SC upholds CA ruling holding petitioner liable for rice payment

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 171998 October 20, 2010
ANAMER SALAZAR, Petitioner,

vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.
DECISION
PERALTA, J.:
Before us is a petition for review seeking to annul and set aside the Decision 1 dated September 29, 2005 and the Resolution2 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 ₱214,000.00. 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 ₱214,000.00 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 ₱214,000.00 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 ₱214,000.00. 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 ₱214,000.00 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 petitioner’s 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 payee’s 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 ₱214,000.00, 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
63,8 669 and 2910 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 ₱214,000.00; 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:
xxxx
(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.1avvphi1 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, respondent’s 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 ₱214,000.00 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 petitioner’s recognition of the existing obligation to respondent to pay ₱214,000.00 subject of the replaced Prudential Bank
check.
Moreover, respondent’s 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 ₱214,000.00, 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 ₱214,000.00. 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.19We 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.
FIRST DIVISION
SAN MIGUEL CORPORATION, G.R. No. 167567

Petitioner,
Present:
CORONA, C. J., Chairperson,

- versus - CARPIO MORALES,⃰
VELASCO, JR.,
DEL CASTILLO, and
PEREZ, JJ.
BARTOLOME PUZON, JR., Promulgated:

Respondent. September 22, 2010
x-------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
This petition for review assails the December 21, 2004 Decision[1]and March 28, 2005 Resolution[2]of the Court of Appeals (CA) in CA-G.R. SP No.
83905, which dismissed the petition before it and denied reconsideration, respectively.
Factual Antecedents
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer products of petitioner San Miguel Corporation
(SMC) for Paraaque City.Puzon purchased SMC products on credit. To ensure payment and as a business practice, SMC required him to issue
postdated checks equivalent to the value of the products purchased on credit before the same were released to him. Said checks were returned to
Puzon when the transactions covered by these checks were paid or settled in full.
On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for which he issued, and gave to SMC, Bank of the Philippine
Islands (BPI) Check Nos. 27904 (for P309,500.00) and 27903 (for P11,510,827.00) to cover the said transaction.
On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Paraaque City to reconcile his account with SMC. During
that visit Puzon allegedly requested to see BPI Check No. 17657. However, when he got hold of BPI Check No. 27903 which was attached to a bond
paper together with BPI Check No. 17657 he allegedly immediately left the office with his accountant, bringing the checks with them.
SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon ignored the demand hence SMC filed a complaint against
him for theft with the City Prosecutors Office of Paraaque City.
Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)
The investigating prosecutor, Elizabeth Yu Guray found that the relationship between [SMC] and [Puzon] appears to be one of credit or creditor-
debtor relationship.The problem lies in the reconciliation of accounts and the non-payment of beer empties which cannot give rise to a criminal
prosecution for theft.[3] Thus, in her July 31, 2001 Resolution,[4] she recommended the dismissal of
the case for lack of evidence. SMC appealed.
On June 4, 2003, the DOJ issued its resolution[5]affirming the prosecutors Resolution dismissing the case. Its motion for reconsideration having
been denied in the April 23, 2004 DOJ Resolution,[6]SMC filed a petition for certiorari with the CA.
Ruling of the Court of Appeals
The CA found that the postdated checks were issued by Puzon merely as a security for the payment of his purchases and that these were not intended
to be encashed. It thus concluded that SMC did not acquire 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
[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property; (2) that said property belongs to another;
(3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished
without the use of violence or intimidation against persons or force upon things.[11]
Considering that the second element is that the thing taken belongs to another, it is relevant to determine whether ownership of the subject check was
transferred to petitioner.On this point the Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is antedated or postdated, provided this is
not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of
the date of delivery. (Underscoring supplied.)
Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for the purpose of giving effect
thereto.[12] Otherwise, it cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the
instrument is delivered gets the title to the instrument completely and irrevocably.
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the instrument is evident thus title to or
ownership of the check was transferred upon delivery. However, if the check was not given as payment, there being no intent to give effect to the
instrument, then ownership of the check was not transferred to SMC.
The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no provisional receipt or official
receipt issued for the amount of the check. What was issued was a receipt for the document, a POSTDATED CHECK SLIP.[13]
Furthermore, the petitioner's demand letter sent to respondent states As per company policies on receivables, all issuances are to be covered by post-
dated checks. However, you have deviated from this policy by forcibly taking away the check you have issued to us to cover the December
issuance.[14] Notably, the term payment was not used instead the terms covered and cover were used.
Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the check was given in payment of the obligation of
Puzon, the same is contradicted by his statements in paragraph 4, where he states that As a standard company operating procedure, all beer purchases
by dealers on credit shall be covered by postdated checks equivalent to the value of the beer products purchased; in paragraph 9 where he states that
the transaction covered by the said check had not yet been paid for, and in paragraph 8 which clearly shows that partial payment is expected to be made
by the return of beer empties, and not by the deposit or encashment of the check.Clearly the term cover was not meant to be used interchangeably with
payment.
When taken in conjunction with the counter-affidavit of Puzon where he states that As the [liquid beer] contents are paid for, SMC return[s] to me the
corresponding PDCs or request[s] me to replace them with whatever was the unpaid balance.[15] it becomes clear that both parties did not intend for the
check to pay for the beer products. The evidence proves that the check was accepted, not as payment, but in accordance with the long-standing policy
of SMC to require its dealers to issue postdated checks to cover its receivables. The check was only meant to cover the transaction and in the meantime
Puzon was to pay for the transaction by some other means other than the check. This being so, title to the check did not transfer to SMC; it remained
with Puzon. The second element of the felony of theft was therefore not established. Petitioner was not able to show that Puzon took a check
that belonged to another. Hence, the prosecutor and the DOJ were correct in finding no probable cause for theft.
Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ in sustaining the dismissal of the case for theft for lack of
probable cause.
WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005 Resolution of the Court of Appeals in CA-G.R. SP. No.
83905 are AFFIRMED.
SO ORDERED.
SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 170912 : April 19, 2010
ROBERT DINO, Petitioner, v. MARIA LUISA JUDAL-LOOT, joined by her husband VICENTE LOOT, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1cЃa of the 16 August 2005 Decision2cЃa and 30 November 2005 Resolution3cЃaof the Court of Appeals in
CA-G.R. CV No. 57994. The Court of Appeals affirmed the decision of the Regional Trial Court, 7th Judicial Region, Branch 56,
Mandaue City (trial court), with the deletion of the award of interest, moral damages, attorney's fees and litigation expenses. The trial
court ruled that respondents Maria Luisa Judal-Loot and Vicente Loot are holders in due course of Metrobank Check No. C-MA
142119406 CA and ordered petitioner Robert Dino as drawer, together with co-defendant Fe Lobitana as indorser, to solidarily pay
respondents the face value of the check, among others.
The Facts
Sometime in December 1992, a syndicate, one of whose members posed as an owner of several parcels of land situated in Canjulao,
Lapu-lapu City, approached petitioner and induced him to lend the group P3,000,000.00 to be secured by a real estate mortgage on the
properties. A member of the group, particularly a woman pretending to be a certain Vivencia Ompok Consing, even offered to execute a
Deed of Absolute Sale covering the properties, instead of the usual mortgage contract.4cЃa Enticed and convinced by the syndicate's
offer, petitioner issued three Metrobank checks totaling P3,000,000.00, one of which is Check No. C-MA-142119406-CA postdated 13
February 1993 in the amount of P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana. 5cЃa
Upon scrutinizing the documents involving the properties, petitioner discovered that the documents covered rights over government
properties. Realizing he had been deceived, petitioner advised Metrobank to stop payment of his checks. However, only the payment of
Check No. C-MA- 142119406-CA was ordered stopped. The other two checks were already encashed by the payees.
Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to respondents in exchange for cash in the sum
of P948,000.00, which respondents borrowed from Metrobank and charged against their credit line. Before respondents accepted the
check, they first inquired from the drawee bank, Metrobank, Cebu-Mabolo Branch which is also their depositary bank, if the subject
check was sufficiently funded, to which Metrobank answered in the positive. However, when respondents deposited the check with
Metrobank, Cebu-Mabolo Branch, the same was dishonored by the drawee bank for reason "PAYMENT STOPPED."
Respondents filed a collection suit6cЃa against petitioner and Lobitana before the trial court. In their Complaint, respondents alleged,
among other things, that they are holders in due course and for value of Metrobank Check No. C-MA-142119406-CA and that they had
no prior information concerning the transaction between defendants.
In his Answer, petitioner denied respondents' allegations that "on the face of the subject check, no condition or limitation was imposed"
and that respondents are holders in due course and for value of the check. For her part, Lobitana denied the allegations in the
complaint and basically claimed that the transaction leading to the issuance of the subject check is a sale of a parcel of land by
Vivencia Ompok Consing to petitioner and that she was made a payee of the check only to facilitate its discounting.
The trial court ruled in favor of respondents and declared them due course holders of the subject check, since there was no privity
between respondents and defendants. The dispositive portion of the 14 March 1996 Decision of the trial court reads:
In summation, this Court rules for the Plaintiff and against the Defendants and hereby orders:
1.) defendants to pay to Plaintiff, and severally, the amount of P1,000,000.00 representing the face value of subject Metrobank check;
2.) to pay to Plaintiff herein, jointly and severally, the sum of P101,748.00 for accrued and paid interest;
3.) to pay to Plaintiff, jointly and severally, moral damages in the amount of P100,000.00;
4.) to pay to Plaintiff, jointly and severally, the sum of P200,000.00 for attorney's fees; and
5.) to pay to Plaintiff, jointly and severally, litigation expenses in the sum of P10,000.00 and costs of the suit.
SO ORDERED.7cräläwvirtualibräry
Only petitioner filed an appeal. Lobitana did not appeal the trial court's judgment.
The Ruling of the Court of Appeals
The Court of Appeals affirmed the trial court's finding that respondents are holders in due course of Metrobank Check No. C-MA-
142119406-CA. The Court of Appeals pointed out that petitioner's own admission that respondents were never parties to the
transaction among petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos, and Consing, proved respondents' lack of knowledge of
any infirmity in the instrument or defect in the title of the person negotiating it. Moreover, respondents verified from Metrobank whether
the check was sufficiently funded before they accepted it. Therefore, respondents must be excluded from the ambit of petitioner's stop
payment order.
The Court of Appeals modified the trial court's decision by deleting the award of interest, moral damages, attorney's fees and litigation
expenses. The Court of Appeals opined that petitioner "was only exercising (although incorrectly), what he perceived to be his right to
stop the payment of the check which he rediscounted." The Court of Appeals ruled that petitioner acted in good faith in ordering the
stoppage of payment of the subject check and thus, he must not be made liable for those amounts.
In its 16 August 2005 Decision, the Court of Appeals affirmed the trial court's decision with modifications, thus:
WHEREFORE, premises considered, finding no reversible error in the decision of the lower court, WE hereby DISMISS the appeal and
AFFIRM the decision of the court a quo with modifications that the award of interest, moral damages, attorney's fees and litigation
expenses be deleted.
No pronouncement as to costs.
SO ORDERED.8
In its 30 November 2005 Resolution, the Court of Appeals denied petitioner's motion for reconsideration.
In denying the petitioner's motion for reconsideration, the Court of Appeals noted that petitioner raised the defense that the check is a
crossed check for the first time on appeal (particularly in the motion for reconsideration). The Court of Appeals rejected such defense
considering that to entertain the same would be offensive to the basic rules of fair play, justice, and due process.
Hence, this petition.
The Issues
Petitioner raises the following issues:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RESPONDENTS WERE HOLDERS IN DUE COURSE. THE FACT
THAT METROBANK CHECK NO. 142119406 IS A CROSSED CHECK CONSTITUTES SUFFICIENT WARNING TO THE
RESPONDENTS TO EXERCISE EXTRAORDINARY DILIGENCE TO DETERMINE THE TITLE OF THE INDORSER.
II. THE COURT OF APPEALS ERRED IN DENYING PETITIONER'S MOTION FOR RECONSIDERATION UPON THE GROUND
THAT THE ARGUMENTS RELIED UPON HAVE ONLY BEEN RAISED FOR THE FIRST TIME. EQUITY DEMANDS THAT THE
COURT OF APPEALS SHOULD HAVE MADE AN EXCEPTION TO PREVENT THE COMMISSION OF MANIFEST WRONG AND
INJUSTICE UPON THE PETITIONER.9
The Ruling of this Court
The petition is meritorious.
Respondents point out that petitioner raised the defense that Metrobank Check No. C-MA-142119406-CA is a crossed check for the
first time in his motion for reconsideration before the Court of Appeals. Respondents insist that issues not raised during the trial cannot
be raised for the first time on appeal as it would be offensive to the elementary rules of fair play, justice and due process. Respondents
further assert that a change of theory on appeal is improper.
In his Answer, petitioner specifically denied, among others, (1) Paragraph 4 of the Complaint, concerning the allegation that on the face
of the subject check, no condition or limitation was imposed, and (2) Paragraph 8 of the Complaint, regarding the allegation that
respondents were holders in due course and for value of the subject check. In his "Special Affirmative Defenses," petitioner claimed
that "for want or lack of the prestation," he could validly stop the payment of his check, and that by rediscounting petitioner's check,
respondents "took the risk of what might happen on the check." Essentially, petitioner maintained that respondents are not holders in
due course of the subject check, and as such, respondents could not recover any liability on the check from petitioner.
Indeed, petitioner did not expressly state in his Answer or raise during the trial that Metrobank Check No. C-MA-142119406-CA is a
crossed check. It must be stressed, however, that petitioner consistently argues that respondents are not holders in due course of the
subject check, which is one of the possible effects of crossing a check. The act of crossing a check serves as a warning to the holder
that the check has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to
that purpose; otherwise, he is not a holder in due course.10cЃa Contrary to respondents' view, petitioner never changed his theory, that
respondents are not holders in due course of the subject check, as would violate fundamental rules of justice, fair play, and due
process. Besides, the subject check was presented and admitted as evidence during the trial and respondents did not and in fact
cannot deny that it is a crossed check.
In any event, the Court is clothed with ample authority to entertain issues or matters not raised in the lower courts in the interest of
substantial justice.11cЃa In Casa Filipina Realty v. Office of the President,12cЃa the Court held:
[T]he trend in modern-day procedure is to accord the courts broad discretionary power such that the appellate court may consider
matters bearing on the issues submitted for resolution which the parties failed to raise or which the lower court ignored. Since rules of
procedure are mere tools designed to facilitate the attainment of justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial justice, must always be avoided. Technicality should not be allowed
to stand in the way of equitably and completely resolving the rights and obligations of the parties. 13cЃa
Having disposed of the procedural issue, the Court shall now proceed to the merits of the case. The main issue is whether respondents
are holders in due course of Metrobank Check No. C-MA 142119406 CA as to entitle them to collect the face value of the check from its
drawer or petitioner herein.
Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has 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.
In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed check (a) may not be
encashed but only deposited in the bank; (b) may be negotiated only once - to one who has an account with a bank; and (c) warns the
holder that it has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course.14cЃa
Based on the foregoing, respondents had the duty to ascertain the indorser's, in this case Lobitana's, title to the check or the nature of
her possession. This respondents failed to do. Respondents' verification from Metrobank on the funding of the check does not amount
to determination of Lobitana's title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to legal
absence of good faith,15cЃa contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents are not deemed holders
in due course of the subject check.16cräläwvirtualibräry
State Investment House v. Intermediate Appellate Court17cЃa squarely applies to this case. There, New Sikatuna Wood Industries, Inc.
sold at a discount to State Investment House three post-dated crossed checks, issued by Anita Peña Chua naming as payee New
Sikatuna Wood Industries, Inc. The Court found State Investment House not a holder in due course of the checks. The Court also
expounded on the effect of crossing a check, thus:
Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the check. The crossing
may be special wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee
should pay only with the intervention of that bank or company, or crossing may be general wherein between two parallel diagonal lines
are written the words "and Co." or none at all as in the case at bar, in which case the drawee should not encash the same but merely
accept the same for deposit.
The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the Negotiable
Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person authorized to receive
payment on his behalf x x x As to who the holder or authorized person will be depends on the instructions stated on the face of the
check.
The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries, Inc.
which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein.
Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability
did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is available to petitioner
against the drawer of the subject checks, private respondent wife, considering that petitioner is not the proper party authorized to make
presentment of the checks in question.
In this case, there is no question that the payees of the check, Lobitana or Consing, were not the ones who presented the check for
payment. Lobitana negotiated and indorsed the check to respondents in exchange for P948,000.00. It was respondents who presented
the subject check for payment; however, the check was dishonored for reason "PAYMENT STOPPED." In other words, it was not the
payee who presented the check for payment; and thus, there was no proper presentment. As a result, liability did not attach to the
drawer. Accordingly, no right of recourse is available to respondents against the drawer of the check, petitioner herein, since
respondents are not the proper party authorized to make presentment of the subject check.
However, the fact that respondents are not holders in due course does not automatically mean that they cannot recover on the
check.18cЃa The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case
recover on the instrument. 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.19cЃa Among such defenses is the absence or failure of consideration, 20cЃa which petitioner
sufficiently established in this case. Petitioner issued the subject check supposedly for a loan in favor of Consing's group, who turned
out to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no consideration for the
issuance of the check. Consequently, petitioner cannot be obliged to pay the face value of the check.
Respondents can collect from the immediate indorser,21cЃa in this case Lobitana. Significantly, Lobitana did not appeal the trial court's
decision, finding her solidarily liable to pay, among others, the face value of the subject check. Therefore, the trial court's judgment has
long become final and executory as to Lobitana.
WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August 2005 Decision and 30 November 2005 Resolution of the Court
of Appeals in CA-G.R. CV No. 57994.
SO ORDERED.
Supreme Court
Manila
SECOND DIVISION
CARMELA BROBIO MANGAHAS, G.R. No. 183852

Petitioner,
Present:
CORONA, C.J.,*
CARPIO,
- versus - Chairperson,
NACHURA,
LEONARDO-DE CASTRO,**and
MENDOZA, JJ.
EUFROCINA A. BROBIO, Promulgated:

Respondent.
October 20, 2010
RESOLUTION
NACHURA, J.:
This petition for review on certiorari seeks to set aside the Court of Appeals (CA) Decision[1] dated February 21, 2008, which dismissed
petitioners action to enforce payment of a promissory note issued by respondent, and Resolution[2] dated July 9, 2008, which denied
petitioners motion for reconsideration.
The case arose from the following facts:
On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate, leaving three parcels of land. He was survived by his wife, respondent
Eufrocina A. Brobio, and four legitimate and three illegitimate children; petitioner Carmela Brobio Mangahas is one of the illegitimate
children.
On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial Settlement of Estate of the Late Pacifico Brobio with
Waiver. In the Deed, petitioner and Pacificos other children, in consideration of their love and affection for respondent and the sum
of P150,000.00, waived and ceded their respective shares over the three parcels of land in favor of respondent. According to petitioner,
respondent promised to give her an additional amount for her share in her fathers estate. Thus, after the signing of the Deed, petitioner
demanded from respondent the promised additional amount, but respondent refused to pay, claiming that she had no more money. [3]
A year later, while processing her tax obligations with the Bureau of Internal Revenue (BIR), respondent was required to submit an original
copy of the Deed. Left with no more original copy of the Deed, respondent summoned petitioner to her office on May 31, 2003 and asked
her to countersign a copy of the Deed. Petitioner refused to countersign the document, demanding that respondent first give her the
additional amount that she promised. Considering the value of the three parcels of land (which she claimed to be worth P20M), petitioner
asked for P1M, but respondent begged her to lower the amount. Petitioner agreed to lower it to P600,000.00. Because respondent did
not have the money at that time and petitioner refused to countersign the Deed without any assurance that the amount would be paid,
respondent executed a promissory note. Petitioner agreed to sign the Deed when respondent signed the promissory note which read
31 May 2003
This is to promise that I will give a Financial Assistance to CARMELA B. MANGAHAS the amount of P600,000.00 Six
Hundred Thousand only on June 15, 2003.
(SGD)
EUFROCINA A. BROBIO[4]
When the promissory note fell due, respondent failed and refused to pay despite demand. Petitioner made several more demands upon
respondent but the latter kept on insisting that she had no money.
On January 28, 2004, petitioner filed a Complaint for Specific Performance with Damages [5] against respondent, alleging in part
2. That plaintiff and defendant are legal heirs of the deceased, Pacifico S. Brobio[,] who died intestate and leaving
without a will, on January 10, 2002, but leaving several real and personal properties (bank deposits), and some of
which were the subject of the extra-judicial settlement among them, compulsory heirs of the deceased, Pacifico
Brobio. x x x.
3. That in consideration of the said waiver of the plaintiff over the listed properties in the extra-judicial settlement, plaintiff
received the sum of P150,000.00, and the defendant executed a Promissory Note on June 15, 2003, further
committing herself to give plaintiff a financial assistance in the amount of P600,000.00. x x x.
4. That on its due date, June 15, 2003, defendant failed to make good of her promise of delivering to the plaintiff the
sum of P600,000.00 pursuant to her Promissory Note dated May 31, 2003, and despite repeated demands,
defendant had maliciously and capriciously refused to deliver to the plaintiff the amount [of] P600,000.00, and the
last of which demands was on October 29, 2003. x x x.[6]
In her Answer with Compulsory Counterclaim,[7] respondent admitted that she signed the promissory note but claimed that she was forced
to do so. She also claimed that the undertaking was not supported by any consideration. More specifically, she contended that
10. Defendant was practically held hostage by the demand of the plaintiff. At that time, defendant was so much
pressured and was in [a] hurry to submit the documents to the Bureau of Internal Revenue because of the deadline set
and for fear of possible penalty if not complied with. Defendant pleaded understanding but plaintiff was adamant. Her
hand could only move in exchange for 1 million pesos.
11. Defendant, out of pressure and confused disposition, was constrained to make a promissory note in a reduced
amount in favor of the plaintiff. The circumstances in the execution of the promissory note were obviously attended by
involuntariness and the same was issued without consideration at all or for illegal consideration. [8]
On May 15, 2006, the Regional Trial Court (RTC) rendered a decision in favor of petitioner. The RTC found that the alleged pressure and
confused disposition experienced by respondent and the circumstances that led to the execution of the promissory note do not constitute
undue influence as would vitiate respondents consent thereto. On the contrary, the RTC observed that
It is clear from all the foregoing that it is the defendant who took improper advantage of the plaintiffs trust and confidence in
her by resorting to a worthless written promise, which she was intent on reneging. On the other hand, plaintiff did not
perform an unlawful conduct when she insisted on a written commitment from the defendant, as embodied in the
promissory note in question, before affixing her signature that was asked of her by the defendant because, as already
mentioned, that was the only opportunity available to her or which suddenly and unexpectedly presented itself to her in
order to press her demand upon the defendant to satisfy the correct amount of consideration due to her. In other words,
as the defendant had repeatedly rebuffed her plea for additional consideration by claiming lack of money, it is only
natural for the plaintiff to seize the unexpected opportunity that suddenly presented itself in order to compel the
defendant to give to her [what is] due [her]. And by executing the promissory note which the defendant had no intention
of honoring, as testified to by her, the defendant clearly acted in bad faith and took advantage of the trust and confidence
that plaintiff had reposed in her.[9]
The RTC also brushed aside respondents claim that the promissory note was not supported by valuable consideration. The court
maintained that the promissory note was an additional consideration for the waiver of petitioners share in the three properties in favor of
respondent. Its conclusion was bolstered by the fact that the promissory note was executed after negotiation and haggling between the
parties. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering the defendant to pay to plaintiff the sum of Six Hundred Thousand Pesos (P600,000.00) which
she committed to pay to plaintiff under the promissory note in question, plus interest thereon at the rate
of 12% per annum computed from the date of the filing of the complaint;
2. Ordering the defendant to pay to plaintiff the sum of P50,000.00 as attorneys fees; and
3. Ordering the defendant to pay to plaintiff the costs of this suit.
SO ORDERED.[10]
On February 21, 2008, the CA reversed the RTC decision and dismissed the complaint.[11] The CA found that there was a complete
absence of consideration in the execution of the promissory note, which made it inexistent and without any legal force and effect. The
court noted that financial assistance was not the real reason why respondent executed the promissory note, but only to secure petitioners
signature. The CA held that the waiver of petitioners share in the three properties, as expressed in the deed of extrajudicial settlement,
may not be considered as the consideration of the promissory note, considering that petitioner signed the Deed way back in 2002 and
she had already received the consideration of P150,000.00 for signing the same. The CA went on to hold that if petitioner disagreed with
the amount she received, then she should have filed an action for partition.
Further, the CA found that intimidation attended the signing of the promissory note. Respondent needed the Deed countersigned
by petitioner in order to comply with a BIR requirement; and, with petitioners refusal to sign the said document, respondent was forced to
sign the promissory note to assure petitioner that the money promised to her would be paid.
Petitioner moved for the reconsideration of the CA Decision. In a Resolution dated July 9, 2008, the CA denied petitioners motion.[12]
In this petition for review, petitioner raises the following issues:
1. The Honorable Court of Appeals erred in the appreciation of the facts of this case when it found that intimidation
attended the execution of the promissory note subject of this case.
2. The Honorable Court of Appeals erred when it found that the promissory note was without consideration.
3. The Honorable Court of Appeals erred when it stated that petitioner should have filed [an action] for partition
instead of a case for specific performance.[13]
The petition is meritorious.
Contracts are voidable where consent thereto is given through mistake, violence, intimidation, undue influence, or fraud. In
determining whether consent is vitiated by any of these circumstances, courts are given a wide latitude in weighing the facts or
circumstances in a given case and in deciding in favor of what they believe actually occurred, considering the age, physical infirmity,
intelligence, relationship, and conduct of the parties at the time of the execution of the contract and subsequent thereto, irrespective of
whether the contract is in a public or private writing. [14]
Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the execution of the promissory note. Still, respondent insists
that she was forced into signing the promissory note because petitioner would not sign the document required by the BIR. In one case,
the Court in characterizing a similar argument by respondents therein held that such allegation is tantamount to saying that the other
party exerted undue influence upon them. However, the Court said that the fact that respondents were forced to sign the documents does
not amount to vitiated consent.[15]
There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of
a reasonable freedom of choice.[16] For undue influence to be present, the influence exerted must have so overpowered or subjugated
the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own. [17]
Respondent may have desperately needed petitioners signature on the Deed, but there is no showing that she was deprived of free
agency when she signed the promissory note. Being forced into a situation does not amount to vitiated consent where it is not shown that
the party is deprived of free will and choice. Respondent still had a choice: she could have refused to execute the promissory note and
resorted to judicial means to obtain petitioners signature. Instead, respondent chose to execute the promissory note to obtain petitioners
signature, thereby agreeing to pay the amount demanded by petitioner.
The fact that respondent may have felt compelled, under the circumstances, to execute the promissory note will not negate
the voluntariness of the act. As rightly observed by the trial court, the execution of the promissory note in the amount of P600,000.00
was, in fact, the product of a negotiation between the parties. Respondent herself testified that she bargained with petitioner to lower the
amount:
ATTY. VILLEGAS:
Q And is it not that there was even a bargaining from P1-M to P600,000.00 before you prepare[d] and [sign[ed] that
promissory note marked as Exhibit C?
A Yes, sir.
Q And in fact, you were the one [who] personally wrote the amount of P600,000.00 only as indicated in the said
promissory note?
A Yes, sir.
COURT:
Q So, just to clarify. Carmela was asking an additional amount of P1-M for her to sign this document but you negotiated
with her and asked that it be lowered to P600,000.00 to which she agreed, is that correct?
A Yes, Your Honor. Napilitan na po ako.
Q But you negotiated and asked for its reduction from P1-M to P600,000.00?
A Yes, Your Honor.[18]
Contrary to the CAs findings, the situation did not amount to intimidation that vitiated consent. There is intimidation when one of the
contracting parties is compelled to give his consent by a reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse, descendants, or ascendants. [19] Certainly, the payment of penalties for
delayed payment of taxes would not qualify as a reasonable and well-grounded fear of an imminent and grave evil.
We join the RTC in holding that courts will not set aside contracts merely because solicitation, importunity, argument, persuasion, or
appeal to affection was used to obtain the consent of the other party. Influence obtained by persuasion or argument or by appeal to
affection is not prohibited either in law or morals and is not obnoxious even in courts of equity. [20]
On the issue that the promissory note is void for not being supported by a consideration, we likewise disagree with the CA.
A contract is presumed to be supported by cause or consideration. [21] The presumption that a contract has sufficient
consideration cannot be overthrown by a mere assertion that it has no consideration. To overcome the presumption, the alleged lack of
consideration must be shown by preponderance of evidence. [22] The burden to prove lack of consideration rests upon whoever alleges it,
which, in the present case, is respondent.
Respondent failed to prove that the promissory note was not supported by any consideration. From her testimony and her
assertions in the pleadings, it is clear that the promissory note was issued for a cause or consideration, which, at the very least, was
petitioners signature on the document.
It may very well be argued that if such was the consideration, it was inadequate. Nonetheless, even if the consideration is
inadequate, the contract would not be invalidated, unless there has been fraud, mistake, or undue influence. [23] As previously stated,
none of these grounds had been proven present in this case.
The foregoing discussion renders the final issue insignificant. Be that as it may, we would like to state that the remedy suggested
by the CA is not the proper one under the circumstances. An action for partition implies that the property is still owned in
common.[24] Considering that the heirs had already executed a deed of extrajudicial settlement and waived their shares in favor of
respondent, the properties are no longer under a state of co-ownership; there is nothing more to be partitioned, as ownership had already
been merged in one person.
WHEREFORE, premises considered, the CA Decision dated February 21, 2008 and its Resolution dated July 9, 2008
are REVERSED and SET ASIDE. The RTC decision dated May 15, 2006 is REINSTATED.
SO ORDERED.
Supreme Court
Manila
SECOND DIVISION
EUMELIA R. MITRA, G.R. NO. 191404

Petitioner,
Present:
CARPIO, J., Chairperson,

NACHURA,
- versus - PERALTA,
ABAD, and
MENDOZA, JJ.
PEOPLE OF THE PHILIPPINESand FELICISIMO

S. TARCELO,
Respondents.
Promulgated:
July 5, 2010
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the July 31, 2009 Decision [1] and the
February 11, 2010 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 31740. The subject decision and resolution affirmed the
August 22, 2007 Decision of the Regional Trial Court, Branch 2, Batangas City (RTC) which, in turn, affirmed the May 21, 2007 Decision
of the Municipal Trial Court in Cities, Branch 2, Batangas City (MTCC).
THE FACTS:
Petitioner Eumelia R. Mitra (Mitra) was the Treasurer, and Florencio L. Cabrera, Jr. (now deceased) was the President, of Lucky
Nine Credit Corporation(LNCC), a corporation engaged in money lending activities.
Between 1996 and 1999, private respondent Felicisimo S. Tarcelo (Tarcelo) invested money in LNCC. As the usual practice in
money placement transactions, Tarcelo was issued checks equivalent to the amounts he invested plus the interest on his investments.
The following checks, signed by Mitra and Cabrera, were issued by LNCC to Tarcelo. [2]
Bank Date Issued Date of Check Amount Check No.
Security Bank September 15, 1998 January 15, 1999 P 3,125.00 0000045804
-do- September 15, 1998 January 15, 1999 125,000.00 0000045805

-do- October 3, 1998 February 3, 1999 2,500.00 0000045875
-do- October 3, 1998 February 3, 1999 100,000.00 0000045876
-do- November 17, 1998 February17, 1999 5,000.00 0000046061
-do- November 17, 1998 March 17, 1999 5,000.00 0000046062
-do- November 19, 1998 January 19, 1999 2,500.00 0000046065
-do- November 19, 1998 February19, 1999 2,500.00 0000046066
-do- November 20, 1998 February 20, 1999 10,000.00 0000046071
-do- November 30, 1998 February 28, 1999 2,500.00 0000046076
When Tarcelo presented these checks for payment, they were dishonored for the reason account closed. Tarcelo made several
oral demands on LNCC for the payment of these checks but he was frustrated. Constrained, in 2002, he caused the filing of seven
informations for violation of Batas Pambansa Blg. 22 (BP 22) in the total amount of P925,000.00 with the MTCC in Batangas City.[3]
After trial on the merits, the MTCC found Mitra and Cabrera guilty of the charges. The fallo of the May 21, 2007 MTCC
Decision[4] reads:
WHEREFORE, foregoing premises considered, the accused FLORENCIO I. CABRERA, JR.,

and EUMELIA R. MITRA are hereby found guilty of the offense of violation of Batas Pambansa Bilang 22 and are
hereby ORDERED to respectively pay the following fines for each violation and with subsidiary imprisonment in all
cases, in case of insolvency:
1. Criminal Case No. 43637 - P200,000.00

Said accused, nevertheless, are adjudged civilly liable and are ordered to pay, in solidum, private complainant
Felicisimo S. Tarcelo the amount of NINE HUNDRED TWENTY FIVE THOUSAND PESOS (P925,000.000).
SO ORDERED.
Mitra and Cabrera appealed to the Batangas RTC contending that: they signed the seven checks in blank with no name of the
payee, no amount stated and no date of maturity; they did not know when and to whom those checks would be issued; the seven checks
were only among those in one or two booklets of checks they were made to sign at that time; and that they signed the checks s o as not
to delay the transactions of LNCC because they did not regularly hold office there.[5]
The RTC affirmed the MTCC decision and later denied their motion for reconsideration. Meanwhile, Cabrera died. Mitra alone
filed this petition for review[6] claiming, among others, that there was no proper service of the notice of dishonor on her. The Court of
Appeals dismissed her petition for lack of merit.
Mitra is now before this Court on a petition for review and submits these issues:
1. WHETHER OR NOT THE ELEMENTS OF VIOLATION OF BATAS PAMBANSA BILANG 22 MUST BE

PROVED BEYOND REASONABLE DOUBT AS AGAINST THE CORPORATION WHO OWNS THE CURRENT
ACCOUNT WHERE THE SUBJECT CHECKS WERE DRAWN BEFORE LIABILITY ATTACHES TO THE
SIGNATORIES.
2. WHETHER OR NOT THERE IS PROPER SERVICE OF NOTICE OF DISHONOR AND DEMAND TO PAY
TO THE PETITIONER AND THE LATE FLORENCIO CABRERA, JR.
The Court denies the petition.
A check is a negotiable instrument that serves as a substitute for money and as a convenient form of payment in financial
transactions and obligations. The use of checks as payment allows commercial and banking transactions to proceed without the actual
handling of money, thus, doing away with the need to physically count bills and coins whenever payment is made. It permits commercial
and banking transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged by unfunded
checks that adversely affect confidence in our commercial and banking activities, and ultimately injure public interest.
BP 22 or the Bouncing Checks Law was enacted for the specific purpose of addressing the problem of the continued issuance
and circulation of unfunded checks by irresponsible persons. To stem the harm caused by these bouncing checks to the community, BP
22 considers the mere act of issuing an unfunded check as an offense not only against property but also against public order. [7] The
purpose of BP 22 in declaring the mere issuance of a bouncing check as malum prohibitum is to punish the offender in order to deter him
and others from committing the offense, to isolate him from society, to reform and rehabilitate him, and to maintain social order. [8] The
penalty is stiff. BP 22 imposes the penalty of imprisonment for at least 30 days or a fine of up to double the amount of the check or both
imprisonment and fine.
Specifically, BP 22 provides:
SECTION 1. Checks Without Sufficient Funds. Any person who makes or draws and issues any check to
apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the
drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less
than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the
check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the
discretion of the court.
The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee
bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the
full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which
reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the
check in behalf of such drawer shall be liable under this Act.
SECTION 2. Evidence of Knowledge of Insufficient Funds. The making, drawing and issuance of a check
payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented
within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of
funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements
for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has
not been paid by the drawee.
Mitra posits in this petition that before the signatory to a bouncing corporate check can be held liable, all the elements of the
crime of violation of BP 22 must first be proven against the corporation. The corporation must first be declared to have committed the
violation before the liability attaches to the signatories of the checks. [9]
The Court finds Itself unable to agree with Mitras posture. The third paragraph of Section 1 of BP 22 reads: "Where the check is
drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable
under this Act." This provision recognizes the reality that a corporation can only act through its officers. Hence, its wording is unequivocal
and mandatory that the person who actually signed the corporate check shall be held liable for a violation of BP 22. This provision does
not contain any condition, qualification or limitation.
In the case of Llamado v. Court of Appeals,[10] the Court ruled that the accused was liable on the unfunded corporate check
which he signed as treasurer of the corporation. He could not invoke his lack of involvement in the negotiation for the transaction as a
defense because BP 22 punishes the mere issuance of a bouncing check, not the purpose for which the check was issued or in
consideration of the terms and conditions relating to its issuance. In this case, Mitra signed the LNCC checks as treasurer.
Following Llamado, she must then be held liable for violating BP 22.
Another essential element of a violation of BP 22 is the drawers knowledge that he has insufficient funds or credit with the
drawee bank to cover his check. Because this involves a state of mind that is difficult to establish, BP 22 creates the prima
facie presumption that once the check is dishonored, the drawer of the check gains knowledge of the insufficiency, unless within five
banking days from receipt of the notice of dishonor, the drawer pays the holder of the check or makes arrangements with the drawee
bank for the payment of the check. The service of the notice of dishonor gives the drawer the opportunity to make good the check within
those five days to avert his prosecution for violating BP 22.
Mitra alleges that there was no proper service on her of the notice of dishonor and, so, an essential element of the offense is
missing. This contention raises a factual issue that is not proper for review. It is not the function of the Court to re-examine the finding of
facts of the Court of Appeals. Our review is limited to errors of law and cannot touch errors of facts unless the petitioner shows that the
trial court overlooked facts or circumstances that warrant a different disposition of the case [11] or that the findings of fact have no basis on
record. Hence, with respect to the issue of the propriety of service on Mitra of the notice of dishonor, the Court gives full faith and credit
to the consistent findings of the MTCC, the RTC and the CA.
The defense postulated that there was no demand served upon the accused, said denial deserves scant
consideration. Positive allegation of the prosecution that a demand letter was served upon the accused prevails over
the denial made by the accused. Though, having denied that there was no demand letter served on April 10, 2000,
however, the prosecution positively alleged and proved that the questioned demand letter was served upon the
accused on April 10, 2000, that was at the time they were attending Court hearing before Branch I of this
Court. In fact, the prosecution had submitted a Certification issued by the other Branch of this Court certifying the fact
that the accused were present during the April 10, 2010 hearing. With such straightforward and categorical testimony
of the witness, the Court believes that the prosecution has achieved what was dismally lacking in the three (3) cases
of Betty King, Victor Ting and Caras evidence of the receipt by the accused of the demand letter sent to her. The
Court accepts the prosecutions narrative that the accused refused to sign the same to evidence their receipt thereof. To
require the prosecution to produce the signature of the accused on said demand letter would be imposing an undue
hardship on it. As well, actual receipt acknowledgment is not and has never been required of the prosecution either by
law or jurisprudence.[12] [emphasis supplied]
With the notice of dishonor duly served and disregarded, there arose the presumption that Mitra and Cabrera knew that there
were insufficient funds to cover the checks upon their presentment for payment. In fact, the account was already closed.
To reiterate the elements of a violation of BP 22 as contained in the above-quoted provision, a violation exists where:
1. a person makes or draws and issues a check to apply on account or for value;
2. the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the full payment of the check upon its presentment; and
3. the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been
dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. [13]
There is no dispute that Mitra signed the checks and that the bank dishonored the checks because the account had been closed.
Notice of dishonor was properly given, but Mitra failed to pay the checks or make arrangements for their payment within five days from
notice. With all the above elements duly proven, Mitra cannot escape the civil and criminal liabilities that BP 22 imposes for its breach. [14]
WHEREFORE, the July 31, 2009 Decision and the February 11, 2010 Resolution of the Court of Appeals in CA-G.R. CR No.
31740 are hereby AFFIRMED.
SO ORDERED.
Supreme Court
Manila
SECOND DIVISION
VICENTE GO, G.R. No. 168842

Petitioner,
Present:
CARPIO, J.,
Chairperson,
- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
METROPOLITAN BANK AND Promulgated:

TRUST CO.,
Respondent. August 11, 2010
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision [1] dated May 27, 2005
and the Resolution[2]dated August 31, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 63469.
The Facts
The facts of the case are as follows:
Petitioner filed two separate cases before the Regional Trial Court (RTC) of Cebu. Civil Case No. CEB-9713 was filed by petitioner against
Ma. Teresa Chua (Chua) and Glyndah Tabaag (Tabaag) for a sum of money with preliminary attachment. Civil Case No. CEB-9866 was
filed by petitioner for a sum of money with damages against herein respondent Metropolitan Bank and Trust Company (Metrobank) and
Chua.[3]
In both cases, petitioner alleged that he was doing business under the name Hope Pharmacy which sells medicine and other
pharmaceutical products in the City of Cebu. Petitioner had in his employ Chua as his pharmacist and trustee or caretaker of the business;
Tabaag, on the other hand, took care of the receipts and invoices and assisted Chua in making deposits for petitioners accounts in the
business operations of Hope Pharmacy.[4]
In CEB-9713, petitioner claimed that there were unauthorized deposits and encashments made by Chua and Tabaag in the total amount
of One Hundred Nine Thousand Four Hundred Thirty-three Pesos and Thirty Centavos (P109,433.30). He questioned particularly the
following:
(1) FEBTC Check No. 251111 dated April 29, 1990 in the amount of P22,635.00 which was issued by plaintiffs
[petitioners] customer Loy Libron in payment of the stocks purchased was deposited under Metrobank Savings Account
No. 420-920-6 belonging to the defendant Ma. Teresa Chua;
(2) RCBC Checks Nos. 330958 and 294515, which were in blank but pre-signed by him (plaintiff [petitioner] Vicente
Go) for convenience and intended for payment to plaintiffs [petitioners] suppliers, were filled up and dated September
22, 1990 and September 7, 1990 in the amount of P30,000.00 and P50,000.00 respectively, and were deposited with
defendant Chuas aforestated account with Metrobank;
(3) PBC Check No. 005874, drawn by Elizabeth Enriquez payable to the Hope Pharmacy in the amount of P6,798.30
was encashed by the defendant Glyndah Tabaag;
(4) There were unauthorized deposits and encashments in the total sum of P109,433.30;[5]
In CEB-9866, petitioner averred that there were thirty-two (32) checks with Hope Pharmacy as payee, for varying sums, amounting to
One Million Four Hundred Ninety-Two Thousand Five Hundred Ninety-Five Pesos and Six Centavos (P1,492,595.06), that were not
endorsed by him but were deposited under the personal account of Chua with respondent bank, [6] and these are the following:
CHECK NO. DATE AMOUNT

FEBTC 251166 5-23-90 P 65,214.88
FEBTC 239399 5-08-90 24,917.75
FEBTC 251350 7-24-90 212,326.56
PBC 279887 6-27-90 2,000.00
PBC 162387 1-24-90 6,300.00
PBC 162317 12-22-89 3,300.00
PBC 279881 6-23-90 7,650.00
PBC 009005 7-21-89 3,584.00
PBC 279771 5-14-90 3,600.00
PBC 279726 4-25-90 2,000.00
PBC 168004 3-22-90 2,800.00
PBC 167963 3-07-90 1,700.00
FEBTC 267793 8-20-90 80,085.66
FEBTC 267761 7-21-90 45,304.63
FEBTC 251252 6-03-90 64,000.00
FEBTC 267798 8-15-90 40,078.67
PBC 367292 8-06-90 2,100.00
PBC 376445 9-26-90 1,125.00
PBC 009056 8-07-89 2,500.00
PBC 376402 9-12-90 12,105.40
BPI 197074 7-17-90 5,240.00
BPI 197051 7-06-90 1,350.00
BPI 204358 9-19-90 5,402.60
BPI 204252 7-31-90 6,715.60
FEBTC 251171 6-27-90 83,175.54
FEBTC 251165 6-28-90 231,936.10
FEBTC 251251 6-30-90 47,087.25
FEBTC 251163 6-21-90 170,600.85
FEBTC 251170 5-23-90 16,440.00
FEBTC 251112 5-31-90 211,592.69
FEBTC 239400 6-15-90 47,664.03
FEBTC 251162 6-22-90 82,697.85
P1,492,595.06[7]
Petitioner claimed that the said checks were crossed checks payable to Hope Pharmacy only; and that without the participation and
connivance of respondent bank, the checks could not have been accepted for deposit to any other account, except petitioners account. [8]
Thus, in CEB-9866, petitioner prayed that Chua and respondent bank be ordered, jointly and severally, to pay the principal amount
of P1,492,595.06, plus interest at 12% from the dates of the checks, until the obligation shall have been fully paid; moral damages of Five
Hundred Thousand Pesos (P500,000.00); exemplary damages of P500,000.00; and attorneys fees and costs in the amount
of P500,000.00.[9]
On February 23, 1995, the RTC rendered a Joint Decision, [10] the dispositive portion of which reads:
WHEREFORE, premises considered, the Court hereby renders judgment dismissing plaintiff Vicente Gos
complaint against the defendant Ma. Teresa Chua and Glyndah Tabaag in Civil Case No. CEB-9713, as well as
plaintiffs complaint against the same defendant Ma. Teresa Chua in Civil Case No. CEB-9866.
Plaintiff Vicente Go is moreover sentenced to pay P50,000.00 in attorneys fees and litigation expenses to the
defendants Ma. Teresa Chua and Glyndah Tabaag in Civil Case No. CEB-9713.
Defendant Metrobank in Civil Case No. CEB-9866 is hereby condemned to pay unto plaintiff Vicente Go/Hope
Pharmacy the amount of P50,000.00 as moral damages, and attorneys fees and litigation expenses in the aggregate
sum of P25,000.00.
The defendant Metrobanks crossclaim against its co-defendant Ma. Teresa Chua in Civil Case No. CEB-9866 is dismissed for
lack of merit.
No special pronouncement as to costs in both instances.

SO ORDERED.[11]
In striking down the complaint of the petitioner against Chua and Tabaag in CEB-9713, the RTC made the following findings:
(1) FEBTC Check No. 251111, dated April 29, 1990, in the amount of P22,635.00 payable to cash, was drawn by Loy
Libron in payment of her purchases of medicines and other drugs which Ma. Teresa Chua was selling side by side with
the medicines and drugs of the Hope Pharmacy, for which she (Maritess) was granted permission by its owner, Mr.
Vicente Chua. These medicines and drugs from Thailand were Maritess sideline, and were segregated from the stocks
of Hope Pharmacy; x x x.
(2) RCBC Check Nos. 294519 and 330958 were checks belonging to plaintiff Vicente Go payable to cash x x x; these
checks were replacements of the sums earlier advanced by Ma. Teresa Chua, but which were deposited in the account
of Vicente Go with RCBC, as shown by the deposit slips x x x, and confirmed by the statement of account of Vicente
Go with RCBC.
(3) Check No. PCIB 005374 drawn by Elizabeth Enriquez payable to Hope Pharmacy/Cash in the amount of P6,798.30
dated September 6, 1990, was admittedly encashed by the defendant, Glyndah Tabaag. As per instruction by Vicente
Go, Glyndah requested the drawer to insert the word Cash, so that she could encash the same with PCIB, to meet the
Hope Pharmacys overdraft.
The listings x x x, made by Glyndah Tabaag and Flor Ouano will show that the corresponding amounts covered thereby
were in fact deposited to the account of Mr. Vicente Go with RCBC; the Bank Statement of Mr. Go x x x, confirms
defendants claim independently of the deposit slip[s] x x x. [12]
The trial court absolved Chua in CEB-9866 because of the finding that the subject checks in CEB-9866 were payments of petitioner for
his loans or borrowings from the parents of Ma. Teresa Chua, through Ma. Teresa, who was given the total discretion by petitioner to
transfer money from the offices of Hope Pharmacy to pay the advances and other obligations of the drugstore; she was also given the
full discretion where to source the funds to cover the daily overdrafts, even to the extent of borrowing money with interest from other
persons.[13]
While the trial court exonerated Chua in CEB-9866, it however declared respondent bank liable for being negligent in allowing the deposit
of crossed checks without the proper indorsement.
Petitioner filed an appeal before the CA. On May 27, 2005, the CA rendered a Decision, [14] the fallo of which reads:
WHEREFORE, except for the award of attorneys fees and litigation expenses in favor of defendants Chua and Tabaag
which is hereby deleted, the decision of the lower court is hereby AFFIRMED.
SO ORDERED.[15]
Hence, this petition.

The Issue
Petitioner presented this sole issue for resolution:
The Court of Appeals Erred In Not Holding Metrobank Liable For Allowing The Deposit, Of Crossed Checks Which
Were Issued In Favor Of And Payable To Petitioner And Without Being Indorsed By The Petitioner, To The Account Of
Maria Teresa Chua.[16]
The Ruling of the Court
A check is a bill of exchange drawn on a bank payable on demand. [17] There are different kinds of checks. In this case, crossed checks
are the subject of the controversy. A crossed check is one where two parallel lines are drawn across its face or across the corner thereof.
It may be crossed generally or specially.[18]
A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed
generally when only the words "and company" are written or nothing is written at all between the parallel lines, as in this case. It may be
issued so that presentment can be made only by a bank. [19]
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that 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 one who has an account with a bank; and (c) the act of crossing the check serves as warning to the ho lder that
the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise,
he is not a holder in due course.[20]
The Court has 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 not converted into cash. The effect of crossing a check,
thus, 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 crossing of a check is a warning that the check should be deposited only in the account of the payee.
Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the payees account only. [22]
In the instant case, there is no dispute that the subject 32 checks with the total amount of P1,492,595.06 were crossed checks with
petitioner as the named payee. It is the submission of petitioner that respondent bank should be held accountable for the entire amount
of the checks because it accepted the checks for deposit under Chuas account despite the fact that the checks were crossed and that
the payee named therein was not Chua.
In its defense, respondent bank countered that petitioner is not entitled to reimbursement of the total sum of P1,492,595.06 from either
Maria Teresa Chua or respondent bank because petitioner was not damaged thereby. [23]
Respondent banks contention is meritorious. Respondent bank should not be held liable for the entire amount of the checks considering
that, as found by the RTC and affirmed by the CA, the checks were actually given to Chua as payments by petitioner for loans obtained
from the parents of Chua. Furthermore, petitioners non-inclusion of Chua and Tabaag in the petition before this Court is, in effect, an
admission by the petitioner that Chua, in representation of her parents, had rightful claim to the proceeds of the checks, as payments by
petitioner for money he borrowed from the parents of Chua. Therefore, petitioner suffered no pecuniary loss in the deposit of the checks
to the account of Chua.
However, we affirm the finding of the RTC that respondent bank was negligent in permitting the deposit and encashment of the crossed
checks without the proper indorsement. An indorsement is necessary for the proper negotiation of checks specially if the payee named
therein or holder thereof is not the one depositing or encashing it. Knowing fully well that the subject checks were crossed, that the payee
was not the holder and that the checks contained no indorsement, respondent bank should have taken reasonable steps in order to
determine the validity of the representations made by Chua. Respondent bank was amiss in its duty as an agent of the payee. Prudence
dictates that respondent bank should not have merely relied on the assurances given by Chua.
Respondent presented Jonathan Davis as its witness in the trial before the RTC. He was the officer-in-charge and ranked second to the
assistant vice president of the bank at the time material to this case. Davis testimony was summarized by the RTC as follows:
Davis also testified that he allowed Ma. Teresa Chua to deposit the checks subject of this litigation which were payable
to Hope Pharmacy. According to him, it was a privilege given to valued customers on a highly selective case to case
basis, for marketing purposes, based on trust and confidence, because Ma. Teresa [Chua] told him that those checks
belonged to her as payment for the advances she extended to Mr. Go/Hope Pharmacy. x x x
Davis stressed that Metrobank granted the privilege to Ma. Teresa Chua that for every check she deposited with
Metrobank, the same would be credited outright to her account, meaning that she could immediately make use of the
amount credited; this arrangement went on for about three years, without any complaint from Mr. Go/Hope Pharmacy,
and Ma. Teresa Chua made warranty that she would reimburse Metrobank if Mr. Go complained. He did not however
call or inform Mr. Go about this arrangement, because their bank being a Chinese bank, transactions are based on
trust and confidence, and for him to inform Mr. Vicente Go about it, was tantamount to questioning the integrity of their
client, Ma. Teresa Chua. Besides, this special privilege or arrangement would not bring any monetary gain to the
bank.[24]
Negligence was committed by respondent bank in accepting for deposit the crossed checks without indorsement and in not verifying the
authenticity of the negotiation of the checks. The law imposes a duty of extraordinary diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and regularity.[25] As a business affected with public interest and
because of the nature of its functions, the banks are under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of the relationship. [26] The fact that this arrangement had been practiced for three years without Mr.
Go/Hope Pharmacy raising any objection does not detract from the duty of the bank to exercise extraordinary diligence. Thus, the Decision
of the RTC, as affirmed by the CA, holding respondent bank liable for moral damages is sufficient to remind it of its responsibility to
exercise extraordinary diligence in the course of its business which is imbued with public interest.
WHEREFORE, the Decision dated May 27, 2005 and the Resolution dated August 31, 2005 of the Court of Appeals in CA-G.R. CV No.
63469 are hereby AFFIRMED.
SO ORDERED.
Supreme Court
Manila
SECOND DIVISION
RIZAL COMMERCIAL BANKING CORPORATION, G.R. No. 192413

Petitioner,
Present:
versus CARPIO, J., Chairperson,

BRION,
PEREZ,
HI-TRI DEVELOPMENT CORPORATION and LUZ R. SERENO, and
BAKUNAWA, REYES, JJ.
Respondents.
Promulgated:
June 13, 2012
DECISION
SERENO, J.:
Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal Commercial Banking Corporation (RCBC)
against respondents Hi-Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26
November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals (CA), [1] which reversed and set aside the 19 May 2008
Decision and 3 November 2008 Order of the Makati City Regional Trial Court (RTC) in Civil Case No. 06-244.[2] The case before the RTC
involved the Complaint for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as amended by
Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and unclaimed balances held by the branches of various banks
in the Philippines. The trial court declared the amounts, subject of the special proceedings, escheated to the Republic and ordered them
deposited with the Treasurer of the Philippines (Treasurer) and credited in favor of the Republic. [3] The assailed RTC judgments included
an unclaimed balance in the amount of ₱1,019,514.29, maintained by RCBC in its Ermita Business Center branch.
We quote the narration of facts of the CA[4] as follows:
x x x Luz [R.] Bakunawa and her husband Manuel, now deceased (Spouses Bakunawa) are registered owners of six (6) parcels
of land covered by TCT Nos. 324985 and 324986 of the Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829
of the Marikina Register of Deeds. These lots were sequestered by the Presidential Commission on Good Government [(PCGG)].
Sometime in 1990, a certain Teresita Millan (Millan), through her representative, Jerry Montemayor, offered
to buy said lots for ₱6,724,085.71, with the promise that she will take care of clearing whatever preliminary obstacles
there may[]be to effect a completion of the sale. The Spouses Bakunawa gave to Millan the Owners Copies of said
TCTs and in turn, Millan made a down[]payment of ₱1,019,514.29 for the intended purchase. However, for one reason
or another, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa rescinded the sale and
offered to return to Millan her down[]payment of ₱1,019,514.29. However, Millan refused to accept back the
₱1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa, through their company, the Hi-Tri Development
Corporation (Hi-Tri) took out on October 28, 1991, a Managers Check from RCBC-Ermita in the amount of
₱1,019,514.29, payable to Millans company Rosmil Realty and Development Corporation (Rosmil) c/o Teresita Millan
and used this as one of their basis for a complaint against Millan and Montemayor which they filed with the Regional
Trial Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991], praying that:
1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to return to
plaintiffs spouses the Owners Copies of Transfer Certificates of Title Nos. 324985, 324986,
103724, 98827, 98828 and 98829;
2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amount of One
Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine Centavos
(₱1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs spouses moral damages in the amount of
₱2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs attorneys fees in the amount of ₱50,000.00.
Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-91-10719 that
Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million Nineteen Thousand Five Hundred
Fourteen Pesos and Twenty Nine [Centavos] (₱1,019,514.29)[], the Spouses Bakunawa, upon advice of their counsel,
retained custody of RCBC Managers Check No. ER 034469 and refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for a possible
settlement of the case, Millan was informed that the Managers Check was available for her withdrawal, she being the
payee.
On January 31, 2003, during the pendency of the abovementioned case and without the knowledge of [Hi-Tri
and Spouses Bakunawa], x x x RCBC reported the ₱1,019,514.29-credit existing in favor of Rosmil to the Bureau of
Treasury as among its unclaimed balances as of January 31, 2003. Allegedly, a copy of the Sworn Statement executed
by Florentino N. Mendoza, Manager and Head of RCBCs Asset Management, Disbursement & Sundry Department
(AMDSD) was posted within the premises of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed with the RTC
the action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan. Instead of only
the amount of ₱1,019,514.29, [Spouses Bakunawa] agreed to pay Rosmil and Millan the amount of ₱3,000,000.00,
[which is] inclusive [of] the amount of []₱1,019,514.29. But during negotiations and evidently prior to said settlement,
[Manuel Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the availability of the ₱1,019,514.29 under RCBC
Managers Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed when they were informed
that the amount was already subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:
We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in the
Managers Check is currently the subject of escheat proceedings pending before Branch 150 of the
Makati Regional Trial Court.
Please note that it was our impression that the deposit would be taken from [Hi-Tris] RCBC bank
account once an order to debit is issued upon the payees presentation of the Managers Check. Since
the payee rejected the negotiated Managers Check, presentation of the Managers Check was never
made.
Consequently, the deposit that was supposed to be allocated for the payment of the Managers Check
was supposed to remain part of the Corporation[s] RCBC bank account, which, thereafter, continued
to be actively maintained and operated. For this reason, We hereby demand your confirmation that
the amount of Php 1,019,514.29 continues to form part of the funds in the Corporations RCBC bank
account, since pay-out of said amount was never ordered. We wish to point out that if there was any
attempt on the part of RCBC to consider the amount indicated in the Managers Check separate from
the Corporations bank account, RCBC would have issued a statement to that effect, and repeatedly
reminded the Corporation that the deposit would be considered dormant absent any fund movement.
Since the Corporation never received any statements of account from RCBC to that effect, and more
importantly, never received any single letter from RCBC noting the absence of fund movement and
advising the Corporation that the deposit would be treated as dormant.
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their position as above-
quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa] that:
The Banks Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Managers Check
No. ER034469 in the escheat proceedings docketed as Civil Case No. 06-244, as well as the status
thereof, between 28 January 2008 and 1 February 2008.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Managers Check No. ER034469 does
not form part of the Banks own account. By simple operation of law, the funds covered by the
managers check in issue became a deposit/credit susceptible for inclusion in the escheat case
initiated by the OSG and/or Bureau of Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-bound to make good the check, the Banks obligation to
do so prescribed as early as October 2001.
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court rendered its assailed
Decision declaring the deposits, credits, and unclaimed balances subject of Civil Case No. 06-244 escheated to the
Republic. Among those included in the order of forfeiture was the amount of ₱1,019,514.29 held by RCBC as
allocated funds intended for the payment of the Managers Check issued in favor of Rosmil. The trial court ordered the
deposit of the escheated balances with the Treasurer and credited in favor of the Republic. Respondents claim that
they were not able to participate in the trial, as they were not informed of the ongoing escheat proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partial reconsideration of the
RTC Decision insofar as it escheated the fund allocated for the payment of the Managers Check. They asked that
they be included as party-defendants or, in the alternative, allowed to intervene in the case and their motion
considered as an answer-in-intervention. Respondents argued that they had meritorious grounds to ask
reconsideration of the Decision or, alternatively, to seek intervention in the case. They alleged that the deposit was
subject of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that they were
interested parties to that case.[5]
On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trial court explained that the Republic
had proven compliance with the requirements of publication and notice, which served as notice to all those who may be affected and
prejudiced by the Complaint for Escheat. The RTC also found that the motion failed to point out the findings and conclusions that were
not supported by the law or the evidence presented, as required by Rule 37 of the Rules of Court. Finally, it ruled that the alternative
prayer to intervene was filed out of time.
The CA Ruling
On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decision and 3 November 2008 Order of the
RTC. According to the appellate court,[6] RCBC failed to prove that the latter had communicated with the purchaser of the Managers
Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil) immediately before the bank filed its Sworn Statement on
the dormant accounts held therein. The CA ruled that the banks failure to notify respondents deprived them of an opportunity to intervene
in the escheat proceedings and to present evidence to substantiate their claim, in violation of their right to due process. Furthermore, the
CA pronounced that the Makati City RTC Clerk of Court failed to issue individual notices directed to all persons claiming interest in the
unclaimed balances, as well as to require them to appear after publication and show cause why the unclaimed balances should not be
deposited with the Treasurer of the Philippines. It explained that the jurisdictional requirement of individual notice by personal service was
distinct from the requirement of notice by publication. Consequently, the CA held that the Decision and Order of the RTC were void for
want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the main issues as follows:
I. Whether the Decision and Order of the RTC were void for failure to send separate notices to respondents by
personal service
II. Whether petitioner had the obligation to notify respondents immediately before it filed its Sworn Statement with the
Treasurer
III. Whether or not the allocated funds may be escheated in favor of the Republic
Discussion
Petitioner bank assails[7] the CA judgments insofar as they ruled that notice by personal service upon respondents is a
jurisdictional requirement in escheat proceedings. Petitioner contends that respondents were not the owners of the unclaimed balances
and were thus not entitled to notice from the RTC Clerk of Court. It hinges its claim on the theory that the funds represented by the
Managers Check were deemed transferred to the credit of the payee or holder upon its issuance.
We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence an action
or actions in the name of the People of the Republic of the Philippines in the Court of First Instance of the province
or city where the bank, building and loan association or trust corporation is located, in which shall be joined as parties
the bank, building and loan association or trust corporation and all such creditors or depositors. All or any of such
creditors or depositors or banks, building and loan association or trust corporations may be included in one
action. Service of process in such action or actions shall be made by delivery of a copy of the complaint and
summons to the president, cashier, or managing officer of each defendant bank, building and loan association
or trust corporation and by publication of a copy of such summons in a newspaper of general circulation, either in
English, in Filipino, or in a local dialect, published in the locality where the bank, building and loan association or trust
corporation is situated, if there be any, and in case there is none, in the City of Manila, at such time as the court may
order. Upon the trial, the court must hear all parties who have appeared therein, and if it be determined that such
unclaimed balances in any defendant bank, building and loan association or trust corporation are unclaimed as
hereinbefore stated, then the court shall render judgment in favor of the Government of the Republic of the
Philippines, declaring that said unclaimed balances have escheated to the Government of the Republic of the
Philippines and commanding said bank, building and loan association or trust corporation to forthwith deposit the same
with the Treasurer of the Philippines to credit of the Government of the Republic of the Philippines to be used as the
National Assembly may direct.
At the time of issuing summons in the action above provided for, the clerk of court shall also issue a notice signed
by him, giving the title and number of said action, and referring to the complaint therein, and directed to all persons,
other than those named as defendants therein, claiming any interest in any unclaimed balance mentioned in
said complaint, and requiring them to appear within sixty days after the publication or first publication, if there
are several, of such summons, and show cause, if they have any, why the unclaimed balances involved in said
action should not be deposited with the Treasurer of the Philippines as in this Act provided and notifying them
that if they do not appear and show cause, the Government of the Republic of the Philippines will apply to the
court for the relief demanded in the complaint. A copy of said notice shall be attached to, and published with the
copy of, said summons required to be published as above, and at the end of the copy of such notice so published, there
shall be a statement of the date of publication, or first publication, if there are several, of said summons and notice. Any
person interested may appear in said action and become a party thereto. Upon the publication or the
completion of the publication, if there are several, of the summons and notice, and the service of the summons on
the defendant banks, building and loan associations or trust corporations, the court shall have full and complete
jurisdiction in the Republic of the Philippines over the said unclaimed balances and over the persons having
or claiming any interest in the said unclaimed balances, or any of them, and shall have full and complete
jurisdiction to hear and determine the issues herein, and render the appropriate judgment thereon. (Emphasis
supplied.
Hence, insofar as banks are concerned, service of processes is made by delivery of a copy of the complaint and
summons upon the president, cashier, or managing officer of the defendant bank. [8] On the other hand, as
to depositors or other claimants of the unclaimed balances, service is made by publication of a copy of the
summons in a newspaper of general circulation in the locality where the institution is situated. [9] A notice about the
forthcoming escheat proceedings must also be issued and published, directing and requiring all persons who may claim
any interest in the unclaimed balances to appear before the court and show cause why the dormant accounts should
not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the issuance of individual notices upon respondents was a
jurisdictional requirement, and that failure to effect personal service on them rendered the Decision and the Order of the RTC void for
want of jurisdiction. Escheat proceedings are actions in rem,[10] whereby an action is brought against the thing itself instead of the
person.[11] Thus, an action may be instituted and carried to judgment without personal service upon the depositors or other
claimants.[12] Jurisdiction is secured by the power of the court over the res.[13] Consequently, a judgment of escheat is conclusive upon
persons notified by advertisement, as publication is considered a general and constructive notice to all persons interested. [14]
Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment of the Managers
Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty, steps in and claims abandoned,
left vacant, or unclaimed property, without there being an interested person having a legal claim thereto. [15] In the case of dormant
accounts, the state inquires into the status, custody, and ownership of the unclaimed balance to determine whether the inactivity was
brought about by the fact of death or absence of or abandonment by the depositor. [16] If after the proceedings the property remains without
a lawful owner interested to claim it, the property shall be reverted to the state to forestall an open invitation to self-service by the first
comers.[17] However, if interested parties have come forward and lain claim to the property, the courts shall determine whether the credit
or deposit should pass to the claimants or be forfeited in favor of the state. [18] We emphasize that escheat is not a proceeding to penalize
depositors for failing to deposit to or withdraw from their accounts. It is a proceeding whereby the state compels the surrender to it of
unclaimed deposit balances when there is substantial ground for a belief that they have been abandoned, forgotten, or without an
owner.[19]
Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other similar institutions in filing a sworn
statement with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd year, all banks,
building and loan associations, and trust corporations shall forward to the Treasurer of the Philippines a statement,
under oath, of their respective managing officers, of all credits and deposits held by them in favor of
persons known to be dead, or who have not made further deposits or withdrawals during the preceding ten
years or more, arranged in alphabetical order according to the names of creditors and depositors, and showing:
(a) The names and last known place of residence or post office addresses of the persons in whose favor such
unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether the same is in money or in security,
and if the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed balance stands died, if known, or the date when he
made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank,
building and loan association, or trust corporation concerned for at least sixty days from the date of filing
thereof: Provided, That immediately before filing the above sworn statement, the bank, building and loan
association, and trust corporation shall communicate with the person in whose favor the unclaimed balance
stands at his last known place of residence or post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the existence of
unclaimed balances held by banks, building and loan associations, and trust corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of unclaimed balances. This
notification is meant to inform them that their deposit could be escheated if left unclaimed. Accordingly, before filing a sworn statement,
banks and other similar institutions are under obligation to communicate with owners of dormant accounts. The purpose of this initial
notice is for a bank to determine whether an inactive account has indeed been unclaimed, abandoned, forgotten, or left without an owner.
If the depositor simply does not wish to touch the funds in the meantime, but still asserts ownership and dominion over the dormant
account, then the bank is no longer obligated to include the account in its sworn statement. [20] It is not the intent of the law to force
depositors into unnecessary litigation and defense of their rights, as the state is only interested in escheating balances that have been
abandoned and left without an owner.
In case the bank complies with the provisions of the law and the unclaimed balances are eventually escheated to the Republic,
the bank shall not thereafter be liable to any person for the same and any action which may be brought by any person against in any
bank xxx for unclaimed balances so deposited xxx shall be defended by the Solicitor General without cost to such bank. [21] Otherwise,
should it fail to comply with the legally outlined procedure to the prejudice of the depositor, the bank may not raise the defense provided
under Section 5 of Act No. 3936, as amended.
Petitioner asserts[22] that the CA committed a reversible error when it required RCBC to send prior notices to respondents about
the forthcoming escheat proceedings involving the funds allocated for the payment of the Managers Check. It explains that, pursuant to
the law, only those whose favor such unclaimed balances stand are entitled to receive notices. Petitioner argues that, since the funds
represented by the Managers Check were deemed transferred to the credit of the payee upon issuance of the check, the proper party
entitled to the notices was the payee Rosmil and not respondents. Petitioner then contends that, in any event, it is not liable for failing to
send a separate notice to the payee, because it did not have the address of Rosmil. Petitioner avers that it was not under any obligation
to record the address of the payee of a Managers Check.
In contrast, respondents Hi-Tri and Bakunawa allege[23] that they have a legal interest in the fund allocated for the payment of
the Managers Check. They reason that, since the funds were part of the Compromise Agreement between respondents and Rosmil in a
separate civil case, the approval and eventual execution of the agreement effectively reverted the fund to the credit of respondents.
Respondents further posit that their ownership of the funds was evidenced by their continued custody of the Managers Check.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee), [24] requesting the latter to pay
a person named therein (payee) or to the order of the payee or to the bearer, a named sum of money. [25] The issuance of the check does
not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer. [26] Here, the bank becomes liable
only after it accepts or certifies the check.[27] After the check is accepted for payment, the bank would then debit the amount to be paid to
the holder of the check from the account of the depositor-drawer.
There are checks of a special type called managers or cashiers checks. These are bills of exchange drawn by the banks
manager or cashier, in the name of the bank, against the bank itself. [28] Typically, a managers or a cashiers check is procured from the
bank by allocating a particular amount of funds to be debited from the depositors account or by directly paying or depositing to the bank
the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted
in advance.[29] Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon
demand.[30]
Nevertheless, the mere issuance of a managers check does not ipso facto work as an automatic transfer of funds to the account
of the payee. In case the procurer of the managers or cashiers check retains custody of the instrument, does not tender it to the intended
payee, or fails to make an effective delivery, we find the following provision on undelivered instruments under the Negotiable Instruments
Law applicable:[31]
Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate
parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must
be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may
be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for
the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed.
And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Managers Check was procured by respondents, and that the amount to be paid for the check would be
sourced from the deposit account of Hi-Tri.[32] When Rosmil did not accept the Managers Check offered by respondents, the latter retained
custody of the instrument instead of cancelling it. As the Managers Check neither went to the hands of Rosmil nor was it further negotiated
to other persons, the instrument remained undelivered. Petitioner does not dispute the fact that respondents retained custody of the
instrument.[33]
Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the account of
respondents was never made. In fact, petitioner confirms that the Managers Check was never negotiated or presented for payment to its
Ermita Branch, and that the allocated fund is still held by the bank. [34] As a result, the assigned fund is deemed to remain part of the
account of Hi-Tri, which procured the Managers Check. The doctrine that the deposit represented by a managers check automatically
passes to the payee is inapplicable, because the instrument although accepted in advance remains undelivered. Hence, respondents
should have been informed that the deposit had been left inactive for more than 10 years, and that it may be subjected to escheat
proceedings if left unclaimed.
After a careful review of the RTC records, we find that it is no longer necessary to remand the case for hearing to determine
whether the claim of respondents was valid. There was no contention that they were the procurers of the Managers Check. It is undisputed
that there was no effective delivery of the check, rendering the instrument incomplete. In addition, we have already settled that
respondents retained ownership of the funds. As it is obvious from their foregoing actions that they have not abandoned their claim over
the fund, we rule that the allocated deposit, subject of the Managers Check, should be excluded from the escheat proceedings. We
reiterate our pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances. We further note that
there is nothing in the records that would show that the OSG appealed the assailed CA judgments. We take this failure to appeal as an
indication of disinterest in pursuing the escheat proceedings in favor of the Republic.
WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals
in CA-G.R. SP No. 107261 are hereby AFFIRMED.
SO ORDERED.
FIRST DIVISION
ENGR. JOSE E. CAYANAN, G.R. No. 172954
Petitioner, Present:
CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
- versus -
Promulgated:
October 5, 2011
NORTH STAR INTERNATIONAL TRAVEL, INC.,
Respondent.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 65538 finding
him civilly liable for the value of the five checks which are the subject of Criminal Case Nos. 166549-53.
The antecedent facts are as follows:
North Star International Travel Incorporated (North Star) is a corporation engaged in the travel agency business while petitioner is the
owner/general manager of JEAC International Management and Contractor Services, a recruitment agency.
On March 17,[2] 1994, Virginia Balagtas, the General Manager of North Star, in accommodation and upon the instruction of its client,
petitioner herein, sent the amount of US$60,000[3] to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On
March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer, [4] with US$15,000 coming from
petitioner. Likewise, on various dates, North Star extended credit to petitioner for the airplane tickets of his clients, with the total amount
of such indebtedness under the credit extensions eventually reaching P510,035.47.[5]
To cover payment of the foregoing obligations, petitioner issued the following five checks to North Star:
Check No : 246822
Drawn Against : Republic Planters Bank
Amount : P695,000.00
Dated/Postdated : May 15, 1994
Payable to : North Star International Travel, Inc.
Check No : 246823
Amount : P278,000.00
Check No : 246824
Amount : P22,703.00
Check No : 687803
Drawn Against : PCIB
Amount : P1,500,000.00
Dated/Postdated : April 14, 1994
Check No : 687804
Drawn Against : PCIB
Amount : P35,000.00
Dated/Postdated : April 14, 1994
Payable to : North Star International Travel, Inc.[6]
When presented for payment, the checks in the amount of P1,500,000 and P35,000 were dishonored for insufficiency of funds while the
other three checks were dishonored because of a stop payment order from petitioner. [7] North Star, through its counsel, wrote
petitioner on September 14, 1994[8] informing him that the checks he issued had been dishonored. North Star demanded payment, but
petitioner failed to settle his obligations. Hence, North Star instituted Criminal Case Nos. 166549-53 charging petitioner with violation
of Batas Pambansa Blg. 22, or the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of Makati City.
The Informations,[9] which were similarly worded except as to the check numbers, the dates and amounts of the checks, alleged:
That on or about and during the month of March 1994 in the Municipality of Makati, Metro Manila, Philippines, a place
within the jurisdiction of this Honorable Court, the above-named accused, being the authorized signatory of [JEAC] Intl
Mgt & Cont. Serv. did then and there willfully, unlawfully and feloniously make out[,] draw and issue to North Star Intl.
Travel Inc. herein rep. by Virginia D. Balagtas to apply on account or for value the checks described below:
xxxx
said accused well knowing that at the time of issue thereof, did not have sufficient funds in or credit with the drawee
bank for the payment in full of the face amount of such check upon its presentment, which check when presented for
payment within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for the reason
PAYMENT STOPPED/DAIF and despite receipt of notice of such dishonor the accused failed to pay the payee the
face amount of said check or to make arrangement for full payment thereof within five (5) banking days after receiving
notice.
Contrary to law.
Upon arraignment, petitioner pleaded not guilty to the charges.
After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation of B.P. 22. Thus:
WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY beyond reasonable doubt of Violation of
Batas Pambansa Blg. 22 he 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:
It is to be noted that the checks subject matter of the instant case were issued in the name of North Star International
Inc., represented by private complainant Virginia Balagtas in replacement of the amount of dollars remitted by the latter
to Vie[w] Sea Ventures in Nigeria. x x x But Virginia Balagtas has no business transaction with Vie[w] Sea Ventures
where accused has been sending his contract workers and the North Star provided the trip tickets for said workers sent
by the accused. North Star International has no participation at all in the transaction between accused and the Vie[w]
Sea Ventures except in providing plane ticket used by the contract workers of the accused upon its understanding with
the latter. The contention of the accused that the dollars were sent by Virginia Balagtas to Nigeria as business
investment has not been shown by any proof to set aside the foregoing negative presumptions, thus negates accused
contentions regarding the absence of consideration for the issuance of checks. x x x[19]
Petitioner claims that North Star did not give any valuable consideration for the checks since the US$85,000 was taken from the
personal dollar account of Virginia and not the corporate funds of North Star. The contention, however, deserves scant consideration. The
subject checks, bearing petitioners signature, speak for themselves. The fact that petitioner himself specifically named North Star as the
payee of the checks is an admission of his liability to North Star and not to Virginia Balagtas, who as manager merely facilitated the
transfer of funds. Indeed, it is highly inconceivable that an experienced businessman like petitioner would issue various checks in sizeable
amounts to a payee if these are without consideration. Moreover, we note that Virginia Balagtas averred in her Affidavit[20] that North Star
caused the payment of the US$60,000 and US$25,000 to View Sea Ventures to accommodate petitioner, which statement petitioner
failed to refute. In addition, petitioner did not question the Statement of Account No. 8639[21] dated August 31, 1994 issued by North Star
which contained itemized amounts including the US$60,000 and US$25,000 sent through telegraphic transfer to View Sea Ventures per
his instruction. Thus, the inevitable conclusion is that when petitioner issued the subject checks to North Star as payee, he did so to settle
his obligation with North Star for the US$85,000. And since the only payment petitioner made to North Star was in the amount
of P220,000.00, which was applied to interest due, his liability is not extinguished. Having failed to fully settle his obligation under the
checks, the appellate court was correct in holding petitioner liable to pay the value of the five checks he issued in favor of North Star.
WHEREFORE, the present appeal by way of a petition for review on certiorari is DENIED for lack of merit. The Decision dated May 31,
2006 of the Court of Appeals in CA-G.R. SP No. 65538 is AFFIRMED.
With costs against petitioner.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
EUSEBIO GONZALES, G.R. No. 180257
Petitioner,
Present:
- versus -
CORONA, C.J., Chairperson,
VELASCO, JR.,
NACHURA,*
DEL CASTILLO, and

PHILIPPINE COMMERCIAL AND INTERNATIONAL
BANK, EDNA OCAMPO, and ROBERTO NOCEDA, PEREZ, JJ.
Respondents.
Promulgated:
February 23, 2011
DECISION
VELASCO, JR., J.:
The Case
This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision [1] dated October 22, 2007 of the Court
of Appeals (CA) in CA-G.R. CV No. 74466, which denied petitioners appeal from the December 10, 2001 Decision [2] in Civil Case No. 99-
1324 of the Regional Trial Court (RTC), Branch 138 in Makati City. The RTC found justification for respondents dishonor of petitioners
check and found petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes
they executed in favor of respondent Philippine Commercial and International Bank (PCIB).
The Facts
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filed the instant case. His account
with PCIB was handled by respondent Edna Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda (Noceda).
In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement[3] (COHLA),
in which the aggregate amount of the accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit
line. Gonzales drew from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign
Currency Deposit (FCD) of USD 8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on December 26, 1995 and
January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and PhP
300,000, respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory notes. [4] To secure the loans, a
real estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales
and the spouses Panlilio. Notably, the promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio
for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of PhP 1,800,000.
The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their account with
PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB
account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July
1998 defaults and the subsequent accumulating periodic interest dues which were left still left unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson (Unson) for PhP 250,000 drawn
against the credit line (COHLA). However, on October 13, 1998, upon presentment for payment by Unson of said check, it was dishonored
by PCIB due to the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodic interest dues from the
loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They had a heated argument in the
premises of the Philippine Columbian Association (PCA) where they are both members, which caused great embarrassment and
humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand letter[5] to Gonzales for the PhP 250,000. And
on December 3, 1998, the counsel of Unson sent a second demand letter [6] to Gonzales with the threat of legal action. With his FCD
account that PCIB froze, Gonzales was forced to source out and pay the PhP 250,000 he owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he issued had been fully funded, and
demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check. [7] PCIB replied on March 22,
1999 and stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans. [8] On May 26, 1999, Gonzales
reiterated his demand, reminding PCIB that it knew well that the actual borrowers were the spouses Panlilio and he never benefited from
the proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio. [9]
PCIBs refusal to heed his demands compelled Gonzales to file the instant case for damages with the RTC, on account of the
alleged unjust dishonor of the check issued in favor of Unson.
The Ruling of the RTC
After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB. The decretal portion reads:
WHEREFORE, judgment is rendered as follows
(a) on the first issue, plaintiff is liable to pay defendant Bank as principal under the promissory notes, Exhibits
A, B and C;
(b) on the second issue, the Court finds that there is justification on part of the defendant Bank to dishonor the
check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not entitled to damages from each other.
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:
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 spous es
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:
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:
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 co uld 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.
SO ORDERED.
SUPREME COURT
Baguio
FIRST DIVISION
G.R. No. 170865 April 25, 2012
PHILIPPINE NATIONAL BANK, Petitioner,

vs.
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Respondents.
x-----------------------x
G.R. No. 170892
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.
DECISION
DEL CASTILLO, J.:
Law favoreth diligence, and therefore, hateth folly and negligence.—Wingate’s Maxim.
In doing a friend a favor to help the latter’s friend collect the proceeds of a foreign check, a woman deposited the check in her and her
husband’s dollar account. The local bank accepted the check for collection and immediately credited the proceeds thereof to said
spouses’ account even before the lapse of the clearing period. And just when the money had been withdrawn and distributed among
different beneficiaries, it was discovered that all along, to the horror of the woman whose intention to accommodate a friend’s friend
backfired, she and her
bank had dealt with a rubber check.
These consolidated1 Petitions for Review on Certiorari filed by the Philippine National Bank (PNB)2 and by the spouses Cheah Chee
Chong and Ofelia Camacho Cheah (spouses Cheah)3 both assail the August 22, 2005 Decision4 and December 21, 2005 Resolution5 of
the Court of Appeals (CA) in CA-G.R. CV No. 63948 which declared both parties equally negligent and, hence, should equally suffer the
resulting loss. For its part, PNB questions why it was declared blameworthy together with its depositors, spouses Cheah, for the amount
wrongfully paid the latter, while the spouses Cheah plead that they be declared entirely faultless.
Factual Antecedents
On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were having a conversation in the latter’s office
when Adelina’s friend, Filipina Tuazon (Filipina), approached her to ask if she could have Filipina’s check cleared and encashed for a
service fee of 2.5%. The check is Bank of America Check No. 1906 under the account of Alejandria Pineda and Eduardo Rosales and
drawn by Atty. Eduardo Rosales against Bank of America Alhambra Branch in California, USA, with a face amount of $300,000.00,
payable to cash. Because Adelina does not have a dollar account in which to deposit the check, she asked Ofelia if she could
accommodate Filipina’s request since she has a joint dollar savings account with her Malaysian husband Cheah Chee Chong (Chee
Chong) under Account No. 265-705612-2 with PNB Buendia Branch.
Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto Mendiola of the Loans Department who
referred them to PNB Division Chief Alberto Garin (Garin). Garin discussed with them the process of clearing the subject check and
they were told that it normally takes 15 days.7 Assured that the deposit and subsequent clearance of the check is a normal transaction,
Ofelia deposited Filipina’s check. PNB then sent it for clearing through its correspondent bank, Philadelphia National Bank. Five days
later, PNB received a credit advice8from Philadelphia National Bank that the proceeds of the subject check had been temporarily
credited to PNB’s account as of November 6, 1992. On November 16, 1992, Garin called up Ofelia to inform her that the check had
already been cleared.9 The following day, PNB Buendia Branch, after deducting the bank charges, credited $299,248.37 to the account
of the spouses Cheah.10 Acting on Adelina’s instruction to withdraw the credited amount, Ofelia that day personally withdrew
$180,000.00.11 Adelina was able to withdraw the remaining amount the next day after having been authorized by Ofelia. 12 Filipina
received all the proceeds.
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on November 16, 1992 a SWIFT 13 message from
Philadelphia National Bank dated November 13, 1992 with Transaction Reference Number (TRN) 46506218, informing PNB of the
return of the subject check for insufficient funds.14 However, the PNB Head Office could not ascertain to which branch/office it should
forward the same for proper action. Eventually, PNB Head Office sent Philadelphia National Bank a SWIFT message informing the
latter that SWIFT message with TRN 46506218 has been relayed to PNB’s various divisions/departments but was returned to PNB
Head Office as it seemed misrouted. PNB Head Office thus requested for Philadelphia National Bank’s advice on said SWIFT
message’s proper disposition.15 After a few days, PNB Head Office ascertained that the SWIFT message was intended for PNB
Buendia Branch.
PNB Buendia Branch learned about the bounced check when it received on November 20, 1992 a debit advice,16followed by a
letter17 on November 24, 1992, from Philadelphia National Bank to which the November 13, 1992 SWIFT message was attached.
Informed about the bounced check and upon demand by PNB Buendia Branch to return the money withdrawn, Ofelia immediately
contacted Filipina to get the money back. But the latter told her that all the money had already been given to several people who asked
for the check’s encashment. In their effort to recover the money, spouses Cheah then sought the help of the National Bureau of
Investigation. Said agency’s Anti-Fraud and Action Division was later able to apprehend some of the beneficiaries of the proceeds of
the check and recover from them $20,000.00. Criminal charges were then filed against these suspect beneficiaries. 18
Meanwhile, the spouses Cheah have been constantly meeting with the bank officials to discuss matters regarding the incident and the
recovery of the value of the check while the cases against the alleged perpetrators remain pending. Chee Chong in the end signed a
PNB drafted19 letter20 which states that the spouses Cheah are offering their condominium units as collaterals for the amount withdrawn.
Under this setup, the amount withdrawn would be treated as a loan account with deferred interest while the spouses try to recover the
money from those who defrauded them. Apparently, Chee Chong signed the letter after the Vice President and Manager of PNB
Buendia Branch, Erwin Asperilla (Asperilla), asked the spouses Cheah to help him and the other bank officers as they were in danger of
losing their jobs because of the incident. Asperilla likewise assured the spouses Cheah that the letter was a mere formality and that the
mortgage will be disregarded once PNB receives its claim for indemnity from Philadelphia National Bank.
Although some of the officers of PNB were amenable to the proposal,21 the same did not materialize. Subsequently, PNB sent a
demand letter to spouses Cheah for the return of the amount of the check,22 froze their peso and dollar deposits in the amounts of
₱275,166.80 and $893.46,23 and filed a complaint24 against them for Sum of Money with Branch 50 of the Regional Trial Court (RTC) of
Manila, docketed as Civil Case No. 94-71022. In said complaint, PNB demanded payment of around ₱8,202,220.44, plus
interests25 and attorney’s fees, from the spouses Cheah.
As their main defense, the spouses Cheah claimed that the proximate cause of PNB’s injury was its own negligence of paying a US
dollar denominated check without waiting for the 15-day clearing period, in violation of its bank practice as mandated by its own bank
circular, i.e., PNB General Circular No. 52-101/88.26 Because of this, spouses Cheah averred that PNB is barred from claiming what it
had lost. They further averred that it is unjust for them to pay back the amount disbursed as they never really benefited therefrom. As
counterclaim, they prayed for the return of their frozen deposits, the recoupment of ₱400,000.00 representing the amount they had so
far spent in recovering the value of the check, and payment of moral and exemplary damages, as well as attorney’s fees.
Ruling of the Regional Trial Court
The RTC ruled in PNB’s favor. The dispositive portion of its Decision27 dated May 20, 1999 reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Philippine National Bank [and] against
defendants Mr. Cheah Chee Chong and Ms. Ofelia Camacho Cheah, ordering the latter to pay jointly and severally the herein plaintiffs’
bank the amount:
1. of US$298,950.25 or its peso equivalent based on Central Bank Exchange Rate prevailing at the time the proceeds of the BA Check
No. 190 were withdrawn or the prevailing Central Bank Rate at the time the amount is to be reimbursed by the defendants to plaintiff or
whatever is lower. This is without prejudice however, to the rights of the defendants (accommodating parties) to go against the group of
Adelina Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc., (Beneficiaries- accommodated parties) who are privy to the defendants.
No other award of damages for non[e] has been proven.
SO ORDERED.28
The RTC held that spouses Cheah were guilty of contributory negligence.
Because Ofelia trusted a friend’s friend whom she did not know and considering the amount of the check made payable to cash, the
RTC opined that Ofelia showed lack of vigilance in her dealings. She should have exercised due care by investigating the negotiability
of the check and the identity of the drawer. While the court found that the proximate cause of the wrongful payment of the check was
PNB’s negligence in not observing the 15-day guarantee period rule, it ruled that spouses Cheah still cannot escape liability to
reimburse PNB the value of the check as an accommodation party pursuant to Section 29 of the Negotiable Instruments Law. 29 It
likewise applied the principle of solutio indebiti under the Civil Code. With regard to the award of other forms of damages, the RTC held
that each party must suffer the consequences of their own acts and thus left both parties as they are.
Unwilling to accept the judgment, the spouses Cheah appealed to the CA.
While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to suffer the consequences of Ofelia’s lack of
care and prudence in immediately trusting a stranger, the appellate court did not hold PNB scot-free. It ruled in its August 22, 2005
Decision,30 viz:
As both parties were equally negligent, it is but right and just that both parties should equally suffer and shoulder the loss. The scam
would not have been possible without the negligence of both parties. As earlier stated, the complaint of PNB cannot be dismissed
because the Cheah spouses were negligent and Ms. Cheah took an active part in the deposit of the check and the withdrawal of the
subject amounts. On the other hand, the Cheah spouses cannot entirely bear the loss because PNB allowed her to withdraw without
waiting for the clearance of the check. The remedy of the parties is to go after those who perpetrated, and benefited from, the scam.
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch 5, Manila, in Civil Case No. 94-71022, is hereby
REVERSED and SET ASIDE and another one entered DECLARING both parties equally negligent and should suffer and shoulder the
loss.
Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah spouses the amount due to them.
SO ORDERED.31
In so ruling, the CA ratiocinated that PNB Buendia Branch’s non-receipt of the SWIFT message from Philadelphia National Bank within
the 15-day clearing period is not an acceptable excuse. Applying the last clear chance doctrine, the CA held that PNB had the last clear
opportunity to avoid the impending loss of the money and yet, it glaringly exhibited its negligence in allowing the withdrawal of funds
without exhausting the 15-day clearing period which has always been a standard banking practice as testified to by PNB’s own officers,
and as provided in its own General Circular No. 52/101/88. To the CA, PNB cannot claim from spouses Cheah even if the latter are
accommodation parties under the law as the bank’s own negligence is the proximate cause of the damage it sustained. Nevertheless, it
also found Ofelia guilty of contributory negligence. Thus, both parties should be made equally responsible for the resulting loss.
Both parties filed their respective Motions for Reconsideration 32 but same were denied in a Resolution33 dated December 21, 2005.
Hence, these Petitions for Review on Certiorari.
Our Ruling
The petitions for review lack merit. Hence, we affirm the ruling of the CA.
PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the
loss.1âwphi1
"Proximate cause is ‘that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury and without which the result would not have occurred.’ x x x To determine the proximate cause of a controversy, the question that
needs to be asked is: If the event did not happen, would the injury have resulted? If the answer is no, then the event is the proximate
cause."34
Here, while PNB highlights Ofelia’s fault in accommodating a stranger’s check and depositing it to the bank, it remains mum in its
release of the proceeds thereof without exhausting the 15-day clearing period, an act which contravened established banking rules and
practice.
It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. As declared by Josephine Estella, the
Administrative Service Officer who was the bank’s Remittance Examiner, what was unusual in the processing of the check was that the
"lapse of 15 banking days was not observed." 35 Even PNB’s agreement with Philadelphia National Bank 36 regarding the rules on the
collection of the proceeds of US dollar checks refers to "business/ banking days." Ofelia deposited the subject check on November 4,
1992. Hence, the 15th banking day from the date of said deposit should fall on November 25, 1992. However, what happened was that
PNB Buendia Branch, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof to be withdrawn on
November 17 and 18, 1992, a week before the lapse of the standard 15-day clearing period.
This Court already held that the payment of the amounts of checks without previously clearing them with the drawee bank especially so
where the drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary banking
practice.37 Also, in Associated Bank v. Tan,38 wherein the bank allowed the withdrawal of the value of a check prior to its clearing, we
said that "[b]efore the check shall have been cleared for deposit, the collecting bank can only ‘assume’ at its own risk x x x that the
check would be cleared and paid out." The delay in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT message
notifying it of the dishonor of the subject check is of no moment, because had PNB Buendia Branch waited for the expiration of the
clearing period and had never released during that time the proceeds of the check, it would have already been duly notified of its
dishonor. Clearly, PNB’s disregard of its preventive and protective measure against the possibility of being victimized by bad checks
had brought upon itself the injury of losing a significant amount of money.
It bears stressing that "the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The
highest degree of diligence is expected."39 PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable
business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as "negligence
characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but
wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected." 40 With regard to
collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently the
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 on this field, and the law thus holds it to a high standard of conduct." 41 A bank is
expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is
sufficiently funded.
Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle of solutio indebiti, which is laid down in
Article 2154 of the Civil Code:42
Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to
return it arises.
"[T]he indispensable requisites of the juridical relation known as solutio indebiti, are, (a) that he who paid was not under obligation to do
so; and (b) that the payment was made by reason of an essential mistake of fact. 43
In the case at bench, PNB cannot recover the proceeds of the check under the principle it invokes. In the first place, the gross
negligence of PNB, as earlier discussed, can never be equated with a mere mistake of fact, which must be something excusable and
which requires the exercise of prudence. No recovery is due if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the bank
"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."44
The CA found Ofelia’s credulousness blameworthy. We agree. Indeed, Ofelia failed to observe caution in giving her full trust in
accommodating a complete stranger and this led her and her husband to be swindled. Considering that Filipina was not personally
known to her and the amount of the foreign check to be encashed was $300,000.00, a higher degree of care is expected of Ofelia
which she, however, failed to exercise under the circumstances. Another circumstance which should have goaded Ofelia to be more
circumspect in her dealings was when a bank officer called her up to inform that the Bank of America check has already been cleared
way earlier than the 15-day clearing period. The fact that the check was cleared after only eight banking days from the time it was
deposited or contrary to what Garin told her that clearing takes 15 days should have already put Ofelia on guard. She should have first
verified the regularity of such hasty clearance considering that if something goes wrong with the transaction, it is she and her husband
who would be put at risk and not the accommodated party. However, Ofelia chose to ignore the same and instead actively participated
in immediately withdrawing the proceeds of the check.Thus, we are one with the CA in ruling that Ofelia’s prior consultation with PNB
officers is not enough to totally absolve her of any liability. In the first place, she should have shunned any participation in that palpably
shady transaction.
In any case, the complaint against the spouses Cheah could not be dismissed. As PNB’s client, Ofelia was the one who dealt with PNB
and negotiated the check such that its value was credited in her and her husband’s account. Being the ones in privity with PNB, the
spouses Cheah are therefore the persons who should return to PNB the money released to them.
All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are equally negligent and should therefore
equally suffer the loss. The two must both bear the consequences of their mistakes.
WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865 and in G.R. No. 170892 are both
DENIED. The assailed August 22, 2005 Decision and December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948
are hereby AFFIRMED in toto.
SO ORDERED.
THIRD DIVISION
[G.R. No. 105774. April 25, 2002]
GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners, vs. THE COURT OF APPEALS and BANCASIA
FINANCE AND INVESTMENT CORPORATION, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil Procedure assailing the June 9, 1992
Decision[1] of the Court of Appeals[2] in CA-G.R. CV No. 20167. The Court of Appeals affirmed the January 26, 1988 Decision [3] of the
Regional Trial Court of Manila, Branch 52,[4] ordering petitioners Great Asian Sales Center Corporation (Great Asian for brevity) and Tan
Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment Corporation (Bancasia for brevity) the amount
of P1,042,005.00.The Court of Appeals affirmed the trial courts award of interest and costs of suit but deleted the award of attorneys fees.
The Facts
Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances. On March
17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat,
Jr. (Arsenio for brevity) to secure a loan from Bancasia in an amount not to exceed P1.0 million. The board resolution also authorized
Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. On February 10, 1982, the board of directors of
Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not
exceeding P2.0 million. The second board resolution also designated Arsenio as the authorized signatory to sign all instruments,
documents and checks necessary to secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian
to Bancasia. On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of Bancasia to
guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin signed two surety agreements (Surety Agreements for
brevity) in favor of Bancasia.
Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds of Assignment of Receivables (Deeds of
Assignment for brevity), assigning to Bancasia fifteen (15) postdated checks. Nine of the checks were payable to Great Asian, three were
payable to New Asian Emp., and the last three were payable to cash. Various customers of Great Asian issued these postdated checks
in payment for appliances and other merchandise.
Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a total
face value of P244,225.82, with maturity dates not later than March 17, 1982. Of these four postdated checks, two were dishonored. Great
Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks with a total face
value of P312,819.00, with maturity dates not later than April 1, 1982. All these four checks were dishonored. Great Asian and Bancasia
signed the third Deed of Assignment on February 11, 1982 covering eight postdated checks with a total face value of P344,475.00,
with maturity dates not later than April 30, 1982. All these eight checks were dishonored. Great Asian and Bancasia signed the fourth
Deed of Assignment on March 5, 1982 covering one postdated check with a face value of P200,000.00, with maturity date on March 18,
1982. This last check was also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24%
of the face value of the checks.
Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks. Eight of the dishonored checks
bore the endorsement of Arsenio below the stamped name of Great Asian Sales Center, while the rest of the dishonored checks just bore
the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia, with
any of the following as reason for the dishonor: account closed, payment stopped, account under garnishment, and insufficiency of
funds. The total amount of the fifteen dishonored checks is P1,042,005.00. Below is a table of the fifteen dishonored checks:
Drawee Bank Check No. Amount Maturity Date

1st Deed
Solid Bank C-A097480 P137,500.00 March 16, 1982
Pacific Banking Corp. 23950 P47,211.00 March 17, 1982
2nd Deed
Metrobank 030925 P68,722.00 March 19, 1982
030926 P45,230.00 March 19, 1982
Solidbank C-A097478 P140,000.00 March 23, 1982
Pacific Banking Corp. CC 769910 P58,867.00 April 1, 1982
3rd Deed
Phil. Trust Company 060835 P21,228.00 April 21, 1982
060836 P22,187.00 April 28, 1982
Allied Banking Corp. 11251624 P41,773.00 April 22, 1982
11251625 P38,592.00 April 29, 1982
Pacific Banking Corp. 237984 P37,886.00 April 23, 1982
237988 P47,385.00 April 28, 1982
237985 P46,748.00 April 30, 1982
Security Bank & Trust Co. 22061 P88,676.00 April 30, 1982
4th Deed
Pacific Banking Corp. 860178 P200,000.00 March 18, 1982
After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred the matter to its lawyer, Atty. Eladia
Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and demanding payment
from him. Subsequently, Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor
of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under oath by
its Corporate Secretary, Mario Tan. Attached to the verified petition was a Schedule and Inventory of Liabilities and Creditors of Great
Asian Sales Center Corporation, listing Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia
impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia. In its answer, Great Asian denied the
material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a
pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency. Great Asian further
raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of
all the parties to the Surety Agreements signed by Tan Chong Lin.
Ruling of the Trial Court
The trial court rendered its decision on January 26, 1988 with the following findings and conclusions:
From the foregoing facts and circumstances, the Court finds that the plaintiff has established its causes of action against the
defendants. The Board Resolution (Exh. T), dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and treasurer of
the defendant Great Asian to apply and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an amount not
exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution approved on February 10, 1982, authorizing Arsenio
Lim Piat, Jr., to obtain for defendant Asian Center a discounting line with Bancasia at prevailing discounting rates in an amount not to
exceed Two Million Pesos (P2,000,000.00), both of which were intended to secure money from the plaintiff financing firm to finance the
business operations of defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have the aforementioned fifteen
(15) checks totaling P1,042,005.00 discounted with the plaintiff, which transactions were obviously known by the beneficiary thereof,
defendant Great Asian, as in fact, in its aforementioned Schedule and Inventory of Liabilities and Creditors (Exh. DD, DD-1) attached to
its Verified Petition for Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an existing liability to the
plaintiff, in the amount of P1,243,632.00, secured by it, by way of financing accommodation, from the said financing institution Bancasia
Finance and Investment Corporation, plaintiff herein, sufficiently establish the liability of the defendant Great Asian to the plaintiff for the
amount of P1,042,005.00 sought to be recovered by the latter in this case.[5]
xxx
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2) defendants ordering the latter, jointly and
severally, to pay the former:
(a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the filing of the complaint until the same is fully
paid;
(b) Attorneys fees equivalent to twenty per cent (20%) of the total amount due; and
(c) The costs of suit.
SO ORDERED.[6]
On appeal, the Court of Appeals sustained the decision of the lower court, deleting only the award of attorneys fees, as follows:
As against appellants bare denial of it, the Court is more inclined to accept the appellees version, to the effect that the subject deeds of
assignment are but individual transactions which -- being collectively evidentiary of the loan accommodation and/or credit line it
granted the appellant corporation -- should not be taken singly and distinct therefrom. In addition to its plausibility, the proposition is,
more importantly, adequately backed by the documentary evidence on record. Aside from the aforesaid Deeds of Assignment (Exhs. A,
D, I, and R) and the Board Resolutions of the appellant corporations Board of Directors (Exhs. T, U and V), the appellee -- consistent
with its theory -- interposed the Surety Agreements the appellant Tan Chong Lin executed (Exhs. W and X), as well as the demand
letters it served upon the latter as surety (Exhs. Y and Z). It bears emphasis that the second Resolution of the appellant corporations
Board of Directors (Exh. V) even closely coincides with the execution of the February 11, 1982 and March 5, 1982 Deeds of
Assignment (Exhs. I and R). Were the appellants posturings true, it seems rather strange that the appellant Tan Chong Lin did not even
protest or, at least, make known to the appellee what he -- together with the appellant corporation -- represented to be a corporate
larceny to which all of them supposedly fell prey. In the petition for voluntary insolvency it filed, the appellant corporation, instead,
indirectly acknowledged its indebtedness in terms of financing accommodations to the appellee, in an amount which, while not exactly
matching the sum herein sought to be collected, approximates the same (Exhs. CC, DD and DD-1).[7]
xxx
The appellants contend that the foregoing warranties enlarged or increased the suretys risk, such that appellant Tan Chong Lin should
be released from his liabilities (pp. 37-44, Appellants Brief). Without saying more, the appellants position is, however, soundly
debunked by the undertaking expressed in the Comprehensive and Continuing Surety Agreements (Exhs. W and X), to the effect that
the xxx surety/ies, jointly and severally among themselves and likewise with the principal, hereby agree/s and bind/s himself to pay at
maturity all the notes, drafts, bills of exchange, overdrafts and other obligations which the principal may now or may hereafter owe the
creditor xxx. With the possible exception of the fixed ceiling for the amount of loan obtainable, the surety undertaking in the case at bar
is so comprehensive as to contemplate each and every condition, term or warranty which the principal parties may have or may be
minded to agree on. Having affixed his signature thereto, the appellant Tan Chong Lin is expected to have, at least, read and
understood the same.
xxx
With the foregoing disquisition, the Court sees little or no reason to go into the appellants remaining assignments of error, save the
matter of attorneys fees. For want of a statement of the rationale therefore in the body of the challenged decision, the trial courts award
of attorneys fees should be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).
WHEREFORE, the decision appealed from is MODIFIED, to delete the trial courts award of attorneys fees. The rest is
AFFIRMED in toto.
SO ORDERED.[8]
The Issues
The petition is anchored on the following assigned errors:

1. The respondent Court erred in not holding that the proper parties against whom this action for collection should be brought
are the drawers and indorser of the checks in question, being the real parties in interest, and not the herein petitioners.
2. The respondent Court erred in not holding that the petitioner-corporation is discharged from liability for failure of the private
respondent to comply with the provisions of the Negotiable Instruments Law on the dishonor of the checks.
3. The respondent Court erred in its appreciation and interpretation of the effect and legal consequences of the signing of the
deeds of assignment and the subsequent indorsement of the checks by Arsenio Lim Piat, Jr. in his individual and personal
capacity and without stating or indicating the name of his supposed principal.
4. The respondent Court erred in holding that the assignment of the checks is a loan accommodation or credit line accorded
by the private respondent to petitioner-corporation, and not a purchase and sale thereof.
5. The respondent Court erred in not holding that there was a material alteration of the risk assumed by the petitioner-surety
under his surety agreement by the terms, conditions, warranties and obligations assumed by the assignor Arsenio Lim
Piat, Jr. under the deeds of assignment or receivables.
6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted its liability to private respondent
when the former included the latter as one of its creditors in its petition for voluntary insolvency, although no claim was filed
and proved by the private respondent in the insolvency court.
7. The respondent Court erred in holding the petitioners liable to private respondent on the transactions in question. [9]
The issues to be resolved in this petition can be summarized into three:
1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT AND THUS BIND GREAT ASIAN;
2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF ASSIGNMENT FOR BREACH OF
CONTRACT PURSUANT TO THE CIVIL CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;
3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY AGREEMENTS.
The Courts Ruling
The petition is bereft of merit.
First Issue: Authority of Arsenio to Sign the Deeds of Assignment
Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his personal capacity. The primordial
question that must be resolved is whether Great Asian authorized Arsenio to sign the Deeds of Assignment. If Great Asian so authorized
Arsenio, then Great Asian is bound by the Deeds of Assignment and must honor its terms.
The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate powers of the corporation, save
in those instances where the Code requires stockholders approval for certain specific acts. Section 23 of the Code provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by
the board of directors or trustees x x x.
In the ordinary course of business, a corporation can borrow funds or dispose of assets of the corporation only on authority of the board
of directors. The board of directors normally designates one or more corporate officers to sign loan documents or deeds of assignment
for the corporation.
To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted two board resolutions on different
dates, the first on March 17, 1981, and the second on February 10, 1982. These two board resolutions, as certified under oath by Great
Asians Corporate Secretary Mario K. Tan, state:
First Board Resolution
RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized as he is authorized to apply for and
negotiate for a loan accommodation or credit line in the amount not to exceed ONE MILLION PESOS (P1,000,000.00), with
Bancasia Finance and Investment Corporation, and likewise to sign any and all papers, documents, and/or promissory notes in
connection with said loan accommodation or credit line, including the power to mortgage such properties of the corporation as
may be needed to effectuate the same.[10] (Emphasis supplied)
Second Board Resolution
RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with BANCASIA FINANCE & INVESTMENT
CORPORATION, at prevailing discounting rates, in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000),**
Philippine Currency.
RESOLVED FURTHER, that the corporation secure such other forms of credit lines with BANCASIA FINANCE & INVESTMENT
CORPORATION in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000.00),** PESOS, under such terms and
conditions as the signatories may deem fit and proper.
RESOLVED FURTHER, that the following persons be authorized individually, jointly or collectively to sign, execute and deliver
any and all instruments, documents, checks, sureties, etc. necessary or incidental to secure any of the foregoing obligation:
(signed)
Specimen Signature
1. ARSENIO LIM PIAT, JR._

2. _______________________
3. _______________________
4. _______________________
PROVIDED FINALLY that this authority shall be valid, binding and effective until revoked by the Board of Directors in the
manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT CORPORATION shall not be bound by any such
revocation until such time as it is noticed in writing of such revocation. [11] (Emphasis supplied)
The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for a loan accommodation or credit
line with Bancasia for not more than P1.0 million.Also, the first resolution explicitly authorizes Arsenio to sign any document, paper or
promissory note, including mortgage deeds over properties of Great Asian, to secure the loan or credit line from Bancasia.
The second board resolution expressly authorizes Great Asian to secure a discounting line from Bancasia for not more than P2.0
million. The second board resolution also expressly empowers Arsenio, as the authorized signatory of Great Asian, to sign, execute and
deliver any and all documents, checks x x x necessary or incidental to secure the discounting line. The second board resolution
specifically authorizes Arsenio to secure the discounting line under such terms and conditions as (he) x x x may deem fit and proper.
As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line from
Bancasia. The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver all the
implementing documents, including checks, for Great Asian. There is no iota of doubt whatsoever about the purpose of the two board
resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second board resolution even gave Arsenio full
authority to agree with Bancasia on the terms and conditions of the discounting line. Great Asian adopted the correct and proper board
resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board resolutions of Great
Asian. Significantly, the two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian will secure
the loan accommodation or discounting line.
Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and endorsing, the fifteen checks of Great
Asian to Bancasia. On the face of the Deeds of Assignment, the contracting parties are indisputably Great Asian and Bancasia as the
names of these entities are expressly mentioned therein as the assignor and assignee, respectively.Great Asian claims that Arsenio
signed the Deeds of Assignment in his personal capacity because Arsenio signed above his printed name, below which was the word
Assignor, thereby making Arsenio the assignor. Great Asian conveniently omits to state that the first paragraph of the Deeds expressly
contains the following words: the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its
Treasurer Arsenio Lim Piat, Jr. The assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio. The only issue to
determine is whether the Deeds of Assignment are indeed the transactions the board of directors of Great Asian authorized Arsenio to
sign under the two board resolutions.
Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over three months, to Bancasia. The
Deeds of Assignment uniformly state that Great Asian,
x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE,
BANCASIA FINANCE & INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS RECEIVABLES due and
payable to it, having an aggregate face value of x x x.
The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks, which were still not due and demandable
then. In short, instead of waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the checks to Bancasia at less
than the total face value of the checks. In exchange for receiving an amount less than the face value of the checks, Great Asian obtained
immediately much needed cash. Over three months, Great Asian entered into four transactions of this nature with Bancasia, showing that
Great Asian availed of a discounting line with Bancasia.
In the financing industry, the term discounting line means a credit facility with a financing company or bank, which allows a business
entity to sell, on a continuing basis, its accounts receivable at a discount. [12] The term discount means the sale of a receivable at less than
its face value. The purpose of a discounting line is to enable a business entity to generate instant cash out of its receivables which are
still to mature at future dates. The financing company or bank which buys the receivables makes its profit out of the difference between
the face value of the receivable and the discounted price. Thus, Section 3 (a) of the Financing Company Act of 1998 provides:
Financing companies are corporations x x x primarily organized for the purpose of extending credit facilities to consumers and to
industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable, or by
buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable
as well as immovable property. (Emphasis supplied)
This definition of financing companies is substantially the same definition as in the old Financing Company Act (R.A. No. 5980).[13]
Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and Exchange Commission to implement the
Financing Company Act of 1998 states:
Discounting is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment
contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or
for a consideration less than their face value. (Emphasis supplied)
Likewise, this definition of discounting is an exact reproduction of the definition of discounting in the implementing rules of the old Finance
Company Act.
Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions envisioned
in the two board resolutions of Great Asian to raise funds for its business. Arsenio acted completely within the limits of his authority under
the two board resolutions. Arsenio did exactly what the board of directors of Great Asian directed and authorized him to do.
Arsenio had all the proper and necessary authority from the board of directors of Great Asian to sign the Deeds of Assignment and
to endorse the fifteen postdated checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian under
an authority expressly granted by its board of directors. The signature of Arsenio on the Deeds of Assignment is effectively also the
signature of the board of directors of Great Asian, binding on the board of directors and on Great Asian itself. Evidently, Great Asian
shows its bad faith in disowning the Deeds of Assignment signed by its own Treasurer, after receiving valuable consideration for the
checks assigned under the Deeds.
Second Issue: Breach of Contract by Great Asian
Bancasias complaint against Great Asian is founded on the latters breach of contract under the Deeds of Assignment. The Deeds
of Assignment uniformly stipulate[14] as follows:
If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the ASSIGNOR unconditionally and
irrevocably agrees to pay the same, assuming the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid,
for the period of delay until the same is fully paid.
In case of any litigation which the ASSIGNEE may institute to enforce the terms of this agreement, the ASSIGNOR shall be liable for all
the costs, plus attorneys fees equivalent to twenty-five (25%) per cent of the total amount due. Further thereto, the ASSIGNOR agrees
that any and all actions which may be instituted relative hereto shall be filed before the proper courts of the City of Manila, all other
appropriate venues being hereby waived.
The last Deed of Assignment[15] contains the following added stipulation:
xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are deemed part of the consideration for
this transaction, such that any violation of any one, some, or all of said warranties shall be deemed as deliberate misrepresentation on
the part of the ASSIGNOR. In such event, the monetary obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed
defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to make good said obligation, and making the
ASSIGNOR liable to pay the penalty stipulated hereinabove as if the original obligor/s of the receivables actually defaulted. xxx
Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case the drawers fail to pay the checks
on maturity, Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks, including penalty and attorneys
fees. The failure of the drawers to pay the checks is a suspensive condition,[16] the happening of which gives rise to Bancasias right to
demand payment from Great Asian. This conditional obligation of Great Asian arises from its written contracts with Bancasia as embodied
in the Deeds of Assignment. Article 1157 of the Civil Code provides that -
Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full value of the
dishonored checks. In short, Great Asian sold the postdated checks on with recourse basis against itself. This is an obligation that Great
Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia. Article 1159 of the Civil Code
further provides that -
Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were negotiable
instruments with the endorsement of Arsenio. The contracting parties had the right to adopt the with recourse stipulation which is
separate and distinct from the warranties of an endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code provides
that
The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy.
The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of the parties, the liability of Great Asian
beyond that of a mere endorser of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the
latter remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser under
the Negotiable Instruments Law.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that prohibits Great Asian and
Bancasia parties from adopting the with recoursestipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a
negotiable instrument may be assigned. [17] Assignment of a negotiable instrument is actually the principal mode of conveying accounts
receivable under the Financing Company Act. Since in discounting of receivables the assignee is subrogated as creditor of the receivable,
the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the drawer. This is particularly
true with checks because collecting banks will not accept checks unless endorsed by the payee. The purpose of the endorsement is
merely to facilitate collection of the proceeds of the checks.
The purpose of the endorsement is not to make the assignee finance company a holder in due course because policy considerations
militate against according finance companies the rights of a holder in due course. [18] Otherwise, consumers who purchase appliances on
installment, giving their promissory notes or checks to the seller, will have no defense against the finance company should the appliances
later turn out to be defective. Thus, the endorsement does not operate to make the finance company a holder in due course. For its own
protection, therefore, the finance company usually requires the assignor, in a separate and distinct contract, to pay the finance company
in the event of dishonor of the notes or checks.
As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law. Had
it so proceeded, the Negotiable Instruments Law would have governed Bancasias cause of action. Bancasia, however, did not choose
this route. Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under the
express with recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty
bag. Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the
drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to
Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require the
bank to honor the check, or if the drawer has countermanded payment. [19] In the instant case, all the checks were dishonored for any of
the following reasons: account closed, account under garnishment, insufficiency of funds, or payment stopped. In the first three instances,
the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded
payment.
Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the extent
of the loss caused by the delay.[20] This rule finds application in this jurisdiction pursuant to Section 196 of the Negotiable Instruments
Law which states, Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by
the rules of the Law Merchant. Under Section 186 of the Negotiable Instruments Law, delay in the presentment of checks discharges the
drawer.However, Section 186 refers only to delay in presentment of checks but is silent on delay in giving notice of
dishonor. Consequently, the common law or Law Merchant can supply this gap in accordance with Section 196 of the Negotiable
Instruments Law.
One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment, is completely unsubstantiated. The
Deeds of Assignment uniformly provide that the fifteen postdated checks were assigned to Bancasia for valuable consideration. Moreover,
Article 1354 of the Civil Code states that, Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary. The record is devoid of any showing on the part of Great Asian rebutting this presumption. On the other
hand, Bancasias Loan Section Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at the discount rate of
less than 24% of the face value of the postdated checks.[21] Moreover, in its verified petition for voluntary insolvency, Great Asian admitted
its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial admission that Bancasia proved when it formally
offered in evidence the verified petition for insolvency. [22] The Insolvency Law requires the petitioner to submit a schedule of debts that
must contain a full and true statement of all his debts and liabilities.[23] The Insolvency Law even requires the petitioner to state in his
verification that the schedule of debts contains a full, correct and true discovery of all my debts and liabilities x x x. [24] Great Asian cannot
now claim that the listing of Bancasia as a creditor was not an admission of its debt to Bancasia but merely an acknowledgment that
Bancasia had sent a demand letter to Great Asian.
Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation but a sale of the checks. With the
sale, ownership of the checks passed to Bancasia, which must now, according to Great Asian, sue the drawers and indorser of the check
who are the parties primarily liable on the checks. Great Asian forgets that under the Deeds of Assignment, Great Asian expressly
undertook to pay the full value of the checks in case of dishonor. Again, we reiterate that this obligation of Great Asian is separate and
distinct from its warranties as indorser under the Negotiable Instruments Law.
Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more properly a discounting, of the checks
and not a loan accommodation. However, it is precisely because the transaction is a sale or a discounting of receivables, embodied in
separate Deeds of Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable Instruments Law.
At any rate, there is indeed a fine distinction between a discounting line and a loan accommodation. If the accounts receivable, like
postdated checks, are sold for a consideration less than their face value, the transaction is one of discounting, and is subject to the
provisions of the Financing Company Act. The assignee is immediately subrogated as creditor of the accounts receivable. However, if
the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan, and the lender is not subrogated
as creditor until there is a default and the collateral is foreclosed.
In summary, Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the suspensive
condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since the common condition in the
contracts had transpired, an obligation on the part of Great Asian arose from the four contracts, and that obligation is to pay Bancasia the
full value of the checks, including the stipulated penalty and attorneys fees.
Third Issue: The liability of surety Tan Chong Lin
Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety Agreements he signed
wherein he solidarily held himself liable with Great Asian for the payment of its debts to Bancasia. The Surety Agreements contain the
following common condition:
Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the
Principals failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns, both
the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all
outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed
that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and
final for all legal intents and purposes.
Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of
the checks fail to pay on due date. The condition on which Tan Chong Lins obligation hinged had happened. As surety, Tan Chong Lin
automatically became liable for the entire obligation to the same extent as Great Asian.
Tan Chong Lin, however, contends that the following warranties in the Deeds of Assignment enlarge or increase his risks under the
Surety Agreements:
The ASSIGNOR warrants:
1. the soundness of the receivables herein assigned;
2. that said receivables are duly noted in its books and are supported by appropriate documents;
3. that said receivables are genuine, valid and subsisting;
4. that said receivables represent bona fide sale of goods, merchandise, and/or services rendered in the ordinary course of
its business transactions;
5. that the obligors of the receivables herein assigned are solvent;
6. that it has valid and genuine title to and indefeasible right to dispose of said accounts;
7. that said receivables are free from all liens and encumbrances;
8. that the said receivables are freely and legally transferable, and that the obligor/s therein will not interpose any objection to
this assignment, and has in fact given his/their consent hereto.
Tan Chong Lin maintains that these warranties in the Deeds of Assignment materially altered his obligations under the Surety
Agreements, and therefore he is released from any liability to Bancasia. Under Article 1215 of the Civil Code, what releases a solidary
debtor is a novation, compensation, confusion or remission of the debt made by the creditor with any of the solidary debtors. These
warranties, however, are the usual warranties made by one who discounts receivables with a financing company or bank. The Surety
Agreements, written on the letter head of Bancasia Finance & Investment Corporation, uniformly state that Great Asian Sales Center x x
x has obtained and/or desires to obtain loans, overdrafts, discounts and/or other forms of credits from Bancasia. Tan Chong Lin was
clearly on notice that he was holding himself as surety of Great Asian which was discounting postdated checks issued by its buyers of
goods and merchandise. Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance of Great Asians business
activities or discounting transactions with Bancasia. Thus, the warranties do not increase or enlarge the risks of Tan Chong Lin under the
Surety Agreements. There is, moreover, no novation of the debt of Great Asian that would warrant release of the surety.
In any event, the provisions of the Surety Agreements are broad enough to include the obligations of Great Asian to Bancasia under
the warranties. The first Surety Agreement states that:
x x x herein Surety/ies, jointly and severally among themselves and likewise with principal, hereby agree/s and bind/s
himself/themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind
which the Principal may now or may hereafter owe the Creditor, including extensions or renewals thereof in the sum *** ONE
MILLION ONLY*** PESOS (P1,000,000.00), Philippine Currency, plus stipulated interest thereon at the rate of sixteen percent (16%)
per annum, or at such increased rate of interest which the Creditor may charge on the Principals obligations or renewals or the reduced
amount thereof, plus all the costs and expenses which the Creditor may incur in connection therewith.
xxx
Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of
the Principals failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or
assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to
the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or
agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the
Surety/ies as correct and final for all legal intents and purposes. (Emphasis supplied)
The second Surety Agreement contains the following provisions:
x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL, hereby agree and bind themselves
to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL
may now or may hereafter owe the Creditor, including extensions and/or renewals thereof in the principal sum not to exceed
TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest thereon, or such increased or decreased rate of
interest which the Creditor may charge on the principal sum outstanding pursuant to the rules and regulations which the Monetary
Board may from time to time promulgate, together with all the cost and expenses which the CREDITOR may incur in connection
therewith.
If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the obligations or amounts due to the CREDITOR, or
if for any reason whatsoever the PRINCIPAL fails to promptly respond to and comply with any other lawful demand made by the
CREDITOR, or if for any reason whatsoever any obligation of the PRINCIPAL in favor of any person or entity should be considered as
defaulted, then both the PRINCIPAL and the SURETY/IES shall be considered in default under the terms of this Agreement. Pursuant
thereto, the SURETY/IES agree/s to pay jointly and severally with the PRINCIPAL, all outstanding obligations of the
CREDITOR, whether due or not due, and whether owing to the PRINCIPAL in its personal capacity or as agent of any person,
endorsee, assignee or transferee. x x x. (Emphasis supplied)
Article 1207 of the Civil Code provides, xxx There is a solidary liability only when the obligation expressly so states, or when the law
or nature of the obligation requires solidarity. The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan
Chong Lin with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing all the
notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter
owe the Creditor. Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the nonpayment of the fifteen
dishonored checks, including penalty and attorneys fees in accordance with the Deeds of Assignment.
The Deeds of Assignment stipulate that in case of suit Great Asian shall pay attorneys fees equivalent to 25% of the outstanding
debt. The award of attorneys fees in the instant case is justified, [25] not only because of such stipulation, but also because Great Asian
and Tan Chong Lin acted in gross and evident bad faith in refusing to pay Bancasias plainly valid, just and demandable claim. We deem
it just and equitable that the stipulated attorneys fee should be awarded to Bancasia.
The Deeds of Assignment also provide for a 3% penalty on the total amount due in case of failure to pay, but the Deeds are silent
on whether this penalty is a running monthly or annual penalty. Thus, the 3% penalty can only be considered as a one-time
penalty. Moreover, the Deeds of Assignment do not provide for interest if Great Asian fails to pay. We can only award Bancasia legal
interest at 12% interest per annum, and only from the time it filed the complaint because the records do not show that Bancasia made a
written demand on Great Asian prior to filing the complaint. [26] Bancasia made an extrajudicial demand on Tan Chong Lin, the surety, but
not on the principal debtor, Great Asian.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is AFFIRMED with
MODIFICATION. Petitioners are ordered to pay, solidarily, private respondent the following amounts: (a) P1,042,005.00 plus 3% penalty
thereon, (b) interest on the total outstanding amount in item (a) at the legal rate of 12% per annum from the filing of the complaint until
the same is fully paid, (c) attorneys fees equivalent to 25% of the total amount in item (a), including interest at 12% per annum on the
outstanding amount of the attorneys fees from the finality of this judgment until the same is fully paid, and (c) costs of suit.
SO ORDERED.
FIRST DIVISION
G.R. No. 154469 December 6, 2006
METROPOLITAN BANK AND TRUST COMPANY, petitioners,

vs.
RENATO D. CABILZO, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank and Trust Company (Metrobank) seeking to
reverse and set aside the Decision1 of the Court of Appeals dated 8 March 2002 and its Resolution dated 26 July 2002 affirming the
Decision of the Regional Trial Court (RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive portion of the Court of
Appeals Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with modifications (sic) that the awards for
exemplary damages and attorney’s fees are hereby deleted.
Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a current account with Metrobank Pasong
Tamo Branch.3
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH" and postdated on 24 November 1994 in
the amount of One Thousand Pesos (P1,000.00). The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo
Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission. 4
Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for
appropriate clearing. After the entries thereon were examined, including the availability of funds and the authenticity of the signature of
the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules.
On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to make some transaction when he was
asked by a bank personnel if Cabilzo had issued a check in the amount of P91,000.00 to which the former replied in the negative. On
the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P91,000.00
and requested that the questioned check be returned to him for verification, to which Metrobank complied. 5
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount
of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to 14 November 1994. 6
Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank, however, refused reasoning
that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still
failed to re-credit the amount of P91,000.00 to Cabilzo’s account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand8 to Metrobank for the payment of P90,000.00, after deducting the
original value of the check in the amount of P1,000.00. Such written demand notwithstanding, Metrobank still failed or refused to
comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company,Cabilzo prayed that in addition to
his claim for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor. 9
For its part, Metrobank countered that upon the receipt of the said check through the PCHC on 14 November 1994, it examined the
genuineness and the authenticity of the drawer’s signature appearing thereon and the technical entries on the check including the
amount in figures and in words to determine if there were alterations, erasures, superimpositions or intercalations thereon, but none
was noted. After verifying the authenticity and propriety of the aforesaid entries, including the indorsement of the collecting bank located
at the dorsal side of the check which stated that, "all prior indorsements and lack of indorsement guaranteed," Metrobank cleared the
check.10
Anent thereto, Metrobank claimed that as a collecting bank and the last indorser, Westmont Bank should be held liable for the value of
the check. Westmont Bank indorsed the check as the an unqualified indorser, by virtue of which it assumed the liability of a general
indorser, and thus, among others, warranted that the instrument is genuine and in all respect what it purports to be.
In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the check, which, made the fraudulent
insertion of the amount and figures thereon, possible. On account of his negligence in the preparation and issuance of the check, which
according to Metrobank, was the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by virtue of the doctrine of
equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which represents the cost of litigation and
attorney’s fees, for allegedly bringing a frivolous and baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party Complaint12 against Westmont Bank on account of its unqualified indorsement stamped
at the dorsal side of the check which the former relied upon in clearing what turned out to be a materially altered check.
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by Westmont bank because another case involving the
same cause of action was pending before a different court. The said case arose from an action for reimbursement filed by Metrobank
before the Arbitration Committee of the PCHC against Westmont Bank, and now the subject of a Petition for Review before the RTC of
Manila, Branch 19.
In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-Party Complaint on the ground of litis
pendentia.
On 4 September 1998, the RTC rendered a Decision15 in favor of Cabilzo and thereby ordered Metrobank to pay the sum
of P90,000.00, the amount of the check. In stressing the fiduciary nature of the relationship between the bank and its clients and the
negligence of the drawee bank in failing to detect an apparent alteration on the check, the trial court ordered for the payment of
exemplary damages, attorney’s fees and cost of litigation. The dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust Company to pay plaintiff Renato
Cabilzo the sum of P90,000 with legal interest of 6 percent per annum from November 16, 1994 until payment is made
plus P20,000 attorney’s fees, exemplary damages of P50,000, and costs of the suit.16
Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its previous argument that as the last indorser,
Westmont Bank shall bear the loss occasioned by the fraudulent alteration of the check. Elaborating, Metrobank maintained that by
reason of its unqualified indorsement, Westmont Bank warranted that the check in question is genuine, valid and subsisting and that
upon presentment the check shall be accepted according to its tenor.
Even more, Metrobank argued that in clearing the check, it was not remiss in the performance of its duty as the drawee bank, but
rather, it exercised the highest degree of diligence in accordance with the generally accepted banking practice. It further insisted that
the entries in the check were regular and authentic and alteration could not be determined even upon close examination.
In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with modification the Decision of the court a quo, similarly finding
Metrobank liable for the amount of the check, without prejudice, however, to the outcome of the case between Metrobank and
Westmont Bank which was pending before another tribunal. The decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with the modifications (sic) that the awards for
exemplary damages and attorney’s fees are hereby deleted.18
Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by the appellate court in its Resolution 19 issued
on 26 July 2002, for lack of merit.
Metrobank now poses before this Court this sole issue:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, AS DRAWEE BANK, LIABLE
FOR THE ALTERATIONS ON THE SUBJECT CHECK BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER
THEREOF.
We resolve to deny the petition.
An alteration is said to be material if it changes the effect of the instrument. It means that an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party. 20 In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand or at a fixed determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.
Also pertinent is the following provision in the Negotiable Instrument Law which states:
Section 125. What constitutes material alteration. – Any alteration which changes:
(a) The date;

(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the
effect of the instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91,000.00 and the date was changed
from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among those enumerated under Section 1
and 125, namely, the sum of money payable and the date of the check, the instant controversy therefore squarely falls within the
purview of material alteration.
Now, having laid the premise that the present petition is a case of material alteration, it is now necessary for us to determine the effect
of a materially altered instrument, as well as the rights and obligations of the parties thereunder. The following provision of the
Negotiable Instrument Law will shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially altered without the assent of all
parties liable thereon, it is avoided, except as against a party who has himself made,authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration,
he may enforce the payment thereof according to its original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or
implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which could
have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance
of the check, and there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the
amount in words and figures in order to forewarn the subsequent holders that nothing follows before and after the amount indicated
other than the one specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties has been faithfully
complied with by Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces between and after the amounts, not only
those stated in words, but also those in numerical figures, in order to prevent any fraudulent insertion, but unfortunately, the check was
still successfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed by the perpetrator of the
fraud, to the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his rights under the
doctrine of equitable estoppel when the facts on record are bare of evidence to support such conclusion. The doctrine of equitable
estoppel states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must
be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury. 21 Metrobank’s reliance on
this dictum, is misplaced. For one, Metrobank’s representation that it is an innocent party is flimsy and evidently, misleading. At the
same time, Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause 22 of the loss in the
absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it. 23
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary businessman who, in order to facilitate
his business transactions, entrusted his money with a bank, not knowing that the latter would yield a substantial amount of his deposit
to fraud, for which Cabilzo can never be faulted.
We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the country’s
economy in general. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business
and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence.24
Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of his choice, knowing that they will be
safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking
account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for a businessman
like the respondent, the bank is a trusted and active associate that can help in the running of his affairs, not only in the form of loans
when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.25
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. 26
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. The
appropriate degree of diligence required of a bank must be a high degree of diligence, if not the utmost diligence. 27
In the present case, it is obvious that Metrobank was remiss in that duty and violated that relationship. As observed by the Court of
Appeals, there are material alterations on the check that are visible to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a white figure in the shape of the number "2". The appellant’s
employees who examined the said check should have likewise been put on guard as to why at the end of the amount in words,
i.e., after the word "ONLY", there are 4 asterisks, while at the beginning of the line or before said phrase, there is none, even
as 4 asterisks have been placed before and after the word "CASH" in the space for payee. In addition, the 4 asterisks before
the words "ONE THOUSAND PESOS ONLY" have noticeably been erased with typing correction paper, leaving white marks,
over which the word "NINETY" was superimposed. The same can be said of the numeral "9" in the amount "91,000", which is
superimposed over a whitish mark, obviously an erasure, in lieu of the asterisk which was deleted to insert the said figure. The
appellant’s employees should have again noticed why only 2 asterisks were placed before the amount in figures, while 3
asterisks were placed after such amount. The word "NINETY" is also typed differently and with a lighter ink, when compared
with the words "ONE THOUSAND PESOS ONLY." The letters of the word "NINETY" are likewise a little bigger when
compared with the letters of the words "ONE THOUSAND PESOS ONLY".28
Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of even an ordinary
person. This negligence was exacerbated by the fact that, as found by the trial court, the check in question was examined by the cash
custodian whose functions do not include the examinations of checks indorsed for payment against drawer’s accounts. 29 Obviously, the
employee allowed by Metrobank to examine the check was not verse and competent to handle such duty. These factual findings of the
trial court is conclusive upon this court especially when such findings was affirmed the appellate court. 30
Apropos thereto, we need to reiterate that by the very nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far better 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. 31
In addition, 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 drawer’s instructions as reflected on the face and by the terms of the check. Payment made under materially
altered instrument is not payment done in accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client’s
account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, 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.
Metrobank vigorously asserts that the entries in the check were carefully examined: The date of the instrument, the amount in words
and figures, as well as the drawer’s signature, which after verification, were found to be proper and authentic and was thus cleared. We
are not persuaded. Metrobank’s negligence consisted in the omission of that degree of diligence required of a bank owing to the
fiduciary nature of its relationship with its client. Article 1173 of the Civil Code provides:
The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons, of the time and of the place. x x x.
Beyond question, Metrobank failed to comply with the degree required by the nature of its business as provided by law and
jurisprudence. If indeed it was not remiss in its obligation, then it would be inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical expertise in the intricacies of the banking business. This Court is not completely unaware
of banks’ practices of employing devices and techniques in order to detect forgeries, insertions, intercalations, superimpositions and
alterations in checks and other negotiable instruments so as to safeguard their authenticity and negotiability. Metrobank cannot now
feign ignorance nor claim diligence; neither can it point its finger at the collecting bank, in order to evade liability.
Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the loss. Without ruling on the matter
between the drawee bank and the collecting bank, which is already under the jurisdiction of another tribunal, we find that Metrobank
cannot rely on such indorsement, in clearing the questioned check. The corollary liability of such indorsement, if any, is separate and
independent from the liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Bank’s indorsement is clearly inconsistent, if not totally offensive to the dictum that
being impressed with public interest, banks should exercise the highest degree of diligence, if not utmost diligence in dealing with the
accounts of its own clients. It owes the highest degree fidelity to its clients and should not therefore lightly rely on the judgment of other
banks on occasions where its clients money were involve, no matter how small or substantial the amount at stake.
Metrobank’s contention that it relied on the strength of collecting bank’s indorsement may be merely a lame excuse to evade liability, or
may be indeed an actual banking practice. In either case, such act constitutes a deplorable banking practice and could not be allowed
by this Court bearing in mind that the confidence of public in general is of paramount importance in banking business.
What is even more deplorable is that, having been informed of the alteration, Metrobank did not immediately re-credit the amount that
was erroneously debited from Cabilzo’s account but permitted a full blown litigation to push through, to the prejudice of its client.
Anyway, Metrobank is not left with no recourse for it can still run after the one who made the alteration or with the collecting bank, which
it had already done. It bears repeating that the records are bare of evidence to prove that Cabilzo was negligent. We find no justifiable
reason therefore why Metrobank did not immediately reimburse his account. Such ineptness comes within the concept of wanton
manner contemplated under the Civil Code which warrants the imposition of exemplary damages, "by way of example or correction for
the public good," in the words of the law. It is expected that this ruling will serve as a stern warning in order to deter the repetition of
similar acts of negligence, lest the confidence of the public in the banking system be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8 March 2002 and the Resolution dated 26
July 2002 of the Court of Appeals are AFFIRMED with modification that exemplary damages in the amount of P50,000.00 be awarded.
Costs against the petitioner.
SO ORDERED.
THIRD DIVISION
NEW SAMPAGUITA BUILDERS G.R. No. 148753
CONSTRUCTION, INC. (NSBCI)
and Spouses EDUARDO R. DEE Present:
and ARCELITA M. DEE,
Petitioners, Panganiban, J,
Chairman,
Sandoval-Gutierrez,
Corona,* and
- versus - Carpio Morales, JJ
PHILIPPINE NATIONAL BANK, Promulgated:

Respondent.
July 30, 2004
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:
C ourts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained power to
increase interest rates, penalties and other charges at the latters sole discretion and without giving prior notice to and securing
the consent of the borrowers. This unilateral
__________________
* On leave.
authority is anathema to the mutuality of contracts and enable lenders to take undue advantage of borrowers. Although the Usury Law
has been effectively repealed, courts may still reduce iniquitous or unconscionable rates charged for the use of
money. Furthermore, excessive interests, penalties and other charges not revealed in disclosure statements issued by banks, even if stipulated
in the promissory notes, cannot be given effect under the Truth in Lending Act.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the June 20, 2001 Decision [2] of the
Court of Appeals[3] (CA) in CA-GR CV No. 55231. The decretal portion of the assailed Decision reads as follows:
WHEREFORE, the decision of the Regional Trial Court of Dagupan City, Branch 40 dated December 28, 1995
is REVERSED and SET ASIDE. The foreclosure proceedings of the mortgaged properties of defendants-
appellees[4] and the February 26, 1992 auction sale are declared legal and valid and said defendants-appellees are
ordered to pay plaintiff-appellant PNB,[5]jointly and severally[,] the amount of deficiency that will be computed by the trial
court based on the original penalty of 6% per annum as explicitly stated in the loan documents and to pay attorneys
fees in an amount equivalent to x x x 1% of the total amount due and the costs of suit and expenses of litigation. [6]
The Facts
The facts are narrated by the CA as follows:
On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by [Petitioner] NSBCI [1)]
authorizing the company to x x x apply for or secure a commercial loan with the PNB in an aggregate amount of P8.0M,
under such terms agreed by the Bank and the NSBCI, using or mortgaging the real estate properties registered in the
name of its President and Chairman of the Board [Petitioner] Eduardo R. Dee as collateral; [and] 2) authorizing
[petitioner-spouses] to secure the loan and to sign any [and all] documents which may be required by [Respondent]
PNB[,] and that [petitioner-spouses] shall act as sureties or co-obligors who shall be jointly and severally liable with
[Petitioner] NSBCI for the payment of any [and all] obligations.
On August 15, 1989, Resolution No. 77 was approved by granting the request of [Respondent] PNB thru its
Board NSBCI for an P8 Million loan broken down into a revolving credit line of P7.7M and an unadvised line of P0.3M
for additional operating and working capital[7] to mobilize its various construction projects, namely:
1) MWSS Watermain;
2) NEA-Liberty farm;
3) Olongapo City Pag-Asa Public Market;
4) Renovation of COA-NCR Buildings 1, 2 and 9;
5) Dupels, Inc., Extensive prawn farm development project;
6) Banawe Hotel Phase II;
7) Clark Air Base -- Barracks and Buildings; and
8) Others: EDSA Lighting, Roxas Blvd. Painting NEA Sapang Palay and Angeles City.
The loan of [Petitioner] NSBCI was secured by a first mortgage on the following: a) three (3) parcels of
residential land located at Mangaldan, Pangasinan with total land area of 1,214 square meters[,] including
improvements thereon and registered under TCT Nos. 128449, 126071, and 126072 of the Registry of Deeds of
Pangasinan; b) six (6) parcels of residential land situated at San Fabian, Pangasinan with total area of 1,767 square
meters[,] including improvements thereon and covered by TCT Nos. 144006, 144005, 120458, 120890, 144161[,] and
121127 of the Registry of Deeds of Pangasinan; and c) a residential lot and improvements thereon located at
Mangaldan, Pangasinan with an area of 4,437 square meters and covered by TCT No. 140378 of the Registry of Deeds
of Pangasinan.
The loan was further secured by the joint and several signatures of [Petitioners] Eduardo Dee and Arcelita
Marquez Dee, who signed as accommodation-mortgagors since all the collaterals were owned by them and registered
in their names.
Moreover [Petitioner] NSBCI executed the following documents, viz: a) promissory note dated June 29, 1989
in the amount of P5,000,000.00 with due date on October 27, 1989; [b)] promissory note dated September 1, 1989 in
the amount of P2,700,000.00 with due date on December 30, 1989; and c) promissory note dated September 6, 1989
in the amount of P300,000.00 with maturity date on January 4, 1990.
In addition, [petitioner] corporation also signed the Credit Agreement dated August 31, 1989 relating to the
revolving credit line of P7.7 Million x x x and the Credit Agreement dated September 5, 1989 to support the unadvised
line of P300,000.00.
On August 31, 1989, [petitioner-spouses] executed a Joint and Solidary Agreement (JSA) in favor of
[Respondent] PNB unconditionally and irrevocably binding themselves to be jointly and severally liable with the
borrower for the payment of all sums due and payable to the Bank under the Credit Document.
Later on, [Petitioner] NSBCI failed to comply with its obligations under the promissory notes.
On June 18, 1991, [Petitioner] Eduardo R. Dee on behalf of [Petitioner] NSBCI sent a letter to the Branch
Manager of the PNB Dagupan Branch requesting for a 90-day extension for the payment of interests and restructuring
of its loan for another term.
Subsequently, NSBCI tendered payment to [Respondent] PNB [of] three (3) checks
aggregating P1,000,000.00, namely 1) check no. 316004 dated August 8, 1991 in the amount of P200,000.00; 2) check
no. 03499997 dated August 8, 1991 in the amount of P650,000.00; and 3) check no. 03499998 dated August 15, 1991
in the amount of P150,000.00.[8]
In a meeting held on August 12, 1991, [Respondent] PNBs representative[,] Mr. Rolly Cruzabra, was informed
by [Petitioner] Eduardo Dee of his intention to remit to [Respondent] PNB post-dated checks covering interests,
penalties and part of the loan principals of his due account.
On August 22, 1991, [Respondent] banks Crispin Carcamo wrote [Petitioner] Eduardo Dee[,] informing him
that [Petitioner] NSBCIs proposal [was] acceptable[,] provided the total payment should be P4,128,968.29 that [would]
cover the amount of P1,019,231.33 as principal, P3,056,058.03 as interests and penalties[,] and P53,678.93 for
insurance[,] with the issuance of post-dated checks to be dated not later than November 29, 1991.
On September 6, 1991, [Petitioner] Eduardo Dee wrote the PNB Branch Manager reiterating his proposals for
the settlement of [Petitioner] NSBCIs past due loan account amounting to P7,019,231.33.
[Petitioner] Eduardo Dee later tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in
favor of [Respondent] PNB, viz:
Check No. Date Amount
03500087 Sept. 29, 1991 P277,826.70
03500088 Oct. 29, 1991 P277,826.70
03500089 Nov. 29, 1991 P277,826.70
03500090 Dec. 20, 1991 P277,826.57
Upon presentment[,] however, x x x check nos. 03500087 and 03500088 dated September 29 and October
29, 1991 were dishonored by the drawee bank and returned due [to] a stop payment order from [petitioners].
On November 12, 1991, PNBs Mr. Carcamo wrote [Petitioner] Eduardo Dee informing him that unless the
dishonored checks [were] made good, said PNB branch shall recall its recommendation to the Head Office for the
restructuring of the loan account and refer the matter to its legal counsel for legal action.[] [Petitioners] did not heed
[respondents] warning and as a result[,] the PNB Dagupan Branch sent demand letters to [Petitioner] NSBCI at its office
address at 1611 ERDC Building, E. Rodriguez Sr. Avenue, Quezon City[,] asking it to settle its past due loan account.
[Petitioners] nevertheless failed to pay their loan obligations within the [timeframe] given them and as a result,
[Respondent] PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for Sale under Act 3135, as
amended[,] and Presidential Decree No. 385 dated January 30, 1992.
The notice of extra-judicial sale of the mortgaged properties relating to said PNBs [P]etition for [S]ale was
published in the February 8, 15 and 22, 1992 issues of the Weekly Guardian, allegedly a newspaper of
general circulation in the Province of Pangasinan, including the cities of Dagupan and San Carlos. In addition[,] copies
of the notice were posted in three (3) public places[,] and copies thereof furnished [Petitioner] NSBCI at 1611 [ERDC
Building,] E. Rodriguez Sr. Avenue, Quezon City, [and at] 555 Shaw Blvd., Mandaluyong[, Metro Manila;] and
[Petitioner] Sps. Eduardo and Arcelita Dee at 213 Wilson St., San Juan, Metro Manila.
On February 26, 1992, the Provincial Deputy Sheriff Cresencio F. Ferrer of Lingayen, Pangasinan foreclosed
the real estate mortgage and sold at public auction the mortgaged properties of [petitioner-spouses,] with [Respondent]
PNB being declared the highest bidder for the amount of P10,334,000.00.
On March 2, 1992, copies of the Sheriffs Certificate of Sale were sent by registered mail to [petitioner]
corporations address at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City and [petitioner-spouses] address
at 213 Wilson St., San Juan, Metro Manila.
On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to [petitioners] at their address at 1611
[ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City[,] informing them that the properties securing their loan account
[had] been sold at public auction, that the Sheriffs Certificate of Sale had been registered with the Registry of Deeds of
Pangasinan on March 13, 1992[,] and that a period of one (1) year therefrom [was] granted to them within which to
redeem their properties.
[Petitioners] failed to redeem their properties within the one-year redemption period[,] and so [Respondent]
PNB executed a [D]eed of [A]bsolute [S]ale consolidating title to the properties in its name. TCT Nos. 189935 to 189944
were later issued to [Petitioner] PNB by the Registry of Deeds of Pangasinan.
On August 4, 1992, [Respondent] PNB informed [Petitioner] NSBCI that the proceeds of the sale conducted
on February 26, 1992 were not sufficient to cover its total claim amounting to P12,506,476.43[,] and thus demanded
from the latter the deficiency of P2,172,476.43 plus interest and other charges[,] until the amount [was] fully paid.
[Petitioners] refused to pay the above deficiency claim which compelled [Respondent] PNB to institute the
instant [C]omplaint for the collection of its deficiency claim.
Finding that the PNB debt relief package automatically [granted] to [Petitioner] NSBCI the benefits under the
program, the court a quo ruled in favor of [petitioners] in its Decision dated December 28, 1995, the fallo of which reads:
In view of the foregoing, the Court believes and so holds that the [respondent] has no cause
of action against the [petitioners].
WHEREFORE, the case is hereby DISMISSED, without costs.[9]
On appeal, respondent assailed the trial courts Decision dismissing its deficiency claim on the mortgage debt. It also challenged
the ruling of the lower court that Petitioner NSBCIs loan account was bloated, and that the inadequacy of the bid price was sufficient to
set aside the auction sale.
Reversing the trial court, the CA held that Petitioner NSBCI did not avail itself of respondents debt relief package (DRP) or take
steps to comply with the conditions for qualifying under the program. The appellate court also ruled that entitlement to the program was
not a matter of right, because such entitlement was still subject to the approval of higher bank authorities, based on their assessment of
the borrowers repayment capability and satisfaction of other requirements.
As to the misapplication of loan payments, the CA held that the subsidiary ledgers of NSBCIs loan accounts with respondent
reflected all the loan proceeds as well as the partial payments that had been applied either to the principal or to the interests, penalties
and other charges.Having been made in the ordinary and usual course of the banking business of respondent, its entries were presumed
accurate, regular and fair under Section 5(q) of Rule 131 of the Rules of Court. Petitioners failed to rebut this presumption
The increases in the interest rates on NSBCIs loan were also held to be authorized by law and the Monetary Board and -- like
the increases in penalty rates -- voluntarily and freely agreed upon by the parties in the Credit Agreements they executed. Thus, these
increases were binding upon petitioners.
However, after considering that two to three of Petitioner NSBCIs projects covered by the loan were affected by the economic
slowdown in the areas near the military bases in the cities of Angeles and Olongapo, the appellate court annulled and deleted the
adjustment in penalty from 6 percent to 36 percent per annum. Not only did respondent fail to demonstrate the existence of market forces
and economic conditions that would justify such increases; it could also have treated petitioners request for restructuring as a request for
availment of the DRP. Consequently, the original penalty rate of 6 percent per annum was used to compute the deficiency claim.
The auction sale could not be set aside on the basis of the inadequacy of the auction price, because in sales made at public
auction, the owner is given the right to redeem the mortgaged properties; the lower the bid price, the easier it is to effect redemption or
to sell such right. The bid price of P10,334,000.00 vis--vis respondents claim of P12,506,476.43 was found to be neither shocking nor
unconscionable.
The attorneys fees were also reduced by the appellate court from 10 percent to 1 percent of the total indebtedness. First, there
was no extreme difficulty in an extrajudicial foreclosure of a real estate mortgage, as this proceeding was merely administrative in nature
and did not involve a court litigation contesting the proceedings prior to the auction sale. Second, the attorneys fees were exclusive of all
stipulated costs and fees. Third, such fees were in the nature of liquidated damages that did not inure to respondents salaried counsel.
Respondent was also declared to have the unquestioned right to foreclose the Real Estate Mortgage. It was allowed to recover
any deficiency in the mortgage account not realized in the foreclosure sale, since petitioner-spouses had agreed to be solidarily liable for
all sums due and payable to respondent.
Finally, the appellate court concluded that the extrajudicial foreclosure proceedings and auction sale were valid for the following
reasons: (1) personal notice to the mortgagors, although unnecessary, was actually made; (2) the notice of extrajudicial sale was duly
published and posted; (3) the extrajudicial sale was conducted through the deputy sheriff, under the direction of the clerk of court who
was concurrently the ex-oficio provincial sheriff and acting as agent of respondent; (4) the sale was conducted within the province where
the mortgaged properties were located; and (5) such sale was not shown to have been attended by fraud.
Hence this Petition.[10]
Issues
Petitioners submit the following issues for our consideration:
Whether or not the Honorable Court of Appeals correctly ruled that petitioners did not avail of PNBs debt relief package
and were not entitled thereto as a matter of right.
II
Whether or not petitioners have adduced sufficient and convincing evidence to overthrow the presumption of regularity
and correctness of the PNB entries in the subsidiary ledgers of the loan accounts of petitioners.
III
Whether or not the Honorable Court of Appeals seriously erred in not holding that the Respondent PNB bloated the
loan account of petitioner corporation by imposing interests, penalties and attorneys fees without legal, valid and
equitable justification.
IV
Whether or not the auction price at which the mortgaged properties was sold was disproportionate to their actual fair
mortgage value.
Whether or not Respondent PNB is not entitled to recover the deficiency in the mortgage account not realized in the
foreclosure sale, considering that:
A. Petitioners are merely guarantors of the mortgage debt of petitioner corporation which has a
separate personality from the [petitioner-spouses].
B. The joint and solidary agreement executed by [petitioner- spouses] are contracts of adhesion
not binding on them;
C. The NSBCI Board Resolution is not valid and binding on [petitioner-spouses] because they
were compelled to execute the said Resolution[;] otherwise[,] Respondent PNB would not grant
petitioner corporation the loan;
D. The Respondent PNB had already in its possession the properties of the [petitioner-spouses]
which served as a collateral to the loan obligation of petitioner corporation[,] and to still allow
Respondent PNB to recover the deficiency claim amounting to a very substantial amount of P2.1
million would constitute unjust enrichment on the part of Respondent PNB.
VI
Whether or not the extrajudicial foreclosure proceedings and auction sale, including all subsequent proceedings[,] are
null and void for non-compliance with jurisdictional and other mandatory requirements; whether or not the petition for
extrajudicial foreclosure of mortgage was filed prematurely; and whether or not the finding of fraud by the trial court is
amply supported by the evidence on record.[11]
The foregoing may be summed up into two main issues: first, whether the loan accounts are bloated; and second, whether the extrajudicial
foreclosure and subsequent claim for deficiency are valid and proper.
The Courts Ruling
The Petition is partly meritorious.
First Main Issue:
Bloated Loan Accounts
At the outset, it must be stressed that only questions of law[12] may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. As a rule, questions of fact cannot be the subject of this mode of appeal, [13] for [t]he Supreme Court is not a trier of
facts.[14] As exceptions to this rule, however, factual findings of the CA may be reviewed on appeal [15] when, inter alia, the factual
inferences are manifestly mistaken;[16] the judgment is based on a misapprehension of facts;[17] or the CA manifestly overlooked certain
relevant and undisputed facts that, if properly considered, would justify a different legal conclusion. [18] In the present case, these
exceptions exist in various instances, thus prompting us to take cognizance of factual issues and to decide upon them in the interest of
justice and in the exercise of our sound discretion.[19]
Indeed, Petitioner NSBCIs loan accounts with respondent appear to be bloated with some iniquitous imposition of interests,
penalties, other charges and attorneys fees. To demonstrate this point, the Court shall take up one by one the promissory notes, the
credit agreements and the disclosure statements.
Increases in Interest Baseless
Promissory Notes. In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in the first, and 21.5
percent in the second and again in the third. However, a uniform clause therein permitted respondent to increase the rate within the limits
allowed by law at any time depending on whatever policy it may adopt in the future x x x, [20] without even giving prior notice to
petitioners. The Court holds that petitioners accessory duty to pay interest[21] did not give respondent unrestrained freedom to charge any
rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. [22] It would be the zenith of
farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement.
The unilateral determination and imposition [23] of increased rates is violative of the principle of mutuality of contracts ordained in Article
1308[24] of the Civil Code.[25] One-sided impositions do not have the force of law between the parties, because such impositions are not
based on the parties essential equality.
Although escalation clauses[26] are valid in maintaining fiscal stability and retaining the value of money on long-term
contracts,[27] giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from
petitioners the right to assent to an important modification in their agreement [28] and would also negate the element of mutuality in their
contracts. The clause cited earlier made the fulfillment of the contracts dependent exclusively upon the uncontrolled will [29] of respondent
and was therefore void. Besides, the pro forma promissory notes have the character of a contract dadhsion,[30] where the parties do not
bargain on equal footing, the weaker partys [the debtors] participation being reduced to the alternative to take it or leave it.[31]
While the Usury Law[32] ceiling on interest rates was lifted by [Central Bank] Circular No. 905, [33] nothing in the said Circular grants
lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.[34] In fact, we have declared nearly ten years ago that neither this Circular nor PD 1684, which further amended the Usury Law,
authorized either party to unilaterally raise the interest rate without the others consent. [35]
Moreover, a similar case eight years ago pointed out to the same respondent (PNB) that borrowing signified a capital transfusion
from lending institutions to businesses and industries and was done for the purpose of stimulating their growth; yet respondents continued
unilateral and lopsided policy[36] of increasing interest rates without the prior assent [37] of the borrower not only defeats this purpose, but
also deviates from this pronouncement. Although such increases are not usurious, since the Usury Law is now legally inexistent [38] -- the
interest ranging from 26 percent to 35 percent in the statements of account [39] -- must be equitably reduced for being iniquitous,
unconscionable and exorbitant.[40]Rates found to be
iniquitous or unconscionable are void, as if it there were no express contract thereon. [41] Above all, it is undoubtedly against public policy
to charge excessively for the use of money.[42]
It cannot be argued that assent to the increases can be implied either from the June 18, 1991 request of petitioners for loan restructuring
or from their lack of response to the statements of account sent by respondent. Such request does not indicate any agreement to an
interest increase; there can be no implied waiver of a right when there is no clear, unequivocal and decisive act showing such
purpose.[43] Besides, the statements were not letters of information sent to secure their conformity; and even if we were to presume these
as an offer, there was no acceptance. No one receiving a proposal to modify a loan contract, especially interest -- a vital component -- is
obliged to answer the proposal.[44]
Furthermore, respondent did not follow the stipulation in the Promissory Notes providing for the automatic conversion of the portion that
remained unpaid after 730 days -- or two years from date of original release -- into a medium-term loan, subject to the applicable interest
rate to be applied from the dates of original release. [45]
In the first,[46] second[47] and third[48] Promissory Notes, the amount that remained unpaid as of October 27, 1989, December 1989 and
January 4, 1990 -- their respective due dates -- should have been automatically converted by respondent into medium-term loans on
June 30, 1991, September 2, 1991, and September 7, 1991, respectively. And on this unpaid amount should have been imposed the
same interest rate charged by respondent on other medium-term loans; and the rate applied from June 29, 1989, September 1, 1989 and
September 6, 1989 -- their respective original release -- until paid. But these steps were not taken. Aside from sending demand letters,
respondent did not at all exercise its option to enforce collection as of these Notes due dates. Neither did it renew or extend the account.
In these three Promissory Notes, evidently, no complaint for collection was filed with the courts. It was not until January 30, 1992 that a
Petition for Sale of the mortgaged properties was filed -- with the provincial sheriff, instead.[49] Moreover, respondent did not supply the
interest rate to be charged on medium-term loans granted by automatic conversion. Because of this deficiency, we shall use the legal
rate of 12 percent per annumon loans and forbearance of money, as provided for by CB Circular 416. [50]
Credit Agreements. Aside from the promissory notes, another main document involved in the principal obligation is the set of credit
agreements executed and their annexes.
The first Credit Agreement[51] dated June 19, 1989 -- although offered and admitted in evidence, and even referred to in the first
Promissory Note -- cannot be given weight.
First, it was not signed by respondent through its branch manager. [52] Apparently it was surreptitiously acknowledged before respondents
counsel, who unflinchingly declared that it had been signed by the parties on every page, although respondents signature does not appear
thereon.[53]
Second, it was objected to by petitioners,[54] contrary to the trial courts findings.[55] However, it was not the Agreement, but the revolving
credit line[56] of P5,000,000, that expired one year from the Agreements date of implementation. [57]
Third, there was no attached annex that contained the General Conditions.[58] Even the Acknowledgment did not allude to its
existence.[59] Thus, no terms or conditions could be added to the Agreement other than those already stated therein.
Since the first Credit Agreement cannot be given weight, the interest rate on the first availment pegged at 3 percent over and above
respondents prime rate[60] on the date of such availment[61] has no bearing at all on the loan. After the first Notes due date, the rate
of 19 percent agreed upon should continue to be applied on the availment, until its automatic conversion to a medium-term loan.
The second Credit Agreement[62] dated August 31, 1989, provided for interest -- respondents prime rate, plus the applicable spread [63] in
effect as of the date of each availment, [64] on a revolving credit line of P7,700,000[65] -- but did not state any provision on its increase or
decrease.[66]Consequently, petitioners could not be made to bear interest more than such prime rate plus spread. The Court gives weight
to this second Credit Agreement for the following reasons.
First, this document submitted by respondent was admitted by petitioners. [67] Again, contrary to their assertion, it was not the
Agreement -- but the credit line -- that expired one year from the Agreements date of implementation. [68] Thus, the terms and conditions
continued to apply, even if drawdowns could no longer be made.
Second, there was no 7-page annex[69] offered in evidence that contained the General Conditions, [70] notwithstanding the
Acknowledgment of its existence by respondents counsel. Thus, no terms or conditions could be appended to the Agreement other than
those specified therein.
Third, the 12-page General Conditions[71] offered and admitted in evidence had no probative value. There was no reference to it in the
Acknowledgment of the Agreement; neither was respondents signature on any of the pages thereof. Thus, the General Conditions
stipulations on interest adjustment,[72] whether on a fixed or a floating scheme, had no effect whatsoever on the Agreement. Contrary to
the trial courts findings,[73] the General Condition were correctly objected to by petitioners.[74] The rate of 21.5 percent agreed upon in the
second Note thus continued to apply to the second availment, until its automatic conversion into a medium-term loan.
The third Credit Agreement[75] dated September 5, 1989, provided for the same rate of interest as that in the second Agreement. This
rate was to be applied to availments of an unadvised line of P300,000. Since there was no mention in the third Agreement, either, of any
stipulation on increases or decreases[76] in interest, there would be no basis for imposing amounts higher than the prime rate plus
spread. Again, the 21.5 percent rate agreed upon would continue to apply to the third availment indicated in the third Note, until such
amount was automatically converted into a medium-term loan.
The Court also finds that, first, although this document was admitted by petitioners,[77] it was the credit line that expired one year from the
implementation of the Agreement.[78] The terms and conditions therein continued to apply, even if availments could no longer be drawn
after expiry.
Second, there was again no 7-page annex[79] offered that contained the General Conditions,[80] regardless of the Acknowledgment by the
same respondents counsel affirming its existence. Thus, the terms and conditions in this Agreement relating to interest cannot be
expanded beyond that which was already laid down by the parties.
Disclosure Statements. In the present case, the Disclosure Statements [81] furnished by respondent set forth the same interest rates as
those respectively indicated in the Promissory Notes. Although no method of computation was provided showing how such rates were
arrived at, we will nevertheless take up the Statements seriatim in order
to determine the applicable rates clearly.
As to the first Disclosure Statement on Loan/Credit Transaction [82] dated June 13, 1989, we hold that the 19.5 percent effective interest
rate per annum[83] would indeed apply to the first availment or drawdown evidenced by the first Promissory Note. Not only was this
Statement issued prior to the consummation of such availment or drawdown, but the rate shown therein can also be considered equivalent
to 3 percent over and above respondents prime rate in effect. Besides, respondent mentioned no other rate that it considered to be the
prime rate chargeable to petitioners. Even if we disregarded the related Credit Agreement, we assume that this private transaction
between the parties was fair and regular,[84] and that the ordinary course of business was followed. [85]
As to the second Disclosure Statement on Loan/Credit Transaction[86] dated September 2, 1989, we hold that the 21.5 percent effective
interest rate per annum[87] would definitely apply to the second availment or drawdown evidenced by the second Promissory
Note. Incidentally, this Statement was issued only after the consummation of its related availment or drawdown, yet such rate can be
deemed equivalent to the prime rate plus spread, as stipulated in the corresponding Credit Agreement. Again, we presume that this
private transaction was fair and regular, and that the ordinary course of business was followed. That the related Promissory Note was
pre-signed would also bolster petitioners claim although, under cross-examination Efren Pozon -- Assistant Department Manager I[88] of
PNB, Dagupan Branch -- testified that the Disclosure Statements were the basis for preparing the Notes. [89]
As to the third Disclosure Statement on Loan/Credit Transaction[90] dated September 6, 1989, we hold that the same 21.5 percent effective
interest rate per annum[91] would apply to the third
availment or drawdown evidenced by the third Promissory Note. This Statement was made available to petitioner-spouses, only after the
related Credit Agreement had been executed, but simultaneously with the consummation of the Statements related availment or
drawdown. Nonetheless, the rate herein should still be regarded as equivalent to the prime rate plus spread, under the similar presumption
that this private transaction was fair and regular and that the ordinary course of business was followed.
In sum, the three disclosure statements, as well as the two credit agreements considered by this Court, did not provide for any increase
in the specified interest rates. Thus, none would now be permitted. When cross-examined, Julia Ang-Lopez, Finance Account Analyst II
of PNB, Dagupan Branch, even testified that the bases for computing such rates were those sent by the head office from time to time,
and not those indicated in the notes or disclosure statements.[92]
In addition to the preceding discussion, it is then useless to labor the point that the increase in rates violates the
impairment[93] clause of the Constitution,[94] because the sole purpose of this provision is to safeguard the integrity of valid contractual
agreements against unwarranted interference by the State [95] in the form of laws. Private individuals intrusions on interest rates is
governed by statutory enactments like the Civil Code.
Penalty, or Increases
Thereof, Unjustified
No penalty charges or increases thereof appear either in the Disclosure Statements[96] or in any of the clauses in the second and the third
Credit Agreements[97] earlier discussed. While a standard penalty charge of 6 percent per annum has been imposed on the amounts
stated in all three Promissory Notes still remaining unpaid or unrenewed when they fell due, [98] there is no stipulation therein that would
justify any increase in that charges. The effect, therefore, when the borrower is not clearly informed of the Disclosure Statements -- prior
to the consummation of the availment or drawdown -- is that the lender will have no right to collect upon such charge [99] or increases
thereof, even if stipulated in the Notes.The time is now ripe to give teeth to the often ignored forty-one-year old Truth in Lending Act[100] and
thus transform it from a snivelling paper tiger to a growling financial watchdog of hapless borrowers.
Besides, we have earlier said that the Notes are contracts of adhesion; although not invalid per se, any apparent ambiguity in the loan
contracts -- taken as a whole -- shall be strictly construed against respondent who caused it.[101] Worse, in the statements of account, the
penalty rate has again been unilaterally increased by respondent to 36 percent without petitioners consent. As a result of its move, such
liquidated damages intended as a penalty shall be equitably reduced by the Court to zilch [102] for being iniquitous or unconscionable.[103]
Although the first Disclosure Statement was furnished Petitioner NSBCI prior to the execution of the transaction, it is not a contract that
can be modified by the related Promissory Note, but a mere statement in writing that reflects the true and effective cost of loans from
respondent.Novation can never be presumed, [104] and the animus novandi must appear by express agreement of the parties, or by their
acts that are too clear and unequivocal to be mistaken. [105] To allow novation will surely flout the policy of the State to protect
its citizens from a lack of awareness of the true cost of credit. [106]
With greater reason should such penalty charges be indicated in the second and third Disclosure Statements, yet none can be
found therein.While the charges are issued after the respective availment or drawdown, the disclosure statements are given
simultaneously therewith. Obviously, novation still does not apply.
Other Charges Unwarranted
In like manner, the other charges imposed by respondent are not warranted. No particular values or rates of service charge are indicated
in the Promissory Notes or Credit Agreements, and no total value or even the breakdown figures of such non-finance charge are specified
in the Disclosure Statements. Moreover, the provision in the Mortgage that requires the payment of insurance and other charges is neither
made part of nor reflected in such Notes, Agreements, or Statements. [107]
Attorneys Fees Equitably Reduced
We affirm the equitable reduction in attorneys fees. [108] These are not an integral part of the cost of borrowing, but arise only when
collecting upon the Notes becomes necessary. The purpose of these fees is not to give respondent a larger compensation for the loan
than the law already allows, but to protect it against any future loss or damage by being compelled to retain counsel in-house or not -- to
institute judicial proceedings for the collection of its credit.[109] Courts have has the power[110] to determine their reasonableness[111] based
on quantum meruit[112] and to reduce[113] the amount thereof if excessive.[114]
In addition, the disqualification argument in the Affidavit of Publication raised by petitioners no longer holds water, inasmuch as Act
496[115] has repealed the Spanish Notarial Law.[116] In the same vein, their engagement of their counsel in another capacity concurrent
with the practice of law is not prohibited, so long as the roles being assumed by such counsel is made clear to the client. [117] The only
reason for this clarification requirement is that certain ethical considerations operative in one profession may not be so in the other.[118]
Debt Relief Package

Not Availed Of
We also affirm the CAs disquisition on the debt relief package (DRP).
Respondents Circular is not an outright grant of assistance or extension of payment, [119] but a mere offer subject to specific terms and
conditions.
Petitioner NSBCI failed to establish satisfactorily that it had been seriously and directly affected by the economic slowdown in the
peripheral areas of the then US military bases. Its allegations, devoid of any verification, cannot lead to a supportable conclusion. In fact,
for short-term loans, there is still a need to conduct a thorough review of the borrowers repayment possibilities. [120]
Neither has Petitioner NSBCI shown enough margin of equity, [121] based on the latest loan value of hard collaterals,[122] to be eligible for
the package. Additional accommodations on an unsecured basis may be granted only when regular payment amortizations have been
established, or when the merits of the credit application would so justify. [123]
The branch managers recommendation to restructure or extend a total outstanding loan not exceeding P8,000,000 is not final,
but subject to the approval of respondents Branches Department Credit Committee, chaired by its executive vice-president.[124] Aside
from being further conditioned on other pertinent policies of respondent, [125] such approval nevertheless needs to be reported to its Board
of Directors for confirmation.[126] In fact, under the General Banking Law of 2000, [127] banks shall grant loans and other credit
accommodations only in amounts and for periods of time essential to the effective completion of operations to be financed, consistent
with safe and sound banking practices.[128] The Monetary Board -- then and now -- still prescribes, by regulation, the conditions and
limitations under which banks may grant extensions or renewals of their loans and other credit accommodations. [129]
Entries in Subsidiary Ledgers

Regular and Correct
Contrary to petitioners assertions, the subsidiary ledgers of respondent properly reflected all entries pertaining to Petitioner NSBCIs loan
accounts. In accordance with the Generally Accepted Accounting Principles (GAAP) for the Banking Industry, [130] all interests accrued or
earned on such loans, except those that were restructured and non-accruing,[131] have been periodically taken into income.[132] Without a
doubt, the subsidiary ledgers in a manual accounting system are mere private documents[133] that support and are controlled by the
general ledger.[134] Such ledgers are neither foolproof nor standard in format, but are periodically subject to audit. Besides, we go by the
presumption that the recording of private transactions has been fair and regular, and that the ordinary course of business has been
followed.
Second Main Issue:

Extrajudicial Foreclosure Valid, But
Deficiency Claims Excessive
Respondent aptly exercised its option to foreclose the mortgage, [135] after petitioners had failed to pay all the Notes in full when they fell
due.[136] The extrajudicial sale and subsequent proceedings are therefore valid, but the alleged deficiency claim cannot be recovered.
Auction Price Adequate
In the accessory contract[137] of real mortgage,[138] in which immovable property or real rights thereto are used as security [139] for the
fulfillment of the principal loan obligation,[140] the bid price may be lower than the propertys fair market value. [141] In fact, the loan value
itself is only 70 percent of the appraised value. [142] As correctly emphasized by the appellate court, a low bid price will make it
easier[143] for the owner to effect redemption[144] by subsequently reacquiring the property or by selling the right to redeem and thus
recover alleged losses. Besides, the public auction sale has been regularly and fairly conducted, [145] there has been ample authority to
effect the sale,[146]and the Certificates of Title can be relied upon. No personal notice[147] is even required,[148] because an extrajudicial
foreclosure is an action in rem, requiring only notice by publication and posting, in order to bind parties interested in the foreclosed
property.[149]
As no redemption[150] was exercised within one year after the date of registration of the Certificate of Sale with the Registry of
Deeds,[151]respondent -- being the highest bidder -- has the right to a writ of possession, the final process that will consummate the
extrajudicial foreclosure.On the other hand, petitioner-spouses, who are mortgagors herein, shall lose all their rights to the property. [152]
No Deficiency Claim Receivable
After the foreclosure and sale of the mortgaged property, the Real Estate Mortgage is extinguished. Although the mortgagors, being third
persons, are not liable for any deficiency in the absence of a contrary stipulation, [153] the action for recovery of such amount -- being
clearly sureties to the principal obligation -- may still be directed against them.[154] However, respondent may impose only the stipulated
interest rates of 19.5 percent and 21.5 percent on the respective availments -- subject to the 12 percent legal rate revision upon automatic
conversion into medium-term loans -- plus 1 percent attorneys fees, without additional charges on penalty, insurance or any increases
thereof.
Accordingly, the excessive interest rates in the Statements of Account sent to petitioners are reduced to 19.5 percent and 21.5
percent, as stipulated in the Promissory Notes; upon loan conversion, these rates are further reduced to the legal rate of 12
percent. Payments made by petitioners are pro-rated, the charges on penalty and insurance eliminated, and the resulting total unpaid
principal and interest of P6,582,077.70 as of the date of public auction is then subjected to 1 percent attorneys fees. The total outstanding
obligation is compared to the bid price. On the basis of these rates and the comparison made, the deficiency claim receivable amounting
to P2,172,476.43 in fact vanishes. Instead, there is an overpayment by more than P3 million, as shown in the following Schedules:
SCHEDULE 1: PN (1) drawdown amount on 6/29/89

Less: Interest deducted in advance (per 6/13/89 Disclosure Statement)
Net proceeds
Principal
Add:
Interest at 19.5% p.a.
10/28/89-12/31/89 (5,000,000 x 19.5% x [65/365]) 173,630
1/1/90-1/5/90 (5,000,000 x 19.5% x [5/365]) 13,356
Amount due as of 1/5/90
Less: Payment on 1/5/90 (pro-rated upon interest)
Balance
Add:
1/6/90-3/30/90 ([5,000,000-356,821.30] x 19.5% x [84/365])
Balance
Add:
3/31/90-5/31/90 ([5,000,000-356,821.30] x 19.5% x [62/365])
Balance
Add:
6/1/90-6/29/90 ([5,000,000-(356,821.30+821.33)] x 19.5% x [29/365])
Balance
Add:
6/30/90-12/31/90 ([5,000,000-(356,821.30+821.33+767,087.92)] x 19.5% x [185/365]) 383,01
1/1/91-6/29/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 19.5% x [180/365]) 372,66
Interest at 12% p.a. upon automatic conversion
6/30/91-8/8/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [40/365]) 50,96
Balance
Add:
Interest at 12% p.a.
8/9/91-8/15/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [7/365])
Balance
Add:
8/16/91-11/29/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [106/365])
Balance
Add:
11/30/91-12/20/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [21/365])
Balance
Add:
12/21/91-12/31/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [11/365]) 14,28
1/1/92-2/26/92 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [57/365]) 74,00
Amount due on PN (1) as of 2/26/92

Net proceeds
Principal
Add:
12/31/89 (2,700,000 x 21.5% x [1/365]) 1,590.
1/1/90-1/5/90 (2,700,000 x 21.5% x [5/365]) 7,952.
Balance
Add:
1/6/90-3/30/90 ([2,700,000-18,209.65] x 21.5% x [84/365])
Balance
Add:
3/31/90-5/31/90 ([2,700,000-18,209.65] x 21.5% x [62/365])
Balance
Add:
6/1/90-6/29/90 ([2,700,000-(18,209.65+523.04)] x 21.5% x [29/365])
Balance
Add:
6/30/90-12/31/90 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [185/365]) 238,953.
1/1/91-8/8/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [220/365]) 284,160.
Balance
Add:
8/9/91-8/15/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [7/365])
Balance
Add:
8/16/91-9/1/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [17/365]) 21,957.
9/2/91-11/29/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [89/365]) 64,161.
Balance
Add:
11/30/91-12/20/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [21/365])
Balance
Add:
12/21/91-12/31/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [11/365]) 7,930.
1/1/92-2/26/92 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [57/365]) 41,092.

Net proceeds
Principal
Add:
1/5/90 (300,000 x 21.5% x [1/365])
Balance
Add:
1/6/90-3/30/90 ([300,000-337.22] x 21.5% x [84/365])
Balance
Add:
3/31/90-5/31/90 ([300,000-337.22] x 21.5% x [62/365])
Balance
Add:
6/1/90-6/29/90 ([300,000-(337.22+58.44)] x 21.5% x [29/365])
Balance
Add:
6/30/90-12/31/90 ([300,000-(337.22+58.44+54,583.14)] x 21.5% x [185/365]) 26,700.
1/1/91-8/8/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [220/365]) 31,752.
Balance
Add:
8/9/91-8/15/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [7/365])
Balance
Add:
8/16/91-9/6/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [22/365]) 3,175.
9/7/91-11/29/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [84/365]) 6,766.
Balance
Add:
11/30/91-12/20/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [21/365])
Balance
Add:
12/21/91-12/31/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [11/365]) 886.
1/1/92-2/26/92 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [57/365]) 4,591.
SCHEDULE 4: Application of Payments Upon Interest
Date Interest
Payable Pro-rated
1/5/90 PN (1) P 186,986.30 P 543,807.61

PN (2) 9,542.47 27,752.12
PN (3) 176.71 513.93
196,705.48 572,073.65
3/30/90 PN (1) 208,370.59 163,182.85

PN (2) 132,693.52 103,917.28
PN (3) 14,827.15 11,611.70
355,891.26 278,711.83
5/31/90 PN (1) 198,985.09 199,806.42

PN (2) 126,716.69 127,239.72
PN (3) 14,159.30 14,217.74
339,861.08 341,263.89
6/29/90 PN (1) 71,924.74 839,012.66

PN (2) 45,801.92 534,286.14
PN (3) 5,117.90 59,701.04
122,844.56 1,432,999.84
8/8/91 PN (1) 806,639.99 493,906.31

PN (2) 523,113.94 320,303.08
PN (3) 58,452.66 35,790.61
1,388,206.59 850,000.00
8/15/91 PN (1) 321,652.11 86,593.37

PN (2) 211,852.33 57,033.69
PN (3) 23,672.34 6,372.93
557,176.79 150,000.00
11/29/91 PN (1) 370,109.22 161,096.81

PN (2) 240,937.94 104,872.65
PN (3) 27,241.23 11,857.24
638,288.39 277,826.70
12/20/91 PN (1) 235,767.70 162,115.78

PN (2) 151,204.51 103,969.45
PN (3) 17,075.64 11,741.35
P 404,047.85 P 277,826.57
In the preparation of the above-mentioned schedules, these basic legal principles were followed:
First, the payments were applied to debts that were already due. [155] Thus, when the first payment was made and applied on
January 5, 1990, all Promissory Notes were already due.
Second, payments of the principal were not made until the interests had been covered. [156] For instance, the first payment on
January 15, 1990 had initially been applied to all interests due on the notes, before deductions were made from their respective principal
amounts. The resulting decrease in interest balances served as the bases for subsequent pro-ratings.
Third, payments were proportionately applied to all interests that were due and of the same nature and burden. [157] This legal
principle was the rationale for the pro-rated computations shown on Schedule 4.
Fourth, since there was no stipulation on capitalization, no interests due and unpaid were added to the principal; hence, such
interests did not earn any additional interest. [158] The simple -- not compounded -- method of interest calculation[159] was used on all Notes
until the date of public auction.
In fine, under solutio indebiti[160] or payment by mistake,[161] there is no deficiency receivable in favor of PNB, but rather an excess claim
or surplus[162] payable by respondent; this excess should immediately be returned to petitioner-spouses or their assigns -- not to mention
the buildings and improvements[163] on and the fruits of the property -- to the end that no one may be unjustly enriched or benefited at
the expense of another.[164] Such surplus is in the amount of P3,686,101.52, computed as follows:
Total unpaid principal and interest on the

promissory notes as of February 26, 1992:
Drawdown on June 29, 1989
(Schedule 1) P 4,037,204.10
Drawdown on September 1, 1989
(Schedule 2) 2,289,040.38
Drawdown on September 6, 1989
(Schedule 3) 255,833.22
6,582,077.70
Add: 1% attorneys fees 65,820.78
Total outstanding obligation 6,647,898.48
Less: Bid price 10,334,000.00
Excess P 3,686,101.52
Joint and Solidary Agreement. Contrary to the contention of the petitioner-spouses, their Joint and Solidary Agreement (JSA)[165] was
indubitably a surety, not a guaranty.[166] They consented to be jointly and severally liable with Petitioner NSBCI -- the borrower -- not only
for the payment of all sums due and payable in favor of respondent, but also for the faithful and prompt performance of all the terms and
conditions thereof.[167]Additionally, the corporate secretary of Petitioner NSBCI certified as early as February 23, 1989, that the spouses
should act as such surety.[168]But, their solidary liability should be carefully studied, not sweepingly assumed to cover all availments
instantly.
First, the JSA was executed on August 31, 1989. As correctly adverted to by petitioners,[169] it covered only the Promissory Notes
of P2,700,000 and P300,000 made after that date. The terms of a contract of suretyship undeniably determine the suretys liability[170] and
cannot extend beyond what is stipulated therein. [171] Yet, the total amount petitioner-spouses agreed to be held liable for was P7,700,000;
by the time the JSA was executed, the first Promissory Note was still unpaid and was thus brought within the JSAs ambit.[172]
Second, while the JSA included all costs, charges and expenses that respondent might incur or sustain in connection with the credit
documents,[173]only the interest was imposed under the pertinent Credit Agreements. Moreover, the relevant Promissory Notes had to be
resorted to for proper valuation of the interests charged.
Third, although the JSA, as a contract of adhesion, should be taken contra proferentum against the party who may have caused any
ambiguity therein, no such ambiguity was found. Petitioner-spouses, who agreed to be accommodation mortgagors,[174] can no longer be
held individually liable for the entire onerous obligation [175] because, as
it turned out, it was respondent that still owed them.
To summarize, to give full force to the Truth in Lending Act, only the interest rates of 19.5 percent and 21.5 percent stipulated in the
Promissory Notes may be imposed by respondent on the respective availments. After 730 days, the portions remaining unpaid are
automatically converted into medium-term loans at the legal rate of 12 percent. In all instances, the simple method of interest computation
is followed. Payments made by petitioners are applied and pro-rated according to basic legal principles. Charges on penalty and
insurance are eliminated, and 1 percent attorneys fees imposed upon the total unpaid balance of the principal and interest as of the date
of public auction. The P2 million deficiency claim therefore vanishes, and a refund of P3,686,101.52 arises.
WHEREFORE, this Petition is hereby PARTLY GRANTED. The Decision of the Court of Appeals is AFFIRMED, with
the MODIFICATION that PNB is ORDERED to refund the sum of P3,686,101.52 representing the overcollection computed above, plus
interest thereon at the legal rate of six percent (6%) per annum from the filing of the Complaint until the finality of this Decision. After this
Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction. No costs.
SO ORDERED.
SUPREME COURT
Baguio City
FIRST DIVISION
G.R. No. 107508 April 25, 1996
PHILIPPINE NATIONAL BANK, petitioner,

vs.
COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F. ABANTE
MARKETING, respondents.
KAPUNAN, J.:p
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision dated April 29, 1992 of respondent
Court of Appeals in CA-G.R. CV No. 24776 and its resolution dated September 16, 1992, denying petitioner Philippine National Bank's
motion for reconsideration of said decision.
The facts of the case are as follows.
A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued by the Ministry of Education
and Culture (now Department of Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check was drawn against
Philippine National Bank (herein petitioner).
On August 11, 1981, F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the questioned check in its
savings account with said bank. In turn, Capitol deposited the same in its account with the Philippine Bank of Communications
(PBCom) which, in turn, sent the check to petitioner for clearing.
Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's account for the amount stated in the check. However,
on October 19, 1981, petitioner returned the check to PBCom and debited PBCom's account for the amount covered by the check, the
reason being that there was a "material alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount, and subsequently, sent the
check back to petitioner. Petitioner, however, returned the check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account since the latter had already withdrawn the amount of
the check as of October 15, 1981. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom
followed suit by requesting an explanation and re-crediting from petitioner.
Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court of Manila against PBCom which, in turn,
filed a third-party complaint against petitioner for reimbursement/indemnity with respect to the claims of Capitol. Petitioner, on its part,
filed a fourth-party complaint against F. Abante Marketing.
On October 3, 1989; the Regional Trial Court rendered its decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1.) On plaintiffs complaint, defendant Philippine Bank of Communications is ordered to re-credit or reimburse plaintiff
Capitol City Development Bank the amount of P97,650.00, plus interest of 12 percent thereto from October 19, 1981
until the amount is fully paid;
2.) On Philippine Bank of Communications third-party complaint third-party defendant PNB is ordered to reimburse
and indemnify Philippine Bank of Communications for whatever amount PBCom pays to plaintiff;
3.) On Philippine National Bank's fourth-party complaint, F. Abante Marketing is ordered to reimburse and indemnify
PNB for whatever amount PNB pays to PBCom;
4.) On attorney's fees, Philippine Bank of Communications is ordered to pay Capitol City Development Bank
attorney's fees in the amount of Ten Thousand (P10,000.00) Pesos; but PBCom is entitled to
reimbursement/indemnity from PNB; and Philippine National Bank to be, in turn reimbursed or indemnified by F.
Abante Marketing for the same amount;
5.) The Counterclaims of PBCom and PNB are hereby dismissed;
6.) No pronouncement as to costs.

SO ORDERED.1
An appeal was interposed before the respondent Court of Appeals which rendered its decision on April 29, 1992, the decretal portion of
which reads:
WHEREFORE, the judgment appealed from is modified by exempting PBCom from liability to plaintiff-appellee for
attorney's fees and ordering PNB to honor the check for P97,650.00, with interest as declared by the trial court, and
pay plaintiff-appellee attorney's fees of P10,000.00. After the check shall have been honored by PNB, PBCom shall
re-credit plaintiff-appellee's account with it with the amount. No pronouncement as to costs.
SO ORDERED.2
A motion for reconsideration of the decision was denied by the respondent Court in its resolution dated September 16, 1992 for lack of
merit.3
Hence, petitioner filed the instant petition which raises the following issues:
WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION

UNDER THE NEGOTIABLE INSTRUMENTS LAW.
II
WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF EDUCATION CAN BE GIVEN
WEIGHT IN EVIDENCE.
III
WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. CHECK WITHIN THE TWENTY FOUR (24)
HOUR CLEARING PERIOD MAY RECOVER THE VALUE OF THE CHECK FROM THE COLLECTING BANK.
IV
WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB MAY BE HELD LIABLE FOR
ATTORNEY'S FEES.4
We find no merit in the petition.
We shall first deal with the effect of the alteration of the serial number on the negotiability of the check in question.
Petitioner anchors its position on Section 125 of the Negotiable Instruments Law (ACT No. 2031)5 which provides:
Sec. 225. What constitutes a material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which
alters the effect of the instrument in any respect, is a material alteration.
Petitioner alleges that there is no hard and fast rule in the interpretation of the aforequoted provision of the Negotiable Instruments Law.
It maintains that under Section 125(f), any change that alters the effect of the instrument is a material alteration. 6
We do not agree.
An alteration is said to be material if it alters the effect of the

instrument.7 It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. 8 In other
words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable
Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Sec. 1. — Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent alteration
(generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger)
will not avoid the instrument, but the holder may enforce it only according to its original tenor."9
Reproduced hereunder are some examples of material and immaterial alterations:
A. Material Alterations:
(1) Substituting the words "or bearer" for "order."
(2) Writing "protest waived" above blank indorsements.
(3) A change in the date from which interest is to run.
(4) A check was originally drawn as follows: "Iron County Bank, Crystal Falls, Mich. Aug. 5, 1901. Pay to G.L. or order
$9 fifty cents CTR" The insertion of the figure 5 before the figure 9, the instrument being otherwise unchanged.
(5) Adding the words "with interest" with or without a fixed rate.
(6) An alteration in the maturity of a note, whether the time for payment is thereby curtailed or extended.
(7) An instrument was payable "First Nat'l Bank" the plaintiff added the word "Marion."
(8) Plaintiff, without consent of the defendant, struck out the name of the defendant as payee and inserted the name
of the maker of the original note.
(9) Striking out the name of the payee and substituting that of the person who actually discounted the note.
(10) Substituting the address of the maker for the name of a co-maker.10
B. Immaterial Alterations:
(1) Changing "I promise to pay" to "We promise to pay", where there are two makers.
(2) Adding the word "annual" after the interest clause.
(3) Adding the date of maturity as a marginal notation.
(4) Filling in the date of actual delivery where the makers of a note gave it with the date in blank, "July ____."
(5) An alteration of the marginal figures of a note where the sum stated in words in the body remained unchanged.
(6) The insertion of the legal rate of interest where the note had a provision for "interest at _______ per cent."
(7) A printed form of promissory note had on the margin the printed words, "Extended to ________." The holder on or
after maturity wrote in the blank space the words "May 1, 1913," as a reference memorandum of a promise made by
him to the principal maker at the time the words were written to extend the time of payment.
(8) Where there was a blank for the place of payment, filling in the blank with the place desired.
(9) Adding to an indorsee's name the abbreviation "Cash" when it had been agreed that the draft should be
discounted by the trust company of which the indorsee was cashier.
(10) The indorsement of a note by a stranger after its delivery to the payee at the time the note was negotiated to the
plaintiff.
(11) An extension of time given by the holder of a note to the principal maker, without the consent of a surety co-
maker.11
The case at bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can
readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered.
The intended payee was the same. The sum of money due to the payee remained the same. Despite these findings, however,
petitioner insists, that:
xxx xxx xxx
It is an accepted concept, besides being a negotiable instrument itself, that a TCAA check by its very nature is the
medium of exchange of governments (sic) instrumentalities of agencies. And as (a) safety measure, every
government office o(r) agency (is) assigned TCAA checks bearing different number series.
A concrete example is that of the disbursements of the Ministry of Education and Culture. It is issued by the Bureau
of Treasury sizeable bundles of checks in booklet form with serial numbers different from other government office or
agency. Now, for fictitious payee to succeed in its malicious intentions to defraud the government, all it need do is to
get hold of a TCAA Check and have the serial numbers of portion (sic) thereof changed or altered to make it appear
that the same was issued by the MEG.
Otherwise, stated, it is through the serial numbers that (a) TCAA Check is determined to have been issued by a
particular office or agency of the government.12
xxx xxx xxx
Petitioner's arguments fail to convince. The check's serial number is not the sole indication of its origin.. As succinctly found by the
Court of Appeals, the name of the government agency which issued the subject check was prominently printed therein. The check's
issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. Thus, we quote
with favor the findings of the respondent court:
xxx xxx xxx
If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration in this
case had no material effect whatsoever on the integrity of the check. The identity of the issuing government office or
agency was not changed thereby and the amount of the check was not charged against the account of another
government office or agency which had no liability under the check. The owner and issuer of the check is boldly and
clearly printed on its face, second line from the top: "MINISTRY OF EDUCATION AND CULTURE," and below the
name of the payee are the rubber-stamped words: "Ministry of Educ. & Culture." These words are not alleged to have
been falsely or fraudulently intercalated into the check. The ownership of the check is established without the
necessity of recourse to the serial number. Neither there any proof that the amount of the check was erroneously
charged against the account of a government office or agency other than the Ministry of Education and Culture.
Hence, the alteration in the number of the check did not affect or change the liability of the Ministry of Education and
Culture under the check and, therefore, is immaterial. The genuineness of the amount and the signatures therein of
then Deputy Minister of Education Hermenegildo C. Dumlao and of the resident Auditor, Penomio C. Alvarez are not
challenged. Neither is the authenticity of the different codes appearing therein questioned . . . 13(Emphasis ours.)
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an
immaterial or innocent one.
We now go to the second issue. It is petitioner's submission that the certification issued by Minrado C. Batonghinog, Cashier III of the
MEC clearly shows that the check was altered. Said certification reads:
TO WHOM IT MAY CONCERN:
This is to certify that according to the records of this Office, TCAA PNB Check Mo. SN7-3666223-3 dated August 7,
1981 drawn in favor of F. Abante Marketing in the amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY
PESOS ONLY (P97,650.00) was not issued by this Office nor released to the payee concerned. The series number
of said check was not included among those requisition by this Office from the Bureau of Treasury.
Very
truly
yours,
(SGD.) MINRADO C. BATONGHINOG
Cashier
III14
Petitioner claims that even if the author of the certification issued by the Ministry of Education and Culture (MEG) was not presented,
still the best evidence of the material alteration would be the disputed check itself and the serial number thereon. Petitioner thus assails
the refusal of respondent court to give weight to the certification because the author thereof was not presented to identify it and to be
cross-examined thereon.15
We agree with the respondent court.
The one who signed the certification was not presented before the trial court to prove that the said document was really the document
he prepared and that the signature below the said document is his own signature. Neither did petitioner present an eyewitness to the
execution of the questioned document who could possibly identify it. 16 Absent this proof, we cannot rule on the authenticity of the
contents of the certification. Moreover, as we previously emphasized, there was no material alteration on the check, the change of its
serial number not being substantial to its negotiability.
Anent the third issue — whether or not the drawee bank may still recover the value of the check from the collecting bank even if it failed
to return the check within the twenty-four (24) hour clearing period because the check was tampered — suffice it to state that since
there is no material alteration in the check, petitioner has no right to dishonor it and return it to PBCom, the same being in all respects
negotiable.
However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their respective decisions, the trial court and the Court of
Appeals failed to explicitly state the rationale for the said award. The trial court merely ruled as follows:
With respect to Capitol's claim for damages consisting of alleged loss of opportunity, this Court finds that Capitol
failed to adequately substantiate its claim. What Capitol had presented was a self-serving, unsubstantiated and
speculative computation of what it allegedly could have earned or realized were it not for the debit made by PBCom
which was triggered by the return and debit made by PNB. However, this Court finds that it would be fair and
reasonable to impose interest at 12% per annum on the principal amount of the check computed from October 19,
1981 (the date PBCom debited Capitol's account) until the amount is fully paid and reasonable attorney's fees.17
(Emphasis ours.)
And contrary to the Court of Appeal's resolution, petitioner unambiguously questioned before it the award of attorney's fees, assigning
the latter as one of the errors committed by the trial court. 18
The foregoing is in conformity with the guiding principles laid down in a long line of cases and reiterated recently in Consolidated Bank
& Trust Corporation (Solidbank) v. Court of Appeals:19
The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case.
However, the discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the Philippines
demands factual, legal and equitable justification, without which the award is a conclusion without a premise and
improperly left to speculation and conjecture. It becomes a violation of the proscription against the imposition of a
penalty on the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]).
The reason for the award must be stated in the text of the court's decision. If it is stated only in the dispositive portion
of the decision, the same shall be disallowed. As to the award of attorney's fees being an exception rather than the
rule, it is necessary for the court to make findings of fact and law that would bring the case within the exception and
justify the grant of the award (Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA
539 [176 SCRA 539]).
WHEREFORE, premises considered, except for the deletion of the award of attorney's fees, the decision of the Court of Appeals is
hereby AFFIRMED.
SO ORDERED.

SC upholds CA ruling holding petitioner liable for rice payment

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SC upholds CA ruling holding petitioner liable for rice payment

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Republic of the Philippines

G.R. No. 171998 October 20, 2010

ANAMER SALAZAR, Petitioner,

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;

(c) By the intentional cancellation thereof by the holder;

Such argument deserves scant consideration.

SAN MIGUEL CORPORATION, G.R. No. 167567

CORONA, C. J., Chairperson,

BARTOLOME PUZON, JR., Promulgated:

DEL CASTILLO, J.:

Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)

the case for lack of evidence. SMC appealed.

Ruling of the Court of Appeals

Petitioner now raises the following issues:

The petition has no merit.

Probable Cause for Theft

The Revised Penal Code provides:

G.R. No. 170912 : April 19, 2010

The Ruling of the Court of Appeals

Hence, this petition.

Petitioner raises the following issues:

The Ruling of this Court

The petition is meritorious.

(a) That it is complete and regular upon its face;

(c) That he took it in good faith and for value;

CARMELA BROBIO MANGAHAS, G.R. No. 183852

EUFROCINA A. BROBIO, Promulgated:

3. Ordering the defendant to pay to plaintiff the costs of this suit.

In this petition for review, petitioner raises the following issues:

The petition is meritorious.

EUMELIA R. MITRA, G.R. NO. 191404

CARPIO, J., Chairperson,

PEOPLE OF THE PHILIPPINESand FELICISIMO

Bank Date Issued Date of Check Amount Check No.

-do- September 15, 1998 January 15, 1999 125,000.00 0000045805

-do- September 20, 1998 January 20, 1999 2,500.00 0000045809

-do- September 20, 1998 January 20, 1999 100,000.00 0000045810

-do- September 30, 1998 January 30, 1999 5,000.00 0000045814

-do- September 30, 1998 January 30, 1999 200,000.00 0000045815

-do- October 3, 1998 February 3, 1999 100,000.00 0000045876

-do- November 17, 1998 February17, 1999 5,000.00 0000046061

-do- November 17, 1998 March 17, 1999 5,000.00 0000046062

-do- November 17, 1998 March 17, 1999 200,000.00 0000046063

-do- November 19, 1998 January 19, 1999 2,500.00 0000046065

-do- November 19, 1998 February19, 1999 2,500.00 0000046066

-do- November 19, 1998 March 19, 1999 2,500.00 0000046067

-do- November 19, 1998 March 19, 1999 100,000.00 0000046068

-do- November 20, 1998 January 20, 1999 10,000.00 0000046070

-do- November 20, 1998 February 20, 1999 10,000.00 0000046071

-do- November 20, 1998 March 20, 1999 10,000.00 0000046072

-do- November 20, 1998 March 20, 1999 10,000.00 0000046073

-do- November 30, 1998 January 30, 1999 2,500.00 0000046075

-do- November 30, 1998 February 28, 1999 2,500.00 0000046076

-do- November 30, 1998 March 30, 1999 2,500.00 0000046077

-do- November 30, 1998 March 30, 1999 100,000.00 0000046078

WHEREFORE, foregoing premises considered, the accused FLORENCIO I. CABRERA, JR.,

1. Criminal Case No. 43637 - P200,000.00

3. Criminal Case No. 43648 - P100,000.00

4. Criminal Case No. 43700 - P125,000.00