescribed as early as October
2001.
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19
May 2008, the trial court rendered its assailed Decision declaring the
deposits, credits, and unclaimed balances subject of Civil Case No. 06-
244 escheated to the Republic. Among those included in the order of
forfeiture was the amount of ₱1,019,514.29 held by RCBC as allocated
funds intended for the payment of the Managers Check issued in favor
of Rosmil. The trial court ordered the deposit of the escheated
balances with the Treasurer and credited in favor of the Republic.
Respondents claim that they were not able to participate in the trial,
as they were not informed of the ongoing escheat proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June
2008, seeking the partial reconsideration of the RTC Decision insofar
as it escheated the fund allocated for the payment of the Managers
Check. They asked that they be included as party-defendants or, in
the alternative, allowed to intervene in the case and their motion
considered as an answer-in-intervention. Respondents argued that
they had meritorious grounds to ask reconsideration of the Decision
or, alternatively, to seek intervention in the case. They alleged that
the deposit was subject of an ongoing dispute (Civil Case No. Q-91-
10719) between them and Rosmil since 1991, and that they were
interested parties to that case.[5]
On 3 November 2008, the RTC issued an Order denying the motion of
respondents. The trial court explained that the Republic had proven
compliance with the requirements of publication and notice, which
served as notice to all those who may be affected and prejudiced by
the Complaint for Escheat. The RTC also found that the motion failed
to point out the findings and conclusions that were not supported by
the law or the evidence presented, as required by Rule 37 of the Rules
of Court. Finally, it ruled that the alternative prayer to intervene was
filed out of time.
The CA Ruling

On 26 November 2009, the CA issued its assailed Decision reversing
the 19 May 2008 Decision and 3 November 2008 Order of the RTC.
According to the appellate court,[6] RCBC failed to prove that the
latter had communicated with the purchaser of the Managers Check
(Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil)
immediately before the bank filed its Sworn Statement on the
dormant accounts held therein. The CA ruled that the banks failure to
notify respondents deprived them of an opportunity to intervene in
the escheat proceedings and to present evidence to substantiate their
claim, in violation of their right to due process. Furthermore, the CA
pronounced that the Makati City RTC Clerk of Court failed to issue
individual notices directed to all persons claiming interest in the
unclaimed balances, as well as to require them to appear after
publication and show cause why the unclaimed balances should not
be deposited with the Treasurer of the Philippines. It explained that
the jurisdictional requirement of individual notice by personal
service was distinct from the requirement of notice by publication.
Consequently, the CA held that the Decision and Order of the RTC
were void for want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the
main issues as follows:
I. Whether the Decision and Order of the RTC were void for
failure to send separate notices to respondents by personal service
II. Whether petitioner had the obligation to notify respondents
immediately before it filed its Sworn Statement with the Treasurer
III. Whether or not the allocated funds may be escheated in
favor of the Republic
Discussion
Petitioner bank assails[7] the CA judgments insofar as they ruled that
notice by personal service upon respondents is a jurisdictional
requirement in escheat proceedings. Petitioner contends that
respondents were not the owners of the unclaimed balances and
were thus not entitled to notice from the RTC Clerk of Court. It hinges
its claim on the theory that the funds represented by the Managers
Check were deemed transferred to the credit of the payee or holder
upon its issuance.
We quote the pertinent provision of Act No. 3936, as amended, on the
rule on service of processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of such
unclaimed balances, he shall commence an action or actions in the
name of the People of the Republic of the Philippines in the Court of
First Instance of the province or city where the bank, building and
loan association or trust corporation is located, in which shall be
joined as parties the bank, building and loan association or trust
corporation and all such creditors or depositors. All or any of such
creditors or depositors or banks, building and loan association or
trust corporations may be included in one action. Service of process
in such action or actions shall be made by delivery of a copy of the
complaint and summons to the president, cashier, or managing
officer of each defendant bank, building and loan association or trust
corporation and by publication of a copy of such summons in a
newspaper of general circulation, either in English, in Filipino, or in a
local dialect, published in the locality where the bank, building and
loan association or trust corporation is situated, if there be any, and
in case there is none, in the City of Manila, at such time as the court
may order. Upon the trial, the court must hear all parties who have
appeared therein, and if it be determined that such unclaimed
balances in any defendant bank, building and loan association or trust
corporation are unclaimed as hereinbefore stated, then the court
shall render judgment in favor of the Government of the Republic of
the Philippines, declaring that said unclaimed balances have
escheated to the Government of the Republic of the Philippines and
commanding said bank, building and loan association or trust
corporation to forthwith deposit the same with the Treasurer of the
Philippines to credit of the Government of the Republic of the
Philippines to be used as the National Assembly may direct.
At the time of issuing summons in the action above provided for, the
clerk of court shall also issue a notice signed by him, giving the title
and number of said action, and referring to the complaint therein, and
directed to all persons, other than those named as defendants
therein, claiming any interest in any unclaimed balance mentioned in
said complaint, and requiring them to appear within sixty days after
the publication or first publication, if there are several, of such
summons, and show cause, if they have any, why the unclaimed
balances involved in said action should not be deposited with the
Treasurer of the Philippines as in this Act provided and notifying
them that if they do not appear and show cause, the Government of
the Republic of the Philippines will apply to the court for the relief
demanded in the complaint. A copy of said notice shall be attached to,
and published with the copy of, said summons required to be
published as above, and at the end of the copy of such notice so
published, there shall be a statement of the date of publication, or first
publication, if there are several, of said summons and notice. Any
person interested may appear in said action and become a party
thereto. Upon the publication or the completion of the publication, if
there are several, of the summons and notice, and the service of the
summons on the defendant banks, building and loan associations or
trust corporations, the court shall have full and complete jurisdiction
in the Republic of the Philippines over the said unclaimed balances
and over the persons having or claiming any interest in the said
unclaimed balances, or any of them, and shall have full and complete
jurisdiction to hear and determine the issues herein, and render the
appropriate judgment thereon. (Emphasis supplied.)
Hence, insofar as banks are concerned, service of processes is made
by delivery of a copy of the complaint and summons upon the
president, cashier, or managing officer of the defendant bank.[8] On
the other hand, as to depositors or other claimants of the unclaimed
balances, service is made by publication of a copy of the summons in
a newspaper of general circulation in the locality where the
institution is situated.[9] A notice about the forthcoming escheat
proceedings must also be issued and published, directing and
requiring all persons who may claim any interest in the unclaimed
balances to appear before the court and show cause why the dormant
accounts should not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the
issuance of individual notices upon respondents was a jurisdictional
requirement, and that failure to effect personal service on them
rendered the Decision and the Order of the RTC void for want of
jurisdiction. Escheat proceedings are actions in rem,[10] whereby an
action is brought against the thing itself instead of the person.[11]
Thus, an action may be instituted and carried to judgment without
personal service upon the depositors or other claimants.[12]
Jurisdiction is secured by the power of the court over the res.[13]
Consequently, a judgment of escheat is conclusive upon persons
notified by advertisement, as publication is considered a general and
constructive notice to all persons interested.[14]
Nevertheless, we find sufficient grounds to affirm the CA on the
exclusion of the funds allocated for the payment of the Managers
Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state,
by virtue of its sovereignty, steps in and claims abandoned, left
vacant, or unclaimed property, without there being an interested
person having a legal claim thereto.[15] In the case of dormant
accounts, the state inquires into the status, custody, and ownership
of the unclaimed balance to determine whether the inactivity was
brought about by the fact of death or absence of or abandonment by
the depositor.[16] If after the proceedings the property remains
without a lawful owner interested to claim it, the property shall be
reverted to the state to forestall an open invitation to self-service by
the first comers.[17] However, if interested parties have come
forward and lain claim to the property, the courts shall determine
whether the credit or deposit should pass to the claimants or be
forfeited in favor of the state.[18] We emphasize that escheat is not a
proceeding to penalize depositors for failing to deposit to or
withdraw from their accounts. It is a proceeding whereby the state
compels the surrender to it of unclaimed deposit balances when
there is substantial ground for a belief that they have been
abandoned, forgotten, or without an owner.[19]
Act No. 3936, as amended, outlines the proper procedure to be
followed by banks and other similar institutions in filing a sworn
statement with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and within the
month of January of every odd year, all banks, building and loan
associations, and trust corporations shall forward to the Treasurer of
the Philippines a statement, under oath, of their respective managing
officers, of all credits and deposits held by them in favor of persons
known to be dead, or who have not made further deposits or
withdrawals during the preceding ten years or more, arranged in
alphabetical order according to the names of creditors and
depositors, and showing:
(a) The names and last known place of residence or post office
addresses of the persons in whose favor such unclaimed balances
stand;
(b) The amount and the date of the outstanding unclaimed balance
and whether the same is in money or in security, and if the latter, the
nature of the same;
(c) The date when the person in whose favor the unclaimed balance
stands died, if known, or the date when he made his last deposit or
withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the
amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous
place in the premises of the bank, building and loan association, or
trust corporation concerned for at least sixty days from the date of
filing thereof: Provided, That immediately before filing the above
sworn statement, the bank, building and loan association, and trust
corporation shall communicate with the person in whose favor the
unclaimed balance stands at his last known place of residence or post
office address.
It shall be the duty of the Treasurer of the Philippines to inform the
Solicitor General from time to time the existence of unclaimed
balances held by banks, building and loan associations, and trust
corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system
for notifying depositors of unclaimed balances. This notification is
meant to inform them that their deposit could be escheated if left
unclaimed. Accordingly, before filing a sworn statement, banks and
other similar institutions are under obligation to communicate with
owners of dormant accounts. The purpose of this initial notice is for
a bank to determine whether an inactive account has indeed been
unclaimed, abandoned, forgotten, or left without an owner. If the
depositor simply does not wish to touch the funds in the meantime,
but still asserts ownership and dominion over the dormant account,
then the bank is no longer obligated to include the account in its
sworn statement.[20] It is not the intent of the law to force depositors
into unnecessary litigation and defense of their rights, as the state is
only interested in escheating balances that have been abandoned and
left without an owner.
In case the bank complies with the provisions of the law and the
unclaimed balances are eventually escheated to the Republic, the
bank shall not thereafter be liable to any person for the same and any
action which may be brought by any person against in any bank xxx
for unclaimed balances so deposited xxx shall be defended by the
Solicitor General without cost to such bank.[21] Otherwise, should it
fail to comply with the legally outlined procedure to the prejudice of
the depositor, the bank may not raise the defense provided under
Section 5 of Act No. 3936, as amended.
Petitioner asserts[22] that the CA committed a reversible error when
it required RCBC to send prior notices to respondents about the
forthcoming escheat proceedings involving the funds allocated for
the payment of the Managers Check. It explains that, pursuant to the
law, only those whose favor such unclaimed balances stand are
entitled to receive notices. Petitioner argues that, since the funds
represented by the Managers Check were deemed transferred to the
credit of the payee upon issuance of the check, the proper party
entitled to the notices was the payee Rosmil and not respondents.
Petitioner then contends that, in any event, it is not liable for failing
to send a separate notice to the payee, because it did not have the
address of Rosmil. Petitioner avers that it was not under any
obligation to record the address of the payee of a Managers Check.
In contrast, respondents Hi-Tri and Bakunawa allege[23] that they
have a legal interest in the fund allocated for the payment of the
Managers Check. They reason that, since the funds were part of the
Compromise Agreement between respondents and Rosmil in a
separate civil case, the approval and eventual execution of the
agreement effectively reverted the fund to the credit of respondents.
Respondents further posit that their ownership of the funds was
evidenced by their continued custody of the Managers Check.
An ordinary check refers to a bill of exchange drawn by a depositor
(drawer) on a bank (drawee),[24] requesting the latter to pay a
person named therein (payee) or to the order of the payee or to the
bearer, a named sum of money.[25] The issuance of the check does
not of itself operate as an assignment of any part of the funds in the
bank to the credit of the drawer.[26] Here, the bank becomes liable
only after it accepts or certifies the check.[27] After the check is
accepted for payment, the bank would then debit the amount to be
paid to the holder of the check from the account of the depositor-
drawer.
There are checks of a special type called managers or cashiers checks.
These are bills of exchange drawn by the banks manager or cashier,
in the name of the bank, against the bank itself.[28] Typically, a
managers or a cashiers check is procured from the bank by allocating
a particular amount of funds to be debited from the depositors
account or by directly paying or depositing to the bank the value of
the check to be drawn. Since the bank issues the check in its name,
with itself as the drawee, the check is deemed accepted in
advance.[29] Ordinarily, the check becomes the primary obligation of
the issuing bank and constitutes its written promise to pay upon
demand.[30]
Nevertheless, the mere issuance of a managers check does not ipso
facto work as an automatic transfer of funds to the account of the
payee. In case the procurer of the managers or cashiers check retains
custody of the instrument, does not tender it to the intended payee,
or fails to make an effective delivery, we find the following provision
on undelivered instruments under the Negotiable Instruments Law
applicable:[31]
Sec. 16. Delivery; when effectual; when presumed. Every contract on
a negotiable instrument is incomplete and revocable until delivery of
the instrument for the purpose of giving effect thereto. As between
immediate parties and as regards a remote party other than a holder
in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the property in
the instrument. But where the instrument is in the hands of a holder
in due course, a valid delivery thereof by all parties prior to him so as
to make them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is presumed
until the contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Managers Check was procured by
respondents, and that the amount to be paid for the check would be
sourced from the deposit account of Hi-Tri.[32] When Rosmil did not
accept the Managers Check offered by respondents, the latter
retained custody of the instrument instead of cancelling it. As the
Managers Check neither went to the hands of Rosmil nor was it
further negotiated to other persons, the instrument remained
undelivered. Petitioner does not dispute the fact that respondents
retained custody of the instrument.[33]
Since there was no delivery, presentment of the check to the bank for
payment did not occur. An order to debit the account of respondents
was never made. In fact, petitioner confirms that the Managers Check
was never negotiated or presented for payment to its Ermita Branch,
and that the allocated fund is still held by the bank.[34] As a result,
the assigned fund is deemed to remain part of the account of Hi-Tri,
which procured the Managers Check. The doctrine that the deposit
represented by a managers check automatically passes to the payee
is inapplicable, because the instrument although accepted in advance
remains undelivered. Hence, respondents should have been informed
that the deposit had been left inactive for more than 10 years, and
that it may be subjected to escheat proceedings if left unclaimed.
After a careful review of the RTC records, we find that it is no longer
necessary to remand the case for hearing to determine whether the
claim of respondents was valid. There was no contention that they
were the procurers of the Managers Check. It is undisputed that there
was no effective delivery of the check, rendering the instrument
incomplete. In addition, we have already settled that respondents
retained ownership of the funds. As it is obvious from their foregoing
actions that they have not abandoned their claim over the fund, we
rule that the allocated deposit, subject of the Managers Check, should
be excluded from the escheat proceedings. We reiterate our
pronouncement that the objective of escheat proceedings is state
forfeiture of unclaimed balances. We further note that there is
nothing in the records that would show that the OSG appealed the
assailed CA judgments. We take this failure to appeal as an indication
of disinterest in pursuing the escheat proceedings in favor of the
Republic.
WHEREFORE the Petition is DENIED. The 26 November 2009
Decision and 27 May 2010 Resolution of the Court of Appeals in CA-
G.R. SP No. 107261 are hereby AFFIRMED.
SO ORDERED.
Republic Planters bank vs CA
Olarte
G.R. NO. 93073 December 21, 1992
Sec. 17
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 with 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, 1981 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 (formerly 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 Appellate Court (now the Court of 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 solidarily 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 severally
promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at
its office in Manila, Philippines, the sum of ________ PESOS ( ),
Philippine Currency x x x."
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.
voted 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 complaint was originally brought against
Worldwide Garment Manufacturing, Inc. inter alia, but it was later
amended to drop Worldwide Manufacturing, Inc. as defendant and
substitute Pinch Manufacturing Corporation in 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 notes are negotiable instruments and must be
governed by the Negotiable Instruments Law.[2]
Under the Negotiable Instruments 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 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
effect 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 the 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
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 possession thereof
has a prima facie authority to complete it by filling up the blanks
therein. x x x x 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. x
x x x.
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 that 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 Negotiable Instruments Law is not applicable.
This Court takes note that the respondent Court, relying on
Reformina vs. Tomol,[14] lowered the interest rate on the
promissory notes from 16% to 12%.
The ruling in the 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 judgments
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 by 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 rate at 12% per annum.
Central Bank Circular No. 905, Series of 1982 removed the Usury Law
ceiling on interest rates.[16]
In the light 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. Judgment 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 from 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
solidarily liable with defendants for the amounts found by the Court
a quo. With costs against private respondent.
SO ORDERED.
Sps. Eduardo Evangelista vs. Finance Corp.
Ortiguerra
G.R. NO. 148864 August 21, 2003
Sec. 17
DECISION
PUNO, J.:
Petitioners, Spouses Evangelista (Petitioners), are before this Court
on a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, assailing the decision of the Court of Appeals
dismissing their petition.
Petitioners filed a complaint[1] for annulment of titles against
respondents, Mercator Finance Corporation, Lydia P. Salazar, Lamecs
Realty and Development Corporation, and the Register of Deeds of
Bulacan. Petitioners claimed being the registered owners of five (5)
parcels of land[2] contained in the Real Estate Mortgage[3] executed
by them and Embassy Farms, Inc. (Embassy Farms). They alleged that
they executed the Real Estate Mortgage in favor of Mercator
Financing Corporation (Mercator) only as officers of Embassy Farms.
They did not receive the proceeds of the loan evidenced by a
promissory note, as all of it went to Embassy Farms. Thus, they
contended that the mortgage was without any consideration as to
them since they did not personally obtain any loan or credit
accommodations. There being no principal obligation on which the
mortgage rests, the real estate mortgage is void.[4] With the void
mortgage, they assailed the validity of the foreclosure proceedings
conducted by Mercator, the sale to it as the highest bidder in the
public auction, the issuance of the transfer certificates of title to it, the
subsequent sale of the same parcels of land to respondent Lydia P.
Salazar (Salazar), and the transfer of the titles to her name, and lastly,
the sale and transfer of the properties to respondent Lamecs Realty
& Development Corporation (Lamecs).
Mercator admitted that petitioners were the owners of the subject
parcels of land. It, however, contended that on February 16, 1982,
plaintiffs executed a Mortgage in favor of defendant Mercator Finance
Corporation for and in consideration of certain loans, and/or other
forms of credit accommodations obtained from the Mortgagee
(defendant Mercator Finance Corporation) amounting to EIGHT
HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE
& 78/100 (P844,625.78) PESOS, Philippine Currency and to secure
the payment of the same and those others that the MORTGAGEE may
extend to the MORTGAGOR (plaintiffs) x x x.[5] It contended that
since petitioners and Embassy Farms signed the promissory note[6]
as co-makers, aside from the Continuing Suretyship Agreement[7]
subsequently executed to guarantee the indebtedness of Embassy
Farms, and the succeeding promissory notes[8] restructuring the
loan, then petitioners are jointly and severally liable with Embassy
Farms. Due to their failure to pay the obligation, the foreclosure and
subsequent sale of the mortgaged properties are valid.
Respondents Salazar and Lamecs asserted that they are innocent
purchasers for value and in good faith, relying on the validity of the
title of Mercator. Lamecs admitted the prior ownership of petitioners
of the subject parcels of land, but alleged that they are the present
registered owner. Both respondents likewise assailed the long silence
and inaction by petitioners as it was only after a lapse of almost ten
(10) years from the foreclosure of the property and the subsequent
sales that they made their claim. Thus, Salazar and Lamecs averred
that petitioners are in estoppel and guilty of laches.[9]
During pre-trial, the parties agreed on the following issues:
a. Whether or not the Real Estate Mortgage executed by the plaintiffs
in favor of defendant Mercator Finance Corp. is null and void;
b. Whether or not the extra-judicial foreclosure proceedings
undertaken on subject parcels of land to satisfy the indebtedness of
Embassy Farms, Inc. is (sic) null and void;
c. Whether or not the sale made by defendant Mercator Finance Corp.
in favor of Lydia Salazar and that executed by the latter in favor of
defendant Lamecs Realty and Development Corp. are null and void;
d. Whether or not the parties are entitled to damages.[10]
After pre-trial, Mercator moved for summary judgment on the
ground that except as to the amount of damages, there is no factual
issue to be litigated. Mercator argued that petitioners had admitted
in their pre-trial brief the existence of the promissory note, the
continuing suretyship agreement and the subsequent promissory
notes restructuring the loan, hence, there is no genuine issue
regarding their liability. The mortgage, foreclosure proceedings and
the subsequent sales are valid and the complaint must be
dismissed.[11]
Petitioners opposed the motion for summary judgment claiming that
because their personal liability to Mercator is at issue, there is a need
for a full-blown trial.[12]
The RTC granted the motion for summary judgment and dismissed
the complaint. It held:
A reading of the promissory notes show (sic) that the liability of the
signatories thereto are solidary in view of the phrase jointly and
severally. On the promissory note appears (sic) the signatures of
Eduardo B. Evangelista, Epifania C. Evangelista and another signature
of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is
crystal clear then that the plaintiffs-spouses signed the promissory
note not only as officers of Embassy Farms, Inc. but in their personal
capacity as well(.) Plaintiffs(,) by affixing their signatures thereon in
a dual capacity have bound themselves as solidary debtor(s) with
Embassy Farms, Inc. to pay defendant Mercator Finance Corporation
the amount of indebtedness. That the principal contract of loan is
void for lack of consideration, in the light of the foregoing is
untenable.[13]
Petitioners motion for reconsideration was denied for lack of
merit.[14] Thus, petitioners went up to the Court of Appeals, but
again were unsuccessful. The appellate court held:
The appellants insistence that the loans secured by the mortgage they
executed were not personally theirs but those of Embassy Farms, Inc.
is clearly self-serving and misplaced. The fact that they signed the
subject promissory notes in the(ir) personal capacities and as officers
of the said debtor corporation is manifest on the very face of the said
documents of indebtedness (pp. 118, 128-131, Orig. Rec.). Even
assuming arguendo that they did not, the appellants lose sight of the
fact that third persons who are not parties to a loan may secure the
latter by pledging or mortgaging their own property (Lustan vs. Court
of Appeals, 266 SCRA 663, 675). x x x. In constituting a mortgage over
their own property in order to secure the purported corporate debt
of Embassy Farms, Inc., the appellants undeniably assumed the
personality of persons interested in the fulfillment of the principal
obligation who, to save the subject realities from foreclosure and
with a view towards being subrogated to the rights of the creditor,
were free to discharge the same by payment (Articles 1302 [3] and
1303, Civil Code of the Philippines).[15] (emphases in the original)
The appellate court also observed that if the appellants really felt
aggrieved by the foreclosure of the subject mortgage and the
subsequent sales of the realties to other parties, why then did they
commence the suit only on August 12, 1997 (when the certificate of
sale was issued on January 12, 1987, and the certificates of title in the
name of Mercator on September 27, 1988)? Petitioners
procrastination for about nine (9) years is difficult to understand. On
so flimsy a ground as lack of consideration, (w)e may even venture to
say that the complaint was not worth the time of the courts.[16]
A motion for reconsideration by petitioners was likewise denied for
lack of merit.[17] Thus, this petition where they allege that:
THE COURT A QUO ERRED AND ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
AFFIRMING IN TOTO THE MAY 4, 1998 ORDER OF THE TRIAL COURT
GRANTING RESPONDENTS MOTION FOR SUMMARY JUDGMENT
DESPITE THE EXISTENCE OF GENUINE ISSUES AS TO MATERIAL
FACTS AND ITS NON-ENTITLEMENT TO A JUDGMENT AS A MATTER
OF LAW, THEREBY DECIDING THE CASE IN A WAY PROBABLY NOT
IN ACCORD WITH APPLICABLE DECISIONS OF THIS HONORABLE
COURT.[18]
We affirm.
Summary judgment is a procedural technique aimed at weeding out
sham claims or defenses at an early stage of the litigation.[19] The
crucial question in a motion for summary judgment is whether the
issues raised in the pleadings are genuine or fictitious, as shown by
affidavits, depositions or admissions accompanying the motion. A
genuine issue means an issue of fact which calls for the presentation
of evidence, as distinguished from an issue which is fictitious or
contrived so as not to constitute a genuine issue for trial.[20] To
forestall summary judgment, it is essential for the non-moving party
to confirm the existence of genuine issues where he has substantial,
plausible and fairly arguable defense, i.e., issues of fact calling for the
presentation of evidence upon which a reasonable finding of fact
could return a verdict for the non-moving party. The proper inquiry
would therefore be whether the affirmative defenses offered by
petitioners constitute genuine issue of fact requiring a full-blown
trial.[21]
In the case at bar, there are no genuine issues raised by petitioners.
Petitioners do not deny that they obtained a loan from Mercator.
They merely claim that they got the loan as officers of Embassy Farms
without intending to personally bind themselves or their property.
However, a simple perusal of the promissory note and the continuing
suretyship agreement shows otherwise. These documentary
evidence prove that petitioners are solidary obligors with Embassy
Farms.
The promissory note[22] states:
For value received, I/We jointly and severally promise to pay to the
order of MERCATOR FINANCE CORPORATION at its office, the
principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX
HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78),
Philippine currency, x x x, in installments as follows:
September 16, 1982 - P154,267.87
October 16, 1982 - P154,267.87
November 16, 1982 - P154,267.87
December 16, 1982 - P154,267.87
January 16, 1983 - P154,267.87
February 16, 1983 - P154,267.87
x x x x x x x x x.
The note was signed at the bottom by petitioners Eduardo B.
Evangelista and Epifania C. Evangelista, and Embassy Farms, Inc. with
the signature of Eduardo B. Evangelista below it.
The Continuing Suretyship Agreement[23] also proves the solidary
obligation of petitioners, viz:
(Embassy Farms, Inc.)
Principal
(Eduardo B. Evangelista)
Surety
(Epifania C. Evangelista)
Surety
(Mercator Finance Corporation)
Creditor
To: MERCATOR FINANCE COPORATION
(1) For valuable and/or other consideration, EDUARDO B.
EVANGELISTA and EPIFANIA C. EVANGELISTA (hereinafter called
Surety), jointly and severally unconditionally guarantees (sic) to
MERCATOR FINANCE COPORATION (hereinafter called Creditor),
the full, faithful and prompt payment and discharge of any and all
indebtedness of EMBASSY FARMS, INC. (hereinafter called Principal)
to the Creditor.
xxxxxxxxx
(3) The obligations hereunder are joint and several and independent
of the obligations of the Principal. A separate action or actions may
be brought and prosecuted against the Surety whether or not the
action is also brought and prosecuted against the Principal and
whether or not the Principal be joined in any such action or actions.
x x x x x x x x x.
The agreement was signed by petitioners on February 16, 1982. The
promissory notes[24] subsequently executed by petitioners and
Embassy Farms, restructuring their loan, likewise prove that
petitioners are solidarily liable with Embassy Farms.
Petitioners further allege that there is an ambiguity in the wording of
the promissory note and claim that since it was Mercator who
provided the form, then the ambiguity should be resolved against it.
Courts can interpret a contract only if there is doubt in its letter.[25]
But, an examination of the promissory note shows no such ambiguity.
Besides, assuming arguendo that there is an ambiguity, Section 17 of
the Negotiable Instruments Law states, viz:
SECTION 17. Construction where instrument is ambiguous. Where
the language of the instrument is ambiguous or there are omissions
therein, the following rules of construction apply:
xxxxxxxxx
(g) Where an instrument containing the word I promise to pay is
signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
Petitioners also insist that the promissory note does not convey their
true intent in executing the document. The defense is unavailing.
Even if petitioners intended to sign the note merely as officers of
Embassy Farms, still this does not erase the fact that they
subsequently executed a continuing suretyship agreement. A surety
is one who is solidarily liable with the principal.[26] Petitioners
cannot claim that they did not personally receive any consideration
for the contract for well-entrenched is the rule that the consideration
necessary to support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being sufficient.
A surety is bound by the same consideration that makes the contract
effective between the principal parties thereto.[27] Having executed
the suretyship agreement, there can be no dispute on the personal
liability of petitioners.
Lastly, the parol evidence rule does not apply in this case.[28] We
held in Tarnate v. Court of Appeals,[29] that where the parties
admitted the existence of the loans and the mortgage deeds and the
fact of default on the due repayments but raised the contention that
they were misled by respondent bank to believe that the loans were
long-term accommodations, then the parties could not be allowed to
introduce evidence of conditions allegedly agreed upon by them
other than those stipulated in the loan documents because when they
reduced their agreement in writing, it is presumed that they have
made the writing the only repository and memorial of truth, and
whatever is not found in the writing must be understood to have been
waived and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against
the petitioners.
SO ORDERED.
Adalia Francisco vs. CA
Panlaqui
G.R. NO. 116320 November, 29, 1999
Secs. 19, 20, 23
ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS , HERBY
COMMERCIAL & CONSTRUCTION CORPORATION AND JAIME C. ONG,
respondents.
DECISION
GONZAGA_REYES, J.:
Assailed in this petition for review on certiorari is the decision[1] of
the Court of Appeals affirming the decision[2] rendered by Branch
168 of the Regional Trial Court of Pasig in Civil Case No. 35231 in
favor of private respondents.
The controversy before this Court finds its origins in a Land
Development and Construction Contract which was entered into on
June 23, 1977 by A. Francisco Realty & Development Corporation
(AFRDC), of which petitioner Adalia Francisco (Francisco) is the
president, and private respondent Herby Commercial & Construction
Corporation (HCCC), represented by its President and General
Manager private respondent Jaime C. Ong (Ong), pursuant to a
housing project of AFRDC at San Jose del Monte, Bulacan, financed by
the Government Service Insurance System (GSIS). Under the contract,
HCCC agreed to undertake the construction of 35 housing units and
the development of 35 hectares of land. The payment of HCCC for its
services was on a turn-key basis, that is, HCCC was to be paid on the
basis of the completed houses and developed lands delivered to and
accepted by AFRDC and the GSIS. To facilitate payment, AFRDC
executed a Deed of Assignment in favor of HCCC to enable the latter
to collect payments directly from the GSIS. Furthermore, the GSIS and
AFRDC put up an Executive Committee Account with the Insular Bank
of Asia & America (IBAA) in the amount of P4,000,000.00 from which
checks would be issued and co-signed by petitioner Francisco and the
GSIS Vice-President Armando Diaz (Diaz).
On February 10, 1978, HCCC filed a complaint[3] with the Regional
Trial Court of Quezon City against Francisco, AFRDC and the GSIS for
the collection of the unpaid balance under the Land Development and
Construction Contract in the amount of P515,493.89 for completed
and delivered housing units and land development. However, the
parties eventually arrived at an amicable settlement of their
differences, which was embodied in a Memorandum Agreement
executed by HCCC and AFRDC on July 21, 1978. Under the agreement,
the parties stipulated that HCCC had turned over 83 housing units
which have been accepted and paid for by the GSIS. The GSIS
acknowledged that it still owed HCCC P520,177.50 representing
incomplete construction of housing units, incomplete land
development and 5% retention, which amount will be discharged
when the defects and deficiencies are finally completed by HCCC. It
was also provided that HCCC was indebted to AFRDC in the amount
of P180,234.91 which the former agreed would be paid out of the
proceeds from the 40 housing units still to be turned over by HCCC or
from any amount due to HCCC from the GSIS. Consequently, the trial
court dismissed the case upon the filing by the parties of a joint
motion to dismiss.

Sometime in 1979, after an examination of the records of the GSIS,
Ong discovered that Diaz and Francisco had executed and signed
seven checks[4], of various dates and amounts, drawn against the
IBAA and payable to HCCC for completed and delivered work under
the contract. Ong, however, claims that these checks were never
delivered to HCCC. Upon inquiry with Diaz, Ong learned that the GSIS
gave Francisco custody of the checks since she promised that she
would deliver the same to HCCC. Instead, Francisco forged the
signature of Ong, without his knowledge or consent, at the dorsal
portion of the said checks to make it appear that HCCC had indorsed
the checks; Francisco then indorsed the checks for a second time by
signing her name at the back of the checks and deposited the checks
in her IBAA savings account. IBAA credited Franciscos account with
the amount of the checks and the latter withdrew the amount so
credited.
On June 7, 1979, Ong filed complaints with the office of the city fiscal
of Quezon City, charging Francisco with estafa thru falsification of
commercial documents. Francisco denied having forged Ongs
signature on the checks, claiming that Ong himself indorsed the seven
checks in behalf of HCCC and delivered the same to Francisco in
payment of the loans extended by Francisco to HCCC. According to
Francisco, she agreed to grant HCCC the loans in the total amount of
P585,000.00 and covered by eighteen promissory notes in order to
obviate the risk of the non-completion of the project. As a means of
repayment, Ong allegedly issued a Certification authorizing Francisco
to collect HCCCs receivables from the GSIS. Assistant City Fiscal
Ramon M. Gerona gave credence to Franciscos claims and
accordingly, dismissed the complaints, which dismissal was affirmed
by the Minister of Justice in a resolution issued on June 5, 1981.
The present case was brought by private respondents on November
19, 1979 against Francisco and IBAA for the recovery of P370,475.00,
representing the total value of the seven checks, and for damages,
attorneys fees, expenses of litigation and costs. After trial on the
merits, the trial court rendered its decision in favor of private
respondents, the dispositive portion of which provides -
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiffs and against the defendants INSULAR BANK OF
ASIA & AMERICA and ATTY. ADALIA FRANCISCO, to jointly and
severally pay the plaintiffs the amount of P370.475.00 plus interest
thereon at the rate of 12% per annum from the date of the filing of
the complaint until the full amount is paid; moral damages to plaintiff
Jaime Ong in the sum of P50,000.00; exemplary damages of
P50,000.00; litigation expenses of P5,000.00; and attorneys fees of
P50,000.00.
With respect to the cross-claim of the defendant IBAA against its co-
defendant Atty. Adalia Francisco, the latter is ordered to reimburse
the former for the sums that the Bank shall pay to the plaintiff on the
forged checks including the interests paid thereon.
Further, the defendants are ordered to pay the costs.
Based upon the findings of handwriting experts from the National
Bureau of Investigation (NBI), the trial court held that Francisco had
indeed forged the signature of Ong to make it appear that he had
indorsed the checks. Also, the court ruled that there were no loans
extended, reasoning that it was unbelievable that HCCC was
experiencing financial difficulties so as to compel it to obtain the
loans from AFRDC in view of the fact that the GSIS had issued checks
in favor of HCCC at about the same time that the alleged advances
were made. The trial court stated that it was plausible that Francisco
concealed the fact of issuance of the checks from private respondents
in order to make it appear as if she were accommodating private
respondents, when in truth she was lending HCCC its own money.
With regards to the Memorandum Agreement entered into between
AFRDC and HCCC in Civil Case No. Q-24628, the trial court held that
the same did not make any mention of the forged checks since private
respondents were as of yet unaware of their existence, that fact
having been effectively concealed by Francisco, until private
respondents acquired knowledge of Franciscos misdeeds in 1979.
IBAA was held liable to private respondents for having honored the
checks despite such obvious irregularities as the lack of initials to
validate the alterations made on the check, the absence of the
signature of a co-signatory in the corporate checks of HCCC and the
deposit of the checks on a second indorsement in the savings account
of Francisco. However, the trial court allowed IBAA recourse against
Francisco, who was ordered to reimburse the IBAA for any sums it
shall have to pay to private respondents.[5]
Both Francisco and IBAA appealed the trial courts decision, but the
Court of Appeals dismissed IBAAs appeal for its failure to file its brief
within the 45-day extension granted by the appellate court. IBAAs
motion for reconsideration and petition for review on certiorari filed
with this Court were also similarly denied. On November 21, 1989,
IBAA and HCCC entered into a Compromise Agreement which was
approved by the trial court, wherein HCCC acknowledged receipt of
the amount of P370,475.00 in full satisfaction of its claims against
IBAA, without prejudice to the right of the latter to pursue its claims
against Francisco.
On June 29, 1992, the Court of Appeals affirmed the trial courts ruling,
hence this petition for review on certiorari filed by petitioner,
assigning the following errors to the appealed decision
1. The respondent Court of Appeals erred in concluding that private
respondents did not owe Petitioner the sum covered by the
Promissory Notes Exh.2-2-A-2-P (FRANCISCO). Such conclusion was
based mainly on conjectures, surmises and speculation contrary to
the unrebutted pleadings and evidence presented by petitioner.
2. The respondent Court of Appeals erred in holding that Petitioner
falsified the signature of private respondent ONG on the checks in
question without any authority therefor which is patently
contradictory to the unrebutted pleading and evidence that
petitioner was expressly authorized by respondent HERBY thru ONG
to collect all receivables of HERBY from GSIS to pay the loans
extended to them. (Exhibit 3).
3. That respondent Court of Appeals erred in holding that the seven
checks in question were not taken up in the liquidation and
reconciliation of all outstanding account between AFRDC and HERBY
as acknowledged by the parties in Memorandum Agreement (Exh. 5)
is a pure conjecture, surmise and speculation contrary to the
unrebutted evidence presented by petitioners. It is an inference made
which is manifestly mistaken.
4. The respondent Court of Appeals erred in affirming the decision of
the lower court and dismissing the appeal.[6]
The pivotal issue in this case is whether or not Francisco forged the
signature of Ong on the seven checks. In this connection, we uphold
the lower courts finding that the subject matter of the present case,
specifically the seven checks, drawn by GSIS and AFRDC, dated
between October to November 1977, in the total amount of
P370,475.00 and payable to HCCC, was not included in the
Memorandum Agreement executed by HCCC and AFRDC in Civil Case
No. Q-24628. As observed by the trial court, aside from there being
absolutely no mention of the checks in the said agreement, the
amounts represented by said checks could not have been included in
the Memorandum Agreement executed in 1978 because private
respondents only discovered Franciscos acts of forgery in 1979. The
lower courts found that Francisco was able to easily conceal from
private respondents even the fact of the issuance of the checks since
she was a co-signatory thereof.[7] We also note that Francisco had
custody of the checks, as proven by the check vouchers bearing her
uncontested signature,[8] by which she, in effect, acknowledged
having received the checks intended for HCCC. This contradicts
Franciscos claims that the checks were issued to Ong who delivered
them to Francisco already indorsed.[9]
As regards the forgery, we concur with the lower courts finding that
Francisco forged the signature of Ong on the checks to make it appear
as if Ong had indorsed said checks and that, after indorsing the checks
for a second time by signing her name at the back of the checks,
Francisco deposited said checks in her savings account with IBAA.
The forgery was satisfactorily established in the trial court upon the
strength of the findings of the NBI handwriting expert.[10] Other
than petitioners self-serving denials, there is nothing in the records
to rebut the NBIs findings. Well-entrenched is the rule that findings
of trial courts which are factual in nature, especially when affirmed
by the Court of Appeals, deserve to be respected and affirmed by the
Supreme Court, provided it is supported by substantial evidence on
record,[11] as it is in the case at bench.
Petitioner claims that she was, in any event, authorized to sign Ongs
name on the checks by virtue of the Certification executed by Ong in
her favor giving her the authority to collect all the receivables of
HCCC from the GSIS, including the questioned checks.[12] Petitioners
alternative defense must similarly fail. The Negotiable Instruments
Law provides that where any person is under obligation to indorse in
a representative capacity, he may indorse in such terms as to negative
personal liability.[13] An agent, when so signing, should indicate that
he is merely signing in behalf of the principal and must disclose the
name of his principal; otherwise he shall be held personally
liable.[14] Even assuming that Francisco was authorized by HCCC to
sign Ongs name, still, Francisco did not indorse the instrument in
accordance with law. Instead of signing Ongs name, Francisco should
have signed her own name and expressly indicated that she was
signing as an agent of HCCC. Thus, the Certification cannot be used by
Francisco to validate her act of forgery.
Every person who, contrary to law, wilfully or negligently causes
damage to another, shall indemnify the latter for the same.[15] Due
to her forgery of Ongs signature which enabled her to deposit the
checks in her own account, Francisco deprived HCCC of the money
due it from the GSIS pursuant to the Land Development and
Construction Contract. Thus, we affirm respondent courts award of
compensatory damages in the amount of P370,475.00, but with a
modification as to the interest rate which shall be six percent (6%)
per annum, to be computed from the date of the filing of the
complaint since the amount of damages was alleged in the
complaint;[16] however, the rate of interest shall be twelve percent
(12%) per annum from the time the judgment in this case becomes
final and executory until its satisfaction and the basis for the
computation of this twelve percent (12%) rate of interest shall be the
amount of P370,475.00. This is in accordance with the doctrine
enunciated in Eastern Shipping Lines, Inc. vs. Court of Appeals, et
al.,[17] which was reiterated in Philippine National Bank vs. Court of
Appeals,[18] Philippine Airlines, Inc. vs. Court of Appeals[19]and in
Keng Hua Paper Products Co., Inc. vs. Court of Appeals,[20] which
provides that -
1. When an obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of six percent
(6%) per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be twelve percent
(12%) per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of
credit.
We also sustain the award of exemplary damages in the amount of
P50,000.00. Under Article 2229 of the Civil Code, exemplary damages
are imposed by way of example or correction for the public good, in
addition to the moral, temperate, liquidated or compensatory
damages. Considering petitioners fraudulent act, we hold that an
award of P50,000.00 would be adequate, fair and reasonable. The
grant of exemplary damages justifies the award of attorneys fees in
the amount of P50,000.00, and the award of P5,000.00 for litigation
expenses.[21]
The appellate courts award of P50,000.00 in moral damages is
warranted. Under Article 2217 of the Civil Code, moral damages may
be granted upon proof of physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation and similar injury.[22] Ong testitified that
he suffered sleepless nights, embarrassment, humiliation and anxiety
upon discovering that the checks due his company were forged by
petitioner and that petitioner had filed baseless criminal complaints
against him before the fiscals office of Quezon City which disrupted
HCCCs business operations.[23]
WHEREFORE, we AFFIRM the respondent courts decision
promulgated on June 29, 1992, upholding the February 16, 1988
decision of the trial court in favor of private respondents, with the
modification that the interest upon the actual damages awarded shall
be at six percent (6%) per annum, which interest rate shall be
computed from the time of the filing of the complaint on November
19, 1979. However, the interest rate shall be twelve percent (12%)
per annum from the time the judgment in this case becomes final and
executory and until such amount is fully paid. The basis for
computation of the six percent and twelve percent rates of interest
shall be the amount of P370,475.00. No pronouncement as to costs.
SO ORDERED.

Equitable PCi bank vs Rowena Ong
Porcuincula
G.R. NO. 156207 Sept. 15, 2006
Secs. 24, 26, 28, 52, 62, 187
DECISION
CHICO-NAZARIO, J.:
On 29 November 1991, Warliza Sarande deposited in her account at
Philippine Commercial International (PCI) Bank Magsaysay Avenue,
Santa Ana District, Davao City Branch, under Account No. 8502-
00347-6, a PCI Bank General Santos City Branch, TCBT[1] Check No.
0249188 in the amount of P225,000.00. Upon inquiry by Serande at
PCI Bank on 5 December 1991 on whether TCBT Check No. 0249188
had been cleared, she received an affirmative answer. Relying on this
assurance, she issued two checks drawn against the proceeds of
TCBT Check No. 0249188. One of these was PCI Bank Check No.
073661 dated 5 December 1991 for P132,000.00
which Sarande issued to respondent Rowena Ong Owing to a
business transaction. On the same day, Ong presented to PCI
Bank Magsaysay Avenue Branch said Check No. 073661, and instead
of encashing it, requested PCI Bank to convert the proceeds thereof
into a managers check, which the PCI Bank
obliged.Whereupon, Ong was issued PCI Bank Managers Check No.
10983 dated 5 December 1991 for the sum of P132,000.00, the value
of Check No. 073661.
The next day, 6 December 1991, Ong deposited PCI Bank Managers
Check No. 10983 in her account with Equitable Banking
Corporation Davao City Branch. On 9 December 1991, she received a
check return-slip informing her that PCI Bank had stopped the
payment of the said check on the ground of irregular
issuance. Despite several demands made by her to PCI Bank for the
payment of the amount in PCI Bank Managers Check No. 10983, the
same was met with refusal; thus, Ong was constrained to file a
Complaint for sum of money, damages and attorneys fees against PCI
Bank.[2]
From PCI Banks version, TCBT-General Santos City Check No.
0249188 was returned on 5 December 1991 at 5:00 pm on the
ground that the account against which it was drawn was already
closed. According to PCI Bank, it immediately gave notice
to Sarande and Ong about the return of Check No. 0249188 and
requested Ong to return PCI Bank Managers Check No. 10983
inasmuch as the return of Check No. 0249188 on the ground that the
account from which it was drawn had already been closed resulted in
a failure or want of consideration for the issuance of PCI Bank
Managers Check No. 10983.[3]
After the pre-trial conference, Ong filed a motion for summary
judgment.[4] Though they were duly furnished with a copy of the
motion for summary judgment, PCI Bank and its counsel failed to
appear at the scheduled hearing.[5] Neither did they file any written
comment or opposition thereto. The trial court thereafter
ordered Ong to formally offer her exhibits in writing, furnishing
copies of the same to PCI Bank which was directed to file its comment
or objection.[6]
Ong complied with the Order of the trial court, but PCI Bank failed to
file any comment or objection within the period given to it despite
receipt of the same order.[7] The trial court then granted the motion
for summary judgment and in its Order dated 2 March 1995, it held:
IN THE LIGHT OF THE FOREGOING, the motion for summary
judgment is GRANTED, ordering defendant Philippine Commercial
International Bank to pay the plaintiff the amount of ONE HUNDRED
THIRTY-TWO THOUSAND PESOS (P132,000.00) equivalent to the
amount of PCIB Managers Check No. 10983.
Set the reception of the plaintiffs evidence with respect to the
damages claimed in the complaint.[8]
PCI Bank filed a Motion for Reconsideration which the trial court
denied in its Order dated 11 April 1996.[9] After the reception
of Ongs evidence in support of her claim for damages, the trial court
rendered its Decision[10] dated 3 May 1999 wherein it ruled:
IN LIGHT OF THE FOREGOIN CONSIDERATION, and as plaintiff has
preponderantly established by competent evidence her claims in the
Complaint, judgment in hereby rendered for the plaintiff against the
defendant-bank ordering the latter:
1. To pay the plaintiff the sum of FIFTY THOUSAND PESOS
(P50,000.00) in the concept of moral damages;
2. To pay the plaintiff the sum of TWENTY THOUSAND PESOS
(P20,000.00) as exemplary damages;
3. To pay the plaintiff the sum of THREE THOUSAND FIVE HUNDRED
PESOS (P3,500.00) representing actual expenses;
4. To pay the plaintiff the sum of TWENTY THOUSAND PESOS
(P20,000.00) as and for attorneys fees; and
5. To pay the costs.[11]
From this decision, PCI Bank sought recourse before the Court of
Appeals. In a Decision[12] dated 29 October 2002, the appellate court
denied the appeal of PCI Bank and affirmed the orders and decision
of the trial court.
Unperturbed, PCI Bank then filed the present petition for review
before this Court and raised the following issues:
1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A
GRAVE AND REVERSIBLE ERROR WHEN IT SUSTAINED THE LOWER
COURTS ORDER DATED 2 MARCH 1999 GRANTING RESPONDENTS
MOTION FOR SUMMARY JUDGMENT NOTWITHSTANDING THE
GLARING FACT THAT THERE ARE GENUINE, MATERIAL AND
FACTUAL ISSUES WHICH REQUIRE THE PRESENTATION OF
EVIDENCE.
2. WHETHER OR NOT THE COURT OF APPEALS WAS IN ERROR
WHEN IT SUSTAINED THE LOWER COURTS DECISION DATED 3 MAY
1999 GRANTING THE RELIEFS PRAYED FOR IN RESPONDENT ONGS
COMPLAINT INSPITE OF THE FACT THAT RESPONDENT ONG
WOULD BE UNJUSTLY ENRICHED AT THE EXPENSE OF PETITIONER
BANK, IF PETITIONER BANK WOULD BE REQUIRED TO PAY AN
UNFUNDED CHECK.
3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED
REVERSIBLE ERRORS WHEN IT AFFIRMED THE COURT A QUOS
DECISIION DATED 3 MAY 1999 AWARDING DAMAGES TO
RESPONDENT ONG AND HOLDING THAT RESPONDENT ONG HAD
PREPONDERANTLY ESTABLISHED BY COMPETENT EVIDENCE HER
CLAIMS IN THE COMPLAINT INSPITE OF THE FACT THAT THE
EVIDENCE ON RECORD DOES NOT JUSTIFY THE AWARD OF
DAMAGES.
4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR WHEN IT AFFIRMED THE LOWER COURTS
FACTUAL FINDING IN ITS DECISION DATED 3 MAY 1999 HOLDING
RESPONDENT ONG A HOLDER IN DUE COURSE INSPITE OF THE
FACT THAT THE REQUISITE OF GOOD FAITH AND FOR VALUE IS
LACKING AND DESPITE THE ABSENCE OF A PROPER TRIAL TO
DETERMINE SUCH FACTUAL ISSUE.
5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR WHEN IT UPHELD THE LOWER COURTS
DECISION DATED 3 MAY 1999 DENYING PETITIONER EPCI BANKS
COUNTERCLAIM INSPITE OF THE FACT THAT IT WAS SHOWN THAT
RESPONDENT ONGS COMPLAINT LACKS MERIT.[13]
We affirm the Decision of the trial court and the Court of Appeals.
The provision on summary judgment is found in Section 1, Rule 35 of
the 1997 Rules of Court:
SECTION 1. Summary judgment for claimant. A party seeking to
recover upon a claim, counterclaim, or cross-claim or to obtain a
declaratory relief may, at any time after the pleading in answer
thereto has been served, move with supporting affidavits,
depositions or admissions for a summary judgment in his favor upon
all or any part thereof.
Thus, it has been held that a summary judgment is proper where,
upon a motion filed after the issues had been joined and on the basis
of the pleadings and papers filed, the court finds that there is no
genuine issue as to any material fact to except as to the amount of
damages. A genuine issue has been defined as an issue of fact which
calls for the presentation of evidence, as distinguished from an issue
which is sham, fictitious, contrived and patently unsubstantial so as
not to constitute a genuine issue for trial.[14]
A court may grant summary judgment to settle expeditiously a case
if, on motion of either party, there appears from the pleadings,
depositions, admissions, and affidavits that no important issues of
fact are involved, except the amount of damages.[15]Rule 35, Section
3, of the Rules of Court provides two requisites for summary
judgment to be proper: (1) there must be no genuine issue as to any
material fact, except for the amount of damages; and (2) the party
presenting the motion for summary judgment must be entitled to a
judgment as a matter of law.[16]
Certainly, when the facts as pleaded appear uncontested or
undisputed, then theres no real or genuine issue or question as to the
facts, and summary judgment is called for.[17]
By admitting it committed an error, clearing the check of Sarande and
issuing in favor of Ong not just any check but a managers check for
that matter, PCI Banks liability is fixed. Under the circumstances, we
find that summary judgment was proper and a hearing would serve
no purpose. That summary judgment is appropriate was incisively
expounded by the trial court when it made the following observation:
[D]efendant-bank had certified plaintiffs PCIB Check No. 073661 and
since certification is equivalent to acceptance, defendant-bank
as drawee bank is bound on the instrument upon certification and it
is immaterial to such liability in favor of the plaintiff who is a holder
in due course whether the drawer (Warliza Sarande) had funds or
not with the defendant-bank (Security vs. State Bank, 154 N.W. 282)
or the drawer was indebted to the bank for more than the amount of
the check (Nat. Bank vs. Schmelz, Nat. Bank, 116 S.E. 880) as the
certifying bank as all the liabilities under Sec. 62 of the Negotiable
Instruments Law which refers to liability of acceptor (Title Guarantee
vs. Emadee Realty Corp., 240 N.Y. 36).
It may be true that plaintiffs PCIB Check No. 073661 for P132,000.00
which was paid to her by Warliza Sarande was actually not funded
but since plaintiff became a holder in due course, defendant-bank
cannot interpose a defense of want or lack of consideration because
that defense is equitable or personal and cannot prosper against a
holder in due course pursuant to Section 28 of the Negotiable
Instruments Law. Therefore, when the aforementioned check was
endorsed and presented by the plaintiff and certified to and accepted
by defendant-bank in the purchase of PCIB Managers Check No. 1983
in the amount of P132,000.00, there was a valid consideration.[18]
The property of summary judgment was further explained by this
Court when it pronounced that:
The theory of summary judgment is that although an answer may on
its face appear to tender issues requiring trial yet if it is demonstrated
by affidavits, depositions, or admissions that those issues are not
genuine, but sham or fictitious, the Court is unjustified in dispensing
with the trial and rendering summary judgment for plaintiff. The
court is expected to act chiefly on the basis of the affidavits,
depositions, admissions submitted by the movant, and those of the
other party in opposition thereto. The hearing contemplated (with
10-day notice) is for the purpose of determining whether the issues
are genuine or not, not to receive evidence on the issues set up in the
pleadings. A hearing is not thus de riguer. The matter may be
resolved, and usually is, on the basis of affidavits, depositions,
admissions. This is not to say that a hearing may be regarded as a
superfluity. It is not, and the Court has plenary discretion to
determine the necessity therefore.[19]
The second and fourth issues are inter-related and so they shall be
resolved together. The second issue has reference to PCI Banks claim
of unjust enrichment on the part of Ong if it would be compelled to
make good the managers check it had issued.As asserted by PCI Bank
under the fourth issue, Ong is not a holder in due course because the
managers check was drawn against a closed account; therefore, the
same was issued without consideration.
On the matter of unjust enrichment, the fundamental doctrine of
unjust enrichment is the transfer of value without just cause or
consideration. The elements of this doctrine are: enrichment on the
part of the defendant; impoverishment on the part of the plaintiff;
and lack of cause. The main objective is to prevent one to enrich
himself at the expense of another.[20] It is based on the equitable
postulate that it is unjust for a person to retain benefit without paying
for it.[21] It is well to stress that the check of Sarande had been cleared
by the PCI Bank for which reason the former issued the check
to Ong. A check which has been cleared and credited to the account
of the creditor shall be equivalent to a delivery to the creditor of cash
in an amount equal to the amount credited to his account.[22]
Having cleared the check earlier, PCI Bank, therefore, became liable
to Ong and it cannot allege want or failure of consideration between
it and Sarande. Under settled jurisprudence, Ong is a stranger as
regards the transaction between PCI Bank and Sarande.[23]
PCI Bank next insists that since there was no consideration for the
issuance of the managers check, ergo, Ong is not a holder in due
course. This claim is equally without basis. Pertinent provisions of
the Negotiable Instruments Law are hereunder quoted:
SECTION 52. What constitutes a holder in due course. A holder in due
course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
The same law provides further:
Sec. 24. Presumption of consideration. Every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration;
and every person whose signature appears thereon to have become
a party thereto for value.
Sec. 26. What constitutes holder for value. Where value has at any time
been given for the instrument, the holder is deemed a holder for value
in respect to all parties who become such prior to that time.
Sec. 28. Effect of want of consideration. Absence or failure of
consideration is a matter of defense as against any person not a
holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
Easily discernible is that what Ong obtained from PCI Bank was not
just any ordinary check but a managers check. A managers check is
an order of the bank to pay, drawn upon itself, committing in effect
its total resources, integrity and honor behind its issuance. By its
peculiar character and general use in commerce, a managers check is
regarded substantially to be as good as the money it represents.[24]
A managers check stands on the same footing as a certified
check.[25] The effect of certification is found in Section 187,
Negotiable Instruments Law.
Sec. 187. Certification of check; effect of. Where a check is certified by
the bank on which it is drawn, the certification is equivalent to an
acceptance.[26]
The effect of issuing a managers check was incontrovertibly
elucidated when we declared that:
A managers check is one drawn by the banks manager upon the bank
itself. It is similar to a cashiers check both as to effect and use. A
cashiers check is a check of the banks cashier on his own or another
check. In effect, it is a bill of exchange drawn by the cashier of a bank
upon the bank itself, and accepted in advance by the act of its
issuance. It is really the banks own check and may be treated as a
promissory note with the bank as a maker. The check becomes the
primary obligation of the bank which issues it and constitutes its
written promise to pay upon demand. The mere issuance of it is
considered an acceptance thereof. x x x.[27]
In the case of New Pacific Timber & Supply Co., Inc. v. Seneris[28]:
[S]ince the said check had been certified by the drawee bank, by the
certification, the funds represented by the check are transferred from
the credit of the maker to that of the payee or holder, and for all
intents and purposes, the latter becomes the depositor of
the drawee bank, with rights and duties of one in such
situation. Where a check is certified by the bank on which it is drawn,
the certification is equivalent to acceptance. Said certification implies
that the check is drawn upon sufficient funds in the hands of
the drawee, that they have been set apart for its satisfaction, and that
they shall be so applied whenever the check is presented for
payment. It is an understanding that the check is good then, and shall
continue good, and this agreement is as binding on the bank as its
notes circulation, a certificate of deposit payable to the order of
depositor, or any other obligation it can assume. The object of
certifying a check, as regards both parties, is to enable the holder to
use it as money. When the holder procures the check to be certified,
the check operates as an assignment of a part of the funds to the
creditors. Hence, the exception to the rule enunciated under Section
63 of the Central Bank Act to the effect that a check which has been
cleared and credited to the account of the creditor shall be equivalent
to a delivery to the creditor in cash in an amount equal to the amount
credited to his account shall apply in this case x x x.
By accepting PCI Bank Check No. 073661 issued
by Sarande to Ong and issuing in turn a managers check in exchange
thereof, PCI Bank assumed the liabilities of an acceptor under Section
62 of the Negotiable Instruments Law which states:
Sec. 62. Liability of acceptor. The acceptor by accepting the
instruments 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.
With the above jurisprudential basis, the issues on Ong being not a
holder in due course and failure or want of consideration for PCI
Banks issuance of the managers check is out of sync.
Section 2, of Republic Act No. 8791, The General Banking Law of 2000
decrees:
SEC. 2. Declaration of Policy. The State recognizes the vital role of
banks in providing an environment conducive to the sustained
development of the national economy and the fiduciary nature of
banking that requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing
economy.
In Associated Bank v. Tan,[29] it was reiterated:

x x x the degree of diligence required of banks is more than that of a
good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. Indeed, the banking
business is vested with the trust and confidence of the public; hence
the appropriate standard of diligence must be very high, if not the
highest degree of diligence.
Measured against these standards, the next question that needs to be
addressed is: Did PCI Bank exercise the requisite degree of diligence
required of it? From all indications, it did not. PCI Bank distinctly
made the following uncontested admission:
1. On 29 November 1991, one Warliza Sarande deposited to her
savings account with PCI Banks Magsaysay Avenue Branch, TCBT-
General Santos Branch Check No. 0249188 for P225,000.00. Said
check, however, was inadvertently sent by PCI Bank through
local clearing when it should have been sent through inter-
regional clearing since the check was drawn at TCBT-
General Santos City.
2. On 5 December 1991, Warliza Sarande inquired whether TCBT
Check No. 0249188 had been cleared. Not having received any advice
from the drawee bank within the regular clearing period for the
return of locally cleared checks, and unaware then of the error of not
having sent the check through inter-regional clearing, PCI Bank
advised her that Check No. 024188 is treated as cleared.
x x x.[30] (Emphasis supplied.)
From the foregoing, it is palpable and readily apparent that PCI Bank
failed to exercise the highest degree of care [31] required of it under
the law.
In the case of Philippine National Bank v. Court of Appeals,[32] we
declared:
The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-
keeping and saving of money or as active instruments of business and
commerce, banks have attained an ubiquitous presence among the
people, who have come to regard them with respect and even
gratitude and, most of all, confidence.
Having settled the other issues, we now resolve the question on the
award of moral and exemplary damages by the trial court to the
respondent.
Moral damages include physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Though incapable of
pecuniary computation, moral damages may be recovered if they are
the proximate result of the defendants wrongful act or
omission.[33] The requisites for an award of moral damages are well-
defined, thus, firstly, evidence of besmirched reputation or physical,
mental or psychological suffering sustained by the claimant; secondly,
a culpable act or omission factually established; thirdly, proof that the
wrongful act or omission of the defendant is the proximate cause of
the damages sustained by the claimant; and fourthly, that the case is
predicated on any of the instances expressed or envisioned by Article
2219[34] and Article 2220[35] of the Civil Code. All these elements are
present in the instant case.[36]
In the first place, by refusing to make good the managers check it has
issued, Ong suffered embarrassment and humiliation arising from
the dishonor of the said check.[37] Secondly, the culpable act of PCI
Bank in having cleared the check of Serandeand issuing the managers
check to Ong is undeniable. Thirdly, the proximate cause of the loss is
attributable to PCI Bank. Proximate cause is defined as 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.[38] In this case, the proximate cause of the
loss is the act of PCI Bank in having cleared the check of Sarande and
its failure to exercise that degree of diligence required of it under the
law which resulted in the loss to Ong.
On exemplary damages, Article 2229 of the Civil Code states:
Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
The law allows the grant of exemplary damages to set an example for
the public good. The banking system has become an indispensable
institution in the modern world and plays a vital role in the economic
life of every civilized society. Whether as mere passive entities for the
safe-keeping and saving of money or as active instruments of
business and commerce, banks have attained an ubiquitous presence
among the people, who have come to regard them with respect and
even gratitude and most of all, confidence. For this reason, banks
should guard against injury attributable to negligence or bad faith on
its part.[39] Without a doubt, it has been repeatedly emphasized that
since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the
public in general. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even
required of it.[40] Having failed in this respect, the award of exemplary
damages is warranted.
Article 2216 of the Civil Code provides:
ART. 2216. No proof of pecuniary loss is necessary in order that
moral, nominal, temperate, liquidated or exemplary damages may be
adjudicated. The assessment of such damages, except liquidated
ones, is left to the discretion of the court, according to the
circumstances of each case.
Based on the above provision, the determination of the amount to be
awarded (except liquidated damages) is left to the sound discretion
of the court according to the circumstances of each case.[41] In the
case before us, we find that the award of moral damages in the
amount of P50,000.00 and exemplary damages in the amount
of P20,000.00 is reasonable and justified.
With the above disquisition, there is no necessity of further
discussing the last issue on the PCI Banks counterclaim based on the
supposed lack of merit of Ongs complaint.
WHEREFORE, premises considered, the Petition is DENIED and the
Decision of the Court of Appeals dated 29 October 2002 in CA-G.R. CV
No. 65000 affirming the Decision dated 3 may 1999, of
the Regional Trial Court of Davao City, Branch 14, in Civil Case No.
21458-92, are AFFIRMED.
SO ORDERED.
DECISION
BPI vs. Casa Montessori Protacio
G.R. NO. 149507 May 28, 2004
Sec. 23
DECISION
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous
care of the deposits of its clients, who have the right to expect high
standards of integrity and performance from it. Among its
obligations in furtherance thereof is knowing the signatures of its
clients. Depositors are not estopped from questioning wrongful
withdrawals, even if they have failed to question those errors in the
statements sent by the bank to them for verification.
The Case
Before us are two Petitions for Review[1] under Rule 45 of the Rules
of Court, assailing the March 23, 2001 Decision[2] and the August 17,
2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No.
63561. The decretal portion of the assailed Decision reads as follows:
WHEREFORE, upon the premises, the decision appealed from
is AFFIRMED with the modification that defendant bank [Bank of the
Philippine Islands (BPI)] is held liable only for one-half of the value
of the forged checks in the amount of P547,115.00 after deductions
subject to REIMBURSEMENT from third party defendant Yabut who
is likewise ORDERED to pay the other half to plaintiff corporation
[Casa Montessori Internationale (CASA)].[4]
The assailed Resolution denied all the parties Motions for
Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
On November 8, 1982, plaintiff CASA Montessori
International[5] opened Current Account No. 0291-0081-01 with
defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as
one of its authorized signatories.
In 1991, after conducting an investigation, plaintiff discovered that
nine (9) of its checks had been encashed by a certain Sonny D. Santos
since 1990 in the total amount of P782,000.00, on the following dates
and amounts:
Check No. Date Amount
1. 839700 April 24, 1990 P 43,400.00
2. 839459 Nov. 2, 1990 110,500.00
3. 839609 Oct. 17, 1990 47,723.00
4. 839549 April 7, 1990 90,700.00
5. 839569 Sept. 23, 1990 52,277.00
6. 729149 Mar. 22, 1990 148,000.00
7. 729129 Mar. 16, 1990 51,015.00
8. 839684 Dec. 1, 1990 140,000.00
9. 729034 Mar. 2, 1990 98,985.00
Total -- P 782,600.00[6]
It turned out that Sonny D. Santos with account at BPIs Greenbelt
Branch [was] a fictitious name used by third party defendant
Leonardo T. Yabut who worked as external auditor of CASA. Third
party defendant voluntarily admitted that he forged the signature of
Ms. Lebron and encashed the checks.
The PNP Crime Laboratory conducted an examination of the nine (9)
checks and concluded that the handwritings thereon compared to the
standard signature of Ms. Lebron were not written by the latter.
On March 4, 1991, plaintiff filed the herein Complaint for Collection
with Damages against defendant bank praying that the latter be
ordered to reinstate the amount of P782,500.00[7] in the current and
savings accounts of the plaintiff with interest at 6% per annum.
On February 16, 1999, the RTC rendered the appealed decision in
favor of the plaintiff.[8]
Ruling of the Court of Appeals
Modifying the Decision of the Regional Trial Court (RTC), the CA
apportioned the loss between BPI and CASA. The appellate court took
into account CASAs contributory negligence that resulted in the
undetected forgery. It then ordered Leonardo T. Yabut to reimburse
BPI half the total amount claimed; and CASA, the other half. It also
disallowed attorneys fees and moral and exemplary damages.
Hence, these Petitions.[9]
Issues
In GR No. 149454, Petitioner BPI submits the following issues for our
consideration:
I. The Honorable Court of Appeals erred in deciding this case NOT in
accord with the applicable decisions of this Honorable Court to
the effect that forgery cannot be presumed; that it must be proved by
clear, positive and convincing evidence; and that the burden of proof
lies on the party alleging the forgery.
II. The Honorable Court of Appeals erred in deciding this case not in
accord with applicable laws, in particular the Negotiable
Instruments Law (NIL) which precludes CASA, on account of its own
negligence, from asserting its forgery claim against BPI, specially
taking into account the absence of any negligence on the part of
BPI.[10]
In GR No. 149507, Petitioner CASA submits the following issues:
1. The Honorable Court of Appeals erred when it ruled that there is
no showing that [BPI], although negligent, acted in bad faith x x x thus
denying the prayer for the award of attorneys fees, moral damages
and exemplary damages to [CASA]. The Honorable Court also erred
when it did not order [BPI] to pay interest on the amounts due to
[CASA].
2. The Honorable Court of Appeals erred when it declared that [CASA]
was likewise negligent in the case at bar, thus warranting its
conclusion that the loss in the amount of P547,115.00 be apportioned
between [CASA] and [BPI] x x x.[11]
These issues can be narrowed down to three. First, was there forgery
under the Negotiable Instruments Law (NIL)? Second, were any of the
parties negligent and therefore precluded from setting up forgery as
a defense? Third, should moral and exemplary damages, attorneys
fees, and interest be awarded?
The Courts Ruling
The Petition in GR No. 149454 has no merit, while that in GR No.
149507 is partly meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
Section 23. Forged signature; effect of. -- 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 x x x 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.[12]
Under this provision, a forged signature is a real[13] or absolute
defense,[14] and a person whose signature on a negotiable instrument
is forged is deemed to have never become a party thereto and to have
never consented to the contract that allegedly gave rise to it.[15]
The counterfeiting of any writing, consisting in the signing of
anothers name with intent to defraud, is forgery.[16]
In the present case, we hold that there was forgery of the drawers
signature on the check.
First, both the CA[17] and the RTC[18] found that Respondent Yabut
himself had voluntarily admitted, through an Affidavit, that he had
forged the drawers signature and encashed the checks.[19] He never
refuted these findings.[20] That he had been coerced into admission
was not corroborated by any evidence on record.[21]
Second, the appellate and the trial courts also ruled that the PNP
Crime Laboratory, after its examination of the said checks,[22] had
concluded that the handwritings thereon -- compared to the standard
signature of the drawer -- were not hers.[23] This conclusion was the
same as that in the Report[24] that the PNP Crime Laboratory had
earlier issued to BPI -- the drawee bank -- upon the latters request.
Indeed, we respect and affirm the RTCs factual findings, especially
when affirmed by the CA, since these are supported by substantial
evidence on record.[25]
Voluntary Admission Not
Violative of Constitutional Rights
The voluntary admission of Yabut did not violate his constitutional
rights (1) on custodial investigation, and (2) against self-
incrimination.
In the first place, he was not under custodial investigation.[26] His
Affidavit was executed in private and before private
individuals.[27] The mantle of protection under Section 12 of Article
III of the 1987 Constitution[28] covers only the period from the time a
person is taken into custody for investigation of his possible
participation in the commission of a crime or from the time he is
singled out as a suspect in the commission of a crime although not yet
in custody.[29]
Therefore, to fall within the ambit of Section 12, quoted above, there
must be an arrest or a deprivation of freedom, with questions
propounded on him by the police authorities for the purpose of
eliciting admissions, confessions, or any information.[30] The said
constitutional provision does not apply to spontaneous statements
made in a voluntary manner[31] whereby an individual orally admits
to authorship of a crime.[32] What the Constitution proscribes is the
compulsory or coercive disclosure of incriminating facts.[33]
Moreover, the right against self-incrimination[34] under Section 17 of
Article III[35] of the Constitution, which is ordinarily available only in
criminal prosecutions, extends to all other government proceedings
-- including civil actions, legislative investigations,[36] and
administrative proceedings that possess a criminal or penal
aspect[37] -- but not to private investigations done by private
individuals. Even in such government proceedings, this right may be
waived,[38] provided the waiver is certain; unequivocal; and
intelligently, understandingly and willingly made.[39]
If in these government proceedings waiver is allowed, all the more is
it so in private investigations. It is of no moment that no criminal case
has yet been filed against Yabut. The filing thereof is entirely up to the
appropriate authorities or to the private individuals upon whom
damage has been caused. As we shall also explain later, it is not
mandatory for CASA -- the plaintiff below -- to implead Yabut in the
civil case before the lower court.
Under these two constitutional provisions, [t]he Bill of Rights[40] does
not concern itself with the relation between a private individual and
another individual. It governs the relationship between the
individual and the State.[41] Moreover, the Bill of Rights is a charter of
liberties for the individual and a limitation upon the power of the
[S]tate.[42] These rights[43] are guaranteed to preclude the slightest
coercion by the State that may lead the accused to admit something
false, not prevent him from freely and voluntarily telling the truth.[44]
Yabut is not an accused here. Besides, his mere invocation of the
aforesaid rights does not automatically entitle him to the
constitutional protection.[45] When he freely and voluntarily
executed[46] his Affidavit, the State was not even involved. Such
Affidavit may therefore be admitted without violating his
constitutional rights while under custodial investigation and against
self-incrimination.
Clear, Positive and Convincing
Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless
clear, positive and convincing.
Forgery cannot be presumed.[47] It must be established by clear,
positive and convincing evidence.[48] Under the best evidence rule as
applied to documentary evidence like the checks in question, no
secondary or substitutionary evidence may inceptively be
introduced, as the original writing itself must be produced in
court.[49] But when, without bad faith on the part of the offeror, the
original checks have already been destroyed or cannot be produced
in court, secondary evidence may be produced.[50] Without bad faith
on its part, CASA proved the loss or destruction of the original checks
through the Affidavit of the one person who knew of that fact[51] --
Yabut. He clearly admitted to discarding the paid checks to cover up
his misdeed.[52] In such a situation, secondary evidence like microfilm
copies may be introduced in court.
The drawers signatures on the microfilm copies were compared with
the standard signature. PNP Document Examiner II Josefina de la
Cruz testified on cross-examination that two different persons had
written them.[53] Although no conclusive report could be issued in the
absence of the original checks,[54] she affirmed that her findings were
90 percent conclusive.[55] According to her, even if the microfilm
copies were the only basis of comparison, the differences were
evident.[56] Besides, the RTC explained that although the Report was
inconclusive, no conclusive report could have been given by the PNP,
anyway, in the absence of the original checks.[57] This explanation is
valid; otherwise, no such report can ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule
applies only when the contents of a document -- such as the drawers
signature on a check -- is the subject of inquiry.[58] As to whether the
document has been actually executed, this rule does not apply; and
testimonial as well as any other secondary evidence is
admissible.[59] Carina Lebron herself, the drawers authorized
signatory, testified many times that she had never signed those
checks. Her testimonial evidence is admissible; the checks have not
been actually executed. The genuineness of her handwriting is
proved, not only through the courts comparison of the questioned
handwritings and admittedly genuine specimens thereof,[60] but
above all by her.
The failure of CASA to produce the original checks neither gives rise
to the presumption of suppression of evidence[61] nor creates an
unfavorable inference against it.[62] Such failure merely authorizes
the introduction of secondary evidence[63] in the form of microfilm
copies. Of no consequence is the fact that CASA did not present the
signature card containing the signatures with which those on the
checks were compared.[64] Specimens of standard signatures are not
limited to such a card. Considering that it was not produced in
evidence, other documents that bear the drawers authentic signature
may be resorted to.[65] Besides, that card was in the possession of BPI
-- the adverse party.
We have held that without the original document containing the
allegedly forged signature, one cannot make a definitive comparison
that would establish forgery;[66] and that a comparison based on a
mere reproduction of the document under controversy cannot
produce reliable results.[67] We have also said, however, that a judge
cannot merely rely on a handwriting experts testimony,[68] but
should also exercise independent judgment in evaluating the
authenticity of a signature under scrutiny.[69] In the present case,
both the RTC and the CA conducted independent examinations of the
evidence presented and arrived at reasonable and similar
conclusions. Not only did they admit secondary evidence; they also
appositely considered testimonial and other documentary evidence
in the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have
discussed earlier, the first of these has been met.[70] The result of
examining a questioned handwriting, even with the aid of experts and
scientific instruments, may be inconclusive;[71] but it is a non
sequitur to say that such result is not clear, positive and
convincing. The preponderance of evidence required in this case has
been satisfied.[72]
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers signature, BPI --
the drawee -- erred in making payments by virtue thereof. The forged
signatures are wholly inoperative, and CASA -- the drawer whose
authorized signatures do not appear on the negotiable instruments -
- cannot be held liable thereon. Neither is the latter precluded from
setting up forgery as a real defense.
Clear Negligence
in Allowing Payment
Under a Forged Signature
We have repeatedly emphasized that, since the banking business is
impressed with public interest, of paramount importance thereto is
the trust and confidence of the public in general. Consequently, the
highest degree of diligence[73] is expected,[74] and high standards of
integrity and performance are even required, of it.[75] By the nature
of its functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care,[76] always having in mind the
fiduciary nature of their relationship.[77]
BPI contends that it has a signature verification procedure, in which
checks are honored only when the signatures therein are verified to
be the same with or similar to the specimen signatures on the
signature cards. Nonetheless, it still failed to detect the eight
instances of forgery. Its negligence consisted in the omission of that
degree of diligence required[78] of a bank. It cannot now feign
ignorance, for very early on we have already ruled that a bank is
bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the
account of the depositor whose name was forged.[79] In fact, BPI was
the same bank involved when we issued this ruling seventy years ago.
Neither Waiver nor Estoppel
Results from Failure to
Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice
worded as follows: If no error is reported in ten (10) days, account
will be correct.[80] Such notice cannot be considered a waiver, even if
CASA failed to report the error. Neither is it estopped from
questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation[81] or circularization -- in
accounting parlance -- that requests client-depositors to affirm the
accuracy of items recorded by the banks.[82] Its purpose is to obtain
from the depositors a direct corroboration of the correctness of their
account balances with their respective banks.[83] Internal or external
auditors of a bank use it as a basic audit procedure[84] -- the results of
which its client-depositors are neither interested in nor privy to -- to
test the details of transactions and balances in the banks
records.[85] Evidential matter obtained from independent sources
outside a bank only serves to provide greater assurance of
reliability[86] than that obtained solely within it for purposes of an
audit of its own financial statements, not those of its client-
depositors.
Furthermore, there is always the audit risk that errors would not be
detected[87] for various reasons. One, materiality is a consideration in
audit planning;[88] and two, the information obtained from such a
substantive test is merely presumptive and cannot be the basis of a
valid waiver.[89] BPI has no right to impose a condition unilaterally
and thereafter consider failure to meet such condition a
waiver. Neither may CASA renounce a right[90] it has never
possessed.[91]
Every right has subjects -- active and passive. While the active subject
is entitled to demand its enforcement, the passive one is duty-bound
to suffer such enforcement.[92]
On the one hand, BPI could not have been an active subject, because
it could not have demanded from CASA a response to its
notice. Besides, the notice was a measly request worded as follows:
Please examine x x x and report x x x.[93] CASA, on the other hand,
could not have been a passive subject, either, because it had no
obligation to respond. It could -- as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their
own deed or representation, anything contrary to that established as
the truth, in legal contemplation.[94] Our rules on evidence even make
a juris et de jure presumption[95] that whenever one has, by ones own
act or omission, intentionally and deliberately led another to believe
a particular thing to be true and to act upon that belief, one cannot --
in any litigation arising from such act or omission -- be permitted to
falsify that supposed truth.[96]
In the instant case, CASA never made any deed or representation that
misled BPI. The formers omission, if any, may only be deemed an
innocent mistake oblivious to the procedures and consequences of
periodic audits. Since its conduct was due to such ignorance founded
upon an innocent mistake, estoppel will not arise.[97] A person who
has no knowledge of or consent to a transaction may not be estopped
by it.[98] Estoppel cannot be sustained by mere argument or doubtful
inference x x x.[99] CASA is not barred from questioning BPIs error
even after the lapse of the period given in the notice.
Loss Borne by
Proximate Source
of Negligence
For allowing payment[100] on the checks to a wrongful and fictitious
payee, BPI -- the drawee bank -- becomes liable to its depositor-
drawer. Since the encashing bank is one of its branches,[101] BPI can
easily go after it and hold it liable for reimbursement.[102] It may not
debit the drawers account[103] and is not entitled to indemnification
from the drawer.[104] In both law and equity, when one of two
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.[105]
Proximate cause is determined by the facts of the case.[106] It 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.[107]
Pursuant to its prime duty to ascertain well the genuineness of the
signatures of its client-depositors on checks being encashed, BPI is
expected to use reasonable business prudence.[108] In the
performance of that obligation, it is bound by its internal banking
rules and regulations that form part of the contract it enters into with
its depositors.[109]
Unfortunately, it failed in that regard. First, Yabut was able to open a
bank account in one of its branches without privity;[110] that is,
without the proper verification of his corresponding identification
papers. Second, BPI was unable to discover early on not only this
irregularity, but also the marked differences in the signatures on the
checks and those on the signature card. Third, despite the
examination procedures it conducted, the Central Verification
Unit[111] of the bank even passed off these evidently different
signatures as genuine. Without exercising the required prudence on
its part, BPI accepted and encashed the eight checks presented to
it. As a result, it proximately contributed to the fraud and should be
held primarily liable[112] for the negligence of its officers or agents
when acting within the course and scope of their employment.[113] It
must bear the loss.

CASA Not Negligent
in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is
recognized as an exception[114] to the general rule that a forged
signature is wholly inoperative.[115] Contrary to BPIs claim, however,
we do not find CASA negligent in handling its financial affairs.CASA,
we stress, is not precluded from setting up forgery as a real defense.
Role of Independent Auditor
The major purpose of an independent audit is to investigate and
determine objectively if the financial statements submitted for audit
by a corporation have been prepared in accordance with the
appropriate financial reporting practices[116] of private entities. The
relationship that arises therefrom is both legal and moral.[117] It
begins with the execution of the engagement letter[118] that embodies
the terms and conditions of the audit and ends with the fulfilled
expectation of the auditors ethical[119] and competent performance in
all aspects of the audit.[120]
The financial statements are representations of the client; but it is the
auditor who has the responsibility for the accuracy in the recording
of data that underlies their preparation, their form of presentation,
and the opinion[121] expressed therein.[122] The auditor does not
assume the role of employee or of management in the clients conduct
of operations[123] and is never under the control or supervision[124] of
the client.
Yabut was an independent auditor[125] hired by CASA. He handled its
monthly bank reconciliations and had access to all relevant
documents and checkbooks.[126] In him was reposed the
clients[127] trust and confidence[128] that he would perform precisely
those functions and apply the appropriate procedures in accordance
with generally accepted auditing standards.[129] Yet he did not meet
these expectations. Nothing could be more horrible to a client than to
discover later on that the person tasked to detect fraud was the same
one who perpetrated it.
Cash Balances
Open to Manipulation
It is a non sequitur to say that the person who receives the monthly
bank statements, together with the cancelled checks and other
debit/credit memoranda, shall examine the contents and give notice
of any discrepancies within a reasonable time. Awareness is not
equipollent with discernment.
Besides, in the internal accounting control system prudently installed
by CASA,[130] it was Yabut who should examine those documents in
order to prepare the bank reconciliations.[131] He owned his working
papers,[132] and his output consisted of his opinion as well as the
clients financial statements and accompanying notes thereto. CASA
had every right to rely solely upon his output -- based on the terms of
the audit engagement -- and could thus be unwittingly duped into
believing that everything was in order. Besides, [g]ood faith is always
presumed and it is the burden of the party claiming otherwise to
adduce clear and convincing evidence to the contrary.[133]
Moreover, there was a time gap between the period covered by the
bank statement and the date of its actual receipt. Lebron personally
received the December 1990 bank statement only in January
1991[134] -- when she was also informed of the forgery for the first
time, after which she immediately requested a stop payment
order. She cannot be faulted for the late detection of the forged
December check. After all, the bank account with BPI was not
personal but corporate, and she could not be expected to monitor
closely all its finances. A preschool teacher charged with molding the
minds of the youth cannot be burdened with the intricacies or
complexities of corporate existence.
There is also a cutoff period such that checks issued during a given
month, but not presented for payment within that period, will not be
reflected therein.[135] An experienced auditor with intent to defraud
can easily conceal any devious scheme from a client unwary of the
accounting processes involved by manipulating the cash balances on
record -- especially when bank transactions are numerous, large and
frequent. CASA could only be blamed, if at all, for its unintelligent
choice in the selection and appointment of an auditor -- a fault that is
not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it.[136] Its
mere existence is not sufficient without proof that it, and no other
cause,[137] has given rise to damages.[138] In addition, this fault is
common to, if not prevalent among, small and medium-sized business
entities, thus leading the Professional Regulation Commission (PRC),
through the Board of Accountancy (BOA), to require today not only
accreditation for the practice of public accountancy,[139] but also the
registration of firms in the practice thereof. In fact, among the
attachments now required upon registration are the code of good
governance[140] and a sworn statement on adequate and effective
training.[141]
The missing checks were certainly reported by the bookkeeper[142] to
the accountant[143] -- her immediate supervisor -- and by the latter to
the auditor. However, both the accountant and the auditor, for
reasons known only to them, assured the bookkeeper that there were
no irregularities.
The bookkeeper[144] who had exclusive custody of the
checkbooks[145] did not have to go directly to CASAs president or to
BPI. Although she rightfully reported the matter, neither an
investigation was conducted nor a resolution of it was arrived at,
precisely because the person at the top of the helm was the
culprit. The vouchers, invoices and check stubs in support of all check
disbursements could be concealed or fabricated -- even in collusion -
- and management would still have no way to verify its cash
accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through
no fault of CASA. If auditors may be held liable for breach of contract
and negligence,[146] with all the more reason may they be charged
with the perpetration of fraud upon an unsuspecting client.CASA had
the discretion to pursue BPI alone under the NIL, by reason of
expediency or munificence or both. Money paid under a mistake may
rightfully be recovered,[147] and under such terms as the injured party
may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASAs claim for moral damages.
In the absence of a wrongful act or omission,[148] or of fraud or bad
faith,[149] moral damages cannot be awarded.[150] The adverse result
of an action does not per se make the action wrongful, or the party
liable for it. One may err, but error alone is not a ground for granting
such damages.[151] While no proof of pecuniary loss is necessary
therefor -- with the amount to be awarded left to the courts
discretion[152] -- the claimant must nonetheless satisfactorily prove
the existence of its factual basis[153] and causal relation[154] to the
claimants act or omission.[155]
Regrettably, in this case CASA was unable to identify the particular
instance -- enumerated in the Civil Code -- upon which its claim for
moral damages is predicated.[156] Neither bad faith nor negligence so
gross that it amounts to malice[157] can be imputed to BPI.Bad faith,
under the law, does not simply connote bad judgment or
negligence;[158] it imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of a known duty
through some motive or interest or ill will that partakes of the nature
of fraud.[159]
As a general rule, a corporation -- being an artificial person without
feelings, emotions and senses, and having existence only in legal
contemplation -- is not entitled to moral damages,[160] because it
cannot experience physical suffering and mental
anguish.[161]However, for breach of the fiduciary duty required of a
bank, a corporate client may claim such damages when its good
reputation is besmirched by such breach, and social humiliation
results therefrom.[162] CASA was unable to prove that BPI had
debased the good reputation of,[163] and consequently caused
incalculable embarrassment to, the former. CASAs mere allegation or
supposition thereof, without any sufficient evidence on record,[164] is
not enough.
Exemplary Damages Also Denied
We also deny CASAs claim for exemplary damages.
Imposed by way of correction[165] for the public good,[166] exemplary
damages cannot be recovered as a matter of right.[167] As we have said
earlier, there is no bad faith on the part of BPI for paying the checks
of CASA upon forged signatures. Therefore, the former cannot be said
to have acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.[168] The latter, having no right to moral damages,
cannot demand exemplary damages.[169]
Attorneys Fees Granted
Although it is a sound policy not to set a premium on the right to
litigate,[170] we find that CASA is entitled to reasonable attorneys fees
based on factual, legal, and equitable justification.[171]
When the act or omission of the defendant has compelled the plaintiff
to incur expenses to protect the latters interest,[172] or where the
court deems it just and equitable,[173] attorneys fees may be
recovered. In the present case, BPI persistently denied the claim of
CASA under the NIL to recredit the latters account for the value of the
forged checks. This denial constrained CASA to incur expenses and
exert effort for more than ten years in order to protect its corporate
interest in its bank account. Besides, we have already cautioned BPI
on a similar act of negligence it had committed seventy years ago, but
it has remained unrelenting. Therefore, the Court deems it just and
equitable to grant ten percent (10%)[174] of the total value adjudged
to CASA as attorneys fees.
Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling
the latter to resort to the courts to obtain payment, legal interest may
be adjudicated at the discretion of the Court, the same to run from the
filing[175] of the Complaint.[176] Since a court judgment is not a loan or
a forbearance of recovery, the legal interest shall be at six percent
(6%) per annum.[177] If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the
payment of x x x legal interest, which is six percent per
annum.[178] The actual base for its computation shall be on the
amount finally adjudged,[179] compounded[180] annually to make up
for the cost of money[181] already lost to CASA.
Moreover, the failure of the CA to award interest does not prevent us
from granting it upon damages awarded for breach of
contract.[182] Because BPI evidently breached its contract of deposit
with CASA, we award interest in addition to the total amount
adjudged.Under Section 196 of the NIL, any case not provided for
shall be governed by the provisions of existing legislation or, in
default thereof, by the rules of the law merchant.[183] Damages are not
provided for in the NIL. Thus, we resort to the Code of Commerce and
the Civil Code. Under Article 2 of the Code of Commerce, acts of
commerce shall be governed by its provisions and, in their absence,
by the usages of commerce generally observed in each place; and in
the absence of both rules, by those of the civil law.[184] This law being
silent, we look at Article 18 of the Civil Code, which states: In matters
which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied by its provisions. A perusal of these three
statutes unmistakably shows that the award of interest under our
civil law is justified.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and
that in GR No. 149507 PARTLY GRANTED. The assailed Decision of the
Court of Appeals is AFFIRMED with modification: BPI is held liable
for P547,115, the total value of the forged checks less the amount
already recovered by CASA from Leonardo T. Yabut, plus interest at
the legal rate of six percent (6%) per annum -- compounded annually,
from the filing of the complaint until paid in full; and attorneys fees
of ten percent (10%) thereof, subject to reimbursement from
Respondent Yabut for the entire amount, excepting attorneys
fees. Let a copy of this Decision be furnished the Board of
Accountancy of the Professional Regulation Commission for such
action as it may deem appropriate against Respondent Yabut. No
costs.
SO ORDERED.
Ramon K. Ilusorio vs. CA Quintana
G.R. NO. 139130 Nov. 27, 2002
Sec. 23
DECISION
QUISUMBING, J.:
This petition for review seeks to reverse the decision[1] promulgated
on January 28, 1999 by the Court of Appeals in CA-G.R. CV No. 47942,
affirming the decision of the then Court of First Instance of Rizal,
Branch XV (now the Regional Trial Court of Makati, Branch 138)
dismissing Civil Case No. 43907, for damages.
The facts as summarized by the Court of Appeals are as follows:
Petitioner is a prominent businessman who, at the time material to
this case, was the Managing Director of Multinational Investment
Bancorporation and the Chairman and/or President of several other
corporations. He was a depositor in good standing of respondent
bank, the Manila Banking Corporation, under current Checking
Account No. 06-09037-0. As he was then running about 20
corporations, and was going out of the country a number of times,
petitioner entrusted to his secretary, Katherine[2] E. Eugenio, his
credit cards and his checkbook with blank checks. It was also Eugenio
who verified and reconciled the statements of said checking
account.[3]
Between the dates September 5, 1980 and January 23, 1981, Eugenio
was able to encash and deposit to her personal account about
seventeen (17) checks drawn against the account of the petitioner at
the respondent bank, with an aggregate amount of P119,634.34.
Petitioner did not bother to check his statement of account until a
business partner apprised him that he saw Eugenio use his credit
cards. Petitioner fired Eugenio immediately, and instituted a criminal
action against her for estafa thru falsification before the Office of the
Provincial Fiscal of Rizal. Private respondent, through an affidavit
executed by its employee, Mr. Dante Razon, also lodged a complaint
for estafa thru falsification of commercial documents against Eugenio
on the basis of petitioners statement that his signatures in the checks
were forged.[4] Mr. Razons affidavit states:
That I have examined and scrutinized the following checks in
accordance with prescribed verification procedures with utmost care
and diligence by comparing the signatures affixed thereat against the
specimen signatures of Mr. Ramon K. Ilusorio which we have on file
at our said office on such dates,
xxx
That the aforementioned checks were among those issued by
Manilabank in favor of its client MR. RAMON K. ILUSORIO,
That the same were personally encashed by KATHERINE E.
ESTEBAN, an executive secretary of MR. RAMON K. ILUSORIO in said
Investment Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the
attending verifier when she personally encashed the above-
mentioned checks at our said office;
That MR. RAMON K. ILUSORIO executed an affidavit expressly
disowning his signature appearing on the checks further alleged to
have not authorized the issuance and encashment of the same.[5]
Petitioner then requested the respondent bank to credit back and
restore to its account the value of the checks which were wrongfully
encashed but respondent bank refused. Hence, petitioner filed the
instant case.[6]
At the trial, petitioner testified on his own behalf, attesting to the
truth of the circumstances as narrated above, and how he discovered
the alleged forgeries. Several employees of Manila Bank were also
called to the witness stand as hostile witnesses. They testified that it
is the banks standard operating procedure that whenever a check is
presented for encashment or clearing, the signature on the check is
first verified against the specimen signature cards on file with the
bank.
Manila Bank also sought the expertise of the National Bureau of
Investigation (NBI) in determining the genuineness of the signatures
appearing on the checks. However, in a letter dated March 25, 1987,
the NBI informed the trial court that they could not conduct the
desired examination for the reason that the standard specimens
submitted were not sufficient for purposes of rendering a definitive
opinion. The NBI then suggested that petitioner be asked to submit
seven (7) or more additional standard signatures executed before or
about, and immediately after the dates of the questioned checks.
Petitioner, however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo rendered
judgment on May 12, 1994 with the following dispositive portion:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein
against defendant bank, in the light of the foregoing considerations
and established facts, this case would have to be, as it is hereby
DISMISSED.
Defendants counterclaim is likewise DISMISSED for lack of sufficient
basis.
SO ORDERED.[7]
Aggrieved, petitioner elevated the case to the Court of Appeals by way
of a petition for review but without success. The appellate court held
that petitioners own negligence was the proximate cause of his loss.
The appellate court disposed as follows:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs
against the appellant.
SO ORDERED.[8]
Before us, petitioner ascribes the following errors to the Court of
Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
RESPONDENT BANK IS ESTOPPED FROM RAISING THE DEFENSE
THAT THERE WAS NO FORGERY OF THE SIGNATURES OF THE
PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A
CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF
COMMERCIAL DOCUMENTS AGAINST KATHERINE EUGENIO USING
THE AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES
WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT.[9]
B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23,
NEGOTIABLE INSTRUMENTS LAW.[10]
C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN
OF PROOF IS WITH THE RESPONDENT BANK TO PROVE THE DUE
DILIGENCE TO PREVENT DAMAGE, TO THE PETITIONER, AND THAT
IT WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF
ITS EMPLOYEES.[11]
D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT BANK SHOULD BEAR THE LOSS, AND SHOULD BE
MADE TO PAY PETITIONER, WITH RECOURSE AGAINST KATHERINE
EUGENIO ESTEBAN.[12]
Essentially the issues in this case are: (1) whether or not petitioner
has a cause of action against private respondent; and (2) whether or
not private respondent, in filing an estafa case against petitioners
secretary, is barred from raising the defense that the fact of forgery
was not established.
Petitioner contends that Manila Bank is liable for damages for its
negligence in failing to detect the discrepant checks. He adds that as
a general rule a bank which has obtained possession of a check upon
an unauthorized or forged endorsement of the payees signature and
which collects the amount of the check from the drawee is liable for
the proceeds thereof to the payee. Petitioner invokes the doctrine of
estoppel, saying that having itself instituted a forgery case against
Eugenio, Manila Bank is now estopped from asserting that the fact of
forgery was never proven.
For its part, Manila Bank contends that respondent appellate court
did not depart from the accepted and usual course of judicial
proceedings, hence there is no reason for the reversal of its ruling.
Manila Bank additionally points out that Section 23[13] of the
Negotiable Instruments Law is inapplicable, considering that the fact
of forgery was never proven. Lastly, the bank negates petitioners
claim of estoppel.[14]
On the first issue, we find that petitioner has no cause of action
against Manila Bank. To be entitled to damages, petitioner has the
burden of proving negligence on the part of the bank for failure to
detect the discrepancy in the signatures on the checks. It is incumbent
upon petitioner to establish the fact of forgery, i.e., by submitting his
specimen signatures and comparing them with those on the
questioned checks. Curiously though, petitioner failed to submit
additional specimen signatures as requested by the National Bureau
of Investigation from which to draw a conclusive finding regarding
forgery. The Court of Appeals found that petitioner, by his own
inaction, was precluded from setting up forgery. Said the appellate
court:
We cannot fault the court a quo for such declaration, considering that
the plaintiffs evidence on the alleged forgery is not convincing
enough. The burden to prove forgery was upon the plaintiff, which
burden he failed to discharge. Aside from his own testimony, the
appellant presented no other evidence to prove the fact of forgery. He
did not even submit his own specimen signatures, taken on or about
the date of the questioned checks, for examination and comparison
with those of the subject checks. On the other hand, the appellee
presented specimen signature cards of the appellant, taken at various
years, namely, in 1976, 1979 and 1981 (Exhibits 1, 2, 3 and 7),
showing variances in the appellants unquestioned signatures. The
evidence further shows that the appellee, as soon as it was informed
by the appellant about his questioned signatures, sought to borrow
the questioned checks from the appellant for purposes of analysis
and examination (Exhibit 9), but the same was denied by the
appellant. It was also the former which sought the assistance of the
NBI for an expert analysis of the signatures on the questioned checks,
but the same was unsuccessful for lack of sufficient specimen
signatures.[15]
Moreover, petitioners contention that Manila Bank was remiss in the
exercise of its duty as drawee lacks factual basis. Consistently, the CA
and the RTC found that Manila Bank employees exercised due
diligence in cashing the checks. The banks employees in the present
case did not have a hint as to Eugenios modus operandi because she
was a regular customer of the bank, having been designated by
petitioner himself to transact in his behalf. According to the appellate
court, the employees of the bank exercised due diligence in the
performance of their duties. Thus, it found that:
The evidence on both sides indicates that TMBCs employees
exercised due diligence before encashing the checks. Its verifiers first
verified the drawers signatures thereon as against his specimen
signature cards, and when in doubt, the verifier went further, such as
by referring to a more experienced verifier for further verification. In
some instances the verifier made a confirmation by calling the
depositor by phone. It is only after taking such precautionary
measures that the subject checks were given to the teller for payment.
Of course it is possible that the verifiers of TMBC might have made a
mistake in failing to detect any forgery -- if indeed there was.
However, a mistake is not equivalent to negligence if they were
honest mistakes. In the instant case, we believe and so hold that if
there were mistakes, the same were not deliberate, since the bank
took all the precautions.[16]
As borne by the records, it was petitioner, not the bank, who was
negligent. Negligence is the omission to do something which a
reasonable man, guided by those considerations which ordinarily
regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do.[17] In the
present case, it appears that petitioner accorded his secretary
unusual degree of trust and unrestricted access to his credit cards,
passbooks, check books, bank statements, including custody and
possession of cancelled checks and reconciliation of accounts. Said
the Court of Appeals on this matter:
Moreover, the appellant had introduced his secretary to the bank for
purposes of reconciliation of his account, through a letter dated July
14, 1980 (Exhibit 8). Thus, the said secretary became a familiar figure
in the bank. What is worse, whenever the bank verifiers call the office
of the appellant, it is the same secretary who answers and confirms
the checks.
The trouble is, the appellant had put so much trust and confidence in
the said secretary, by entrusting not only his credit cards with her but
also his checkbook with blank checks. He also entrusted to her the
verification and reconciliation of his account. Further adding to his
injury was the fact that while the bank was sending him the monthly
Statements of Accounts, he was not personally checking the same. His
testimony did not indicate that he was out of the country during the
period covered by the checks. Thus, he had all the opportunities to
verify his account as well as the cancelled checks issued thereunder -
- month after month. But he did not, until his partner asked him
whether he had entrusted his credit card to his secretary because the
said partner had seen her use the same. It was only then that he was
minded to verify the records of his account. [18]
The abovecited findings are binding upon the reviewing court. We
stress the rule that the factual findings of a trial court, especially
when affirmed by the appellate court, are binding upon us[19] and
entitled to utmost respect[20] and even finality. We find no palpable
error that would warrant a reversal of the appellate courts
assessment of facts anchored upon the evidence on record.
Petitioners failure to examine his bank statements appears as the
proximate cause of his own damage. Proximate cause 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.[21] In the instant case, the bank was not
shown to be remiss in its duty of sending monthly bank statements
to petitioner so that any error or discrepancy in the entries therein
could be brought to the banks attention at the earliest opportunity.
But, petitioner failed to examine these bank statements not because
he was prevented by some cause in not doing so, but because he did
not pay sufficient attention to the matter. Had he done so, he could
have been alerted to any anomaly committed against him. In other
words, petitioner had sufficient opportunity to prevent or detect any
misappropriation by his secretary had he only reviewed the status of
his accounts based on the bank statements sent to him regularly. In
view of Article 2179 of the New Civil Code,[22] when the plaintiffs
own negligence was the immediate and proximate cause of his injury,
no recovery could be had for damages.
Petitioner further contends that under Section 23 of the Negotiable
Instruments Law a forged check is inoperative, and that Manila Bank
had no authority to pay the forged checks. True, it is a rule that when
a signature is forged or made without the authority of the person
whose signature it purports to be, the check is wholly inoperative. No
right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be acquired through
or under such signature. However, the rule does provide for an
exception, namely: unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of
authority. In the instant case, it is the exception that applies. In our
view, petitioner is precluded from setting up the forgery, assuming
there is forgery, due to his own negligence in entrusting to his
secretary his credit cards and checkbook including the verification of
his statements of account.
Petitioners reliance on Associated Bank vs. Court of Appeals[23] and
Philippine Bank of Commerce vs. CA[24] to buttress his contention
that respondent Manila Bank as the collecting or last endorser
generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements is misplaced. In the cited
cases, the fact of forgery was not in issue. In the present case, the fact
of forgery was not established with certainty. In those cited cases, the
collecting banks were held to be negligent for failing to observe
precautionary measures to detect the forgery. In the case before us,
both courts below uniformly found that Manila Banks personnel
diligently performed their duties, having compared the signature in
the checks from the specimen signatures on record and satisfied
themselves that it was petitioners.
On the second issue, the fact that Manila Bank had filed a case for
estafa against Eugenio would not estop it from asserting the fact that
forgery has not been clearly established. Petitioner cannot hold
private respondent in estoppel for the latter is not the actual party to of which were paid and cleared by PNB and debited by PNB against
the criminal action. In a criminal action, the State is the plaintiff, for NWSA Account No. 6, to wit:
the commission of a felony is an offense against the State.[25] Thus,
under Section 2, Rule 110 of the Rules of Court the complaint or “Check No. Date Payee Amount Date Paid
information filed in court is required to be brought in the name of the
People of the Philippines. [26] By PNB

Further, as petitioner himself stated in his petition, respondent bank 1. 59546 8-21-69 Deogracias Estrella P3,187.79 4-2-69
filed the estafa case against Eugenio on the basis of petitioners own
affidavit,[27] but without admitting that he had any personal 2. 59548 3-31-69 Natividad Rosario 2,848.86 4-23-69
knowledge of the alleged forgery. It is, therefore, easy to understand
that the filing of the estafa case by respondent bank was a last ditch 3. 59547 3-31-69 Pangilinan Enterprises 195.00 Unreleased
effort to salvage its ties with the petitioner as a valuable client, by
bolstering the estafa case which he filed against his secretary. 4. 59549 3-31-69 Natividad Rosario 3,239.88 4-23-69

All told, we find no reversible error that can be ascribed to the Court 5. 59552 4-1-69 Villarama & Sons 987.59 5-6-69
of Appeals.
6. 59554 4-1-69 Gascom Engineering 6,057.60 4-16-69
WHEREFORE, the instant petition is DENIED for lack of merit. The
assailed decision of the Court of Appeals dated January 28, 1999 in 7. 59558 4-2-69 The Evening News 112.00 Unreleased
CA-G.R. CV No. 47942, is AFFIRMED.
8. 59544 3-27-69 Progressive Const. 18,391.20 4-18-69
Costs against petitioner.
9. 59564 4-2-69 Ind. Insp. Int. Inc. 594.56 4-18-69
SO ORDERED.
10. 59568 4-7-69 Roberto Marsan 800.00 4-22-69

Metropolitan Waterworks vs. CA 11. 59570 4-7-69 Paz Andres 200.00 4-22-69
Ramos
G.R. NO. L-62943 July 14, 1986 12. 59574 4-8-69 Florentino Santos 100,000.00 4-11-69
Sec. 23
13. 59578 4-8-69 Mla. Daily Bulletin 95.00 Unreleased
DECISION
14. 59580 4-8-69 Phil. Herald 100.00 5-9-69
GUTIERREZ, JR., J.:
15. 59582 4-8-69 Galauran & Pilar 7,729.09 5-6-69
This petition for review asks us to set aside the October 29, 1982
decision of the respondent Court of Appeals, now Intermediate 16. 59581 4-8-69 Manila Chronicle 110.00 5-12-69
Appellate Court which reversed the decision of the Court of First
Instance of Manila, Branch XL, and dismissed the plaintiff’s 17. 59588 4-8-69 Treago Tunnel 21,583.00 4-11-69
complaint, the third party complaint, as well as the defendant’s
counterclaim. 18. 59587 4-8-69 Delfin Santiago 120,000.00 4-11-69

The background facts which led to the filing of the instant petition are 19. 59589 4-10-69 Deogracias Estrella 1,257.49 4-16-69
summarized in the decision of the respondent Court of Appeals:
20. 59594 4-14-69 Philam Accident Inc. 33.03 4-29-69
Metropolitan Waterworks and Sewerage System (hereinafter
referred to as MWSS) is a government owned and controlled 21. 59577 4-8-69 Esla 9,429.78 4-29-69
corporation created under Republic Act No. 6234 as the successor-in-
interest of the defunct NWSA. The Philippine National Bank (PNB for 22. 59601 4-16-69 Justino Torres 20,000.00 4-18-69
short), on the other hand, is the depository bank of MWSS and its
predecessor-in-interest NWSA. Among the several accounts of NWSA 23. 59595 4-14-69 Neris Phil. Inc. 4,274.00 5-20-69
with PNB is NWSA Account No. 6, otherwise known as Account No.
381-777 and which is presently allocated No. 010-500281. The ————————–
authorized signature for said Account No. 6 were those of MWSS
treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting P320,636.26″
General Manager Victor L. Recio. Their respective specimen
signatures were submitted by the MWSS to and on file with the PNB. During the same months of March, April and May 1969, twenty-three
By special arrangement with the PNB, the MWSS used personalized (23) checks bearing the same numbers as the aforementioned NWSA
checks in drawing from this account. These checks were printed for checks were likewise paid and cleared by PNB and debited against
MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal NWSA Account No. 6, to wit:
Extension, Caloocan City.
“Check Date Payee Amount Date Paid
During the months of March, April and May 1969, twenty-three (23)
checks were prepared, processed, issued and released by NWSA, all No. Issued—-By PNB
1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69 30, 1969; Antonio Mendoza P18,182.00 as of May 23, 1969; and
Arturo Sison Pl,398.92 as of June 30, 1969.
2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69
On June 11, 1969, NWSA addressed a letter to PNB requesting the
3. 59547 3-14-69 Arturo Sison 56,903.00 4-1169 immediate restoration to its Account No. 6, of the total sum of
P3,457,903.00 corresponding to the total amount of these twenty-
4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69 three (23) checks claimed by NWSA to be forged and/or spurious
checks. “In view of the refusal of PNB to credit back to Account No. 6
5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69 the said total sum of P3,457,903.00 MWSS filed the instant complaint
on November 10, 1972 before the Court of First Instance of Manila
6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69 and docketed thereat as Civil Case No. 88950.

7. 59558 3-28-69 Arturo Sison 114,840.00
8. 59544 3-16-69 Antonio Mendoza 38,490.00
9. 59564 3-31-69 Arturo Sison 180,900.00
10. 59568 4-2-69 Arturo Sison 134,940.00
11. 59570 4-1-69 Arturo Sison 64,550.00
12. 59574 4-2-69 Arturo Sison 148,610.00
4-21-69 In its answer, PNB contended among others, that the checks in
question were regular on its face in all respects, including the
4-22-69 genuineness of the signatures of authorized NWSA signing officers
and there was nothing on its face that could have aroused any
4-23-69 suspicion as to its genuineness and due execution and; that NWSA
was guilty of negligence which was the proximate cause of the loss.
4-25-69
PNB also filed a third party complaint against the negotiating banks
4-28-69 PBC and PCIB on the ground that they failed to ascertain the Identity
of the payees and their title to the checks which were deposited in the
4-29-69 respective new accounts of the payees with them.

13. 59578 4-10-69 Antonio Mendoza 93,950.00 4-29-69 xxx xxx xxx

14. 59580 4-8-69 Arturo Sison 160,000.00 5-2-69 On February 6, 1976, the Court of First Instance of Manila rendered
judgment in favor of the MWSS. The dispositive portion of the
15. 59582 4-10-69 Arturo Sison 155,400.00 5-5-69 decision reads:

16. 59581 4-8-69 Antonio Mendoza176,580.00
17. 59588 4-16-69 Arturo Sison 176,000.00
18. 59587 4-16-69 Arturo Sison 300,000.00
19. 59589 4-18-69 Arturo Sison 122,000.00
20. 59594 4-18-69 Arturo Sison 280,000.00
21. 59577 4-14-69 Antonio Mendoza260,000.00
22. 59601 4-18-69 Arturo Sison 400,000.00
23. 59595 4-28-69 Arturo Sison 190,800.00
5-6-69 WHEREFORE, on the COMPLAINT by a clear preponderance of
evidence and in accordance with Section 23 of the Negotiable
5-8-69 Instruments Law, the Court hereby renders judgment in favor of the
plaintiff Metropolitan Waterworks and Sewerage System (MWSS) by
5-12-69 ordering the defendant Philippine National Bank (PNB) to restore the
total sum of THREE MILLION FOUR HUNDRED FIFTY SEVEN
5-14-69 THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00) to
plaintiff’s Account No. 6, otherwise known as Account No. 010-
5-15-69 50030-3, with legal interest thereon computed from the date of the
filing of the complaint and until as restored in the said Account No. 6.
5-16-69
On the THIRD PARTY COMPLAINT, the Court, for lack of evidence,
5-19-69 hereby renders judgment in favor of the third party defendants
Philippine Bank of Commerce (PBC) and Philippine Commercial and
5-21-69 Industrial Bank (PCIB) by dismissing the Third Party Complaint.

———————- The counterclaims of the third party defendants are likewise

P3,457,903.00”
The foregoing checks were deposited by the payees Raul Dizon,
Arturo Sison and Antonio Mendoza in their respective current
accounts with the Philippine Commercial and Industrial Bank (PCIB)
and Philippine Bank of Commerce (PBC) in the months of March,
April and May 1969. Thru the Central Bank Clearing, these checks
were presented for payment by PBC and PCIB to the defendant PNB,
and paid, also in the months of March, April and May 1969. At the time
of their presentation to PNB these checks bear the standard
indorsement which reads ‘all prior indorsement and/or lack of
endorsement guaranteed.’
dismissed for lack of evidence.
No pronouncement as to costs.
As earlier stated, the respondent court reversed the decision of the
Court of First Instance of Manila and rendered judgment in favor of
the respondent Philippine National Bank.
A motion for reconsideration filed by the petitioner MWSS was
denied by the respondent court in a resolution dated January 3, 1983.
The petitioner now raises the following assignments of errors for the
grant of this petition:

Subsequent investigation however, conducted by the NBI showed I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS
that Raul Dizon, Arturo Sison and Antonio Mendoza were all fictitious WERE FORGED, THE DRAWEE BANK WAS LIABLE FOR THE LOSS
persons. The respective balances in their current account with the UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW.
PBC and/or PCIB stood as follows: Raul Dizon P3,455.00 as of April
II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB
IN ACCEPTING THE SPURIOUS CHECKS DESPITE THE OBVIOUS
IRREGULARITY OF TWO SETS OF CHECKS BEARING IDENTICAL
NUMBER BEING ENCASHED WITHIN DAYS OF EACH OTHER.
III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE
MWSS BEING CLEARLY FORGED, AND THE CHECKS SPURIOUS,
SAME ARE INOPERATIVE AS AGAINST THE ALLEGED DRAWEE.
The appellate court applied Section 24 of the Negotiable Instruments
Law which provides:
Every negotiable instrument is deemed prima facie to have been
issued for valuable consideration and every person whose signature
appears thereon to have become a party thereto for value.
The petitioner submits that the above provision does not apply to the
facts of the instant case because the questioned checks were not
those of the MWSS and neither were they drawn by its authorized
signatories. The petitioner states that granting that Section 24 of the
Negotiable Instruments Law is applicable, the same creates only a
prima facie presumption which was overcome by the following
documents, to wit: (1) the NBI Report of November 2, 1970; (2) the
NBI Report of November 21, 1974; (3) the NBI Chemistry Report No.
C-74891; (4) the Memorandum of Mr. Juan Dino, 3rd Assistant
Auditor of the respondent drawee bank addressed to the Chief
Auditor of the petitioner; (5) the admission of the respondent bank’s
counsel in open court that the National Bureau of Investigation found
the signature on the twenty-three (23) checks in question to be
forgeries; and (6) the admission of the respondent bank’s witness,
Mr. Faustino Mesina, Jr. that the checks in question were not printed
by his printing press. The petitioner contends that since the
signatures of the checks were forgeries, the respondent drawee bank
must bear the loss under the rulings of this Court.
A bank is bound to know the signatures of its customers; and if it pays
a forged check it must be considered as making the payment out of
its obligation funds, and cannot ordinarily charge the amount so paid
to the account of the depositor whose name was forged.
xxx xxx xxx
The signatures to the checks being forged, under Section 23 of the
Negotiable Instruments Law they are not a charge against plaintiff
nor are the checks of any value to the defendant.
It must therefore be held that the proximate cause of loss was due to
the negligence of the Bank of the Philippine Islands in honoring and
cashing the two forged checks. (San Carlos Milling Co. v. Bank of the
P. I., 59 Phil. 59)
It is admitted that the Philippine National Bank cashed the check
upon a forged signature, and placed the money to the credit of
Maasim, who was the forger. That the Philippine National Bank then
endorsed the chock and forwarded it to the Shanghai Bank by whom
it was paid. The Philippine National Bank had no license or authority
to pay the money to Maasim or anyone else upon a forged signature.
It was its legal duty to know that Malicor’s endorsement was genuine
before cashing the check. Its remedy is against Maasim to whom it
paid the money. (Great Eastern Life Ins. Co. v. Hongkong & Shanghai
Bank, 43 Phil. 678).
We have carefully reviewed the documents cited by the petitioner.
There is no express and categorical finding in these documents that
the twenty-three (23) questioned checks were indeed signed by
persons other than the authorized MWSS signatories. On the
contrary, the findings of the National Bureau of Investigation in its
Report dated November 2, 1970 show that the MWSS fraud was an
“inside job” and that the petitioner’s delay in the reconciliation of
bank statements and the laxity and loose records control in the
printing of its personalized checks facilitated the fraud. Likewise, the
questioned Documents Report No. 159-1074 dated November 21,
1974 of the National Bureau of Investigation does not declare or
prove that the signatures appearing on the questioned checks are
forgeries. The report merely mentions the alleged differences in the
type face, checkwriting, and printing characteristics appearing in the
standard or submitted models and the questioned typewritings. The
NBI Chemistry Report No. C-74-891 merely describes the inks and
pens used in writing the alleged forged signatures.
It is clear that these three (3) NBI Reports relied upon by the
petitioner are inadequate to sustain its allegations of forgery. These
reports did not touch on the inherent qualities of the signatures
which are indispensable in the determination of the existence of
forgery. There must be conclusive findings that there is a variance in
the inherent characteristics of the signatures and that they were
written by two or more different persons.
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate
Court, et al, 139 SCRA 238). It must be established by clear, positive,
and convincing evidence. This was not done in the present case.
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine
Islands, et al. (59 Phil. 59) and Great Eastern Life Ins., Co. v. Hongkong
and Shanghai Bank (43 Phil. 678) relied upon by the petitioner are
inapplicable in this case because the forgeries in those cases were
either clearly established or admitted while in the instant case, the
allegations of forgery were not clearly established during trial.
Considering the absence of sufficient security in the printing of the
checks coupled with the very close similarities between the genuine
signatures and the alleged forgeries, the twenty-three (23) checks in
question could have been presented to the petitioner’s signatories
without their knowing that they were bogus checks. Indeed, the
cashier of the petitioner whose signatures were allegedly forged was
unable to ten the difference between the allegedly forged signature
and his own genuine signature. On the other hand, the MWSS officials
admitted that these checks could easily be passed on as genuine.
The memorandum of Mr. A. T. Tolentino, no, Assistant Chief
Accountant of the drawee Philippine National Bank to Mr. E.
Villatuya, Executive Vice-President of the petitioner dated June 9,
1969 cites an instance where even the concerned NWSA officials
could not ten the differences between the genuine checks and the
alleged forged checks.
At about 12:00 o’clock on June 6, 1969, VP Maramag requested me to
see him in his office at the Cashier’s Dept. where Messrs. Jose M.
Sanchez, treasurer of NAWASA and Romeo Oliva of the same office
were present. Upon my arrival I observed the NAWASA officials
questioning the issue of the NAWASA checks appearing in their own
list, xerox copy attached.
For verification purposes, therefore, the checks were taken from our
file. To everybody there present namely VIP Maramag, the two
abovementioned NAWASA officials, AVP, Buhain, Asst. Cashier
Castelo, Asst. Cashier Tejada and Messrs. A. Lopez and L. Lechuga,
both C/A bookkeepers, no one was able to point out any difference
on the signatures of the NAWASA officials appearing on the checks
compared to their official signatures on file. In fact 3 checks, one of
those under question, were presented to the NAWASA treasurer for
verification but he could not point out which was his genuine
signature. After intent comparison, he pointed on the questioned
check as bearing his correct signature.
xxx xxx xxx
Moreover, the petitioner is barred from setting up the defense of
forgery under Section 23 of the Negotiable Instruments Law which
provides that:
“SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is
forged or made without 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.”
because it was guilty of negligence not only before the questioned
checks were negotiated but even after the same had already been
negotiated. (See Republic v. Equitable Banking Corporation, 10 SCRA
8)
The records show that at the time the twenty-three (23) checks were
prepared, negotiated, and encashed, the petitioner was using its own
personalized checks, instead of the official PNB Commercial blank
checks. In the exercise of this special privilege, however, the
petitioner failed to provide the needed security measures. That there
was gross negligence in the printing of its personalized checks is
shown by the following uncontroverted facts, to wit:
(1) The petitioner failed to give its printer, Mesina Enterprises,
specific instructions relative to the safekeeping and disposition of
excess forms, check vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check
forms;
(3) The petitioner failed to provide any control regarding the paper
used in the printing of said checks;
(4) The petitioner failed to furnish the respondent drawee bank with
samples of typewriting, cheek writing, and print used by its printer in
the printing of its checks and of the inks and pens used in signing the
same; and
(5) The petitioner failed to send a representative to the printing office
during the printing of said checks.
This gross negligence of the petitioner is very evident from the sworn
statement dated June 19, 1969 of Faustino Mesina, Jr., the owner of
the printing press which printed the petitioner’s personalized
checks:
xxx xxx xxx
7. Q: Do you have any business transaction with the National
Waterworks and Sewerage Authority (NAWASA)?
A: Yes, sir. I have a contract with the NAWASA in printing NAWASA
Forms such as NAWASA Check
xxx xxx xxx
15. Q: Were you given any instruction by the NAWASA in connection
with the printing of these check vouchers?
A: There is none, sir. No instruction whatsoever was given to me.
16. Q: Were you not advised as to what kind of paper would be used
in the check vouchers?
A: Only as per sample, sir.
xxx xxx xxx
20. Q: Where did you buy this Hammermill Safety check paper?
A: From Tan Chiong, a paper dealer with store located at Juan Luna,
Binondo, Manila. (In front of the Metropolitan Bank).
xxx xxx xxx
24. Q: Were all these check vouchers printed by you submitted to
NAWASA?
A: Not all, sir. Because we have to make reservations or allowances
for spoilage.
25. Q: Out of these vouchers printed by you, how many were spoiled
and how many were the excess printed check vouchers?
A: Approximately four hundred (400) sheets, sir. I cannot determine
the proportion of the excess and spoiled because the final act of
perforating these check vouchers has not yet been done and spoilage
can only be determined after this final act of printing.
26. Q: What did you do with these excess check vouchers?
A: I keep it under lock and key in my firing cabinet.
xxx xxx xxx
28. Q: Were you not instructed by the NAWASA authorities to bum
these excess check vouchers?
A: No, sir. I was not instructed.
30. Q: What do you intend to do with these excess printed check
vouchers?
A: I intend to use them for future orders from the
xxx xxx xxx
32. Q: In the process of printing the check vouchers ordered by the
NAWASA, how many sheets were actually spoiled?
A: I cannot approximate, sir. But there are spoilage in the process of
printing and perforating.
33. Q: What did you do with these spoilages?
A: Spoiled printed materials are usually thrown out, in the garbage
can.
34. Q: Was there any representative of the NAWASA to supervise the
printing or watch the printing of these check vouchers?
A: None, sir.
xxx xxx xxx

39. Q: During the period of printing after the days work, what
measures do you undertake to safeguard the mold and other
paraphernalia used in the printing of these particular orders of
NAWASA?
A: Inasmuch as I have an employee who sleeps in the printing shop
and at the same time do the guarding, we just leave the mold attached
to the machine and the other finished or unfinished work check
vouchers are left in the rack so that the work could be continued the
following day.
The National Bureau of Investigation Report dated November 2, 1970
is even more explicit. Thus—
xxx xxx xxx
60. We observed also that there is some laxity and loose control in the
printing of NAWASA cheeks. We gathered from MESINA
ENTERPRISES, the printing firm that undertook the printing of the
check vouchers of NAWASA that NAWASA had no representative at
the printing press during the process of the printing and no particular
security measure instructions adopted to safeguard the interest of
the government in connection with printing of this accountable form.
Another factor which facilitated the fraudulent encashment of the
twenty-three (23) checks in question was the failure of the petitioner
to reconcile the bank statements with its own records.
It is accepted banking procedure for the depository bank to furnish
its depositors bank statements and debt and credit memos through
the mail. The records show that the petitioner requested the
respondent drawee bank to discontinue the practice of mailing the
bank statements, but instead to deliver the same to a certain Mr.
Emiliano Zaporteza. For reasons known only to Mr. Zaporteza
however, he was unreasonably delayed in taking prompt deliveries
of the said bank statements and credit and debit memos. As a
consequence, Mr. Zaporteza failed to reconcile the bank statements
with the petitioner’s records. If Mr. Zaporteza had not been remiss in
his duty of taking the bank statements and reconciling them with the
petitioner’s records, the fraudulent encashments of the first checks
should have been discovered, and further frauds prevented. This
negligence was, therefore, the proximate cause of the failure to
discover the fraud. Thus,
When a person opens a checking account with a bank, he is given
blank checks which he may fill out and use whenever he wishes. Each
time he issues a check, he should also fill out the check stub to which
the check is usually attached. This stub, if properly kept, will contain
the number of the check, the date of its issue, the name of the payee
and the amount thereof. The drawer would therefore have a complete
record of the checks he issues. It is the custom of banks to send to its
depositors a monthly statement of the status of their accounts,
together with all the cancelled checks which have been cashed by
their respective holders. If the depositor has filled out his check stubs
properly, a comparison between them and the cancelled checks will
reveal any forged check not taken from his checkbook. It is the duty
of a depositor to carefully examine the bank’s statement, his
cancelled checks, his check stubs and other pertinent records within
a reasonable time, and to report any errors without unreasonable
delay. If his negligence should cause the bank to honor a forged check
or prevent it from recovering the amount it may have already paid on
such check, he cannot later complain should the bank refuse to
recredit his account with the amount of such check. (First Nat. Bank
of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA,
NS 744 [1907]. See also Leather Manufacturers’ Bank v. Morgan, 117
US 96, 6 S. Ct. 657 [1886]; Deer Island Fish and Oyster Co. v. First Nat.
Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos and
Campos, Notes and Selected Cases on Negotiable Instruments Law,
1971, pp. 267-268).
This failure of the petitioner to reconcile the bank statements with its
cancelled checks was noted by the National Bureau of Investigation
in its report dated November 2, 1970:
58. One factor which facilitate this fraud was the delay in the
reconciliation of bank (PNB) statements with the NAWASA bank
accounts. x x x. Had the NAWASA representative come to the PNB
early for the statements and had the bank been advised promptly of
the reported bogus check, the negotiation of practically all of the
remaining checks on May, 1969, totaling P2,224,736.00 could have
been prevented.
The records likewise show that the petitioner failed to provide
appropriate security measures over its own records thereby laying
confidential records open to unauthorized persons. The petitioner’s
own Fact Finding Committee, in its report submitted to their General
manager underscored this laxity of records control. It observed that
the “office of Mr. Ongtengco (Cashier No. VI of the Treasury
Department at the NAWASA) is quite open to any person known to
him or his staff members and that the check writer is merely on top
of his table.”
When confronted with this report at the Anti-Fraud Action Section of
the National Bureau of Investigation. Mr. Ongtengco could only state
that:
A. Generally my order is not to allow anybody to enter my office. Only
authorized persons are allowed to enter my office. There are some
cases, however, where some persons enter my office because they are
following up their checks. Maybe, these persons may have been
authorized by Mr. Pantig. Most of the people entering my office are
changing checks as allowed by the Resolution of the Board of
Directors of the NAWASA and the Treasurer. The check writer was
never placed on my table. There is a place for the check write which
is also under lock and key.
Q. Is Mr. Pantig authorized to allow unauthorized persons to enter
your office?
A. No, sir.
Q. Why are you tolerating Mr. Pantig admitting unauthorized persons
in your office?
A. I do not want to embarrass Mr. Pantig. Most of the people following
up checks are employees of the NAWASA.
Q. Was the authority given by the Board of Directors and the approval
by the Treasurer for employees, and other persons to encash their
checks carry with it their authority to enter your office?
A. No, sir.
xxx xxx xxx
Q. From the answers that you have given to us we observed that
actually there is laxity and poor control on your part with regards to
the preparations of check payments inasmuch as you allow
unauthorized persons to follow up their vouchers inside your office
which may leak out confidential informations or your books of
account. After being apprised of all the shortcomings in your office,
as head of the Cashiers’ Office of the Treasury Department what
remedial measures do you intend to undertake?
A. Time and again the Treasurer has been calling our attention not to
allow interested persons to hand carry their voucher checks and we
are trying our best and if I can do it to follow the instructions to the
letter, I will do it but unfortunately the persons who are allowed to
enter my office are my co-employees and persons who have
connections with our higher ups and I cannot possibly antagonize
them. Rest assured that even though that everybody will get hurt, I
win do my best not to allow unauthorized persons to enter my office.
xxx xxx xxx
Q. Is it not possible inasmuch as your office is in charge of the posting
of check payments in your books that leakage of payments to the
banks came from your office?
A. I am not aware of it but it only takes us a couple of minutes to
process the checks. And there are cases wherein every information
about the checks may be obtained from the Accounting Department,
Auditing Department, or the Office of the General Manager.
Relying on the foregoing statement of Mr. Ongtengco, the National
Bureau of Investigation concluded in its Report dated November 2,
1970 that the fraudulent encashment of the twenty-three (23) checks
in question was an “inside job”. Thus-
We have all the reasons to believe that this fraudulent act was an
inside job or one pulled with inside connivance at NAWASA. As
pointed earlier in this report, the serial numbers of these checks in
question conform with the numbers in current use of NAWASA, aside
from the fact that these fraudulent checks were found to be of the
same kind and design as that of NAWASA’s own checks. While
knowledge as to such facts may be obtained through the possession
of a NAWASA check of current issue, an outsider without information
from the inside cannot possibly pinpoint which of NAWASA’s various
accounts has sufficient balance to cover all these fraudulent checks.
None of these checks, it should be noted, was dishonored for
insufficiency of funds. . .
Even if the twenty-three (23) checks in question are considered
forgeries, considering the petitioner’s gross negligence, it is barred
from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the
respondent Philippine National Bank that was the proximate cause of
the loss. The petitioner relies on our ruling in Philippine National
Bank v. Court of Appeals (25 SCRA 693) that:
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 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.
The argument has no merit. The records show that the respondent
drawee bank, had taken the necessary measures in the detection of
forged checks and the prevention of their fraudulent encashment. In
fact, long before the encashment of the twenty-three (23) checks in
question, the respondent Bank had issued constant reminders to all
Current Account Bookkeepers informing them of the activities of
forgery syndicates. The Memorandum of the Assistant Vice-President
and Chief Accountant of the Philippine National Bank dated February
17, 1966 reads in part:
SUBJECT: ACTIVITIES OF FORGERY SYNDICATE
From reliable information we have gathered that personalized
checks of current account depositors are now the target of the forgery
syndicate. To protect the interest of the bank, you are hereby
enjoined to be more careful in examining said checks especially those
coming from the clearing, mails and window transactions. As a
reminder please be guided with the following:
1. Signatures of drawers should be properly scrutinized and
compared with those we have on file.
2. The serial numbers of the checks should be compared with the
serial numbers registered with the Cashier’s Dept.
3. The texture of the paper used and the printing of the checks should
be compared with the sample we have on file with the Cashier’s Dept.
4. Checks bearing several indorsements should be given a special
attention.
5. Alteration in amount both in figures and words should be carefully
examined even if signed by the drawer.
6. Checks issued in substantial amounts particularly by depositors
who do not usually issue checks in big amounts should be brought to
the attention of the drawer by telephone or any fastest means of
communication for purposes of confirmation.
And your attention is also invited to keep abreast of previous
circulars and memo instructions issued to bookkeepers.
We cannot fault the respondent drawee Bank for not having detected
the fraudulent encashment of the checks because the printing of the
petitioner’s personalized checks was not done under the supervision
and control of the Bank. There is no evidence on record indicating
that because of this private printing the petitioner furnished the
respondent Bank with samples of checks, pens, and inks or took other
precautionary measures with the PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better
position to detect and prevent the fraudulent encashment of its
checks.
WHEREFORE, the petition for review on certiorari is hereby
DISMISSED for lack of merit. The decision of the respondent Court of
Appeals dated October 29, 1982 is AFFIRMED. No pronouncement as
to costs.
SO ORDERED.
Samsung vs. FEBTC Rivera
G.R. NO. 129015 Aug. 13, 2004
Sec. 23
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 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 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 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 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 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 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.
Engr. Jose E. Cayanan vs. North Star
Salvador
G.R. NO. 172954 Oct. 5, 2011
Sec. 24
DECISION
VILLARAMA, JR., J.:
Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006
Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 65538
finding him civilly liable for the value of the five checks which are the
subject of Criminal Case Nos. 166549-53.
The antecedent facts are as follows:
North Star International Travel Incorporated (North Star) is a
corporation engaged in the travel agency business while petitioner is
the owner/general manager of JEAC International Management and
Contractor Services, a recruitment agency.
On March 17,[2] 1994, Virginia Balagtas, the General Manager of
North Star, in accommodation and upon the instruction of its client,
petitioner herein, sent the amount of US$60,000[3] to View Sea
Ventures Ltd., in Nigeria from her personal account in Citibank
Makati. On March 29, 1994, Virginia again sent US$40,000 to View
Sea Ventures by telegraphic transfer,[4] with US$15,000 coming from
petitioner. Likewise, on various dates, North Star extended credit to
petitioner for the airplane tickets of his clients, with the total amount
of such indebtedness under the credit extensions eventually reaching
P510,035.47.[5]
To cover payment of the foregoing obligations, petitioner issued the
following five checks to North Star:
Check No : 246822
Drawn Against : Republic Planters Bank
Amount : P695,000.00
Dated/Postdated : April 14, 1994
Payable to : North Star International Travel, Inc.[6]
When presented for payment, the checks in the amount of P1,500,000
and P35,000 were dishonored for insufficiency of funds while the
other three checks were dishonored because of a stop payment order
from petitioner.[7] North Star, through its counsel, wrote petitioner
on September 14, 1994[8] informing him that the checks he issued
had been dishonored. North Star demanded payment, but petitioner
failed to settle his obligations. Hence, North Star instituted Criminal
Case Nos. 166549-53 charging petitioner with violation of Batas
Pambansa Blg. 22, or the Bouncing Checks Law, before the
Metropolitan Trial Court (MeTC) of Makati City.
The Informations,[9] which were similarly worded except as to the
check numbers, the dates and amounts of the checks, alleged:

Dated/Postdated : May 15, 1994 That on or about and during the month of March 1994 in the
Municipality of Makati, Metro Manila, Philippines, a place within the
Payable to : North Star International Travel, Inc. jurisdiction of this Honorable Court, the above-named accused, being
the authorized signatory of [JEAC] Intl Mgt & Cont. Serv. did then and
there willfully, unlawfully and feloniously make out[,] draw and issue
to North Star Intl. Travel Inc. herein rep. by Virginia D. Balagtas to
Check No : 246823 apply on account or for value the checks described below:

Drawn Against : Republic Planters Bank xxxx

Amount : P278,000.00 said accused well knowing that at the time of issue thereof, did not
have sufficient funds in or credit with the drawee bank for the
Dated/Postdated : May 15, 1994 payment in full of the face amount of such check upon its
presentment, which check when presented for payment within
Payable to : North Star International Travel, Inc. ninety (90) days from the date thereof was subsequently dishonored
by the drawee bank for the reason PAYMENT STOPPED/DAIF and
despite receipt of notice of such dishonor the accused failed to pay
the payee the face amount of said check or to make arrangement for
Check No : 246824 full payment thereof within five (5) banking days after receiving
notice.
Drawn Against : Republic Planters Bank
Contrary to law.
Amount : P22,703.00
Upon arraignment, petitioner pleaded not guilty to the charges.
Dated/Postdated : May 15, 1994
After trial, the MeTC found petitioner guilty beyond reasonable doubt
Payable to : North Star International Travel, Inc. of violation of B.P. 22. Thus:

WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY

beyond reasonable doubt of Violation of Batas Pambansa Blg. 22 he
Check No : 687803 is hereby sentenced to suffer imprisonment of one (1) year for each
of the offense committed.
Drawn Against : PCIB
Accused is likewise ordered to indemnify the complainant North Star
Amount : P1,500,000.00 International Travel, Inc. represented in this case by Virginia
Balagtas, the sum of TWO MILLION FIVE HUNDRED THIRTY
Dated/Postdated : April 14, 1994 THOUSAND AND SEVEN HUNDRED THREE PESOS (P2,530,703.00)
representing the total value of the checks in [question] plus FOUR
Payable to : North Star International Travel, Inc. HUNDRED EIGHTY[-]FOUR THOUSAND SEVENTY[-]EIGHT PESOS
AND FORTY[-]TWO CENTAVOS (P484,078.42) as interest of the value
of the checks subject matter of the instant case, deducting therefrom
the amount of TWO HUNDRED TWENTY THOUSAND PESOS
Check No : 687804 (P220,000.00) paid by the accused as interest on the value of the
checks duly receipted by the complainant and marked as Exhibit FF
Drawn Against : PCIB of the record.

Amount : P35,000.00 xxxx

SO ORDERED.[10]
On appeal, the Regional Trial Court (RTC) acquitted petitioner of the
criminal charges. The RTC also held that there is no basis for the
imposition of the civil liability on petitioner. The RTC ratiocinated
that:
In the instant cases, the checks issued by the accused were presented
beyond the period of NINETY (90) DAYS and therefore, there is no
violation of the provision of Batas Pambansa Blg. 22 and the accused
is not considered to have committed the offense. There being no
offense committed, accused is not criminally liable and there would
be no basis for the imposition of the civil liability arising from the
offense.[11]
Aggrieved, North Star elevated the case to the CA. On May 31, 2006,
the CA reversed the decision of the RTC insofar as the civil aspect is
concerned and held petitioner civilly liable for the value of the subject
checks. The fallo of the CA decision reads:
WHEREFORE, the petition is GRANTED. The assailed Decision of the
RTC insofar as Cayanan's civil liability is concerned, is NULLIFIED
and SET ASIDE. The indemnity awarded by the MeTC in its September
1, 1999 Decision is REINSTATED.
SO ORDERED.[12]
The CA ruled that although Cayanan was acquitted of the criminal
charges, he may still be held civilly liable for the checks he issued
since he never denied having issued the five postdated checks which
were dishonored.
Petitioner now assails the CA decision raising the lone issue of
whether the CA erred in holding him civilly liable to North Star for
the value of the checks.[13]
Petitioner argues that the CA erred in holding him civilly liable to
North Star for the value of the checks since North Star did not give
any valuable consideration for the checks. He insists that the
US$85,000 sent to View Sea Ventures was not sent for the account of
North Star but for the account of Virginia as her investment. He points
out that said amount was taken from Virginias personal dollar
account in Citibank and not from North Stars corporate account.
Respondent North Star, for its part, counters that petitioner is liable
for the value of the five subject checks as they were issued for value.
Respondent insists that petitioner owes North Star P2,530,703 plus
interest of P264,078.45, and that the P220,000 petitioner paid to
North Star is conclusive proof that the checks were issued for value.
The petition is bereft of merit.
We have held that upon issuance of a check, in the absence of
evidence to the contrary, it is presumed that the same was issued for
valuable consideration which may consist either in some right,
interest, profit or benefit accruing to the party who makes the
contract, or some forbearance, detriment, loss or some responsibility,
to act, or labor, or service given, suffered or undertaken by the other
side.[14] Under the Negotiable Instruments Law, it is presumed that
every party to an instrument acquires the same for a consideration
or for value.[15] As petitioner alleged that there was no consideration
for the issuance of the subject checks, it devolved upon him to present
convincing evidence to overthrow the presumption and prove that
the checks were in fact issued without valuable consideration.[16]
Sadly, however, petitioner has not presented any credible evidence
to rebut the presumption, as well as North Stars assertion, that the
checks were issued as payment for the US$85,000 petitioner owed.
Notably, petitioner anchors his defense of lack of consideration on
the fact that he did not personally receive the US$85,000 from
Virginia. However, we note that in his pleadings, he never denied
having instructed Virginia to remit the US$85,000 to View Sea
Ventures. Evidently, Virginia sent the money upon the agreement
that petitioner will give to North Star the peso equivalent of the
amount remitted plus interest. As testified to by Virginia, Check No.
246822 dated May 15, 1994 in the amount of P695,000.00 is
equivalent to US$25,000; Check No. 246823 dated May 15, 1994 in
the amount of P278,000 is equivalent to US$10,000; Check No.
246824 in the amount of P22,703 represents the one month interest
for P695,000 and P278,000 at the rate of twenty-eight (28%) percent
per annum;[17] Check No. 687803 dated April 14, 1994 in the
amount of P1,500,000 is equivalent to US$50,000 and Check No.
687804 dated 14 April 1994 in the amount of P35,000 represents the
one month interest for P1,500,000 at the rate of twenty-eight (28%)
percent per annum.[18] Petitioner has not substantially refuted these
averments.
Concomitantly, petitioners assertion that the dollars sent to Nigeria
was for the account of Virginia Balagtas and as her own investment
with View Sea Ventures deserves no credence. Virginia has not been
shown to have any business transactions with View Sea Ventures and
from all indications, she only remitted the money upon the request
and in accordance with petitioners instructions. The evidence shows
that it was petitioner who had a contract with View Sea Ventures as
he was sending contract workers to Nigeria; Virginia Balagtass
participation was merely to send the money through telegraphic
transfer in exchange for the checks issued by petitioner to North Star.
Indeed, the transaction between petitioner and North Star is actually
in the nature of a loan and the checks were issued as payment of the
principal and the interest.
As aptly found by the trial court:
It is to be noted that the checks subject matter of the instant case were
issued in the name of North Star International Inc., represented by
private complainant Virginia Balagtas in replacement of the amount
of dollars remitted by the latter to Vie[w] Sea Ventures in Nigeria. x x
x But Virginia Balagtas has no business transaction with Vie[w] Sea
Ventures where accused has been sending his contract workers and
the North Star provided the trip tickets for said workers sent by the
accused. North Star International has no participation at all in the
transaction between accused and the Vie[w] Sea Ventures except in
providing plane ticket used by the contract workers of the accused
upon its understanding with the latter. The contention of the accused
that the dollars were sent by Virginia Balagtas to Nigeria as business
investment has not been shown by any proof to set aside the
foregoing negative presumptions, thus negates accused contentions
regarding the absence of consideration for the issuance of checks. x x
x[19]
Petitioner claims that North Star did not give any valuable
consideration for the checks since the US$85,000 was taken from the
personal dollar account of Virginia and not the corporate funds of
North Star. The contention, however, deserves scant consideration.
The subject checks, bearing petitioners signature, speak for
themselves. The fact that petitioner himself specifically named North
Star as the payee of the checks is an admission of his liability to North
Star and not to Virginia Balagtas, who as manager merely facilitated
the transfer of funds. Indeed, it is highly inconceivable that an
experienced businessman like petitioner would issue various checks
in sizeable amounts to a payee if these are without consideration.
Moreover, we note that Virginia Balagtas averred in her Affidavit[20]
that North Star caused the payment of the US$60,000 and US$25,000
to View Sea Ventures to accommodate petitioner, which statement
petitioner failed to refute. In addition, petitioner did not question the
Statement of Account No. 8639[21] dated August 31, 1994 issued by
North Star which contained itemized amounts including the
US$60,000 and US$25,000 sent through telegraphic transfer to View
Sea Ventures per his instruction. Thus, the inevitable conclusion is
that when petitioner issued the subject checks to North Star as payee,
he did so to settle his obligation with North Star for the US$85,000.
And since the only payment petitioner made to North Star was in the
amount of P220,000.00, which was applied to interest due, his
liability is not extinguished. Having failed to fully settle his obligation
under the checks, the appellate court was correct in holding
petitioner liable to pay the value of the five checks he issued in favor
of North Star.
WHEREFORE, the present appeal by way of a petition for review on
certiorari is DENIED for lack of merit. The Decision dated May 31,
2006 of the Court of Appeals in CA-G.R. SP No. 65538 is AFFIRMED.
With costs against petitioner.
SO ORDERED.
Bayani vs. People Santos
G.R. NO. 154947 Aug. 11, 2004
Secs. 24 and 28
ECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the
Court of Appeals in CA-G.R. CR No. 22861 affirming on appeal the
Decision[2] of the Regional Trial Court of Lucena City, Branch 59, in
Criminal Case No. 93-135 convicting the accused therein, now the
petitioner, for violation of Batas Pambansa (B.P.) Blg. 22.
On February 9, 1993, Leodegario Bayani was charged with violation
of B.P. Blg. 22 in an Information which reads:
That on or about the 20th day of August 1992, in the Municipality of
Candelaria, Province of Quezon, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused did
then and there willfully, unlawfully and feloniously issue and make
out Check No. 054936 dated August 29, 1992, in the amount of FIFTY-
FIVE THOUSAND PESOS (P55,000.00) Philippine Currency, drawn
against the PSBank, Candelaria Branch, Candelaria, Quezon, payable
to Cash and give the said check to one Dolores Evangelista in
exchange for cash although the said accused knew fully well at the
time of issuance of said check that he did not have sufficient funds in
or credit with the drawee bank for payment of said check in full upon
presentment; that upon presentation of said check to the bank for
payment, the same was dishonored and refused payment for the
reason that the drawer thereof, the herein accused, had no sufficient
fund therein, and that despite due notice, said accused failed to
deposit the necessary amount to cover said check or to pay in full the
amount of said check, to the damage and prejudice of said Dolores
Evangelista in the aforesaid amount.
Contrary to law.[3]
The Case for the Prosecution
At about noon on August 20, 1992, Alicia Rubia arrived at the grocery
store of Dolores Evangelista in Candelaria, Quezon, and asked the
latter to rediscount Philippine Savings Bank (PSBank) Check No.
054936 in the amount of P55,000.00. The check was drawn by
Leodegario Bayani against his account with the PSBank and
postdated August 29, 1992.[4] Rubia told Evangelista that Bayani
asked her to rediscount the check for him because he needed the
money.[5] Considering that Rubia and Bayani were long-time
customers at the store and she knew Bayani to be a good man,
Evangelista agreed to rediscount the check.[6] After Rubia endorsed
the check, Evangelista gave her the amount of P55,000.00.[7]
However, when Evangelista deposited the check in her account with
the Far East Bank & Trust Company on September 11, 1992, it was
dishonored by the drawee bank for the reason that on September 1,
1992, Bayani closed his account with the PSBank.[8] The reason for
the dishonor of the check was stamped at its dorsal portion. As of
August 27, 1992, the balance of Bayanis account with the bank was
P2,414.96.[9] Evangelista then informed Rubia of the dishonor of the
check and demanded the return of her P55,000.00. Rubia replied that
she was only requested by Bayani to have the check rediscounted and
advised Evangelista to see him. When Evangelista talked to Bayani,
she was told that Rubia borrowed the check from him.[10]
Thereafter, Evangelista, Rubia, Bayani and his wife, Aniceta, had a
conference in the office of Atty. Emmanuel Velasco, Evangelistas
lawyer. Later, in the Office of the Barangay Captain Nestor Baera,
Evangelista showed Bayani a photocopy of the dishonored check and
demanded payment thereof. Bayani and Aniceta, on one hand, and
Rubia, on the other, pointed to each other and denied liability
thereon. Aniceta told Rubia that she should be the one to pay since
the P55,000.00 was with her, but the latter insisted that the said
amount was in payment of the pieces of jewelry Aniceta purchased
from her.[11] Upon Atty. Velascos prodding, Evangelista suggested
Bayani and Rubio to pay P25,000.00 each. Still, Bayani and Rubio
pointed to the other as the one solely liable for the amount of the
check.[12] Rubia reminded Aniceta that she was given the check as
payment of the pieces of jewelry Aniceta bought from her.
The Case for the Petitioner
Bayani testified that he was the proprietor of a funeral parlor in
Candelaria, Quezon. He maintained an account with the PSBank in
Candelaria, Quezon, and was issued a checkbook which was kept by
his wife, Aniceta Bayani. Sometime in 1992, he changed his residence.
In the process, his wife lost four (4) blank checks, one of which was
Check No. 054936[13] which formed part of the checks in the
checkbook issued to him by the PSBank.[14] He did not report the
loss to the police authorities. He reported such loss to the bank after
Evangelista demanded the refund of the P55,000.00 from his
wife.[15] He then closed his account with the bank on September 11,
1992, but was informed that he had closed his account much earlier.
He denied ever receiving the amount of P55,000.00 from Rubia.[16]
Bayani further testified that his wife discovered the loss of the checks
when he brought his wife to the office of Atty. Emmanuel Velasco.[17]
He did not see Evangelista in the office of the lawyer, and was only
later informed by his wife that she had a conference with Evangelista.
His wife narrated that according to Evangelista, Rubia had
rediscounted a check he issued, which turned out to be the check she
(Aniceta) had lost. He was also told that Evangelista had demanded
the refund of the amount of the check.[18] He later tried to contact
Rubia but failed. He finally testified that he could not recall having
affixed his signature on the check.[19]
Aniceta Bayani corroborated the testimony of her husband. She
testified that she was invited to go to the office of Atty. Velasco where
she, Rubia and Evangelista had a conference. It was only then that she
met Evangelista. Rubia admitted that she rediscounted the
complainants check with Evangelista. When Evangelista asked her to
pay the amount of the check, she asked that the check be shown to
her, but Evangelista refused to do so. She further testified that her
husband was not with her and was in their office at the time.
At the conclusion of the trial, the court rendered judgment finding
Bayani guilty beyond reasonable doubt of violation of Section 1 of B.P.
Blg. 22. The decretal portion of the decision reads:
WHEREFORE, premises considered, the Court finds the accused
Leodegario Bayani guilty beyond reasonable doubt of violation of
Section 1, Batas Pambansa Bilang 22 and hereby sentences him to
suffer an imprisonment of ONE (1) YEAR, or to pay a fine of ONE
HUNDRED TEN THOUSAND PESOS (P110,000.00), to pay to
complaining witness Dolores Evangelista the sum of FIFTY-FIVE
THOUSAND PESOS (P55,000.00), the value of the check and to pay
the costs.
SO ORDERED.[20]
On appeal, the petitioner averred that the prosecution failed to
adduce evidence that he affixed his signature on the check, or
received from Rubia the amount of P55,000.00, thus negating his
guilt of the crime charged.
The petitioner asserts that even Teresita Macabulag, the bank
manager of PSB who authenticated his specimen signatures on the
signature card he submitted upon opening his account with the bank,
failed to testify that the signature on the check was his genuine
signature.
On January 30, 2002, the Court of Appeals rendered judgment[21]
affirming the decision of the RTC with modification as to the penalty
imposed on the petitioner.
The petitioner asserts in the petition at bar that
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
AFFIRMING WITH MODIFICATION THE CONVICTION OF
PETITIONER BY THE TRIAL COURT FOR ALLEGED VIOLATION OF
BATAS PAMBANSA BLG. 22 NOTWITHSTANDING THAT THE
PROSECUTION MISERABLY FAILED TO PROVE THAT THE CHECK
WAS ISSUED FOR A VALUABLE CONSIDERATION.[22]
The petitioner contends that the prosecution failed to prove all the
essential elements of the crime of violation of Section 1, B.P. Blg. 22.
He asserts that the prosecution failed to prove that he issued the
check. He avers that even assuming that he issued the check, the
prosecution failed to prove that it was issued for valuable
consideration, and that he received the amount of P55,000.00 from
Rubia. Hence, in light of the ruling of this Court in Magno vs. Court of
Appeals,[23] he is entitled to an acquittal on such grounds.
The petitioner further contends that Evangelistas testimony, that
Rubia told her that it was the petitioner who asked her to have the
check rediscounted, is hearsay and, as such, even if he did not object
thereto is inadmissible in evidence against him. He avers that the
prosecution failed to present Rubia as a witness, depriving him of his
right to cross-examine her. He contends that any declaration made by
Rubia to Evangelista is inadmissible in evidence against him.
The petition is denied.
We agree with the submission of the petitioner that Evangelistas
testimony, that Rubia told her that the petitioner requested that the
subject check be rediscounted, is hearsay. Evangelista had no
personal knowledge of such request of the petitioner to Rubia.
Neither is the information relayed by Rubia to Evangelista as to the
petitioners request admissible in evidence against the latter, because
the prosecution failed to present Rubia as a witness, thus, depriving
the petitioner of his right of cross-examination.
However, the evidence belies the petitioners assertion that the
prosecution failed to adduce evidence that he issued the subject
check. Evangelista testified that when she talked to the petitioner
upon Rubias suggestion, the petitioner admitted that he gave the
check to Rubia, but claimed that the latter borrowed the check from
him.
Q When this check in question was returned to you because of the
closed account, what did you do, if you did anything?
A I talked to Alicia Rubia, Sir.
Q And what did Alicia Rubia tell you in connection with the check in
question?
A Alicia Rubia told me that she was just requested by Leodegario
Bayani, Sir.
Q And what else did she tell you?
A She advised me to go to Leodegario Bayani, Sir.
Q Did you go to Leodegario Bayani as per instruction of Alicia Rubia?
A Yes, Sir.
Q And what did Leodegario Bayani tell you in connection with this
check?
A He told me that Alicia Rubia borrowed the check from him, Sir.[24]
Evangelista testified that she showed to the petitioner and his wife,
Aniceta, a photocopy of the subject check in the office of Atty. Velasco,
where they admitted to her that they owned the check:
ATTY. ALZAGA (TO WITNESS)
Q When you shown (sic) the check to Leodegario Bayani and his wife
in the law office of Atty. Velasco, what did they tell you?
ATTY. VELASCO:
Misleading. The question is misleading because according to the
question, Your Honor, he had shown the check but that was not the
testimony. The testimony was the xerox copy of the check was the
one shown.
ATTY. ALZAGA
The xerox copy of the check.
COURT
As modified, answer the question.
WITNESS

A They told me they owned the check but they were pointing to each
other as to who will pay the amount, Sir.[25]
The petitioner cannot escape criminal liability by denying that he
received the amount of P55,000.00 from Rubia after he issued the
check to her. As we ruled in Lozano vs. Martinez:[26]
The gravamen of the offense punished by BP 22 is the act of making
and issuing a worthless check or a check that is dishonored upon its
presentation for payment. It is not the non-payment of an obligation
which the law punishes. The law is not intended or designed to coerce
a debtor to pay his debt. The thrust of the law is to prohibit, under
pain of penal sanctions, the making of worthless checks and putting
them in circulation. Because of its deleterious effects on the public
interest, the practice is proscribed by the law. The law punishes the
act not as an offense against property, but an offense against public
order.[27]
The evidence on record shows that Evangelista rediscounted the
check and gave P55,000.00 to Rubia after the latter endorsed the
same. As such, Evangelista is a holder of the check in due course.[28]
Under Section 28 of the Negotiable Instruments Law (NIL), absence
or failure of consideration is a matter of defense only as against any
person not a holder in due course, thus:
SECTION 28. Effect of want of consideration. Absence or failure of
consideration is a matter of defense as against any person not a
holder in due course; and partial failure of consideration is a defense
pro tanto, whether the failure is an ascertained and liquidated
amount or otherwise.
Moreover, Section 24 of the NIL provides the presumption of
consideration, viz:
SECTION 24. Presumption of consideration. Every negotiable
instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to
have become a party thereto for value.
Such presumption cannot be overcome by the petitioners bare denial
of receipt of the amount of P55,000.00 from Rubia.
The petitioner cannot, likewise, seek refuge in the ruling of this Court
in Magno vs. Court of Appeals[29] because the facts and issues raised
therein are substantially different from those extant in this case.
Indeed, the Court ruled in the said case that:
It is intriguing to realize that Mrs. Teng did not want the petitioner to
know that it was she who accommodated petitioners request for Joey
Gomez, to source out the needed funds for the warranty deposit.
Thus, it unfolds the kind of transaction that is shrouded with mystery,
gimmickry and doubtful legality. It is in simple language, a scheme
whereby Mrs. Teng as the supplier of the equipment in the name of
her corporation, Mancor, would be able to sell or lease its goods as in
this case, and at the same time, privately financing those who
desperately need petty accommodations as this one. This modus
operandi has in so many instances victimized unsuspecting
businessmen, who likewise need protection from the law, by availing
of the deceptively called warranty deposit not realizing that they also
fall prey to leasing equipment under the guise of lease-purchase
agreement when it is a scheme designed to skim off business
clients.[30]
Equally futile is the petitioners contention that the prosecution failed
to prove the crime charged. For the accused to be guilty of violation
of Section 1 of B.P. Blg. 22, the prosecution is mandated to prove the
essential elements thereof, to wit:
1. That a person makes or draws and issues any check.
2. That the check is made or drawn and issued to apply on account or
for value.
3. That the person who makes or draws and issues the check knows
at the time of issue that he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its
presentment.
4. That the check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit, or would have been dishonored for
the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment.[31]
In this case, the prosecution adduced documentary evidence that
when the petitioner issued the subject check on or about August 20,
1992, the balance of his account with the drawee bank was only
P2,414.96. During the conference in the office of Atty. Emmanuel
Velasco, Evangelista showed to the petitioner and his wife a
photocopy of the subject check, with the notation at its dorsal portion
that it was dishonored for the reason account closed. Despite
Evangelistas demands, the petitioner refused to pay the amount of
the check and, with his wife, pointed to Rubia as the one liable for the
amount. The collective evidence of the prosecution points to the fact
that at the time the petitioner drew and issued the check, he knew
that the residue of the funds in his account with the drawee bank was
insufficient to pay the amount of the check.
IN LIGHT OF ALL THE FOREOING, the petition is DENIED DUE
COURSE. The decision of the Court of Appeals is AFFIRMED.
No costs.
SO ORDERED.
Tomas Ang vs. associated bank Tante
G.R. NO. 146511 Sept. 5, 2007
Sec. 29
DECISION
AZCUNA, J.:
This petition for certiorari under Rule 45 of the Rules on Civil
Procedure seeks to review the October 9, 2000 Decision[1] and
December 26, 2000 Resolution[2] of the Court of Appeals in CA-G.R.
CV No. 53413 which reversed and set aside the January 5, 1996
Decision[3] of the Regional Trial Court, Branch 16, Davao City, in Civil
Case No. 20,299-90, dismissing the complaint filed by respondents
for collection of a sum of money.
On August 28, 1990, respondent Associated Bank (formerly
Associated Banking Corporation and now known as United Overseas
Bank Philippines) filed a collection suit against Antonio Ang Eng
Liong and petitioner Tomas Ang for the two (2) promissory notes that
they executed as principal debtor and co-maker, respectively.
In the Complaint,[4] respondent Bank alleged that on October 3 and
9, 1978, the defendants obtained a loan of P50,000, evidenced by a
promissory note bearing PN-No. DVO-78-382, and P30,000,
evidenced by a promissory note bearing PN-No. DVO-78-390. As
agreed, the loan would be payable, jointly and severally, on January
31, 1979 and December 8, 1978, respectively. In addition, subsequent
amendments[5] to the promissory notes as well as the disclosure
statements[6] stipulated that the loan would earn 14% interest rate
per annum, 2% service charge per annum, 1% penalty charge per
month from due date until fully paid, and attorneys fees equivalent to
20% of the outstanding obligation.
Despite repeated demands for payment, the latest of which were on
September 13, 1988 and September 9, 1986, on Antonio Ang Eng
Liong and Tomas Ang, respectively, respondent Bank claimed that the
defendants failed and refused to settle their obligation, resulting in a
total indebtedness of P539,638.96 as of July 31, 1990, broken down
as follows:
In his Answer,[7] Antonio Ang Eng Liong only admitted to have
secured a loan amounting to P80,000. He pleaded though that the
bank be ordered to submit a more reasonable computation
considering that there had been no correct and reasonable statement
of account sent to him by the bank, which was allegedly collecting
excessive interest, penalty charges, and attorneys fees despite
knowledge that his business was destroyed by fire, hence, he had no
source of income for several years.
For his part, petitioner Tomas Ang filed an Answer with Counterclaim
and Cross-claim.[8] He interposed the affirmative defenses that: the
bank is not the real party in interest as it is not the holder of the
promissory notes, much less a holder for value or a holder in due
course; the bank knew that he did not receive any valuable
consideration for affixing his signatures on the notes but merely lent
his name as an accommodation party; he accepted the promissory
notes in blank, with only the printed provisions and the signature of
Antonio Ang Eng Liong appearing therein; it was the bank which
completed the notes upon the orders, instructions, or
representations of his co-defendant; PN-No. DVO-78-382 was
completed in excess of or contrary to the authority given by him to
his co-defendant who represented that he would only borrow
P30,000 from the bank; his signature in PN-No. DVO-78-390 was
procured through fraudulent means when his co-defendant claimed
that his first loan did not push through; the promissory notes did not
indicate in what capacity he was intended to be bound; the bank
granted his co-defendant successive extensions of time within which
to pay, without his (Tomas Ang) knowledge and consent; the bank
imposed new and additional stipulations on interest, penalties,
services charges and attorneys fees more onerous than the terms of
the notes, without his knowledge and consent, in the absence of legal
and factual basis and in violation of the Usury Law; the bank caused
the inclusion in the promissory notes of stipulations such as waiver
of presentment for payment and notice of dishonor which are against
public policy; and the notes had been impaired since they were never
presented for payment and demands were made only several years
after they fell due when his co-defendant could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the
banks acts or omissions, it should be held liable for the amount of
P50,000 for attorneys fees and expenses of litigation. Furthermore,
on his cross-claim against Antonio Ang Eng Liong, he averred that he
should be reimbursed by his co-defendant any and all sums that he
may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for
moral and exemplary damages, and attorneys fees, respectively.
In its Reply,[9] respondent Bank countered that it is the real party in
interest and is the holder of the notes since the Associated Banking
Corporation and Associated Citizens Bank are its predecessors-in-
interest. The fact that Tomas Ang never received any moneys in
consideration of the two (2) loans and that such was known to the
bank are immaterial because, as an accommodation maker, he is
considered as a solidary debtor who is primarily liable for the
payment of the promissory notes. Citing Section 29 of the Negotiable
Instruments Law (NIL), the bank posited that absence or failure of
consideration is not a matter of defense; neither is the fact that the
holder knew him to be only an accommodation party.
PN-No. DVO-78-382 PN-No. DVO-78-390
Outstanding P50,000.00 P30,000.00
Balance
Add Past due charges for Past due charges for
4,199 days 4,253 days
(from 01-31- (from 12-8-
79 to 07-31-90) 78 to 07-31-90)
14% Interest P203,538.98 P125,334.41
2% Service Charge P11,663.89 P7,088.34
12% Overdue P69,983.34 P42,530.00
Charge
Total P285,186.21 P174,952.75
Less: Charges paid P500.00 None
Amount Due P334,686.21 P204,952.75
Respondent Bank likewise retorted that the promissory notes were
completely filled up at the time of their delivery. Assuming that such
was not the case, Sec. 14 of the NIL provides that the bank has the
prima facie authority to complete the blank form. Moreover, it is
presumed that one who has signed as a maker acted with care and
had signed the document with full knowledge of its content. The bank
noted that Tomas Ang is a prominent businessman in Davao City who
has been engaged in the auto parts business for several years, hence,
certainly he is not so nave as to sign the notes without knowing or
bothering to verify the amounts of the loans covered by them.
Further, he is already in estoppel since despite receipt of several
demand letters there was not a single protest raised by him that he
signed for only one note in the amount of P30,000.
It was denied by the bank that there were extensions of time for
payment accorded to Antonio Ang Eng Liong. Granting that such were
the case, it said that the same would not relieve Tomas Ang from
liability as he would still be liable for the whole obligation less the
share of his co-debtor who received the extended term.
The bank also asserted that there were no additional or new
stipulations imposed other than those agreed upon. The penalty
charge, service charge, and attorneys fees were reflected in the
amendments to the promissory notes and disclosure statements.
Reference to the Usury Law was misplaced as usury is legally non-
existent; at present, interest can be charged depending on the
agreement of the lender and the borrower.
Lastly, the bank contended that the provisions on presentment for
payment and notice of dishonor were expressly waived by Tomas
Ang and that such waiver is not against public policy pursuant to
Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity
therefor since being a solidary debtor he is absolutely required to pay
and primarily liable on both promissory notes.
On October 19, 1990, the trial court issued a preliminary pre-trial
order directing the parties to submit their respective pre-trial
guide.[10] When Antonio Ang Eng Liong failed to submit his brief, the
bank filed an ex-parte motion to declare him in default.[11] Per Order
of November 23, 1990, the court granted the motion and set the ex-
parte hearing for the presentation of the banks evidence.[12] Despite
Tomas Angs motion[13] to modify the Order so as to exclude or
cancel the ex-parte hearing based on then Sec. 4, Rule 18 of the old
Rules of Court (now Sec. 3[c.], Rule 9 of the Revised Rules on Civil
Procedure), the hearing nonetheless proceeded.[14]
Eventually, a decision[15] was rendered by the trial court on
February 21, 1991. For his supposed bad faith and obstinate refusal
despite several demands from the bank, Antonio Ang Eng Liong was
ordered to pay the principal amount of P80,000 plus 14% interest per
annum and 2% service charge per annum. The overdue penalty
charge and attorneys fees were, however, reduced for being
excessive, thus:
WHEREFORE, judgment is rendered against defendant Antonio Ang
Eng Liong and in favor of plaintiff, ordering the former to pay the
latter:
On the first cause of action:
1) the amount of P50,000.00 representing the principal
obligation with 14% interest per annum from June 27, 1983 with 2%
service charge and 6% overdue penalty charges per annum until fully
paid;
2) P11,663.89 as accrued service charge; and
3) P34,991.67 as accrued overdue penalty charge.
On the second cause of action:
1) the amount of P50,000.00 (sic) representing the principal
account with 14% interest from June 27, 1983 with 2% service
charge and 6% overdue penalty charges per annum until fully paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge
4) the amount of P10,000.00 as attorneys fees; and
5) the amount of P620.00 as litigation expenses and to pay
the costs.
SO ORDERED.[16]
The decision became final and executory as no appeal was taken
therefrom. Upon the banks ex-parte motion, the court accordingly
issued a writ of execution on April 5, 1991.[17]
Thereafter, on June 3, 1991, the court set the pre-trial conference
between the bank and Tomas Ang,[18] who, in turn, filed a Motion to
Dismiss[19] on the ground of lack of jurisdiction over the case in view
of the alleged finality of the February 21, 1991 Decision. He
contended that Sec. 4, Rule 18 of the old Rules sanctions only one
judgment in case of several defendants, one of whom is declared in
default. Moreover, in his Supplemental Motion to Dismiss,[20] Tomas
Ang maintained that he is released from his obligation as a solidary
guarantor and accommodation party because, by the banks actions,
he is now precluded from asserting his cross-claim against Antonio
Ang Eng Liong, upon whom a final and executory judgment had
already been issued.
The court denied the motion as well as the motion for
reconsideration thereon.[21] Tomas Ang subsequently filed a
petition for certiorari and prohibition before this Court, which,
however, resolved to refer the same to the Court of Appeals.[22] In
accordance with the prayer of Tomas Ang, the appellate court
promulgated its Decision on January 29, 1992 in CA G.R. SP No.
26332, which annulled and set aside the portion of the Order dated
November 23, 1990 setting the ex-parte presentation of the banks
evidence against Antonio Ang Eng Liong, the Decision dated February
21, 1991 rendered against him based on such evidence, and the Writ
of Execution issued on April 5, 1991.[23]
Trial then ensued between the bank and Tomas Ang. Upon the latters
motion during the pre-trial conference, Antonio Ang Eng Liong was
again declared in default for his failure to answer the cross-claim
within the reglementary period.[24]
When Tomas Ang was about to present evidence in his behalf, he filed
a Motion for Production of Documents,[25] reasoning:
xxx

2. That corroborative to, and/or preparatory or incident to his
testimony[,] there is [a] need for him to examine original records in
the custody and possession of plaintiff, viz:
a. original Promissory Note (PN for brevity) # DVO-78-382
dated October 3, 1978[;]
b. original of Disclosure Statement in reference to PN # DVO-
78-382;
c. original of PN # DVO-78-390 dated October 9, 1978;
d. original of Disclosure Statement in reference to PN # DVO-
78-390;
e. Statement or Record of Account with the Associated
Banking Corporation or its successor, of Antonio Ang in CA No. 470
(cf. Exh. O) including bank records, withdrawal slips, notices, other
papers and relevant dates relative to the overdraft of Antonio Eng
Liong in CA No. 470;
f. Loan Applications of Antonio Ang Eng Liong or borrower
relative to PN Nos. DVO-78-382 and DVO-78-390 (supra);
g. Other supporting papers and documents submitted by
Antonio Ang Eng Liong relative to his loan application vis--vis PN.
Nos. DVO-78-382 and DVO-78-390 such as financial statements,
income tax returns, etc. as required by the Central Bank or bank rules
and regulations.
3. That the above matters are very material to the defenses of
defendant Tomas Ang, viz:
- the bank is not a holder in due course when it accepted
the [PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which fact is
known to the bank.
- That the PAYEE not being a holder in due course and
knowing that defendant Tomas Ang is merely an accommodation
party, the latter may raise against such payee or holder or successor-
in-interest (of the notes) PERSONAL and EQUITABLE DEFENSES
such as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application
of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in
delaying collection despite Eng Liongs OVERDRAFT in C.A. No. 470,
etc.[26]
In its Order dated May 16, 1994,[27] the court denied the motion
stating that the promissory notes and the disclosure statements have
already been shown to and inspected by Tomas Ang during the trial,
as in fact he has already copies of the same; the Statements or
Records of Account of Antonio Ang Eng Liong in CA No. 470, relative
to his overdraft, are immaterial since, pursuant to the previous ruling
of the court, he is being sued for the notes and not for the overdraft
which is personal to Antonio Ang Eng Liong; and besides its non-
existence in the banks records, there would be legal obstacle for the
production and inspection of the income tax return of Antonio Ang
Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was
denied, Tomas Ang filed a petition for certiorari and prohibition with
application for preliminary injunction and restraining order before
the Court of Appeals docketed as CA G.R. SP No. 34840.[28] On August
17, 1994, however, the Court of Appeals denied the issuance of a
Temporary Restraining Order.[29]
Meanwhile, notwithstanding its initial rulings that Tomas Ang was
deemed to have waived his right to present evidence for failure to
appear during the pendency of his petition before the Court of
Appeals, the trial court decided to continue with the hearing of the
case.[30]
After the trial, Tomas Ang offered in evidence several documents,
which included a copy of the Trust Agreement between the Republic
of the Philippines and the Asset Privatization Trust, as certified by the
notary public, and news clippings from the Manila Bulletin dated May
18, 1994 and May 30, 1994.[31] All the documentary exhibits were
admitted for failure of the bank to submit its comment to the formal
offer.[32] Thereafter, Tomas Ang elected to withdraw his petition in
CA G.R. SP No. 34840 before the Court of Appeals, which was then
granted.[33]
On January 5, 1996, the trial court rendered judgment against the
bank, dismissing the complaint for lack of cause of action.[34] It held
that:
Exh. 9 and its [sub-markings], the Trust Agreement dated 27
February 1987 for the defense shows that: the Associated Bank as of
June 30, 1986 is one of DBPs or Development Bank of the
[Philippines] non-performing accounts for transfer; on February 27,
1987 through Deeds of Transfer executed by and between the
Philippine National Bank and Development Bank of the Philippines
and the National Government, both financial institutions assigned,
transferred and conveyed their non-performing assets to the
National Government; the National Government in turn and as
TRUSTOR, transferred, conveyed and assigned by way of trust unto
the Asset Privatization Trust said non-performing assets, [which]
took title to and possession of, [to] conserve, provisionally manage
and dispose[,] of said assets identified for privatization or
disposition; one of the powers and duties of the APT with respect to
trust properties consisting of receivables is to handle the
administration, collection and enforcement of the receivables; to
bring suit to enforce payment of the obligations or any installment
thereof or to settle or compromise any of such obligations, or any
other claim or demand which the government may have against any
person or persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and May 30,
1994, Exh. 9-A, 9-B, 9-C, and 9-D, show that the Monetary Board of
the Bangko Sentral ng Pilipinas approved the rehabilitation plan of
the Associated Bank. One main feature of the rehabilitation plan
included the financial assistance for the bank by the Philippine
Deposit Insurance Corporation (PDIC) by way of the purchase of AB
Assets worth P1.3945 billion subject to a buy-back arrangement over
a 10 year period. The PDIC had approved of the rehab scheme, which
included the purchase of ABs bad loans worth P1.86 at 25% discount.
This will then be paid by AB within a 10-year period plus a yield
comparable to the prevailing market rates x x x.
Based then on the evidence presented by the defendant Tomas Ang,
it would readily appear that at the time this suit for Sum of Money
was filed which was on August [28], 1990, the notes were held by the
Asset Privatization Trust by virtue of the Deeds of Transfer and Trust
Agreement, which was empowered to bring suit to enforce payment
of the obligations. Consequently, defendant Tomas Ang has
sufficiently established that plaintiff at the time this suit was filed was
not the holder of the notes to warrant the dismissal of the
complaint.[35]
Respondent Bank then elevated the case to the Court of Appeals. In
the appellants brief captioned, ASSOCIATED BANK, Plaintiff-
Appellant versus ANTONIO ANG ENG LIONG and TOMAS ANG,
Defendants, TOMAS ANG, Defendant-Appellee, the following errors
were alleged:
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT
ANTONIO ANG ENG LIONG AND DEFENDANT-APPELLEE TOMAS
ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR UNPAID LOANS
DESPITE THE LATTERS DOCUMENTARY EXHIBITS PROVING THE
SAID OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-
APPELLANTS COMPLAINT ON THE BASIS OF NEWSPAPER
CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN CHARACTER
AND IMPROPER FOR JUDICIAL NOTICE.[36]
The bank stressed that it has established the causes of action outlined
in its Complaint by a preponderance of evidence. As regards the Deed
of Transfer and Trust Agreement, it contended that the same were
never authenticated by any witness in the course of the trial; the
Agreement, which was not even legible, did not mention the
promissory notes subject of the Complaint; the bank is not a party to
the Agreement, which showed that it was between the Government
of the Philippines, acting through the Committee on Privatization
represented by the Secretary of Finance as trustor and the Asset
Privatization Trust, which was created by virtue of Proclamation No.
50; and the Agreement did not reflect the signatures of the
contracting parties. Lastly, the bank averred that the news items
appearing in the Manila Bulletin could not be the subject of judicial
notice since they were completely hearsay in character.[37]
On October 9, 2000, the Court of Appeals reversed and set aside the
trial courts ruling. The dispositive portion of the Decision[38] reads:
WHEREFORE, premises considered, the Decision of the Regional Trial
Court of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby
REVERSED AND SET ASIDE and another one entered ordering
defendant-appellee Tomas Ang to pay plaintiff-appellant Associated
Bank the following:
P50,000.00 representing the principal amount of the loan under PN-
No. DVO-78-382 plus 14% interest thereon per annum computed
from January 31, 1979 until the full amount thereof is paid
P30,000.00 representing the principal amount of the loan under PN-
No. DVO-78-390 plus 14% interest thereon per annum computed
from December 8, 1978 until the full amount thereof is paid;
All other claims of the plaintiff-appellant are DISMISSED for lack of
legal basis. Defendant-appellees counterclaim is likewise DISMISSED
for lack of legal and factual bases.
No pronouncement as to costs.
SO ORDERED.[39]
The appellate court disregarded the banks first assigned error for
being irrelevant in the final determination of the case and found its
second assigned error as not meritorious. Instead, it posed for
resolution the issue of whether the trial court erred in dismissing the
complaint for collection of sum of money for lack of cause of action as
the bank was said to be not the holder of the notes at the time the
collection case was filed.
In answering the lone issue, the Court of Appeals held that the bank
is a holder under Sec. 191 of the NIL. It concluded that despite the
execution of the Deeds of Transfer and Trust Agreement, the Asset
Privatization Trust cannot be declared as the holder of the subject
promissory notes for the reason that it is neither the payee or
indorsee of the notes in possession thereof nor is it the bearer of said
notes. The Court of Appeals observed that the bank, as the payee, did
not indorse the notes to the Asset Privatization Trust despite the
execution of the Deeds of Transfer and Trust Agreement and that the
notes continued to remain with the bank until the institution of the
collection suit.
With the bank as the holder of the promissory notes, the Court of
Appeals held that Tomas Ang is accountable therefor in his capacity
as an accommodation party. Citing Sec. 29 of the NIL, he is liable to
the bank in spite of the latters knowledge, at the time of taking the
notes, that he is only an accommodation party. Moreover, as a co-
maker who agreed to be jointly and severally liable on the promissory
notes, Tomas Ang cannot validly set up the defense that he did not
receive any consideration therefor as the fact that the loan was
granted to the principal debtor already constitutes a sufficient
consideration.

Further, the Court of Appeals agreed with the bank that the
experience of Tomas Ang in business rendered it implausible that he
would just sign the promissory notes as a co-maker without even
checking the real amount of the debt to be incurred, or that he merely
acted on the belief that the first loan application was cancelled.
According to the appellate court, it is apparent that he was negligent
in falling for the alibi of Antonio Ang Eng Liong and such fact would
not serve to exonerate him from his responsibility under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for
service, penalty and overdue charges as well as attorneys fees on the
ground that the promissory notes made no mention of such
charges/fees.
In his motion for reconsideration,[40] Tomas Ang raised for the first
time the assigned errors as follows:
2) Related to the above jurisdictional issues, defendant-appellee
Tomas Ang has recently discovered that upon the filing of the
complaint on August 28, 1990, under the jurisdictional rule laid down
in BP Blg. 129, appellant bank fraudulently failed to specify the
amount of compounded interest at 14% per annum, service charges
at 2% per annum and overdue penalty charges at 12% per annum in
the prayer of the complaint as of the time of its filing, paying a total of
only P640.00(!!!) as filing and court docket fees although the total
sum involved as of that time was P647,566.75 including 20%
attorneys fees. In fact, the stated interest in the body of the complaint
alone amount to P328,373.39 (which is actually compounded and
capitalized) in both causes of action and the total service and overdue
penalties and charges and attorneys fees further amount to
P239,193.36 in both causes of action, as of July 31, 1990, the time of
filing of the complaint. Significantly, appellant fraudulently misled
the Court, describing the 14% imposition as interest, when in fact the
same was capitalized as principal by appellant bank every month to
earn more interest, as stated in the notes. In view thereof, the trial
court never acquired jurisdiction over the case and the same may not
be now corrected by the filing of deficiency fees because the causes
of action had already prescribed and more importantly, the
jurisdiction of the Municipal Trial Court had been increased to
P100,000.00 in principal claims last March 20, 1999, pursuant to SC
Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I of
the 1987 Administrative Code. In other words, as of today,
jurisdiction over the subject falls within the exclusive jurisdiction of
the MTC, particularly if the bank foregoes capitalization of the
stipulated interest.
3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF
TO APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE
TRIAL COURT WHICH LEFT OUT TOMAS ANGS CROSS-CLAIM
AGAINST ENG LIONG (BECAUSE IT DISMISSED THE MAIN CLAIM),
HAD LONG BECOME FINAL AND EXECUTORY, AS AGAINST ENG
LIONG. Accordingly, Tomas Angs right of subrogation against Ang
Eng Liong, expressed in his cross-claim, is now SEVERAL TIMES
foreclosed because of the fault or negligence of appellant bank since
1979 up to its insistence of an ex-parte trial, and now when it failed
to serve notice of appeal and appellants brief upon him. Accordingly,
appellee Tomas Ang should be released from his suretyship
obligation pursuant to Art. 2080 of the Civil Code. The above is
related to the issues above-stated.
4) This Court may have erred in ADDING or ASSIGNING its own bill of
error for the benefit of appellant bank which defrauded the judiciary
by the payment of deficient docket fees.[41]
Finding no cogent or compelling reason to disturb the Decision, the
Court of Appeals denied the motion in its Resolution dated December
26, 2000.[42]
Petitioner now submits the following issues for resolution:
Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner
Tomas Ang as accommodation maker or surety because of the failure
of [private] respondent bank to serve its notice of appeal upon the
principal debtor, respondent Eng Liong?
Did the trial court have jurisdiction over the case at all?
Did the Court of Appeals [commit] error in assigning its own error
and raising its own issue?
Are petitioners other real and personal defenses such as successive
extensions coupled with fraudulent collusion to hide Eng Liongs
default, the payees grant of additional burdens, coupled with the
insolvency of the principal debtor, and the defense of incomplete but
delivered instrument, meritorious?[43]
Petitioner allegedly learned after the promulgation of the Court of
Appeals decision that, pursuant to the parties agreement on the
compounding of interest with the principal amount (per month in
case of default), the interest on the promissory notes as of July 31,
1990 should have been only P81,647.22 for PN No. DVO-78-382
(instead of P203,538.98) and P49,618.33 for PN No. DVO-78-390
(instead of P125,334.41) while the principal debt as of said date
should increase to P647,566.75 (instead of P539,638.96). He submits
that the bank carefully and shrewdly hid the fact by describing the
amounts as interest instead of being part of either the principal or
penalty in order to pay a lesser amount of docket fees. According to
him, the total fees that should have been paid at the time of the filing
of the complaint on August 28, 1990 was P2,216.30 and not P614.00
or a shortage of 71%. Petitioner contends that the bank may not now
pay the deficiency because the last demand letter sent to him was
dated September 9, 1986, or more than twenty years have elapsed
such that prescription had already set in. Consequently, the banks
claim must be dismissed as the trial court loses jurisdiction over the
case.
Petitioner also argues that the Court of Appeals should not have
assigned its own error and raised it as an issue of the case, contending
that no question should be entertained on appeal unless it has been
advanced in the court below or is within the issues made by the
parties in the pleadings. At any rate, he opines that the appellate
courts decision that the bank is the real party in interest because it is
the payee named in the note or the holder thereof is too simplistic
since: (1) the power and control of Asset Privatization Trust over the
bank are clear from the explicit terms of the duly certified trust
documents and deeds of transfer and are confirmed by the
newspaper clippings; (2) even under P.D. No. 902-A or the General
Banking Act, where a corporation or a bank is under receivership,
conservation or rehabilitation, it is only the representative
(liquidator, receiver, trustee or conservator) who may properly act
for said entity, and, in this case, the bank was held by Asset
Privatization Trust as trustee; and (3) it is not entirely accurate to say
that the payee who has not indorsed the notes in all cases is the real
party in interest because the rights of the payee may be subject of an
assignment of incorporeal rights under Articles 1624 and 1625 of the
Civil Code.
Lastly, petitioner maintains that when respondent Bank served its
notice of appeal and appellants brief only on him, it rendered the
judgment of the trial court final and executory with respect to
Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang
Eng Liong) from any and all liability under the promissory notes and,
thereby, foreclosed petitioners cross-claims. By such act, the bank,
even if it be the holder of the promissory notes, allegedly discharged
a simple contract for the payment of money (Sections 119 [d] and
122, NIL [Act No. 2031]), prevented a surety like petitioner from
being subrogated in the shoes of his principal (Article 2080, Civil
Code), and impaired the notes, producing the effect of payment
(Article 1249, Civil Code).
The petition is unmeritorious.
Procedurally, it is well within the authority of the Court of Appeals to
raise, if it deems proper under the circumstances obtaining, error/s
not assigned on an appealed case. In Mendoza v. Bautista,[44] this
Court recognized the broad discretionary power of an appellate court
to waive the lack of proper assignment of errors and to consider
errors not assigned, thus:
As a rule, no issue may be raised on appeal unless it has been brought
before the lower tribunal for its consideration. Higher courts are
precluded from entertaining matters neither alleged in the pleadings
nor raised during the proceedings below, but ventilated for the first
time only in a motion for reconsideration or on appeal.
However, as with most procedural rules, this maxim is subject to
exceptions. Indeed, our rules recognize the broad discretionary
power of an appellate court to waive the lack of proper assignment of
errors and to consider errors not assigned. Section 8 of Rule 51 of the
Rules of Court provides:
SEC. 8. Questions that may be decided. No error which does not affect
the jurisdiction over the subject matter or the validity of the
judgment appealed from or the proceedings therein will be
considered, unless stated in the assignment of errors, or closely
related to or dependent on an assigned error and properly argued in
the brief, save as the court may pass upon plain errors and clerical
errors.
Thus, an appellate court is clothed with ample authority to review
rulings even if they are not assigned as errors in the appeal in these
instances: (a) grounds not assigned as errors but affecting
jurisdiction over the subject matter; (b) matters not assigned as
errors on appeal but are evidently plain or clerical errors within
contemplation of law; (c) matters not assigned as errors on appeal
but consideration of which is necessary in arriving at a just decision
and complete resolution of the case or to serve the interests of justice
or to avoid dispensing piecemeal justice; (d) matters not specifically
assigned as errors on appeal but raised in the trial court and are
matters of record having some bearing on the issue submitted which
the parties failed to raise or which the lower court ignored; (e)
matters not assigned as errors on appeal but closely related to an
error assigned; and (f) matters not assigned as errors on appeal but
upon which the determination of a question properly assigned is
dependent. (Citations omitted)[45]
To the Courts mind, even if the Court of Appeals regarded petitioners
two assigned errors as irrelevant and not meritorious, the issue of
whether the trial court erred in dismissing the complaint for
collection of sum of money for lack of cause of action (on the ground
that the bank was not the holder of the notes at the time of the filing
of the action) is in reality closely related to and determinant of the
resolution of whether the lower court correctly ruled in not holding
Antonio Ang Eng Liong and petitioner Tomas Ang liable to the bank
on their unpaid loans despite documentary exhibits allegedly proving
their obligations and in dismissing the complaint based on
newspaper clippings. Hence, no error could be ascribed to the Court
of Appeals on this point.
Now, the more relevant question is: who is the real party in interest
at the time of the institution of the complaint, is it the bank or the
Asset Privatization Trust?
To answer the query, a brief history on the creation of the Asset
Privatization Trust is proper.
Taking into account the imperative need of formally launching a
program for the rationalization of the government corporate sector,
then President Corazon C. Aquino issued Proclamation No. 50[46] on
December 8, 1986. As one of the twin cornerstones of the program
was to establish the privatization of a good number of government
corporations, the proclamation created the Asset Privatization Trust,
which would, for the benefit of the National Government, take title to
and possession of, conserve, provisionally manage and dispose of
transferred assets that were identified for privatization or
disposition.[47]
In accordance with the provisions of Section 23[48] of the
proclamation, then President Aquino subsequently issued
Administrative Order No. 14 on February 3, 1987, which approved
the identification of and transfer to the National Government of
certain assets (consisting of loans, equity investments, accrued
interest receivables, acquired assets and other assets) and liabilities
(consisting of deposits, borrowings, other liabilities and contingent
guarantees) of the Development Bank of the Philippines (DBP) and
the Philippine National Bank (PNB). The transfer of assets was
implemented through a Deed of Transfer executed on February 27,
1987 between the National Government, on one hand, and the DBP
and PNB, on the other. In turn, the National Government designated
the Asset Privatization Trust to act as its trustee through a Trust
Agreement, whereby the non-performing accounts of DBP and PNB,
including, among others, the DBPs equity with respondent Bank,
were entrusted to the Asset Privatization Trust.[49] As provided for
in the Agreement, among the powers and duties of the Asset
Privatization Trust with respect to the trust properties consisting of
receivables was to handle their administration and collection by
bringing suit to enforce payment of the obligations or any installment
thereof or settling or compromising any of such obligations or any
other claim or demand which the Government may have against any
person or persons, and to do all acts, institute all proceedings, and to
exercise all other rights, powers, and privileges of ownership that an
absolute owner of the properties would otherwise have the right to
do.[50]
Incidentally, the existence of the Asset Privatization Trust would
have expired five (5) years from the date of issuance of Proclamation
No. 50.[51] However, its original term was extended from December
8, 1991 up to August 31, 1992,[52] and again from December 31,
1993 until June 30, 1995,[53] and then from July 1, 1995 up to
December 31, 1999,[54] and further from January 1, 2000 until
December 31, 2000.[55] Thenceforth, the Privatization and
Management Office was established and took over, among others, the
powers, duties and functions of the Asset Privatization Trust under
the proclamation.[56]
Based on the above backdrop, respondent Bank does not appear to
be the real party in interest when it instituted the collection suit on
August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas
Ang. At the time the complaint was filed in the trial court, it was the
Asset Privatization Trust which had the authority to enforce its
claims against both debtors. In fact, during the pre-trial conference,
Atty. Roderick Orallo, counsel for the bank, openly admitted that it
was under the trusteeship of the Asset Privatization Trust.[57] The
Asset Privatization Trust, which should have been represented by the
Office of the Government Corporate Counsel, had the authority to file
and prosecute the case.
The foregoing notwithstanding, this Court can not, at present, readily
subscribe to petitioners insistence that the case must be dismissed.
Significantly, it stands without refute, both in the pleadings as well as
in the evidence presented during the trial and up to the time this case
reached the Court, that the issue had been rendered moot with the
occurrence of a supervening event the buy-back of the bank by its
former owner, Leonardo Ty, sometime in October 1993. By such re-
acquisition from the Asset Privatization Trust when the case was still
pending in the lower court, the bank reclaimed its real and actual
interest over the unpaid promissory notes; hence, it could rightfully
qualify as a holder[58] thereof under the NIL.
Notably, Section 29 of the NIL defines an accommodation party as 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 gleaned from the text, an
accommodation party is one who meets all the three requisites, viz:
(1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor; and (3)
he must sign for the purpose of lending his name or credit to some
other person.[59] An accommodation party lends his name to enable
the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes
liability to the other party/ies thereto.[60] The accommodation party
is liable on the instrument to a holder for value even though the
holder, at the
time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for
accommodation.[61]
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of
principal and surety the accommodation party being the surety.[62]
As such, he is deemed an original promisor and debtor from the
beginning;[63] he is considered in law as the same party as the debtor
in relation to whatever is adjudged touching the obligation of the
latter since their liabilities are interwoven as to be inseparable.[64]
Although a contract of suretyship is in essence accessory or collateral
to a valid principal obligation, the surety's liability to the creditor is
immediate, primary and absolute; he is directly and equally bound
with the principal.[65] As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal
interest in the obligations nor does he receive any benefit
therefrom.[66]
Contrary to petitioners adamant stand, however, Article 2080[67] of
the Civil Code does not apply in a contract of suretyship.[68] Art.
2047 of the Civil Code states that if a person binds himself solidarily
with the principal debtor, the provisions of Section 4, Chapter 3, Title
I, Book IV of the Civil Code must be observed. Accordingly, Articles
1207 up to 1222 of the Code (on joint and solidary obligations) shall
govern the relationship of petitioner with the bank.
The case of Inciong, Jr. v. CA[69] is illuminating:
Petitioner also argues that the dismissal of the complaint against
Naybe, the principal debtor, and against Pantanosas, his co-maker,
constituted a release of his obligation, especially because the
dismissal of the case against Pantanosas was upon the motion of
private respondent itself. He cites as basis for his argument, Article
2080 of the Civil Code which provides that:
"The guarantors, even though they be solidary, are released from
their obligation whenever by come act of the creditor, they cannot be
subrogated to the rights, mortgages, and preferences of the latter."

It is to be noted, however, that petitioner signed the promissory note
as a solidary co-maker and not as a guarantor. This is patent even
from the first sentence of the promissory note which states as
follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY
and SEVERALLY promise to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City of Cagayan de Oro,
Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos,
Philippine Currency, together with interest x x x at the rate of
SIXTEEN (16) per cent per annum until fully paid."
A solidary or joint and several obligation is one in which each debtor
is liable for the entire obligation, and each creditor is entitled to
demand the whole obligation. On the other hand, Article 2047 of the
Civil Code states:
"By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the
latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such a case the contract is called a suretyship." (Italics
supplied.)
While a guarantor may bind himself solidarily with the principal
debtor, the liability of a guarantor is different from that of a solidary
debtor. Thus, Tolentino explains:
"A guarantor who binds himself in solidum with the principal debtor
under the provisions of the second paragraph does not become a
solidary co-debtor to all intents and purposes. There is a difference
between a solidary co-debtor, and a fiador in solidum (surety). The
later, outside of the liability he assumes to pay the debt before the
property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of
rights of the fiansa; while a solidary co-debtor has no other rights
than those bestowed upon him in Section 4, Chapter 3, title I, Book IV
of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law
on joint and several obligations. Under Art. 1207 thereof, when there
are two or more debtors in one and the same obligation, the
presumption is that obligation is joint so that each of the debtors is
liable only for a proportionate part of the debt. There is a solidarily
liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.
Because the promissory note involved in this case expressly states
that the three signatories therein are jointly and severally liable, any
one, some or all of them may be proceeded against for the entire
obligation. The choice is left to the solidary creditor to determine
against whom he will enforce collection. (Citations omitted)[70]
In the instant case, petitioner agreed to be jointly and severally liable
under the two promissory notes that he co-signed with Antonio Ang
Eng Liong as the principal debtor. This being so, it is completely
immaterial if the bank would opt to proceed only against petitioner
or Antonio Ang Eng Liong or both of them since the law confers upon
the creditor the prerogative to choose whether to enforce the entire
obligation against any one, some or all of the debtors. Nonetheless,
petitioner, as an accommodation party, may seek reimbursement
from Antonio Ang Eng Liong, being the party accommodated.[71]
It is plainly mistaken for petitioner to say that just because the bank
failed to serve the notice of appeal and appellants brief to Antonio
Ang Eng Liong, the trial courts judgment, in effect, became final and
executory as against the latter and, thereby, bars his (petitioners)
cross-claims against him: First, although no notice of appeal and
appellants brief were served to Antonio Ang Eng Liong, he was
nonetheless impleaded in the case since his name appeared in the
caption of both the notice and the brief as one of the defendants-
appellees;[72] Second, despite including in the caption of the
appellees brief his co-debtor as one of the defendants-appellees,
petitioner did not also serve him a copy thereof;[73] Third, in the
caption of the Court of Appeals decision, Antonio Ang Eng Liong was
expressly named as one of the defendants-appellees;[74] and Fourth,
it was only in his motion for reconsideration from the adverse
judgment of the Court of Appeals that petitioner belatedly chose to
serve notice to the counsel of his co-defendant-appellee.[75]
Likewise, this Court rejects the contention of Antonio Ang Eng Liong,
in his special appearance through counsel, that the Court of Appeals,
much less this Court, already lacked jurisdiction over his person or
over the subject matter relating to him because he was not a party in
CA-G.R. CV No. 53413. Stress must be laid of the fact that he had twice
put himself in default one, in not filing a pre-trial brief and another,
in not filing his answer to petitioners cross-claims. As a matter of
course, Antonio Ang Eng Liong, being a party declared in default,
already waived his right to take part in the trial proceedings and had
to contend with the judgment rendered by the court based on the
evidence presented by the bank and petitioner. Moreover, even
without considering these default judgments, Antonio Ang Eng Liong
even categorically admitted having secured a loan totaling P80,000.
In his Answer to the complaint, he did not deny such liability but
merely pleaded that the bank be ordered to submit a more
reasonable computation instead of collecting excessive interest,
penalty charges, and attorneys fees. For failing to tender an issue and
in not denying the material allegations stated in the complaint, a
judgment on the pleadings[76] would have also been proper since
not a single issue was generated by the Answer he filed.
As the promissory notes were not discharged or impaired through
any act or omission of the bank, Sections 119 (d)[77] and 122[78] of
the NIL as well as Art. 1249[79] of the Civil Code would necessarily
find no application. Again, neither was petitioners right of
reimbursement barred nor was the banks right to proceed against
Antonio Ang Eng Liong expressly renounced by the omission to serve
notice of appeal and appellants brief to a party already declared in
default.
Consequently, in issuing the two promissory notes, petitioner as
accommodating party warranted to the holder in due course that he
would pay the same according to its tenor.[80] It is no defense to state
on his part that he did not receive any value therefor[81] because the
phrase "without receiving value therefor" used in Sec. 29 of the NIL
means "without receiving value by virtue of the instrument" and not
as it is apparently supposed to mean, "without receiving payment for
lending his name."[82] Stated differently, when a third person
advances the face value of the note to the accommodated party at the
time of its creation, the consideration for the note as regards its
maker is the money advanced to the accommodated party. It is
enough that value was given for the note at the time of its
creation.[83] As in the instant case, a sum of money was received by
virtue of the notes, hence, it is immaterial so far as the bank is
concerned whether one of the signers, particularly petitioner, has or
has not received anything in payment of the use of his name.[84]
Under the law, upon the maturity of the note, a surety may pay the
debt, demand the collateral security, if there be any, and dispose of it
to his benefit, or, if applicable, subrogate himself in the place of the
creditor with the right to enforce the guaranty against the other
signers of the note for the reimbursement of what he is entitled to
recover from them.[85] Regrettably, none of these were prudently
done by petitioner. When he was first notified by the bank sometime
in 1982 regarding his accountabilities under the promissory notes,
he lackadaisically relied on Antonio Ang Eng Liong, who represented
that he would take care of the matter, instead of directly
communicating with the bank for its settlement.[86] Thus, petitioner
cannot now claim that he was prejudiced by the supposed extension
of time given by the bank to his co-debtor.
Furthermore, since the liability of an accommodation party remains
not only primary but also unconditional to a holder for value, even if
the accommodated party receives an extension of the period for
payment without the consent of the accommodation party, the latter
is still liable for the whole obligation and such extension does not
release him because as far as a holder for value is concerned, he is a
solidary co-debtor.[87] In Clark v. Sellner,[88] this Court held:
x x x The mere delay of the creditor in enforcing the guaranty has not
by any means impaired his action against the defendant. It should not
be lost sight of that the defendant's signature on the note is an
assurance to the creditor that the collateral guaranty will remain
good, and that otherwise, he, the defendant, will be personally
responsible for the payment.
True, that if the creditor had done any act whereby the guaranty was
impaired in its value, or discharged, such an act would have wholly
or partially released the surety; but it must be born in mind that it is
a recognized doctrine in the matter of suretyship that with respect to
the surety, the creditor is under no obligation to display any diligence
in the enforcement of his rights as a creditor. His mere inaction
indulgence, passiveness, or delay in proceeding against the principal
debtor, or the fact that he did not enforce the guaranty or apply on
the payment of such funds as were available, constitute no defense at
all for the surety, unless the contract expressly requires diligence and
promptness on the part of the creditor, which is not the case in the
present action. There is in some decisions a tendency toward holding
that the creditor's laches may discharge the surety, meaning by
laches a negligent forbearance. This theory, however, is not generally
accepted and the courts almost universally consider it essentially
inconsistent with the relation of the parties to the note. (21 R.C.L.,
1032-1034)[89]
Neither can petitioner benefit from the alleged insolvency of Antonio
Ang Eng Liong for want of clear and convincing evidence proving the
same. Assuming it to be true, he also did not exercise diligence in
demanding security to protect himself from the danger thereof in the
event that he (petitioner) would eventually be sued by the bank.
Further, whether petitioner may or may not obtain security from
Antonio Ang Eng Liong cannot in any manner affect his liability to the
bank; the said remedy is a matter of concern exclusively between
themselves as accommodation party and accommodated party. The
fact that petitioner stands only as a surety in relation to Antonio Ang
Eng Liong is immaterial to the claim of the bank and does not a whit
diminish nor defeat the rights of the latter as a holder for value. To
sanction his theory is to give unwarranted legal recognition to the
patent absurdity of a situation where a co-maker, when sued on an
instrument by a holder in due course and for value, can escape
liability by the convenient expedient of interposing the defense that
he is a merely an accommodation party.[90]
In sum, as regards the other issues and errors alleged in this petition,
the Court notes that these were the very same questions of fact raised
on appeal before the Court of Appeals, although at times couched in
different terms and explained more lengthily in the petition. Suffice it
to say that the same, being factual, have been satisfactorily passed
upon and considered both by the trial and appellate courts. It is
doctrinal that only errors of law and not of fact are reviewable by this
Court in petitions for review on certiorari under Rule 45 of the Rules
of Court. Save for the most cogent and compelling reason, it is not our
function under the rule to examine, evaluate or weigh the probative
value of the evidence presented by the parties all over again.[91]
WHEREFORE, the October 9, 2000 Decision and December 26, 2000
Resolution of the Court of Appeals in CA-G.R. CV No. 53413 are
AFFIRMED. The petition is DENIED for lack of merit.
No costs.
SO ORDERED.
Eulalio Prudencio vs. CA Tarog
G.R. NO. L-34539 July 14, 1986
Sec. 29

227 Phil. 7
GUTIERREZ, JR., J.:
This is a petition for review seeking to annul and set aside the
decision of the Court of Appeals, now the Intermediate Appellate
Court, affirming the order of the trial court which dismissed the
petitioners' complaint for cancellation of their real estate mortgage
and held them jointly and severally liable with the principal debtors
on a promissory note which they signed as accommodation makers.
The factual background of this case is stated in the decision of the
appellate court:
"Appellants are the registered owners of a parcel of land located in
Sampaloc, Manila, and covered by T.C.T. 35161 of the Register of
Deeds of Manila. On October 7, 1954, this property was mortgaged
by the appellants to the Philippine National Bank, hereinafter called
PNB, to guarantee a loan of P1,000.00 extended to one Domingo
Prudencio.
"Sometime in 1955, the Concepcion & Tamayo Construction
Company, hereinafter called Company, had a pending contract with
the Bureau of Public Works, hereinafter called the Bureau, for the
construction of the municipal building in Puerto Princesa, Palawan,
in the amount of P36,800.00 and, as said Company needed funds for
said construction, Jose Toribio, appellants' relative, and attorney-in-
fact of the Company, approached the appellants asking them to
mortgage their property to secure the loan of P10,000.00 which the
Company was negotiating with the PNB.
"After some persuasion appellants signed on December 23, 1955 the
'Amendment of Real Estate Mortgage', mortgaging their said
property to the PNB to guaranty the loan of P10,000.00 extended to
the Company. The terms and conditions of the original mortgage for
P1,000.00 were made integral part of the new mortgage for
P10,000.00 and both documents were registered with the Register of
Deeds of Manila. The promissory note covering the loan of
P10,000.00 dated December 29, 1955, maturing on April 27, 1956,
was signed by Jose Toribio, as attorney-in-fact of the Company, and
by the appellants. Appellants also signed the portion of the
promissory note indicating that they are requesting the PNB to issue
the Check covering the loan to the Company. On the same date
(December 23, 1955) that the 'Amendment of Real Estate' was
executed, Jose Toribio, in the same capacity as attorney-in-fact of the
Company, executed also the 'Deed of Assignment' assigning all
payments to be made by the Bureau to the Company-on account of
the contract for the construction of the Puerto Princesa building in
favor of the PNB.
"This assignment of credit to the contrary notwithstanding, the
Bureau, with approval, of the PNB, conditioned, however that they
should be for Labor and materials, made three payments to the
Company on account of the contract price totalling P11,234.40. The
Bureau's last request for P5,000.00 on June 20, 1956, however, was
denied by the PNB for the reason that since the loan was already
overdue as of April 28, 1956, the remaining balance of the contract
price should be applied to the loan.
"The Company abandoned the work, as a consequence of which on
June 30, 1956, the Bureau rescinded the construction contract and
assumed the work of completing the building. On November 14,
1958, appellants wrote the PNB contending that since the PNB
authorized payments to the Company instead of on account of the
loan guaranteed by the mortgage there was a change in the
conditions of the contract without the knowledge of appellants,
which entitled the latter to a cancellation of their mortgage contract.
"Failing in their bid to have the real estate mortgage cancelled,
appellants filed on June 27, 1959 this action against the PNB, the
Company, the latter's attorney-in--fact Jose Toribio, and the District
Engineer of Puerto Princesa, Palawan, seeking the cancellation of
their real estate mortgage. The complaint was amended to exclude
the Company as defendant, it having been shown that its life as a
part-nership had already expired and, in lieu thereof, Ramon
Concepcion and Manuel M. Tamayo, partners of the defunct
Company, were impleaded in their private capacity as defendants."
After hearing, the, trial court rendered judgment, denying the prayer
in the complaint that the petitioners be absolved from their
obligation under the mortgage contract and that the said mortgage
be released or cancelled. The petitioners were ordered to pay jointly
and severally with their co-makers Ramon C. Concepcion and Manuel
M. Tamayo the sum of P11,900.19 with interest at the rate of 6% per
annum from the date of the filing of the complaint on June 27, 1959
until fully paid and P1,000.00 attorney's fees.
The decision also provided that if the judgment was not satisfied
within 90 days from its receipt, the mortgaged properties together
with all the improvements thereon belonging to the petitioners
would be sold at public auction and applied to the judgment debt.
The Court of Appeals affirmed the trial court's decision in toto stating
that, as accommodation makers, the petitioners' liability is that of
solidary co-makers and that since "the amounts released to the
construction company were used therein and, therefore, were spent
for the successful accomplishment of the work cons-tructed for, the
authorization made by the Philippine National Bank of partial
payments to the construction company which was also one of the
solidary debtors cannot constitute a valid defense on the part of the
other solidary debtors. Moreover, those who rendered services and
furnished materials in the construction are preferred creditors and
have a lien on the price of the contract." The appellate court further
held that PNB had no obliga-tion whatsoever to notify the petitioners
of its authorizing the three payments in the total amount of
P11,234.00 in favor of the Company because aside from the fact that
the petitioners were not parties to the deed of assign-ment, there was
no stipulation in said deed making it obligatory on the part of the PNB
to notify the peti-tioners everytime it authorizes payment to the
Company. It ruled that the petitioners cannot ask to be released from
the real estate mortgage.
In this petition, the petitioners raise the follow-ing issues which they
present in the form of errors:
I. First Assignment of Error.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
HEREIN PETITIONERS WERE SOLIDARY CO-DEBTORS INSTEAD OF
SURETIES.
II. Second Assignment of Error.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONERS WERE NOT RELEASED FROM THEIR OBLIGATION TO
THE RESPONDENT PNB, WHEN THE PNB, WITHOUT THE
KNOWLEDGE AND CONSENT OF PETITIONERS, CHANGED THE
TENOR AND CONDITION OF THE ASSIGNMENT OF PAYMENTS
MADE BY THE PRINCIPAL DEBTOR, CONCEPCION & TAMAYO
CONSTRUCTION COMPANY, AND RELEASED TO SUCH PRINCIPAL
DEBTOR PAYMENTS FROM THE BUREAU OF PUBLIC WORKS WHICH
WERE MORE THAN ENOUGH TO WIPE OUT THE INDEBTEDNESS TO
THE PNB.
The petitioners contend that as accommodation makers, the nature
of their liability is only that of mere sureties instead of solidary co-
destors such that "a material alteration in the principal contract,
effected by the creditor without the knowledge and consent of the
sure-ties, completely discharges the sureties from all liability on the
contract of suretyship." They state that when respondent PNB did not
apply the initial and subsequent payments to the petitioner's debt as
provided for in the deed of assignment, they were released from their
obligation as sureties and, therefore, the real estate mortgage
executed by them should have been cancelled.
Section 29 of the Negotiable Instrument Law provides:
"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 the case of Philippine Bank of Commerce v. Aruego (102 SCRA 530,
539), we held that "x x x in lending his name to the accommodated
party, the accommodation party is in effect a surety. x x x." However,
unlike in a contract of suretyship, the liability of the accommodation
party remains not only primary but also unconditional to a holder for
value such that even if the accommodated party receives an extension
of the period for payment without the consent of the accommodation
party, the latter is still liable for the whole obligation and such
extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.
Expounding on the nature of the liability of an accommodation party
under the aforequoted section, we ruled in Ang Tiong v. Ting (22
SCRA 713, 716):
"3. That the appellant, again assuming him to be an accommodation
indorser, may obtain security from the maker to protect himself
against the danger of insolvency of the latter, cannot in any manner
affect his lia-bility to the appellee, as the said remedy is a matter of
concern exclusively between accommodation indorser and
accommodated party. So that the appellant stands only as a surety in
relation to the maker, granting this to be true for the sake of
argument, is immaterial to the claim of the appellee, and does not a
whit diminish nor defeat the rights of the latter who is a holder for
value. The liability of the appel-lant remains primary and
unconditional. To sanction the appellant's theory is to give
unwarranted legal recognition to the patent absurdity of a situation
where an indorser, when sued on an instrument by a holder in due
course and for value, can escape liability on his indorsement by the
convenient expedient of interposing the defense that he is a mere
accommodation indorser."
There is, therefore, no question that as accommo-dation makers,
petitioners would be primarily and unconditionally liable on the
promissory note to a holder for value, regardless of whether they
stand as sureties or solidary co-debtors since such distinction would
be entirely immaterial and inconsequential as far as a holder for value
is concerned. Consequently, the petitioners cannot claim to have
been released from their obligation simply because the time of
payment of such obligation was temporarily deferred by PNB without
their knowledge and consent. There has to be another basis for their
claim of having been freed from their obligation. The question which
should be resolved in this instant petition, therefore, is whether or
not PNB can be considered a holder for value under Section 29 of the
Negotiable Instruments Law such that the petitioners must be
necessarily barred from setting up the defense of want of
consi-deration or some other personal defenses which may be set up
against a party who is not a holder in due course.
A holder for value under Section 29 of the Negotiable Instruments
Law is one who must meet all the requirements of a holder in due
course under Section 52 of the same law except notice of want of
consideration. (Agbayani, Commercial Laws of the Philippines, 1964,
p. 208). If he does not qualify as a holder in due course then he holds
the instrument subject to the same defenses as if it were
non-negotiable (Section 58, Negotiable Instruments Law).
In the case at bar, can PNB, the payee of the promissory note be
considered a holder in due course?
Petitioners contend that the payee PNB is an immediate party and,
therefore, is not a holder in due course and stands on no better
footing than a mere assignee.
In those cases where a payee was considered a holder in due course,
such payee either acquired the note from another holder or has not
directly dealt with the maker thereof. As was held in the case of Bank
of Commerce and Savings v. Randell (186 North-Western Reporter
71):
"We conclude, therefore, that a payee who receives a negotiable
promissory note, in good faith, for value, before maturity, and
without any notice of any infirmity, from a holder, not the maker, to
whom it was negotiated as a completed instrument, is a holder in due
course within the purview of a Negotiable Instruments law, so as to
preclude the defense of fraud and failure of consideration between
the maker and the holder to whom the instrument was delivered."
Similarly, in the case of Stone v. Goldberg & Lewis (60 Southern
Reporter 748) on rehearing and quoting Daniel on Negotiable
Instruments, it was held:
"It is a general principle of the law merchant that, as between the
immediate parties to a negotiable instrument - the parties between
whom there is a privity - the consi-deration may be inquired into; and
as to them the only superiority of a bill or note over other unsealed
evidence of debt is that it prima facie imports a consideration."
Although as a general rule, a payee may be considered a holder in due
course we think that such a rule cannot apply with respect to the
respondent PNB. Not only was PNB an immediate party or in privy
to the promissory note, that is, it had dealt directly with the
petitioners knowing fully well that the latter only signed as
accommodation makers but more important, it was the Deed of
Assignment executed by the Construction Company in favor of PNB
which principally moved the petitioners to sign the promissory note
also in favor of PNB. Petitioners were made to believe and on that
belief entered into the agreement that no other conditions would
alter the terms thereof and yet; PNB altered the same. The Deed of
Assignment specifically provided that Jose F. Toribio, on behalf of the
Company, "have assigned, transferred and conveyed and by these
presents, do assign, transfer and convey unto the said Philippine
National Bank, its successors and assigns all payments to be received
from the Bureau of Public Works on account of contract for the
construction of the Puerto Princesa Municipal Building in Palawan,
involving the total amount of P36,000.00" and that "This assignment
shall be irrevocable and subject to the terms and conditions of the
promissory note and or any other kind of documents which the
Philippine National Bank have required or may require the assignor
to execute to evidence the above-mentioned obligation."
Under the terms of the above Deed, it is clear that there are no further
conditions which could possibly alter the agreement without the
consent of the petitioners such as the grant of greater priority to
obligations other than the payment of the loan due to the PNB and
part of which loan was guaranteed by the petitioners in the amount
of P10,000.00.
This, notwithstanding, PNB approved the Bureau's release of three
payments directly to the Company instead of paying the same to the
Bank. This approval was in violation of the Deed of Assignment and
without any notice to the petitioners who stood to lose their property
once the promissory note falls due without the same having been
paid because the PNB, in effect, waived payments of the first three
releases. From the foregoing circumstances, PNB can not be regarded
as having acted in good faith which is also one of the requisites of a
holder in due course under Section 52 of the Negotiable Instruments
Law. The PNB knew that the promissory note which it took from the
accommodation makers was signed by the latter because of full
reliance on the Deed of Assignment, which, PNB had no intention to
comply with strictly. Worse, the third payment to the Company in the
amount of P4,293.60 was approved by PNB although the promissory
note was almost a month overdue, an act which is clearly
detri-mental to the petitioners.
We, therefore, hold that respondent PNB is not a holder in due course.
Thus, the petitioners can validly set up their personal defense of
release from the real estate mortgage against PNB. The latter, in
authorizing the third payment to the Company after the promissory
note became due, in effect, extended the term of the payment of the
note without the consent of the accommodation makers who stand as
sureties to the accommodated party and to all other parties who are
not holders in due course or who do not derive their right from the
same, including PNB.
It may be argued that the Prudencios could have mortgaged their
property even without the promissory note. The records show,
however, that they would not have mortgaged the lot were it not for
the sake of the Company whose attorney-in-fact was their relative.
The spouses did not need the money for themselves.
The attorney-in-fact tried twice to convince the Prudencios to
mortgage their property in order to secure a loan in favor of the
Company but the Prudencios refused. It was only when the deed of
assignment was shown to the spouses that they consented to the
mortgage and signed the promissory note in the Bank's favor.
Article 2085 of the Civil Code enumerates the requisites of a valid
mortgage contract. Petitioners do not dispute the validity of the
mortgage. They only want to have it cancelled because the Bank
violated the deed of assignment and extended the period of time of
payment of the promissory note without the petitioners' consent and
to the latter's detriment.
The mortgage cannot be separated from the promissory note for it is
the latter which is the basis of determin-ing whether the mortgage
should be foreclosed or cancelled. Without the promissory note
which determines the amount of indebtedness there would have
been no basis for the mort-gage.
True, if the Bank had not been the assignee, then the petitioners
would be obliged to pay the Bank as their cre-ditor on the promissory
note, irrespective of whether or not the deed of assignment had been
violated. However, the assignee and the creditor in this case are one
and the same - the Bank itself. When the Bank violated the deed of
assignment, it prejudiced itself because its very violation was the
reason why it was not paid on time in its capacity as creditor in the
promissory note. It would be unfair to make the petitioners now
answer for the debt or to foreclose on their property.
Neither can PNB justify its acts on the ground that the Bureau of
Public Works approved the deed of assignment with the condition
that the wages of laborers and materials needed in the construction
work must take precedence over the payment of the promissory note.
In the first place, PNB did not need the approval of the Bureau. But
even if it did, it should have informed the petitioners about the
amendment of the deed of assignment. Secondly, the wages and
materials have already been paid. That issue is academic. What is in
dispute is who should bear the loss in this case. As between the
petitioners and the Bank, the law and the equities of the case favor
the petitioners. And thirdly, the wages and materials constitute a lien
only on the constructed building but do not enjoy pre-ference over
the loan unless there is a liquidation pro-ceeding such as in
insolvency or settlement of estate. (See Philippine Savings Bank v.
Lantin, 124 SCRA 476). There were remedies available at the time if
the laborers and the creditors had not been paid. The fact is, they
have been paid. Hence, when the PNB accepted the condition
imposed by the Bureau without the knowledge or consent of the
petitioners, it amended the deed of assign-ment which, as stated
earlier, was the principal reason why the petitioners consented to
become accommodation makers.
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals affirming the decision of the trial court is hereby REVERSED
and SET ASIDE and a new one entered absolving the petitioners from
liability on the promissory note and under the mortgage contract.
The Philippine National Bank is ordered to release the real estate
mortgage constituted on the property of the petitioners and to pay
the amount of THREE THOUSAND PESOS (P3,000.00) as attorney's
fees.
SO ORDERED.
Bautista vs. Auto Plus Traders
Torculas
G.R. NO. 166405 Aug. 6, 2008
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision[1] dated
August 10, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 and
the Resolution[2] dated October 29, 2004, which denied petitioners
motion for reconsideration. The Court of Appeals affirmed the
February 24, 2004 Decision and May 11, 2004 Order of the Regional
Trial Court (RTC), Davao City, Branch 16, in Criminal Case Nos.
52633-03 and 52634-03.
The antecedent facts are as follows:
Petitioner Claude P. Bautista, in his capacity as President and
Presiding Officer of Cruiser Bus Lines and Transport Corporation,
purchased various spare parts from private respondent Auto Plus
Traders, Inc. and issued two postdated checks to cover his purchases.
The checks were subsequently dishonored. Private respondent then
executed an affidavit-complaint for violation of Batas Pambansa Blg.
22[3] against petitioner. Consequently, two Informations for
violation of BP Blg. 22 were filed with the Municipal Trial Court in
Cities (MTCC) of Davao City against the petitioner. These were
docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-
2001. The Informations[4] read:
Criminal Case No. 102,004-B-2001:
The undersigned accuses the above-named accused for violation of
Batas Pambansa Bilang 22, committed as follows:
That on or about December 15, 2000, in the City of Davao, Philippines,
and within the jurisdiction of this Honorable Court, the above-
mentioned accused, knowing fully well that he had no sufficient funds
and/or credit with the drawee bank, wilfully, unlawfully and
feloniously issued and made out Rural Bank of Digos, Inc. Check No.
058832, dated December 15, 2000, in the amount of P151,200.00, in
favor of Auto Plus Traders, Inc., but when said check was presented
to the drawee bank for encashment, the same was dishonored for the
reason DRAWN AGAINST INSUFFICIENT FUNDS and despite notice
of dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment to the damage and
prejudice of herein complainant.
CONTRARY TO LAW.
Criminal Case No. 102,005-B-2001:
The undersigned accuses the above-named accused for violation of
Batas Pambansa Bilang 22, committed as follows:
That on or about October 30, 2000, in the City of Davao, Philippines,
and within the jurisdiction of this Honorable Court, the above-
mentioned accused, knowing fully well that he had no sufficient funds
and/or credit with the drawee bank, wilfully, unlawfully and
feloniously issued and made out Rural Bank of Digos, Inc. Check No.
059049, dated October 30, 2000, in the amount of P97,500.00, in
favor of Auto Plus Traders, [Inc.], but when said check was presented
to the drawee bank for encashment, the same was dishonored for the
reason DRAWN AGAINST INSUFFICIENT FUNDS and despite notice
of dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment, to the damage and
prejudice of herein complainant.
CONTRARY TO LAW.
Petitioner pleaded not guilty. Trial on the merits ensued. After the
presentation of the prosecutions evidence, petitioner filed a
demurrer to evidence. On April 21, 2003, the MTCC granted the
demurrer, thus:
WHEREFORE, the demurrer to evidence is granted, premised on
reasonable doubt as to the guilt of the accused. Cruiser Bus Line[s]
and Transport Corporation, through the accused is directed to pay
the complainant the sum of P248,700.00 representing the value of the
two checks, with interest at the rate of 12% per annum to be
computed from the time of the filing of these cases in Court, until the
account is paid in full; ordering further Cruiser Bus Line[s] and
Transport Corporation, through the accused, to reimburse
complainant the expense representing filing fees amounting to
P1,780.00 and costs of litigation which this Court hereby fixed at
P5,000.00.
SO ORDERED.[5]
Petitioner moved for partial reconsideration but his motion was
denied. Thereafter, both parties appealed to the RTC. On February 24,
2004, the trial court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby
MODIFIED to read as follows: Accused is directed to pay and/or
reimburse the complainant the following sums: (1) P248,700.00
representing the value of the two checks, with interest at the rate of
12% per annum to be computed from the time of the filing of these
cases in Court, until the account is paid in full; (2) P1,780.00 for filing
fees and P5,000.00 as cost of litigation.
SO ORDERED.[6]
Petitioner moved for reconsideration, but his motion was denied on
May 11, 2004. Petitioner elevated the case to the Court of Appeals,
which affirmed the February 24, 2004 Decision and May 11, 2004
Order of the RTC:
WHEREFORE, premises considered, the instant petition is DENIED.
The assailed Decision of the Regional Trial Court, Branch 16, Davao
City, dated February 24, 2004 and its Order dated May 11, 2004 are
AFFIRMED.
SO ORDERED.[7]
Petitioner now comes before us, raising the sole issue of whether the
Court of Appeals erred in upholding the RTCs ruling that petitioner,
as an officer of the corporation, is personally and civilly liable to the
private respondent for the value of the two checks.[8]
Petitioner asserts that BP Blg. 22 merely pertains to the criminal
liability of the accused and that the corporation, which has a separate
personality from its officers, is solely liable for the value of the two
checks.
Private respondent counters that petitioner should be held
personally liable for both checks. Private respondent alleged that
petitioner issued two postdated checks: a personal check in his name
for the amount of P151,200 and a corporation check under the
account of Cruiser Bus Lines and Transport Corporation for the
amount of P97,500. According to private respondent, petitioner, by
issuing his check to cover the obligation of the corporation, became
an accommodation party. Under Section 29[9] of the Negotiable
Instruments Law, an accommodation party is liable on the
instrument to a holder for value. Private respondent adds that
petitioner should also be liable for the value of the corporation check
because instituting another civil action against the corporation would
result in multiplicity of suits and delay.
At the outset, we note that private respondents allegation that
petitioner issued a personal check disputes the factual findings of the
MTCC. The MTCC found that the two checks belong to Cruiser Bus
Lines and Transport Corporation while the RTC found that one of the
checks was a personal check of the petitioner. Generally this Court, in
a petition for review on certiorari under Rule 45 of the Rules of Court,
has no jurisdiction over questions of facts. But, considering that the
findings of the MTCC and the RTC are at variance,[10] we are
compelled to settle this issue.
A perusal of the two check return slips[11] in conjunction with the
Current Account Statements[12] would show that the check for
P151,200 was drawn against the current account of Claude Bautista
while the check for P97,500 was drawn against the current account
of Cruiser Bus Lines and Transport Corporation. Hence, we sustain
the factual finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the
decision of the RTC holding petitioner liable for the value of the
checks considering that petitioner was acquitted of the crime charged
and that the debts are clearly corporate debts for which only Cruiser
Bus Lines and Transport Corporation should be held liable.
Juridical entities have personalities separate and distinct from its
officers and the persons composing it.[13] Generally, the
stockholders and officers are not personally liable for the obligations
of the corporation except only when the veil of corporate fiction is
being used as a cloak or cover for fraud or illegality, or to work
injustice.[14] These situations, however, do not exist in this case. The
evidence shows that it is Cruiser Bus Lines and Transport
Corporation that has obligations to Auto Plus Traders, Inc. for tires.
There is no agreement that petitioner shall be held liable for the
corporations obligations in his personal capacity. Hence, he cannot
be held liable for the value of the two checks issued in payment for
the corporations obligation in the total amount of P248,700.
Likewise, contrary to private respondents contentions, petitioner
cannot be considered liable as an accommodation party for Check No.
58832. Section 29 of the Negotiable Instruments Law defines an
accommodation party as 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 gleaned from the text, an accommodation party is one who
meets all the three requisites, viz: (1) he must be a party to the
instrument, signing as maker, drawer, acceptor, or indorser; (2) he
must not receive value therefor; and (3) he must sign for the purpose
of lending his name or credit to some other person.[15] An
accommodation party lends his name to enable the accommodated
party to obtain credit or to raise money; he receives no part of the
consideration for the instrument but assumes liability to the other
party/ies thereto.[16] The first two elements are present here,
however there is insufficient evidence presented in the instant case
to show the presence of the third requisite. All that the evidence
shows is that petitioner signed Check No. 58832, which is drawn
against his personal account. The said check, dated December 15,
2000, corresponds to the value of 24 sets of tires received by Cruiser
Bus Lines and Transport Corporation on August 29, 2000.[17] There
is no showing of when petitioner issued the check and in what
capacity. In the absence of concrete evidence it cannot just be
assumed that petitioner intended to lend his name to the corporation.
Hence, petitioner cannot be considered as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains
liable for the checks especially since there is no evidence that the
debts covered by the subject checks have been paid.
WHEREFORE, the petition is GRANTED. The Decision dated August
10, 2004 and the Resolution dated October 29, 2004 of the Court of
Appeals in CA-G.R. CR No. 28464 are REVERSED and SET ASIDE.
Criminal Case Nos. 52633-03 and 52634-03 are DISMISSED, without
prejudice to the right of private respondent Auto Plus Traders, Inc.,
to file the proper civil action against Cruiser Bus Lines and Transport
Corporation for the value of the two checks.
No pronouncement as to costs.
SO ORDERED.
Eusebio Gonzales vs. PCIB Urian
G.R. NO. 180257 Feb. 23, 2011
Sec. 29
DECISION
VELASCO, JR., J.:
The Case
This is an appeal via a Petition for Review on Certiorari under Rule
45 from the Decision[1] dated October 22, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 74466, which denied petitioners
appeal from the December 10, 2001 Decision[2] in Civil Case No. 99-
1324 of the Regional Trial Court (RTC), Branch 138 in Makati City.
The RTC found justification for respondents dishonor of petitioners
check and found petitioner solidarily liable with the spouses Jose and
Jocelyn Panlilio (spouses Panlilio) for the three promissory notes
they executed in favor of respondent Philippine Commercial and
International Bank (PCIB).
The Facts
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a
good 15 years before he filed the instant case. His account with PCIB
was handled by respondent Edna Ocampo (Ocampo) until she was
replaced by respondent Roberto Noceda (Noceda).
In October 1992, PCIB granted a credit line to Gonzales through the
execution of a Credit-On-Hand Loan Agreement[3] (COHLA), in which
the aggregate amount of the accounts of Gonzales with PCIB served
as collateral for and his availment limit under the credit line. Gonzales
drew from said credit line through the issuance of check. At the
institution of the instant case, Gonzales had a Foreign Currency
Deposit (FCD) of USD 8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP
500,000. Subsequently, on December 26, 1995 and January 3, 1999,
the spouses Panlilio and Gonzales obtained two additional loans from
PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively.
These three loans amounting to PhP 1,800,000 were covered by three
promissory notes.[4] To secure the loans, a real estate mortgage
(REM) over a parcel of land covered by Transfer Certificate of Title
(TCT) No. 38012 was executed by Gonzales and the spouses Panlilio.
Notably, the promissory notes specified, among others, the solidary
liability of Gonzales and the spouses Panlilio for the payment of the
loans. However, it was the spouses Panlilio who received the loan
proceeds of PhP 1,800,000.
The monthly interest dues of the loans were paid by the spouses
Panlilio through the automatic debiting of their account with PCIB.
But the spouses Panlilio, from the month of July 1998, defaulted in
the payment of the periodic interest dues from their PCIB account
which apparently was not maintained with enough deposits. PCIB
allegedly called the attention of Gonzales regarding the July 1998
defaults and the subsequent accumulating periodic interest dues
which were left still left unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998
in favor of Rene Unson (Unson) for PhP 250,000 drawn against the
credit line (COHLA). However, on October 13, 1998, upon
presentment for payment by Unson of said check, it was dishonored
by PCIB due to the termination by PCIB of the credit line under
COHLA on October 7, 1998 for the unpaid periodic interest dues from
the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the
FCD account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the
dishonor of the check. They had a heated argument in the premises
of the Philippine Columbian Association (PCA) where they are both
members, which caused great embarrassment and humiliation to
Gonzales. Thereafter, on November 5, 1998, Unson sent a demand
letter[5] to Gonzales for the PhP 250,000. And on December 3, 1998,
the counsel of Unson sent a second demand letter[6] to Gonzales with
the threat of legal action. With his FCD account that PCIB froze,
Gonzales was forced to source out and pay the PhP 250,000 he owed
to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting
that the check he issued had been fully funded, and demanded the
return of the proceeds of his FCD as well as damages for the unjust
dishonor of the check.[7] PCIB replied on March 22, 1999 and stood
its ground in freezing Gonzales accounts due to the outstanding dues
of the loans.[8] On May 26, 1999, Gonzales reiterated his demand,
reminding PCIB that it knew well that the actual borrowers were the
spouses Panlilio and he never benefited from the proceeds of the
loans, which were serviced by the PCIB account of the spouses
Panlilio.[9]
PCIBs refusal to heed his demands compelled Gonzales to file the
instant case for damages with the RTC, on account of the alleged
unjust dishonor of the check issued in favor of Unson.
The Ruling of the RTC
After due trial, on December 10, 2001, the RTC rendered a Decision
in favor of PCIB. The decretal portion reads:
WHEREFORE, judgment is rendered as follows
(a) on the first issue, plaintiff is liable to pay defendant Bank as
principal under the promissory notes, Exhibits A, B and C;
(b) on the second issue, the Court finds that there is justification on
part of the defendant Bank to dishonor the check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not entitled to
damages from each other.
No pronouncement as to costs.
SO ORDERED.[10]
The RTC found Gonzales solidarily liable with the spouses Panlilio on
the three promissory notes relative to the outstanding REM loan. The
trial court found no fault in the termination by PCIB of the COHLA
with Gonzales and in freezing the latters accounts to answer for the
past due PhP 1,800,000 loan. The trial court ruled that the dishonor
of the check issued by Gonzales in favor of Unson was proper
considering that the credit line under the COHLA had already been
terminated or revoked before the presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision
dismissing Gonzales appeal and affirming in toto the RTC Decision.
The fallo reads:
WHEREFORE, in view of the foregoing, the decision, dated December
10, 2001, in Civil Case No. 99-1324 is hereby AFFIRMED in toto.
SO ORDERED.[11]
In dismissing Gonzales appeal, the CA, first, confirmed the RTCs
findings that Gonzales was indeed solidarily liable with the spouses
Panlilio for the three promissory notes executed for the REM loan;
second, it likewise found neither fault nor negligence on the part of
PCIB in dishonoring the check issued by Gonzales in favor of Unson,
ratiocinating that PCIB was merely exercising its rights under the
contractual stipulations in the COHLA brought about by the
outstanding past dues of the REM loan and interests for which
Gonzales was solidarily liable with the spouses Panlilio to pay under
the promissory notes.
Thus, we have this petition.
The Issues
Gonzales, as before the CA, raises again the following assignment of
errors:

I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM
PROMISSORY NOTES (EXHIBITS A, B AND C, PETITIONER; EXHIBITS
1, 2 AND 3, RESPONDENT) PERTAINED TO BORROWER JOSE MA.
PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND
ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK (RESPONDENT BANK).
II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT
NOR GUILTY OF GROSS NEGLIGENCE IN DISHONORING
PETITIONERS CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT
OF P250,000.00 FOR THE REASON ACCOUNT CLOSED, INSTEAD OF
MERELY REFER TO DRAWER GIVEN THE FACT THAT EVEN AFTER
DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7
DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT
WAS STILL VALID WITH A COLLATERAL OF FOREIGN CURRENCY
DEPOSIT (FCD) OF [USD] 48,715.72.
III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS
DESPITE PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION
FOR DAMAGES.[12]
The Courts Ruling
The core issues can be summarized, as follows: first, whether
Gonzales is liable for the three promissory notes covering the PhP
1,800,000 loan he made with the spouses Panlilio where a REM over
a parcel of land covered by TCT No. 38012 was constituted as
security; and second, whether PCIB properly dishonored the check of
Gonzales drawn against the COHLA he had with the bank.
The petition is partly meritorious.
First Issue: Solidarily Liability on Promissory Notes
A close perusal of the records shows that the courts a quo correctly
found Gonzales solidarily liable with the spouses Panlilio for the
three promissory notes.
The promissory notes covering the PhP 1,800,000 loan show the
following:
(1) Promissory Note BD-090-1766-95,[13] dated October 30, 1995,
for PhP 500,000 was signed by Gonzales and his wife, Jessica
Gonzales;
(2) Promissory Note BD-090-2122-95,[14] dated December 26,
1995, for PhP 1,000,000 was signed by Gonzales and the spouses
Panlilio; and
(3) Promissory Note BD-090-011-96,[15] dated January 3, 1996, for
PhP 300,000 was signed by Gonzales and the spouses Panlilio.
Clearly, Gonzales is liable for the loans covered by the above
promissory notes. First, Gonzales admitted that he is an
accommodation party which PCIB did not dispute. In his testimony,
Gonzales admitted that he merely accommodated the spouses
Panlilio at the suggestion of Ocampo, who was then handling his
accounts, in order to facilitate the fast release of the loan. Gonzales
testified:
ATTY. DE JESUS:
Now in this case you filed against the bank you mentioned there was
a loan also applied for by the Panlilios in the sum of P1.8 Million
Pesos. Will you please tell this Court how this came about?
GONZALES:
Mr. Panlilio requested his account officer . . . . at that time it is a P42.0
Million loan and if he secures another P1.8 Million loan the release
will be longer because it has to pass to XO.
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of mine and
we co-owned the property I agreed initially to use my name so that
the loan can be utilized immediately by Mr. Panlilio.
Q: Who is actually the borrower of this P1.8 Million Pesos?
A: Well, in paper me and Mr. Panlilio.
Q: Who received the proceeds of said loan?
A: Mr. Panlilio.
Q: Do you have any proof that it was Mr. Panlilio who actually
received the proceeds of this P1.8 Million Pesos loan?
A: A check was deposited in the account of Mr. Panlilio.[16]
xxxx

Q: By the way upon whose suggestion was the loan of Mr. Panlilio also
placed under your name initially?
A: Well it was actually suggested by the account officer at that time
Edna Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr. Noceda is
the boss of Edna so he has been familiar with my account ever since
its inception.
Q: So these two officers Ocampo and Noceda knew that this was
actually the account of Mr. Panlilio and not your account?
A: Yes, sir. In fact even if there is a change of account officer they are
always informing me that the account will be debited to Mr. Panlilios
account.[17]
Moreover, the first note for PhP 500,000 was signed by Gonzales and
his wife as borrowers, while the two subsequent notes showed the
spouses Panlilio sign as borrowers with Gonzales. It is, thus, evident
that Gonzales signed, as borrower, the promissory notes covering the
PhP 1,800,000 loan despite not receiving any of the proceeds.
Second, the records of PCIB indeed bear out, and was admitted by
Noceda, that the PhP 1,800,000 loan proceeds went to the spouses
Panlilio, thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are] concerned
the proceeds of the 1.8 million loan was received by Mr. Panlilio?
NOCEDA:
Yes sir.[18]
The fact that the loans were undertaken by Gonzales when he signed
as borrower or co-borrower for the benefit of the spouses Panlilioas
shown by the fact that the proceeds went to the spouses Panlilio who
were servicing or paying the monthly duesis beside the point. For
signing as borrower and co-borrower on the promissory notes with
the proceeds of the loans going to the spouses Panlilio, Gonzales has
extended an accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with
the spouses Panlilio for the loans. In Ang v. Associated Bank,[19]
quoting the definition of an accommodation party under Section 29
of the Negotiable Instruments Law, the Court cited that an
accommodation party is 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.[20] The Court further explained:
[A]n accommodation party is one who meets all the three requisites,
viz: (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value therefor;
and (3) he must sign for the purpose of lending his name or credit to
some other person. An accommodation party lends his name to
enable the accommodated party to obtain credit or to raise money;
he receives no part of the consideration for the instrument but
assumes liability to the other party/ies thereto. The accommodation
party is liable on the instrument to a holder for value even though the
holder, at the time of taking the instrument, knew him or her to be
merely an accommodation party, as if the contract was not for
accommodation.
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of
principal and suretythe accommodation party being the surety. As
such, he is deemed an original promisor and debtor from the
beginning; he is considered in law as the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter
since their liabilities are interwoven as to be inseparable. Although a
contract of suretyship is in essence accessory or collateral to a valid
principal obligation, the suretys liability to the creditor is immediate,
primary and absolute; he is directly and equally bound with the
principal. As an equivalent of a regular party to the undertaking, a
surety becomes liable to the debt and duty of the principal obligor
even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom.[21]
Thus, the knowledge, acquiescence, or even demand by Ocampo for
an accommodation by Gonzales in order to extend the credit or loan
of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales
from liability on the three promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the
promissory notes which uniformly begin, For value received, the
undersigned (the BORROWER) jointly and severally promise to pay x
x x. Solidary liability cannot be presumed but must be established by
law or contract.[22] Article 1207 of the Civil Code pertinently states
that there is solidary liability only when the obligation expressly so
states, or when the obligation requires solidarity. This is true in the
instant case where Gonzales, as accommodation party, is
immediately, equally, and absolutely bound with the spouses Panlilio
on the promissory notes which indubitably stipulated solidary
liability for all the borrowers. Moreover, the three promissory notes
serve as the contract between the parties. Contracts have the force of
law between the parties and must be complied with in good faith.[23]

Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three
promissory notes, We shall now touch upon the question of whether
it was proper for PCIB to dishonor the check issued by Gonzales
against the credit line under the COHLA.
We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court
is limited to review of errors of law.[24] The factual findings of the
trial court, especially when affirmed by the appellate court, are
generally binding on us unless there was a misapprehension of facts
or when the inference drawn from the facts was manifestly
mistaken.[25] The instant case falls within the exception.
The courts a quo found and held that there was a proper dishonor of
the PhP 250,000 check issued by Gonzales against the credit line,
because the credit line was already closed prior to the presentment
of the check by Unson; and the closing of the credit line was likewise
proper pursuant to the stipulations in the promissory notes on the
banks right to set off or apply all moneys of the debtor in PCIBs hand
and the stipulations in the COHLA on the PCIBs right to terminate the
credit line on grounds of default by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed
about the default of the spouses Panlilio and that the September 21,
1998 account statement of the credit line shows a balance of PhP
270,000 which was likewise borne out by the December 7, 1998
PCIBs certification that he has USD 8,715.72 in his FCD account which
is more than sufficient collateral to guarantee the PhP 250,000 check,
dated September 30, 1998, he issued against the credit line.
A careful scrutiny of the records shows that the courts a quo
committed reversible error in not finding negligence by PCIB in the
dishonor of the PhP 250,000 check.
First. There was no proper notice to Gonzales of the default and
delinquency of the PhP 1,800,000 loan. It must be borne in mind that
while solidarily liable with the spouses Panlilio on the PhP 1,800,000
loan covered by the three promissory notes, Gonzales is only an
accommodation party and as such only lent his name and credit to
the spouses Panlilio. While not exonerating his solidary liability,
Gonzales has a right to be properly apprised of the default or
delinquency of the loan precisely because he is a co-signatory of the
promissory notes and of his solidary liability.
We note that it is indeed understandable for Gonzales to push the
spouses Panlilio to pay the outstanding dues of the PhP 1,800,000
loan, since he was only an accommodation party and was not
personally interested in the loan. Thus, a meeting was set by Gonzales
with the spouses Panlilio and the PCIB officers, Noceda and Ocampo,
in the spouses Panlilios jewelry shop in SM Megamall on October 5,
1998. Unfortunately, the meeting did not push through due to the
heavy traffic Noceda and Ocampo encountered.
Such knowledge of the default by Gonzales was, however, not enough
to properly apprise Gonzales about the default and the outstanding
dues. Verily, it is not enough to be merely informed to pay over a
hundred thousand without being formally apprised of the exact
aggregate amount and the corresponding dues pertaining to specific
loans and the dates they became due.
Gonzales testified that he was not duly notified about the outstanding
interest dues of the loan:
ATTY. DE JESUS:
Now when Mr. Panlilios was encountering problems with the bank
did the defendant bank [advise] you of any problem with the same
account?
GONZALES:
They never [advised] me in writing.
Q: How did you come to know that there was a problem?
A: When my check bounced sir.[26]
On the other hand, the PCIB contends otherwise, as Corazon
Nepomuceno testified:
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr. Gonzales
when you spoke to him at the celphone?
NEPOMUCENO:
I just told him to update the interest so that we would not have to
cancel the COH Line and he could withdraw the money that was in
the deposit because technically, if an account is past due we are not
allowed to let the client withdraw funds because they are allowed to
offset funds so, just to help him get his money, just to update the
interest so that we could allow him to withdraw.
Q: Withdraw what?
A: His money on the COH, whatever deposit he has with us.
Q: Did you inform him that if he did not update the interest he would
not be able to withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he has with
us so thats why we suggested just to update the interest because at
the end of everything, he would be able to withdraw more funds than
the interest that the money he would be needed to update the
interest.[27]
From the foregoing testimonies, between the denial of Gonzales and
the assertion by PCIB that Gonzales was properly apprised, we find
for Gonzales. We find the testimonies of the former PCIB employees
to be self-serving and tenuous at best, for there was no proper
written notice given by the bank. The record is bereft of any
document showing that, indeed, Gonzales was formally informed by
PCIB about the past due periodic interests.
PCIB is well aware and did not dispute the fact that Gonzales is an
accommodation party. It also acted in accordance with such fact by
releasing the proceeds of the loan to the spouses Panlilio and likewise
only informed the spouses Panlilio of the interest dues. The spouses
Panlilio, through their account[28] with PCIB, were paying the
periodic interest dues and were the ones periodically informed by the
bank of the debiting of the amounts for the periodic interest
payments. Gonzales never paid any of the periodic interest dues.
PCIBs Noceda admitted as much in his cross-examination:
ATTY. DE JESUS: [on Cross-Examination]
And there was no instance that Mr. Gonzales ever made even interest
for this loan, is it not, its always Mr. Panlilio who was paying the
interest for this loan?
NOCEDA:
Yes sir.[29]
Indeed, no evidence was presented tending to show that Gonzales
was periodically sent notices or notified of the various periodic
interest dues covering the three promissory notes. Neither do the
records show that Gonzales was aware of amounts for the periodic
interests and the payment for them. Such were serviced by the
spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the
default or delinquency of the interest dues that were not paid starting
July 1998. And such notification must be formal or in written form
considering that the outstanding periodic interests became due at
various dates, i.e., on July 8, 17, and 28, 1998, and the various
amounts have to be certain so that Gonzales is not only properly
apprised but is given the opportunity to pay them being solidarily
liable for the loans covered by the promissory notes.
It is the bank which computes these periodic interests and such dues
must be put into writing and formally served to Gonzales if he were
asked to pay them, more so when the payments by the spouses
Panlilio were charged through the account of the spouses Panlilio
where the interest dues were simply debited. Such arrangement did
not cover Gonzales bank account with PCIB, since he is only an
accommodation party who has no personal interest in the PhP
1,800,000 loan. Without a clear and determinate demand through a
formal written notice for the exact periodic interest dues for the
loans, Gonzales cannot be expected to pay for them.
In business, more so for banks, the amounts demanded from the
debtor or borrower have to be definite, clear, and without ambiguity.
It is not sufficient simply to be informed that one must pay over a
hundred thousand aggregate outstanding interest dues without clear
and certain figures. Thus, We find PCIB negligent in not properly
informing Gonzales, who is an accommodation party, about the
default and the exact outstanding periodic interest dues. Without
being properly apprised, Gonzales was not given the opportunity to
properly act on them.
It was only through a letter[30] sent by PCIB dated October 2, 1998
but incongruously showing the delinquencies of the PhP 1,800,000
loan at a much later date, i.e., as of October 31, 1998, when Gonzales
was formally apprised by PCIB. In it, the interest due was PhP
106,1616.71 and penalties for the unpaid interest due of PhP
64,766.66, or a total aggregate due of PhP 171,383.37. But it is not
certain and the records do not show when the letter was sent and
when Gonzales received it. What is clear is that such letter was
belatedly sent by PCIB and received by Gonzales after the fact that the
latters FCD was already frozen, his credit line under the COHLA was
terminated or suspended, and his PhP 250,000 check in favor of
Unson was dishonored.
And way much later, or on May 4, 1999, was a demand letter from the
counsel of PCIB sent to Gonzales demanding payment of the PhP
1,800,000 loan. Obviously, these formal written notices sent to
Gonzales were too late in the day for Gonzales to act properly on the
delinquency and he already suffered the humiliation and
embarrassment from the dishonor of his check drawn against the
credit line.
To reiterate, a written notice on the default and deficiency of the PhP
1,800,000 loan covered by the three promissory notes was required
to apprise Gonzales, an accommodation party. PCIB is obliged to
formally inform and apprise Gonzales of the defaults and the
outstanding obligations, more so when PCIB was invoking the
solidary liability of Gonzales. This PCIB failed to do.
Second. PCIB was grossly negligent in not giving prior notice to
Gonzales about its course of action to suspend, terminate, or revoke
the credit line, thereby violating the clear stipulation in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
4. EFFECTIVITY The COH shall be effective for a period of one (1) year
commencing from the receipt by the CLIENT of the COH checkbook
issued by the BANK, subject to automatic renewals for same periods
unless terminated by the BANK upon prior notice served on
CLIENT.[31] (Emphasis ours.)
It is undisputed that the bank unilaterally revoked, suspended, and
terminated the COHLA without giving Gonzales prior notice as
required by the above stipulation in the COHLA. Noceda testified on
cross-examination on the Offering Ticket[32] recommending the
termination of the credit line, thus:
ATTY. DE JESUS: [on Cross-Examination]
This Exhibit 8, you have not furnished at anytime a copy to the
plaintiff Mr. Gonzales is it not?
NOCEDA: No sir but verbally it was relayed to him.
Q: But you have no proof that Mr. Gonzales came to know about this
Exhibit 8?
A: It was relayed to him verbally.
Q: But there is no written proof
A: No sir.
Q: And it is only now that you claim that it was verbally relayed to
him, its only now when you testified in Court?
A: Before . . .
Q: To whom did you relay this information?
A: It was during the time that we were going to Megamall, it was
relayed by Liza that he has to pay his obligations or else it will
adversely affect the status of the account.[33]
On the other hand, the testimony of Corazon Nepomuceno shows:
ATTY. DE JESUS: [on Cross-Examination]
Now we go to the other credit facility which is the credit on hand
extended solely of course to Mr. Eusebio Gonzales who is the plaintiff
here, Mr. Panlilio is not included in this credit on hand facility. Did I
gather from you as per your Exhibit 7 as of October 2, 1998 you were
the one who recommended the cancellation of this credit on hand
facility?
NEPOMUCENO:
It was recommended by the account officer and I supported it.
Q: And you approved it?
A: Yes sir.
Q: Did you inform Mr. Gonzales that you have already cancelled his
credit on hand facility?
A: As far as I know, it is the account officer who will inform him.
Q: But you have no record that he was informed?
A: I dont recall and we have to look at the folder to determine if they
were informed.
Q: If you will notice, this letter . . . what do you call this letter of yours?
A: That is our letter advising them or reminding them of their unpaid
interest and that if he is able to update his interest he can extend the
promissory note or restructure the outstanding.
Q: Now, I call your attention madam witness, there is nothing in this
letter to the clients advising them or Mr. Gonzales that his credit on
hand facility was already cancelled?
A: I dont know if there are other letters aside from this.
Q: So in this letter there is nothing to inform or to make Mr. Eusebio
aware that his credit on hand facility was already cancelled?
A: No actually he can understand it from the last sentence. If you will
be able to update your outstanding interest, we can apply the
extention of your promissory note so in other words we are saying
that if you dont, you cannot extend the promissory note.
Q: You will notice that the subject matter of this October 2, 1998 letter
is only the loan of 1.8 million is it not, as you can see from the letter?
Okay?
A: Ah . . .
Q: Okay. There is nothing there that will show that that also refers to
the credit on hand facility which was being utilized by Mr. Gonzales
is it not?
A: But I dont know if there are other letters that are not presented to
me now.[34]
The foregoing testimonies of PCIB officers clearly show that not only
did PCIB fail to give prior notice to Gonzales about the Offering Ticket
for the process of termination, suspension, or revocation of the credit
line under the COHLA, but PCIB likewise failed to inform Gonzales of
the fact that his credit line has been terminated. Thus, we find PCIB
grossly negligent in the termination, revocation, or suspension of the
credit line under the COHLA. While PCIB invokes its right on the so-
called cross default provisions, it may not with impunity ignore the
rights of Gonzales under the COHLA.
Indeed, the business of banking is impressed with public interest and
great reliance is made on the banks sworn profession of diligence and
meticulousness in giving irreproachable service. Like a common
carrier whose business is imbued with public interest, a bank should
exercise extraordinary diligence to negate its liability to the
depositors.[35] In this instance, PCIB is sorely remiss in the diligence
required in treating with its client, Gonzales. It may not wantonly
exercise its rights without respecting and honoring the rights of its
clients.
Art. 19 of the New Civil Code clearly provides that [e]very person
must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good
faith. This is the basis of the principle of abuse of right which, in turn,
is based upon the maxim suum jus summa injuria (the abuse of right
is the greatest possible wrong).[36]
In order for Art. 19 to be actionable, the following elements must be
present: (1) the existence of a legal right or duty, (2) which is
exercised in bad faith, and (3) for the sole intent of prejudicing or
injuring another.[37] We find that such elements are present in the
instant case. The effectivity clause of the COHLA is crystal clear that
termination of the COH should be done only upon prior notice served
on the CLIENT. This is the legal duty of PCIBto inform Gonzales of the
termination. However, as shown by the above testimonies, PCIB
failed to give prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith implies
a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.[38] In the instant case, PCIB
was able to send a letter advising Gonzales of the unpaid interest on
the loans[39] but failed to mention anything about the termination of
the COHLA. More significantly, no letter was ever sent to him about
the termination of the COHLA. The failure to give prior notice on the
part of PCIB is already prima facie evidence of bad faith.[40]
Therefore, it is abundantly clear that this case falls squarely within
the purview of the principle of abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate,
or revoke the COHLA under the cross default provisions of both the
promissory notes and the COHLA. However, these cross default
provisions do not confer absolute unilateral right to PCIB, as they are
qualified by the other stipulations in the contracts or specific
circumstances, like in the instant case of an accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and without notice, to
set off or apply to the payment of this Note any and all moneys which
may be in its hands on deposit or otherwise belonging to the
Borrower. The Borrower irrevocably appoint/s the Lender, effective
upon the nonpayment of this Note on demand/at maturity or upon
the happening of any of the events of default, but without any
obligation on the Lenders part should it choose not to perform this
mandate, as the attorney-in-fact of the Borrower, to sell and dispose
of any property of the Borrower, which may be in the Lenders
possession by public or private sale, and to apply the proceeds
thereof to the payment of this Note; the Borrower, however, shall
remain liable for any deficiency.[41] (Emphasis ours.)
The above provisos are indeed qualified with the specific
circumstance of an accommodation party who, as such, has not been
servicing the payment of the dues of the loans, and must first be
properly apprised in writing of the outstanding dues in order to
answer for his solidary obligation.
The same is true for the COHLA, which in its default clause provides:
16. DEFAULT The CLIENT shall be considered in default under the
COH if any of the following events shall occur:
1. x x x
2. Violation of the terms and conditions of this Agreement or any
contract of the CLIENT with the BANK or any bank, persons,
corporations or entities for the payment of borrowed money, or any
other event of default in such contracts.[42]
The above pertinent default clause must be read in conjunction with
the effectivity clause (No. 4 of the COHLA, quoted above), which
expressly provides for the right of client to prior notice. The rationale
is simple: in cases where the bank has the right to terminate, revoke,
or suspend the credit line, the client must be notified of such intent in
order for the latter to act accordinglywhether to correct any ground
giving rise to the right of the bank to terminate the credit line and to
dishonor any check issued or to act in accord with such termination,
i.e., not to issue any check drawn from the credit line or to replace any
checks that had been issued. This, the bankwith gross
negligencefailed to accord Gonzales, a valued client for more than 15
years.
Fourth. We find the testimony[43] of Ocampo incredible on the point
that the principal borrower of the PhP 1,800,000 loan covered by the
three promissory notes is Gonzales for which the bank officers had
special instructions to grant and that it was through the instructions
of Gonzales that the payment of the periodic interest dues were
debited from the account of the spouses Panlilio.
For one, while the first promissory note dated October 30, 1995
indeed shows Gonzales as the principal borrower, the other
promissory notes dated December 26, 1995 and January 3, 1996
evidently show that it was Jose Panlilio who was the principal
borrower with Gonzales as co-borrower. For another, Ocampo
cannot feign ignorance on the arrangement of the payments by the
spouses Panlilio through the debiting of their bank account. It is
incredulous that the payment arrangement is merely at the behest of
Gonzales and at a mere verbal directive to do so. The fact that the
spouses Panlilio not only received the proceeds of the loan but were
servicing the periodic interest dues reinforces the fact that Gonzales
was only an accommodation party.
Thus, due to PCIBs negligence in not giving Gonzalesan
accommodation partyproper notice relative to the delinquencies in
the PhP 1,800,000 loan covered by the three promissory notes, the
unjust termination, revocation, or suspension of the credit line under
the COHLA from PCIBs gross negligence in not honoring its obligation
to give prior notice to Gonzales about such termination and in not
informing Gonzales of the fact of such termination, treating Gonzales
account as closed and dishonoring his PhP 250,000 check, was
certainly a reckless act by PCIB. This resulted in the actual injury of
PhP 250,000 to Gonzales whose FCD account was frozen and had to
look elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a
good father of the family considering that the business of banking is
imbued with public interest due to the nature of their function. The
law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of banking.[44] Had Gonzales been
properly notified of the delinquencies of the PhP 1,800,000 loan and
the process of terminating his credit line under the COHLA, he could
have acted accordingly and the dishonor of the check would have
been avoided.
Third Issue: Award of Damages

The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized societybanks have attained a ubiquitous presence among
the people, who have come to regard them with respect and even
gratitude and most of all, confidence, and it is for this reason, banks
should guard against injury attributable to negligence or bad faith on
its part.[45]
In the instant case, Gonzales suffered from the negligence and bad
faith of PCIB. From the testimonies of Gonzales witnesses,
particularly those of Dominador Santos[46] and Freddy Gomez,[47]
the embarrassment and humiliation Gonzales has to endure not only
before his former close friend Unson but more from the members and
families of his friends and associates in the PCA, which he continues
to experience considering the confrontation he had with Unson and
the consequent loss of standing and credibility among them from the
fact of the apparent bouncing check he issued. Credit is very
important to businessmen and its loss or impairment needs to be
recognized and compensated.[48]
The termination of the COHLA by PCIB without prior notice and the
subsequent dishonor of the check issued by Gonzales constitute acts
of contra bonus mores. Art. 21 of the Civil Code refers to such acts
when it says, Any person who willfully causes loss or injury to
another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for damage.
Accordingly, this Court finds that such acts warrant the payment of
indemnity in the form of nominal damages. Nominal damages are
recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present
loss of any kind x x x.[49] We further explained the nature of nominal
damages in Almeda v. Cario:
x x x Its award is thus not for the purpose of indemnification for a loss
but for the recognition and vindication of a right. Indeed, nominal
damages are damages in name only and not in fact. When granted by
the courts, they are not treated as an equivalent of a wrong inflicted
but simply a recognition of the existence of a technical injury. A
violation of the plaintiffs right, even if only technical, is sufficient to
support an award of nominal damages. Conversely, so long as there
is a showing of a violation of the right of the plaintiff, an award of
nominal damages is proper.[50] (Emphasis Ours.)
In the present case, Gonzales had the right to be informed of the
accrued interest and most especially, for the suspension of his
COHLA. For failure to do so, the bank is liable to pay nominal
damages. The amount of such damages is addressed to the sound
discretion of the court, taking into account the relevant
circumstances.[51] In this case, the Court finds that the grant of PhP
50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA,[52] failure to give prior
notice when required, such as in the instant case, constitutes a breach
of contract and is a clear violation of Art. 21 of the Code. In cases such
as this, Art. 2219 of the Code provides that moral damages may be
recovered in acts referred to in its Art. 21. Further, Art. 2220 of the
Code provides that [w]illful injury to property may be a legal ground
for awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in
bad faith. Similarly, every person who, contrary to law, willfully or
negligently causes damage to another, shall indemnify the latter for
the same.[53] Evidently, Gonzales is entitled to recover moral
damages.
Even in the absence of malice or bad faith, a depositor still has the
right to recover reasonable moral damages, if the depositor suffered
mental anguish, serious anxiety, embarrassment, and
humiliation.[54] Although incapable of pecuniary estimation, moral
damages are certainly recoverable if they are the proximate result of
the defendants wrongful act or omission. The factual antecedents
bolstered by undisputed testimonies likewise show the mental
anguish and anxiety Gonzales had to endure with the threat of Unson
to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD
account in PCIB was frozen, prompting Gonzales to demand from
PCIB and to file the instant suit.
The award of moral damages is aimed at a restoration within the
limits of the possible, of the spiritual status quo anteit must always
reasonably approximate the extent of injury and be proportional to
the wrong committed.[55] Thus, an award of PhP 50,000 is
reasonable moral damages for the unjust dishonor of the PhP
250,000 which was the proximate cause of the consequent
humiliation, embarrassment, anxiety, and mental anguish suffered by
Gonzales from his loss of credibility among his friends, colleagues and
peers.
Furthermore, the initial carelessness of the banks omission in not
properly informing Gonzales of the outstanding interest
duesaggravated by its gross neglect in omitting to give prior notice as
stipulated under the COHLA and in not giving actual notice of the
termination of the credit linejustifies the grant of exemplary damages
of PhP 10,000. Such an award is imposed by way of example or
correction for the public good.
Finally, an award for attorneys fees is likewise called for from PCIBs
negligence which compelled Gonzales to litigate to protect his
interest. In accordance with Art. 2208(1) of the Code, attorneys fees
may be recovered when exemplary damages are awarded. We find
that the amount of PhP 50,000 as attorneys fees is reasonable.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA
Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is hereby
REVERSED and SET ASIDE. The Philippine Commercial and
International Bank (now Banco De Oro) is ORDERED to pay Eusebio
Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral
damages, PhP 10,000 as exemplary damages, and PhP 50,000 as
attorneys fees.
No pronouncement as to costs.
SO ORDERED.