1. Metropolitan Bank and Trust Co. v. Junnel’s Marketing 4. Check No.

3010049150 - issued on 27 November 1998 in the

Corporation, Purificacion Delizo, and Bank of Commerce, G.R. No. amount of P136,220.00
235511, 20 June 2018 (negligence) Examination of the dorsal portion of the subject checks revealed that all had
been deposited with Bankcom, Dau branch, under Account No. 0015-32987-
7.6 Upon inquiring with Jardine and Premiere, however, JMC was able to
At bench are two appeals1 assailing the Decision2 dated 22 March 2017 and
confirm that neither of the said suppliers owns Bankcom Account No. 0015-
Resolution3 dated 19 October 2017 of the Court of Appeals (CA) in CA-G.R.
32987-7.
CV No. 102462. The first appeal was filed by the Metropolitan Bank and
Trust Company (Metrobank), while the second by the Bank of Commerce
Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a
(Bankcom).
former accountant of JMC, executed a handwritten letter 7 addressed to one
Nelvia Yusi, President of JMC. In the said letter, Delizo confessed that,
The facts are as follows:
during her time as an accountant for JMC, she stole several company checks
drawn against JMC's current account. She professed that the said checks
Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation
were never given to the named payees but were forwarded by her to one
engaged in the business of selling wines and liquors. It has a current
Lita Bituin (Bituin). Delizo further admitted that she, Bituin and an unknown
account with Metrobank4 from which it draws checks to pay its different
bank manager colluded to cause the deposit and encashing of the stolen
suppliers. Among JMC's suppliers are Jardine Wines and Spirits (Jardine)
checks and shared in the proceeds thereof.
and Premiere Wines (Premiere).
JMC surmised that the subject checks are among the checks purportedly
In 2000, during an audit of its financial records, 5 JMC discovered an anomaly
stolen by Delizo.
involving eleven (11) checks (subject checks) it had issued to the orders of
Jardine and Premiere on various dates between October 1998 to May 1999.
On 28 January 2002, JMC filed before the Regional Trial Court (RTC) of
As it was, the subject checks had already been charged against JMC's
Pasay City a complaint for sum of money8 against Delizo, Bankcom and
current account but were, for some reason, not covered by any official
Metrobank. The complaint was raffled to Branch 115 and was docketed as
receipt from Jardine or Premiere. The subject checks, which are
Civil Case No. 02-0193.
all crossed checks and amounting to P1,481,292.00 in total, are as
follows:
In its complaint, JMC alleged that the wrongful conversion of the subject
checks was caused by a combination of the "tortious and felonious" scheme
Checks Payable to the Order of Jardine:
of Delizo and the "negligent and unlawful acts" of Bankcom and
1. Check No. 3010048953 - issued on 11 October 1998 in the amount
Metrobank, to wit:9
of P181,440.00
2. Check No. 3010048955 - issued on 24 October 1998 in the amount
1. Delizo, by her own admission, stole the company checks of JMC.
of P195,840.00
Among these checks, as confirmed by JMC's audit, are the subject
3. Check No. 3010069098 - issued on 18 May 1999 in the amount of
checks.
P58,164.56
2. After stealing the subject checks, Delizo and her accomplices, Bituin
4. Check No. 3010069099 - issued on 18 May 1999 in the amount of
and an unknown bank manager, caused the subject checks to be
P44,651.52
deposited in Bankcom, Dau branch, under Account No. 0015-32987-
5. Check No. 3010049551 - issued on 25 May 1999 in the amount of
7. Bankcom, on the other hand, negligently accepted the subject
P103,680.00
checks for deposit under the said account despite the fact that they
6. Check No. 3010049550 - issued on 30 May 1999 in the amount of
are crossed checks payable to the orders of Jardine and Premiere
P103,680.00
and neither of them owns the concerned account.
7. Check No. 3010048954 - issued on 29 December 1998 in the
3. Thereafter, Bankcom presented the subject checks for payment to
amount of P195,840.00
Metrobank which, also in negligence, decided to honor the said
Checks Payable to the Order of Premiere:
checks even though Bankcom Account No. 0015-32987-7 belongs to
1. Check No. 3010049149 - issued on 9 December 1998 in the amount
neither Jardine nor Premiere.
of P136,220.00
On the basis of the foregoing averments, JMC prayed that Delizo, Bankcom
2. Check No. 3010049148 - issued on 16 December 1998 in the
and Metrobank be held solidarily liable in its favor for the amount of the
amount of P136,220.00
subject checks.
3. Check No. 3010049410 - issued on 18 April 1999 in the amount of
P189,336.00.
Delizo, Bankcom and Metrobank filed their individual answers denying
liability.10 Incorporated in Metrobank's answer, moreover, is a cross-claim
against Bankcom and Delizo wherein Metrobank asks for the right to be
reimbursed in the event it is ordered liable in favor of JMC. 11
On 28 May 2013, the RTC rendered a decision12 holding both Bankcom and
Metrobank liable to JMC-on a 2/3 to 1/3 ratio, respectively-for the amount
of subject checks plus interest as well as attorney's fees, but absolving
Delizo from any liability.13 The trial court, in the same decision, also
dismissed Metrobank's cross-claim against Bankcom. The dispositive portion
of the decision reads:14
WHEREFORE, judgment is rendered against defendants [Bankcom]
and [Metrobank] for the total value of the 11 checks. [Bankcom] and
Metrobank are adjudged solidarily liable to pay [JMC] at the ratios of 2/3
and 1/3, respectively:
1. The actual loss of P 1,481,292 including 6% legal interest from the filing
of the complaint;
2. Plus 12% interest on the principal of P 1,481,292 including 6% interest
on the principal, from the date this Decision becomes final and executory;
3. The attorney's fees of 15% of the total of number one and two above;
4. Costs against [Bankcom] and Metrobank.
Metrobank's cross-claim against [Bankcom] is DISMISSED, both
being negligent.
SO ORDERED.
The RTC's decision was hinged on the following findings: 15
1. The subject checks were complete and not forged. They were,
however, stolen by unknown malefactors and were wrongfully
encashed due to the negligence of Bankcom and Metrobank.
2. Delizo's complicity in the acquisition and negotiation of the subject
checks was not proven. No direct evidence linking Delizo to the
deeds was presented. Moreover, Delizo's supposed handwritten
confession must be discredited for being made under duress,
intimidation and threat. It was established during trial that Delizo
was only forced by Yusi to confess about the missing checks and to
execute the handwritten confession. Hence, Delizo must be absolved
from any liability.
3. The involvement of Bankcom and Metrobank on the wrongful
encashment of the subject checks, however, were clearly
established:
a. Bankcom accepted the subject checks for deposit under
Account No. 0015-32987-7, endorsed them and sent them
for clearance with the Philippine Clearing House Corporation
(PCHC). Bankcom did all these despite the fact that the
subject checks were ll crossed checks and that Account No.
0015-32987-7 neither belongs to Jardine nor Premiere-the
payees named in the subject checks. In this regard,
Bankcom was clearly negligent.
b. Metrobank, on the other hand, is also negligent for its failure
to scrutinize the subject checks before clearing and honoring
them. Had Metrobank done so, it would have noticed that
Bankcom's ID band stamped at the back of the subject
checks did not contain any initials and are, therefore,
defective. In this regard, Metrobank was remiss in its duty
to ensure that the subject checks are paid only to the named
payees.
In view of the comparative negligence of Bankcom and Metrobank,
they should be held liable to JMC, on a 2/3 to 1/3 ratio, respectively, for the
amount of subject checks plus interest.
Bankcom and Metrobank filed their respective appeals with the CA.
On 22 March 2017, the CA rendered its decision16 affirming, albeit with
modification, the decision of the RTC. The disposition of the decision reads: 17
WHEREFORE, the Decision dated 28 May 2013 of the [RTC] in Civil
Case NO. 02-0193 is AFFIRMED with MODIFICATION in that: (a) the
award of attorney's fees is DELETED; and (b) [Bankcom] and [Metrobank]
are ordered to pay interest at the rate of 12% per annum on the principal of
P 1,481,292 including 6% interest on the principal, from the date of the
Decision (28 May 2013) until June 2013 and 6% per annum from 1 July
2013 until full satisfaction. The Decision is affirmed in all other respects.
SO ORDERED.
The CA agreed with the RTC that Bankcom and Metrobank should be held
liable to JMC, on a 2/3 to 1/3 ratio, respectively, for the amount of subject
checks. The appellate court, however, differed with the trial court with
respect to the basis of Metrobank's liability. According to the CA,
Metrobank's negligence consisted, not in its inability to notice that
Bankcom's ID band does not contain any initials, but in its failure to
ascertain that only four (4) out of the 11 subject checks were stamped by
Bankcom with the express guarantees "ALL PRIOR ENDORSEMENTS AND/OR
LACK OF ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE" as
required by Section 17 of the PCHC Rules and Regulations. 18
The CA also sustained the ruling of the RTC anent the absolution of Delizo
and the dismissal of Metrobank's cross-claim.
Finally, the CA modified the rate of interest due on the amount of the
subject checks that was fixed by the RTC and also deleted the RTC's award
of attorney's fees in favor of JMC.19
Bankcom and Metrobank filed their motions for reconsideration, but the CA
remained steadfast. Hence the present consolidated appeals.
Both Metrobank and Bankcom pray for absolution but they differ in the
arguments they raise in support of their prayer: 20
1. Metrobank posits that it should be absolved because it had exercised
absolute diligence in verifying the genuineness of the subject
checks. Metrobank argues that the RTC erred in holding it negligent
on its failure to ascertain that only four (4) out of the 11 subject
checks were stamped with Bankcom's express guarantees.
Metrobank claims that while Section 17 of the PCHC Rules and
Regulations does require all checks cleared through the PCHC to
contain the collecting bank's express guarantees, the same provision
precludes it, as a drawee bank, to return any checks presented to it
for payment just because the same does not contain such express
guarantees "for as long as there is evidence appearing on the
cheque itself that the same had been deposited with the [collecting]
[b]ank e.g., PCHC machine sprayed tracer/ID band." In this regard,
Metrobank points out that all the subject checks had been stamped
in their dorsal portion with PCHC's tracer ID for Bankcom.
Metrobank submits that, under the circumstances, it should be
Bankcom-as the last indorser of the subject checks-that should bear
the loss and be held solely liable to JMC.
2. Bankcom, on the other hand, argues that it should be absolved
because it was never a party to the wrongful encashment of the
subject checks. It claims that Account No. 0015-32987-7 does not
exist in its system and, therefore, denies that the subject checks
were ever deposited with it.
Bankcom proffers the view that it is JMC that should bear the loss of
the subject checks. Bankcom argues that it was JMC's faulty
accounting procedures which led to the subject checks being stolen
and misappropriated.
Our Ruling
The consolidated appeals must be denied as neither Metrobank nor Bankcom
are entitled to absolution.
Be that as it may, there is a need to modify the decision of the CA and the
RTC with respect to the manner by which Metrobank and Bankcom are held
liable under the circumstances. Instead of holding both Metrobank and
Bankcom liable to JMC in accordance with a fixed ratio, we find that the two
banks should have been ordered sequentially liable for the entire amount of
the subject checks pursuant to the seminal case of Bank of America v.
Associated Citizens Bank.21
Accordingly, we rule: (1) Metrobank liable to return to JMC the entire
amount of the subject checks plus interest and (2) Bankcom liable to
reimburse Metrobank the same amount plus interest.
The Rule on Sequence of Recovery in Cases of Unauthorized
Payment of Checks; The Case of Bank of America
The instant case involves the unauthorized payment of valid checks, i.e., the
payment of checks to persons other than the payee named therein or his
order. The subject checks herein are considered valid because they are
complete and bear genuine signatures.
Bank of America is the leading jurisprudence that illustrates the respective
liabilities of a collecting bank and a drawee bank in cases of unauthorized
payment of valid checks. Notably, the facts of Bank Americaare parallel to
the facts of the present case. Both Bank of America and the present case
involved crossed checks payable to the order of a specified payee that
were deposited in a collecting bank under an account not belonging
to the payee or his indorsee but which, upon presentment, were
subsequently honored by the drawee bank, thus:
1. Bank of America involved four (4) crossed checks drawn against the
Bank of America (the drawee bank) and made payable to the order
of a Miller Offset Press, Inc. (the designated payee). These checks
were then deposited to the Associated Citizens Bank (the collecting
bank) under a joint bank account of one Ching Uy Seng and a
certain Uy Chung Guan Seng (an account that does not belong to
the payee or its indorsee). The checks were then presented to the
Bank of America, which honored it, resulting to loss on the part of
BA Finance Corporation (the drawer.)
2. The instant case involves eleven (11) crossed checks that were
drawn against Metrobank (the drawee bank) and made payable to
the orders of Jardine and Premiere (the designated payees). These
checks were deposited with Bankcom (the collecting bank) under
Account No. 0015-32987-7 (an account that does not belong to
either payee or their indorsees). The checks were then presented to
Metrobank, which honored it, resulting to loss on the part of JMC
(the drawer.)
Bank of America held that, in cases involving the unauthorized payment of
valid checks, the drawee bank becomes liable to the drawer for the
amount of the checks but the drawee bank, in turn, can seek
reimbursement from the collecting bank. The rationale of this rule on
sequence of recovery lies in the very basis and nature of the liability of a
drawee bank and a collecting bank in said cases. As the recent case of BDO
Unibank v. Lao22 explains:
The liability of the drawee bank is based on its contract with the drawer and
its duty to charge to the latter's accounts only those payables authorized by
him. A drawee bank is under strict liability to pay the check only to the
payee or to the payee's order. When the drawee bank pays a person other
than the payee named in the check, it does not comply with the terms of the
check and violates its duty to charge the drawer's account only for properly
payable items.

On the other hand, the liability of the collecting bank is anchored on its
guarantees as the last endorser of the check. Under Section 66 of the
Negotiable Instruments Law, an endorser warrants "that the instrument is
genuine and in all respects what it purports to be; that he has good title to
it; that all prior parties had capacity to contract; and that the instrument is
at the time of his endorsement valid and subsisting."
It has been repeatedly held that in check transactions, the collecting bank
generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting
the check for payment to the drawee is an assertion that the party making
the presentment has done its duty to ascertain the genuineness of the
endorsements. If any of the warranties made by the collecting bank turns
out to be false, then the drawee bank may recover from it up to the amount
of the check. (Citations omitted).
This rule should have been applied to the case at bench.
Metrobank is Liable to JMC
Metrobank, as drawee bank, is liable to return to JMC the amount of the
subject checks.
A drawee bank is contractually obligated to follow the explicit instructions of
its drawer-clients when paying checks issued by them. 23 The drawer's
instructions-including the designation of the payee or to whom the check
should be paid-are reflected on the face and by the terms thereof. 24 When a
drawee bank pays a person other than the payee named on the check, it
essentially commits a breach of its obligation and renders the payment it
made unauthorized.25 In such cases and under normal circumstances, the
drawee bank may be held liable to the drawer for the amount charged
against the latter's account.26
The liability of the drawee bank to the drawer in cases of unauthorized
payment of checks has been regarded in jurispn1dence to be strict by
nature.27 This means that once an unauthorized payment on a check has
been made, the resulting liability of the drawee bank to the drawer for such
payment attaches even if the former had acted merely upon the guarantees
of a collecting bank.28 Indeed, it is only when the unauthorized payment of a
check had been caused or was attended by the fault or negligence of the
drawer himself can the drawee bank be excused, whether wholly or
partially, from being held liable to the drawer for the said payment. 29
In the present case, it is apparent that Metrobank had breached JMC's
instructions when it paid the value of the subject checks to Bankcom for the
benefit of a certain Account No. 0015-32987-7. The payment to Account No.
0015-32987-7 was unauthorized as it was established that the said account
does not belong to Jardine or Premiere, the payees of the subject checks, or
to their indorsees. In addition, causal or concurring negligence on the part
of JMC had not been proven. Under such circumstances, Metrobank is clearly
liable to return to JMC the amount of the subject checks.
Metrobank's insistence that it should be absolved for it merely complied with
Section 17 of the PCHC Rules and Regulations and thereby only relied upon
the concomitant guarantees of Bankcom when it paid the subject checks,
cannot stand insofar as JMC is concerned. In Bank of America, we rejected a
similar argument interposed by a drawee bank (Bank of America) precisely
on the ground of the latter's strict liability to its drawer (BA-Finance) viz:30
Bank of America denies liability for paying the amount of the four checks
issued by BA-Finance to Miller, alleging that it (Bank of America) relied
on the stamps made by Associated Bank stating that all prior
endorsement and/or lack of endorsement guaranteed, through
which Associated Bank assumed the liability of a general endorser under
Section 66 of the Negotiable Instruments Law. Moreover, Bank of America
contends that the proximate cause of BA-Finances injury, if any, is
the gross negligence of Associated Bank which allowed Ching Uy Seng
(Robert Ching) to deposit the four checks issued to Miller in the personal
joint bank account of Ching Uy Seng and Uy Chung Guan Seng.
We are not convinced.
The bank on which a check is drawn, known as the drawee bank, is
under strict liability, based on the contract between the bank and its
customer (drawer), to pay the check only to the payee or the
payee's order. x x x.
In this case, the four checks were drawn by BA-Finance and made payable
to the Order of Miller Offset Press, Inc. The checks were also crossed and
issued For Payee's Account Only. Clearly, the drawer intended the check for
deposit only by Miller Offset Press, Inc. in the latter's bank account. Thus,
when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert
Ching, presented and deposited the checks in his own personal
account (Ching Uy Sengs joint account with Uy Chung Guan Seng),
and the drawee bank, Bank of America, paid the value of the checks
and charged BA-Finances account therefor, the drawee Bank of
America is deemed to have violated the instructions of the drawer,
and therefore, is liable for the amount charged to the drawer's
account (Citations omitted. Emphasis supplied).
Accordingly, we find Metrobank liable to return to JMC the amount of the
subject checks.
Bankcom is Liable to Metrobank
While Metrobank's reliance upon the guarantees of Bankcom does not
excuse it from being liable to JMC, such reliance does enable Metrobank to
seek reimbursement from Bankcom-the collecting bank.
A collecting or presenting bank-i.e., the bank that receives a check for
deposit and that presents the same to the drawee bank for payment-is an
indorser of such check.31 When a collecting bank presents a check to the
drawee bank for payment, the former thereby assumes the same warranties
assumed by an indorser of a negotiable instrument pursuant to Section 66
of the Negotiable Instruments Law. These warranties are: (1) that the
instrument is genuine and in all respects what it purports to be; (2) that the
indorser has good title to it; (3) that all prior parties had capacity to
contract; and (4) that the instrument is, at the time of the indorsement,
valid and subsisting.32 If any of the foregoing warranties turns out to be
false, a collecting hank becomes liable to the drawee bank for payments
made under such false warranty.
Here, it is clear that Bankcom had assumed the warranties of an indorser
when it forwarded the subject checks to PCHC for presentment to
Metrobank. By such presentment, Bankcom effectively guaranteed to
Metrobank that the subject checks had been deposited with it to an account
that has good title to the same. This guaranty, however, is a complete
falsity because the subject checks were, in truth, deposited to an account
that neither belongs to the payees of the subject checks nor to their
indorsees. Hence, as the subject checks were paid under Bankcom's false
guaranty, the latter-as collecting bank-stands liable to return the value of
such checks to Metrobank.
Bankcom's assertion that it should be absolved as the subject checks were
allegedly never deposited with it must fail. Such allegation is readily
disproved by the fact that the subject checks all contained, at their dorsal
side, a stamp bearing Bankcom's tracer/ID band.33 Under the PCHC Rules
and Regulations, the stamped tracer/ID band of Bankcom signifies that the
checks had been deposited with it and that Bankcom indorsed the said
checks and sent them to PCHC.34 As observed by the RTC:35
Record shows that the pieces of evidence presented by [JMC], particularly
the 11 subject checks were endorsed and were allowed to be encashed by
[Bankcom], as indicated in the dorsal portion of the checks where [PCHC]
machine's tracer, or the ID band of [Bankcom] was stamped. And this
stamped tracer ID band of [Bankcom] signifies that [Bankcom] certified that
the checks were deposited to [Bankcom] and [Bankcom] endorsed these
checks and sent them to PCHC.
Neither do we find the liability of Bankcom to be affected by the fact that
only four (4) out of the eleven (11) subject checks were actually stamped
with the guarantees "ALL PRIOR ENDORSEMENTS AND/OR LACK OF
ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE" as required under
Section 17 of the PCHC Rules and Regulations. The stamping of such
guarantees is not necessary to fix the liability of Bankcom as an indorser for
all the subject checks.
To begin with, jurisprudence has it that a collecting bank's mere act of
presenting a check for payment to the drawee bank is itself an assertion, on
the part of the former, that it had done its duty to ascertain the validity of
prior indorsements. Hence, in Banco De Oro v. Equitable Banking
Corporation,36 we stated:
Apropos the matter of forgery in endorsements, this Court has presently
succinctly emphasized that the collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all
prior endorsements considering that the act of presenting the check
for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the
endorsements. This is laid down in the case of PNB v. National City Bank.
(Citations omitted. Emphasis supplied).
More than such pronouncement, however, Section 17 of the PCHC Rules and
Regulations expressly provides that checks "cleared through the PCHC" that
do not bear the mentioned guarantees shall nonetheless "be deemed
guaranteed by the [collecting bank] as to all prior endorsements and/or lack
of endorsement" such that "no drawee bank shall return any [check]
received by it through clearing by reason only of the absence or lack of such
guarantee ... as long as there is evidence appearing on the [check] itself
that the same had been deposited with the [collecting bank] x x x." The full
provision reads:
Sec. 17. Bank Guarantee. All checks cleared through the PCHC shall bear
the guarantee affixed thereto by the Presenting Bank/Branch which shall
read as follows:
Cleared thru the Philippine Clearing House Corporation all prior
endorsements and/or lack of endorsement guaranteed NAME OF
BANK/BRANCH BRSTN (Date of Clearing). Checks to which said
guarantee has not been affixed shall, nevertheless, be deemed
guaranteed by the Presenting Bank as to all prior endorsement
and/or lack of endorsement.
No drawee bank shall return any cheque received by it through
clearing by reason only of the absence or lack of such guarantee
stamped at the back of said cheque, for as long as there is evidence
appearing on the cheque itself that the same had been deposited
with the Presenting Bank, e.g. PCHC machine sprayed tracer/ID
band. (Emphasis supplied)
In the present case, all the subject checks have been transmitted by
Bankcom to the PCHC for clearing and presentment to Metrobank. As earlier
adverted to, all of the said checks also bear the PCHC machine sprayed
tracer/ID band of Bankcom. Such circumstances, pursuant to prevailing
banking practices as laid out under the PCHC Rules and Regulations, are
enough to fix the liability of Bankcom as an indorser of the subject checks
even sans the stamp "ALL PRIOR ENDORSEMENTS AND/OR LACK OF
ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE." As the stamping of
such guarantees are not required before the warranties of an indorser could
attach against Bankcom, we find the latter liable to reimburse Metrobank
the value of all the subject checks.
Recourse of Bankcom
The sequence of recovery in cases of unauthorized payment of checks,
however, does not ordinarily stop with the collecting bank. In the event that
it is made to reimburse the drawee bank, the collecting bank can seek
similar reimbursement from the very persons who caused the checks to be
deposited and received the unauthorized payments. 37 Such persons are the
ones ultimately liable for the unauthorized payments and their liability rests
on their absolute lack of valid title to the checks that they were able to
encash.
Verily, Bankcom ought to have a right of recourse against the persons that
caused the anomalous deposit of the subject checks and received payments
therefor. Unfortunately-as none of such persons were impleaded in the case
before us-no pronouncement as to this matter can be made in favor of
Bankcom.
At this juncture, we express our concurrence to the absolution of Delizo. The
RTC and the CA were uniform in their finding that the participation of Delizo-
as the supposed thief of the subject checks-had not been established in this
case. We reviewed the evidence on hand and saw no cogent reason to
deviate from this factual finding.
Doctrine of Comparative Negligence Does Not Apply to the Instant
Case
Instead of applying the rule on the sequence of recovery to the case at
bench, the RTC and the CA held both Metrobank and Bankcom liable to JMC
in accordance with a fixed ratio. In so doing, the RTC and the CA seemingly
relied on the doctrine of comparative negligence 38 as applied in the cases
of Bank of the Philippine Islands v. Court of Appeals 39 and Allied Banking
Corporation v. Lio Sim Wan.40 In both cases, the Court held the drawee bank
and collecting bank liable for the wrongful encashment of checks under a
60% and 40% ratio.
It must be emphasized, however, that the factual contexts of Bank of the
Philippine Islands and Allied Banking Corporation are starkly different from
the instant case:
1. Bank of the Philippine Islands involved two (2) cashier's checks issued
by the Bank of the Philippine Islands (BPI) in favor of a certain Eligia
Fernando (Eligia). The checks are supposed to represent the proceeds of a
pre-terminated money market placement of Eligia with BPI. BPI issued the
checks upon the mere phone request of a person who introduced herself as
Eligia. The checks were subsequently deposited with the China Banking
Corporation (CBC) under an account that was opened by a person who
identified herself as Eligia. This person thereafter encashed the checks.
It was later established, however, that Eligia never requested the pre-
termination of her money market placement nor opened an account with the
CBC. It was an impostor who did so.
2. Allied Banking Corporation, on the other hand, involved a manager's
check issued by the Allied Banking Corporation (ABC) in favor of a certain
Lim Sio Wan (Lim). The check is supposed to represent the proceeds of a
pre-terminated money market placement of Lim with ABC. ABC issued the
checks upon the mere phone request of a person who introduced herself as
Lim. The checks, now bearing an indorsement of Lim, were then deposited
with the Metrobank under the account of a certain Filipinas Cement
Corporation. The checks were eventually encashed.
It was later established, however, that Lim never requested the pre-
termination of his money market placement and that his indorsement in the
check was forged.
A glaring peculiarity in the cases of Bank of the Philippine
Islands and Allied Banking Corporation is that the drawee bank-which is
essentially also the drawer in the scenario-is not only guilty of
wrongfully paying a check but also of negligence in issuing such
check. Indeed, this is the very reason why the drawee bank in the two
cases were adjudged co-liable with the collecting bank under a fixed ratio
and the former was not allowed to claim reimbursement from the
latter.41 The drawee bank cannot claim that its participation in the wrongful
payment of a check was merely limited to its reliance on the guarantees of
the collecting bank. In other words, the drawee bank was held liable in its
own right because it was the one that negligently issued the checks in the
first place.
That, however, is clearly not the situation in the case at bench. Here, no
negligence similar to that committed by the drawee banks in Bank of the
Philippine Islands and Allied Banking Corporation-whether in type or in
magnitude-can be attributed to Metrobank. Metrobank, though guilty of the
unauthorized check payments, only acted upon the guarantees deemed
made by Bankcom under prevailing banking practices. While Metrobank's
reliance upon the guarantees of Bankcom did not excuse it from being
answerable to JMC, such reliance does enable Metrobank to seek
reimbursement from Bankcom on the ground of the breach in the latter's
warranties as a collecting bank. Under such circumstances, we cannot deny
Metrobank's right to seek reimbursement from Bankcom.
Hence, given the differences in the factual milieu between this case on one
hand arid the cases of Bank of the Philippine Islands and Allied Banking
Corporation on the other, we find that the doctrine of comparative
negligence cannot be applied so as to apportion the respective liabilities of
Metrobank and Bankcom. The liabilities of Metrobank and Bankcom, as
already discussed in length, must be governed by the rule on sequential
recovery pursuant to Bank of America.
Interests
As a final matter, we also saw it fit to impose legal interest upon the
respective principal liabilities of Metrobank and Bankcom.
In Nacar v. Gallery Frames,42 wlaid out the following guidelines for the
imposition and computation of legal interests:
To recapitulate and for future guidance, the guidelines laid down in the case
of Eastern Shipping Lines are accordingly modified to embody BSP
MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravener can be held
liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the 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 6% 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 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 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed
therein. (Citations omitted. Emphasis supplied).
Applying the foregoing guidelines to the case at bench, we fix the legal
interests due against Metrobank and Bankcom thusly:
1. The liability of Metrobank to JMC consists in returning the amount it
charged against JMC's current account. Current accounts, like all
bank deposits, are considered under the law as loans. 43Normally,
current accounts are interest-bearing by express contract. However,
the actual interest rate, if any, for the current account opened by
JMC with Metrobank was not given in evidence. 44
Under these circumstances, we find it proper to subject Metrobank's
principal liability to JMC to a legal interest of 6% per annum from 28
January 2002 until full satisfaction.45 The date 28 January 2002 is
the date when JMC filed its complaint with the RTC.
2. The liability of Bankcom to Metrobank, on the other hand, consists in
returning the amount it was paid by Metrobank. This stems from a
breach by Bankcom of its warranties as a collecting bank.
Accordingly, we find it proper to subject Bankcom's principal liability
to Metrobank to a legal interest of 6% per annum from 5 March
2003 until full satisfaction.46 The date 5 March 2003 is the date
when Metrobank filed its answer with cross-claim against Bankcom.
WHEREFORE, the consolidated appeals are DENIED. The Decision dated
22 March 2017 and Resolution dated 19 October 2017 of the Court of
Appeals (CA) in CA-G.R. CV No. 102462 are herein MODIFIEDwith respect
to the individual liabilities of the Metropolitan Bank and Trust Company and
the Bank of Commerce, as follows:
1. The Metropolitan Bank and Trust Company is adjudged liable to pay
respondent Junnel's Marketing Corporation the following:
a. The principal amount of P 1,481,292.00, and
b. Interest on the said principal at the rate of 6% per annum
from 28 January 2002 until full satisfaction.
2. The Bank of Commerce is adjudged liable to pay the Metropolitan
Bank and Trust Company the following:
a. The principal amount of P 1,481,292.00, and
b. Interest on the said principal at the rate of 6% per annum
from 5 March 2003 until full satisfaction.
Other findings and pronouncements of the Court of Appeals in its Decision
dated 22 March 2017 and Resolution dated 19 October 2017 in CA-G.R. CV
No. 102462 that are not contrary to this Decision are AFFIRMED.
Costs against the Metropolitan Bank and Trust Company and the Bank of
Commerce.
SO ORDERED.
2. Citystate Savings Bank v. Tobias, G.R. No. 227990, 7 March 2018
(negligence - banking)
This is a petition for review on certiorari1 under Rule 45 of the Rules
of Court seeking to annul and set aside the Decision 2 dated May 31,
2016 and Resolution3 dated October 10, 2016 issued by the Court of
Appeals (CA) in CA-G.R. CV No. 102545.
The Antecedent Facts
Rolando Robles (hereinafter referred to as Robles), a certified public
accountant, has been employed with Citystate Savings Bank (hereinafter
referred to as the petitioner) since July 1998 then as Accountant-trainee for
its Chino Roces Branch. On September 6, 2000, Robies was promoted as
acting manager for petitioner's Baliuag, Bulacan branch, and eventually as
manager.4
Sometime in 2002, respondent Teresita Tobias (hereinafter referred to as
Tobias), a meat vendor at the Baliuag Public Market, was introduced by her
youngest son to Robies, branch manager of petitioner's Baliuag, Bulacan
branch.5
Robies persuaded Tobias to open an account with the petitioner, and
thereafter to place her money in some high interest rate mechanism, to
which the latter yielded.6
Thereafter, Robies would frequent Tobias' stall at the public market to
deliver the interest earned by her deposit accounts in the amount of Php
2,000.00. In turn, Tobias would hand over her passbook to Robies for
updating. The passbook would be returned the following day with
typewritten entries but without the corresponding counter signatures. 7
Tobias was later offered by Robies to sign-up in petitioner's back-to-back
scheme which is supposedly offered only to petitioner's most valued clients.
Under the scheme, the depositors authorize the bank to use their bank
deposits and invest the same in different business ventures that yield high
interest. Robies allegedly promised that the interest previously earned by
Tobias would be doubled and assured her that he will do all the paper work.
Lured by the attractive offer, Tobias signed the pertinent documents without
reading its contents and invested a total of Php 1,800,000.00 to petitioner
through Robies. Later, Tobias became sickly, thus she included her daughter
and herein respondent Shellidie Valdez (hereinafter referred to as Valdez),
as co-depositor in her accounts with the petitioner. 8
In 2005, Robies failed to remit to respondents the interest as scheduled.
Respondents tried to reach Robies but he can no longer be found; their calls
were also left unanswered. In a meeting with Robies' siblings, it was
disclosed to the respondents that Robies withdrew the money and
appropriated it for personal use. Robies later talked to the respondents,
promised that he would return the money by installments and pleaded that
they do not report the incident to the petitioner. Robies however reneged on
his promise. Petitioner also refused to make arrangements for the return of
respondents' money despite several demands.9
On January 8, 2007, respondents filed a Complaint for sum of money and
damages. against Robles and the petitioner.10 In their Complaint,
respondents alleged that Robles committed fraud in the performance of his
duties as branch manager when he lured Tobias in signing several pieces of
blank documents, under the assurance as bank manager of petitioner,
everything was in order.11
After due proceedings, the Regional Trial Court (RTC), on February 12,
2014, rendered its Decision,12viz.:
WHEREFORE, in light of the foregoing, judgment is hereby rendered
ordering defendant Robles to pay plaintiff the following:
1. the amount of Php1,800,000.00 as actual damages plus legal rate of
interest from the filing of the complaint until fully paid;
2. the amount of Php100,000.00 as moral damages; and
3. the amount of Php50,000.00 as exemplary damages.
The plaintiffs claim for attorney's fees and litigation expenses are DENIED
for lack of merit.
Further, defendant bank is absolved of any liability. Likewise, all
counterclaims and cross-claims are DENIED for lack of merit.
SO ORDERED.13
Ruling of the CA
The matter was elevated to the CA. The CA in its Decision 14 dated May 31,
2016, found the appeal meritorious and accordingly, reversed and set aside
the RTC's decision, in this wise:
WHEREFORE, the Appeal is hereby GRANTED. The Decision Dated 12
February 2014 of the [RTC], Third Judicial Region, Malolos City, Bulacan,
Branch 83, in Civil Case No. 11-M-07, is MODIFIED in that [petitioner] and
[Robles] are JOINTLY and SOLIDARILY to pay [respondents] the amounts
set forth in the assailed Decisions as well as attorney's fees in the amount
of ONE HUNDRED THOUSAND PESOS (P 100,000.00).
SO ORDERED.15
Petitioner sought a reconsideration of the decision, but it was denied by the
CA in its Resolution16 dated October 10, 2016.
In the instant petition, respondents put forward the following
arguments to support their position:
V
ARGUMENTS
IN RENDERING THE ASSAILED DECISION AND RESOLUTION, THE CA
DECIDED QUESTIONS OF SUBSTANCE WHICH ARE NOT IN ACCORD WITH
APPLICABLE LAWS AND JURISPRUDENCE.
[A]THE CA SERIOUSLY ERRED IN RULING THAT THE DOCTRINE OF
APPARENT AUTHORITY IS APPLICABLE IN THIS CASE.
[B]THE CA SERIOUSLY ERRED IN RULING THAT RESPONDENT TOBIAS IS
NOT GUILTY OF CONTRIBUTORY NEGLIGENCE.
[C]THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY AND
SOLIDARILY LIABLE WITH ROBLES TO PAY FOR THE DAMAGE SUPPOSEDLY
SUFFERED BY RESPONDENTS.
[D]THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY
AND SOLIDARILY LIABLE FOR ATTORNEY'S FEES.17
In this petition for review on certiorari, petitioner alleged that it should
not be held liable considering that it has exercised a high degree of diligence
in the selection and supervision of its employees, including Robles, and that
it took proper measures in hiring the latter. Further, it posits that it has
complied with standard bank operating procedures in the conduct of its
operations.
Petitioner also argues that Robles acted in his personal capacity in dealing
with Tobias, who agreed with full knowledge and consent to the back-to-
back loans and that it was not privy to the transactions between them.
Therefore, petitioner submits that the CA erred in applying the doctrine of
apparent authority.
Ruling of the Court
The petition is denied.
The business of banking is one imbued with public interest. As such, banking
institutions are obliged to exercise the highest degree of diligence as well as
high standards of integrity and performance in all its transactions. 18
The law expressly imposes upon the banks a fiduciary duty towards its
clients19 and to treat in this regard the accounts of its depositors with
meticulous care.20
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan or mutuum, with the bank as
the debtor and the depositor as the creditor. 21
In light of these, banking institutions may be held liable for damages for
failure to exercise the diligence required of it resulting to contractual breach
or where the act or omission complained of constitutes an actionable tort. 22
The nature of a bank's liability is illustrated in the consolidated cases
of Philippine Commercial International Bank v. CA, et al., Ford
Philippines, Inc. v. CA, et al. and Ford Philippines, Inc. v. Citibank,
N.A., et al.23 The original actions a quo were instituted by Ford Philippines,
Inc. (Ford) to recover the value of several checks it issued payable to the
Commissioner of Internal Revenue (CIR) which were allegedly embezzled by
an organized syndicate.
The first two of the three consolidated cases mentioned above involve twin
petitions for review assailing the decision and resolution of the CA ordering
the collecting bank, Philippine Commercial International Bank (PCIB) to pay
the amount of a crossed Citibank N.A. (Citibank) check (No. SN-04867)
drawn by Ford in favor of CIR as payment for its taxes.
The said check was deposited with PCIB and subsequently cleared by the
Central Bank. Upon presentment with Citibank, the proceeds of the check
were released to PCIB as the collecting/depository bank.
However, it was later discovered that the check was not paid to the CIR.
Ford was-then forced to make another payment to the CIR.
Investigation revealed that the check was recalled by the General Ledger
Accountant of Ford on the pretext that there has been an error in the
computation of tax, he then directed PCIB to issue two manager's checks in
replacement thereof.
Both Citibank and PCIB deny liability, the former arguing that payment was
in due course as it merely relied on the latter's guarantee as to "all prior
indorsements and/or lack of indorsements." Thus, Citibank submits that the
proximate cause of the injury is the gross negligence of PCIB in indorsing
the check in question. The CA agreed and adjudged PCIB solely liable for the
amount of the check.
On the other hand, the last of the three consolidated cases, assails the
decision and resolution of the CA which held Citibank, the drawee bank,
solely liable for the amount of crossed check nos. SN-10597 and 16508 as
actual damages, the proceeds of which have been misappropriated by a
syndicate involving the employees of the drawer Ford, and the collecting
bank PCIB.
This Court in resolving the issue of liability in PCIB v. CA, considered the
degree of negligence of the parties.
While recognizing that the doctrine of imputed negligence makes a principal
liable for the wrongful acts of its agents, this Court noted that the liability of
the principal would nonetheless depend on whether the act of its agent is
the proximate cause of the injury to the third person.
In the case of Ford, this Court ruled that its negligence, if any, cannot be
considered as the proximate cause, emphasizing in this regard the absence
of confirmation on the part of Ford to the request of its General Ledger
Accountant for replacement of the checks issued as payment to the CIR. In
absolving Ford from liability, this Court clarified that the mere fact that the
forgery was committed by the drawer/principal's 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 automatically shift the
loss to such drawer-principal, in the absence of some circumstance raising
estoppel against the latter.
In contrast, this Court found PCIB liable for failing to exercise the necessary
care and prudence required under the circumstances. This Court noted that
the action of Ford's General Ledger Accountant in asking for the replacement
of the crossed Citibank check No. SN-04867, was not in the ordinary
course of business and thus should have prompted PCIB to validate the
same. Likewise, considering that the questioned crossed check was
deposited with PCIB in its capacity as collecting agent for the Bureau of
Internal Revenue, it has the responsibility to ensure that the check is
deposited in the payee's account only; and is bound to consult BIR, as its
principal, of unwarranted instructions given by the pay or or its agent,
especially so as neither of the latter is its client. Having established PCIB's
negligence, this Court then held the latter solely liable for the proceeds of
Citibank check (No. SN-04867).
Insofar as Citibank check Nos. SN-10597 and 16508, this Court affirmed the
findings of the CA and the trial court that PCIB cannot be faulted for the
embezzlement as it did not actually receive nor held the subject checks.
Adopting the conclusion of the trial court, this Court advanced that the act
of misappropriation was in fact "the clandestine or hidden actuations
performed by the members of the syndicate in their own personal, covert
and private capacity and done without the knowledge of the defendant
PCIB."24
While this Court admitted that there was no evidence confirming the
conscious participation of PCIB in the embezzlement, it nonetheless found
the latter liable pursuant to the doctrine of imputed negligence, as it was
established that its employees performed the acts causing the loss in their
official capacity or authority albeit for their personal and private gain or
benefit.
Yet, finding that the drawee, Citibank was remiss of its contractual duty to
pay the proceeds of the crossed checks only to its designated payee, this
Court ruled that Citibank should also bear liability for the loss incurred by
Ford. It ratiocinated:
Citibank should have scrutinized Citibank Check Numbers SN 10597 and
16508 before paying the amount of the proceeds thereof to the collecting
bank of the BIR. One thing is clear from the record: the clearing stamps at
the back of Citibank Check Nos. SN 10597 and 16508 do not bear any
initials. Citibank failed to notice and verify the absence of the clearing
stamps. Had this been duly examined, the switching of the worthless checks
to Citibank Check Nos. 10597 and 16508 would have been discovered in
time. For this reason, Citibank had indeed failed to perform what was
incumbent upon it, which is to ensure that the amount of the checks should
be paid only to its designated payee. The fact that the drawee bank did not
discover the irregularity seasonably, in our view, constitutes negligence in
carrying out the bank's duty to its depositors. The point is that as a business
affected with public interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship.25
Then, applying the doctrine of comparative negligence, this Court adjudged
PCIB and Citibank equally liable for the proceeds of Citibank Check Nos. SN
10597 and 16508.
It is without question that when the action against the bank is premised on
breach of contractual obligations, a bank's liability as debtor is not merely
vicarious but primary, in that the defense of exercise of due diligence in the
selection and supervision of its employees is not available. 26 Liability of
banks is also primary and sole when the loss or damage to its depositors is
directly attributable to its acts, finding that the proximate cause of the loss
was due to the bank's negligence or breach.27
The bank, in its capacity as principal, may also be adjudged liable under the
doctrine of apparent authority. The principal's liability in this case however,
is solidary with that of his employee.28
The doctrine of apparent authority or what is sometimes referred to as the
"holding out" theory, or the doctrine of ostensible agency, imposes
liability, not "as the result of the reality of a contractual relationship,
but rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority
exists."29 It is defined as:
[T]he power to affect the legal relations of another person by transactions
with third persons arising from the other's manifestations to such third
person such that the liability of the principal for the acts and contracts of his
agent extends to those which are within the apparent scope of the authority
conferred on him, although no actual authority to do such acts or to make
such contracts has been conferred.30 (Citations omitted)
Succinctly stating the foregoing principles, the liability of a bank to third
persons for acts done by its agents or employees is limited to the
consequences of the latter's acts which it has ratified, or those that resulted
in performance of acts within the scope of actual or apparent authority it
has vested.
In PCIB v. CA,31 however, it is evident and striking that for purposes of
holding the principal/banks liable, no distinction has been made whether the
act resulting to injury to third persons was performed by the
agent/employee was pursuant to, or outside the scope of an apparent or
actual official authority. It must be noted nonetheless that this is because of
the peculiar circumstance attendant in that case, that is, the direct
perpetrators of the offense therein are fugitives from justice. Thus, this
Court is left to determine who of the parties must bear the burden for the
loss incurred by Ford.
In the case at bar, petitioner does not deny the validity of respondents'
accounts, in fact it suggests that transactions with it have all been
accounted for as it is based on official documents containing authentic
signatures of Tobias. The point is well-taken. In fine, respondents' claim for
damages is not predicated on breach of their contractual relationship with
petitioner, but rather on Robles' act of misappropriation.
At any rate, it cannot be said that the petitioner is guilty of breach of
contract so as to warrant the imposition of liability solely upon it.32
Records show that respondents entered into two types of transactions with
the petitioner, the first involving savings accounts, and the other loan
agreements. Both of these transactions were entered into outside the
petitioner bank's premises, through Robles.
In the first, the respondents, as the depositors, acts as the creditor, and the
petitioner, as the debtor.33In these agreements, the petitioner, by receiving
the deposit impliedly agrees to pay upon demand and only upon the
depositor's order.34 Failure by the bank to comply with these obligations
would be considered as breach of contract.
The second transaction which involves three loan agreements, are the
subject of contention. These loans were obtained by respondents, secured
by their deposits with the petitioner, and executed with corresponding
authorization letters allowing the latter to debit from their account in case of
default. Respondents do not contest the genuineness of their signature in
the relevant documents; rather they submit that they were merely lured by
Robles into signing the same without knowing their import. The loans were
approved and released by the petitioner, but instead of reinvesting the
same, the proceeds were misappropriated by Robles, as a result,
respondents' accounts were debited and applied as payment for the loan.
Under the premises, the petitioner had the authority to debit from the
respondents' accounts having been appointed as their attorney-in-fact in a
duly signed authentic document.35 Furthermore, there is nothing irregular or
striking that transpired which should have impelled petitioner into further
inquiry as to the authenticity of the attendant transactions. Suffice it is to
state that the questioned withdrawal was not the first time in which Robles
has acted as the authorized representative of the petitioner or as
intermediary between the petitioner and the respondents, who is also not
merely an employee but petitioner's branch manager.
Moreover, that the respondents have been lured by Robles into signing the
said documents without knowing the implications thereof does not prove
complicity or knowledge on the part of the petitioner of Robles'
inappropriate acts.
Nonetheless, while it is clear that the proximate cause of respondents' loss
is the misappropriation of Robles, petitioner is still liable under Article 1911
of the Civil Code, to wit:
Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarity liable with the agent if the former allowed the latter to act as
though he had full powers.
The case of Prudential Bank v. CA36 lends support to this conclusion.
There, this Court first laid down the doctrine of apparent authority, with
specific reference to banks, viz.:
Conformably, we have declared in countless decisions that the principal is
liable for obligations contracted by the agent. The agent's apparent
representation yields to the principal's true representation and the contract
is considered as entered into between the principal and the third person,
A bank is liable for wrongful acts of its officers done in the interests of the
bank or in the course of dealings of the officers in their representative
capacity but not for acts outside the scope of their authority. A bank holding
out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetuate in the apparent
scope of their employment; nor will it be permitted to shirk its responsibility
for such frauds, even though no benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons
where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though,
in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other
person, for his own ultimate benefit.
Application of these principles in especially necessary because banks have a
fiduciary relationship with the public and their stability depends on the
confidence of the people in their honesty and efficiency. Such faith will be
eroded where banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their
depositors.37 (Citations omitted, and emphasis and underscoring Ours)
Petitioner, in support of its position, cites Banate v. Philippine
Countryside Rural Bank (Liloan, Cebu), Inc.,38 this Court finds however
that the case presents a different factual milieu and is not applicable in the
case at bar.
In Banate, this Court ruled that the doctrine of apparent authority does not
apply and absolved the bank from liability resulting from the alteration by its
branch manager of the terms of a mortgage contract which secures a loan
obtained from the bank. In so ruling, this Court found "[n]o proof of the
course of business, usages and practices of the bank about, or knowledge
that the board had or is presumed to have of its responsible officers' acts
regarding the branch manager's apparent authority" 39 to cause such
alteration. Further, "[n]either was there any allegation, much less
proof"40 that the bank ratified its manager's acts or is estopped to
make a contrary claim.
In contrast, in this controversy, the evidence on record sufficiently
established that Robles as branch manager was 'clothed' or 'held out' as
having the power to enter into the subject agreements with the
respondents.
The existence of apparent or implied authority is measured by previous acts
that have been ratified or approved or where the accruing benefits have
been accepted by the principal. It may also be established by proof of the
course of business, usages and practices of the bank; or knowledge that the
bank or its officials have, or is presumed to have of its responsible officers'
acts regarding bank branch affairs.41
As aptly pointed by the CA, petitioner's evidence bolsters the case against it,
as they support the finding that Robles as branch manager, has been vested
with the apparent or implied authority to act for the petitioner in offering
and facilitating banking transactions.
The testimonies of the witnesses presented by petitioner establish that there
was nothing irregular in the manner in which Robles transacted with the
respondents.42 In fact, petitioner's witnesses admitted that while the bank's
general policy requires that transactions be completed inside the bank
premises, exceptions are made in favor of valued clients, such as the
respondents. In which case, banking transactions are allowed to be done in
the residence or place of business of the depositor, since the same are
verified subsequently by the bank cashier.43
Moreover, petitioner admitted that for valued clients, the branch manager
has the authority to transact outside of the bank premises. 44 In fact, Robles
previously transacted business on behalf of the petitioner as when it sought
and facilitated the opening of respondents' accounts. Petitioner
acknowledged Robles' authority and it honored the accounts so opened
outside the bank premises.
To recall, prior to the alleged back-to-back scheme entered into by the
respondents, Robles has consistently held himself out as representative of
the petitioner in seeking and signing respondents as depositors to various
accounts.45 It bears to stress that in the course of the said investment, the
practice has been for Tobias to surrender the passbook to Robles' for
updating.46 All of which accounts have been in order until after the
respondents was lured into entering the back-to-back scheme.
In this light, respondents cannot be blamed for believing that Robles has the
authority to transact for and on behalf of the petitioner 47 and for relying
upon the representations made by him. After all, Robles as branch manager
is recognized "within his field and as to third persons as the general
agent and is in general charge of the corporation, with apparent
authority commensurate with the ordinary business entrusted him
and the usual course and conduct thereof."48
Consequently, petitioner is estopped from denying Robles' authority. 49
As
the employer of Robles, petitioner is solidarity liable to the respondents for
damages caused by the acts of the former, pursuant to Article 1911 of the
Civil Code.50
The ruling in PCIB v. CA51 insofar as it imposes liability directly and solely
upon the employer does not apply considering that Robles, while not a
petitioner in this case, has been validly been served with summons by
publication52 and joined as party in the case before the trial court53 and the
CA.54Jurisdiction having been acquired over his person, this Court
consequently has the authority to rule upon his liability. 55
On a final note, it must be pointed out that the irregularity has only been
discovered by the petitioner on March 30, 2006 when Valdez went to
petitioner's Mabini branch to have her account with Tobias updated. 56 It
bears to stress that petitioner had the opportunity to discover such
irregularity at the time the loan application was submitted for its approval or
at the latest, when the respondents defaulted with the payment of their
obligation. With the extreme repercussions of the transactions entered into
by the respondents, instead of just relying on the supposed authority of
Robles and examining the documents submitted, petitioner should have at
least communicated with the respondents in order to verify with them the
genuineness of their signatures therein and whether they understood the
implications of affixing the same. Nothing short is expected of petitioner
considering that the nature of the banking business is imbued with public
interest, and as such the highest degree of diligence is demanded. 57
WHEREFORE, in view of the foregoing disquisitions, the petition for review
on certiorari is hereby DENIED. The Decision dated May 31, 2016 and
Resolution dated October 10, 2016 issued by the Court of Appeals in CA-
G.R. CV No. 102545 are AFFIRMED.
SO ORDERED.
3. Equitable PCI Bank v. Tan, G.R. No. 165339, 23 August 2010
Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to set aside the Decision [1] and the Resolution[2] of
the Court of Appeals (CA) in CA-G.R. CV No. 41928.

The antecedents are as follows:
Respondent Arcelito B.Tan maintained a current and savings account with
Philippine Commercial International Bank (PCIB), now petitioner Equitable
PCI Bank.[3] On May 13, 1992, respondent issued PCIB Check No. 275100
postdated May 30, 1992[4] in the amount of P34,588.72 in favor of Sulpicio
Lines, Inc. As of May 14, 1992, respondent's balance with petitioner
was P35,147.59. On May 14, 1992, Sulpicio Lines, Inc. deposited the
aforesaid check to its account with Solid Bank, Carbon Branch, Cebu City.
After clearing, the amount of the check was immediately debited by
petitioner from respondent's account thereby leaving him with a balance of
only P558.87.
Meanwhile, respondent issued three checks from May 9 to May 16, 1992,
specifically, PCIB Check No. 275080 dated May 9, 1992, payable to Agusan
del Sur Electric Cooperative Inc. (ASELCO) for the amount of P6,427.68;
PCIB Check No. 275097 dated May 10, 1992 payable to Agusan del Norte
Electric Cooperative Inc., (ANECO) for the amount of P6,472.01; and PCIB
Check No. 314104 dated May 16, 1992 payable in cash for the amount
of P10,000.00. When presented for payment, PCIB Check Nos. 275080,
275097 and 314014 were dishonored for being drawn against insufficient
funds.
As a result of the dishonor of Check Nos. 275080 and 275097 which were
payable to ASELCO and ANECO, respectively, the electric power supply for
the two mini-sawmills owned and operated by respondent, located in
Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off
on June 1, 1992 and May 28, 1992, respectively, and it was restored only on
July 20 and August 24, 1992, respectively.
Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of
Cebu City a complaint against petitioner, praying for payment of losses
consisting of unrealized income in the amount of P1,864,500.00. He also
prayed for payment of moral damages, exemplary damages, attorney's fees
and litigation expenses.
Respondent claimed that Check No. 275100 was a postdated check in
payment of Bills of Lading Nos. 15, 16 and 17, and that his account with
petitioner would have had sufficient funds to cover payment of the three
other checks were it not for the negligence of petitioner in immediately
debiting from his account Check No. 275100, in the amount of P34,588.72,
even as the said check was postdated to May 30, 1992. As a consequence of
petitioner's error, which brought about the dishonor of the two checks paid
to ASELCO and ANECO, the electric supply to his two mini-sawmills was cut
off, the business operations thereof were stopped, and purchase orders
were not duly served causing tremendous losses to him.
In its defense, petitioner denied that the questioned check was postdated
May 30, 1992 and claimed that it was a current check dated May 3, 1992. It
alleged further that the disconnection of the electric supply to respondent's
sawmills was not due to the dishonor of the checks, but for other reasons
not attributable to the bank.
After trial, the RTC, in its Decision[5] dated June 21, 1993, ruled in favor of
petitioner and dismissed the complaint.
Aggrieved by the Decision, respondent filed a Notice of Appeal. [6] In its
Decision dated May 31, 2004, the Court of Appeals reversed the decision of
the trial court and directed petitioner to pay respondent the sum
of P1,864,500.00 as actual damages, P50,000.00 by way of moral
damages, P50,000.00 as exemplary damages and attorney's fees in the
amount of P30,000.00. Petitioner filed a motion for reconsideration, which
the CA denied in a Resolution dated August 24, 2004.
Hence, the instant petition assigning the following errors:
I. THE FOURTH DIVISION OF THE COURT OF APPEALS DEFIED
OFFICE ORDER NO. 82-04-CG BY HOLDING ON TO THIS CASE AND
DECIDING IT INSTEAD OF UNLOADING IT AND HAVING IT RE-
RAFFLED AMONG THE DIVISIONS IN CEBU CITY.
II. THE COURT OF APPEALS ERRED IN REVERSING THE FINDING OF
THE REGIONAL TRIAL COURT THAT CHECK NO. 275100 WAS DATED
MAY 3, 1992.
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT'S WAY OF WRITING THE DATE ON CHECK NO. 275100
WAS THE PROXIMATE CAUSE OF THE DISHONOR OF HIS THREE
OTHER CHECKS.
IV. THE COURT OF APPEALS ERRED IN AWARDING ACTUAL
DAMAGES, MORAL DAMAGES, EXEMPLARY DAMAGES AND
ATTORNEY'S FEES.
Anent the first issue, petitioner submits that the CA defied Office Order
No. 82-04-CG dated April 5, 2004 issued by then CA Presiding Justice
Cancio C. Garcia when it failed to unload CA-G.R. CV No. 41928 so that it
may be re-raffled among the Divisions in Cebu City.
Office Order No. 82-04-CG[7] provides:
xxxx
In view of the reorganization of the different Divisions due to the
appointment of eighteen (18) new Justices to the additional divisions
in the cities of Cebu and Cagayan de Oro, the raffle of civil, criminal
and special cases submitted for decision and falling within the
jurisdiction of the additional divisions shall commence on April 6,
2004.
The raffle of newly-filed cases and those for completion likewise
falling within the jurisdiction of the additional divisions, shall start on
April 12, 2004.
xxxx
Petitioner alleged that since the aforementioned Office Order directed the
raffle of civil, criminal and special cases submitted for decision and falling
within the jurisdiction of the additional divisions on April 6, 2004, CA-G.R.
CV No. 41928 should have been unloaded by the CA's Fourth Division and
re-raffled to the CA's Division in Cebu City instead of deciding the case on
May 31, 2004.
Respondent argued that the CA's Fourth Division correctly acted in taking
cognizance of the case. The CA defended its jurisdiction by ruling that cases
already submitted for decision as of the effectivity of Republic Act (R.A.)
8246[8] on February 1, 1997 were no longer included for re-raffle to the
newly-created Visayas and Mindanao Divisions of the CA, conformable to
Section 5 of the said statute.
Petitioner's argument is misplaced. Under Section 3 of R.A. 8246, it is
provided that:
Section 3. Section 10 of Batas Pambansa Blg. 129, as
amended, is hereby further amended to read as follows:
Sec. 10. Place of Holding Sessions. The Court of Appeals shall
have its permanent stations as follows: The first seventeen (17)
divisions shall be stationed in the City of Manila for cases coming
from the First to the Fifth Judicial Regions; the Eighteenth,
Nineteenth, and Twentieth Divisions shall be in Cebu City for cases
coming from the Sixth, Seventh and Eighth Judicial Regions; the
Twenty-first, Twenty-second and Twenty-third Divisions shall be in
Cagayan de Oro City for cases coming from the Ninth, Tenth,
Eleventh, and Twelfth Judicial Regions. Whenever demanded by
public interest, or whenever justified by an increase in case load, the
Supreme Court, upon its own initiative or upon recommendation of
the Presiding Justice of the Court of Appeals, may authorize any
division of the Court to hold sessions periodically, or for such periods
and at such places as the Supreme Court may determine, for the
purpose of hearing and deciding cases. Trials or hearings in the
Court of Appeals must be continuous and must be completed within
three (3) months unless extended by the Chief Justice of the
Supreme Court.
Further, Section 5 of the same Act provides:
Upon the effectivity of this Act, all pending cases, except those which
have been submitted for resolution, shall be referred to the proper
division of the Court of Appeals.[9]
Although CA-G.R. CV No. 41928 originated from Cebu City and is thus
referable to the CA's Divisions in Cebu City, the said case was already
submitted for decision as of July 25, 1994. [10] Hence, CA-G.R. CV No. 41928,
which was already submitted for decision as of the effectivity of R.A.
8246, i.e., February 1, 1997, can no longer be referred to the CA's Division
in Cebu City. Thus, the CA's Former Fourth Division correctly ruled that CA-
G.R. CV No. 41928 pending in its division was not among those cases that
had to be re-raffled to the newly-created CA Divisions in the Visayas Region.
Further, administrative issuances must not override, supplant or modify the
law, but must remain consistent with the law they intend to carry out.
Thus, Office Order No. 82-04-CG cannot defeat the provisions of R.A.
[11]
8246.
As to the second issue, petitioner maintains that the CA erred in reversing
the finding of the RTC that Check No. 275100 was dated May 3, 1992.
Petitioner argued that in arriving at the conclusion that Check No. 275100
was postdated May 30, 1992, the CA just made a visual examination of the
check, unlike the RTC which verified the truth of respondent's testimony
relative to the issuance of Check No. 275100. Respondent argued that the
check was carefully examined by the CA which correctly found that Check
No. 275100 was postdated to May 30, 1992 and not May 3, 1992.
The principle is well established that this Court is not a trier of facts.
Therefore, in an appeal by certiorari under Rule 45 of the Rules of Court,
only questions of law may be raised. The resolution of factual issues is the
function of the lower courts whose findings on these matters are received
with respect and are, as a rule, binding on this Court.However, this rule is
subject to certain exceptions. One of these is when the findings of the
appellate court are contrary to those of the trial court.[12] Due to the
divergence of the findings of the CA and the RTC, We shall re-examine the
facts and evidence presented before the lower courts.
The RTC ruled that:
The issue to be resolved in this case is whether or not the date of PCIB
Check No. 275100 is May 3, 1992 as contended by the defendant, or May
30, 1992 as claimed by the plaintiff. The date of the check is written as
follows 5/3/0/92. From the manner by which the date of the check is
written, the Court cannot really make a pronouncement as to whether the
true date of the check is May 3 or May 30, 1992, without inquiring into the
background facts leading to the issuance of said check.
According to the plaintiff, the check was issued to Sulpicio Lines in
payment of bill of lading nos. 15, 16 and 17. An examination of bill
of lading no. 15, however, shows that the same was issued, not in
favor of plaintiff but in favor of Coca Cola Bottlers Philippines, Inc.
Bill of Lading No. 16 is issued in favor of Suson Lumber and not to
plaintiff. Likewise, Bill of Lading No. 17 shows that it was issued to
Jazz Cola and not to plaintiff. Furthermore, the receipt for the
payment of the freight for the shipments reflected in these three
bills of lading shows that the freight was paid by Coca Cola Bottlers
Philippines, Inc. and not by plaintiff.
Moreover, the said receipt shows that it was paid in cash and not by
check. From the foregoing, the evidence on record does not support
the claim of the plaintiff that Check No. 275100 was issued in
payment of bills of lading nos. 15, 16 and 17. Hence, the conclusion
of the Court is that the date of the check was May 3, 1992 and not
May 30, 1992.[13]
xxxx
In fine, the RTC concluded that the check was dated May 3, 1992 and not
May 30, 1992, because the same check was not issued to pay for Bills of
Lading Nos. 15, 16 and 17, as respondent claims. The trial court's
conclusion is preposterous and illogical. The purpose for the issuance of the
check has no logical connection with the date of the check. Besides, the trial
court need not look into the purpose for which the check was issued. A
reading of Check No. 275100[14] would readily show that it was dated May
30, 1992. As correctly observed by the CA:
On the first issue, we agree with appellant that appellee Bank
apparently erred in misappreciating the date of Check No.
275100. We have carefully examined the check in question (Exh.
DDDD) and we are convinced that it was indeed postdated to May
30, 1992 and not May 3, 1992 as urged by appellee. The date
written on the check clearly appears as 5/30/1992 (Exh. DDDD-4).
The first bar (/) which separates the numbers 5 and 30 and the
second bar (/) which further separates the number 30 from the year
1992 appear to have been done in heavy, well-defined and bold
strokes, clearly indicating the date of the check as 5/30/1992 which
obviously means May 30, 1992. On the other hand, the alleged bar
(/) which appellee points out as allegedly separating the numbers 3
and 0, thereby leading it to read the date as May 3, 1992, is not
actually a bar or a slant but appears to be more of an unintentional
marking or line done with a very light stroke. The presence of the
figure 0 after the number 3 is quite significant. In fact, a close
examination thereof would unerringly show that the said number
zero or 0 is connected to the preceeding number 3. In other words,
the drawer of the check wrote the figures 30 in one continuous
stroke, thereby contradicting appellees theory that the number 3 is
separated from the figure 0 by a bar. Besides, appellees theory that
the date of the check is May 3, 1992 is clearly untenable considering
the presence of the figure 0 after 3 and another bar before the year
1992. And if we were to accept appellees theory that what we find to
be an unintentional mark or line between the figures 3 and 0 is a bar
separating the two numbers, the date of the check would then
appear as 5/3/0/1992, which is simply absurd. Hence, we cannot go
along with appellees theory which will lead us to an absurd result. It
is therefore our conclusion that the check was postdated to May 30,
1992 and appellee Bank or its personnel erred in debiting the
amount of the check from appellants account even before the checks
due date. Undoubtedly, had not appellee bank prematurely debited
the amount of the check from appellants account before its due
date, the two other checks (Exhs. LLLL and GGGG) successively
dated May 9, 1992 and May 16, 1992 which were paid by appellant
to ASELCO and ANECO, respectively, would not have been
dishonored and the said payees would not have disconnected their
supply of electric power to appellants sawmills, and the latter would
not have suffered losses.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of R.A. 8791[15] decrees:
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.
Although R.A. 8791 took effect only in the year 2000, the Court had
already imposed on banks the same high standard of diligence required
under R.A. 8791 at the time of the untimely debiting of respondent's
account by petitioner in May 1992. In Simex International (Manila), Inc. v.
Court of Appeals,[16] which was decided in 1990, the Court held that as a
business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their
relationship.
The diligence required of banks, therefore, is more than that of a good
father of a family.[17] In every case, the depositor expects the bank to treat
his account with the utmost fidelity, whether such account consists only of a
few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time
the amount of money the depositor can dispose of as he sees fit, confident
that the bank will deliver it as and to whomever he directs. [18] From the
foregoing, it is clear that petitioner bank did not exercise the degree
of diligence that it ought to have exercised in dealing with its client.
With respect to the third issue, petitioner submits that respondent's way of
writing the date on Check No. 275100 was the proximate cause of the
dishonor of his three other checks. Contrary to petitioners view, the Court
finds that its negligence is the proximate cause of respondents loss.
Proximate cause is that cause which, in a natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred. [19] The proximate cause of
the loss is not respondent's manner of writing the date of the check, as it
was very clear that he intended Check No. 275100 to be dated May 30,
1992 and not May 3, 1992. The proximate cause is petitioners own
negligence in debiting the account of the respondent prior to the date as
appearing in the check, which resulted in the subsequent dishonor of several
checks issued by the respondent and the disconnection by ASELCO and
ANECO of his electric supply.
The bank on which the check is drawn, known as the drawee bank, is under
strict liability to pay to the order of the payee in accordance with the
drawers instructions as reflected on the face and by the terms of the check.
[20]
Thus, payment made before the date specified by the drawer is clearly
against the drawee bank's duty to its client.
In its memorandum[21] filed before the RTC, petitioner submits that
respondent caused confusion on the true date of the check by writing the
date of the check as 5/3/0/92. If, indeed, petitioner was confused on
whether the check was dated May 3 or May 30 because of the / which
allegedly separated the number 3 from the 0, petitioner should have
required respondent drawer to countersign the said / in order to ascertain
the true intent of the drawer before honoring the check. As a matter of
practice, bank tellers would not receive nor honor such checks which they
believe to be unclear, without the counter-signature of its drawer. Petitioner
should have exercised the highest degree of diligence required of it by
ascertaining from the respondent the accuracy of the entries therein, in
order to settle the confusion, instead of proceeding to honor and receive the
check.
Further, petitioner's branch manager, Pedro D. Tradio, in a
letter[22] addressed to ANECO, explained the circumstances surrounding the
dishonor of PCIB Check No. 275097. Thus:
June 11, 1992
ANECO
Agusan del Norte
Gentlemen:
This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the
amount of P6,472.01 payable to your goodselves issued by Mr.
Arcelito B. Tan (MANWOOD Industries) which was returned by PCIB
Mandaue Branch for insufficiency of funds.
Please be advised that the return of the aforesaid check was a result
of an earlier negotiation to PCIB-Mandaue Branch through a deposit
made on May 14, 1992 with SOLIDBANK Carbon Branch, or through
Central Bank clearing via Philippine Clearing House Corporation
facilities, of a postdated check which ironically and without bad faith
passed undetected through several eyes from the payee of the check
down to the depository bank and finally the drawee bank (PCIB) the
aforesaid Check No. 275097 issued to you would have been honored
because it would have been sufficiently funded at the time it was
negotiated. It should be emphasized, however, that Mr. Arcelito B.
Tan was in no way responsible for the dishonor of said PCIB Check
No. 275097.
We hope that the foregoing will sufficiently explain the
circumstances of the dishonor of PCIB Check No. 275097 and would
clear the name and credit of Mr. Arcelito Tan from any
misimpressions which may have resulted from the dishonor of said
check. Thank you.
xxxx
Although petitioner failed to specify in the letter the other details of this
postdated check, which passed undetected from the eyes of the payee down
to the petitioner drawee bank, the Court finds that petitioner was evidently
referring to no other than Check No. 275100 which was deposited to
Solidbank, and was postdated May 30, 1992. As correctly found by the
CA:
In the aforequoted letter of its Manager, appellee Bank expressly
acknowledged that Check No. 275097 (Exh. GGGG) which appellant
paid to ANECO was sufficiently funded at the time it was negotiated,
but it was dishonored as a result of an earlier negotiation to PCIB-
Mandaue Branch through a deposit made on May 14, 1992 with
SOLIDBANK xxx xxx xxx of a postdated check which xxx xxx passed
undetected. He further admitted that Mr. Arcelito B. Tan was in no
way responsible for the dishonor of said PCIB Check No. 275097.
Needless to state, since appellee's Manager has cleared appellant of
any fault in the dishonor of the ANECO check, it [necessarily]
follows that responsibility therefor or fault for the dishonor of the
check should fall on appellee bank. Appellee's attempt to extricate
itself from its inadvertence must therefore fail in the face of its
Manager's explicit acknowledgment of responsibility for the
inadvertent dishonor of the ANECO check. [23]
Evidently, the bank's negligence was the result of lack of due care required
of its managers and employees in handling the accounts of its
clients. Petitioner was negligent in the selection and supervision of its
employees. In Citibank, N.A. v. Cabamongan,[24] the Court ruled:
xxx
Banks handle daily transactions involving millions of pesos. By the
very nature of their works the degree of responsibility, care
and trustworthiness expected of their employees andofficials is far
greater than those of ordinary clerks and employees. Banks
are expected to exercise the highest degree of diligence in the
selection and supervision of their employees.
We now resolve the question on the award of actual, moral and exemplary
damages, as well as attorney's fees by the CA to the respondent.
The CA based the award of actual damages in the amount of P1,864,500.00
on the purchase orders[25] submitted by respondent. The CA ruled that:
xxx
In the case at bar, appellant [respondent herein] presented
adequate evidence to prove losses consisting of unrealized income
that he sustained as a result of the appellee Bank's gross
negligence. Appellant identified certain Purchase Orders from various
customers which were not met by reason of the disruption of the
operation of his sawmills when ANECO and ASELCO disconnected
their supply of electricity thereto. x x x
Actual or compensatory damages are those awarded in order to compensate
a party for an injury or loss he suffered. They arise out of a sense of natural
justice and are aimed at repairing the wrong done. Except as provided by
law or by stipulation, a party is entitled to an adequate compensation only
for such pecuniary loss as he has duly proven. [26] To recover actual
damages, not only must the amount of loss be capable of proof; it must also
be actually proven with a reasonable degree of certainty, premised upon
competent proof or the best evidence obtainable. [27]
Respondent's claim for damages was based on purchase orders from various
customers which were allegedly not met due to the disruption of the
operation of his sawmills. However, aside from the purchase orders and his
testimony, respondent failed to present competent proof on the specific
amount of actual damages he suffered during the entire period his power
was cut off. No other evidence was provided by respondent to show that the
foregoing purchase orders were not met or were canceled by his various
customers. The Court cannot simply rely on speculation, conjecture or
guesswork in determining the amount of damages.[28]
Moreover, an examination of the purchase orders and job orders reveal that
the orders were due for delivery prior to the period when the power supply
of respondent's two sawmills was cut off on June 1, 1992 to July 20, 1992
and May 28, 1992 to August 24, 1992, respectively. Purchase Order No.
9906[29] delivery date is May 4, 1992; Purchase Order No. 9269 [30] delivery
date is March 19, 1992; Purchase Order No. 147796[31] is due for delivery on
January 31, 1992; Purchase Order No. 76000[32] delivery date is February
and March 1992; and Job Order No. 1824,[33] dated March 18, 1992, has a
15 days duration of work. Clearly, the disconnection of his electricity during
the period May 28, 1992 to August 24, 1992 could not possibly affect his
sawmill operations and prior orders therefrom.
Given the dearth of respondent's evidence on the matter, the Court resolves
to delete the award of actual damages rendered by the CA in favor of
respondent for his unrealized income.Nonetheless, in the absence of
competent proof on the actual damages suffered, respondent is entitled to
temperate damages. Under Article 2224 of the Civil Code of the Philippines,
temperate or moderate damages, which are more than nominal but less
than compensatory damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty.[34] The allowance of temperate
damages when actual damages were not adequately proven is ultimately a
rule drawn from equity, the principle affording relief to those definitely
injured who are unable to prove how definite the injury. [35]
It is apparent that respondent suffered pecuniary loss. The negligence of
petitioner triggered the disconnection of his electrical supply, which
temporarily halted his business operations and the consequent loss of
business opportunity. However, due to the insufficiency of evidence before
Us, We cannot place its amount with certainty. Article 2216[36]of
the Civil Code instructs that assessment of damages is left to the discretion
of the court according to the circumstances of each case. Under the
circumstances, the sum ofP50,000.00 as temperate damages is reasonable.
Anent the award of moral damages, it is settled that moral damages are
meant to compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injuries unjustly caused.
[37]
In Philippine National Bank v. Court of Appeals,[38] the Court held that a
bank is under obligation to treat the accounts of its depositors with
meticulous care whether such account consists only of a few hundred pesos
or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. While petitioner's
negligence in that case may not have been attended with malice and bad
faith, the banks' negligence caused respondent to suffer mental anguish,
serious anxiety, embarrassment and humiliation. In said case, We ruled that
respondent therein was entitled to recover reasonable moral damages.
In this case, the unexpected cutting off of respondent's electricity, which
resulted in the stoppage of his business operations, had caused him to
suffer humiliation, mental anguish and serious anxiety. The award
of P50,000.00 is reasonable, considering the reputation and social standing
of respondent. As found by the CA, as an accredited supplier, respondent
had been reposed with a certain degree of trust by various reputable and
well- established corporations.
On the award of 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 safekeeping 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. 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. [39]
Petitioner, having failed in this respect, the award of exemplary damages in
the amount ofP50,000.00 is in order.
As to the award of attorney's fees, Article 2208[40] of the Civil Code provides,
among others, that attorney's fees may be recovered when
exemplary damages are awarded or when the defendant's act or omission
has compelled the plaintiff to litigate with third persons or to incur expenses
to protect his interest.[41] Respondent has been forced to undergo
unnecessary trouble and expense to protect his interest. The Court affirms
the appellate courts award of attorneys fees in the amount of P30,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and Resolution of
the Court of Appeals in CA-G.R. CV No. 41928, dated May 31, 2004 and August 24,
2004, respectively, are AFFIRMED with the following MODIFICATIONS:
1. The award of One Million Eight Hundred Sixty-Four Thousand and Five Hundred
Pesos (P1,864,500.00) as actual damages, in favor of respondent Arcelito B.
Tan, is DELETED; and 2. Petitioner Equitable PCI Bank is instead directed to pay
respondent the amount of Fifty Thousand Pesos (P50,000.00) as temperate damages.
4. San Miguel Corporation v. Puzon, G.R. No. 167567, 22 September
2010 (delivery of instrument)
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 (forP309,500.00) 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
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 ownership of the
checks as it was duty bound to return the same 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
]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.
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.
SO ORDERED.

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 coverthe 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.
5.Anamer Salazar v. JY Brothers Marketing Corporation, G.R. No.
171998, 20 October 2010 (discharge of instrument)
Before us is a petition for review seeking to annul and set aside the
Decision[1] dated September 29, 2005 and the Resolution[2] dated March 2,
2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.
The facts, as found by the Court of Appeals, are not disputed, thus:
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation
engaged in the business of selling sugar, rice and other
commodities. On October 15, 1996, Anamer Salazar, a freelance
sales agent, was approached by Isagani Calleja and Jess Kallos, if
she knew a supplier of rice. Answering in the positive, Salazar
accompanied the two to J.Y. Bros. As a consequence, Salazar with
Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice
worth P214,000.00. As payment, Salazar negotiated and indorsed to
J.Y. Bros. Prudential Bank Check No. 067481 dated October 15,
1996 issued by Nena Jaucian Timario in the amount of P214,000.00
with the assurance that the check is good as cash. On that
assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar.
However, upon presentment, the check was dishonored due to
closed account.
Informed of the dishonor of the check, Calleja, Kallos and Salazar
delivered to J.Y. Bros. a replacement cross Solid Bank Check No.
PA365704 dated October 29, 1996 again issued by Nena Jaucian
Timario in the amount of P214,000.00 but which, just the same,
bounced due to insufficient funds. When despite the demand letter
dated February 27, 1997, Salazar failed to settle the amount due
J.Y. Bros., the latter charged Salazar and Timario with the crime of
estafa before the Regional Trial Court of Legaspi City, docketed as
Criminal Case No. 7474.
After the prosecution rested its case and with prior leave of court,
Salazar submitted a demurrer to evidence. On November 19, 2001,
the court a quo rendered an Order, the dispositive portion of which
reads:
WHEREFORE, premises considered, the accused Anamer D.
Salazar is hereby ACQUITTED of the crime charged but is
hereby held liable for the value of the 300 bags of rice.
Accused Anamer D. Salazar is therefore ordered to pay J.Y.
Brothers Marketing Corporation the sum of P214,000.00.
Costs against the accused.
SO ORDERED.
Aggrieved, accused attempted a reconsideration on the civil aspect
of the order and to allow her to present evidence thereon. The
motion was denied. Accused went up to the Supreme Court on a
petition for review on certiorari under Rule 45 of the Rules of Court.
Docketed as G.R. 151931, in its Decision dated September 23,
2003, the High Court ruled:
IN LIGHT OF ALL THE FOREGOING, the Petition is
GRANTED. The Orders dated November 19, 2001 and
January 14, 2002 are SET ASIDE and NULLIFIED. The
Regional Trial Court of Legaspi City, Branch 5, is hereby
DIRECTED to set Criminal Case No. 7474 for the
continuation of trial for the reception of the evidence-in-chief
of the petitioner on the civil aspect of the case and for the
rebuttal evidence of the private complainant and the sur-
rebuttal evidence of the parties if they opt to adduce any.
SO ORDERED.[3]
The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded
with the trial on the civil aspect of the criminal case.
On April 1, 2004, the RTC rendered its Decision,[4] the dispositive portion of
which reads:
WHEREFORE, Premises Considered, judgment is rendered
DISMISSING as against Anamer D. Salazar the civil aspect of the
above-entitled case. No pronouncement as to costs.
Place into the files (archive) the record of the above-entitled case as
against the other accused Nena Jaucian Timario. Let an alias
(bench) warrant of arrest without expiry dated issue for her
apprehension, and fix the amount of the bail bond for her
provisional liberty at 59,000.00 pesos. SO ORDERED. [5]
The RTC found that the Prudential Bank check drawn by Timario for the
amount of P214,000.00 was payable to the order of respondent, and such
check was a negotiable order instrument; that petitioner was not the payee
appearing in the check, but respondent who had not endorsed the check,
much less delivered it to petitioner. It then found that petitioners liability
should be limited to the allegation in the amended information that she
endorsed and negotiated said check, and since she had never been the
holder of the check, petitioner's signing of her name on the face of the
dorsal side of the check did not produce the technical effect of an
indorsement arising from negotiation. The RTC ruled that after the
Prudential Bank check was dishonored, it was replaced by a Solid Bank
check which, however, was also subsequently dishonored; that since the
Solid Bank check was a crossed check, which meant that such check was
only for deposit in payees account, a condition that rendered such check
non-negotiable, the substitution of a non-negotiable Solid Bank check for a
negotiable Prudential Bank check was an essential change which had the
effect of discharging from the obligation whoever may be the endorser of
the negotiable check. The RTC concluded that the absence of negotiability
rendered nugatory the obligation arising from the technical act of indorsing
a check and, thus, had the effect of novation; and that the ultimate effect of
such substitution was to extinguish the obligation arising from the issuance
of the Prudential Bank check.
Respondent filed an appeal with the CA on the sole
assignment of error that:
IN BRIEF, THE LOWER COURT ERRED IN RULING
THAT ACCUSED ANAMER SALAZAR BY INDORSING THE
CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B)
DID NOT PRODUCE THE TECHNICAL EFFECT OF AN
INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID
NOT INCUR CIVIL LIABILITY.[6]
After petitioner filed her appellees' brief, the case was submitted for
decision. On September 29, 2005, the CA rendered its assailed Decision, the
decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the instant appeal
is GRANTED, the challenged Decision is REVERSED and SET
ASIDE, and a new one entered ordering the appellee to pay
the appellant the amount of P214,000.00, plus interest at
the legal rate from the written demand until full
payment. Costs against the appellee.[7]
In so ruling, the CA found that petitioner indorsed the Prudential Bank
check, which was later replaced by a Solid Bank check issued by Timario,
also indorsed by petitioner as payment for the 300 cavans of rice bought
from respondent. The CA, applying Sections 63, [8] 66[9] and 29[10] of the
Negotiable Instruments Law, found that petitioner was considered an
indorser of the checks paid to respondent and considered her as an
accommodation indorser, who was liable on the instrument to a holder for
value, notwithstanding that such holder at the time of the taking of the
instrument knew her only to be an accommodation party.
Respondent filed a motion for reconsideration, which the CA denied in a
Resolution dated March 2, 2006.
Hence this petition, wherein petitioner raises the following assignment of
errors:
1.THE COURT OF APPEALS ERRED IN IGNORING THE
RAMIFICATIONS OF THE ISSUANCE OF THE SOLIDBANK CHECK IN
REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH WOULD
HAVE RESULTED TO THE NOVATION OF THE OBLIGATION ARISING
FROM THE ISSUANCE OF THE LATTER CHECK.
2.THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF
THE REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5,
DISMISSING AS AGAINST THE PETITIONER THE CIVIL ASPECT OF
THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF
OBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL
BANK CHECK.
3.THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION
WHEN IT DENIED THE MOTION FOR RECONSIDERATION OF THE
PETITIONER ON THE GROUND THAT THE ISSUE RAISED THEREIN
HAD ALREADY BEEN PASSED UPON AND CONSIDERED IN THE
DECISION SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND IN
FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.[11]
Petitioner contends that the issuance of the Solid Bank check and the
acceptance thereof by the respondent, in replacement of the dishonored
Prudential Bank check, amounted to novation that discharged the latter
check; that respondent's acceptance of the Solid Bank check,
notwithstanding its eventual dishonor by the drawee bank, had the effect of
erasing whatever criminal responsibility, under Article 315 of the Revised
Penal Code, the drawer or indorser of the Prudential Bank check would have
incurred in the issuance thereof in the amount of P214,000.00; and that a
check is a contract which is susceptible to a novation just like any other
contract.
Respondent filed its Comment, echoing the findings of the CA. Petitioner
filed her Reply thereto.
We find no merit in this petition.
Section 119 of the Negotiable Instrument Law provides, thus:
SECTION 119. Instrument; how discharged. A negotiable
instrument is discharged:
(a) By payment in due course by or on behalf of the
principal debtor;
(b) By payment in due course by the party accommodated,
where the instrument is made or accepted for his
accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple
contract for the payment of money;
(e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right. (Emphasis
ours)
And, under Article 1231 of the Civil Code, obligations are
extinguished:
(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check
which replaced the dishonored Prudential bank check resulted to novation
which discharged the latter check is unmeritorious.
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and
Stronghold Insurance Co., Inc.,[12] we stated the concept of novation, thus:
x x x Novation is done by the substitution or change of the
obligation by a subsequent one which extinguishes the first, either
by changing the object or principal conditions, or by substituting the
person of the debtor, or by subrogating a third person in the rights
of the creditor. Novation may:[E]ither be extinctive or modificatory,
much being dependent on the nature of the change and the
intention of the parties. Extinctive novation is never presumed;
there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent
to dissolve the old obligation as the moving consideration for the
emergence of the new one. Implied novation necessitates that the
incompatibility between the old and new obligation be total on every
point such that the old obligation is completely superceded by the
new one. The test of incompatibility is whether they can stand
together, each one having an independent existence; if they cannot
and are irreconcilable, the subsequent obligation would also
extinguish the first.
An extinctive novation would thus have the twin effects
of, first, extinguishing an existing obligation and, second, creating
a new one in its stead. This kind of novation presupposes a
confluence of four essential requisites: (1) a previous valid
obligation, (2) an agreement of all parties concerned to a new
contract, (3) the extinguishment of the old obligation, and (4) the
birth of a valid new obligation. Novation is merely modificatory
where the change brought about by any subsequent agreement is
merely incidental to the main obligation (e.g., a change in interest
rates or an extension of time to pay; in this instance, the new
agreement will not have the effect of extinguishing the first but
would merely supplement it or supplant some but not all of its
provisions.)
The obligation to pay a sum of money is not novated by an
instrument that expressly recognizes the old, changes only the
terms of payment, adds other obligations not incompatible with the
old ones or the new contract merely supplements the old one. [13]
In Nyco Sales Corporation v. BA Finance Corporation,[14] we found
untenable petitioner Nyco's claim that novation took place when the
dishonored BPI check it endorsed to BA Finance Corporation was
subsequently replaced by a Security Bank check, [15] and said:
There are only two ways which indicate the presence of novation
and thereby produce the effect of extinguishing an obligation by
another which substitutes the same. First, novation must be
explicitly stated and declared in unequivocal terms as novation is
never presumed. Secondly, the old and the new obligations must be
incompatible on every point. The test of incompatibility is whether or
not the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible and
the latter obligation novates the first. In the instant case, there was
no express agreement that BA Finance's acceptance of the SBTC
check will discharge Nyco from liability. Neither is there
incompatibility because both checks were given precisely to
terminate a single obligation arising from Nyco's sale of credit to BA
Finance. As novation speaks of two distinct obligations, such is
inapplicable to this case.[16]
In this case, respondents acceptance of the Solid Bank check, which
replaced the dishonored Prudential Bank check, did not result to novation as
there was no express agreement to establish that petitioner was already
discharged from his liability to pay respondent the amount of P214,000.00
as payment for the 300 bags of rice. As we said, novation is never
presumed, there must be an express intention to novate. In fact, when the
Solid Bank check was delivered to respondent, the same was also indorsed
by petitioner which shows petitioners recognition of the existing obligation
to respondent to pay P214,000.00 subject of the replaced Prudential Bank
check.
Moreover, respondents acceptance of the Solid Bank check did not
result to any incompatibility, since the two checks − Prudential and Solid
Bank checks − were precisely for the purpose of paying the amount
of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags
of rice from respondent. Indeed, there was no substantial change in the
object or principal condition of the obligation of petitioner as the indorser of
the check to pay the amount of P214,000.00. It would appear that
respondent accepted the Solid Bank check to give petitioner the chance to
pay her obligation.
Petitioner also contends that the acceptance of the Solid Bank check, a non-
negotiable check being a crossed check, which replaced the dishonored
Prudential Bank check, a negotiable check, is a new obligation in lieu of the
old obligation arising from the issuance of the Prudential Bank check, since
there was an essential change in the circumstance of each check.
Such argument deserves scant consideration.
Among the different types of checks issued by a drawer is
the crossed check.[17] The Negotiable Instruments Law is silent with respect
to crossed checks,[18] although the Code of Commerce makes reference to
such instruments.[19] We have taken judicial cognizance of the practice that a
check with two parallel lines in the upper left hand corner means that it
could only be deposited and could not be converted into cash. [20] Thus, the
effect of crossing a check relates to the mode of payment, meaning that the
drawer had intended the check for deposit only by the rightful person, i.e.,
the payee named therein.[21] The change in the mode of paying the
obligation was not a change in any of the objects or principal condition of
the contract for novation to take place.[22]
Considering that when the Solid Bank check, which replaced the
Prudential Bank check, was presented for payment, the same was again
dishonored; thus, the obligation which was secured by the Prudential Bank
check was not extinguished and the Prudential Bank check was not
discharged. Thus, we found no reversible error committed by the CA in
holding petitioner liable as an accommodation indorser for the payment of
the dishonored Prudential Bank check.
WHEREFORE, the petition is DENIED. The Decision dated September 29,
2005 and the Resolution dated March 2, 2006, of the Court of Appeals in
CA-G.R. CV No. 83104, are AFFIRMED.
SO ORDERED.
6.Gonzales v. PCIB, G.R. No. 180257, 23 February 2011
(accommodation party)
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.
7.Prudential Bank v. CIR, G.R. No. 180390, 27 July 2011 (certificate of
deposit)
A certificate of deposit need not be in a specific form; thus, a passbook of
an interest-earning deposit account issued by a bank is a certificate of deposit
drawing interest.[1]
This Petition for Review on Certiorari[2] under Rule 45 of the Rules
of Court assails the Decision[3] dated March 30, 2007 and the Resolution[4] dated
October 30, 2007 of the Court of Tax Appeals (CTA) in CTA EB No. 185.
Factual Antecedents
Petitioner Prudential Bank[5] is a banking corporation organized and
existing under Philippine law.[6] On July 23, 1999, petitioner received from the
respondent Commissioner of Internal Revenue (CIR) a Final Assessment Notice No.
ST-DST-95-0042-99 and a Demand Letter for deficiency Documentary Stamp Tax
(DST) for the taxable year 1995 on its Repurchase Agreement with the Bangko
Sentral ng Pilipinas [BSP], Purchase of Treasury Bills from the BSP, and on its
Savings Account Plus [SAP] product, in the amount of P18,982,734.38, broken
down as follows:
a. Repurchase Agreement BSP Seller
Basic 1,656,000,000.00 x .30 P2,484,000.00
200
Add: 25% Surcharge 621,000.00
Compromise Penalty 25,000.00 P3,130,000.00
b. Purchase of [Treasury] Bills from BSP
Basic 5,038,610,000.00 x .30 P7,557,915.00
200
Add: 25% Surcharge 1,889,478.75
Compromise Penalty 25,000.00 P9,472,393.75
c. Savings Account Plus (page 1307 of the docket)
Basic 3,389,515,000.00 x .30 P5,084,272.50
200
Add: 25% Surcharge 1,271,068.13
Compromise Penalty 25,000.00 P6,380,340.63
GRAND TOTAL P18,982,734.38[7]
Petitioner protested the assessment on the ground that the documents
subject matter of the assessment are not subject to DST.[8] However, respondent
denied[9] the protest on December 28, 2001.
Thus, petitioner filed a Petition for Review before the CTA which was raffled
to its First Division and docketed as CTA Case No. 6396.[10]
Ruling of the First Division of the Court of Tax Appeals
On February 10, 2006, the First Division of the CTA affirmed the
assessment for deficiency DST insofar as the SAP is concerned, but cancelled and
set aside the assessment on petitioners repurchase agreement and purchase of
treasury bills[11] with the BSP. Thus, it disposed of the case as follows:
WHEREFORE, the instant petition is hereby PARTIALLY GRANTED. The
subject Decision of the Commissioner of Internal Revenue dated December
28, 2001 assessing petitioner of deficiency documentary stamp taxes is
hereby AFFIRMED insofar as the Savings Account Plus is concerned. The
deficiency assessment on petitioner's repurchase agreements and treasury
bills are hereby CANCELLED and SET ASIDE.
Accordingly, petitioner is hereby ORDERED TO PAY respondent the
reduced amount of P6,355,340.63 plus 20% delinquency interest from
August 23, 1999 up to the time such amount is fully paid pursuant to
Section 249 (c) of the [old] NIRC, as amended, covered by Assessment
Notice No. ST-DST-95-0042-99 as deficiency documentary stamp tax for
the taxable year 1995, recomputed as follows:
Savings Account Plus P5,084,272.50
Add: 25% Surcharge 1,271,068.13
TOTAL P6,355,340.63
SO ORDERED.[12]
Petitioner moved for partial reconsideration but the same was denied by
the First Division of the CTA in its Resolution dated May 22, 2006.[13]
Thus, petitioner appealed to the CTA En Banc.
Ruling of the Court of Tax Appeals En Banc
On March 30, 2007, the CTA En Banc denied the appeal for lack of
merit. It affirmed the ruling of its First Division that petitioners SAP is a certificate of
deposit bearing interest subject to DST under Section 180 of the old National
Internal Revenue Code (NIRC), as amended by Republic Act (RA) No. 7660.[14]
Petitioner sought reconsideration but later moved to withdraw the same in
view of its availment of the Improved Voluntary Assessment Program (IVAP)
pursuant to Revenue Regulation (RR) No. 18-2006[15] in relation to RR No. 15-
2006[16] and Revenue Memorandum Order (RMO) No. 23-2006.[17]
On October 30, 2007, the CTA En Banc rendered a Resolution[18] denying
petitioners motion to withdraw for non-compliance with the requirements for
abatement. It found that the amount paid for purposes of the abatement program
was not in accordance with Revenue Memorandum Circular (RMC) No. 66-2006,
[19]
which provides that the amount to be paid should be based on the original
assessment or the courts decision, whichever is higher.[20] It also noted that
petitioner failed to comply with RMO No. 23-2006, specifically with the requirement
to submit the letter of termination and authority to cancel assessment signed by
the respondent.[21] In the same Resolution, the CTA En Banc denied petitioners
motion for reconsideration for lack of merit.[22]
Issues
Hence, the present recourse by petitioner raising the following issues:
I.
WHETHER X X X PETITIONERS [SAP] WITH A HIGHER INTEREST
IS SUBJECT TO DOCUMENTARY STAMP TAX.
II.
WHETHER X X X THE CTA EN BANC ERRED IN NOT ALLOWING
THE WITHDRAWAL OF THE PETITION AND/OR CANCELLATION
OF THE DST ASSESSMENT ON PETITIONERS [SAP] ON THE
GROUND THAT PETITIONER HAD ALREADY PAID AND
SUBSTANTIALLY COMPLIED WITH RR NO. 15-2006 AND RMO NO.
23-2006.[23]
Petitioners Arguments
Petitioner contends that its SAP is not subject to DST because it is not
included in the list of documents under Section 180 of the old NIRC, as amended.
[24]
Petitioner insists that unlike a time deposit, its SAP is evidenced by a passbook
and not by a deposit certificate.[25] In addition, its SAP is payable on demand and
not on a fixed determinable future.[26] To support its position, petitioner relies on
the legislative intent of the law prior to Republic Act (RA) No. 9243[27] and the
historical background of the taxability of certificates of deposit.[28]
Petitioner further contends that even assuming that its SAP is subject to
DST, the CTA En Banc nonetheless erred in denying petitioners withdrawal of its
petition considering that it has paid under the IVAP the amount of P5,084,272.50,
which it claims is 100% of the basic tax of the original assessment of the Bureau of
Internal Revenue (BIR).[29] Petitioner insists that the payment it made should be
deemed substantial compliance considering the refusal of the respondent to issue
the letter of termination and authority to cancel assessment.[30]
Respondents Arguments
Respondent maintains that petitioners SAP is subject to DST conformably
with the ruling in International Exchange Bank v. Commissioner of Internal
Revenue.[31] It also contends that the CTA En Banc correctly denied the motion to
withdraw since petitioner failed to comply with the requirements of the IVAP.
[32]
Mere payment of the deficiency DST cannot be deemed substantial compliance
as tax amnesty, like tax exemption, must be construed strictly against the
taxpayer.[33]
Our Ruling
The petition lacks merit.
Petitioners Savings Account
Plus is subject to
Documentary Stamp Tax.
DST is imposed on certificates of deposit bearing interest pursuant to
Section 180 of the old NIRC, as amended, to wit:
Sec. 180. Stamp tax on all loan agreements, promissory
notes, bills of exchange, drafts, instruments and securities issued
by the government or any of its instrumentalities, certificates of
deposit bearing interest and others not payable on sight or
demand. On all loan agreements signed abroad wherein the
object of the contract is located or used in the Philippines; bills of
exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or any of its
instrumentalities or certificates of deposits drawing
interest, or orders for the payment of any sum of money
otherwise than at the sight or on demand, or on all promissory
notes, whether negotiable or non-negotiable, except bank notes
issued for circulation, and on each renewal of any such note, there
shall be collected a documentary stamp tax of Thirty centavos
(P0.30) on each Two hundred pesos, or fractional part thereof, of
the face value of any such agreement, bill of exchange, draft,
certificate of deposit, or note: Provided, That only one
documentary stamp tax shall be imposed on either loan
agreement, or promissory note issued to secure such loan,
whichever will yield a higher tax: provided, however, that loan
agreements or promissory notes the aggregate of which does not
exceed Two hundred fifty thousand pesos (P250,000.00)
executed by an individual for his purchase on installment for his
personal use or that of his family and not for business, resale,
barter or hire of a house, lot, motor vehicle, appliance or furniture
shall be exempt from the payment of the documentary stamp tax
provided under this section. (Emphasis supplied.)
A certificate of deposit is defined as a written acknowledgment by a bank
or banker of the receipt of a sum of money on deposit which the bank or banker
promises to pay to the depositor, to the order of the depositor, or to some other
person or his order, whereby the relation of debtor and creditor between the bank
and the depositor is created.[34]
In this case, petitioner claims that its SAP is not a certificate of deposit
bearing interest because unlike a time deposit, its SAP is payable on demand and is
evidenced by a passbook and not by a certificate of deposit.
We do not agree.
In China Banking Corporation v. Commissioner of Internal
Revenue,[35] we held that the Savings Plus Deposit Account, which has the
following features:
1. Amount deposited is withdrawable anytime;
2. The same is evidenced by a passbook;
 3. The rate of interest offered is the prevailing market rate, Nevertheless, the amount of P5,084,272.50 paid by petitioner to the BIR must
[45]

provided the depositor would maintain his minimum balance be considered as partial payment of petitioners tax liability.
in thirty (30) days at the minimum, and should he withdraw WHEREFORE, the petition is hereby DENIED. The assailed Decision
before the period, his deposit would earn the regular savings dated March 30, 2007 and the Resolution dated October 30, 2007 of the Court of
deposit rate; Tax Appeals in CTA EB No. 185 are
hereby AFFIRMED with MODIFICATION that petitioner Prudential Banks
payment be considered as partial payment of its tax liability.
is subject to DST as it is essentially the same as the Special/Super Savings Deposit
Account in Philippine Banking Corporation v. Commissioner of Internal Revenue, SO ORDERED.
[36]
and the Savings Account-Fixed Savings Deposit in International Exchange Bank
v. Commissioner of Internal Revenue,[37] which are considered certificates of
deposit drawing interests.[38]

Similarly, in this case, although the money deposited in a SAP is payable

anytime, the withdrawal of the money before the expiration of 30 days results in
the reduction of the interest rate.[39] In the same way, a time deposit withdrawn
before its maturity results to a lower interest rate and payment of bank charges or
penalties.[40]

The fact that the SAP is evidenced by a passbook likewise cannot remove
its coverage from Section 180 of the old NIRC, as amended. A document to be
considered a certificate of deposit need not be in a specific form.[41] Thus, a
passbook issued by a bank qualifies as a certificate of deposit drawing interest
because it is considered a written acknowledgement by a bank that it has accepted
a deposit of a sum of money from a depositor.[42]

In view of the foregoing, we find that the CTA En Banc correctly affirmed
the ruling of its First Division that petitioners SAP is a certificate of deposit bearing
interest and that the same is subject to DST.

The CTA En Bancs denial of

petitioners motion to
withdraw is proper.

The CTA En Banc denied petitioners motion to withdraw because it failed

to show that it was able to comply with the requirements of IVAP.

To avail of the IVAP, a taxpayer must pay the 100% basic tax of the
original assessment of the BIR or the CTA Decision, whichever is higher[43] and
submit the letter of termination and authority to cancel assessment signed by the
respondent.[44] In this case, petitioner failed to submit the letter of termination and
authority to cancel assessment as respondent found the payment of P5,084,272.50
not in accordance with RMC No. 66-2006. Hence, we find no error on the part of
the CTA En Banc in denying petitioners motion to withdraw.

Petitioners payment of P5,084,272.50, without the supporting documents,

cannot be deemed substantial compliance as tax amnesty must be construed
strictly against the taxpayer and liberally in favor of the taxing authority.
 8. PNB v. FF Cruz and Company, G.R. No. 173259, 25 July
2011 (negligence; liability of bank, depositor)
As between a bank and its depositor, where the banks negligence is the
proximate cause of the loss and the depositor is guilty of contributory negligence,
the greater proportion of the loss shall be borne by the bank. This Petition for
Review on Certiorari seeks to reverse and set aside the Court of
Appeals January 31, 2006 Decision[1] in CA-G.R. CV No. 81349, which modified the
January 30, 2004 Decision[2] of the Regional Trial Court of Manila City, Branch 46 in
Civil Case No. 97-84010, and the June 26, 2006 Resolution[3] denying petitioners
motion for reconsideration.
Factual Antecedents
The antecedents are aptly summarized by the appellate court:
In its complaint, it is alleged that [respondent F.F. Cruz &
Co., Inc.] (hereinafter FFCCI) opened savings/current or so-called
combo account No. 0219-830-146 and dollar savings account No.
0219-0502-458-6 with [petitioner Philippine National Bank]
(hereinafter PNB) at its Timog Avenue Branch. Its President Felipe
Cruz (or Felipe) and Secretary-Treasurer Angelita A. Cruz (or
Angelita) were the named signatories for the said accounts.
The said signatories on separate but coeval dates left for
and returned from the Unites States of America, Felipe on March
18, 1995 until June 10, 1995 while Angelita followed him on
March 29, 1995 and returned ahead on May 9, 1995.
While they were thus out of the country, applications for
cashiers and managers [checks] bearing Felipes [signature] were
presented to and both approved by the PNB. The first was on
March 27, 1995 for P9,950,000.00 payable to a certain Gene B.
Sangalang and the other one was on April 24, 1995
for P3,260,500.31 payable to one Paul Bautista. The amounts of
these checks were then debited by the PNB against the combo
account of [FFCCI].
When Angelita returned to the country, she had occasion
to examine the PNB statements of account of [FFCCI] for the
months of February to August 1995 and she noticed the
deductions of P9,950,000.00 and P3,260,500.31. Claiming that
these were unauthorized and fraudulently made, [FFCCI]
requested PNB to credit back and restore to its account the value
of the checks. PNB refused, and thus constrained [FFCCI] filed the
instant suit for damages against the PNB and its own accountant
Aurea Caparas (or Caparas).
In its traverse, PNB averred lack of cause of action. It alleged that it
exercised due diligence in handling the account of [FFCCI]. The
applications for managers check have passed through the standard bank
procedures and it was only after finding no infirmity that these were given
due course. In fact, it was no less than Caparas, the accountant of
[FFCCI], who confirmed the regularity of the transaction. The delay of
[FFCCI] in picking up and going over the bank statements was the
proximate cause of its self-proclaimed injury. Had [FFCCI] been
conscientious in this regard, the alleged chicanery would have been
detected early on and Caparas effectively prevented from absconding with
its millions. It prayed for the dismissal of the complaint.[4]
Regional Trial Courts Ruling
The trial court ruled that F.F. Cruz and Company, Inc. ( FFCCI) was guilty
of negligence in clothing Aurea Caparas (Caparas) with authority to make decisions
on and dispositions of its account which paved the way for the fraudulent
transactions perpetrated by Caparas; that, in practice, FFCCI waived the two-
signature requirement in transactions involving the subject combo account so much
so that Philippine National Bank (PNB) could not be faulted for honoring the
applications for managers check even if only the signature of Felipe Cruz appeared
thereon; and that FFCCI was negligent in not immediately informing PNB of the
fraud.
On the other hand, the trial court found that PNB was, likewise, negligent
in not calling or personally verifying from the authorized signatories the legitimacy
of the subject withdrawals considering that they were in huge amounts. For this
reason, PNB had the last clear chance to prevent the unauthorized debits from
FFCCIs combo account. Thus, PNB should bear the whole loss
WHEREFORE, judgment is hereby rendered ordering
defendant [PNB] to pay plaintiff [FFCCI] P13,210,500.31
representing the amounts debited against plaintiffs account, with
interest at the legal rate computed from the filing of the complaint
plus costs of suit.
IT IS SO ORDERED.[5]
Court of Appeals Ruling
On January 31, 2006, the CA rendered the assailed Decision affirming with
modification the Decision of the trial court, viz:
WHEREFORE, the appealed Decision is AFFIRMED with
the MODIFICATION that [PNB] shall pay [FFCCI] only 60% of the actual
damages awarded by the trial court while the remaining 40% shall be borne by
[FFCCI].
SO ORDERED.[6]
The appellate court ruled that PNB was negligent in not properly verifying the
genuineness of the signatures appearing on the two applications for managers
check as evidenced by the lack of the signature of the bank verifier thereon. Had
this procedure been followed, the forgery would have been detected.
Nonetheless, the appellate court found FFCCI guilty of contributory negligence
because it clothed its accountant/bookkeeper Caparas with apparent authority to
transact business with PNB. In addition, FFCCI failed to timely examine its monthly
statement of account and report the discrepancy to PNB within a reasonable period
of time to prevent or recover the loss. FFCCIs contributory negligence, thus,
mitigated the banks liability. Pursuant to the rulings in Philippine Bank of
Commerce v. Court of Appeals[7] and The Consolidated Bank & Trust Corporation v.
Court of Appeals,[8] the appellate court allocated the damages on a 60-40 ratio with
the bigger share to be borne by PNB.
From this decision, both FFCCI and PNB sought review before this Court.
On August 17, 2006, FFCCI filed its petition for review on certiorari which was
docketed as G.R. No. 173278.[9] On March 7, 2007, the Court issued a
Resolution[10] denying said petition. On June 13, 2007, the Court issued another
Resolution[11] denying FFCCIs motion for reconsideration. In denying the aforesaid
petition, the Court ruled that FFCCI essentially raises questions of fact which are, as
a rule, not reviewable under a Rule 45 petition; that FFCCI failed to show that its
case fell within the established exceptions to this rule; and that FFCCI was guilty of
contributory negligence. Thus, the appellate court correctly mitigated PNBs liability.
On July 13, 2006, PNB filed its petition for review on certiorari which is the
subject matter of this case.
Issue Whether the Court of Appeals seriously erred when it found PNB guilty of
negligence.[12]
Our Ruling
We affirm the ruling of the CA.
PNB is guilty of
negligence.
Preliminarily, in G.R. No. 173278, we resolved with finality[13] that FFCCI is
guilty of contributory negligence, thus, making it partly liable for the loss (i.e., as to
40% thereof) arising from the unauthorized withdrawal of P13,210,500.31 from its
combo account. The case before us is, thus, limited to PNBs alleged negligence in
the subject transactions which the appellate court found to be the proximate cause
of the loss, thus, making it liable for the greater part of the loss (i.e., as to 60%
thereof) pursuant to our rulings in Philippine Bank of Commerce v. Court of
Appeals[14] and The Consolidated Bank & Trust Corporation v. Court of Appeals.[15]
PNB contends that it was not negligent in verifying the genuineness of the
signatures appearing on the subject applications for managers check. It claims that
it followed the standard operating procedure in the verification process and that
four bank officers examined the signatures and found the same to be similar with
those found in the signature cards of FFCCIs authorized signatories on file with the
bank.
PNB raises factual issues which are generally not proper for review under a
Rule 45 petition. While there are exceptions to this rule, we find none applicable to
the present case. As correctly found by the appellate court, PNB failed to make the
proper verification because the applications for the managers check do not bear the
signature of the bank verifier. PNB concedes the absence[16] of the subject
signature but argues that the same was the result of inadvertence. It posits that
the testimonies of Geronimo Gallego (Gallego), then the branch manager of PNB
Timog Branch, and Stella San Diego (San Diego), then branch cashier, suffice to
establish that the signature verification process was duly followed.
We are not persuaded.
First, oral testimony is not as reliable as documentary evidence.[17] Second,
PNBs own witness, San Diego, testified that in the verification process, the principal
duty to determine the genuineness of the signature devolved upon the account
analyst.[18] However, PNB did not present the account analyst to explain his or her
failure to sign the box for signature and balance verification of the subject
applications for managers check, thus, casting doubt as to whether he or she did
indeed verify the signatures thereon. Third, we cannot fault the appellate court for
not giving weight to the testimonies of Gallego and San Diego considering that the
latter are naturally interested in exculpating themselves from any liability arising
from the failure to detect the forgeries in the subject transactions. Fourth, Gallego
admitted that PNBs employees received training on detecting forgeries from the
National Bureau of Investigation.[19] However, Emmanuel Guzman, then NBI senior
document examiner, testified, as an expert witness, that the forged signatures in
the subject applications for managers check contained noticeable and significant
differences from the genuine signatures of FFCCIs authorized signatories and that
the forgeries should have been detected or observed by a trained signature verifier
of any bank.[20]
Given the foregoing, we find no reversible error in the findings of the
appellate court that PNB was negligent in the handling of FFCCIs combo account,
specifically, with respect to PNBs failure to detect the forgeries in the subject
applications for managers check which could have prevented the loss. As we have
often ruled, the banking business is impressed with public trust.[21] A higher degree
of diligence is imposed on banks relative to the handling of their affairs than that of
an ordinary business enterprise.[22] Thus, the degree of responsibility, care and
trustworthiness expected of their officials and employees is far greater than those
of ordinary officers and employees in other enterprises.[23] In the case at bar, PNB
failed to meet the high standard of diligence required by the circumstances to
prevent the fraud. In Philippine Bank of Commerce v. Court of Appeals[24] and The
Consolidated Bank & Trust Corporation v. Court of Appeals,[25] where the banks
negligence is the proximate cause of the loss and the depositor is guilty of
contributory negligence, we allocated the damages between the bank and the
depositor on a 60-40 ratio. We apply the same ruling in this case considering that,
as shown above, PNBs negligence is the proximate cause of the loss while the issue
as to FFCCIs contributory negligence has been settled with finality in G.R. No.
173278. Thus, the appellate court properly adjudged PNB to bear the greater part
of the loss consistent with these rulings.
WHEREFORE, the petition is DENIED. The January 31, 2006 Decision
and June 26, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 81349
are AFFIRMED.Costs against petitioner. SO ORDERED.
9.PCIB v. Balmaceda, G.R. No. 158143, 21 September 2011 (liability of 3. Ordering the defendants to pay plaintiff moral
drawee bank; crossed check) damages in the sum of P500,000.00 and attorneys fees in
the amount of ten (10%) percent of the total
misappropriated amounts sought to be recovered.
Before us is a petition for review on certiorari,[1] filed by the
4. Plus costs of suit.
Philippine Commercial International Bank[2] (Bank or PCIB), to reverse and
SO ORDERED.[4]
set aside the decision[3] dated April 29, 2003 of the Court of Appeals (CA) in
CA-G.R. CV No. 69955. The CA overturned the September 22, 2000 decision
From the evidence presented, the RTC found that Balmaceda, by
of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case
taking undue advantage of his position and authority as branch manager of
No. 93-3181, which held respondent Rolando Ramos liable to PCIB for the
the Sta. Cruz, Manila branch of PCIB, successfully obtained and
amount of P895,000.00.
misappropriated the banks funds by falsifying several commercial
documents. He accomplished this by claiming that he had been instructed
FACTUAL ANTECEDENTS
by one of the Banks corporate clients to purchase Managers checks on its
On September 10, 1993, PCIB filed an action for recovery of sum of
behalf, with the value of the checks to be debited from the clients corporate
money with damages before the RTC against Antonio Balmaceda, the
bank account. First, he would instruct the Bank staff to prepare the
Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB
application forms for the purchase of Managers checks, payable to several
alleged that between 1991 and 1993, Balmaceda, by taking advantage of
persons. Then, he would forge the signature of the clients authorized
his position as branch manager, fraudulently obtained and encashed 31
representative on these forms and sign the forms as PCIBs approving
Managers checks in the total amount of Ten Million Seven Hundred Eighty
officer. Finally, he would have an authorized officer of PCIB issue the
Two Thousand One Hundred Fifty Pesos (P10,782,150.00).
Managers checks. Balmaceda would subsequently ask his subordinates to
release the Managers checks to him, claiming that the client had requested
On February 28, 1994, PCIB moved to be allowed to file an amended
that he deliver the checks.[5] After receiving the Managers checks, he
complaint to implead Rolando Ramos as one of the recipients of a portion of
encashed them by forging the signatures of the payees on the checks.
the proceeds from Balmacedas alleged fraud. PCIB also increased the
number of fraudulently obtained and encashed Managers checks to 34, in
In ruling that Ramos acted in collusion with Balmaceda, the RTC
the total amount of Eleven Million Nine Hundred Thirty Seven Thousand One
noted that although the Managers checks payable to Ramos were crossed
Hundred Fifty Pesos (P11,937,150.00). The RTC granted this motion.
checks, Balmaceda was still able to encash the checks. [6] After Balmaceda
encashed three of these Managers checks, he deposited most of the money
Since Balmaceda did not file an Answer, he was declared in default. On the
into Ramos account.[7] The RTC concluded that from the P11,937,150.00
other hand, Ramos filed an Answer denying any knowledge of Balmacedas
that Balmaceda misappropriated from PCIB, P895,000.00 actually went to
scheme. According to Ramos, he is a reputable businessman engaged in the
Ramos. Since the RTC disbelieved Ramos allegation that the sum of money
business of buying and selling fighting cocks, and Balmaceda was one of his
deposited into his Savings Account (PCIB, Pasig branch) were proceeds from
clients. Ramos admitted receiving money from Balmaceda as payment for
the sale of fighting cocks, it held Ramos liable to pay PCIB the amount
the fighting cocks that he sold to Balmaceda, but maintained that he had no
of P895,000.00.
knowledge of the source of Balmacedas money.
THE COURT OF APPEALS DECISION
THE RTC DECISION
On appeal, the CA dismissed the complaint against Ramos, holding that no
sufficient evidence existed to prove that Ramos colluded with Balmaceda in
On September 22, 2000, the RTC issued a decision in favor of PCIB, with the
the latters fraudulent manipulations.[8]
following dispositive portion:
WHEREFORE, premises considered, judgment is
According to the CA, the mere fact that Balmaceda made Ramos the payee
hereby rendered in favor of the plaintiff and against the
in some of the Managers checks does not suffice to prove that Ramos was
defendants as follows:
complicit in Balmacedas fraudulent scheme. It observed that other persons
1. Ordering defendant Antonio Balmaceda to pay the
were also named as payees in the checks that Balmaceda acquired and
amount of P11,042,150.00 with interest thereon at the legal
encashed, and PCIB only chose to go after Ramos. With PCIBs failure to
rate from [the] date of his misappropriation of the said
prove Ramos actual participation in Balmacedas fraud, no legal and factual
amount until full restitution shall have been made[.]
basis exists to hold him liable.
2. Ordering defendant Rolando Ramos to pay the
amount of P895,000.00 with interest at the legal rate from
The CA also found that PCIB acted illegally in freezing and
the date of misappropriation of the said amount until full
debiting P251,910.96 from Ramos bank account. The CA thus decreed:
restitution shall have been made[.]

WHEREFORE, the appeal is granted. The Decision of the trial
court rendered on September 22, 2000[,] insofar as appellant
Ramos is concerned, is SET ASIDE, and the complaint below
against him is DISMISSED.
Appellee is hereby ordered to release the amount of P251,910.96 to
appellant Ramos plus interest at [the] legal rate computed from
September 30, 1993 until appellee shall have fully complied
therewith.
Appellee is likewise ordered to pay appellant Ramos the following:
a) P50,000.00 as moral damages
b) P50,000.00 as exemplary damages, and
c) P20,000.00 as attorneys fees.
No costs. SO ORDERED.[9]
THE PETITION
In the present petition, PCIB avers that:
I THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE
TO HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH
RESPONDENT BALMACEDA
II THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO
RELEASE THE AMOUNT OF P251,910.96 TO RESPONDENT RAMOS AND TO
PAY THE LATTER MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS
FEES[10]
PCIB contends that the circumstantial evidence shows that Ramos
had knowledge of, and acted in complicity with Balmaceda in, the
perpetuation of the fraud. Ramos explanation that he is a businessman and
that he received the Managers checks as payment for the fighting cocks he
sold to Balmaceda is unconvincing, given the large sum of money involved.
While Ramos presented evidence that he is a reputable businessman, this
evidence does not explain why the Managers checks were made payable to
him in the first place.
PCIB maintains that it had the right to freeze and debit the amount
of P251,910.96 from Ramos bank account, even without his consent, since
legal compensation had taken place between them by operation of law. PCIB
debited Ramos bank account, believing in good faith that Ramos was not
entitled to the proceeds of the Managers checks and was actually privy to
the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for
moral and exemplary damages.
OUR RULING
We partly grant the petition.
At the outset, we observe that the petition raises mainly questions
of fact whose resolution requires the re-examination of the evidence on
record. As a general rule, petitions for review on certiorari only involve
questions of law.[11] By way of exception, however, we can delve into
evidence and the factual circumstance of the case when the findings of fact
in the tribunals below (in this case between those of the CA and of the RTC)
are conflicting. When the exception applies, we are given latitude to review
the evidence on record to decide the case with finality. [12]
Ramos participation in
Balmacedas scheme not
proven
From the testimonial and documentary evidence presented, we find it
beyond question that Balmaceda, by taking advantage of his position as
branch manager of PCIBs Sta. Cruz, Manila branch, was able to apply for
and obtain Managers checks drawn against the bank account of one of
PCIBs clients. The unsettled question is whether Ramos, who received a
portion of the money that Balmaceda took from PCIB, should also be held
liable for the return of this money to the Bank.
PCIB insists that it presented sufficient evidence to establish that
Ramos colluded with Balmaceda in the scheme to fraudulently secure
Managers checks and to misappropriate their proceeds. Since Ramos
defense anchored on mere denial of any participation in Balmacedas
wrongdoing is an intrinsically weak defense, it was error for the CA to
exonerate Ramos from any liability.
In civil cases, the party carrying the burden of proof must establish
his case by a preponderance of evidence, or evidence which, to the court, is
more worthy of belief than the evidence offered in opposition. [13] This Court,
in Encinas v. National Bookstore, Inc.,[14] defined preponderance of evidence
in the following manner:
"Preponderance of evidence" is the weight, credit, and
value of the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight
of the evidence" or "greater weight of the credible
evidence." 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.
The party, whether the plaintiff or the defendant, who asserts the
affirmative of an issue has the onus to prove his assertion in order to obtain
a favorable judgment, subject to the overriding rule that the burden to
prove his cause of action never leaves the plaintiff. For the defendant, an
affirmative defense is one that is not merely a denial of an essential
ingredient in the plaintiff's cause of action, but one which, if established, will
constitute an "avoidance" of the claim.[15]
Thus, PCIB, as plaintiff, had to prove, by preponderance of
evidence, its positive assertion that Ramos conspired with Balmaceda in
perpetrating the latters scheme to defraud the Bank. In PCIBs estimation, it
successfully accomplished this through the submission of the following
evidence:
[1] Exhibits A, D, PPPP, QQQQ, and RRRR and their
submarkings, the application forms for MCs, show
that [these MCs were applied for in favor of Ramos;]
[2] Exhibits K, N, SSSS, TTTT, and UUUU and their
submarkings prove that the MCs were issued in
favor of x x x Ramos[; and]
[3] [T]estimonies of the witness for [PCIB]. [16]
We cannot accept these submitted pieces of evidence as sufficient to
satisfy the burden of proof that PCIB carries as plaintiff.
On its face, all that PCIBs evidence proves is that Balmaceda used
Ramos name as a payee when he filled up the application forms for the
Managers checks. But, as the CA correctly observed, the mere fact that
Balmaceda made Ramos the payee on some of the Managers checks is not
enough basis to conclude that Ramos was complicit in Balmacedas fraud; a
number of other people were made payees on the other Managers checks
yet PCIB never alleged them to be liable, nor did the Bank adduce any other
evidence pointing to Ramos participation that would justify his separate
treatment from the others. Also, while Ramos is Balmacedas brother-in-law,
their relationship is not sufficient, by itself, to render Ramos liable, absent
concrete proof of his actual participation in the fraudulent scheme.
Moreover, the evidence on record clearly shows that Balmaceda
acted on his own when he applied for the Managers checks against the bank
account of one of PCIBs clients, as well as when he encashed the
fraudulently acquired Managers checks.
Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of
the relevant events, testified that Balmaceda committed all the acts
necessary to obtain the unauthorized Managers checks from filling up the
application form by forging the signature of the clients representative, to
forging the signatures of the payees in order to encash the checks. As Mrs.
Costes stated in her testimony:
Q: I am going into [these] particular instances
where you said that Mr. Balmaceda [has] been making
unauthorized withdrawals from particular account of a client
or a client of yours at Sta. Cruz branch. Would you tell us
how he effected his unauthorized withdrawals?
A: He prevailed upon the domestic remittance clerk
to prepare the application of a Managers check which [has]
been debited to a clients account. This particular Managers
check will be payable to a certain individual thru his account
as the instruction of the client.
Q: What was your findings in so far as the particular
alleged instruction of a client is concerned?
A: We found out that he forged the signature of
the client.
Q: On that particular application?
A: Yes sir.
Q: Showing to you several applications for Managers
Check previously attached as Annexes A, B, C, D and E[] of
the complaint. Could you please tell us where is that
particular alleged signature of a client applying for the
Managers check which you claimed to have been forged by
Mr. Balmaceda?
A: Here sir.
xxxx
Q: After the accomplishment of this application form
as you stated Mrs. witness, do you know what happened to
the application form?
A: Before that application form is processed it goes
to several stages. Here for example this was signed
supposed to be by the client and his signature representing
that, he certified the signature based on their records
to be authentic.
Q: When you said he to whom are you referring to?
A: Mr. Balmaceda. And at the same time he
approved the transaction.
xxxx
Q: Do you know if the corresponding checks applied
for in the application forms were issued?
A: Yes sir.
Q: Could you please show us where these checks are
now, the one applied for in Exhibit A which is in the amount
of P150,000.00, where is the corresponding check?
A: Rolando Ramos dated December 26, 1991 and
one of the signatories with higher authority, this is Mr.
Balmacedas signature.
Q: In other words he is likewise approving
signatory to the Managers check?
A: Yes sir. This is an authority that the check
[has] been encashed.
Q: In other words this check issued to Rolando
Ramos dated December 26, 1991 is a cross check but
nonetheless he allowed to encash by granting it.
Could you please show us?
ATTY. PACES: Witness pointing to an initial of the
defendant Antonio Balmaceda, the notation cross check.
A: And this is his signature.
xxxx
Q: How about the check corresponding to Exhibit E-2
which is an application for P125,000.00 for a certain Rolando
Ramos. Do you have the check?
A: Yes sir.
 ATTY. PACES: Witness producing a check dated
December 19, 1991 the amount of P125,000.00 payable to
certain Rolando Ramos.
Q: Can you tell us whether the same modus
operandi was ad[o]pted by Mr. Balmaceda in so far as he is
concerned?
A: Yes sir he is also the right signer and he
authorized the cancellation of the cross check.
[17]
(emphasis ours)
xxxx
Q: These particular checks [Mrs.] witness in your
findings, do you know if Mr. Balmaceda [has] again any
participation in these checks?
A: He is also the right signer and approved officer
and he was authorized to debit on file.
xxxx
Q: And do you know if these particular checks
marked as Exhibit G-2 to triple FFF were subsequently
encashed?
A: Yes sir.
Q: Were you able to find out who encashed?
A: Mr. Balmaceda himself and besides he
approved the encashment because of the signature
that he allowed the encashment of the check.
xxxx
Q: Do you know if this particular person having in
fact withdraw of received the proceeds of [these] particular
checks, the payee?
A: No sir.
Q: It was all Mr. Balmaceda dealing with you?
A: Yes sir.
Q: In other words it would be possible that Mr.
Balmaceda himself gotten the proceeds of the checks
by forging the payees signature?
A: Yes sir.[18] (emphases ours)
Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta.
Cruz, Manila branch at the time the events of this case occurred, confirmed
Mrs. Costes testimony by stating that it was Balmaceda who forged
Ramos signature on the Managers checks where Ramos was the
payee, so as to encash the amounts indicated on the checks.[19] Mrs.
Laforteza also testified that Ramos never went to the PCIB, Sta.
Cruz, Manila branch to encash the checks since Balmaceda was the one
who deposited the checks into Ramos bank account. As revealed
during Mrs. Lafortezas cross-examination:
Q: Mrs. Laforteza, these checks that were
applied for by Mr. Balmaceda, did you ever see my
client go to the bank to encash these checks?
A: No it is Balmaceda who is depositing in his
behalf.
Q: Did my client ever call up the bank concerning
this amount?
A: Yes he is not going to call PCIBank Sta. Cruz
branch because his account is maintained at Pasig
Q: So Mr. Balmaceda was the one who just
remitted or transmitted the amount that you claimed
[was sent] to the account of my client?
A: Yes.[20] (emphases ours)
Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to
prove that Ramos encashed a Managers check for P480,000.00, could only
testify that the money was deposited into Ramos PCIB bank account. She
could not attest that Ramos himself presented the Managers check for
deposit in his bank account.[21] These testimonies clearly dispute PCIBs
theory that Ramos was instrumental in the encashment of the Managers
checks.
We also find no reason to doubt Ramos claim that Balmaceda
deposited these large sums of money into his bank account as payment for
the fighting cocks that Balmaceda purchased from him. Ramos presented
two witnesses Vicente Cosculluela and Crispin Gadapan who testified that
Ramos previously engaged in the business of buying and selling fighting
cocks, and that Balmaceda was one of Ramos biggest clients.
Quoting from the RTC decision, PCIB stresses that Ramos own witness and
business partner, Cosculluela, testified that the biggest net profit he and
Ramos earned from a single transaction with Balmaceda amounted to no
more than P100,000.00, for the sale of approximately 45 fighting cocks.
[22]
In PCIBs view, this testimony directly contradicts Ramos assertion that
he received approximately P400,000.00 from his biggest transaction with
Balmaceda. To PCIB, the testimony also renders questionable Ramos
assertion that Balmaceda deposited large amounts of money into his bank
account as payment for the fighting cocks.
On this point, we find that PCIB misunderstood Cosculluelas
testimony. A review of the testimony shows that Cosculluela specifically
referred to the net profit that they earned from the sale of the fighting
cocks;[23] PCIB apparently did not take into account the capital,
transportation and other expenses that are components of these
transactions. Obviously, in sales transactions, the buyer has to pay not only
for the value of the thing sold, but also for the shipping costs and other
incidental costs that accompany the acquisition of the thing sold. Thus, while
the biggest net profit that Ramos and Cosculluela earned in a single
transaction amounted to no more than P100,000.00,[24] the inclusion of the
actual acquisition costs of the fighting cocks, the transportation expenses
(i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other
attendant expenses could account for the P400,000.00 that Balmaceda
deposited into Ramos bank account.
Given that PCIB failed to establish Ramos participation in
Balmacedas scheme, it was not even necessary for Ramos to provide an
explanation for the money he received from Balmaceda. Even if the
evidence adduced by the plaintiff appears stronger than that presented by
the defendant, a judgment cannot be entered in the plaintiffs favor if his
evidence still does not suffice to sustain his cause of action; [25] to reiterate, a
preponderance of evidence as defined must be established to achieve this
result.
PCIB itself at fault as
employer
In considering this case, one point that cannot be disregarded is the
significant role that PCIB played which contributed to the perpetration of the
fraud. We cannot ignore that Balmaceda managed to carry out his
fraudulent scheme primarily because other PCIB employees failed to carry
out their assigned tasks flaws imputable to PCIB itself as the employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic
remittance clerk working at the PCIB, Sta. Cruz, Manila branch at the time
of the incident, testified that Balmaceda broke the Banks protocol when he
ordered the Banks employees to fill up the application forms for the
Managers checks, to be debited from the bank account of one of the banks
clients, without providing the necessary Authority to Debit from the client.
[26]
PCIB also admitted that these Managers checks were subsequently
released to Balmaceda, and not to the clients representative, based solely
on Balmacedas word that the client had tasked him to deliver these checks.
[27]
Despite Balmacedas gross violations of bank procedures mainly in
the processing of the applications for Managers checks and in the releasing
of the Managers checks Balmacedas co-employees not only turned a blind
eye to his actions, but actually complied with his instructions. In this way,
PCIBs own employees were unwitting accomplicesin Balmacedas fraud.
Another telling indicator of PCIBs negligence is the fact that it
allowed Balmaceda to encash the Managers checks that were plainly
crossed checks. A crossed check is one where two parallel lines are drawn
across its face or across its corner.[28] Based on jurisprudence, the crossing
of a check has the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be negotiated only
once to the one who has an account with the bank; and (c) the act of
crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose and he must inquire if he received the
check pursuant to this purpose; otherwise, he is not a holder in due course.
[29]
In other words, the crossing of a check is a warning that the check
should be deposited only in the account of the payee. When a check is
crossed, it is the duty of the collecting bank to ascertain that the
check is only deposited to the payees account.[30] In complete disregard
of this duty, PCIBs systems allowed Balmaceda to encash 26 Managers
checks which were all crossed checks, or checks payable to the payees
account only.
The General Banking Law of 2000[31] requires of banks the highest
standards of integrity and performance. The banking business is impressed
with public interest. Of paramount importance is the trust and confidence of
the public in general in the banking industry. Consequently, the diligence
required of banks is more than that of a Roman pater familias or a good
father of a family.[32] The highest degree of diligence is expected. [33]
While we appreciate that Balmaceda took advantage of his authority
and position as the branch manager to commit these acts, this circumstance
cannot be used to excuse the manner the Bank through its employees
handled its clients bank accounts and thereby ignored established bank
procedures at the branch managers mere order. This lapse is made all the
more glaring by Balmacedas repetition of his modus operandi 33 more times
in a period of over one year by the Banks own estimation. With this kind of
record, blame must be imputed on the Bank itself and its systems, not
solely on the weakness or lapses of individual employees.
Principle of unjust
enrichment not applicable
PCIB maintains that even if Ramos did not collude with Balmaceda,
it still has the right to recover the amounts unjustly received by Ramos
pursuant to the principle of unjust enrichment. This principle is embodied in
Article 22 of the Civil Code which provides:
Article 22. Every person who through an act of
performance by another, or any other means, acquires or
comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to
him.
To have a cause of action based on unjust enrichment, we explained
in University of the Philippines v. Philab Industries, Inc. [34] that:
Unjust enrichment claims do not lie simply because one
party benefits from the efforts or obligations of others, but
instead it must be shown that a party was unjustly enriched
in the sense that the term unjustly could mean illegally or
unlawfully.
Moreover, to substantiate a claim for unjust enrichment,
the claimant must unequivocally prove that another
party knowingly received something of value to which
he was not entitledand that the state of affairs are
such that it would be unjust for the person to keep the
benefit. Unjust enrichment is a term used to depict result
or effect of failure to make remuneration of or for property
or benefits received under circumstances that give rise to
legal or equitable obligation to account for them; to be
 entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is
not itself a theory of reconvey. Rather, it is a prerequisite for
the enforcement of the doctrine of restitution. [35] (emphasis
ours)
Ramos cannot be held liable to PCIB on account of unjust enrichment simply
because he received payments out of money secured by fraud from PCIB. To
hold Ramos accountable, it is necessary to prove that he received the
money from Balmaceda, knowing that he (Ramos) was not entitled to it.
PCIB must also prove that Ramos, at the time that he received the money
from Balmaceda, knew that the money was acquired through fraud.
Knowledge of the fraud is the link between Ramos and PCIB that would
obligate Ramos to return the money based on the principle of unjust
enrichment.
However, as the evidence on record indicates, Ramos accepted the
deposits that Balmaceda made directly into his bank account, believing that
these deposits were payments for the fighting cocks that Balmaceda had
purchased. Significantly, PCIB has not presented any evidence proving that
Ramos participated in, or that he even knew of, the fraudulent sources of
Balmacedas funds.
PCIB illegally froze and
debited Ramos assets
We also find that PCIB acted illegally in freezing and debiting Ramos
bank account. In BPI Family Bank v. Franco,[36] we cautioned against the
unilateral freezing of bank accounts by banks, noting that:
More importantly, [BPI Family Bank] does not have
a unilateral right to freeze the accounts of Franco based on
its mere suspicion that the funds therein were proceeds of
the multi-million peso scam Franco was allegedly involved
in. To grant [BPI Family Bank], or any bank for that matter,
the right to take whatever action it pleases on deposits
which it supposes are derived from shady transactions,
would open the floodgates of public distrust in the banking
industry.[37]
We see no legal merit in PCIBs claim that legal compensation took
place between it and Ramos, thereby warranting the automatic deduction
from Ramos bank account. For legal compensation to take place,
two persons, in their own right, must first be creditors and debtors of each
other.[38] While PCIB, as the depositary bank, is Ramos debtor in the amount
of his deposits, Ramos is not PCIBs debtor under the evidence the PCIB
adduced. PCIB thus had no basis, in fact or in law, to automatically debit
from Ramos bank account.
On the award of damages
Although PCIBs act of freezing and debiting Ramos account is
unlawful, we cannot hold PCIB liable for moral and exemplary damages.
Since a contractual relationship existed between Ramos and PCIB as the
depositor and the depositary bank, respectively, the award of moral
damages depends on the applicability of Article 2220 of the Civil Code,
which provides:
Article 2220. Willful 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. [emphasis
ours]
Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious commission of a
wrong; it partakes of the nature of fraud.[39]
As the facts of this case bear out, PCIB did not act out of malice or
bad faith when it froze Ramos bank account and subsequently debited the
amount of P251,910.96 therefrom. While PCIB may have acted hastily and
without regard to its primary duty to treat the accounts of its depositors
with meticulous care and utmost fidelity,[40] we find that its actions were
propelled more by the need to protect itself, and not out of malevolence or
ill will. One may err, but error alone is not a ground for granting moral
damages.[41]
We also disallow the award of exemplary damages. Article 2234 of the Civil
Code requires a party to first prove that he is entitled to moral, temperate
or compensatory damages before he can be awarded exemplary damages.
Since no reason exists to award moral damages, so too can there be no
reason to award exemplary damages.
We deem it just and equitable, however, to uphold the award of attorneys
fees in Ramos favor. Taking into consideration the time and efforts involved
that went into this case, we increase the award of attorneys fees
from P20,000.00 to P75,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED.
We AFFIRM the decision of the Court of Appeals dated April 29, 2003 in CA-
G.R. CV No. 69955 with the MODIFICATION that the award of moral and
exemplary damages in favor of Rolando N. Ramos is DELETED, while the
award of attorneys fees is INCREASED to P75,000.00. Costs against the
Philippine Commercial International Bank.
SO ORDERED.
10.Cayanan v. North Star International Travel Inc., G.R. No. 172954, 5 Dated/Postdated : April 14, 1994
Payable to : North Star International Travel, Inc.
October 2011 (consideration)
Check No : 687804
Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision [1] of the Drawn Against : PCIB
Court of Appeals (CA) in CA-G.R. SP No. 65538 finding him civilly liable for Amount : P35,000.00
the value of the five checks which are the subject of Criminal Case Nos. Dated/Postdated : April 14, 1994
166549-53. Payable to : North Star International Travel, Inc.[6]

The antecedent facts are as follows: 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
North Star International Travel Incorporated (North Star) is a corporation checks were dishonored because of a stop payment order from petitioner.
engaged in the travel agency business while petitioner is the owner/general [7]
North Star, through its counsel, wrote petitioner on September 14,
manager of JEAC International Management and Contractor Services, a 1994[8] informing him that the checks he issued had been dishonored. North
recruitment agency. Star demanded payment, but petitioner failed to settle his
obligations. Hence, North Star instituted Criminal Case Nos. 166549-53
On March 17,[2] 1994, Virginia Balagtas, the General Manager of North Star, charging petitioner with violation of Batas Pambansa Blg. 22, or
in accommodation and upon the instruction of its client, petitioner herein, the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of
sent the amount of US$60,000[3] to View Sea Ventures Ltd., in Nigeria from Makati City.
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 The Informations,[9] which were similarly worded except as to the check
US$15,000 coming from petitioner. Likewise, on various dates, North Star numbers, the dates and amounts of the checks, alleged:
extended credit to petitioner for the airplane tickets of his clients, with the
total amount of such indebtedness under the credit extensions eventually That on or about and during the month of March 1994 in the
reaching P510,035.47.[5] Municipality of Makati, Metro Manila, Philippines, a place
within the jurisdiction of this Honorable Court, the above-
To cover payment of the foregoing obligations, petitioner issued the named accused, being the authorized signatory of [JEAC]
following five checks to North Star: Intl Mgt & Cont. Serv. did then and there willfully, unlawfully
and feloniously make out[,] draw and issue to North Star
Check No : 246822 Intl. Travel Inc. herein rep. by Virginia D. Balagtas to apply
Drawn Against : Republic Planters Bank on account or for value the checks described below:
Amount : P695,000.00 xxxx
Dated/Postdated : May 15, 1994 said accused well knowing that at the time of issue thereof,
Payable to : North Star International Travel, Inc. did not have sufficient funds in or credit with the drawee
bank for the payment in full of the face amount of such
Check No : 246823 check upon its presentment, which check when presented
Drawn Against : Republic Planters Bank for payment within ninety (90) days from the date thereof
Amount : P278,000.00 was subsequently dishonored by the drawee bank for the
Dated/Postdated : May 15, 1994 reason PAYMENT STOPPED/DAIF and despite receipt of
Payable to : North Star International Travel, Inc. 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
Drawn Against : Republic Planters Bank receiving notice.
Amount : P22,703.00 Contrary to law.
Dated/Postdated : May 15, 1994
Payable to : North Star International Travel, Inc. Upon arraignment, petitioner pleaded not guilty to the charges.
After trial, the MeTC found petitioner guilty beyond reasonable doubt of
Check No : 687803 violation of B.P. 22. Thus:
Drawn Against : PCIB
Amount : P1,500,000.00
 WHEREFORE, finding the accused, ENGR. JOSE E.
CAYANAN GUILTY beyond reasonable doubt of
Violation of Batas Pambansa Blg. 22 he is hereby
sentenced to suffer imprisonment of one (1) year for each of
the offense committed.
Accused is likewise ordered to indemnify the
complainant North Star International Travel, Inc.
represented in this case by Virginia Balagtas, the sum
of TWO MILLION FIVE HUNDRED THIRTY THOUSAND AND
SEVEN HUNDRED THREE PESOS (P2,530,703.00)
representing the total value of the checks in [question] plus
FOUR 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
(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 of the record.
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:
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.

It is to be noted that the checks subject matter of the With costs against petitioner.
instant case were issued in the name of North Star
International Inc., represented by private complainant SO ORDERED.
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
11. Allied Bank v. BPI, G.R. No. 188363, 27 February 2013 (liability
of drawee bank, collecting bank)
A collecting bank is guilty of contributory negligence when it accepted for
deposit a post-dated check notwithstanding that said check had been
cleared by the drawee bank which failed to return the check within the 24-
hour reglementary period.
Petitioner Allied Banking Corporation appeals the Decision 1 dated March 19,
2009 of the Court of Appeals (CA) in CA-G.R. SP No. 97604 which set aside
the Decision2 dated December 13, 2005 of the Regional Trial Court (RTC) of
Makati City, Branch 57 in Civil Case No. 05-418.
The factual antecedents:
On October 10, 2002, a check in the amount of ₱1,000,000.00 payable to
"Mateo Mgt. Group International" (MMGI) was presented for deposit and
accepted at petitioner's Kawit Branch. The check, post-dated "Oct. 9,
2003", was drawn against the account of Marciano Silva, Jr. (Silva) with
respondent Bank of the Philippine Islands (BPI) Bel-Air Branch. Upon
receipt, petitioner sent the check for clearing to respondent through the
Philippine Clearing House Corporation (PCHC). 3
The check was cleared by respondent and petitioner credited the account of
MMGI with ₱1,000,000.00. On October 22, 2002, MMGI’s account was
closed and all the funds therein were withdrawn. A month later, Silva
discovered the debit of ₱1,000,000.00 from his account. In response to
Silva’s complaint, respondent credited his account with the aforesaid sum. 4
On March 21, 2003, respondent returned a photocopy of the check to
petitioner for the reason: "Postdated." Petitioner, however, refused to
accept and sent back to respondent a photocopy of the check. Thereafter,
the check, or more accurately, the Charge Slip, was tossed several times
from petitioner to respondent, and back to petitioner, until on May 6, 2003,
respondent requested the PCHC to take custody of the check. Acting on the
request, PCHC directed the respondent to deliver the original check and
informed it of PCHC’s authority under Clearing House Operating Memo
(CHOM) No. 279 dated 06 September 1996 to split 50/50 the amount of the
check subject of a "Ping-Pong" controversy which shall be implemented thru
the issuance of Debit Adjustment Tickets against the outward demands of
the banks involved. PCHC likewise encouraged respondent to submit the
controversy for resolution thru the PCHC Arbitration Mechanism. 5
However, it was petitioner who filed a complaint 6 before the Arbitration
Committee, asserting that respondent should solely bear the entire face
value of the check due to its negligence in failing to return the check to
petitioner within the 24-hour reglementary period as provided in Section
20.17 of the Clearing House Rules and Regulations 8(CHRR) 2000. Petitioner
prayed that respondent be ordered to reimburse the sum of ₱500,000.00
with 12% interest per annum, and to pay attorney’s fees and other
arbitration expenses.
In its Answer with Counterclaims,9 respondent charged petitioner with gross
negligence for accepting the post-dated check in the first place. It
contended that petitioner’s admitted negligence was the sole and proximate
cause of the loss.
On December 8, 2004, the Arbitration Committee rendered its Decision 10 in
favor of petitioner and against the respondent. First, it ruled that the
situation of the parties does not involve a "Ping-Pong" controversy since the
subject check was neither returned within the reglementary time or through
the PCHC return window, nor coursed through the clearing facilities of the
PCHC.
As to respondent’s direct presentation of a photocopy of the subject check,
it was declared to be without legal basis because Section 21.1 11 of the CHRR
2000 does not apply to post-dated checks. The Arbitration Committee
further noted that respondent not only failed to return the check within the
24-hour reglementary period, it also failed to institute any formal complaint
within the contemplation of Section 20.3 12 and it appears that respondent
was already contented with the 50-50 split initially implemented by the
PCHC. Finding both parties negligent in the performance of their duties, the
Committee applied the doctrine of "Last Clear Chance" and ruled that the
loss should be shouldered by respondent alone, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of plaintiff Allied Banking Corporation and against defendant Bank of the
Philippine Islands, ordering the latter to pay the former the following:
(a) The sum of ₱500,000.00, plus interest thereon at the rate of
12% per annum counted from the date of filing of the complaint;
(b) Attorney’s fees in the amount of ₱25,000.00;
(c) The sum of ₱2,090.00 as and by way of reimbursement of filing
fees, plus the cost of suit.
SO ORDERED.13
Respondent filed a motion for reconsideration14 but it was denied by the
PCHC Board of Directors under Board Resolution No. 10-2005 15 dated April
22, 2005. The Board pointed out that what actually transpired was a "ping-
pong" "not of a check but of a Charge Slip (CS) enclosed in a carrier
envelope that went back and forth through the clearing system in apparent
reaction by [petitioner] to the wrongful return via the PCHC clearing
system." Respondent’s conduct was held as a "gross and unmistakably
deliberate violation" of Section 20.2, 16 in relation to Section 20.1(e) of the
CHRR 2000.17
On May 13, 2005, respondent filed a petition for review 18 in the RTC
claiming that PCHC erred in constricting the return of a post-dated check to
Section 20.1, overlooking the fact that Section 20.3 is also applicable which
provision necessarily contemplates defects that are referred to in Section
20.1 as both sections are subsumed under the general provision (Section
20) on the return of regular items. Respondent also argued that assuming it
to be liable, the PCHC erred in holding it solely responsible and should bear
entirely the consequent loss considering that while respondent may have the
"last" opportunity in proximity, it was petitioner which had the longest,
fairest and clearest chance to discover the mistake and avoid the happening
of the loss. Lastly, respondent assailed the award of attorney’s fees, arguing
that PCHC’s perception of "malice" against it and misuse of the clearing
machinery is clearly baseless and unfounded.
In its Decision dated December 13, 2005, the RTC affirmed with
modification the Arbitration Committee’s decision by deleting the award of
attorney’s fees. The RTC found no merit in respondent’s stance that through
inadvertence it failed to discover that the check was post-dated and that
confirmation within 24 hours is often "elusive if not outright impossible"
because a drawee bank receives hundreds if not thousands of checks in an
ordinary clearing day. Thus:
Petitioner admitted par. 4 in its Answer with Counterclaim and in its
Memorandum, further adding that upon receipt of the subject check
"through inadvertence", it did not notice that the check was postdated,
hence, petitioner did not return the same to respondent."
These contradict petitioner’s belated contention that it discovered the defect
only after the lapse of the reglementary period. What the evidence on
record discloses is that petitioner received the check on October 10, 2002,
that it was promptly sent for clearing, that through inadvertence, it did not
notice that the check was postdated. Petitioner did not even state when it
discovered the defect in the subject check.
Likewise, petitioner’s contention that its discovery of the defect was a non-
issue in view of the admissions made in its Answer is unavailing. The Court
has noted the fact that the PCHC Arbitration Committee conducted a
clarificatory hearing during which petitioner admitted that its standard
operating procedure as regards confirmation of checks was not followed. No
less than petitioner’s witness admitted that BPI tried to call up the drawer of
the check, as their procedure dictates when it comes to checks in large
amounts. However, having initially failed to contact the drawer, no follow up
calls were made nor other actions taken. Despite these, petitioner cleared
the check. Having admitted making said calls, it is simply impossible
for petitioner to have missed the fact that the check was
postdated.19 (Emphasis supplied)
With the denial of its motion for partial reconsideration, respondent elevated
the case to the CA by filing a petition for review under Rule 42 of the 1997
Rules of Civil Procedure, as amended.
By Decision dated March 19, 2009, the CA set aside the RTC judgment and
ruled for a 60-40 sharing of the loss as it found petitioner guilty of
contributory negligence in accepting what is clearly a post-dated check. The
CA found that petitioner’s failure to notice the irregularity on the face of the
check was a breach of its duty to the public and a telling sign of its lack of
due diligence in handling checks coursed through it. While the CA conceded
that the drawee bank has a bigger responsibility in the clearing of checks, it
declared that the presenting bank cannot take lightly its obligation to make
sure that only valid checks are introduced into the clearing system.
According to the CA, considerations of public policy and substantial justice
will be served by allocating the damage on a 60-40 ratio, as it thus decreed:
WHEREFORE, the decision of the Regional Trial Court of Makati City (Branch
57) dated December 13, 2005 is ANNULLED and SET ASIDE and judgment is
rendered ordering petitioner to pay respondent Allied Banking Corporation
the sum of ₱100,000.00 plus interest thereon at the rate of 6% from July
10, 2003, which shall become 12% per annum from finality hereof, until
fully paid, aside from costs.
SO ORDERED.20
Its motion for reconsideration having been denied by the CA, petitioner is
now before the Court seeking a partial reversal of the CA’s decision and
affirmance of the December 13, 2005 Decision of the RTC.
Essentially, the two issues for resolution are: (1) whether the doctrine of
last clear chance applies in this case; and (2) whether the 60-40
apportionment of loss ordered by the CA was justified.
As well established by the records, both petitioner and respondent were
admittedly negligent in the encashment of a check post-dated one year from
its presentment.
Petitioner argues that the CA should have sustained PCHC’s finding that
despite the antecedent negligence of petitioner in accepting the postdated
check for deposit, respondent, by exercising reasonable care and prudence,
might have avoided injurious consequences had it not negligently cleared
the check in question. It pointed out that in applying the doctrine of last
clear chance, the PCHC cited the case of Philippine Bank of Commerce v.
Court of Appeals21 which ruled that assuming the bank’s depositor, private
respondent, was negligent in entrusting cash to a dishonest employee, thus
providing the latter with the opportunity to defraud the company, it cannot
be denied that petitioner bank had the last clear opportunity to avert the
injury incurred by its client, simply by faithfully observing their self-imposed
validation procedure.
Petitioner underscores respondent’s failure to observe clearing house rules
and its own standard operating procedure which, the PCHC said constitute
further negligence so much so that respondent should be solely liable for the
loss. Specifically, respondent failed to return the subject check within the
24-hour reglementary period under Section 20.1 and to institute any formal
complaint within the contemplation of Section 20.3 of the CHRR 2000. The
PCHC likewise faulted respondent for not making follow-up calls or taking
any other action after it initially attempted, without success, to contact by
telephone the drawer of the check, and clearing the check despite such lack
of confirmation from its depositor in violation of its own standard procedure
for checks involving large amounts.
The doctrine of last clear chance, stated broadly, is that the negligence of
the plaintiff does not preclude a recovery for the negligence of the
defendant where it appears that the defendant, by exercising reasonable
care and prudence, might have avoided injurious consequences to the
plaintiff notwithstanding the plaintiff’s negligence. 22The doctrine necessarily
assumes negligence on the part of the defendant and contributory
negligence on the part of the plaintiff, and does not apply except upon that
assumption.23 Stated differently, the antecedent negligence of the plaintiff
does not preclude him from recovering damages caused by the supervening
negligence of the defendant, who had the last fair chance to prevent the
impending harm by the exercise of due diligence. 24Moreover, in situations
where the doctrine has been applied, it was defendant’s failure to exercise
such ordinary care, having the last clear chance to avoid loss or injury,
which was the proximate cause of the occurrence of such loss or injury. 25
In this case, the evidence clearly shows that the proximate cause of the
unwarranted encashment of the subject check was the negligence of
respondent who cleared a post-dated check sent to it thru the PCHC clearing
facility without observing its own verification procedure. As correctly found
by the PCHC and upheld by the RTC, if only respondent exercised ordinary
care in the clearing process, it could have easily noticed the glaring defect
upon seeing the date written on the face of the check "Oct. 9, 2003".
Respondent could have then promptly returned the check and with the
check thus dishonored, petitioner would have not credited the amount
thereof to the payee’s account. Thus, notwithstanding the antecedent
negligence of the petitioner in accepting the post-dated check for deposit, it
can seek reimbursement from respondent the amount credited to the
payee’s account covering the check.
What petitioner omitted to mention is that in the cited case of Philippine
Bank of Commerce v. Court of Appeals,26while the Court found petitioner
bank as the culpable party under the doctrine of last clear chance since it
had, thru its teller, the last opportunity to avert the injury incurred by its
client simply by faithfully observing its own validation procedure, it
nevertheless ruled that the plaintiff depositor (private respondent) must
share in the loss on account of its contributory negligence. Thus:
The foregoing notwithstanding, it cannot be denied that, indeed, private
respondent was likewise negligent in not checking its monthly statements of
account. Had it done so, the company would have been alerted to the series
of frauds being committed against RMC by its secretary. The damage would
definitely not have ballooned to such an amount if only RMC, particularly
Romeo Lipana, had exercised even a little vigilance in their financial
affairs. This omission by RMC amounts to contributory negligence
which shall mitigate the damages that may be awarded to the
private respondent under Article 2179 of the New Civil Code, to wit:
"x x x. When the plaintiff’s 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 defendant's lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded."
In view of this, we believe that the demands of substantial justice are
satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the
damage awarded by the respondent appellate court, except the award of
₱25,000.00 attorney’s fees, shall be borne by private respondent RMC; only
the balance of 60% needs to be paid by the petitioners. The award of
attorney’s fees shall be borne exclusively by the petitioners. 27 (Italics in the
original; emphasis supplied)
In another earlier case,28 the Court refused to hold petitioner bank solely
liable for the loss notwithstanding the finding that the proximate cause of
the loss was due to its negligence. Since the employees of private
respondent bank were likewise found negligent, its claim for damages is
subject to mitigation by the courts. Thus:
Both banks were negligent in the selection and supervision of their
employees resulting in the encashment of the forged checks by an impostor.
Both banks were not able to overcome the presumption of negligence in the
selection and supervision of their employees. It was the gross negligence of
the employees of both banks which resulted in the fraud and the subsequent
loss. While it is true that petitioner BPI’s negligence may have been
the proximate cause of the loss, respondent CBC’s negligence
contributed equally to the success of the impostor in encashing the
proceeds of the forged checks. Under these circumstances, we apply
Article 2179 of the Civil Code to the effect that while respondent CBC may
recover its losses, such losses are subject to mitigation by the courts. x x x
Considering the comparative negligence of the two (2) banks, we rule that
the demands of substantial justice are satisfied by allocating the loss of
₱2,413,215.16 and the costs of the arbitration proceedings in the amount of
₱7,250.00 and the costs of litigation on a 60-40 ratio. Conformably with this
ruling, no interests and attorney’s fees can be awarded to either of the
parties.29 (Emphasis supplied)
Apportionment of damages between parties who are both negligent was
followed in subsequent cases involving banking transactions notwithstanding
the court’s finding that one of them had the last clear opportunity to avoid
the occurrence of the loss.
In Bank of America NT & SA v. Philippine Racing Club,30 the Court
ruled:
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, petitioner’s 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. x x x Petitioner’s negligence has been undoubtedly established
and, thus, pursuant to Art. 1170 of the NCC, it must suffer the consequence
of said negligence.
In the interest of fairness, however, we believe it is proper to
consider respondent’s own negligence to mitigate petitioner’s
liability.1âwphi1 Article 2179 of the Civil Code provides:
xxxx
Explaining this provision in Lambert v. Heirs of Ray Castillon, 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"
xxxx
Following established jurisprudential precedents, 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.31 (Emphasis supplied)
In Philippine National Bank v. F.F. Cruz and Co., Inc.,32 the Court made
a similar disposition, thus:
Given the foregoing, we find no reversible error in the findings of the
appellate court that PNB was negligent in the handling of FFCCI’s combo
account, specifically, with respect to PNB’s failure to detect the forgeries in
the subject applications for manager’s check which could have prevented
the loss. x x x PNB failed to meet the high standard of diligence required by
the circumstances to prevent the fraud. In Philippine Bank of Commerce v.
Court of Appeals and The Consolidated Bank & Trust Corporation v. Court of
Appeals, where the bank’s negligence is the proximate cause of the loss and
the depositor is guilty of contributory negligence, we allocated the damages
between the bank and the depositor on a 60-40 ratio. We apply the same
ruling in this case considering that, as shown above, PNB’s negligence is the
proximate cause of the loss while the issue as to FFCCI’s contributory
negligence has been settled with finality in G.R. No. 173278. Thus, the
appellate court properly adjudged PNB to bear the greater part of the loss
consistent with these rulings.33
"Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls below
the standard to which he is required to conform for his own
protection."34 Admittedly, petitioner’s acceptance of the subject check for
deposit despite the one year postdate written on its face was a clear
violation of established banking regulations and practices. In such instances,
payment should be refused by the drawee bank and returned through the
PCHC within the 24-hour reglementary period. As aptly observed by the CA,
petitioner’s failure to comply with this basic policy regarding post-dated
checks was "a telling sign of its lack of due diligence in handling checks
coursed through it."35
It bears stressing that "the diligence required of banks is more than that of
a Roman paterfamilias or a good father of a family. The highest degree of
diligence is expected,"36 considering the nature of the banking business that
is imbued with public interest. While it is true that respondent's liability for
its negligent clearing of the check is greater, petitioner cannot take lightly
its own violation of the long-standing rule against encashment of post-dated
checks and the injurious consequences of allowing such checks into the
clearing system.
Petitioner repeatedly harps on respondent's transgression of clearing house
rules when the latter resorted to direct presentment way beyond the
reglementary period but glosses over its own negligent act that clearly fell
short of the conduct expected of it as a collecting bank. Petitioner must bear
the consequences of its omission to exercise extraordinary diligence in
scrutinizing checks presented by its depositors.
Assessing the facts and in the light of the cited precedents, the Court thus
finds no error committed by the CA in allocating the resulting loss from the
wrongful encashment of the subject check on a 60-40 ratio.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision
dated March 19, 2009 of the Court of Appeals in CA-G.R. SP No. 97604 is
hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
12.Equitable Banking Corporation v. Special Steel Products, G.R. No.
175350, 13 June 2012 (crossed check; liability of drawee bank)
A crossed check with the notation "account payee only" can only be
deposited in the named payee’s account. It is gross negligence for a bank to
ignore this rule solely on the basis of a third party’s oral representations of
having a good title thereto. Before the Court is a Petition for Review on
Certiorari of the October 13, 2006 Decision of the Court of Appeals (CA) in
CA-G.R. CV No. 62425. The dispositive portion of the assailed Decision
reads:
WHEREFORE, premises considered, the May 4, 1998 Decision of the
Regional Trial Court of Pasig City, Branch 168, in Civil Case No. 63561, is
hereby AFFIRMED. SO ORDERED.1
Factual Antecedents
Respondent Special Steel Products, Inc. (SSPI) is a private domestic
corporation selling steel products. Its co-respondent Augusto L. Pardo
(Pardo) is SSPI’s President and majority stockholder. 2 International Copra
Export Corporation (Interco) is its regular customer. 3 Jose Isidoro4 Uy, alias
Jolly Uy (Uy), is an Interco employee, in charge of the purchasing
department, and the son-in-law of its majority stockholder. 5 Petitioner
Equitable Banking Corporation (Equitable or bank) is a private domestic
corporation engaged in banking6and is the depository bank of Interco and of
Uy.
In 1991, SSPI sold welding electrodes to Interco, as evidenced by the
following sales invoices:
Sales Invoice No. 65042 dated February 14, 1991 for ₱325,976.34 7
Sales Invoice No. 65842 dated April 11, 1991 for ₱345,412.80 8
Sales Invoice No. 65843 dated April 11, 1991 for ₱313,845.84 9
The due dates for these invoices were March 16, 1991 (for the first sales
invoice) and May 11, 1991 (for the others). The invoices provided that
Interco would pay interest at the rate of 36% per annum in case of delay.
In payment for the above welding electrodes, Interco issued three checks
payable to the order of SSPI on July 10, 1991,10 July 16, 1991,11 and July 29,
1991.12 Each check was crossed with the notation "account payee only" and
was drawn against Equitable. The records do not identify the signatory for
these three checks, or explain how Uy, Interco’s purchasing officer, came
into possession of these checks.
The records only disclose that Uy presented each crossed check to Equitable
on the day of its issuance and claimed that he had good title thereto. 13 He
demanded the deposit of the checks in his personal accounts in Equitable,
Account No. 18841-2 and Account No. 03474-0. 14
Equitable acceded to Uy’s demands on the assumption that Uy, as the son-
in-law of Interco’s majority stockholder,15was acting pursuant to Interco’s
orders. The bank also relied on Uy’s status as a valued client. 16 Thus,
Equitable accepted the checks for deposit in Uy’s personal accounts 17 and
stamped "ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT
GUARANTEED" on their dorsal portion.18 Uy promptly withdrew the proceeds
of the checks.
In October 1991, SSPI reminded Interco of the unpaid welding electrodes,
amounting to ₱985,234.98.19 It reiterated its demand on January 14,
1992.20 SSPI explained its immediate need for payment as it was
experiencing some financial crisis of its own. Interco replied that it had
already issued three checks payable to SSPI and drawn against Equitable.
SSPI denied receipt of these checks.
On August 6, 1992, SSPI requested information from Equitable regarding
the three checks. The bank refused to give any information invoking the
confidentiality of deposits.21
The records do not disclose the circumstances surrounding Interco’s and
SSPI’s eventual discovery of Uy’s scheme. Nevertheless, it was determined
that Uy, not SSPI, received the proceeds of the three checks that were
payable to SSPI. Thus, on June 30, 1993 (twenty-three months after the
issuance of the three checks), Interco finally paid the value of the three
checks to SSPI, plus a portion of the accrued interests. Interco refused to
pay the entire accrued interest of ₱767,345.64 on the ground that it was not
responsible for the delay. Thus, SSPI was unable to collect ₱437,040.35 (at
the contracted rate of 36% per annum) in interest income. 22
SSPI and its president, Pardo, filed a complaint for damages with application
for a writ of preliminary attachment against Uy and Equitable Bank. The
complaint alleged that the three crossed checks, all payable to the order of
SSPI and with the notation "account payee only," could be deposited and
encashed by SSPI only. However, due to Uy’s fraudulent representations,
and Equitable’s indispensable connivance or gross negligence, the restrictive
nature of the checks was ignored and the checks were deposited in Uy’s
account. Had the defendants not diverted the three checks in July 1991, the
plaintiffs could have used them in their business and earned money from
them. Thus, the plaintiffs prayed for an award of actual damages consisting
of the unrealized interest income from the proceeds of the checks for the
two-year period that the defendants withheld the proceeds from them (from
July 1991 up to June 1993).23
In his personal capacity, Pardo claimed an award of ₱3 million as moral
damages from the defendants. He allegedly suffered hypertension, anxiety,
and sleepless nights for fear that the government would charge him for tax
evasion or money laundering. He maintained that defendants’ actions
amounted to money laundering and that it unfairly implicated his company
in the scheme. As for his fear of tax evasion, Pardo explained that the
Bureau of Internal Revenue might notice a discrepancy between the
financial reports of Interco (which might have reported the checks as SSPI’s
income in 1991) and those of SSPI (which reported the income only in
1993). Since Uy and Equitable were responsible for Pardo’s worries, they
should compensate him jointly and severally therefor. 24
SSPI and Pardo also prayed for exemplary damages and attorney’s fees. 25
In support of their application for preliminary attachment, the plaintiffs
alleged that the defendants are guilty of fraud in incurring the obligation
upon which the action was brought and that there is no sufficient security
for the claim sought to be enforced in this action. 26
The trial court granted plaintiffs’ application.27 It issued the writ of
preliminary attachment on September 20, 1993, 28upon the filing of plaintiffs’
bond for ₱500,000.00. The sheriff served and implemented the writ against
the personal properties of both defendants.29
Upon Equitable’s motion and filing of a counter-bond, however, the trial
court eventually discharged the attachment 30against it.31
Equitable then argued for the dismissal of the complaint for lack of cause of
action. It maintained that interest income is due only when it is expressly
stipulated in writing. Since Equitable and SSPI did not enter into any
contract, Equitable is not liable for damages, in the form of unobtained
interest income, to SSPI.32 Moreover, SSPI’s acceptance of Interco’s
payment on the sales invoices is a waiver or extinction of SSPI’s cause of
action based on the three checks.33Equitable further argued that it is not
liable to SSPI because it accepted the three crossed checks in good
faith.34Equitable averred that, due to Uy’s close relations with the drawer of
the checks, the bank had basis to assume that the drawer authorized Uy to
countermand the original order stated in the check (that it can only be
deposited in the named payee’s account). Since only Uy is responsible for
the fraudulent conversion of the checks, he should reimburse Equitable for
any amounts that it may be made liable to plaintiffs.35
The bank counter-claimed that SSPI is liable to it in damages for the
wrongful and malicious attachment of Equitable’s personal properties. The
bank maintained that SSPI knew that the allegation of fraud against the
bank is a falsehood. Further, the bank is financially capable to meet the
plaintiffs’ claim should the latter receive a favorable judgment. SSPI was
aware that the preliminary attachment against the bank was unnecessary,
and intended only to humiliate or destroy the bank’s reputation. 36
Meanwhile, Uy answered that the checks were negotiated to him; that he is
a holder for value of the checks and that he has a good title thereto. 37 He did
not, however, explain how he obtained the checks, from whom he obtained
his title, and the value for which he received them. During trial, Uy did not
present any evidence but adopted Equitable’s evidence as his own.
Ruling of the Regional Trial Court 38
The RTC clarified that SSPI’s cause of action against Uy and Equitable is for
quasi-delict. SSPI is not seeking to enforce payment on the undelivered
checks from the defendants, but to recover the damage that it sustained
from the wrongful non-delivery of the checks. 39
The crossed checks belonged solely to the payee named therein, SSPI. Since
SSPI did not authorize anyone to receive payment in its behalf, Uy clearly
had no title to the checks and Equitable had no right to accept the said
checks from Uy. Equitable was negligent in permitting Uy to deposit the
checks in his account without verifying Uy’s right to endorse the crossed
checks. The court reiterated that banks have the duty to scrutinize the
checks deposited with it, for a determination of their genuineness and
regularity. The law holds banks to a high standard because banks hold
themselves out to the public as experts in the field. Thus, the trial court
found Equitable’s explanation regarding Uy’s close relations with the drawer
unacceptable.40
Uy’s conversion of the checks and Equitable’s negligence make them liable
to compensate SSPI for the actual damage it sustained. This damage
consists of the income that SSPI failed to realize during the delay. 41 The trial
court then equated this unrealized income with the interest income that
SSPI failed to collect from Interco. Thus, it ordered Uy and Equitable to pay,
jointly and severally, the amount of ₱437,040.35 to SSPI as actual
damages.42
It also ordered the defendants to pay exemplary damages of ₱500,000.00,
attorney’s fees amounting to ₱200,000.00, as well as costs of suit. 43
The trial court likewise found merit in Pardo’s claim for moral damages. It
found that Pardo suffered anxiety, sleepless nights, and hypertension in fear
that he would face criminal prosecution. The trial court awarded Pardo the
amount of ₱3 million in moral damages.44
The dispositive portion of the trial court’s Decision reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs Special
Steel Products, Inc., and Augusto L. Pardo and against defendants Equitable
Banking Corporation [and] Jose Isidoro Uy, alias "Jolly Uy," ordering
defendants to jointly and severally pay plaintiffs the following:
1. ₱437,040.35 as actual damages;
2. ₱3,000,000.00 as moral damages to Augusto L. Pardo;
3. ₱500,000.00 as exemplary damages;
4. ₱200,000.00 as attorney’s fees; and
5. Costs of suit.
Defendant EBC’s counterclaim is hereby DISMISSED for lack of factual and
legal basis.
Likewise, the crossclaim filed by defendant EBC against defendant Jose
Isidoro Uy and the crossclaim filed by defendant Jose Isidoro Uy against
defendant EBC are hereby DISMISSED for lack of factual and legal basis.
SO ORDERED.
Pasig City, May 4, 1998.45
The trial court denied Equitable’s motion for reconsideration in its Order
dated November 19, 1998.46
Only Equitable appealed to the CA,47 reiterating its defenses below.
Appealed Ruling of the Court of Appeals48
The appellate court found no merit in Equitable’s appeal.
It affirmed the trial court’s ruling that SSPI had a cause of action for quasi-
delict against Equitable.49 The CA noted that the three checks presented by
Uy to Equitable were crossed checks, and strictly made payable to SSPI
only. This means that the checks could only be deposited in the account of
the named payee.50 Thus, the CA found that Equitable had the responsibility
of ensuring that the crossed checks are deposited in SSPI’s account only.
Equitable violated this duty when it allowed the deposit of the crossed
checks in Uy’s account.51
The CA found factual and legal basis to affirm the trial court’s award of
moral damages in favor of Pardo.52
It likewise affirmed the award of exemplary damages and attorney’s fees in
favor of SSPI.53
Issues
1. Whether SSPI has a cause of action against Equitable for quasi-delict;
2. Whether SSPI can recover, as actual damages, the stipulated 36% per
annum interest from Equitable;
3. Whether speculative fears and imagined scenarios, which cause sleepless
nights, may be the basis for the award of moral damages; and
4. Whether the attachment of Equitable’s personal properties was wrongful.
Our Ruling
SSPI’s cause of action
This case involves a complaint for damages based on quasi-delict. SSPI
asserts that it did not receive prompt payment from Interco in July 1991
because of Uy’s wilful and illegal conversion of the checks payable to SSPI,
and of Equitable’s gross negligence, which facilitated Uy’s actions. The
combined actions of the defendants deprived SSPI of interest income on the
said moneys from July 1991 until June 1993. Thus, SSPI claims damages in
the form of interest income for the said period from the parties who wilfully
or negligently withheld its money from it.
Equitable argues that SSPI cannot assert a right against the bank based on
the undelivered checks.54 It cites provisions from the Negotiable Instruments
Law and the case of Development Bank of Rizal v. Sima Wei 55 to argue that
a payee, who did not receive the check, cannot require the drawee bank to
pay it the sum stated on the checks.
Equitable’s argument is misplaced and beside the point. SSPI’s cause of
action is not based on the three checks. SSPI does not ask Equitable or Uy
to deliver to it the proceeds of the checks as the rightful payee. SSPI does
not assert a right based on the undelivered checks or for breach of contract.
Instead, it asserts a cause of action based on quasi-delict. A quasi-delict is
an act or omission, there being fault or negligence, which causes damage to
another. Quasi-delicts exist even without a contractual relation between the
parties. The courts below correctly ruled that SSPI has a cause of action for
quasi-delict against Equitable.
The checks that Interco issued in favor of SSPI were all crossed, made
payable to SSPI’s order, and contained the notation "account payee only."
This creates a reasonable expectation that the payee alone would receive
the proceeds of the checks and that diversion of the checks would be
averted. This expectation arises from the accepted banking practice that
crossed checks are intended for deposit in the named payee’s account only
and no other.56 At the very least, the nature of crossed checks should place
a bank on notice that it should exercise more caution or expend more than a
cursory inquiry, to ascertain whether the payee on the check has authorized
the holder to deposit the same in a different account. It is well to remember
that "[t]he 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 [sic] ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and, above all, trust and
confidence. In this connection, it is important that banks should guard
against injury attributable to negligence or bad faith on its part. As
repeatedly emphasized, since the banking business is impressed with public
interest, the trust and confidence of the public in it is of paramount
importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it." 57
Equitable did not observe the required degree of diligence expected of a
banking institution under the existing factual circumstances.
The fact that a person, other than the named payee of the crossed check,
was presenting it for deposit should have put the bank on guard. It should
have verified if the payee (SSPI) authorized the holder (Uy) to present the
same in its behalf, or indorsed it to him. Considering however, that the
named payee does not have an account with Equitable (hence, the latter has
no specimen signature of SSPI by which to judge the genuineness of its
indorsement to Uy), the bank knowingly assumed the risk of relying solely
on Uy’s word that he had a good title to the three checks. Such misplaced
reliance on empty words is tantamount to gross negligence, which is the
"absence of or failure to exercise even slight care or diligence, or
the entire absence of care, evincing a thoughtless disregard of
consequences without exerting any effort to avoid them."58
Equitable contends that its knowledge that Uy is the son-in-law of the
majority stockholder of the drawer, Interco, made it safe to assume that the
drawer authorized Uy to countermand the order appearing on the check. In
other words, Equitable theorizes that Interco reconsidered its original order
and decided to give the proceeds of the checks to Uy. 59 That the bank
arrived at this conclusion without anything on the face of the checks to
support it is demonstrative of its lack of caution. It is troubling that
Equitable proceeded with the transaction based only on its knowledge that
Uy had close relations with Interco. The bank did not even make inquiries
with the drawer, Interco (whom the bank considered a "valued client"), to
verify Uy’s representation. The banking system is placed in peril when
bankers act out of blind faith and empty promises, without requiring proof of
the assertions and without making the appropriate inquiries. Had it only
exercised due diligence, Equitable could have saved both Interco and the
named payee, SSPI, from the trouble that the bank’s mislaid trust wrought
for them.
Equitable’s pretension that there is nothing under the circumstances that
rendered Uy’s title to the checks questionable is outrageous. These are
crossed checks, whose manner of discharge, in banking practice, is
restrictive and specific. Uy’s name does not appear anywhere on the crossed
checks. Equitable, not knowing the named payee on the check, had no way
of verifying for itself the alleged genuineness of the indorsement to Uy. The
checks bear nothing on their face that supports the belief that the drawer
gave the checks to Uy. Uy’s relationship to Interco’s majority stockholder
will not justify disregarding what is clearly ordered on the checks.
Actual damages
For its role in the conversion of the checks, which deprived SSPI of the use
thereof, Equitable is solidarily liable with Uy to compensate SSPI for the
damages it suffered.
Among the compensable damages are actual damages, which encompass
the value of the loss sustained by the plaintiff, and the profits that the
plaintiff failed to obtain.60 Interest payments, which SSPI claims, fall under
the second category of actual damages.
SSPI computed its claim for interest payments based on the interest rate
stipulated in its contract with Interco. It explained that the stipulated
interest rate is the actual interest income it had failed to obtain from Interco
due to the defendants’ tortious conduct.
The Court finds the application of the stipulated interest rate erroneous.
SSPI did not recover interest payments at the stipulated rate from Interco
because it agreed that the delay was not Interco’s fault, but that of the
defendants’. If that is the case, then Interco is not in delay (at least not
after issuance of the checks) and the stipulated interest payments in their
contract did not become operational. If Interco is not liable to pay for the
36% per annum interest rate, then SSPI did not lose that income. SSPI
cannot lose something that it was not entitled to in the first place. Thus,
SSPI’s claim that it was entitled to interest income at the rate stipulated in
its contract with Interco, as a measure of its actual damage, is fallacious.
More importantly, the provisions of a contract generally take effect only
among the parties, their assigns and heirs. 61SSPI cannot invoke the
contractual stipulation on interest payments against Equitable because it is
neither a party to the contract, nor an assignee or an heir to the contracting
parties.
Nevertheless, it is clear that defendants’ actions deprived SSPI of the
present use of its money for a period of two years. SSPI is therefore entitled
to obtain from the tortfeasors the profits that it failed to obtain from July
1991 to June 1993. SSPI should recover interest at the legal rate of 6% per
annum,62 this being an award for damages based on quasi-delict and not for
a loan or forbearance of money.
Moral damages
Both the trial and appellate courts awarded Pardo ₱3 million in moral
damages. Pardo claimed that he was frightened, anguished, and seriously
anxious that the government would prosecute him for money laundering and
tax evasion because of defendants’ actions. 63 In other words, he was worried
about the repercussions that defendants’ actions would have on him.
Equitable argues that Pardo’s fears are all imagined and should not be
compensated. The bank points out that none of Pardo’s fears panned out. 64
Moral damages are recoverable only when they are the proximate result of
the defendant’s wrongful act or omission.65 Both the trial and appellate
courts found that Pardo indeed suffered as a result of the diversion of the
three checks. It does not matter that the things he was worried and anxious
about did not eventually materialize. It is rare for a person, who is beset
with mounting problems, to sift through his emotions and distinguish which
fears or anxieties he should or should not bother with. So long as the
injured party’s moral sufferings are the result of the defendants’ actions, he
may recover moral damages.
The Court, however, finds the award of ₱3 million excessive. Moral damages
are given not to punish the defendant but only to give the plaintiff the
means to assuage his sufferings with diversions and recreation. 66 We find
that the award of ₱50,000.0067 as moral damages is reasonable under the
circumstances.
Equitable to recover amounts from Uy
Equitable then insists on the allowance of their cross-claim against Uy. The
bank argues that it was Uy who was enriched by the entire scheme and
should reimburse Equitable for whatever amounts the Court might order it
to pay in damages to SSPI.68
Equitable is correct. There is unjust enrichment when (1) a person is
unjustly benefited, and (2) such benefit is derived at the expense of or with
damages to another.69 In the instant case, the fraudulent scheme concocted
by Uy allowed him to improperly receive the proceeds of the three crossed
checks and enjoy the profits from these proceeds during the entire time that
it was withheld from SSPI. Equitable, through its gross negligence and
mislaid trust on Uy, became an unwitting instrument in Uy’s scheme.
Equitable’s fault renders it solidarily liable with Uy, insofar as respondents
are concerned. Nevertheless, as between Equitable and Uy, Equitable should
be allowed to recover from Uy whatever amounts Equitable may be made to
pay under the judgment. It is clear that Equitable did not profit in Uy’s
scheme. Disallowing Equitable’s cross-claim against Uy is tantamount to
allowing Uy to unjustly enrich himself at the expense of Equitable. For this
reason, the Court allows Equitable’s cross-claim against Uy.
Preliminary attachment
Equitable next assails as error the trial court’s dismissal of its counter-claim
for wrongful preliminary attachment. It maintains that, contrary to SSPI’s
allegation in its application for the writ, there is no showing whatsoever that
Equitable was guilty of fraud in allowing Uy to deposit the checks. Thus, the
trial court should not have issued the writ of preliminary attachment in favor
of SSPI. The wrongful attachment compelled Equitable to incur expenses for
a counter-bond, amounting to ₱30,204.26, and caused it to sustain damage,
amounting to ₱5 million, to its goodwill and business credit. 70
SSPI submitted the following affidavit in support of its application for a writ
of preliminary attachment:
I, Augusto L. Pardo, of legal age, under oath hereby depose and declare:
1. I am one of the plaintiffs in the above-entitled case; the other plaintiff is our family
corporation, Special Steel Products, Inc., of which I am the president and majority
stockholder; I caused the preparation of the foregoing Complaint, the allegations of
which I have read, and which I hereby affirm to be true and correct out of my own
personal knowledge;
2. The corporation and I have a sufficient cause of action against defendants Isidoro
Uy alias Jolly Uy and Equitable Banking Corporation, who are guilty of fraud in
incurring the obligation upon which this action is brought, as particularly alleged in
the Complaint, which allegations I hereby adopt and reproduce herein;
3. There is no sufficient security for our claim in this action and that the amount due
us is as much as the sum for which the order is granted above all legal counterclaims;
4. We are ready and able to put up a bond executed to the defendants in an amount
to be fixed by the Court[,] conditioned on the payment of all costs[,] which may be
adjudged to defendants[,] and all damages[,] which they may sustain by reason of
the attachment of the court, should [the court] finally adjudge that we are not
entitled thereto.71
The complaint (to which the supporting affidavit refers) cites the following factual
circumstances to justify SSPI’s application:
6. x x x Yet, notwithstanding the fact that SPECIAL STEEL did not open an account
with EQUITABLE BANK as already alleged, thru its connivance with defendant UY in
his fraudulent scheme to defraud SPECIAL STEEL, or at least thru its gross negligence
EQUITABLE BANK consented to or allowed the opening of Account No. 18841-2 at its
head office and Account No. 03474-0 at its Ermita Branch in the name of SPECIAL
STEEL without the latter’s knowledge, let alone authority or consent, but obviously on
the bases of spurious or falsified documents submitted by UY or under his
authority, which documents EQUITABLE BANK did not bother to verify or check
their authenticity with SPECIAL STEEL.72x x x x
9. On August 6, 1992, plaintiffs, thru counsel, wrote EQUITABLE BANK about the
fraudulent transactions involving the aforesaid checks, which could not have been
perpetrated without its indispensable participation and cooperation, or gross
negligence, and therein solicited its cooperation in securing information as to the
anomalous and irregular opening of the false accounts maintained in SPECIAL STEEL’s
name, but EQUITABLE BANK malevolently shirking from its responsibility to prevent
the further perpetration of fraud, conveniently, albeit unjustifiably, invoked the
confidentiality of the deposits and refused to give any information, and accordingly
denied SPECIAL STEEL’s valid request, thereby knowingly shielding the identity of the
ma[le]factors involved [in] the unlawful and fraudulent transactions. 73
The above affidavit and the allegations of the complaint are bereft of specific
and definite allegations of fraud against Equitable that would justify the
attachment of its properties. In fact, SSPI admits its uncertainty whether
Equitable’s participation in the transactions involved fraud or was a result of
its negligence. Despite such uncertainty with respect to Equitable’s
participation, SSPI applied for and obtained a preliminary attachment of
Equitable’s properties on the ground of fraud. We believe that such
preliminary attachment was wrongful. "[A] writ of preliminary attachment is
too harsh a provisional remedy to be issued based on mere abstractions of
fraud. Rather, the rules require that for the writ to issue, there must be a
recitation of clear and concrete factual circumstances manifesting that the
debtor practiced fraud upon the creditor at the time of the execution of their
agreement in that said debtor had a preconceived plan or intention not to
pay the creditor."74 No proof was adduced tending to show that Equitable
had a preconceived plan not to pay SSPI or had knowingly participated in
Uy’s scheme.
That the plaintiffs eventually obtained a judgment in their favor does not
detract from the wrongfulness of the preliminary attachment.1âwphi1 While
"the evidence warrants [a] judgment in favor of [the] applicant, the proofs
may nevertheless also establish that said applicant’s proffered ground for
attachment was inexistent or specious, and hence, the writ should not have
issued at all x x x."75
For such wrongful preliminary attachment, plaintiffs may be held liable for
damages. However, Equitable is entitled only to such damages as its
evidence would allow,76 for the wrongfulness of an attachment does not
automatically warrant the award of damages. The debtor still has the burden
of proving the nature and extent of the injury that it suffered by reason of
the wrongful attachment.77
The Court has gone over the records and found that Equitable has duly
proved its claim for, and is entitled to recover, actual damages. In order to
lift the wrongful attachment of Equitable’s properties, the bank was
compelled to pay the total amount of ₱30,204.26 in premiums for a counter-
bond.78 However, Equitable failed to prove that it sustained damage to its
"goodwill and business credit" in consequence of the alleged wrongful
attachment. There was no proof of Equitable’s contention that respondents’
actions caused it public embarrassment and a bank run.
WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED. The
assailed October 13, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 62425
is MODIFIED by:
1. REDUCING the award of actual damages to respondents to the rate of 6% per
annum of the value of the three checks from July 1991 to June 1993 or a period of
twenty-three months;
2. REDUCING the award of moral damages in favor of Augusto L. Pardo from
₱3,000,000.00 to ₱ 50,000.00; and
3. REVERSING the dismissal of Equitable Banking Corporation’s cross-claim against
Jose Isidoro Uy, alias Jolly Uy. Jolly Uy is hereby ORDERED to REIMBURSE Equitable
Banking Corporation the amounts that the latter will pay to respondents.
Additionally, the Court hereby REVERSES the dismissal of Equitable Banking
Corporation’s counterclaim for damages against Special Steel Products, Inc.
This Court ORDERS Special Steel Products, Inc. to PAY Equitable Banking Corporation
actual damages in the total amount of ₱30,204.36, for the wrongful preliminary
attachment of its properties.The rest of the assailed Decision is AFFIRMED.SO
ORDERED.
13.People v. Wagas, G.R. No. 157943, 4 September 2013 (post-
dated check; delivery)
The Bill of Rights guarantees the right of an accused to be presumed
innocent until the contrary is proved. In order to overcome the presumption
of innocence, the Prosecution is required to adduce against him nothing less
than proof beyond reasonable doubt. Such proof is not only in relation to the
elements of the offense, but also in relation to the identity of the offender. If
the Prosecution fails to discharge its heavy burden, then it is not only the
right of the accused to be freed, it becomes the Court’s constitutional duty
to acquit him.
The Case
Gilbert R. Wagas appeals his conviction for estafa under the decision
rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu
City (RTC), meting on him the indeterminate penalty of 12 years of prision
mayor, as minimum, to 30 years of reclusion perpetua, as maximum.
Antecedents
Wagas was charged with estafa under the information that reads:
That on or about the 30th day of April, 1997, and for sometime prior and
subsequent thereto, in the City of Cebu, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, with deliberate intent,
with intent to gain and by means of false pretenses or fraudulent acts
executed prior to or simultaneously with the commission of the fraud, to
wit: knowing that he did not have sufficient funds deposited with the Bank
of Philippine Islands, and without informing Alberto Ligaray of that
circumstance, with intent to defraud the latter, did then and there issue
Bank of the Philippine Islands Check No. 0011003, dated May 08, 1997 in
the amount of ₱200,000.00, which check was issued in payment of an
obligation, but which check when presented for encashment with the bank,
was dishonored for the reason "drawn against insufficient funds" and inspite
of notice and several demands made upon said accused to make good said
check or replace the same with cash, he had failed and refused and up to
the present time still fails and refuses to do so, to the damage and prejudice
of Alberto Ligaray in the amount aforestated.
CONTRARY TO LAW.1
After Wagas entered a plea of not guilty,2 the pre-trial was held, during
which the Defense admitted that the check alleged in the information had
been dishonored due to insufficient funds. 3 On its part, the Prosecution
made no admission.4
At the trial, the Prosecution presented complainant Alberto Ligaray as its
lone witness. Ligaray testified that on April 30, 1997, Wagas placed an order
for 200 bags of rice over the telephone; that he and his wife would not
agree at first to the proposed payment of the order by postdated check, but
because of Wagas’ assurance that he would not disappoint them and that he
had the means to pay them because he had a lending business and money
in the bank, they relented and accepted the order; that he released the
goods to Wagas on April 30, 1997 and at the same time received Bank of
the Philippine Islands (BPI) Check No. 0011003 for ₱200,000.00 payable to
cash and postdated May 8, 1997; that he later deposited the check with
Solid Bank, his depository bank, but the check was dishonored due to
insufficiency of funds;5 that he called Wagas about the matter, and the latter
told him that he would pay upon his return to Cebu; and that despite
repeated demands, Wagas did not pay him.6
On cross-examination, Ligaray admitted that he did not personally meet
Wagas because they transacted through telephone only; that he released
the 200 bags of rice directly to Robert Cañada, the brother-in-law of Wagas,
who signed the delivery receipt upon receiving the rice. 7
After Ligaray testified, the Prosecution formally offered the following: (a)
BPI Check No. 0011003 in the amount of ₱200,000.00 payable to "cash;"
(b) the return slip dated May 13, 1997 issued by Solid Bank; (c) Ligaray’s
affidavit; and (d) the delivery receipt signed by Cañada. After the RTC
admitted the exhibits, the Prosecution then rested its case. 8
In his defense, Wagas himself testified. He admitted having issued BPI
Check No. 0011003 to Cañada, his brother-in-law, not to Ligaray. He denied
having any telephone conversation or any dealings with Ligaray. He
explained that the check was intended as payment for a portion of Cañada’s
property that he wanted to buy, but when the sale did not push through, he
did not anymore fund the check.9
On cross-examination, the Prosecution confronted Wagas with a letter dated
July 3, 1997 apparently signed by him and addressed to Ligaray’s counsel,
wherein he admitted owing Ligaray ₱200,000.00 for goods received, to wit:
This is to acknowledge receipt of your letter dated June 23, 1997 which is
self-explanatory. It is worthy also to discuss with you the environmental
facts of the case for your consideration, to wit:
It is true that I obtained goods from your client worth ₱200,000.00 and I
promised to settle the same last May 10, 1997, but to no avail. On this
point, let me inform you that I sold my real property to a buyer in Manila,
and promised to pay the consideration on the same date as I promised with
your client. Unfortunately, said buyer likewise failed to make good with such
obligation. Hence, I failed to fulfill my promise resultant thereof. (sic)
Again, I made another promise to settle said obligation on or before June
15, 1997, but still to no avail attributable to the same reason as
aforementioned. (sic)
To arrest this problem, we decided to source some funds using the subject
property as collateral. This other means is resorted to for the purpose of
settling the herein obligation. And as to its status, said funds will be
rele[a]sed within thirty (30) days from today.
In view of the foregoing, it is my sincere request and promise to settle said
obligation on or before August 15, 1997.
Lastly, I would like to manifest that it is not my intention to shy away from
any financial obligation.
xxxx
Respectfully yours,
(SGD.)
GILBERT R. WAGAS10
Wagas admitted the letter, but insisted that it was Cañada who had
transacted with Ligaray, and that he had signed the letter only because his
sister and her husband (Cañada) had begged him to assume the
responsibility.11 On redirect examination, Wagas declared that Cañada, a
seafarer, was then out of the country; that he signed the letter only to
accommodate the pleas of his sister and Cañada, and to avoid jeopardizing
Cañada’s application for overseas employment.12 The Prosecution
subsequently offered and the RTC admitted the letter as rebuttal evidence. 13
Decision of the RTC
As stated, the RTC convicted Wagas of estafa on July 11, 2002, viz:
WHEREFORE, premises considered, the Court finds the accused GUILTY
beyond reasonable doubt as charged and he is hereby sentenced as follows:
To suffer an indeterminate penalty of from twelve (12) years of pris[i]on
mayor, as minimum, to thirty (30) years of reclusion perpetua as maximum;
To indemnify the complainant, Albert[o] Ligaray in the sum of ₱200,000.00;
To pay said complainant the sum of ₱30,000.00 by way of attorney’s fees;
and the costs of suit.
SO ORDERED.14
The RTC held that the Prosecution had proved beyond reasonable doubt all
the elements constituting the crime of estafa, namely: (a) that Wagas
issued the postdated check as payment for an obligation contracted at the
time the check was issued; (b) that he failed to deposit an amount sufficient
to cover the check despite having been informed that the check had been
dishonored; and (c) that Ligaray released the goods upon receipt of the
postdated check and upon Wagas’ assurance that the check would be
funded on its date.
Wagas filed a motion for new trial and/or reconsideration, 15 arguing that the
Prosecution did not establish that it was he who had transacted with Ligaray
and who had negotiated the check to the latter; that the records showed
that Ligaray did not meet him at any time; and that Ligaray’s testimony on
their alleged telephone conversation was not reliable because it was not
shown that Ligaray had been familiar with his voice. Wagas also sought the
reopening of the case based on newly discovered evidence, specifically: (a)
the testimony of Cañada who could not testify during the trial because he
was then out of the country, and (b) Ligaray’s testimony given against
Wagas in another criminal case for violation of Batas Pambansa Blg. 22.
On October 21, 2002, the RTC denied the motion for new trial and/or
reconsideration, opining that the evidence Wagas desired to present at a
new trial did not qualify as newly discovered, and that there was no
compelling ground to reverse its decision.16
Wagas appealed directly to this Court by notice of appeal. 17
Prior to the elevation of the records to the Court, Wagas filed a petition for
admission to bail pending appeal. The RTC granted the petition and fixed
Wagas’ bond at ₱40,000.00.18 Wagas then posted bail for his provisional
liberty pending appeal.19
The resolution of this appeal was delayed by incidents bearing on the grant
of Wagas’ application for bail. On November 17, 2003, the Court required
the RTC Judge to explain why Wagas was out on bail. 20 On January 15,
2004, the RTC Judge submitted to the Court a so-called manifestation and
compliance which the Court referred to the Office of the Court Administrator
(OCA) for evaluation, report, and recommendation. 21 On July 5, 2005, the
Court, upon the OCA’s recommendation, directed the filing of an
administrative complaint for simple ignorance of the law against the RTC
Judge.22 On September 12, 2006, the Court directed the OCA to comply with
its July 5, 2005 directive, and to cause the filing of the administrative
complaint against the RTC Judge. The Court also directed Wagas to explain
why his bail should not be cancelled for having been erroneously
granted.23 Finally, in its memorandum dated September 27, 2006, the OCA
manifested to the Court that it had meanwhile filed the administrative
complaint against the RTC Judge.24
Issues
In this appeal, Wagas insists that he and Ligaray were neither friends nor
personally known to one other; that it was highly incredible that Ligaray, a
businessman, would have entered into a transaction with him involving a
huge amount of money only over the telephone; that on the contrary, the
evidence pointed to Cañada as the person with whom Ligaray had
transacted, considering that the delivery receipt, which had been signed by
Cañada, indicated that the goods had been "Ordered by ROBERT CAÑADA,"
that the goods had been received by Cañada in good order and condition,
and that there was no showing that Cañada had been acting on behalf of
Wagas; that he had issued the check to Cañada upon a different
transaction; that Cañada had negotiated the check to Ligaray; and that the
element of deceit had not been established because it had not been proved
with certainty that it was him who had transacted with Ligaray over the
telephone.
The circumstances beg the question: did the Prosecution establish
beyond reasonable doubt the existence of all the elements of the crime of
estafa as charged, as well as the identity of the perpetrator of the crime?
 Ruling
The appeal is meritorious.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended,
provides:
Article 315. Swindling (estafa). — Any person who shall defraud another
by any of the means mentioned hereinbelow shall be punished by:
xxxx
2. By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneously with the commission of the fraud:
xxxx
(d) By postdating a check, or issuing a check in payment of an obligation
when the offender had no funds in the bank, or his funds deposited therein
were not sufficient to cover the amount of the check. The failure of the
drawer of the check to deposit the amount necessary to cover his check
within three (3) days from receipt of notice from the bank and/or the payee
or holder that said check has been dishonored for lack or insufficiency of
funds shall be prima facie evidence of deceit constituting false pretense or
fraudulent act.
In order to constitute estafa under this statutory provision, the act of
postdating or issuing a check in payment of an obligation must be the
efficient cause of the defraudation. This means that the offender must be
able to obtain money or property from the offended party by reason of the
issuance of the check, whether dated or postdated. In other words, the
Prosecution must show that the person to whom the check was delivered
would not have parted with his money or property were it not for the
issuance of the check by the offender. 25
The essential elements of the crime charged are that: (a) a check is
postdated or issued in payment of an obligation contracted at the time the
check is issued; (b) lack or insufficiency of funds to cover the check; and (c)
damage to the payee thereof.26 It is the criminal fraud or deceit in the
issuance of a check that is punishable, not the non-payment of a
debt.27 Prima facie evidence of deceit exists by law upon proof that the
drawer of the check failed to deposit the amount necessary to cover his
check within three days from receipt of the notice of dishonor.
The Prosecution established that Ligaray had released the goods to Cañada
because of the postdated check the latter had given to him; and that the
check was dishonored when presented for payment because of the
insufficiency of funds.
In every criminal prosecution, however, the identity of the offender, like the
crime itself, must be established by proof beyond reasonable doubt. 28 In
that regard, the Prosecution did not establish beyond reasonable doubt that
it was Wagas who had defrauded Ligaray by issuing the check.
Firstly, Ligaray expressly admitted that he did not personally meet the
person with whom he was transacting over the telephone, thus:
Q:
On April 30, 1997, do you remember having a transaction with the accused
in this case?
A:
Yes, sir. He purchased two hundred bags of rice from me.
Q:
How did this purchase of rice transaction started? (sic)
A:
He talked with me over the phone and told me that he would like to
purchase two hundred bags of rice and he will just issue a check. 29
Even after the dishonor of the check, Ligaray did not personally see and
meet whoever he had dealt with and to whom he had made the demand for
payment, and that he had talked with him only over the telephone, to wit:
Q:
After the check was (sic) bounced, what did you do next?
A:
I made a demand on them.
Q:
How did you make a demand?
A:
I called him over the phone.
Q:
Who is that "him" that you are referring to?
A:
Gilbert Wagas.30
Secondly, the check delivered to Ligaray was made payable to cash. Under
the Negotiable Instruments Law, this type of check was payable to the
bearer and could be negotiated by mere delivery without the need of an
indorsement.31 This rendered it highly probable that Wagas had issued the
check not to Ligaray, but to somebody else like Cañada, his brother-in-law,
who then negotiated it to Ligaray.1âwphi1 Relevantly, Ligaray confirmed
that he did not himself see or meet Wagas at the time of the transaction
and thereafter, and expressly stated that the person who signed for and
received the stocks of rice was Cañada.
It bears stressing that the accused, to be guilty of estafa as charged, must
have used the check in order to defraud the complainant. What the law
punishes is the fraud or deceit, not the mere issuance of the worthless
check. Wagas could not be held guilty of estafa simply because he had
issued the check used to defraud Ligaray. The proof of guilt must still clearly
show that it had been Wagas as the drawer who had defrauded Ligaray by
means of the check.
Thirdly, Ligaray admitted that it was Cañada who received the rice from him
and who delivered the check to him. Considering that the records are bereft
of any showing that Cañada was then acting on behalf of Wagas, the RTC
had no factual and legal bases to conclude and find that Cañada had been
acting for Wagas. This lack of factual and legal bases for the RTC to infer so
obtained despite Wagas being Cañada’s brother-in-law.
Finally, Ligaray’s declaration that it was Wagas who had transacted with him A:
over the telephone was not reliable because he did not explain how he Yes, sir.
determined that the person with whom he had the telephone conversation Q:
was really Wagas whom he had not yet met or known before then. We deem If he is present inside the courtroom […]
it essential for purposes of reliability and trustworthiness that a telephone A:
conversation like that one Ligaray supposedly had with the buyer of rice to No, sir. He is not around.
be first authenticated before it could be received in evidence. Among others, Q:
the person with whom the witness conversed by telephone should be first Why do you know him?
satisfactorily identified by voice recognition or any other means. 32 Without A:
the authentication, incriminating another person just by adverting to the I know him as a resident of Compostela because he is an ex-mayor of
telephone conversation with him would be all too easy. In this respect, an Compostela.36
identification based on familiarity with the voice of the caller, or because of During cross-examination, Ligaray was allowed another opportunity to show
clearly recognizable peculiarities of the caller would have sufficed. 33 The how he had determined that his caller was Wagas, but he still failed to
identity of the caller could also be established by the caller’s self- provide a satisfactory showing, to wit:
identification, coupled with additional evidence, like the context and timing Q:
of the telephone call, the contents of the statement challenged, internal Mr. Witness, you mentioned that you and the accused entered into [a]
patterns, and other distinctive characteristics, and disclosure of knowledge transaction of rice selling, particularly with these 200 sacks of rice subject of
of facts known peculiarly to the caller.34 this case, through telephone conversation?
A:
Verily, it is only fair that the caller be reliably identified first before a Yes, sir.
telephone communication is accorded probative weight. The identity of the Q:
caller may be established by direct or circumstantial evidence. According to But you cannot really ascertain that it was the accused whom you are
one ruling of the Kansas Supreme Court: talking with?
A:
Communications by telephone are admissible in evidence where they are I know it was him because I know him.
relevant to the fact or facts in issue, and admissibility is governed by the Q:
same rules of evidence concerning face-to-face conversations except the Am I right to say [that] that was the first time that you had a transaction
party against whom the conversations are sought to be used must ordinarily with the accused through telephone conversation, and as a consequence of
be identified. It is not necessary that the witness be able, at the time of the that alleged conversation with the accused through telephone he issued a
conversation, to identify the person with whom the conversation was had, check in your favor?
provided subsequent identification is proved by direct or circumstantial A:
evidence somewhere in the development of the case. The mere statement of No. Before that call I had a talk[ ] with the accused.
his identity by the party calling is not in itself sufficient proof of such Q:
identity, in the absence of corroborating circumstances so as to render the But still through the telephone?
conversation admissible. However, circumstances preceding or following the A:
conversation may serve to sufficiently identify the caller. The completeness Yes, sir.
of the identification goes to the weight of the evidence rather than its Q:
admissibility, and the responsibility lies in the first instance with the district There was no instant (sic) that the accused went to see you personally
court to determine within its sound discretion whether the threshold of regarding the 200 bags rice transaction?
admissibility has been met.35 (Bold emphasis supplied) A:
No. It was through telephone only.
Yet, the Prosecution did not tender any plausible explanation or offer any Q:
proof to definitely establish that it had been Wagas whom Ligaray had In fact[,] you did not cause the delivery of these 200 bags of rice through
conversed with on the telephone. The Prosecution did not show through the accused himself?
Ligaray during the trial as to how he had determined that his caller was A:
Wagas. All that the Prosecution sought to elicit from him was whether he Yes. It was through Robert.
had known and why he had known Wagas, and he answered as follows: Q:
So, after that phone call[,] you deliver[ed] th[ose] 200 sacks of rice through
Q: somebody other than the accused?
Do you know the accused in this case? A:
Yes, sir.37
Ligaray’s statement that he could tell that it was Wagas who had ordered
the rice because he "know[s]" him was still vague and unreliable for not
assuring the certainty of the identification, and should not support a finding
of Ligaray’s familiarity with Wagas as the caller by his voice. It was evident
from Ligaray’s answers that Wagas was not even an acquaintance of
Ligaray’s prior to the transaction. Thus, the RTC’s conclusion that Ligaray
had transacted with Wagas had no factual basis. Without that factual basis,
the RTC was speculating on a matter as decisive as the identification of the
buyer to be Wagas.
The letter of Wagas did not competently establish that he was the person
who had conversed with Ligaray by telephone to place the order for the rice.
The letter was admitted exclusively as the State’s rebuttal evidence to
controvert or impeach the denial of Wagas of entering into any transaction
with Ligaray on the rice; hence, it could be considered and appreciated only
for that purpose. Under the law of evidence, the court shall consider
evidence solely for the purpose for which it is offered, 38 not for any other
purpose.39 Fairness to the adverse party demands such exclusivity.
Moreover, the high plausibility of the explanation of Wagas that he had
signed the letter only because his sister and her husband had pleaded with
him to do so could not be taken for granted.
There is no question that an identification that does not preclude a
reasonable possibility of mistake cannot be accorded any evidentiary
force.43 Thus, considering that the circumstances of the identification of
Wagas as the person who transacted on the rice did not preclude a
reasonable possibility of mistake, the proof of guilt did not measure up to
the standard of proof beyond reasonable doubt demanded in criminal cases.
Perforce, the accused’s constitutional right of presumption of innocence until
the contrary is proved is not overcome, and he is entitled to an
acquittal,44 even though his innocence may be doubted. 45
Nevertheless, an accused, though acquitted of estafa, may still be held
civilly liable where the preponderance of the established facts so
warrants.46 Wagas as the admitted drawer of the check was legally liable to
pay the amount of it to Ligaray, a holder in due course. 47 Consequently, we
pronounce and hold him fully liable to pay the amount of the dishonored
check, plus legal interest of 6% per annum from the finality of this decision.
WHEREFORE, the Court REVERSES and SETS ASIDE the decision
rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu
City; and ACQUITS Gilbert R. Wagas of the crime of estafa on the ground of
reasonable doubt, but ORDERS him to pay Alberto Ligaray the amount of
₱200,000.00 as actual damages, plus interest of 6% per annum from the
finality of this decision.
No pronouncement on costs of suit.

It is a fundamental rule in criminal procedure that the State carries the onus SO ORDERED.
probandi in establishing the guilt of the accused beyond a reasonable doubt,
as a consequence of the tenet ei incumbit probation, qui dicit, non qui
negat, which means that he who asserts, not he who denies, must
prove,40 and as a means of respecting the presumption of innocence in favor
of the man or woman on the dock for a crime. Accordingly, the State has
the burden of proof to show: (1) the correct identification of the author
of a crime, and (2) the actuality of the commission of the offense with the
participation of the accused. All these facts must be proved by the State
beyond reasonable doubt on the strength of its evidence and without solace
from the weakness of the defense. That the defense the accused puts up
may be weak is inconsequential if, in the first place, the State has failed to
discharge the onus of his identity and culpability. The presumption of
innocence dictates that it is for the Prosecution to demonstrate the guilt and
not for the accused to establish innocence. 41

Indeed, the accused, being presumed innocent, carries no burden of proof

on his or her shoulders. For this reason, the first duty of the Prosecution is
not to prove the crime but to prove the identity of the criminal. For even if
the commission of the crime can be established, without competent proof of
the identity of the accused beyond reasonable doubt, there can be no
conviction.42
14.Ting Ting Pua v. Spouses Benito, G.R. No. 198660, 23 October
2013 (check; consideration)
Under consideration is the Motion for Reconsideration interposed by
petitioner Ting Ting Pua Pua) of our Resolution dated April 18, 2012
effectively affirming the Decision1 and Resolution2 dated March 31, 2011 and
September 26, 2011, respectively, of the Court of Appeals CA) In CA- G.R.
CV No. 93755, which, in turn, reversed the Decision of the Regional Trial
Court RTC) of the City of Manila, Branch 29 in Civil Case No. 97-83027.
As culled from the adverted R TC Decision, as adopted for the most part by
the CA, the antecedent facts may be summarized as follows:
The controversy arose from a Complaint for a Sum of Money filed by
3 Rosa Dela Cruz Tuazon (Tuazon), who was the OIC-Manager of Asiatrust-
petitioner Pua against respondent-spouses Benito Lo Bun Tiong Benito) and
Caroline Siok Ching Teng Caroline). In the complaint, Pua prayed that,
among other things, respondents, or then defendants, pay Pua the amount
eight million five hundred thousand pesos (PhP 8,500,000), covered by a
check. (Exhibit "A," for plaintiff)
During trial, petitioner Pua clarified that the PhP 8,500,000 check was given
by respondents to pay the loans they obtained from her under a
compounded interest agreement on various dates in 1988. 4 As Pua narrated,
her sister, Lilian Balboa (Lilian), vouched for respondents’ ability to pay so
that when respondents approached her, she immediately acceded and lent
money to respondents without requiring any collateral except post-dated
checks bearing the borrowed amounts.5 In all, respondents issued
176 checks for a total amount of one million nine hundred seventy-five
thousand pesos (PhP 1,975,000). These checks were dishonored upon
presentment to the drawee bank.7
As a result of the dishonor, petitioner demanded payment. Respondents,
however, pleaded for more time because of their financial
difficulties.8 Petitioner Pua obliged and simply reminded the respondents of
their indebtedness from time to time.9
Sometime in September 1996, when their financial situation turned better,
respondents allegedly called and asked petitioner Pua for the computation of
their loan obligations.10 Hence, petitioner handed them a computation dated
October 2, 199611 which showed that, at the agreed 2% compounded
interest rate per month, the amount of the loan payable to petitioner rose to
thirteen million two hundred eighteen thousand five hundred forty-four
pesos and 20/100 (PhP 13,218,544.20).12 On receiving the computation, the
respondents asked petitioner to reduce their indebtedness to PhP
8,500,000.13 Wanting to get paid the soonest possible time, petitioner Pua
agreed to the lowered amount. 14
Respondents then delivered to petitioner Asiatrust Check No. BND057750
bearing the reduced amount of PhP 8,500,000 dated March 30, 1997 with
the assurance that the check was good.15 In turn, respondents demanded
the return of the 17 previously dishonored checks. Petitioner, however,
refused to return the bad checks and advised respondents that she will do
so only after the encashment of Asiatrust Check No. BND057750. 16
Like the 17 checks, however, Check No. BND057750 was also dishonored
when it was presented by petitioner to the drawee bank. Hence, as claimed
by petitioner, she decided to file a complaint to collect the money owed her
by respondents.
For the defense, both respondents Caroline and Benito testified along with
Binondo Branch in 1997. Respondents categorically denied obtaining a loan
from petitioner.17 Respondent Caroline, in particular, narrated that, in
August 1995, she and petitioner’s sister, Lilian, forged a partnership that
operated a mahjong business. Their agreement was for Lilian to serve as the
capitalist while respondent Caroline was to act as the cashier. Caroline also
agreed to use her personal checks to pay for the operational expenses
including the payment of the winners of the games. 18 As the partners
anticipated that Caroline will not always be in town to prepare these checks,
she left with Lilian five (5) pre-signed and consecutively numbered
checks19 on the condition that these checks will only be used to cover the
costs of the business operations and in no circumstance will the amount of
the checks exceed PhP 5,000.20
In March 1996, however, respondent Caroline and Lilian had a serious
disagreement that resulted in the dissolution of their partnership and the
cessation of their business. In the haste of the dissolution and as a result of
their bitter separation, respondent Caroline alleged that she forgot about the
five (5) pre-signed checks she left with Lilian.21 It was only when Lilian’s
husband, Vicente Balboa (Vicente), filed a complaint for sum of money in
February 1997 against respondents to recover five million one hundred
seventy-five thousand two hundred fifty pesos (PhP 5,175,250), covering
three of the five post-dated and pre-signed checks. 22
Respondent Caroline categorically denied having completed Check No.
BND057750 by using a check writer or typewriter as she had no check writer
and she had always completed checks in her own handwriting. 23 She insisted
that petitioner and her sister completed the check after its
delivery.24 Furthermore, she could not have gone to see petitioner Pua with
her husband as they had been separated in fact for nearly 10 years. 25 As for
the 17 checks issued by her in 1988, Caroline alleged that they were not
intended for Pua but were issued for the benefit of other persons. 26 Caroline
postulated that the complaint is designed to allow Pua’s sister, Lilian, to
recover her losses in the foreign exchange business she had with Caroline in
the 1980s. Respondent Benito corroborated Caroline’s testimony respecting
their almost a decade separation.27 As such, he could not have had
accompanied his wife to see petitioner to persuade the latter to lower down
any alleged indebtedness.28 In fact, Benito declared, before the filing of the
Complaint, he had never met petitioner Pua, let alone approached her with
his wife to borrow money.29He claimed that he was impleaded in the case to
attach his property and force him to enter into an amicable settlement with
petitioner.30 Benito pointed out that Check No. BND057750 was issued under
Asiatrust Account No. 5513-0054-9, which is solely under the name of his
wife.31
The witness for the respondents, Ms. Tuazon, testified that respondent
Caroline opened Asiatrust Account No. 5513-0054-9 in September
1994.32 She claimed that the average maintaining balance of respondent
Caroline was PhP 2,000 and the highest amount issued by Caroline from her
account was PhP 435,000.33 She maintained that respondent Caroline had
always completed her checks with her own handwriting and not with a check
writer. On October 15, 1996, Caroline’s checking account was closed at the
instance of the bank due to 69 instances of check issuance against
insufficient balance.34
After trial, the RTC issued its Decision dated January 31, 2006 in favor of
petitioner. In holding thus, the RTC stated that the possession by petitioner
of the checks signed by Caroline, under the Negotiable Instruments Law,
raises the presumption that they were issued and delivered for a valuable
consideration. On the other hand, the court a quo discounted the testimony
for the defense completely denying respondents’ loan obligation to Pua. 35
The trial court, however, refused to order respondents to pay petitioner the
amount of PhP 8,500,000 considering that the agreement to pay interest on
the loan was not expressly stipulated in writing by the parties. The RTC,
instead, ordered respondents to pay the principal amount of the loan as
represented by the 17 checks plus legal interest from the date of demand.
As rectified,36 the dispositive portion of RTC’s Decision reads:
Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are
hereby ordered jointly and solidarily:
1. To pay plaintiff ₱1,975,000.00 plus 12% interest per annum from
September 30, 1998, until fully paid;
2. To pay plaintiff attorney’s fees of ₱200,000.00; and
3. To pay the costs of the suit.
Aggrieved, respondents went to the CA arguing that the court a quo erred in
finding that they obtained and are liable for a loan from petitioner. To
respondents, petitioner has not sufficiently proved the existence of the loan
that they supposedly acquired from her way back in the late 1980s by any
written agreement or memorandum.
By Decision of March 31, 2011, as reiterated in a Resolution dated
September 26, 2011, the appellate court set aside the RTC Decision holding
that Asiatrust Bank Check No. BND057550 was an incomplete delivered
instrument and that petitioner has failed to prove the existence of
respondents’ indebtedness to her. Hence, the CA added, petitioner does not
have a cause of action against respondents.37
Hence, petitioner came to this Court via a Petition for Review on
Certiorari38 alleging grievous reversible error on the part of the CA in
reversing the findings of the court a quo.
As adverted to at the outset, the Court, in a Minute Resolution dated April
18, 2012, resolved to deny the petition.39
In this Motion for Reconsideration,40 petitioner pleads that this Court take a
second hard look on the facts and issues of the present case and affirm the
RTC’s case disposition. Petitioner argues, in the main, that the finding of the
appellate court that petitioner has not established respondents’
indebtedness to her is not supported by the evidence on record and is based
solely on respondents’ general denial of liability.
Respondents, on the other hand, argued in their Comment on the Motion for
Reconsideration dated October 6, 2012 that the CA correctly ruled that
Asiatrust Check No. BND057550 is an incomplete instrument which found its
way into petitioner’s hands and that the petitioner failed to prove
respondents’ indebtedness to her. Petitioner, so respondents contend, failed
to show to whom the 17 1988 checks were delivered, for what consideration
or purpose, and under whose account said checks were deposited or
negotiated.
Clearly, the issue in the present case is factual in nature as it involves an
inquiry into the very existence of the debt supposedly owed by respondents
to petitioner.
The general rule is that this Court in petitions for review on certiorari only
concerns itself with questions of law, not of fact, 41 the resolution of factual
issues being the primary function of lower courts. 42 However, several
exceptions have been laid down by jurisprudence to allow the scrutiny of the
factual arguments advanced by the contending parties, viz: (1) the
conclusion is grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or impossible ; (3) there is grave
abuse of discretion; (4) the judgment is based on a misapprehension of
facts; (5) the findings of fact are conflicting ; (6) there is no citation of
specific evidence on which the factual findings are based; (7) the findings of
absence of fact are contradicted by the presence of evidence on record ; (8)
the findings of the CA are contrary to those of the trial court ; (9) the CA
manifestly overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion ; (10) the findings of the CA
are beyond the issues of the case; and (11) such findings are contrary to
the admissions of both parties.43 At the very least, therefore, the
inconsonance of the findings of the RTC and the CA regarding the existence
of the loan sanctions the recalibration of the evidence presented by the
parties before the trial court.
In the main, petitioner asserts that respondents owed her a sum of money
way back in 1988 for which the latter gave her several checks. These
checks, however, had all been dishonored and petitioner has not been paid
the amount of the loan plus the agreed interest. In 1996, respondents
approached her to get the computation of their liability including the 2%
compounded interest. After bargaining to lower the amount of their liability,
respondents supposedly gave her a postdated check bearing the discounted
amount of the money they owed to petitioner. Like the 1988 checks, the
drawee bank likewise dishonored this check. To prove her allegations,
petitioner submitted the original copies of the 17 checks issued by
respondent Caroline in 1988 and the check issued in 1996, Asiatrust Check
No. BND057750. In ruling in her favor, the RTC sustained the version of the
facts presented by petitioner.
Respondents, on the other hand, completely deny the existence of the debt
asserting that they had never approached petitioner to borrow money in
1988 or in 1996. They hypothesize, instead, that petitioner Pua is simply
acting at the instance of her sister, Lilian, to file a false charge against them
using a check left to fund a gambling business previously operated by Lilian
and respondent Caroline. While not saying so in express terms, the
appellate court considered respondents’ denial as worthy of belief.
After another circumspect review of the records of the present case,
however, this Court is inclined to depart from the findings of the CA.
Certainly, in a suit for a recovery of sum of money, as here, the plaintiff-
creditor has the burden of proof to show that defendant had not paid her the
amount of the contracted loan. However, it has also been long established
that where the plaintiff-creditor possesses and submits in evidence an
instrument showing the indebtedness, a presumption that the credit has not
been satisfied arises in her favor. Thus, the defendant is, in appropriate
instances, required to overcome the said presumption and present evidence
to prove the fact of payment so that no judgment will be entered against
him.44
In overruling the trial court, however, the CA opined that petitioner "failed
to establish [the] alleged indebtedness in writing." 45 Consequently, so the
CA held, respondents were under no obligation to prove their defense.
Clearly, the CA had discounted the value of the only hard pieces of evidence
extant in the present case—the checks issued by respondent Caroline in
1988 and 1996 that were in the possession of, and presented in court by,
petitioner.
In Pacheco v. Court of Appeals,46 this Court has expressly recognized that a
check "constitutes an evidence of indebtedness"47 and is a veritable "proof of
an obligation."48 Hence, it can be used "in lieu of and for the same purpose
as a promissory note."49 In fact, in the seminal case of Lozano v.
Martinez,50 We pointed out that a check functions more than a promissory
note since it not only contains an undertaking to pay an amount of money
but is an "order addressed to a bank and partakes of a representation that
the drawer has funds on deposit against which the check is drawn, sufficient
to ensure payment upon its presentation to the bank." 51 This Court
reiterated this rule in the relatively recent Lim v. Mindanao Wines and
Liquour Galleria stating that "a check, the entries of which are in writing,
could prove a loan transaction."52 This very same principle underpins Section
24 of the Negotiable Instruments Law (NIL):
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 for
value.
Consequently, the 17 original checks, completed and delivered to petitioner,
are sufficient by themselves to prove the existence of the loan obligation of
the respondents to petitioner. Note that respondent Caroline had not denied
the genuineness of these checks.53 Instead, respondents argue that they
were given to various other persons and petitioner had simply collected all
these 17 checks from them in order to damage respondents’
reputation.54 This account is not only incredible; it runs counter to human
experience, as enshrined in Sec. 16 of the NIL which provides that when an
instrument is no longer in the possession of the person who signed it and it
is complete in its terms "a valid and intentional delivery by him is presumed
until the contrary is proved."
The appellate court’s justification in giving credit to respondents’ contention
that the respondents had delivered the 17 checks to persons other than
petitioner lies on the supposed failure of petitioner "to establish for whose
accounts [the checks] were deposited and subsequently dishonored." 55 This
is clearly contrary to the evidence on record. It seems that the appellate
court overlooked the original copies of the bank return slips offered by
petitioner in evidence. These return slips show that the 1988 checks issued
by respondent Caroline were dishonored by the drawee banks because they
were "drawn against insufficient funds."56 Further, a close scrutiny of
these return slips will reveal that the checks were deposited either in
petitioner’s account57 or in the account of her brother, Ricardo Yulo—a fact
she had previously testified to explaining that petitioner indorsed some
checks to her brother to pay for a part of the capital she used in her
financing business.58
As for the Asiatrust check issued by respondent Caroline in 1996 to
substitute the compounded value of the 1988 checks, the appellate court
likewise sympathized with respondents’ version of the story holding that it is
buttressed by respondents’ allegations describing the same defense made in
the two related cases filed against them by petitioner’s brother-in-law,
Vicente Balboa.1âwphi1 These related cases consisted of a criminal case for
violation of BP 2259and a civil case for collection of sum of money60 involving
three (3) of the five (5) consecutively numbered checks she allegedly left
with Lilian.61 It should be noted, however, that while respondents were
exculpated from their criminal liability, 62 in Sps. Benito Lo Bun Tiong and
Caroline Siok Ching Teng v. Vicente Balboa,63 this Court sustained the
factual findings of the appellate court in the civil case finding respondents
civilly liable to pay the amount of the checks.
It bears to note that the Decision of the appellate court categorically
debunked the same defense advanced by respondents in the present case
primarily because of Caroline’s admission to the contrary. The Decision of
the appellate court found without any reversible error by this Court reads,
thus:
The claim of Caroline Siok Ching Teng that the three (3) checks were part of
the blank checks she issued and delivered to Lilian Balboa, wife of plaintiff-
appellee, and intended solely for the operational expenses of their mahjong
business is belied by her admission that she issued three (3) checks (Exhs.
"A", "B" "C") because Vicente showed the listing of their account totaling
₱5,175,250.00 (TSN, November 17, 1997, p. 10).64 x x x
Clearly, respondents’ defense that Caroline left blank checks with
petitioner’s sister who, it is said, is now determined to recoup her past
losses and bring financial ruin to respondents by falsifying the same blank
checks, had already been thoroughly passed upon and rejected by this
Court. It cannot, therefore, be used to support respondents’ denial of their
liability.
Respondents’ other defenses are equally unconvincing. They assert that
petitioner could not have accepted a check worth PhP 8.5 million considering
that she should have known that respondent Caroline had issued several
checks for PhP 25,000 each in favor of Lilian and all of them had
bounced.65 Needless to state, an act done contrary to law cannot be
sustained to defeat a legal obligation; repeated failure to honor obligations
covered by several negotiable instruments cannot serve to defeat yet
another obligation covered by another instrument.
Indeed, it seems that respondent Caroline had displayed a cavalier attitude
towards the value, and the obligation concomitant with the issuance, of a
check. As attested to by respondents’ very own witness, respondent
Caroline has a documented history of issuing insufficiently funded checks for
69 times, at the very least.66 This fact alone bolsters petitioner’s allegation
that the checks delivered to her by respondent Caroline were similarly not
funded.
In Magdiwang Realty Corp. v. Manila Banking Corp., We stressed that
the quantum of evidence required in civil cases—preponderance of evidence
—"is a phrase which, in the last analysis, means probability to truth. It is
evidence which is more convincing to the court as worthier of belief than
that which is offered in opposition thereto."67 Based on the evidence
submitted by the parties and the legal presumptions arising therefrom,
petitioner’s evidence outweighs that of respondents. This preponderance of
evidence in favor of Pua requires that a judgment ordering respondents to
pay their obligation be entered.
As aptly held by the court a quo, however, respondents cannot be obliged to
pay the interest of the loan on the ground that the supposed agreement to
pay such interest was not reduced to writing. Article 1956 of the Civil Code,
which refers to monetary interest, specifically mandates that no interest
shall be due unless it has been expressly stipulated in writing. 68 Thus, the
collection of interest in loans or forbearance of money is allowed
only when these two conditions concur: (1) there was an express
stipulation for the payment of interest; (2) the agreement for the payment
of the interest was reduced in writing.69 Absent any of these two conditions,
the money debtor cannot be made liable for interest. Thus, petitioner is
entitled only to the principal amount of the loan plus the allowable legal
interest from the time of the demand,70 at the rate of 6% per annum.71
Respondent Benito cannot escape the joint and solidary liability to pay the
loan on the ground that the obligation arose from checks solely issued by his
wife. Without any evidence to the contrary, it is presumed that the proceeds
of the loan redounded to the benefit of their family. Hence, the conjugal
partnership is liable therefor. 72 The unsupported allegation that respondents
were separated in fact, standing alone, does not persuade this Court to
solely bind respondent Caroline and exempt Benito. As the head of the
family, there is more reason that respondent Benito should answer for the
liability incurred by his wife presumably in support of their family.
WHEREFORE, the Motion for Reconsideration is GRANTED. The
Resolution of this Court dated April 18, 2012 is set aside and a new one
entered REVERSING and SETTING ASIDE the Decision dated March 31, 2011
and the Resolution dated September 26, 2011 of the Court of Appeals in CA-
G.R. CV No. 93755. The Decision in Civil Case No. 97-83027 of the Regional
Trial Court (RTC) of the City of Manila, Branch 29 is REINSTATED with
MODIFICATION.
Accordingly, respondents Benito Lo Bun Tiong and Caroline Siok
Ching Teng are ordered jointly and solidarily to pay petitioner PhP
1,975,000 plus 6% interest per annum from April 18, 1997, until fully paid,
and ₱200,000.00 as attorney’s fees.
SO ORDERED.
15.Patrimonio v. Gutierrez, G.R. No. 187769, 4 June 2014 (holder in
due course)
Assailed in this petition for review on certiorari 1 under Rule 45 of the
Revised Rules of Court is the decision2 dated September 24, 2008 and the
resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV
No. 82301. The appellate court affirmed the decision of the Regional Trial
Court (RTC) of Quezon City, Branch 77, dismissing the complaint for
declaration of nullity of loan filed by petitioner Alvin Patrimonio and ordering
him to pay respondent Octavio Marasigan III (Marasigan) the sum of
₱200,000.00.
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 ₱200,000.00 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 ₱200,000.00 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 "₱200,000.00". 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
₱200,000.00, 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
₱200,000.00.
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:
1. Whether the contract of loan in the amount of ₱200,000.00
granted by respondent Marasigan to petitioner, through respondent
Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the
payment of the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the
subject check strictly under the authority given by the petitioner;
and
4. Whether Marasigan is a holder in due course.
The 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 off act of both the trial court and the CA are
conflicting, making their review necessary.5 In the present case, the
tribunals below arrived at two conflicting factual findings, albeit with the
same conclusion, i.e., dismissal of the complaint for nullity of the loan.
Accordingly, we will examine the parties’ evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he
never authorized the borrowing of money. He points to Article 1878,
paragraph 7 of the Civil Code, which explicitly requires a written authority
when the loan is contracted through an agent. The petitioner contends that
absent such authority in writing, he should not be held liable for the face
value of the check because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific
Form
Article 1868 of the Civil Code defines a contract of agency as a contract
whereby a person "binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of
the latter." Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without
authority.
As a general rule, a contract of agency may be oral. 6 However, it must be
written when the law requires a specific form, for example, in a sale of a
piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special
power of authority before an agent can loan or borrow money in behalf of
the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following
cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the
mandate is express, such authority may be either oral or written. We
unequivocably declared in Lim Pin v. Liao Tian, et al., 7 that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization
and not to its form. Be that as it may, the authority must be duly
established by competent and convincing evidence other than the self
serving assertion of the party claiming that such authority was verbally
given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil
Code and of a special authority in Rule 138 of the Rules of Court refer to the
nature of the authorization and not its form. The requirements are met if
there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-
Repide (6 Phil. 680) stated that such a mandate may be either oral or
written, the one vital thing being that it shall be express. And more recently,
We stated that, if the special authority is not written, then it must be duly
established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the
special authority be in writing the Court has every reason to expect that, if
not in writing, the same be duly established by evidence other than the self-
serving assertion of counsel himself that such authority was verbally given
him.(Home Insurance Company vs. United States lines Company, et al., 21
SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis
supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner
Should be Nullified for Being Void; Petitioner is Not Bound by the Contract of
Loan.
A review of the records reveals that Gutierrez did not have any authority to
borrow money in behalf of the petitioner.1âwphi1Records 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 beno contract of agency between Yambao and Andan so as
to bind the latter for the acts of the former. Alicia P. Andan declared in that
sworn testimony before the investigating fiscal that Yambao is but her
"messenger" or "part-time employee." There was no special fiduciary
relationship that permeated their dealings. For a contract of agency to exist,
the consent of both parties is essential, the principal consents that the other
party, the agent, shall act on his behalf, and the agent consents so to act. It
must exist as a fact. The law makes no presumption thereof. The person
alleging it has the burden of proof to show, not only the fact of its existence,
but also its nature and extent. This is more imperative when it is considered
that the transaction dealt with involves checks, which are not legal tender,
and the creditor may validly refuse the same as payment of obligation.(at p.
630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez
without securing a copy of the SPA in favor of the latter and without
verifying from the petitioner whether he had authorized the borrowing of
money or release of the check. 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
Code14enumerates 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 beset 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.1âwphi1 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.
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.

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 tantumonly; hence,
subject to subject to contrary proof. Thus, evidence that there was no
authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument.

In the present case, no evidence is on record that Gutierrez ever secured

prior approval from the petitioner to fill up the blank or to use the check. In
his testimony, petitioner asserted that he never authorized nor approved the
filling up of the blank checks, thus:

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write
the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash?
In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure
₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the
words ₱200,000 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
16. Areza v. Express Savings Bank Inc., G.R. No. 176697, 10 September
2014 (material alteration)
Before this Court is a Petition for Review on Certiorari under Ruic 45 of the
Rules of Court, which seeks to reverse the Decision 1 and Resolution2 dated
29 June 2006 and 12 February 2007 of the Court of Appeals in CAG.R. CV
No. 83192. The Court of Appeals affirmed with modification the 22 April
2004 Resolution3 of the Regional Trial Court (RTC) of Calamba, Laguna,
Branch 92, in Civil Case No. B-5886.
The factual antecedents follow.
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits
with respondent Express Savings Bank’s Biñan branch: 1) Savings Account
No. 004-01-000185-5 and 2) Special Savings Account No. 004-02-000092-
3.
They were engaged in the business of "buy and sell" of brand new and
second-hand motor vehicles. On 2 May 2000, they received an order from a
certain Gerry Mambuay (Mambuay) for the purchase of a second-hand
Mitsubishi Pajero and a brand-new Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans
Affairs Office (PVAO) checks payable to different payees and drawn against
the Philippine Veterans Bank (drawee), each valued at Two Hundred
Thousand Pesos (₱200,000.00) for a total of One Million Eight Hundred
Thousand Pesos (₱1,800,000.00).
About this occasion, petitioners claimed that Michael Potenciano
(Potenciano), the branch manager of respondent Express Savings Bank (the
Bank) was present during the transaction and immediately offered the
services of the Bank for the processing and eventual crediting of the said
checks to petitioners’ account.4 On the other hand,Potenciano countered
that he was prevailed upon to accept the checks by way of accommodation
of petitioners who were valued clients of the Bank. 5
On 3 May 2000, petitioners deposited the said checks in their savings
account with the Bank. The Bank, inturn, deposited the checks with its
depositary bank, Equitable-PCI Bank, in Biñan,Laguna. Equitable-PCI Bank
presented the checks to the drawee, the Philippine Veterans Bank, which
honored the checks.
On 6 May 2000, Potenciano informedpetitioners that the checks they
deposited with the Bank werehonored. He allegedly warned petitioners that
the clearing of the checks pertained only to the availability of funds and did
not mean that the checks were not infirmed. 6 Thus, the entire amount of
₱1,800,000.00 was credited to petitioners’ savings account. Based on this
information, petitioners released the two cars to the buyer.
Sometime in July 2000, the subjectchecks were returned by PVAO to the
drawee on the ground that the amount on the face of the checks was altered
from the original amount of ₱4,000.00 to ₱200,000.00. The drawee returned
the checks to Equitable-PCI Bank by way of Special Clearing Receipts. In
August 2000, the Bank was informed by Equitable-PCI Bank that the drawee
dishonored the checks onthe ground of material alterations. Equitable-PCI
Bank initially filed a protest with the Philippine Clearing House. In February
2001, the latter ruled in favor of the drawee Philippine Veterans Bank.
Equitable-PCI Bank, in turn, debited the deposit account of the Bank in the
amount of ₱1,800,000.00.
The Bank insisted that they informed petitioners of said development in
August 2000 by furnishing them copies of the documents given by its
depositary bank.7 On the other hand, petitioners maintained that the Bank
never informed them of these developments.
On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00.
Said check was dishonored by the Bank for the reason "Deposit Under Hold."
According topetitioners, the Bank unilaterally and unlawfully put their
account with the Bank on hold. On 22 March 2001, petitioners’ counsel sent
a demand letter asking the Bank to honor their check. The Bank refused to
heed their request and instead, closed the Special Savings Account of the
petitioners with a balance of ₱1,179,659.69 and transferred said amount to
their savings account. The Bank then withdrew the amount of
₱1,800,000.00representing the returned checks from petitioners’ savings
account.
Acting on the alleged arbitrary and groundless dishonoring of their checks
and the unlawful and unilateral withdrawal from their savings account,
petitioners filed a Complaint for Sum of Money with Damages against the
Bank and Potenciano with the RTC of Calamba.
On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in
favor of petitioners. The dispositive portion of the Decision reads:
WHEREFORE, the foregoing considered, the Court orders that judgment be
rendered in favor of plaintiffs and against the defendants jointly and
severally to pay plaintiffs as follows, to wit:
1. ₱1,800,000.00 representing the amount unlawfully withdrawn by
the defendants from the account of plaintiffs;
2. ₱500,000.00 as moral damages; and
3. ₱300,000.00 as attorney’s fees.8
The trial court reduced the issue to whether or not the rights of petitioners
were violated by respondents when the deposits of the former were debited
by respondents without any court order and without their knowledge and
consent. According to the trial court, it is the depositary bank which should
safeguard the right ofthe depositors over their money. Invoking Article 1977
of the Civil Code, the trial court stated that the depositary cannot make use
of the thing deposited without the express permission of the depositor. The
trial court also held that respondents should have observed the 24-hour
clearing house rule that checks should be returned within 24-hours after
discovery of the forgery but in no event beyond the period fixed by law for
filing a legal action. In this case, petitioners deposited the checks in May
2000, and respondents notified them of the problems on the check three
months later or in August 2000. In sum, the trial court characterized said
acts of respondents as attended with bad faith when they debited the
amount of ₱1,800,000.00 from the account of petitioners.
Respondents filed a motion for reconsideration while petitioners filed a
motion for execution from the Decision of the RTC on the ground that
respondents’ motion for reconsideration did not conform with Section 5,
Rule 16 of the Rules of Court; hence, it was a mere scrap of paper that did
not toll the running of the period to appeal.
On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon
granted the motion for reconsideration, set aside the Pozas Decision, and
dismissed the complaint. The trial court awarded respondents their
counterclaim of moral and exemplary damages of ₱100,000.00 each. The
trial court first applied the principle of liberality when it disregarded the
alleged absence of a notice of hearing in respondents’ motion for
reconsideration. On the merits, the trial court considered the relationship of
the Bank and petitioners with respect to their savings account deposits as a
contract of loan with the bank as the debtor and petitioners as creditors. As
such, Article 1977 of the Civil Code prohibiting the depository from making
use of the thing deposited without the express permission of the depositor is
not applicable. Instead, the trial court applied Article 1980 which provides
that fixed, savings and current deposits ofmoney in banks and similar
institutions shall be governed by the provisions governing simple loan. The
trial court then opined thatthe Bank had all the right to set-off against
petitioners’ savings deposits the value of their nine checks that were
returned.
On appeal, the Court of Appeals affirmed the ruling of the trial court but
deleted the award of damages. The appellate court made the following
ratiocination:
Any argument as to the notice of hearing has been resolved when the
pairing judge issued the order on February 24, 2004 setting the hearing on
March 26, 2004. A perusal of the notice of hearing shows that request was
addressed to the Clerk of Court and plaintiffs’ counsel for hearing to be set
on March 26, 2004.
The core issues in this case revolve on whether the appellee bank had the
right to debit the amount of ₱1,800,000.00 from the appellants’ accounts
and whether the bank’s act of debiting was done "without the plaintiffs’
knowledge."
We find that the elements of legal compensation are all present in the case
at bar. Hence, applying the case of the Bank of the Philippine Islands v.
Court of Appeals, the obligors bound principally are at the same time
creditors of each other. Appellee bank stands as a debtor of appellant, a
depositor. At the same time, said bank is the creditor of the appellant with
respect to the dishonored treasury warrant checks which amount were
already credited to the account of appellants. When the appellants had
withdrawn the amount of the checks they deposited and later on said checks
were returned, they became indebted to the appellee bank for the
corresponding amount.
It should be noted that [G]erry Mambuay was the appellants’ walkin buyer.
As sellers, appellants oughtto have exercised due diligence in assessing his
credit or personal background. The 24-hour clearing house rule is not the
one that governs in this case since the nine checks were discovered by the
drawee bank to contain material alterations.
Appellants merely allege that they were not informed of any development on
the checks returned. However, this Court believes that the bank and
appellants had opportunities to communicate about the checks considering
that several transactions occurred from the time of alleged return of the
checks to the date of the debit.
However, this Court agrees withappellants that they should not pay moral
and exemplary damages to each of the appellees for lack of basis. The
appellants were not shown to have acted in bad faith. 9
Petitioners filed the present petition for review on certiorariraising both
procedural and substantive issues, to wit:
1. Whether or not the Honorable Court of Appeals committed a
reversible error of law and grave abuse of discretion in upholding
the legality and/or propriety of the Motion for Reconsideration filed
in violation of Section 5, Rule 15 ofthe Rules on Civil Procedure;
2. Whether or not the Honorable Court of Appeals committed a
grave abuse of discretion in declaring that the private respondents
"had the right to debit the amount of ₱1,800,000.00 from the
appellants’ accounts" and the bank’s act of debiting was done with
the plaintiff’s knowledge.10
Before proceeding to the substantive issue, we first resolve the procedural
issue raised by petitioners.
Sections 5, Rule 15 of the Rules of Court states:
Section 5. Notice of hearing. – The notice of hearing shall be addressed to
all parties concerned, and shall specify the time and date of the hearing
which must not be later than ten (10) days after the filing of the motion.
Petitioners claim that the notice of hearing was addressed to the Clerk of
Court and not to the adverse party as the rules require. Petitioners add that
the hearing on the motion for reconsideration was scheduled beyond 10
days from the date of filing.
As held in Maturan v. Araula,11 the rule requiring that the notice be
addressed to the adverse party has beensubstantially complied with when a
copy of the motion for reconsideration was furnished to the counsel of the
adverse party, coupled with the fact that the trial court acted on said notice
of hearing and, as prayed for, issued an order12 setting the hearing of the
motion on 26 March 2004.
We would reiterate later that there is substantial compliance with the
foregoing Rule if a copy of the said motion for reconsideration was furnished
to the counsel of the adverse party.13
Now to the substantive issues to which procedural imperfection must, in this
case, give way.
The central issue is whether the Bank had the right to debit ₱1,800,000.00
from petitioners’ accounts.
On 6 May 2000, the Bank informed petitioners that the subject checks had
been honored. Thus, the amountof ₱1,800,000.00 was accordingly credited
to petitioners’ accounts, prompting them to release the purchased cars to
the buyer.
Unknown to petitioners, the Bank deposited the checks in its depositary
bank, Equitable-PCI Bank. Three months had passed when the Bank was
informed by its depositary bank that the drawee had dishonored the checks
on the ground of material alterations.
The return of the checks created a chain of debiting of accounts, the last
loss eventually falling upon the savings account of petitioners with
respondent bank. The trial court inits reconsidered decision and the
appellate court were one in declaring that petitioners should bear the loss.
We reverse.
The fact that material alteration caused the eventual dishonor of the checks
issued by PVAO is undisputed. In this case, before the alteration was
discovered, the checks were already cleared by the drawee bank, the
Philippine Veterans Bank. Three months had lapsed before the drawee
dishonored the checks and returned them to Equitable-PCI Bank, the
respondents’ depositary bank. And itwas not until 10 months later when
petitioners’ accounts were debited. A question thus arises: What are the
liabilities of the drawee, the intermediary banks, and the petitioners for the
altered checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that
the acceptor, by accepting the instrument, engages that he will pay it
according to the tenor of his acceptance. The acceptor is a drawee who
accepts the bill. In Philippine National Bank v. Court of Appeals, 14 the
payment of the amount of a check implies not only acceptance but also
compliance with the drawee’s obligation.
In case the negotiable instrument isaltered before acceptance, is the drawee
liable for the original or the altered tenor of acceptance? There are two
divergent intepretations proffered by legal analysts. 15 The first view is
supported by the leading case of National City Bank ofChicago v. Bank of
the Republic.16 In said case, a certain Andrew Manning stole a draft and
substituted his name for that of the original payee. He offered it as payment
to a jeweler in exchange for certain jewelry. The jeweler deposited the draft
to the defendant bank which collectedthe equivalent amount from the
drawee. Upon learning of the alteration, the drawee sought to recover from
the defendant bank the amount of the draft, as money paid by mistake. The
court denied recovery on the ground that the drawee by accepting admitted
the existence of the payee and his capacity to endorse. 17 Still, in Wells Fargo
Bank & Union Trust Co. v. Bank of Italy, 18 the court echoed the court’s
interpretation in National City Bank of Chicago, in this wise:
We think the construction placed upon the section by the Illinois court is
correct and that it was not the legislative intent that the obligation of the
acceptor should be limited to the tenorof the instrument as drawn by the
maker, as was the rule at common law,but that it should be enforceable in
favor of a holder in due course against the acceptor according to its tenor at
the time of its acceptance or certification.
The foregoing opinion and the Illinois decision which it follows give effect to
the literal words of the Negotiable Instruments Law. As stated in the Illinois
case: "The court must take the act as it is written and should give to the
words their natural and common meaning . . . ifthe language of the act
conflicts with statutes or decisions in force before its enactment the courts
should not give the act a strained construction in order to make it
harmonize with earlier statutes or decisions." The wording of the act
suggests that a change in the common law was intended. A careful reading
thereof, independent of any common-law influence, requires that the words
"according to the tenor of his acceptance" be construed as referring to the
instrument as it was at the time it came into the hands of the acceptor for
acceptance, for he accepts no other instrument than the one presented to
him — the altered form — and it alone he engages to pay. This conclusion is
in harmony with the law of England and the continental countries. It makes
for the usefulness and currency of negotiable paper without seriously
endangering accepted banking practices, for banking institutions can readily
protect themselves against liability on altered instruments either by
qualifying their acceptance or certification or by relying on forgery insurance
and specialpaper which will make alterations obvious. All of the arguments
advanced against the conclusion herein announced seem highly technical in
the face of the practical facts that the drawee bank has authenticated an
instrument in a certain form, and that commercial policy favors the
protection of anyone who, in due course, changes his position on the faith of
that authentication.19
The second view is that the acceptor/drawee despite the tenor of his
acceptance is liable only to the extent of the bill prior to alteration. 20 This
view appears to be in consonance with Section 124 of the Negotiable
Instruments Law which statesthat a material alteration avoids an instrument
except as against an assenting party and subsequent indorsers, but a holder
in due course may enforce payment according to its original tenor. Thus,
when the drawee bank pays a materially altered check, it violates the terms
of the check, as well as its duty tocharge its client’s account only for bona
fide disbursements he had made. If the drawee did not pay according to the
original tenor of the instrument, as directed by the drawer, then it has no
right to claim reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawer’s account which it
was expected to treat with utmost fidelity.21 The drawee, however, still has
recourse to recover its loss. It may pass the liability back to the collecting
bank which is what the drawee bank exactly did in this case. It debited the
account of Equitable-PCI Bank for the altered amount of the checks.
LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK
A depositary bank is the first bank to take an item even though it is also the
payor bank, unless the item is presented for immediate payment over the
counter.22 It is also the bank to which a check is transferred for deposit in an
account at such bank, evenif the check is physically received and indorsed
first by another bank.23 A collecting bank is defined as any bank handling an
item for collection except the bank on which the check is drawn. 24
When petitioners deposited the check with the Bank, they were designating
the latter as the collecting bank. This is in consonance with the rule that a
negotiable instrument, such as a check, whether a manager's check or
ordinary check, is not legal tender. As such, after receiving the deposit,
under its own rules, the Bank shall credit the amount in petitioners’ account
or infuse value thereon only after the drawee bank shall have paid the
amount of the check or the check has been cleared for deposit. 25
The Bank and Equitable-PCI Bank are both depositary and collecting banks.
A depositary/collecting bank where a check is deposited, and which
endorses the check upon presentment with the drawee bank, is an endorser.
Under Section 66 of the Negotiable Instruments Law, an endorser warrants
"that the instrument is genuine and in all respects what it purports to be;
that he has good title to it; that all prior parties had capacity to contract;
and that the instrument is at the time of his endorsement valid and
subsisting." It has been repeatedly held that in check transactions, the
depositary/collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements. 26 If any of
the warranties made by the depositary/collecting bank turns out to be false,
then the drawee bank may recover from it up to the amount of the check. 27
The law imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it for the purpose of determining their genuineness
and regularity. The collecting bank being primarily engaged in banking holds
itself out to the public as the expert and the law holds it to a high standard
of conduct.28
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the
amount of the materially altered checks. Since Equitable-PCI Bank is not a
party to this case and the Bank allowed its account with EquitablePCI Bank
to be debited, it has the option toseek recourse against the latter in another
forum.
24-HOUR CLEARING RULE
Petitioners faulted the drawee bank for not following the 24-hour clearing
period because it was only in August 2000 that the drawee bank notified
Equitable-PCI that there were material alterations in the checks.
We do not subscribe to the position taken by petitioners that the drawee
bank was at fault because it did not follow the 24-hour clearing period which
provides that when a drawee bank fails to return a forged or altered check
to the collecting bank within the 24-hour clearing period, the collecting bank
is absolved from liability.
Section 21 of the Philippine Clearing House Rules and Regulations provides:
Sec. 21. Special Return Items Beyond The Reglementary Clearing Period.-
Items which have been the subject of material alteration or items bearing
forged endorsement when such endorsement is necessary for negotiation
shall be returned by direct presentation or demand to the Presenting Bank
and not through the regular clearing house facilities within the period
prescribed by law for the filing of a legal action by the returning
bank/branch, institution or entity sending the same.
Antonio Viray, in his book Handbook on Bank Deposits, elucidated:
It is clear that the so-called "24-hour" rule has been modified. In the case of
Hongkong & Shanghai vs. People’s Bank reiterated in Metropolitan Bank and
Trust Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour rule
under which the drawee bank forever loses the right to claim against
presenting/collecting bank if the check is not returned at the next clearing
day orwithin 24 hours. Apparently, the commercial banks felt strict
enforcement of the 24-hour rule is too harsh and therefore made
representations and obtained modification of the rule, which modification is
now incorporated in the Manual of Regulations. Since the same commercial
banks controlled the Philippine Clearing House Corporation, incorporating
the amended rule in the PCHC Rules naturally followed.
As the rule now stands, the 24-hour rule is still in force, that is, any check
which should be refused by the drawee bank in accordance with long
standing and accepted banking practices shall be returned through the
PCHC/local clearing office, as the case may be, not later than the next
regular clearing (24-hour). The modification, however, is that items which
have been the subject of material alteration or bearing forged endorsement
may be returned even beyond 24 hours so long that the same is returned
within the prescriptive period fixed by law. The consensus among lawyers is
that the prescriptiveperiod is ten (10)years because a check or the
endorsement thereon is a written contract. Moreover, the item need not be
returned through the clearing house but by direct presentation to the
presenting bank.29
In short, the 24-hour clearing ruledoes not apply to altered checks.
LIABILITY OF PETITIONERS
The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery
Co.30 is in point. A foreigner purchased several pieces of jewelry from Gold
Palace Jewellery using a United Overseas Bank (Malaysia) issued draft
addressed to the Land Bank of the Philippines (LBP). Gold Palace Jewellery
deposited the draft in the company’s account with Far East Bank. Far East
Bank presented the draft for clearing to LBP. The latter cleared the same
and Gold Palace Jewellery’s account was credited with the amount stated in
the draft. Consequently, Gold Palace Jewellery released the pieces of
jewelries to the foreigner. Three weeks later, LBP informed Far East Bank
that the amount in the foreign draft had been materially altered from
₱300,000.00 to ₱380,000.00. LBP returnedthe check to Far East Bank. Far
East Bank refunded LBP the ₱380,000.00 paid by LBP. Far East Bank initially
debited ₱168,053.36 from Gold Palace Jewellery’s account and demanded
the payment of the difference between the amount in the altered draft and
the amount debited from Gold Palace Jewellery.
However, for the reasons already discussed above, our pronouncement in
the Far East Bank and Trust Companycase that "the drawee is liable on its
payment of the check according to the tenor of the check at the time of
payment, which was the raised amount" 31 is inapplicable to the factual
milieu obtaining herein.
We only adopt said decision in so far as it adjudged liability on the part of
the collecting bank, thus:
Thus, considering that, in this case, Gold Palace is protected by Section 62
of the NIL, its collecting agent, Far East, should not have debited the money
paid by the drawee bank from respondent company's account. When Gold
Palace deposited the check with Far East, the latter, under the terms of the
deposit and the provisions of the NIL, became an agent of the former for the
collection of the amount in the draft. The subsequent payment by the
drawee bank and the collection of the amount by the collecting bank closed
the transaction insofar as the drawee and the holder of the check or his
agent are concerned, converted the check into a mere voucher, and, as
already discussed, foreclosed the recovery by the drawee of the amount
paid. This closure of the transaction is a matter of course; otherwise,
uncertainty in commercial transactions, delay and annoyance will arise if a
bank at some future time will call on the payee for the return of the money
paid to him on the check.
As the transaction in this case had been closed and the principalagent
relationship between the payee and the collecting bank had already ceased,
the latter in returning the amount to the drawee bank was already acting on
its own and should now be responsible for its own actions. x x x Likewise,
Far East cannot invoke the warranty of the payee/depositor who indorsed
the instrument for collection to shift the burden it brought upon itself. This is
precisely because the said indorsement is only for purposes of collection
which, under Section 36 of the NIL, is a restrictive indorsement. It did not in
any way transfer the title of the instrument to the collecting bank. Far East
did not own the draft, it merely presented it for payment. Considering that
the warranties of a general indorser as provided in Section 66 of the NIL are
based upon a transfer of title and are available only to holders in due
course, these warranties did not attach to the indorsement for deposit and
collection made by Gold Palace to Far East. Without any legal right to do so,
the collecting bank, therefore, could not debit respondent's account for the
amount it refunded to the drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the
extent that Far East could not debit the account of Gold Palace, and for
doing so, it must return what it had erroneously taken. 32
Applying the foregoing ratiocination, the Bank cannot debit the savings
account of petitioners. A depositary/collecting bank may resist or defend
against a claim for breach of warranty if the drawer, the payee, or either the
drawee bank or depositary bank was negligent and such negligence
substantially contributed tothe loss from alteration. In the instant case, no
negligence can be attributed to petitioners. We lend credence to their claim
that at the time of the sales transaction, the Bank’s branch manager was
present and even offered the Bank’s services for the processing and
eventual crediting of the checks. True to the branch manager’s words, the
checks were cleared three days later when deposited by petitioners and the
entire amount ofthe checks was credited to their savings account.
ON LEGAL COMPENSATION
Petitioners insist that the Bank cannotbe considered a creditor of the
petitioners because it should have made a claim of the amount of
₱1,800,000.00 from Equitable-PCI Bank, its own depositary bank and the
collecting bank in this case and not from them.
The Bank cannot set-off the amount it paid to Equitable-PCI Bank with
petitioners’ savings account. Under Art. 1278 of the New Civil Code,
compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. And the requisites for legal
compensation are:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
It is well-settled that the relationship of the depositors and the Bank or
similar institution is that of creditor-debtor. Article 1980 of the New Civil
Code provides that fixed, savings and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning
simple loans. The bank is the debtorand the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor
on demand. The savings deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations of the
parties.33
But as previously discussed, petitioners are not liable for the deposit of the
altered checks. The Bank, asthe depositary and collecting bank ultimately
bears the loss. Thus, there being no indebtedness to the Bank on the part of
petitioners, legal compensation cannot take place. DAMAGES
The Bank incurred a delay in informing petitioners of the checks’ dishonor.
The Bank was informed of the dishonor by Equitable-PCI Bank as early as
August 2000 but it was only on 7 March 2001 when the Bank informed
petitioners that it will debit from their account the altered amount. This
delay is tantamount to negligence on the part of the collecting bank which
would entitle petitioners to an award for damages under Article 1170 of the
New Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
The damages in the form of actual or compensatory damages represent the
amount debited by the Bank from petitioners’ account.
We delete the award of moral damages. Contrary to the lower court’s
finding, there was no showing that the Bank acted fraudulently or in bad
faith. It may have been remiss in its duty to diligently protect the account of
its depositors but its honest but mistaken belief that petitioners’ account
should be debited is not tantamount to bad faith. We also delete the award
of attorney’s fees for it is not a sound public policy to place a premium on
the right to litigate. No damages can becharged to those who exercise such
precious right in good faith, even if done erroneously. 34
To recap, the drawee bank, Philippine Veterans Bank in this case, is only
liable to the extent of the check prior to alteration. Since Philippine
1âwphi1
Veterans Bank paid the altered amount of the check, it may pass the
liability back as it did, to Equitable-PCI Bank,the collecting bank. The
collecting banks, Equitable-PCI Bank and the Bank, are ultimately liable for
the amount of the materially altered check. It cannot further pass the
liability back to the petitioners absent any showing in the negligence on the
part of the petitioners which substantially contributed to the loss from
alteration.
Based on the foregoing, we affirm the Pozasdecision only insofar as it
ordered respondents to jointly and severally pay petitioners ₱1,800,000.00,
representing the amount withdrawn from the latter’s account. We do not
conform with said ruling regarding the finding of bad faith on the part of
respondents, as well as its failure toobserve the 24-hour clearing rule.

WHEREFORE, the petition is GRANTED. The Decision and Resolution

dated 29 June 2006 and 12 February 2007 respectively of the Court of
Appeals in CA-G.R. CV No. 83192 are REVERSED and SET ASIDE. The
15 January 2004 Decision of the Regional Trial Court of Calamba City,
Branch 92 in Civil Case No. B-5886 rendered by Judge Antonio S. Pozas is
REINSTATEDonly insofar as it ordered respondents to jointly and severally
pay petitioners ₱1,800,000.00 representing the amount withdrawn from the
latter’s account. The award of moral damages and attorney’s fees are
DELETED.

SO ORDERED.
 17. MBTC v. Chiok, G.R. No. 175394, 26 November 2014
(checks) Bank/Check No.
Asian Bank MC No.
025935
Asian Bank MC No.
The three consolidated petitions herein all assail the Decision of the Court
1
025939
of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the
Resolution in the same case dated November 6, 2006.
2
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading
for several years. He usually buys dollars from Gonzalo B. Nuguid
(Nuguid) at the exchange rate prevailing on the date of the sale. Chiok Metrobank CC No.
pays Nuguid either in cash or manager’s check, to be picked up by the 003380
latter or deposited in the latter’s bank account. Nuguid delivers the dollars
either on the same day or on a later date as may be agreed upon between
them, up to a week later. Chiok and Nuguid had been dealing in this
manner for about six to eight years, with their transactions running into
millions of pesos. For this purpose, Chiok maintained accounts with
petitioners Metropolitan Bank and Trust Company (Metrobank) and Global
Business Bank, Inc. (Global Bank), the latter being then referred to as the
Asian Banking Corporation (Asian Bank). Chiok likewise entered into a
Bills Purchase Line Agreement (BPLA) with Asian Bank. Under the BPLA,
checks drawn in favor of, or negotiated to, Chiok may be purchased by
Asian Bank. Upon such purchase, Chiok receives a discounted cash
equivalent of the amount of the check earlier than the normal clearing
period.
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased"
Security Bank & Trust Company (SBTC) Manager’s Check (MC) No.
037364 in the amount of ₱25,500,000.00 issued in the name of Chiok, and
credited the same amount to the latter’s Savings Account No. 2-007-03-
00201-3.
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the
amount of ₱7,550,000.00 and MC No. 025939 in the amount of
₱10,905,350.00 to Gonzalo Bernardo, who is the same person as Gonzalo
B. Nuguid. The two Asian Bank manager’s checks, with a total value of
₱18,455,350.00 were issued pursuant toChiok’s instruction and was
debited from his account. Likewise upon Chiok’s application, Metrobank
issued Cashier’s Check (CC) No. 003380 in the amount of ₱7,613,000.00
in the name of Gonzalo Bernardo. The same was debited from Chiok’s
Savings Account No. 154-42504955. The checks bought by Chiok for
payee Gonzalo Bernardo are therefore summarized as follows:
Drawee
Amount (P) Source of fund
7,550,000.00
Chiok’s Asian Bank Savings
10,905,350.00 Account No. 2-007-03-00201-3,
which had been credited with the
(aggregate value value of SBTC MC No. 037364
of (₱25,500,000.00) when the latter was purchased
Asian Bank MCs: Asian Bank from Chiok pursuant to their BPLA.
18,455,350.00)
7,613,000.00 Chiok’s Metrobank Savings
Account No. 154-42504955 3
TOTAL 26,068,350.00
Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and
025939, and Metrobank CC No. 003380), with an aggregate value of
₱26,068,350.00 in Nuguid’s account with Far East Bank & Trust Company
(FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine
Islands (BPI). Nuguid was supposed to deliver US$1,022,288.50, the4
dollar equivalent of the three checks as agreed upon, in the afternoon of
the same day. Nuguid, however, failed to do so, prompting Chiok to request
that payment on the three checks be stopped. Chiok was allegedly advised
to secure a court order within the 24-hour clearing period. On the following
day, July 6, 1995, Chiok filed a Complaint for damages with application for
ex parte restraining order and/or preliminary injunction with the Regional
Trial Court (RTC) of Quezon City against the spouses Gonzalo and
Marinella Nuguid, and the depositary banks, Asian Bank and Metrobank,
represented by their respective managers, Julius de la Fuente and Alice
Rivera. The complaint was docketed as Civil Case No. Q-95-24299 and
was raffled to Branch 96. The complaint was later amended to include the
5
prayer of Chiok to be declared the legal owner of the proceeds of the
subject checks and to be allowed to withdraw the entire proceeds thereof.
On the same day, July 6, 1995, the RTC issued a temporary restraining
order (TRO) directing the spouses Nuguid to refrain from presenting the
said checks for payment and the depositary banks from honoring the
sameuntil further orders from the court.
6
Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to
the TRO. Metrobank claimed that when it received the TRO on July 6,
1995, it refused to honor CC No. 003380 and stopped payment thereon.
However, in a letter also dated July 6, 1995, Ms. Jocelyn T. Paz of FEBTC,
Cubao-Araneta Branch informed Metrobank that the TRO was issued a
day after the check was presented for payment. Thus, according to Paz,
the transaction was already consummated and FEBTC had already validly
accepted the same. In another letter, FEBTC informed Metrobank that "the
restraining order indicates the name of the payee of the check as
GONZALO NUGUID, but the check isin fact payable to GONZALO
BERNARDO. We believe there is a defect in the restraining order and as
such should not bind your bank." Alice Rivera of Metrobank replied to said
7
letters, reiterating Metrobank’s position tocomply with the TRO lest it be
cited for contempt by the trial court. However, as would later be alleged in
Metrobank’s Answer before the trial court, Metrobank eventually
acknowledged the check when it became clear that nothing more can be
done to retrieve the proceeds of the check. Metrobank furthermore claimed
The application for preliminary mandatory injunctionis hereby denied and
the order issued on July 7, 1995 directing defendant Metro Bank
(Annapolis, Greenhills Branch) to allow the plaintiff to withdraw the
proceeds of Cashier’s Check No. 003380 in the amount of ₱7,613,000.00
is hereby set aside.
The plaintiff’s urgent motion todeclare defendants Asian Bank and Metro
Bank in contempt of court filed last July 13, 1995 is hereby denied for lack
of legal basis.
The writ of preliminary prohibitory injunction and a copy of this order shall
be served on the defendants by Deputy Sheriff Jose Martinez of this
Branch. 8

that since it is the issuer of CC No. 003380, the check is its primary
obligation and should not be affected by any prior transaction between the
Upon the filing by Chiok of the requisite bond, the Writ was subsequently
purchaser (Chiok) and the payee (Nuguid).
issued on July 26, 1995.
In the meantime, FEBTC, as the collecting bank, filed a complaint against
Before the RTC, Asian Bank pointed out that SBTC returned and issued a
Asian Bank before the Philippine Clearing House Corporation (PCHC)
Stop Payment Order on SBTC MC No. 037364 (payable to Chiok in the
Arbitration Committee for the collection of the value of Asian Bank MC No.
amount of ₱25,500,000.00) on the basis of an Affidavit of Loss &
025935 and 025939, which FEBTC had allegedly allowed Nuguid to
Undertaking executed by a certain Helen Tan. Under said Affidavit of Loss
withdraw on July 5, 1995, the same day the checks were deposited. The
& Undertaking, Tan claims that she purchased SBTC MC No. 037364 from
case was docketed as Arbicom Case No. 95-082. The PCHC Arbitration
SBTC, but the manager’s check got lost on that day. Asian Bank argued
Committee later relayed, in a letter dated August 4, 1995, its refusal to
that Chiok would therefore be liable for the dishonor of the manager’s
assume jurisdiction over the case on the ground that any step it may take
check under the terms of the BPLA, which provides for recourse against
might be misinterpreted as undermining the jurisdiction of the RTC over the
the seller (Chiok) of the check when it is dishonored by the drawee (SBTC)
case or a violation of the July 6, 1995 TRO.
for any reason, whether valid or not.
On July 25, 1995, the RTC issued an Order directing the issuance of a writ
On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil
of preliminary prohibitory injunction:
Case No. Q-95-24299. On February6, 1996, the RTC initially denied
FEBTC’s intervention in the case. On Motion for Reconsideration, however,
WHEREFORE, upon filing by the plaintiff of a sufficient bond in the amount the RTC, on April 15, 1996, reversed itself and allowed the same.
of ₱26,068,350.00, to be executed in favor of the defendants under the
condition that the same shall answer for whatever damages they may
In the Complaint-in-Intervention, FEBTC claimed that it allowed the
sustain by reason of this injunction should the Court ultimately determine
immediate withdrawal of the proceeds of Asian Bank MC Nos. 025935 and
that he was not entitled thereto, let a writ of preliminary prohibitory
025939 on the ground that, as manager’schecks, they were the direct
injunction issue restraining and preventing during the pendency of the
obligations of Asian Bank and were accepted in advance by Asian Bank by
case:
the mere issuance thereof. FEBTC presented the checks for payment on
July 5, 1995 through the PCHC. Asian Bank, as admitted in its Answer
a) Defendant Asian Bank frompaying Manager’s Checks No. before the RTC, received the same on that day. Consequently, Asian Bank
025935 in the amount of ₱7,550,000.00 and No. 025939 in the was deemed to have confirmed and booked payment of the subject checks
amount of ₱10,905,350.00; and in favor of FEBTC or, at the latest, during the first banking hour of July 6,
1995, when payment should have been made. FEBTC claimed that Asian
b) Defendant Metro Bank frompaying Cashier’s Check No. 003380 Bank exhibited bad faith when, in anticipation of the TRO, it opted to float
in the amount of ₱7,613,000.00.
the checks until it received the TRO at 12:00 noon of July 6, 1995 to justify
the nonpayment thereof.
In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had
delivered much more dollars than what was required for the three checks
at the time of payment. By way of special affirmative defense, the spouses
Nuguid also claims that since the subject checks had already been paid to
him, Chiok is no longer entitled to an injunction (to hold the payment of the
subject checks), and Civil Case No. Q-95-24299 has already become
moot.
On August 29, 2002, the RTC rendered its Decision, the dispositive portion
of which states:
WHEREFORE, judgment is rendered:
1. Declaring as permanent the writ of preliminary injunction issued
under the Order of July 25, 1995;
2. Ordering Global Business Bank, Inc.to pay the plaintiff [Chiok]:
a.) The amount of ₱34,691,876.71 (less the attorney’s fees
of ₱255,000.00 which shall remain with Global Business
Bank, Inc.), plus interest at the legal rate of 12%/p.a. from
September 30, 1999 until fully paid;
b.) The amount of ₱215,000.00, representing the excess
amount debited from the plaintiff’s deposit in his account
with Global Business Bank, Inc. on July 7, 1995, plus
interest of 12%/p.a. from July 7, 1995, until fully paid;
c.) Attorney’s fees equivalentof 5% of the total amount due;
and
3. Ordering Metropolitan Bank & Trust Companyto pay the plaintiff:
a. The amount of his deposit of ₱7,613,000.00, plus
interest of 12%/p.a. from July 5, 1995 until said amount is
fully paid; and
b. Attorney’s fees of 5%of the total amount due;
4. Ordering Spouses Gonzalo B. Nuguid and Marinella O. Nuguid
liable jointly and severally with Global Business Bank, Inc. and
Metropolitan Bank & Trust Company, Inc. for the respective
attorney’s fees;
5. Dismissing the complaint-in-interventionof BPI for lack of merit;
6. Ordering the defendantsand the intervenorto pay, jointly and
severally, the costs of suit.
9
(Emphases supplied.)
The RTC held that Nuguid failed to prove the delivery of dollars to Chiok.
According to the RTC, Nuguid’s claim that Chiok was still liable for seven
dishonored China Banking Corporation (CBC) checks with a total worth of
₱72,984,020.00 is highly doubtful since such claim was not presented as a
counterclaim in the case. Furthermore, the court ruled that the certification
of CBC stating the reasons for the stop payment order "are indicative of
10
Chiok’s non-liability to Nuguid." The RTC further noted that there was a
criminal case filed by Chiok against Nuguid on March 29, 1996 for estafa
and other deceit on account of Nuguid’s alleged failure to return the
originals of the seven CBC checks. 11
The RTC went on to rule that manager’s checks and cashier’s checks may
be the subject of a Stop Payment Order from the purchaser on the basis of
the payee’s contractual breach. As explanation for this ruling, the RTC
adopted its pronouncements when it issued the July 25, 1995 Order:
Defendant Nuguid’s argument that the injunction could render manager’s
and cashier’schecks unworthy of the faith they should have and could
impair their nature as independent undertakings of the issuing banks is
probably an undistinguished simplification. While the argument may be
applicable to such checks in general, it does not adequately address the
situation, as here, when specific manager’s and cashier’s checks are
already covered by reciprocal undertakings between their purchaser and
their payee, in which the latter allegedly failed to perform. The agreement
herein was supposedly one in which Nuguid would deliver the equivalent
amount in US dollars ($1,022,288.23) "on the same date" that the plaintiff
purchased and delivered the manager’s and cashier’s checks
(₱26,068,350.00). Assuming that such a reciprocity was true, the
purchaser should have the legal protection of the injunctive writ (which,
after all, the legal departments of the issuing banks themselves allegedly
advised the plaintiff to obtain), since the usual order or instruction to stop
payment available in case of ordinary checks did not avail. This was
probably the reason that Asian Bank has expressly announced in its own
comment/opposition of July 14, 1995 that it was not opposing the
application for the prohibitory injunction.
The dedication of such checks pursuantto specific reciprocal undertakings
between their purchasers and payees authorizes rescission by the former
to prevent substantial and material damage to themselves, which authority
includes stopping the payment of the checks. According to the RTC, both
12
manager’s and cashier’s checks are still subject to regular clearing under
the regulations of the Bangko Sentral ng Pilipinas. Since manager’s and
cashier’s checks are the subject of regular clearing, they may consequently
be refused for cause by the drawee, which refusal is in fact provided for in
the PCHC Rule Book.
The RTC found the argument by BPI that the manager’s and cashier’s
checks are pre-cleared untenable under Section 60 of the New Central
Bank Act and Article 1249 of the Civil Code, which respectively provides:
Section 60. Legal Character. – Checks representing demand deposits do
not have legal tender power and their acceptance in the payment of debts,
both public and private, is at the option of the creditor; Provided, however,
that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.
Art. 1249. The payment of debts inmoney shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines. The delivery of promissory
notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or
when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be
held in the abeyance. The RTC went on to rule that due to the timely
service of the TRO and the injunction, the value of the three checks
remained with Global Bank and Metrobank. The RTC concluded that
13
since Nuguid did not have a valid title to the proceeds of the manager’s
and cashier’s checks, Chiok is entitled to be paid back everything he had
paid to the drawees for the checks. 14
With respect to Global Bank, the RTC ruled that the entire amount of
₱34,691,876.71 it recovered from SBTC from the September 15, 1997
PCHC Decision, as reflected in the September 29, 1999 Charge Slip No.
114977, less the sum of ₱225,000.00 awarded by the arbitration
committee’s decision as attorney’s fees, should be paidto Chiok, with
interest at 12% per annum from September 30, 1999 until full payment.
The RTC likewise ordered Global Bank to pay Chiok the amount of
₱215,390.00, an amount debited from Chiok’s account as payment for
outstanding bills purchase.15
With respect to Metrobank, the RTC ruled that it should pay Chiok
₱7,613,000.00, the amount paid by Chiok to purchase the CC, plus interest
of 12 percent per annum from July 5,1995 until full payment. The RTC
explained this finding as follows:
The same conclusion is true with respect to Metro Bank, with whom the
funds amounting to ₱7,613,000.00 for the purchase of CC No. 003380 has
remained. According to Chiok, Metro Bank used such funds in its
operations.
In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness
for Metro Bank, but in lieu ofher testimony, the parties agreed to stipulate
on the following as her testimony, to wit:
1. That Metro Bank paid the amount of CC No. 003280;
2. That the payment on July 12, 1995 was made while the TRO of
July 5, 1995 was in force;
3. [That] the payment on July 12, 1995 was on the third clearing of
CC No. 003380; and
4. That the PCHC Rule book was the authority on the rules and
regulations on the clearing operations of banks.
The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995
was an open defiance of the TRO of July 6, 1995. Metro Bank’s Branch
Manager Alice Rivera, through her letter of July 10, 1995 to FEBTC as the
collecting bank, returned the CC to FEBTC in compliance with the TRO
which was received about 12:10 noon of July 6, 1999. Hence, Metro Bank
should not have paid because the TRO was served within the 24-hour
period to clear checks. Moreover, the payment, being made on third
clearing, was unjustified for violating existing regulations, particularly
paragraph 1 of the Clearing House Operating Memo (CHOM), effective
September 1, 1984, which prohibited the reclearing of a check after its first
presentation if it was returned for the reason of "stop payment" or "closed
account."
It also seems that Metro Bank paid the CC without first checking whether,
in fact, any actual payment of the 3 checks had been made on July 5, 1995
to the payee when the checks were deposited in payee’s account with
FEBTC on July 5, 1995. The records show no such payment was ever
made to render the TRO of July 6, 1995 or the writ of preliminary injunction
applied for moot and academic.
Jessy A. Degaños – adopted by Metro Bank as its own witness in
injunction hearing of July 24, 1995 – stated that the payment of the 3
checks consisted of the accounting entry made at the PCHC during the
presenting process by debiting the respective accounts of the drawees and
crediting the account of collecting bank FEBTC. Yet, as already found
hereinabove, such process was reversed due to the return by the drawees
of the checks which they dishonored on account of the TRO.
Also, Degaños, testifying on January 17, 2002 for intervenor BPI, was
asked in what form was the withdrawal of the amounts of the checks made
by Nuguid on July 5, 1995, that is, whether:- 1) cash withdrawal; or 2)
credit to Nuguid’s account; or 3) draft issued to Nuguid. His reply was that
only the bank’s branch which serviced the payee’s account could provide
the answer. Yet, BPI did not present any competent personnel from the
branch concerned to enlighten the Court on this material point.
This amount of ₱7,613,000.00, having remained with Metro Bank since the
service of the TRO of July 6, 1995 and the writ of preliminary injunction
issued under the Order of July 25, 1998, should be returned to Chiok with
interest of 12%/p.a. from July 7, 1995 until full payment.
16
(Citations omitted.)
The RTC likewise denied BPI’s complaint-in-intervention to recover the
value of the three checks from drawees Global Bank and Metrobank for
lack of merit. The RTC, after reprimanding Global Bank and Metrobank for
siding with BPI on this issue, held that BPI, as a mere collecting bank of
the payee with a void title to the checks, had no valid claim as to the
amounts of such checks. The RTC explained:
Firstly: BPI, being a collecting bankin relation to the 3 checks, was merely
performing collection services as an agent of Nuguid, the payee. If, as
found hereinbefore, Nuguid could not have legal title to the 3 checks, it
follows that BPI could not stake any claim for title better than Nuguid’s own
void title. Consequently, BPI has no right to claim the amounts of the 3
checks from the drawee-banks.
Secondly: The purpose of the delivery of the 3 checks to BPI – which was
not even accompanied by Nuguid’s endorsement – was solely for deposit
in the account of payee Nuguid. Assuming, for the sake of argument, that
BPI as the collecting bank paid the value of the checks – of which fact
there has been no proof whatsoever – BPI was nonetheless, at best, a
mere transferee whose title was no better than the void title of the
transferor, payee Nuguid. Under such circumstance, BPI has no legal basis
to demand payment of the amounts of the 3 checks from the draweebanks.
Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee
without indorsement, was not considered a holder of the instrument since it
was neither a payee nor an indorsee. It would become so only when and if
the indorsement is actually made, and only as of then, but not before, is
the issue whether BPI was a holder in due course or not is determined.
Consequently, any alleged payment by BPI as the collecting bank, through
the supposed though unproved withdrawal of the amounts of the 3 checks
by Nuguid upon the deposit of the checks on July 5, 1995, is not the
payment which discharges liability under the 3 checks because BPI is
neither the party primarily liable northe drawee.
Such a payment, if true, is akin to, if it is not, drawing against uncollected
deposits (DAUD). In such a case, BPI was in duty bound to send the 3
checks to the PCHC for clearing pursuant to Section 1603.c.1 of the BSP
Manual of Regulations and Sec. 60, R.A. No. 7653. It serves well to note
herein that Global Bank and Metro Bank returned the checks through the
PCHC on July 6, 1995, well within the 24-hour clearing period, in
compliance with the TRO of July 6, 1995. Finally: As earlier noted and
discussed, there is no evidence of any prior valid payment by the collecting
bank to support its claim of the amounts of the 3 checks against the
defendant banks. (Citation omitted.)
17
The RTC held Global Bank and Metrobank liable for attorney’s fees
equivalent to 5% of the total amountdue them, while the spouses Nuguid
were held solidarily liable for said fees.
Defendants Global Bank, Metrobank, and the spouses Nuguid, and
intervenor BPI filed separate notices of appeal, which were approved in the
Order dated April 3, 2003. Chiok filed a Motion to Dismiss against the
18
appeal of Global Bank, on the ground that the latter had ceased to operate
as a banking institution.
On May 26, 2004, the Court of Appeals dismissed the appeal of the
spouses Nuguid pursuant to Section 1(e), Rule 50 of the Rules of Court, on
account of their failure to file their appellant’s brief. In the same Resolution,
the Court of Appeals denied Chiok’s Motion to Dismiss.
On May 5, 2006, the Court of Appeals rendered the assailed Decision
affirming the RTC Decision with modifications. The fallo of the Decision
reads:
WHEREFORE, premises considered, the Decision dated August 29, 2000
of the RTC, Branch 96, Quezon City is AFFIRMED with the following
MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of
$1,022,288.50 between plaintiff-appellee Wilfred N. Chiok and
defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily,
Manager’s Check Nos. 025935 and 025939 and Cashier’s Check
No. 003380 are ordered cancelled.
2.) Global Business Holdings, Inc. is ordered to credit Savings
Account No. 2-007-03-00201-3 with:
a) The amount of ₱25,500,000.00, plus interest at 4% from
September 29, 1999 until withdrawn by plaintiff-appellee;
b) The amount of ₱215,390.00, plus interest at 4% from
July 7, 1995 until withdrawn by plaintiff-appellee.
3.) Metropolitan Bank & Trust Company is ordered to credit
Savings Account No. 154-42504955 the amount of ₱7,613,000.00,
with interest at 6% [per annum] from July 12, 1995 until the same is
withdrawn;
4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are
ordered to pay attorney’s fees equivalent to 5% of the total amount
due to plaintiff-appellee from both depository banks, as well as the
costs of suit.19
According to the Court of Appeals, Article 1191 of the Civil Code provides a
legal basis of the right of purchasers of MCs and CCs to make a stop
payment order on the ground of the failure of the payee to perform his
obligation to the purchaser. The appellate court ruled that such claim was
impliedly incorporated in Chiok’s complaint. The Court of Appeals held:
By depositing the subject checks to the account of Nuguid, Chiok had
already performed his obligation under the contract, and the subsequent
failure of Nuguid to comply with what was incumbent upon him gave rise to
an action for rescission pursuant to Article 1191 of the Civil Code, which
states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
xxxx
Although the complaint a quowas entitled "DAMAGES, W/ EX PARTE
RESTRAINING ORDER/INJUNCTION" when the action was really one for
rescission and damages, it is an elementary rule of procedure that what
controls or determines the nature of the action is not the caption of the
complaint but the allegations contained therein. And even without the
prayer for a specific remedy, proper relief may nevertheless be granted by
the court if the facts alleged in the complaint and the evidence introduced
so warrant.
That Chiok had intended rescission isevident from his prayer to be
declared the legal owner of the proceeds of the subject checks and to be
allowed to withdraw the same. Therefore, the argument of BPI that the
obligation on the part of Nuguid to deliver the dollars still subsists is
untenable. Article 1385 of the same Code provides that rescission creates
the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest. The object of the
contract herein to buy foreign currency is the peso-value of the dollars
bought but in the form of negotiable instruments – Manager’s
Check/Cashier’s Check. Hence, respecting the negotiation thereof, and in
order to afford complete relief to Chiok, there arose the necessity for the
issuance of the injunction restraining the payment of the subject checks
with the end in view of the eventual return of the proceeds to give effect to
Article 1385. In other words, the injunctive relief was necessary in order not
to render ineffectual the judgment in the instant case. We quote with
approval the following disquisition of the trial court, to wit:
 xxxx
There is no question about the nature of manager’s and cashier’s checks
being as good as cash, being primary obligations of the issuing bank and
accepted in advanceby their mere issuance. But even as such nature of
unconditional commitment to pay on the part of the issuing bank may be
conceded, the Court opines that the injunctive relief cannot be denied to a
party who purchased the manager’s or cashier’s check to stop its payment
to the payee in a suit against the payee and the issuing banks upon a
claim that the payee himself had not performed his reciprocal obligation for
which the issuance and delivery of the self-same manager’sor cashier’s
check were, in the first place, made x x x.
It bears stressing that the subject checks would not have been issued were
it not for the contract between Chiok and Nuguid. Therefore, they cannot
be disassociated from the contract and given a distinct and exclusive
signification, as the purchase thereof is part and parcel of the series of
transactions necessary to consummate the contract. Taken in this light, it
cannot be argued that the issuing banks are bound to honor only their
unconditional undertakings on the subject checks vis-à-vis the payee
thereof regardless of the failed transaction between the purchaser of the
checks and the payee on the ground that the banks were not privy to the
said transaction.
Lest it be forgotten, the purchase of the checks was funded by the account
of Chiok with the banks. As such, the banks were equally obligated to treat
the account of their depositor with meticulous care bearing in mind the
fiduciary nature of their relationship with the depositor. Surely, the banks
would not allow their depositor to sit idly by and watch the dissipation of his
livelihood considering that the business of foreign currency exchange is a
highly volatile undertaking where the probability of losing or gaining is
counted by the ticking of the clock. With the millions of money involved in
this transaction, Chiok could not afford to be complacent and his vigilance
for his rights could not have been more opportune under the
circumstances. (Citations omitted.)
20
The Court of Appeals proceeded to sustain the dismissal of BPI’s
complaint-in-intervention, which sought to recover from Global Bank the
amounts allegedly paid to Nuguid. The Court of Appeals pointed out that
BPI failed to prove the alleged withdrawal by Nuguid of the proceeds of the
two manager’s checks, as BPI’s representative, Jessy A. Degaños, failed
to answer the question on the form of the alleged withdrawal. Furthermore,
BPI failed to prove that it was a holder in due course of the subject
manager’s checks, for two reasons: (1) the checks were not indorsed to it
by Nuguid; and (2) BPI never presented its alleged bills purchase
agreement with Nuguid. 21
The Court of Appeals likewise modified the order by the RTC for Global
Bank and Metrobank to pay Chiok. The Court of Appeals held that Chiok’s
cause of action against Global Bank is limited to the proceeds of the two
manager’s checks. Hence, Global Bank was ordered to credit Chiok’s
Savings Account No. 2-007-03-00201-3 with the amount of
₱25,500,000.00, the aggregate value of the two managers’ checks, instead
of the entire ₱34,691,876.71 recovered from SBTC from the September
15, 1997 PCHC Decision. The interest was also reduced from 12% per
annum to that imposed upon savings deposits, which was established
during the trial as 4% per annum.22
As regards Metrobank, the appellate court noted that there was no
evidence as to the interest rate imposed upon savings deposits at
Metrobank. Metrobank was ordered to credit the amount of ₱7,613,000.00
to Chiok’s Savings Account No. 154-42504955, with interest at 6% per
annum. 23
Global Bank and BPI filed separate Motions for Reconsideration of the May
5, 2006 Court of Appeals’ Decision. On November 6, 2006, the Court of
Appeals denied the Motions for Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank
(G.R. No. 175394) filed with this Court separate Petitions for Review on
Certiorari. In Resolutions dated February 21, 2007 and March 12,
24
2007, this Court resolved to consolidate the three petitions. Metrobank
25
submitted the following issues for the consideration of this Court:
(A) WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN RULING THAT "IT IS LEGALLY POSSIBLE
FOR A PURCHASER OF A MANAGER’S CHECK OR CASHIER’S
CHECK TO STOP PAYMENT THEREON THROUGH A COURT
ORDER ON THE GROUND OF THE PAYEE’S ALLEGED
BREACH OF CONTRACTUAL OBLIGATION AMOUNTING TO AN
ABSENCE OF CONSIDERATION THEREFOR."
(B) GRANTING ARGUENDO THAT A MANAGER’S CHECK OR
CASHIER’S CHECK, "IN VIEW OF THE PECULIAR
CIRCUMSTANCES OF THIS CASE" MAY BE SUBJECT TO A
STOP PAYMENT ORDER BY THE PURCHASER THEREOF
THROUGH A COURT ORDER, WHETHER OR NOT THE
HONORABLE COURT OF APPEALS ERRED IN CONCLUDING
 THAT PETITIONER HEREIN "HAD KNOWLEDGE OF
CIRCUMSTANCES THAT WOULD DEFEAT THE TITLE OF THE
PAYEE TO THE CHECKS" WITHOUT, HOWEVER, CITING ANY
SPECIFIC EVIDENCE WHICH WOULD PROVE THE EXISTENCE
OF SUCH KNOWLEDGE. (C) WHETHER OR NOT THE
HONORABLE COURT OF APPEALS ERRED IN SUSTAINING
THE TRIAL COURT’S ORDER FOR PETITIONER HEREIN "TO
PAY (TO CHIOK) THE VALUE OF CASHIER’S CHECK NO.
003380 IN THE AMOUNT OF ₱7,613,000.00, WHICH WAS
DEBITED AGAINST CHIOK’S SAVINGS ACCOUNT # 154-
42504955 ON THE OBSERVATION THAT THE PAYMENT TO
FEBTC BY METROBANK OF CC NO. 003380ON JULY 12, 1995
WAS AN OPEN DEFIANCE OF THE TRO OF JULY 6, 1995." 26
BPI, on the other hand, presented the following issues:
I.
Whether or not the Court of Appeals detracted from well-settled concepts
and principles in commercial law regarding the nature, causes, and effects
of a manager’s check and cashier’s checkin ruling that [the] power of the
court can be invoked by the purchaser [Chiok] in a proper action, which the
Court su[b]stantially construed as a rescissory action or the power to
rescind obligations under Article 1191 of the Civil Code.
II.
Whether or not the Honorable Court of Appeals erred in ruling that where a
purchaser invokes rescission due to an alleged breach of the payee’s
contractual obligation, it is deemed as "peculiar circumstance" which
justifies a stop payment order issued by the purchaser or a temporary
restraining order/injunction from a Court to prevent payment of a
Manager’s Check or a Cashier’s Check.
III.
Whether or not the Honorable Court of Appeals erred in ruling that judicial
admissions in the pleadings of Nuguid, BPI, Asian Bank, Metrobank and
even Chiok himself that Nuguid had withdrawn the proceeds of the checks
will not defeat Chiok’s "substantial right" to restrain the drawee bank from
paying BPI, the collecting bank or presenting bank in this case who paid
the value of the Cashier’s/Manager’s Checks to the payee. 27
Finally, Global Bank rely upon the following grounds in its petition with this
Court:
A.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
PETITIONER GLOBAL BANK HAD NO JUSTIFICATION FOR ITS RIGHT
OF RECOURSE AGAINST RESPONDENT CHIOK NOTWITHSTANDING
THE CLEAR AND UNMISTAKABLE PROVISIONS OF THE BILLS
PURCHASE AGREEMENT.
B.
THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER
GLOBAL BANK LIABLE FOR INTEREST OF 4% PER ANNUM DESPITE
THE FACT THAT:
1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS
COMPLAINT;
2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST;
AND
3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR
ANY INTEREST. 28
Before delving into the merits of these cases, we shall first dispose of a
procedural development during their pendency with the Court.
Joint Manifestation and Motion allegedly
filed by Metrobank, Global Bank and
respondent Chiok
On May 28, 2013, this Court received a Joint Manifestation and Motion
allegedly filed by petitioners Metrobank, Global Bank, and respondent
Chiok, which reads:
PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL
BUSINESS BANK, INC., and RESPONDENT WILFRED N. CHIOK, by
their respective counsels, unto this Honorable Court, respectfully state that
after a thorough consideration, the parties herein have decided to forego
their respective claims against each other, including, past, present and/or
contingent, in relation to the above referenced cases.
 PRAYE R
WHEREFORE, it is respectfully prayed that no further action be taken by
this Honorable Court on the foregoing petitions, that the instant
proceedings be declared CLOSED and TERMINATED, and that an Order
be rendered dismissing the above-referenced cases with prejudice.
In the above Joint Manifestation and Motion, respondent Chiok was not
represented by his counsel of record, Cruz Durian Alday and Cruz-Matters,
but was assisted by Espiritu Vitales Espiritu Law Office, with Atty. Cesar D.
Vitales as signatory, by way of special appearance and assistance.
On June 19, 2013, this Court issued a Resolution requiring petitioner BPI
to comment on the Joint Manifestation and Motion filed by its copetitioners
Metrobank, Global Bank, and respondent Chiok. The Resolution reads:
Considering the joint manifestation and motion of petitioners Metropolitan
Bank and Trust Company and Global Business Bank, Inc., and respondent,
that after a thorough consideration, they have decided to forego their
respective claims against each other, including past, present and/or
contingent, in these cases and praying that the instant proceedings in G.R.
Nos. 172652 and 175394 be declared closed and terminated, the Court
resolves to require petitioner Bank of the Philippine Islands to COMMENT
thereon within ten (10) days from notice thereof x x x.
On September 12, 2013, respondent Chiok, this time assisted by his
counsel of record, Cruz Durian Alday & Cruz-Matters, filed a Motion for
Reconsideration of our Resolution dated June 19, 2013. The signatory to
the Motion for Reconsideration, Atty. Angel Cruz, grossly misread our
Resolution requiring BPI to comment on the Joint Manifestation and
Motion, and apparently contemplated that we are already granting said
Motion. Atty. Cruz objected to the Joint Manifestation and Motion, labeling
the same as tainted with fraud. According to Atty. Cruz, Espiritu Vitales and
Espiritu’s failure to give prior notice to him is in violation of Canon 8 of the
Code of Professional Responsibility. Atty. Cruz prays that Metrobank and
Global Bank be ordered to submit a document of their settlement showing
the amounts paid to Chiok, and for the June19, 2013 Resolution of this
Court be reconsidered and set aside.
On October 9, 2013, BPI filed its comment to the Joint Manifestation and
Motion, opposing the samefor being an implied procedural shortcut to a
Compromise Agreement. It averred that while the courts encourage parties
to amicably settle cases, such settlements are strictly scrutinized by the
courts for approval. BPI also pointed out that the Joint Manifestation and
Motion was not supported by any required appropriate Board Resolution of
Metrobank and Global Bank granting the supposed signatories the
authority to enter into a compromise. BPI prayed that the Joint
Manifestation and Motion of Metrobank, Global Bank, and Chiok be
denied, and to render a full Decision on the merits reversing the Decision
of the Court of Appeals.
On January 20, 2014, Global Bank filed a Comment to Atty. Cruz’s Motion
for Reconsideration on behalf of Chiok, praying that said Motion be
expunged from the records for failure of Atty. Cruz to indicate the number
and date of issue of his MCLE Certificate of Compliance or Certificate of
Exemption for the immediately preceding compliance period.
As far as this Court is concerned, the counsel of record of respondent
Chiok is still Cruz Durian Alday & Cruz-Matters. The requisites of a proper
substitution of counsel of record are stated and settled in jurisprudence:
No substitution of counsel of record is allowed unless the following
essential requisites of a valid substitution of counsel concur: (1) there must
be a written request for substitution; (2) it must be filed with the written
consent of the client; (3) it must be with the written consent of the attorney
to be substituted; and (4) in case the consent of the attorney to be
substituted cannot be obtained, there must be at least a proof of notice that
the motion for substitution was served on him in the manner prescribed by
the Rules of Court. (Citation omitted.)
29
Therefore, while we should indeed require Atty. Cruz to indicate the
number and date of issue of his MCLE Certificate of Compliance or
Certificate of Exemption for the immediately preceding compliance period,
he is justified in pointing out the violation of Canon 8 of the Code of
30
Professional Responsibility, Rule 8.02 of which provides:
Rule 8.02. – A lawyer shall not, directly or indirectly, encroach upon the
professional employment of another lawyer; however, it is the right of any
lawyer, without fear or favor, to give proper advice and assistance to those
seeking relief against unfaithful or neglectful counsel.
We should also give weight to the opposition of BPI to the supposed
compromise agreement. As stated above, the consolidated petitions filed
by Metrobank, BPI, and Global Bank all assail the Decision of the Court of
Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution
on the same case dated November 6, 2006. BPI itself has a claim against
Global Bank, which appear to be intimately related to issues brought forth
in the other consolidated petitions.
Furthermore, the failure of the parties to the Joint Manifestation and Motion
to declare with particularity the terms of their agreement prevents us from
approving the same so as to allow it to attain the effect of res judicata. A
judicial compromise is not a mere contract between the parties. Thus, we
have held that:
A compromise agreement intended to resolve a matter already under
litigation is a judicial compromise. Having judicial mandate and entered as
its determination of the controversy, such judicial compromise has the force
and effect of a judgment. It transcends its identity as a mere contract
between the parties, as it becomes a judgment that is subject to execution
in accordance with the Rules of Court. Thus, a compromise agreement that
has been made and duly approved by the court attains the effect and
authority of res judicata, although no execution may be issued unless the
agreement receives the approval of the court where the litigation is
pending and compliance with the terms of the agreement is
decreed. (Citation omitted.)
31
We are therefore constrained to deny the Joint Manifestation and Motion
filed with this Court on May 28, 2013 and to hereby decide the
consolidated petitions on their merits.
The Court’s ruling on the merits of these
consolidated petitions
Whether or not payment of manager’s
and cashier’s checks are subject to the
condition that the payee thereof should
comply with his obligations to the
purchaser of the checks
The legal effects of a manager’s check and a cashier’s check are the
same. A manager’s check, like a cashier’s 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 manager’s check or a cashier’s check is regarded
substantially to be as good as the money it represents. Thus, the
32
succeeding discussions and jurisprudence on manager’s checks, unless
stated otherwise, are applicable to cashier’s checks, and vice versa. The
RTC effectively ruled that payment of manager’s and cashier’s checks are
subject to the condition that the payee thereof complies with his obligations
to the purchaser of the checks:
The dedication of such checks pursuant to specific reciprocal undertakings
between their purchasers and payees authorizes rescission by the former
to prevent substantial and material damage to themselves, which authority
includes stopping the payment of the checks.
Moreover, it seems to be fallacious to hold that the unconditional payment
of manager’s and cashier’s checks is the rule. To begin with, both
manager’sand cashier’s checks are still subject to regular clearing under
the regulations of the Bangko Sentral ng Pilipinas, a fact borne out by the
BSP manual for banks and intermediaries, which provides, among others,
in its Section 1603.1, c, as follows:
xxxx
c. Items for clearing. All checks and documents payable on demand and
drawn against a bank/branch, institution or entity allowed to clear may be
exchanged through the Clearing Office inManila and the Regional Clearing
Units in regional clearing centers designated by the Central Bank x x x.33
The RTC added that since manager’s and cashier’s checks are the subject
of regular clearing, they may consequently be refused for cause by the
drawee, which refusal is in fact provided for in Section 20 of the Rule Book
of the PCHC:
Sec. 20 – REGULAR RETURN ITEM PROCEDURE
20.1 Any check/item sent for clearing through the PCHC on which payment
should be refused by the Drawee Bank in accordance with long standing
and accepted banking practices, such as but not limited to the fact that:
(a) it bears the forged or unauthorized signature of the drawer(s);
or
(b) it is drawn against a closed account; or
(c) it is drawn against insufficient funds; or
(d) payment thereof has been stopped; or
(e) it is post-dated or stale-dated; and
(f) it is a cashier’s/manager’s/treasurer’s check of the drawee which
has been materially altered;
shall be returned through the PCHC not later than the next regular clearing
for local exchanges and the acceptance of said return by the Sending Bank
shall be mandatory.
It goes without saying that under the aforecited clearing rule[,] the
enumeration of causes to return checks is not exclusive but may include
other causes which are consistent with long standing and accepted
banking practices. The reason of plaintiffs can well constitute such a
justifiable cause to enjoin payment. 34
The RTC made an error at this point. While indeed, it cannot be said that
manager’s and cashier’s checks are pre-cleared, clearing should not be
confused with acceptance. Manager’s and cashier’s checks are still the
subject of clearing to ensure that the same have not been materially
altered or otherwise completely counterfeited. However, manager’s and
cashier’s checks are pre-accepted by the mere issuance thereof by the
bank, which is both its drawer and drawee. Thus, while manager’s and
cashier’s checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn
against insufficient funds, or for similar reasons such as a condition not
appearing on the face of the check. Long standing and accepted banking
practicesdo not countenance the countermanding of manager’s and
cashier’s checks on the basis of a mere allegation of failure of the payee to
comply with its obligations towards the purchaser. On the contrary, the
accepted banking practice is that such checks are as good as cash. Thus,
in New Pacific Timber & Supply Company, Inc. v. Hon. Seneris, we held:
35
It is a well-known and accepted practice in the business sector that a
Cashier's Check is deemed as cash. Moreover, since 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 in circulation, a
certificate of deposit payable to the order of the 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.
(Emphases supplied, citations omitted.)
Even more telling is the Court’s pronouncement in Tan v. Court of
Appeals, which unequivocally settled the unconditional nature of the credit
36
created by the issuance of manager’s or cashier’s checks:
A cashier’s check is a primary obligation of the issuing bank and accepted
in advanceby its mere issuance. By its very nature, a cashier’s check is the
bank’s order to pay drawn upon itself, committing in effect its total
resources, integrity and honor behind the check. A cashier’s check by its
peculiar character and general use in the commercial world is regarded
substantially to be as good asthe money which it represents. In this case,
therefore, PCIB by issuing the check created an unconditional creditin
favor of any collecting bank. (Emphases supplied, citations omitted.)
Furthermore, under the principle of ejusdem generis, where a statute
describes things of a particular class or kind accompanied by words of a
generic character, the generic word willusually be limited to things of a
similar nature with those particularly enumerated, unless there be
something in the context of the statute which would repel such
inference. Thus, any long standing and accepted banking practice which
37
can be considered as a valid cause to return manager’s or cashier’s
checks should be of a similar nature to the enumerated cause applicable to
manager’s or cashier’s checks: material alteration. As stated above, an
example ofa similar cause is the presentation of a counterfeit check.
Whether or not the purchaser of
manager’s and cashier’s checks has the
right to have the checks cancelled by
filing an action for rescission of its
contract with the payee
The Court of Appeals affirmed the order of the RTC for Global Bank and
Metrobank to pay Chiok for the amounts of the subject manager’s and
cashier’s checks. However, since it isclear to the appellate court that the
payment of manager’s and cashier’s checks cannot be considered to be
subject to the condition the payee thereof complies with his obligations to
the purchaser of the checks, the Court of Appeals provided another legal
basis for such liability – rescission under Article 1191 of the Civil Code:
WHEREFORE, premises considered, the Decision dated August 29, 2000
of the RTC, Branch 96, Quezon City is AFFIRMED with the following
MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of $1,022,288.50
between plaintiff-appellee Wilfred N. Chiok and defendant Gonzalo B.
Nuguid is hereby rescinded. Corollarily, Manager’s Check Nos. 025935
and 025939 and Cashier’s Check No. 003380 are ordered cancelled.
According to the Court of Appeals, while such rescission was not
mentioned in Chiok’s Amended Complaint, the same was evident from his
prayer to be declared the legal owner of the proceeds of the subject
checks and to be allowed to withdraw the same. Since rescission creates
the obligation to return the things which are the object of the contract,
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and
the Mortgage Law.
38
The cause of action supplied by the above article, however, is clearly
predicated upon the reciprocity of the obligations of the injured party and
the guilty party. Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of the other.
They are to be performed simultaneously such that the performance of one
is conditioned upon the simultaneous fulfillment of the other. When
42

together with the fruits, the price and the interest, injunctive relief was
39
necessary to restrain the payment of the subject checks with the end in
view of the return of the proceeds to Chiok. 40
Thus, as it was construed by the Court of Appeals, the Amended Complaint
of Chiok was in reality an action for rescission of the contract to buy foreign
currency between Chiok and Nuguid. The Court of Appeals then
proceeded to cancel the manager’s and cashier’s checks as a
Nuguid failed to deliver the agreed amount to Chiok, the latter had a cause
of action against Nuguid to ask for the rescission of their contract. On the
other hand, Chiok did not have a cause of action against Metrobank and
Global Bank that would allow him to rescind the contracts of sale of the
manager’s or cashier’s checks, which would have resulted in the crediting
of the amounts thereof back to his accounts.
Otherwise stated, the right of rescission under Article 1191 of the Civil
43

consequence of the granting of the action for rescission, explaining that
"the subject checks would not have been issued were it not for the contract
between Chiok and Nuguid. Therefore, they cannot be disassociated from
the contract and given a distinct and exclusive signification, as the
purchase thereof is part and parcel of the series of transactions necessary
to consummate the contract." 41
We disagree with the above ruling.
The right to rescind invoked by the Court of Appeals is provided by Article
1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
Code can only be exercised in accordance with the principle of relativity of
contracts under Article 1131 of the same code, which provides:
Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. x x x.
In several cases, this Court has ruled that under the civil law principle of
relativity of contracts under Article 1131, contracts can only bind the parties
who entered into it, and it cannot favor or prejudice a third person, even if
he is aware of such contract and has acted with knowledge
thereof. Metrobank and Global Bank are not parties to the contract to buy
44

case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
foreign currency between Chiok and Nuguid. Therefore, they are not bound
by such contract and cannot be prejudiced by the failure of Nuguid to
comply with the terms thereof.
Neither could Chiok be validly granted a writ of injunction against
Metrobank and Global Bank to enjoin said banks from honoring the subject
manager’s and cashier’s checks. It is elementary that "(a)n injunction
should never issue when an action for damages would adequately
compensate the injuries caused. The very foundation of the jurisdiction to
issue the writ of injunction rests in the fact that the damages caused are principles, applying the aforementioned case of Mesina. The Court of
irreparable and that damages would not adequately compensate." Chiok
45
Appeals held:
could have and should have proceeded directly against Nuguid to claim
damages for breach of contract and to have the very account where he At the core of the appeal interposed by the intervenor BPI, as well as the
deposited the subject checks garnished under Section 7(d) and Section
46
depository banks, Global Bank and Metrobank, is the issue of whether or
8, Rule 57 of the Rules of Court. Instead, Chiok filed an action to enjoin
47
not it is legally possible for a purchaser of a Manager’s Check or Cashier’s
Metrobank and Global Bank from complying with their primary obligation Check to stop payment thereon through a court order on the ground of the
under checks in which they are liable as both drawer and drawee. payee’s alleged breach of contractual obligation amounting to an absence
of consideration therefor.
It is undisputed that Chiok personally deposited the subject manager’s and
cashier’s checks to Nuguid’s account. If the intention of Chiok was for
1âwphi1
In view of the peculiar circumstances of this case, and in the interest of
Nuguid to be allowed to withdraw the proceeds of the checks after clearing, substantial justice, We are constrained to rule in the affirmative.
he could have easily deposited personal checks, instead of going through
the trouble of purchasing manager’s and cashier’s checks. Chiok therefore xxxx
knew, and actually intended, that Nuguid will be allowed to immediately
withdraw the proceeds of the subject checks. The deposit of the checks
In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its
which were practically as good as cash was willingly and voluntarily made
appeal brief, the Supreme Court had the occasion to rule that general
by Chiok, without any assurance that Nuguid will comply with his end of the
principles on causes and effects of a cashier’s check, i.e., that it cannot be
bargain on the same day. The explanation for such apparently reckless
countermanded in the hands of a holder in due course and that it is a bill of
action was admitted by Chiok in the Amended Complaint itself:
exchange drawn by the bank against itself, cannot be applied without
considering that the bank was aware of facts (in this case, the cashier’s
That plaintiff [Chiok] due to the numberof years (five to seven years) of check was stolen) that would not entitle the payee thereof to collect on the
business transactions with defendant [Nuguid] has reposed utmost trust check and, consequently, the bank has the right to refuse payment when
and confidence on the latterthat their transactions as of June 1995 reaches the check is presented by the payee.
millions of pesos. x x x. (Emphases supplied.)
48

As between two innocent persons, one of whom must suffer the
consequences of a breach of trust, the one who made it possible by his act
of confidence must bear the loss. Evidently, it was the utmost trust and
49
confidence reposed by Chiok to Nuguid that caused this entire debacle,
dragging three banks into the controversy, and having their resources
threatened because of an alleged default in a contract they were not privy
to.
Whether or not the peculiar
circumstances of this case justify the
deviation from the general principles on
causes and effects of manager’s and
cashier’s checks
The Court of Appeals, while admitting that the general principles on the
causes and effects of manager’s and cashier’s checks do not allow the
countermanding of such checks on the basis of an alleged failure of
consideration of the payee to the purchaser, nevertheless held that the
peculiar circumstances of this case justify a deviation from said general
While the factual milieu of the Mesinacase is different from the case at
bench, the inference drawn therein by the High Court is nevertheless
applicable. The refusal of Nuguid to deliver the dollar equivalent of the
three checks in the amount of $1,022,288.50 in the afternoon of July 5,
1995 amounted to a failure of consideration that would not entitle Nuguid to
collect on the subject checks.
xxxx
Let it be emphasized that in resolving the matter before Us, We do not
detract from well-settled concepts and principles in commercial law
regarding the nature, causes and effects of a manager’s check and
cashier’s check. Such checks are primary obligations of the issuing bank
and accepted in advance by the mere issuance thereof. They are a bank’s
order to pay drawn upon itself, committing in effect its total resources,
integrity, and honor. By their peculiar character and general use in the
commercial world, they are regarded substantially as good as the money
they represent. However, in view of the peculiar circumstances of the case
at bench, We are constrained to set aside the foregoing concepts and
principles in favor of the exercise of the right to rescind a contract upon the
failure of consideration thereof. (Emphases ours, citations omitted.)
50
In deviating from general banking principles and disposing the case on the
basis of equity, the courts a quo should have at least ensured that their
dispositions were indeed equitable. This Court observes that equity was
not served in the dispositions below wherein Nuguid, the very person found
to have violated his contract by not delivering his dollar obligation, was
absolved from his liability, leaving the banks who are not parties to the
contract to suffer the losses of millions of pesos.
The Court of Appeals’ reliance in the 1986 case of Mesina was likewise
inappropriate. In Mesina, respondent Jose Go purchased from Associated
Bank a cashier’s check for ₱800,000.00, payable to bearer. Jose Go
51
inadvertently left the check on the top desk of the bank manager
when he left the bank. The bank manager entrusted the check for
safekeeping to a certain bank official named Albert Uy, who then had a
certain Alexander Lim as visitor. Uy left his deskto answer a phone call and
to go to the men’s room. When Uy returned to his desk, Lim was gone.
Jose Go inquired for his check from Uy, but the check was nowhereto be
found. At the advice of Uy, Jose Go accomplished a Stop Payment Order
and executed an affidavit of loss. Uy reported the loss to the police.
Petitioner Marcelo Mesina tried to encash the check with Prudential Bank,
but the check was dishonored by Associated Bank by sending it back to
Prudential Bank with the words "Payment Stopped" stamped on it. When
the police asked Mesina how he came to possess the check, he said it was
paid to him by Alexander Lim in a "certain transaction"but refused to
elucidate further. Associated Bank filed an action for Interpleader against
Jose Go and Mesina to determine which of them is entitled to the proceeds
of the check. It was in the appeal on said interpleader case that this Court
allowed the deviation from the general principles on cashier’s checks on
account of the bank’s awareness of certain facts that would prevent the
payee to collect on the check.
There is no arguing that the peculiar circumstances in Mesina indeed
called for such deviation on account of the drawee bank’s awareness of
certain relevant facts. There is, however, no comparable peculiar
circumstance in the case at bar that would justify applying the Mesina
disposition. In Mesina, the cashier’s check was stolen while it was in the
possession of the drawee bank. In the case at bar, the manager’s and
cashier’s checks were personally deposited by Chiok in the account of
Nuguid. The only knowledge that can be attributed to the drawee banks is
whatever was relayed by Chiok himself when he asked for a Stop Payment
Order. Chiok testified on this matter, to wit:
Q: Now, Mr. witness, since according to you the defendant failed to
deliver [this] amount of ₱1,023,288.23 what action have you
undertaken to protect yourinterest Mr. witness?
A: I immediately call my lawyer, Atty. Espiritu to seek his legal
advise in this matter.
Q: Prior to that matter that you soughtthe advise of your lawyer,
Atty. Espiritu insofar as the issuing bank is concerned, namely,
Asian Bank, what did you do in order to protect your interest? A: I
immediately call the bank asking them if what is the procedure for
stop payment and the bank told me that you have to secure a court
order as soon as possible before the clearing of these
checks. (Emphasis supplied.)
52
Asian Bank, which is now Global Bank, obeyed the TRO and denied the
clearing of the manager’s checks. As such, Global Bank may not be held
liable on account of the knowledge of whatever else Chiok told them when
he asked for the procedure to secure a Stop Payment Order. On the other
hand, there was no mention that Metrobank was ever notified of the
alleged failure of consideration. Only Asian Bank was notified of such fact.
Furthermore, the mere allegation of breach on the part of the payee of his
personal contract with the purchaser should not be considered a sufficient
cause to immediately nullify such checks, thereby eroding their integrity
and honor as being as good as cash.
In view of all the foregoing, we resolve that Chiok’s complaint should be
denied insofar as it prayed for the withdrawal of the proceeds of the subject
manager’s and cashier’s checks. Accordingly, the writ of preliminary
prohibitory injunction enjoining Metrobank and Global Bank from honoring
the subject manager’s and cashier’s checks should be lifted.
Since we have ruled that Chiok cannot claim the amounts of the checks
from Metrobank and Global Bank, the issue concerning the setting off of
Global Bank’s judgment debt to Chiok with the outstanding obligations of
Chiok is hereby mooted. We furthermore note that Global Bank had not
presented such issue as a counterclaim in the case at bar, preventing us
53
from ruling on the same.
BPI’s right to the proceeds of the
manager’s checks from Global Bank
While our ruling in Mesinais inapplicable to the case at bar, a much more
relevant case as regards the effect of a Stop Payment Order upon a
manager’s check would be Security Bank and Trust Company v. Rizal
Commercial Banking Corporation, which was decided by this Court in
54
2009. In said case, SBTC issued a manager’s check for ₱8 million,
payable to "CASH," as proceeds of the loan granted to Guidon
Construction and Development Corporation (GCDC). On the same day, the
manager’s check was deposited by Continental Manufacturing Corporation
(CMC) in its current account with Rizal Commercial Banking Corporation
(RCBC). RCBC immediately honored the manager’s check and allowed
CMC to withdraw the same. GCDC issued a Stop Payment Order to SBTC
on the next day, claiming that the check was released to a third party by
mistake. SBTC dishonored and returned the manager’s check to RCBC.
The check was returned back and forth between the two banks, resulting in
automatic debits and credits in each bank’s clearing balance. RCBC filed a
complaint for damages against SBTC. When the case reached this Court,
we held:
At the outset, it must be noted that the questioned check issued by SBTC
is not just an ordinary check but a manager’s check. A manager’s check is
one drawn by a bank’s manager upon the bank itself. It stands on the
same footing as a certified check, which is deemed to have been accepted
by the bank that certified it. As the bank’s own check, a manager’s check
becomes the primary obligation of the bank and is accepted in advance by
the act of its issuance.
In this case, RCBC, in immediately crediting the amount of ₱8 million to
CMC’s account, relied on the integrity and honor of the check as it is
regarded in commercial transactions. Where the questioned check, which
was payable to"Cash," appeared regular on its face, and the bank found
nothing unusual in the transaction, as the drawer usually issued checks in
big amounts made payable to cash, RCBC cannot be faulted in paying the
value of the questioned check.
In our considered view, SBTC cannot escape liability by invoking Monetary
Board Resolution No. 2202 dated December 21, 1979, prohibiting
drawings against uncollected deposits. For we must point out that the
Central Bank at that timeissued a Memorandum dated July 9, 1980, which
interpreted said Monetary Board Resolution No. 2202. In its pertinent
portion, saidMemorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202
dated December 31, 1979 prohibiting, as a matter of policy, drawing
against uncollected deposit effective July 1, 1980, uncollected deposits
representing manager’s/cashier’s/treasurer’schecks, treasury warrants,
postal money orders and duly funded "on us" checks which may be
permitted at the discretion of each bank, covers drawings against demand
deposits as well as withdrawals from savings deposits.
Thus, it is clear from the July 9, 1980 Memorandum that banks were given
the discretion to allow immediate drawings on uncollected deposits of
manager’s checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject manager’s check, only exercised
a prerogative expressly granted to it bythe Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9,
1980 Memorandum alters the extraordinary nature of the manager’s check
and the relativerights of the parties thereto. SBTC’s liability as drawer
remains the same— by drawing the instrument, it admits the existence of
the payee and his then capacity to indorse; and engages that on due
presentment, the instrument will be accepted, or paid, or both, according to
its tenor. (Emphases supplied, citations omitted.)
55
As in SBTC, BPI in the case at bar relied on the integrity and honor of the
manager’s and cashier’s checks asthey are regarded in commercial
transactions when it immediately credited their amounts to Nuguid’s
account.
The Court of Appeals, however, sustained the dismissal of BPI’s complaint-
in-intervention to recover the amounts of the manager’s checks from
Global Bank on account of BPI’s failure to prove the supposed withdrawal
by Nuguid of the value of the checks:
BPI’s cause of action against Asian Bank (now Global Bank) is derived
from the supposed withdrawal by Nuguid of the proceeds of the two
Manager’s Checks it issued and the refusal of Asian Bank to make good
the same. That the admissions in the pleadings to the effect that Nuguid
had withdrawn the said proceeds failed to satisfy the trial court is
understandable. Such withdrawal is anessential fact that, if properly
substantiated, would have defeated Chiok’s right toan injunction. BPI could
so easily have presented withdrawal slips or, with Nuguid’s consent,
statements of account orthe passbook itself, which would indubitably show
that money actually changed hands at the crucial period before the
issuance of the TRO. But it did not.
56
We disagree with this ruling. As provided for in Section 4, Rule 129 of the
Rules of Court, admissions in pleadings are judicial admissions and do not
require proof:
Section 4. Judicial admissions. – An admission, verbal or written, made by
a party in the course of the proceedings in the same case, does not require
proof. The admission may be contradicted only by showing that it was
made through palpable mistake or that no such admission was made.
Nuguid has admitted that FEBTC (now BPI) has paid him the value of the
subject checks. This statement by Nuguid is certainly against his own
57
interest as he can be held liable for said amounts. Unfortunately, Nuguid
allowed his appeal with the Court of Appeals to lapse, without taking steps
to have it reinstated. This course of action, which is highly unlikely if
Nuguid had not withdrawn the value of the manager’s and cashier’s checks
deposited into his account, likewise prevents us from ordering Nuguid to
deliver the amounts of the checks to Chiok. Parties who did not appeal will
not be affected by the decision of an appellate court rendered to appealing
parties.
58
Another reason given by the Court of Appeals for sustaining the dismissal
of BPI’s complaint-in-intervention was that BPI failed to prove that it was a
holder in due course with respect to the manager’s checks. 59
We agree with the finding of the Court of Appeals that BPI is not a holder in
due course with respect to manager’s checks. Said checks were never
indorsed by Nuguid to FEBTC, the predecessor-in-interest of BPI, for the
reason that they were deposited by Chiok directly to Nuguid’s account with
FEBTC. However, inview of our ruling that Nuguid has withdrawn the value
of the checks from his account, BPI has the rights of an equitable assignee
for value under Section 49 of the Negotiable Instruments Law, which
provides:
Section 49. Transfer without indorsement; effect of. – Where the holder of
an instrument payable to his order transfers it for value without indorsing it,
the transfer vests in the transferee suchtitle as the transferor had therein,
and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the transferee
is a holder in due course, the negotiation takes effect as of the time when
the indorsement is actually made.
As an equitable assignee, BPI acquires the instrument subject to defenses
and equities available among prior parties and, in addition, the right to
60
have the indorsement of Nuguid. Since the checks in question are
manager’s checks, the drawer and the drawee thereof are both Global
Bank. Respondent Chiok cannot be considered a prior party as he is not
the check’s drawer, drawee, indorser, payee or indorsee. Global Bank is
consequently primarily liable upon the instrument, and cannot hide behind
respondent Chiok’s defenses. As discussed above, manager’s checks are
pre-accepted. By issuing the manager’s check, therefore, Global Bank
committed in effect its total resources, integrity and honor towards its
payment. 61
Resultantly, Global Bank should pay BPI the amount of ₱18,455,350.00,
representing the aggregate face value ofMC No. 025935 and MC No.
025939. Since Global Bank was merely following the TRO and preliminary
injunction issued by the RTC, it cannot be held liable for legal interest
during the time said amounts are in its possession. Instead, we are
adopting the formulation of the Court of Appeals that the amounts be
treated as savings deposits in Global Bank. The interest rate, however,
should not be fixed at 4% as determined by the Court of Appeals, since
said rates have fluctuated since July 7, 1995, the date Global Bank refused
to honor the subject manager’s checks. Thus, Global Bank should pay BPI
interest based on the rates it actually paid its depositors from July 7, 1995
until the finality of this Decision, in accordance with the same compounding
rules it applies to its depositors. The legal rate of6% per annum shall apply
after the finality of this Decision.
62
We have to stress that respondent Chiok is not left without recourse.
Respondent Chiok’s cause of action to recover the value of the checks is
against Nuguid. Unfortunately, Nuguid allowed his appeal with the Court of
Appeals to lapse, without taking steps tohave it reinstated. As stated
above, parties who did not appeal will not be affected by the decision of the
appellate court rendered to appealing parties. Moreover, since Nuguid
63
was not impleaded as a party to the present consolidated cases, he cannot
be bound by our judgment herein. Respondent Chiok should therefore
pursue his remedy against Nuguid in a separate action to recover the
amounts of the checks.
Despite the reversal of the Court of Appeals Decision, the liability of Nuguid
therein to respondent Chiok for attorney’s fees equivalent to 5% of the total
amount due remains valid, computed from the amounts stated in said
Decision. This is a consequence of the finality of the Decision of the Court
of Appeals with respect to him.
WHEREFORE, the Court resolves to DENY the Joint Manifestation and
Motion filed with this Court on May 28, 2013.
The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED.
The Decision of the Court of Appeals in CA-G.R. CV No. 77508 dated May
5, 2006, and the Resolution on the same case dated November 6, 2006
are hereby REVERSED AND SET ASIDE, and a new one is issued
ordering the DENIAL of the Amended Complaint in Civil Case No. Q-95-
24299 in Branch 96 of the Regional Trial Court of Quezon City for lack of
merit. The Writ of Preliminary Prohibitory Injunction enjoining Asian
Banking Corporation (now Global Business Bank, Inc.) from honoring MC
No. 025935 and MC No. 025939, and Metropolitan Bank & Trust Company
from honoring CC No. 003380, is hereby LIFTED and SET ASIDE.

Global Business Bank, Inc. is ORDERED TO PAY the Bank of the

Philippine Islands, as successor-in-interest of Far East Bank & Trust
Company, the amount of ₱18,455,350.00, representing the aggregate face
value of MC No. 025935 and MC No. 025939, with interest based on the
rates it actually paid its depositors from July 7, 1995 until the finality of this
Decision, in accordance with the same compounding rules it applies to its
depositors.

The petition in G.R. No. 175394 is hereby rendered MOOT.

The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid

under the Decision and Resolution of the Court of Appeals in CAG.R. CV
No. 77508 remain VALID and SUBSISTING, computed from the amounts
adjudged by the Court of Appeals, without prejudice to any further action
that may be filed by Wilfred N. Chiok.

SO ORDERED.